<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONTINENTAL CABLEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
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)
----------------
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)
----------------
COPY TO:
PATRICK K. MIEHE, ESQ.
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MA 02109
(617) 338-2800
----------------
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE NUMBER TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, Par
Value $.01 per share.... 28,260,309 $19.40 $50,725,450 $17,492
- -------------------------------------------------------------------------------
Series B Cumulative
Redeemable Preferred
Stock, Par Value $.01
per share............... 4,987,113 $19.40 $ 8,951,550 $ 3,087
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for purpose of calculating the registration fee.
(2) The registration fee has been calculated in accordance with Rule 457(f)(2)
promulgated under the Securities Act of 1933 based on the book value of the
shares to be received by the Registrant in exchange for the shares of the
Registrant's Class A Common Stock and Series B Cumulative Redeemable
Preferred Stock registered pursuant hereto, computed as of September 30,
1994.
----------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
----------------- ---------------------------------
<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
Transactions
Item 7. Additional Information Required for
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>
- --------
* Omitted because inapplicable or answer is in the negative.
<PAGE>
CONTINENTAL CABLEVISION, INC.
March , 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). Assuming that no adjustments have been made to the amount of
consideration to be paid to Restructured PJC stockholders as provided in the
Merger Agreement 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 Cumulative Redeemable Preferred Stock.
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 second half 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 Continental and its stockholders. The Board has unanimously
approved the Merger and the related transactions and recommends that
stockholders vote FOR that proposal.
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
public accountants 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-
-------
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 (a) the total number of authorized
shares of capital stock of Continental from 17,700,000 to 825,000,000, (b)
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 (c) 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 public accountants 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 March
, 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,
Robert B. Luick, Secretary
March , 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
March , 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: (a) a Plan of Reorganization (the "Plan of Reorganization")
for the internal corporate restructuring of Providence Journal and its
subsidiaries, including (i) a spin-off to the stockholders (the "PJC Spin-Off")
of shares of a new corporation ("New Providence Journal"), which will own and
operate all of the existing businesses of Providence Journal other than its
cable television operations, and (ii) a consolidation of those cable television
businesses in a group of restructured corporations ("Restructured PJC"); and
(b) an Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of Restructured PJC with
and into Continental Cablevision, Inc. ("Continental"). In addition, the
stockholders will be asked to approve the Providence Journal Cable Division
Sale Bonus Plan providing bonus compensation to certain executives of
Providence Journal's cable television businesses if the Merger is consummated.
The Providence Journal Cable Division Sale Bonus Plan is designed to retain
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.
As a result of the Merger, all outstanding shares of common stock of
Restructured PJC will be converted into either all shares of 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.
Assuming no adjustments in the amount of consideration provided in the Merger
Agreement, and that Continental elects to include the Series B Cumulative
Redeemable 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
Cumulative Redeemable Preferred Stock.
As part of the Plan of Reorganization, Providence Journal, and thus
ultimately New Providence Journal, will become the 100% owner of television
stations operating in Seattle, Portland, Honolulu, Spokane and Boise; these
stations are 50%-owned at the present time. Then in the PJC Spin-Off, which
will occur immediately prior to the Merger, 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. In substance, the
ongoing New Providence Journal will be a corporation identical to the present
Providence Journal, but without any cable television business; also, it will be
incorporated under the laws of Delaware rather than Rhode Island.
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 second half of 1995. 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.
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 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,
[Signature]
Stephen Hamblett Chairman of the
Board andChief 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 following purposes:
1. To consider and act upon the following integrated proposals (the
"Providence Journal Proposals"):
A. A proposal to approve and adopt a Plan of Reorganization of
Providence Journal (the "Plan of Reorganization"), providing for
the internal restructuring of Providence Journal as described in
the accompanying Joint Proxy Statement-Prospectus. A copy of the
Plan of Reorganization is attached as Annex II to the accompanying
Joint Proxy Statement-Prospectus.
B. 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, King Holding Corp., King
Broadcasting Company ("KBC") and The Providence Journal Company (a
newly formed subsidiary of Providence Journal, which ultimately
will hold the non-cable businesses and assets of Providence
Journal, referred to in the accompanying Joint Proxy Statement-
Prospectus as "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 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.
2. To consider and act upon 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.
3. Such other business as may properly come before the Providence Journal
Special Meeting or any adjournments or postponements thereof.
The Providence Journal Board of Directors has fixed the close of business on
March , 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.
<PAGE>
All matters to come before the Providence Journal Special Meeting shall be
voted upon separately, including the separate elements of the Providence
Journal Proposals. 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.
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.
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,
[Signature]
Harry Dyson, Secretary
March , 1995
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE PLAN OF REORGANIZATION, FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY 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 JANUARY , 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 March , 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 DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS MARCH , 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"), and King
Broadcasting Company, a Washington corporation ("KBC") 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 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 (a) the total number of
authorized shares of capital stock of Continental from 17,700,000 to
825,000,000, (b) 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 (c) 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 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). (See "Description of
Continental Capital Stock".) 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.
At the Special Meeting of Providence Journal (the "Providence Journal Special
Meeting"), Providence Journal stockholders will be asked to consider and vote
upon the following proposals:
A. The Plan of Reorganization of Providence Journal (the "Plan of
Reorganization"), consisting of the internal corporate restructuring of
Providence Journal and its subsidiaries (the "Restructuring"), pursuant to
which each of the following transactions will occur in immediate
succession:
(i) the contribution of all the assets of KHC (consisting solely of
100% of the outstanding capital stock of KBC) to KBC in exchange for
shares of KBC Common Stock and the assumption by KBC of all of KHC's
liabilities, and the subsequent distribution of such KBC shares to
Providence Journal and dissolution of KHC (KBC thereby becoming a
direct wholly owned subsidiary of Providence Journal);
ii
<PAGE>
(ii) the contribution by Providence Journal to KBC of all of its
businesses and assets in exchange for shares of KBC Class A Common
Stock, $1.00 par value per share ("Restructured PJC Class A Common
Stock"), and KBC 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, the "Restructured PJC Common
Stock") and the assumption by KBC of all of the obligations and
liabilities of Providence Journal; and
(iii) the dissolution of Providence Journal under the Rhode Island
Business Corporations Act ("RIBCA" or "Rhode Island Law") and the
contemporaneous distribution to Providence Journal stockholders of its
sole asset, all of the shares of capital stock of KBC, in the form of
one share of Restructured PJC Class A Common Stock 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 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 the
Providence Journal Class A Common Stock, the "Providence Journal Common
Stock"), each as outstanding immediately prior to such dissolution;
(iv) the contribution (the "Contribution") by Restructured PJC of all
of its businesses and assets unrelated to its cable television business
and all liabilities related thereto ("PJC Non-Cable Business") to New
Providence Journal (a newly formed Delaware corporation, which is
currently wholly owned by Providence Journal and will, as a result of
the Restructuring, be wholly owned by Restructured PJC), in exchange
for 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 the 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
Restructuring; and
(v) the distribution (the "Distribution") by Restructured PJC (which,
after the Contribution, will then hold only the former Providence
Journal and KBC businesses and assets related to cable television ("PJC
Cable Business")) to its stockholders of all of the shares of New
Providence Journal Common Stock in the form of 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.
B. 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.
C. The Providence Journal Cable Division Sale Bonus Plan, which provides
compensation bonuses to certain executives of Providence Journal's cable
television business upon and subject to the consummation of the Merger.
Proposals (A) and (B) above are hereinafter collectively referred to as the
"Providence Journal Proposals".
Each of the proposals above will be voted upon separately by the holders of
Providence Journal Common Stock. 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. The
affirmative vote or action by written
iii
<PAGE>
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 Providence Journal Cable Division Sale Bonus Plan. 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
Providence Journal Cable Division Sale Bonus Plan being non-deductible for
federal income tax purposes to the 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 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.
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".)
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 of $7,530.65 per share of Providence
Journal Common Stock, which was outstanding on January 15, 1995. The
Continental Merger Stock valuation was arrived at by Continental and Providence
Journal as a result of arm's length negotiations and, as no public market
exists for the Continental Merger Stock, was not in any manner based on the
valuation at which such stock may trade in a public market for such shares.
Accordingly, no assurance can be given that shares of the Continental Class A
Common Stock or the shares of Continental Series B Preferred Stock will trade
at or above such prices following the consummation 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.
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
iv
<PAGE>
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 (i) the New Providence Journal Class A
Common Stock and (ii) 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 March , 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 , 1995, (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............................................................... 6
Continental Series B Preferred Stock Election............................ 8
Payment for Shares....................................................... 8
Working Capital Adjustment............................................... 8
Ownership of Continental Stock after the Merger.......................... 9
Recommendation of the Boards of Directors................................ 9
Opinion of Financial Advisor............................................. 9
Effective Time of Merger................................................. 10
Conditions to the Merger................................................. 10
NASDAQ Listing........................................................... 10
Acquisition Proposals.................................................... 10
Registration Rights...................................................... 11
Undertakings Regarding Public Offering................................... 11
Termination of the Merger Agreement...................................... 11
Corporate Governance..................................................... 12
Interests of Certain Persons............................................. 12
Certain Federal Income Tax Considerations................................ 12
Accounting Treatment..................................................... 13
Rights of Dissenting Stockholders........................................ 13
Voting Agreement......................................................... 13
Noncompetition Agreement................................................. 14
Comparison of Rights of Stockholders..................................... 14
Market Prices and Dividend Data.......................................... 14
Providence Journal Cable Division Sale Bonus Plan........................ 15
Providence Journal Summary Consolidated Financial Data................... 15
New Providence Journal Summary Pro Forma Financial Data.................. 16
Providence Journal Cable Summary Combined Financial Data................. 17
Continental Summary Consolidated Historical Information.................. 19
Continental Selected Pro Forma Financial Data............................ 21
THE SPECIAL MEETINGS....................................................... 22
Matters to Be Discussed at the Special Meetings.......................... 22
Record Dates; Stock Entitled to Vote; Quorum............................. 22
Required Votes........................................................... 23
Solicitation and Voting of Proxies....................................... 24
Ownership of Continental Securities...................................... 25
Ownership of Providence Journal Securities............................... 29
CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS........................ 33
Reasons for the Transactions; Recommendation of Boards of Directors...... 33
Opinion of Financial Advisor to Providence Journal....................... 34
</TABLE>
vi
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<TABLE>
<S> <C>
Certain Considerations Related to the Continental Merger Stock........... 38
Certain Considerations Related to the New Providence Journal Common
Stock................................................................... 42
Interests of Certain Persons in the Transactions......................... 45
PRE-MERGER TRANSACTIONS.................................................... 46
New Cable Indebtedness................................................... 46
Kelso Buyout............................................................. 46
Plan of Reorganization................................................... 46
Certain Intercompany Transactions........................................ 48
THE MERGER................................................................. 49
General Provisions....................................................... 49
Conditions Precedent..................................................... 52
Certain Covenants........................................................ 55
Representations and Warranties........................................... 60
Indemnification.......................................................... 60
Tax Matters.............................................................. 61
Certain Employee Matters................................................. 61
Termination.............................................................. 63
Regulatory and Other Third Party Approvals............................... 65
Amendment; Waiver........................................................ 65
Ancillary Agreements..................................................... 65
Ownership of Continental Stock after the Merger.......................... 66
Ownership of New Providence Journal Stock after the PJC Spin-Off and the
Merger.................................................................. 67
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. 67
Federal Income Tax Consequences of Certain Transactions.................. 67
Backup Withholding....................................................... 69
PROPOSAL TO APPROVE AND ADOPT THE CONTINENTAL RECAPITALIZATION AMENDMENT,
ELECTION OF CONTINENTAL DIRECTORS AND RATIFICATION OF APPOINTMENT OF
ACCOUNTANTS............................................................... 69
PROPOSAL TO APPROVE AND ADOPT THE PROVIDENCE JOURNAL CABLE DIVISION SALE
BONUS PLAN................................................................ 70
Administration........................................................... 70
Review and Authorization................................................. 70
Eligibility to Receive Awards............................................ 71
Bonus Pool............................................................... 71
Conditions............................................................... 71
General Restrictions..................................................... 71
Amendment................................................................ 71
DESCRIPTION OF PROVIDENCE JOURNAL PUBLISHING BUSINESS...................... 72
General.................................................................. 72
Circulation and Pricing.................................................. 72
Advertising.............................................................. 72
Production and Raw Materials............................................. 73
Other Publishing Activities.............................................. 73
Competition.............................................................. 74
Employees................................................................ 75
Properties............................................................... 75
</TABLE>
vii
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<TABLE>
<S> <C>
DESCRIPTION OF PROVIDENCE JOURNAL BROADCAST TELEVISION BUSINESS............ 75
General.................................................................. 75
Industry Background...................................................... 75
The Stations............................................................. 77
Programming Investments.................................................. 82
Local Marketing Agreements............................................... 83
Operating Strategy....................................................... 83
Acquisition Strategy..................................................... 84
Licensing and Regulation................................................. 85
Employees................................................................ 89
Properties............................................................... 89
DESCRIPTION OF PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL............... 90
Legal Proceedings........................................................ 90
Capitalization of Providence Journal and Pro Forma Capitalization of New
Providence Journal...................................................... 90
Selected Consolidated Financial Data of Providence Journal............... 91
Management's Discussion and Analysis of Financial Condition and Results
of Operation of Providence Journal...................................... 91
Unaudited Pro Forma Condensed Financial Statements....................... 101
Unaudited Pro Forma Condensed Balance Sheet.............................. 102
Unaudited Pro Forma Condensed Consolidated Statements of Operations...... 103
Market Price of New Providence Journal Common Stock and Dividend Policy
of New Providence Journal............................................... 104
Executive Officers of Providence Journal and New Providence Journal...... 105
Compensation of New Providence Journal Directors......................... 108
Executive Compensation................................................... 109
Stock Incentive Plans of Providence Journal Assumed by New Providence
Journal................................................................. 113
Compensation Committee Report on Executive Compensation.................. 118
Stockholder Return Performance Graph..................................... 119
Certain Relationships and Related Transactions........................... 120
Ownership of New Providence Journal Capital Stock........................ 120
DESCRIPTION OF NEW PROVIDENCE JOURNAL COMMON STOCK......................... 121
New Providence Journal Common Stock...................................... 121
Certain Provisions in the New Providence Journal Certificate............. 122
NPJ Rights Agreement..................................................... 123
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND NEW PROVI-
DENCE JOURNAL............................................................. 124
DESCRIPTION OF PROVIDENCE JOURNAL CABLE TELEVISION BUSINESS................ 125
Business................................................................. 125
Cable Television Business................................................ 125
Development of Providence Journal Cable.................................. 126
Providence Journal Cable's Systems....................................... 128
Franchises............................................................... 129
Programming.............................................................. 130
Competition.............................................................. 130
Properties............................................................... 132
Employees................................................................ 133
Legal Proceedings........................................................ 133
Selected Combined Financial Data of Providence Journal Cable............. 133
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Providence Journal Cable............................... 135
</TABLE>
viii
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<TABLE>
<S> <C>
DESCRIPTION OF CONTINENTAL................................................. 141
Business................................................................. 141
Domestic Cable Television Business....................................... 141
Domestic Operating Strategy.............................................. 142
Regulatory Response...................................................... 146
Development of Continental and its Business.............................. 147
Domestic Continental Systems............................................. 148
Domestic Acquisitions and Investments.................................... 151
International Operations................................................. 153
Strategic Investments.................................................... 155
Competition.............................................................. 159
Properties............................................................... 161
Employees................................................................ 162
Legal Proceedings........................................................ 162
Capitalization........................................................... 163
Selected Consolidated Financial Information of Continental............... 164
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Continental............................................ 166
Unaudited Pro Forma Condensed Financial Statements....................... 176
Unaudited Pro Forma Condensed Balance Sheet.............................. 177
Market Price of Continental Common Stock and Dividend Policy of
Continental............................................................. 182
Directors, Executive Officers and Other Officers of Continental.......... 182
Executive Compensation................................................... 185
Compensation of Directors................................................ 188
Certain Transactions..................................................... 188
Beneficial Ownership of Continental Capital Stock After the Merger....... 189
DESCRIPTION OF CONTINENTAL CAPITAL STOCK................................... 194
Continental Common Stock................................................. 194
Unissued Continental Preferred Stock..................................... 195
Continental Series A Preferred Stock..................................... 196
Continental Series B Preferred Stock..................................... 199
DGCL and Certain Provisions of the Continental Restated Certificate and
the Continental
By-Laws................................................................. 205
Transfer Agent........................................................... 207
CONTINENTAL SHARES ELIGIBLE FOR FUTURE SALE................................ 207
General.................................................................. 207
Rule 144 and 145 Restrictions............................................ 208
Rule 701................................................................. 209
Outstanding Registration Rights.......................................... 209
DESCRIPTION OF CONTINENTAL INDEBTEDNESS.................................... 210
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND CONTINENTAL. 213
Rights To Purchase Or Redeem Shares...................................... 213
Required Vote for Certain Business Combinations.......................... 213
Charter Amendments....................................................... 214
By-Law Amendments........................................................ 215
Voting Rights............................................................ 215
Rights Agreement......................................................... 216
Preemptive Rights........................................................ 216
Transferability of Shares................................................ 216
</TABLE>
ix
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<TABLE>
<S> <C>
Special Meetings....................................................... 216
Corporate Action Without A Meeting..................................... 217
Dividends.............................................................. 217
Liquidation............................................................ 218
Appraisal or Dissenters' Rights........................................ 218
Provisions Relating To Directors And Officers.......................... 219
Stockholder Nominations and Rights of Preferred Stockholders to Elect
Directors............................................................. 219
Removal................................................................ 219
Derivative Suits....................................................... 220
Conflict of Interest Transactions...................................... 220
State Anti-Takeover Statutes........................................... 220
LEGISLATION AND REGULATION............................................... 221
Cable Communications Policy Act of 1984................................ 221
Cable Television Consumer Protection and Competition Act of 1992....... 222
Federal Regulation..................................................... 222
Copyright Regulation................................................... 230
State and Local Regulations............................................ 231
Regulation of Telecommunications Activities............................ 232
RIGHTS OF DISSENTING STOCKHOLDERS........................................ 232
Continental............................................................ 232
Providence Journal..................................................... 235
PAYMENT AND DISTRIBUTION TO STOCKHOLDERS................................. 237
LEGAL MATTERS............................................................ 238
EXPERTS.................................................................. 238
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>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
12 7/8% Debt............................................................... 176
1984 Cable Act............................................................. 129
1992 Cable Act............................................................. 39
1994 Credit Facility....................................................... 170
401K Plan.................................................................. 62
ABC........................................................................ 44
Accreted Value............................................................. 197
Aliens..................................................................... 84
Allowed Transferee......................................................... 198
American................................................................... 165
American Partnerships...................................................... 165
ASCAP...................................................................... 231
Assumed Awards............................................................. 45
Assumed Options............................................................ 45
ATV........................................................................ 87
Audit Bureau............................................................... 72
Base Price................................................................. 203
BBT........................................................................ 141
Bear Stearns............................................................... 9
BED Partnerships........................................................... 173
BMI........................................................................ 231
Boston Ventures Investors.................................................. 183
Break-Up Fee............................................................... 12
BV Co. III................................................................. 28
BV Co. IV.................................................................. 28
Cable Employees............................................................ 62
CableLabs.................................................................. 157
Cable Partners............................................................. 156
Callable Notes and Debentures.............................................. 212
Capital Cities............................................................. 151
Caps....................................................................... 171
CBS........................................................................ 44
Class B Holder............................................................. 195
Class A Right.............................................................. 123
Class B Right.............................................................. 123
Closing.................................................................... 53
Closing Date............................................................... 43
CNN........................................................................ 125
Code....................................................................... 12
Co-Investment Agreement.................................................... 28
Colony..................................................................... 48
Colony Cablevision......................................................... 34
Combined Company........................................................... 36
Comcast.................................................................... 36
Commission................................................................. 1
Communications Act......................................................... 44
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Comparable Cable Companies................................................ 37
Consolidated Operating Income............................................. 211
Consolidated Total Debt................................................... 211
ContCable................................................................. 28
Continental............................................................... (i)
Continental ByLaws........................................................ 14
Continental Class A Common Stock.......................................... (ii)
Continental Class B Common Stock.......................................... (ii)
Continental Common Stock.................................................. (ii)
Continental Merger Stock.................................................. (iv)
Continental Named Executive Officer....................................... 170
Continental Preferred Stock............................................... (ii)
Continental Preferred Stock Investors..................................... 183
Continental Proposals..................................................... (ii)
Continental Proposed Transaction.......................................... 36
Continental Recapitalization Amendment.................................... (ii)
Continental Record Date................................................... 3
Continental Redeemable Common Stock....................................... 173
Continental Registration Statement........................................ 41
Continental Restated Certificate.......................................... 14
Continental Retirement Plan............................................... 188
Continental Rightsholders................................................. 209
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
Corporate Advisors........................................................ 27
Corporate Offshore Partners............................................... 28
Corporate Partners........................................................ 28
Cox....................................................................... 156
CPS....................................................................... 142
Credit Agreement Lenders.................................................. 210
CTAM...................................................................... 144
CTPAA..................................................................... 145
C-SPAN.................................................................... 125
Current Market Price...................................................... 203
DBS....................................................................... 2
Delaware Court............................................................ 232
DGCL or Delaware Law...................................................... 5
DMA....................................................................... 76
Digital Cable Radio....................................................... 159
Directors Upon Default.................................................... 197
Distribution.............................................................. (iii)
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E!........................................................................ 147
EEO....................................................................... 229
Effective Time............................................................ (iv)
ERISA Affiliates.......................................................... 62
ESPN...................................................................... 125
Eurodollar................................................................ 211
Exchange Act.............................................................. 1
Exchange Agent............................................................ 237
FASB...................................................................... 99
FCC....................................................................... 39
Fintelco.................................................................. 154
Floating Rate Debentures.................................................. 212
Fox....................................................................... 44
FPGT...................................................................... 28
GAAP...................................................................... 18
HBO....................................................................... 125
Hearst.................................................................... 151
Homes..................................................................... 2
Hospital Trust............................................................ 30
HSN....................................................................... 145
HSR Act................................................................... 10
Issue Date................................................................ 200
IUP....................................................................... 110
IXC....................................................................... 157
Joint Proxy Statement-Prospectus.......................................... (i)
Journal................................................................... 72
Journal 410(k) Plan....................................................... 112
Junior Stock.............................................................. 200
KBC....................................................................... (ii)
Kelso Buyout.............................................................. 5
Kelso Partnerships........................................................ 5
KHC....................................................................... (ii)
King Videocable........................................................... 48
Lazard.................................................................... 189
LEC....................................................................... 156
LMA....................................................................... 83
Losses and Expenses....................................................... 53
Lowell Sun Companies...................................................... 74
Management Group.......................................................... 212
Mandatory Tender Offer.................................................... 173
Maximum Amount............................................................ 7
Maximum Severance......................................................... 113
Merger.................................................................... (iii)
Merger Agreement.......................................................... (ii)
MMDS...................................................................... 39
MTA....................................................................... 157
MTV....................................................................... 125
NASDAQ.................................................................... (v)
NBC....................................................................... 44
NCA....................................................................... 145
NCC....................................................................... 168
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NCOM...................................................................... 148
NCTA...................................................................... 183
NEA....................................................................... 145
New Cable Indebtedness.................................................... 5
New Providence Journal.................................................... (ii)
New Providence Journal ByLaws............................................. 14
New Providence Journal Certificate........................................ 14
New Providence Journal Class A Common Stock............................... (iii)
New Providence Journal Class B Common Stock............................... (iii)
New Providence Journal Common Stock....................................... (iii)
Nielsen................................................................... 76
Non-Callable Notes and Debentures......................................... 212
Noncompetition Agreement.................................................. 14
Notes and Debentures...................................................... 212
NPJ New Indebtedness...................................................... 5
NPJ Rights Agreement...................................................... 14
NPT....................................................................... 142
Offering.................................................................. 11
Optus..................................................................... 155
Palmer.................................................................... 67
Palm Springs System....................................................... 64
Parity Stock.............................................................. 200
PCS....................................................................... 157
Permitted Class B Transferee.............................................. 195
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.............................................................. (v)
Plan of Reorganization.................................................... (ii)
PPVN...................................................................... 159
Precedent CATV Transactions............................................... 36
Preferred Stock Election.................................................. 8
Preferred Stock Election Form............................................. 51
PrimeStar................................................................. 157
Providence Journal........................................................ (i)
Providence Journal Business Combination................................... 214
Providence Journal ByLaws................................................. 14
Providence Journal Cable.................................................. 17
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................................................................. 109
Providence Journal Nominees............................................... 12
Providence Journal Option Plans........................................... 45
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Providence Journal Pension Plan........................................... 112
Providence Journal Proposals.............................................. (iii)
Providence Journal Record Date............................................ 3
Providence Journal Retirement Plans....................................... 45
Providence Journal Special Meeting........................................ (ii)
Providence Journal Stock Incentive Plans.................................. 45
Providence Journal Transactions........................................... 9
Prudential Notes.......................................................... 171
PSN....................................................................... 82
PTAR...................................................................... 86
QVC....................................................................... 145
RBOC...................................................................... 156
Redemption Notice......................................................... 202
Redemption Price.......................................................... 202
Registrable Shares........................................................ 209
Registration Agreements................................................... 209
Registration Effective Date............................................... 41
Registration Rights Holders............................................... 11
Requested Rulings......................................................... 67
Restricted Business....................................................... 14
Restricted Group.......................................................... 210
Restricted Subsidiaries................................................... 210
Restructured PJC.......................................................... (ii)
Restructured PJC Class A Common Stock..................................... (iii)
Restructured PJC Class B Common Stock..................................... (iii)
Restructured PJC Common Stock............................................. (iii)
Restructuring............................................................. (ii)
RFP....................................................................... 157
RIBCA or Rhode Island Law................................................. (iii)
Rights.................................................................... 123
Rights Agreement.......................................................... 54
RIHTNB.................................................................... 106
RSPA III.................................................................. 187
RSPA Offer................................................................ 187
SBA....................................................................... 28
SCV....................................................................... 154
Section 16(b) Period...................................................... 115
Section 74................................................................ 13
Section 262............................................................... 13
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Securities Act............................................................ 1
Selling Stockholders...................................................... 173
Series A Certificate of Designation....................................... 196
Series B Certificate of Designation....................................... 194
SERP...................................................................... 187
Service................................................................... 10
SFAS 109.................................................................. 40
SFAS 114.................................................................. 99
SFAS 115.................................................................. 99
SFAS 119.................................................................. 99
Shortfall Amount.......................................................... 51
SMATV..................................................................... 131
Special Meetings.......................................................... (i)
Stated Amount............................................................. 201
Stations.................................................................. 75
Stock For Loan Exchange................................................... 187
Stock Liquidation Agreement............................................... 173
Subject Stockholders...................................................... 173
Summary Compensation Table................................................ 185
Superior Proposal......................................................... 60
Swaps..................................................................... 171
TCG....................................................................... 156
TCI....................................................................... 37
Termination Date.......................................................... 63
The Sunshine Network...................................................... 159
Transaction Consideration................................................. 237
Trust..................................................................... 13
Turner.................................................................... 147
UHF....................................................................... 74
Unrestricted Subsidiaries................................................. 210
USA....................................................................... 125
VCC....................................................................... 154
VCR....................................................................... 44
Vencap.................................................................... 28
VHF....................................................................... 74
Voting Agreement.......................................................... 13
Westerly.................................................................. 48
Working Capital........................................................... 8
Zing...................................................................... 159
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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 fourth largest cable television
system operator in the United States. Continental's six management regions
operate cable television systems in 16 states, principally in suburban areas
and mid-sized cities. As of September 30, 1994, Continental's systems and those
of its domestic affiliates passed approximately 5,311,000 occupied dwelling
units ("Homes") and provided cable service to approximately 3,009,000 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
6,982,000 Homes and serving approximately 3,988,000 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 one of the largest cable television
system operators 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 September
30, 1994, Providence Journal's owned or partially owned cable television
operations included systems passing approximately 1,249,000 Homes and serving
approximately 753,000 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
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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. (See
"The Special Meetings--Matters to Be Discussed at the Special Meetings--
Continental".)
The record date for the Continental Special Meeting is March , 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. 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, including the approval
and adoption of the Plan of Reorganization (which provides for the
Restructuring and the PJC Spin-Off), the Merger Agreement and each of the
transactions contemplated thereby, including the Merger, and the approval and
adoption of the Providence Journal 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 March , 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 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
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voting separately. 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 Providence Journal Common
Stock, voting as a single class. 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 the Providence Journal Cable Division Sale Bonus Plan. 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
Providence Journal Cable Division Sale Bonus Plan being non-deductible for
federal income tax purposes to the 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 January 15,
1995, Directors and executive officers of Continental and their respective
affiliates may be deemed to be the beneficial owners of 91,198,200 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 65.5% 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 January 15, 1995, Directors and executive officers
of Providence Journal and their affiliates may be deemed to be the beneficial
owners of 4,194 shares of the outstanding Providence Journal Class A Common
Stock and 4,612 shares of the outstanding Providence Journal Class B Common
Stock, which constitutes in the aggregate approximately 10% 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 Providence Journal 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, 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, 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
Continental Common Stock into which such shares may be converted will be
adjusted accordingly to reflect
4
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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
$755,000,000 of the 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
$75 million 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
$200,000,000 (the "NPJ Indebtedness"). 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 to acquire all shares of capital stock of KHC owned and controlled
by the Kelso Partnerships for a purchase price of $260,000,000 excluding
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 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.
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(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.)
THE MERGER
The Merger Agreement provides that, subject to the requisite adoption and
approval by Continental's stockholders of the Merger 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
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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 Elections described below):
<TABLE>
<S> <C> <C>
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
Vision Cable Company of Rhode Island, Inc. $ 2,430,000
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).
</TABLE>
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., (b) 93% of Vision Cable Company of Rhode Island, Inc. and
(c) 90% of Dynamic Cablevision of Florida, Ltd. and (ii) KHC owns, indirectly,
50% of the equity interest in California CATV Partners. 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.
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,
7
<PAGE>
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. For a more detailed discussion of the Preferred Stock Election,
see "The Merger--General Provisions--Share Exchange". 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".
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 following procedure.
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 shares of
- -----------------------------------------------------------------------------
Continental Series B Preferred Stock in connection with the Merger.
- -------------------------------------------------------------------
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
8
<PAGE>
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), 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.
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 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 Transactions;
Recommendation of Boards of Directors--Continental".)
PROVIDENCE JOURNAL. The Board of Directors of Providence Journal, by
unanimous vote, has approved and adopted (i) the Restructuring, the PJC Spin-
Off and the Merger Agreement and each of the transactions contemplated thereby
relating to Providence Journal, including the Merger, and believes that such
actions are in the best interests of Providence Journal and its stockholders
and (ii) the Providence Journal 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--Reasons
for the Transactions; Recommendation of Boards of Directors--Providence
Journal".)
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
Merger, the PJC Spin-Off, the Kelso Buyout 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. 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
9
<PAGE>
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.
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 Restructuring and the PJC Spin-Off, (iii)
the expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act"), (iv) the consents and/or waivers from
the relevant governmental entities under certain cable television franchises
issued to Providence Journal and its subsidiaries, (v) 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,
(vi) 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, (vii) the performance by each party to the Merger
Agreement of its respective obligations thereunder and (viii) 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.
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
10
<PAGE>
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 mutually acceptable
registration rights agreement relating to the Continental Class A Common Stock
to be issued pursuant to the Merger. 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 such registration rights in the manner
requested 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
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 OF THE MERGER AGREEMENT
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;
11
<PAGE>
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 at a purchase price of $68,500,000. (See "The Merger--
Termination".)
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 will serve as officers and Directors of New
Providence Journal after the Effective Time. (See "Description of Providence
Journal and New Providence Journal--Executive Officers and Directors of
Providence Journal and New Providence Journal".)
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 Providence
Journal 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 Merger that may present them
with actual or potential conflicts of interest in connection with the Merger.
(See "Certain Considerations Relating to the Transactions--Interests of Certain
Persons in the Transactions".)
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 RESTRUCTURING AND THE PJC SPIN-
OFF 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".)
12
<PAGE>
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 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 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 30.89% 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
13
<PAGE>
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 the Rights Agreement of
Providence Journal. Upon the consummation of the PJC Spin-Off 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") and the New Providence Journal By-
Laws (the "New Providence Journal By-Laws") and the New Providence Journal
Rights Agreement (the "NPJ Rights Agreement"). (See "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".)
14
<PAGE>
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
investment in new business opportunities.
PROVIDENCE JOURNAL CABLE DIVISION SALE BONUS PLAN
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Providence Journal Cable Division Sale
Bonus Plan. The Providence Journal Cable Division Sale Bonus Plan is designed
to retain 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 Providence Journal Cable Division Sale Bonus Plan.
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,
1991 through December 31, 1993 and the nine months ended September 30, 1993 and
1994 contained elsewhere herein. The unaudited summary consolidated financial
data for the nine months ended September 30, 1993 and 1994 reflects all
adjustments of a normal recurring nature that are in the opinion of management,
necessary for a fair presentation of that information. 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 "Management's
Discussion and Analaysis of Financial Condition and Results of Operations--
Discontinued Operations".)
15
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ----------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- ------------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $175,028 $169,840 $167,008 $172,453 $179,499 $129,473 $138,531
Operating Loss......... (3,077) (16,437) (31,793) (10,899) (16,833) (6,661) (2,103)
Other Income (Expense),
net................... (13,590) (5,114) 28,790 30,094 (4,122) (995) (2,897)
Income (Loss) from
Continuing Operations
Before Income Taxes... (16,667) (21,551) (3,003) 19,195 (20,955) (7,656) (5,000)
Income (Loss) from
Continuing Operations. (11,902) (13,248) (6,619) 7,358 (15,190) (6,653) (3,573)
Income (Loss) Per
Common Share from
Continuing Operations. $(117.88) $(132.26) $ (75.38) $ 85.53 $(178.08) $ (77.97) $ (42.06)
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------ SEPTEMBER 30,
1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets(1)........ $446,340 $784,063 $594,098 $793,433 $775,685 $748,749
Net Assets of
Discontinued Cable
Operations............ 32,262 36,924 39,603 380,385 376,156 366,384
Long-term Debt......... 156,632 28,568 28,608 253,106 276,601 271,055
Stockholders' Equity... 205,153 460,321 399,938 391,967 359,575 343,257
</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 statements 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 statements of operations.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1994
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $281,839 $218,956
Operating Income
(Loss)................ (101) 12,457
Other Expense, Net..... (15,642) (15,525)
Loss from Continuing
Operations before
Income Taxes.......... (15,743) (3,068)
Loss from Continuing
Operations............ $(13,054) $ (2,695)
======== ========
Loss Per Share from
Continuing Operations. $(153.02) $ (31.73)
======== ========
<CAPTION>
AS OF
SEPTEMBER 30, 1994
--------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets........... $543,560
Long-term Debt......... 221,905
Stockholders' Equity... 168,198
</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 Division ("Providence Journal
Cable") which consists of Colony (wholly owned subsidiary of Providence
Journal) Colony Cablevision (a division of Providence Journal), Copley/Colony,
Inc. (50% owned joint venture of Colony), and King Videocable (50% owned joint
venture of Providence Journal). The combined statement of operations data for
the years ended December 31, 1992 and 1993 and the combined balance sheet data
as of December 31, 1992 and 1993 have been derived from the audited combined
financial statements of Providence Journal Cable. The combined statement of
operations data for the year ended December 31, 1991 and the combined balance
sheet data as of December 31, 1991 have been derived from the separate audited
financial statements of Colony and Copley/Colony, Inc. The combined statement
of operations data for the nine months ended September 30, 1993 and 1994 and
the combined balance sheet data as of September 30, 1994 have been derived from
the unaudited financial statements of Providence Journal Cable that, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the nine months
ended September 30, 1994 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1994.
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA AND RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OP-
ERATIONS DATA:
Revenues................ $118,791 $199,684 $281,593 $209,442 $211,320
Operating, Selling,
General and
Administrative
Expenses............... 77,505 121,703 166,083 122,670 129,362
Depreciation and
Amortization........... 24,640 58,750 92,710 69,656 66,550
Allocation of Corporate
Overhead(1)............ 7,751 6,513 9,651 5,806 5,636
-------- -------- -------- -------- --------
Operating Income........ 8,895 12,718 13,149 11,310 9,772
Interest Expense,
net(2)................. (1,300) (19,600) (41,000) (31,900) (30,600)
Loss on Abandonment of
Assets................. -- -- (8,244) -- --
Other, Net.............. 4,766 3,675 (779) 1,649 1,622
-------- -------- -------- -------- --------
Income (loss) before
Income Taxes and
Cumulative Effect of
change in Accounting
Principle.............. 12,361 (3,207) (36,874) (18,941) (19,206)
Provision for Income
Taxes.................. 6,166 694 (11,219) (5,371) (4,995)
-------- -------- -------- -------- --------
Income (loss) before
change in Accounting
Principle.............. 6,195 (3,901) (25,655) (13,570) (14,211)
Cumulative Effect of
change in Accounting
Principle.............. -- 4,831 -- -- --
-------- -------- -------- -------- --------
Income (loss) before
Minority Interests..... $ 6,195 $ 930 $(25,655) $(13,570) $(14,211)
======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------- SEPTEMBER 30,
1991 1992 1993 1994
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
COMBINED BALANCE SHEET
DATA:
Total Assets............ $133,921 $867,150 $813,306 $784,488
Total Debt(3)........... 18,735 611,885 593,073 587,428
Group Equity............ 51,929 89,334 70,403 59,677
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(4)............... $41,286 $77,981 $115,510 $86,772 $81,958
EBITDA as a % of
Revenues............... 34.8% 39.1% 41.0% 41.4% 38.8%
Net Cash Provided by
Operating Activities... 28,932 53,736 67,261 53,435 44,421
Capital Expenditures.... $18,722 $27,374 $ 46,415 $31,282 $36,023
</TABLE>
17
<PAGE>
SUBSCRIBER DATA FOR PROVIDENCE JOURNAL CABLE SYSTEMS(5)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------- SEPTEMBER 30,
1991 1992 1993 1994
------- --------- --------- -------------
<S> <C> <C> <C> <C>
Homes Passed by Cable(6).... 553,000 1,202,000 1,224,000 1,249,000
Number of Basic
Subscribers(7)............. 303,000 722,000 738,000 753,000
Basic penetration(8)........ 54.9% 60.0% 60.3% 60.3%
Number of Premium
Subscriptions(9)........... 241,000 440,000 467,000 506,000
Premium Penetration(10)..... 79.4% 61.0% 63.3% 67.2%
Monthly Subscriber Revenue
per Average
Basic Subscriber(11)........ $31.02 $30.78 $30.63 $29.81
</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 and the nine month period ended
September 30, 1994.
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, 1991
through December 31, 1993 and the nine months ended September 30, 1993 and 1994
contained elsewhere herein. The unaudited summary historical financial
information for the nine months ended September 30, 1993 and 1994 reflects all
adjustments of a normal recurring nature that are, in the opinion of
management, necessary for a fair presentation of that information.
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 1,039,163 $ 1,113,475 $ 1,177,163 $ 880,238 $ 885,636
Operating, Selling,
General and
Administrative
Expenses.............. 594,455 625,145 649,571 485,293 495,978
Depreciation and
Amortization.......... 269,363 279,403 284,563 210,950 210,728
Non-Cash Stock
Compensation(1)....... 10,067 9,683 11,004 8,069 8,502
Operating Income....... 165,278 199,244 232,025 175,926 170,428
Interest Expense (Net). 323,123 289,479 276,698 201,936 223,580
Loss before Cumulative
Effect of Accounting
Change................ (161,642) (102,960) (25,774) (20,375) (40,592)
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends(2).......... -- -- -- -- --
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------- ------------------------
1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........... $ 2,082,182 $ 2,003,196 $ 2,091,853 $ 2,169,566 $ 2,329,351
Total Debt............. 3,338,281 3,011,669 3,177,178 3,209,680 3,310,520
Redeemable Common
Stock................. 445,463 223,716 213,548 230,764 227,844
Stockholders' Equity
(Deficiency).......... (1,919,525) (1,486,231) (1,667,088) (1,690,824) (1,658,314)
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3).............. $ 444,708 $ 488,330 $ 527,592 $ 394,945 $ 389,658
EBITDA as a % of
Revenues.............. 42.8% 43.9% 44.8% 44.9% 44.0%
Total Debt to
EBITDA(3)............. 7.51 6.17 6.02 6.10 6.37
EBITDA to Total
Interest Expense...... 1.38 1.69 1.91 1.96 1.74
Net Cash Provided from
Operating Activities.. $ 123,543 $ 215,045 $ 250,504 $ 167,288 $ 149,084
Capital Expenditures... 145,846 145,189 185,691 131,835 183,818
</TABLE>
19
<PAGE>
SUBSCRIBER DATA FOR DOMESTIC CABLE SYSTEMS (4)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- SEPTEMBER 30,
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Homes Passed by
Cable(5).............. 4,554,000 4,761,000 4,880,000 4,981,000 5,192,000 5,311,000
Number of Basic
Subscribers(6)........ 2,550,000 2,690,000 2,784,000 2,856,000 2,895,000 3,009,000
Basic Penetration(7)... 56.0% 56.5% 57.0% 57.3% 55.8% 56.7%
Number of Premium
Subscriptions(8)...... 2,707,000 2,702,000 2,603,000 2,545,000 2,454,000 2,588,000
Premium Penetration(9). 106.2% 100.4% 93.5% 89.1% 84.8% 86.0%
Monthly Revenue per
Average Basic
Subscriber(10)........ $29.41 $31.29 $32.98 $34.46 $35.76 $35.08
</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 periods presented. The actual deficiency of earnings to
combined fixed charges and preferred dividends was $222,209,000,
$253,735,000, $160,501,000, $107,425,000 and $53,729,000, respectively,
for the years ended December 31, 1989, 1990, 1991, 1992 and 1993. The
actual deficiency of earnings to combined fixed charges and preferred
dividends was $36,814,000 and $53,089,000 for the nine months ended
September 30, 1993 and 1994, respectively.
(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".) For purposes of calculating
the ratio of Total Debt to EBITDA for the nine months ended September 30,
1994, EBITDA has been annualized.
(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 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.
(7) Basic subscribers as a percentage of Homes passed by cable. Continental's
basic penetration for the year ended December 31, 1993 and the nine months
ended September 30, 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 and the nine month period ended
September 30, 1994.
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 September 30, 1994, and gives effect to (i) the Merger and certain
related transactions including the assumption of $755,000,000 of the New Cable
Indebtedness; (ii) the closing of the 1994 Credit Facility and prepayment of an
existing bank facility; (iii) the redemption of the 12 7/8% Senior Subordinated
Debentures ("12 7/8% Debt") at a redemption price equal to 106.438%; and (iv)
various other acquisitions of cable television systems completed and pending;
in each instance as though each of such events had occurred as of September 30,
1994. The following unaudited Summary Pro Forma Statements of Operations Data
for the nine months ended September 30, 1994 and year ended December 31, 1993
give effect to each of the foregoing as though each of such events had occurred
at January 1, 1993. 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>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $1,561,525 $1,174,033
Operating Income................................... 284,491 205,907
Interest Expense................................... 334,666 264,298
Income (loss) before Cumulative Effect of Account-
ing Changes....................................... (38,832) (47,416)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1994
---------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets............................................ $ 4,619,778
Total Debt.............................................. 4,565,444
Stockholders' Equity (Deficiency)....................... (1,030,100)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1).......................................... $683,567 $501,661
EBITDA to Total Interest Expense................... 2.04 1.90
Total Debt to EBITDA(1)............................ 6.48 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".) For purposes of calculating the ratio of Total Debt to
EBITDA for the nine months ended September 30, 1994, EBITDA has been
annualized.
(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 ratios of earnings
to combined fixed charges and preferred dividends are less than 1 to 1 for
each of the periods presented. The pro forma deficiency of earnings to
combined fixed charges and preferred dividends would have been $72,547,000
and $93,913,000 for the year ended December 31, 1993 and nine months ended
September 30, 1994, respectively. Such pro forma ratio reflects the
consummation of the Merger and the issuance of the Continental Series B
Preferred Stock.
21
<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, to increase 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 to increase 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 Providence Journal Proposals,
which include the approval and adoption of (i) the Plan of Reorganization,
which includes, among other things, the Restructuring and the PJC Spin-Off,
(ii) the Merger Agreement and each of the transactions contemplated thereby,
including the Merger, with Continental as the surviving corporation and (iii)
the Providence Journal 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 PROVIDENCE JOURNAL CABLE
DIVISION SALE BONUS PLAN AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
---
PLAN OF REORGANIZATION, FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
FOR APPROVAL AND ADOPTION OF THE PROVIDENCE JOURNAL CABLE DIVISION SALE BONUS
PLAN.
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 , 1995. Only holders of record of
shares of Continental Voting Stock at the close of business on the Continental
22
<PAGE>
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
8,640,100 shares of Continental Class A Common Stock, 109,264,675 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 393 holders of
record.
The presence in person or by proxy of shares representing a majority of votes
(693,500,676 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 38,689 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
(113,267 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 (693,500,676
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
(924,667,567 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
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. 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 Providence Journal Cable Division Sale
Bonus Plan. Providence Journal is seeking the approval of 75% of such votes
23
<PAGE>
because failure to obtain such 75% approval could result in some or all of the
payments under the Providence Journal Cable Division Sale Bonus Plan being non-
deductible for federal income tax purposes to the 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, 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 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
24
<PAGE>
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 Providence Journal 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 January 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 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 January 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.
25
<PAGE>
<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 38.40% -- -- 32.64%
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 19.51 1,142,858 100.00% 20.60
Robert B. Luick(7)........ 233,625 * -- -- *
Henry F. McCance(8)....... 258,125 * -- -- *
Lester Pollack(6)......... 28,571,450 19.51 1,142,858 100.00 20.60
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 (12
persons)(6).............. 91,198,200 62.26 1,142,858 100.00 65.45
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 -- -- 1.39
Boston Ventures Limited
Partnership IVA(11).... 1,298,000 1.10 -- -- *
---------- ----- -----
Total as a group...... 7,514,075 6.37 -- -- 5.09
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............... 18,223,825 13.39 728,953 63.78 13.14
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 1.10 52,107 4.56 *
ContCable Co-Investors,
L.P.(12)............... 1,071,425 * 42,857 3.75 *
---------- ----- --------- ------ -----
Total as a group...... 28,571,450 19.51%(14) 1,142,858 100.00% 20.60
</TABLE>
- --------
*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 January 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
26
<PAGE>
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 7.47% 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 greater than or equal to a 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 Venture 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, 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 Freres & Co. Mr. Pollack
and Mr. Kagan are both general partners of Lazard Freres & Co. 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 73,350 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.
27
<PAGE>
(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 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) FPGT is a trustee for certain pension plans and has sole voting and
dispositive power with respect to the shares held by it. Pursuant to the
Co-Investment Agreement, FPGT has agreed, 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.
28
<PAGE>
OWNERSHIP OF PROVIDENCE JOURNAL SECURITIES
The following table sets forth information as of December 31, 1994 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
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
</TABLE>
29
<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>
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).................. 2,600 6.9% 3,308 7.0% 7.0%
John W. Wall........... 102 0.2% 8 0% 0.1%
Patrick R. Wilmerding
(13).................. 550 1.5% 300 .06% 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).......... 4,194 10.9% 4,612 9.8% 10.0%
</TABLE>
- --------
(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.
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(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.
(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 Units Plan and rights to acquire shares under
Providence Journal's Restricted Stock Unit Plan.
(10) Fanchon B. 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.
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(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 and her children holding 2,482 shares
of Providence Journal Class A Common Stock and 3,156 shares of Providence
Journal Class B Common Stock.
(13) Patrick R. Wilmerding has shared voting and investment power as to 150
shares of Providence Journal Class A Common Stock and [ ] shares of
Providence Journal Class B Common Stock held by his mother's estate and
sole voting and investment power as to the balance of his shares.
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CERTAIN CONSIDERATIONS RELATING TO THE TRANSACTIONS
REASONS FOR THE TRANSACTIONS; RECOMMENDATION OF BOARDS OF DIRECTORS
CONTINENTAL. 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 a number of factors, including without limitation, the following:
(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, earnings and prospects of the PJC
Cable Business, and the enhanced opportunities for growth that the Merger makes
possible; (iii) 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 (iv) the anticipated
cost savings and efficiencies available from the Merger; (v) other
opportunities available to Continental; and (vi) the terms of the Merger
Agreement.
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, as a general matter, the Continental
Board believed that the factors in items (i) through (vi) 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. At the meeting of the Board of Directors of Providence
Journal held on November 15, 1994, the Providence Journal Board received a
presentation by members of Providence Journal management and its financial and
legal advisors regarding, and reviewed the terms of, the Merger Agreement and
the transactions contemplated thereby. 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 members of the Providence Journal Board
considered a number of factors, including without limitation, the following:
(i) the Providence Journal Board's familiarity with and review of Providence
Journal's business, operations, financial condition, earnings and prospects;
(ii) 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; (iii) 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 financial analyses; (iv) other
possible transactions available to Providence Journal; (v) the terms of the
Merger Agreement, and (vi) the opinion of Bear Stearns that the Providence
Journal Transactions in the aggregate were fair, from a financial point of
view, to the stockholders of Providence Journal.
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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 the factors in items (i)
through (vi) above supported its determination.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL UNANIMOUSLY RECOMMENDS THAT
PROVIDENCE JOURNAL STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
---
AGREEMENT, FOR APPROVAL AND ADOPTION OF THE PLAN OF REORGANIZATION AND FOR
--- ---
APPROVAL AND ADOPTION OF THE PROVIDENCE JOURNAL 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 Kelso Stock Purchase Agreement, the Minority Interest
Purchase Agreements and the related schedules of such agreements; (iii)
reviewed certain audited and unaudited financial statements of Providence
Journal, Colony, Copley/Colony, Inc., the Colony Cablevision division ("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 1993 and its unaudited financial statements for
the nine months ended September 30, 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
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<PAGE>
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.
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 management 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
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<PAGE>
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
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 [ ] to
[ ] 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 [$ ] to [$ ] per share and the Continental Series B Preferred Stock had
a fully distributed public market trading value of [$ ] 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 [$ ] million to [$ ] million (or
[$ ] million to [$ ] 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 [$ ] million, or [$ ] 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
[$ ] million to [$ ] million (or [$ ] million to [$ ] million if no shares
of Continental Series B Preferred Stock were issued), or [$ ] to [$ ] (or
[$ ] to [$ ] if no shares of Continental Series B Preferred Stock were
issued) per share of Providence Journal Common Stock.
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 were (i) the pending
acquisition of the cable television assets of The Times Mirror Company by Cox
Cable Communications, Inc.; (ii) the then pending acquisition of domestic cable
television assets of Maclean Hunter Limited from Rogers Communications by
Comcast Corporation ("Comcast"); (iii) the then pending acquisition of the
Wisconsin and Alabama cable television assets of the Crown Media subsidiary of
Hallmark Cards, Inc. by Marcus Cable Co.; (iv) the then pending acquisition of
Wometco Cable (excluding Georgia Cable) by US West Inc.; and (v) the then
pending acquisition of TeleCable Corporation by Tele-Communications, Inc.
(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
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<PAGE>
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 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 [ ] to [ ] with a harmonic mean of [ ], as compared to
a range of imputed enterprise value to EBITDA multiples for the PJC Cable
Business of [ ] to [ ] 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 Tele-Communications, Inc. ("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 [ ] to [ ] with a harmonic
mean of [ ] 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 [ ] to [ ]
with a harmonic mean of [ ]. This compared to a range of imputed enterprise
value to EBITDA multiples for the PJC Cable Business of [ ] to [ ] 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 [ ]
to [ ]) and blended terminal value multiples of EBITDA ranging from [ ] to
[ ]. Based on these calculations, Bear Stearns derived a theoretical
enterprise value for the PJC Cable Business ranging from [$ ] million to [$ ]
million, as compared to Bear Stearns' estimate of the enterprise value of the
PJC Cable Business under the Continental Proposed Transaction of [$ ] million
to [$ ] 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
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contribute approximately [ %], [ %] and [ %] 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., [ %]) and the fully
diluted percentage of the Combined Company's equity securities to be owned by
Providence Journal stockholders after the Merger (i.e., [ %]) compared
reasonably with the aforementioned contribution percentages.
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 $7.0 million, 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 PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
consummation of the Merger, there has been no public market for the Continental
Merger Stock. 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 the 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 Cable
Television Consumer Protection and Competition Act of 1992 (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 September 30, 1994, Continental's
aggregate debt was $3,310,520,000. After giving effect to the Merger and
certain other acquisitions described herein, as of September 30, 1994,
Continental's aggregate debt on a pro forma basis would have been
$4,565,444,000. 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 $1,658,314,000 as of September 30, 1994.
Continental reported net losses from continuing operations, before the
cumulative effect of the change in accounting for income taxes, of $25,774,000
and $40,592,000 for the year ended December 31, 1993 and the nine months ended
September 30, 1994, respectively. After giving effect to the Merger and certain
other acquisitions described herein, Continental would have reported net losses
from continuing operations, before the cumulative effect of the change in
accounting for income taxes, of $38,832,000 and $47,416,000 for the year ended
December 31, 1993 and for the nine months ended September 30, 1994,
respectively (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
assurance in this regard or that the terms available for such financing would
be favorable to Continental 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. (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).
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 36,900,400 shares of Continental Class A Common Stock,
109,264,675 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 143,449,675 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"), 44,916,875 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, 94,381,775 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.
DISPARATE VOTING RIGHTS; 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 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 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".)
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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 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 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.
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 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 Restructuring, the PJC Spin-Off 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 "Description of Providence Journal Publishing Business" and
"Description of Providence Journal Broadcast Television Business".)
REDUCTION IN COMMON STOCK DIVIDEND PAYMENT. 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 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 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 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 Merger, the Restructuring,
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and the PJC Spin-Off 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.
LEVERAGE. After completion of the Restructuring, the PJC Spin-Off and the
Merger, New Providence Journal will have consolidated indebtedness of
approximately $222 million, 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.
NO PUBLIC MARKET FOR COMMON STOCK. Prior to the consummation of the
Restructuring, the PJC Spin-Off 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 Restructuring, the PJC Spin-Off 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.
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.
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
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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 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.
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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) and Linkatel Pacific, L.P. (an
alternate access telephone company), 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 Restructuring
and the PJC Spin-Off, 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 Restructuring, the PJC Spin-Off 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.
TREATMENT OF OUTSTANDING RESTRICTED STOCK. In connection with the
Restructuring and the PJC Spin-Off, 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 Restructuring, the PJC Spin-Off 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 Company 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 Providence Journal Qualified Compensation
Deferral 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
Restructuring, the PJC Spin-Off and the Merger, and their service and salary,
if applicable, with Providence Journal prior to the Effective Time will be
counted in determining
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eligibility, benefits and vesting under the Providence Journal Retirement Plans
when assumed by New Providence Journal.
TREATMENT OF PROVIDENCE JOURNAL CABLE DIVISION EMPLOYEES. The Providence
Journal Cable Division Sale Bonus Plan is designed to retain 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 Providence Journal 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. 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 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 Providence Journal 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.
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 Restructuring described below, 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 $257 million will be applied to discharge existing indebtedness
of Providence Journal, approximately $298 million will be applied to discharge
existing indebtedness of KBC, approximately $265 million (including transaction
costs) 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 to pay costs associated
with the Merger and certain deferred compensation totalling $75 million. (See
"The Merger--General Provisions--Share Exchange".) In addition, New Providence
Journal will incur the NPJ Indebtedness in the amount of approximately $200
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 of the proceeds of the New Cable
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.
--------
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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 right to appraisal 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 Providence Journal 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 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
47
<PAGE>
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 which 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 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 systems and the stock of King Videocable Company ("King Videocable")
shall be contributed to Colony Communications, Inc., a wholly owned subsidiary
of Providence Journal ("Colony"), 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.
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<PAGE>
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 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 Elections described below):
<TABLE>
<S> <C>
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
</TABLE>
"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:
<TABLE>
<CAPTION>
SUBSIDIARY REDUCTION
---------- -----------
<S> <C>
Copley/Colony, Inc. $42,610,000
Vision Cable Company of
Rhode Island, Inc. $ 2,430,000
Dynamic Cablevision of
Florida, Ltd. $11,300,000
California CATV Partners $ 1,490,000
</TABLE>
"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).
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<PAGE>
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, Inc., (b) 93% of Vision Cable Company of Rhode Island, Inc. and
(c) 90% of Dynamic Cablevision of Florida, Ltd. and (ii) KHC owns, indirectly,
50% of the equity interest in California CATV Partners. 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.
The holder of any shares of Providence Journal Common Stock outstanding
immediately prior to the Distribution which 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 appraisal 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 appraisal rights.
Providence Journal, Continental and New Providence Journal have reached certain
agreements relating to any such exercise of appraisal 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 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 appraisal,
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
50
<PAGE>
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 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
Journals' 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 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 which 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 share) 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 amount 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 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
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<PAGE>
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), 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.
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 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) any waiting period applicable to the consummation of the
transactions contemplated by the Merger Agreement 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 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)
which remains in
52
<PAGE>
effect and which has the effect of making the transactions contemplated by
the Merger Agreement illegal or otherwise prohibiting such transactions, or
which questions the validity or the legality of the transactions
contemplated by the Merger Agreement and which 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.
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.
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<PAGE>
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 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 between Providence Journal and The First
National Bank of Boston, as Rights Agent, (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 which 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.
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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 the Providence
Journal 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 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.
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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 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;
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(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 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
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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 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
which, 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 mutually
acceptable registration rights agreement relating to the Continental Class A
Common Stock to be issued pursuant to the Merger. 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,
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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 such
registration rights in the manner requested 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.
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 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 Restructuring, the PJC Spin-Off and the Merger) are not events
which 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.
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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.
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
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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) 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 Merger, the Restructuring, and the PJC Spin-
Off 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
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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 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
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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
(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
Employees 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 Providence Journal or Continental 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
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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 (as defined below) 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 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 Providence Journal System operated in Palm
Springs, California and the surrounding communities, together with all
associated assets (the "Palm Springs System"), free and clear of all
liabilities and obligations of Providence Journal and its subsidiaries. The
purchase price
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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) notification pursuant to, and
expiration or termination of the waiting period under, the HSR Act, (b)
consents and/or waivers from the relevant governmental authorities under
certain franchises issued to Providence Journal and its subsidiaries and (c)
consent of the FCC to the transfer of control of certain licenses issued by the
FCC to Providence Journal or its subsidiaries.
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 the trustees of the Trust entitled to
exercise voting power with respect to an
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aggregate of 42,843,550 shares of Continental Class B Common Stock
(approximately 30.89% 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: 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 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 66 2/3% 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 50.1% 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
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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 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 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 Restructuring, the PJC Spin-Off, 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 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 Restructuring, the PJC Spin-Off, 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. 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 Palmer Systems and the stock of King Videocable to
Colony will be a transaction described in Code Section 351.
(4) The Contribution from Restructured PJC to New Providence Journal 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
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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 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 Restructuring, the PJC Spin-Off, 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 Merger, the Restructuring and the PJC Spin-Off 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
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liability unless the failure of the Merger and the PJC Spin-Off 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 Merger
and the PJC Spin-Off 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
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
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Restated 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 public accountants 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.
PROPOSAL TO APPROVE AND ADOPT
THE PROVIDENCE JOURNAL CABLE DIVISION SALE BONUS PLAN
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Providence Journal Cable Division Sale
Bonus Plan. The Providence Journal Cable Division Sale Bonus Plan was designed
to retain 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 Providence Journal Cable Division Sale Bonus
Plan is an officer of Providence Journal. A text of the Providence Journal
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 Providence
Journal Cable Division Sale Bonus Plan. New Providence Journal will be
responsible for all payments required to be made under the Providence Journal
Cable Division Sale Bonus Plan.
ADMINISTRATION
The Providence Journal 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 Providence Journal 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 Providence Journal Cable Division Sale Bonus Plan. The
administrator, with the concurrence of the Chief Executive Officer, shall make
recommendations for awards under the Providence Journal Cable Division Sale
Bonus Plan to the Executive Committee.
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.
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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 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 January 15,
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 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 the 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.
GENERAL RESTRICTIONS
(a) Individuals receiving awards pursuant to the Providence Journal 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 PROVIDENCE JOURNAL 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 Restructuring,
the PJC Spin-Off, 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.
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 six-month period ended September 30, 1994 (for which period the
Journal has provided a preliminary statement to the Audit Bureau, which has not
been audited as of the date of this Registration Statement).
<TABLE>
<CAPTION>
AVERAGE NET PAID CIRCULATION
------------------------------
DAILY SATURDAY SUNDAY
--------- ---------- ---------
<S> <C> <C> <C>
1990.................. 203,600 189,700 264,700
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-Sept.
30, 1994............. 186,500 178,900 268,600
</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 78% of the Journal's
revenues).
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The following table sets forth the Journal's advertising linage for calendar
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 33,000 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. The Journal has reduced its newsprint inventory by approximately 50%
over the past three years and improved newsprint quality.
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
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communities of 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.
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.
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 ............ 170,400 92% 242,600 91%
Providence, RI
The Times............... 20,700 92% N/A
Pawtucket, RI
Woonsocket Call......... 20,100 78% 19,800 78%
Woonsocket, RI
Daily News.............. 15,100 100% N/A
Newport, RI
Westerly Sun............ 8,900 73% 9,100 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 Journal employs 821 persons on a full time basis and 670 on a part-time
and/or temporary basis, the equivalent of 1,214 full time persons.
Approximately 40% of such employees are represented by labor unions under
collective bargaining agreements. The collective bargaining agreement with one
of these unions, the Providence Newspaper Guild, expired in 1993. Negotiations
on a new agreement are ongoing. 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, 1993, Providence Journal had net revenues from its
broadcast operations of $147 million. Providence Journal has been involved in
the PJC Broadcasting Business since 1978 when it acquired an independent
station in Philadelphia, Pennsylvania.
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,
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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 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
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affiliation agreement with ABC for five of its stations, including two of its
UHF stations in markets which 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, except
as otherwise provided below. 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) (IN
STATION/MARKET AREA AFFILIATION FREQUENCY RANK(1) MARKET(2) MARKET(3) SHARE(4) 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>
- --------
* 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.
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<PAGE>
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 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.
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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 the 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".
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.
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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.
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.
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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 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
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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.
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
September 30, 1994, Providence Journal's total commitment, consisting of
amounts paid to date and current obligations, with respect to PSN, was
approximately $1 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.
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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 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.
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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 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".)
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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. 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,
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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 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
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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 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.
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
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facilities necessary to pass along an ATV signal. The conversion of a Station's
equipment enabling it, for example, 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.
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.
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EMPLOYEES
As of September 30, 1994, the operations of the PJC Broadcasting Business had
approximately 957 full-time employees and 113 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. Two hundred eighty-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.
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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,
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 Restructuring, the PJC Spin-Off, the Merger
and the transactions contemplated thereby are consummated.
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.
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 September 30, 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>
SEPTEMBER 30, 1994
---------------------------------
NEW PROVIDENCE
PROVIDENCE JOURNAL JOURNAL
HISTORICAL PRO FORMA
------------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Debt, including current installments......... $274,553 $222,903
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
37,728 shares............................. 38
Class B Common Stock, par value $1.00 per
share; authorized 300,000 shares; issued
46,961.................................... 47
Additional Capital......................... 1,225 1,354
Retained Earnings.......................... 346,944 164,437
Unrealized Gain on Securities held for
sale, net................................. 2,322 2,322
-------- --------
Total Stockholders' Equity............... 343,257 168,198
-------- --------
Total Capitalization................... $617,810 $391,101
======== ========
</TABLE>
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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, 1989, 1990, 1991, 1992 and 1993 and the balance sheet
data as of the same dates have been derived from the audited consolidated
financial statements of Providence Journal. The Statement of Operations for the
nine months ended September 30, 1993 and September 30, 1994 and the balance
sheet data as of September 30, 1994 have been derived from the unaudited
consolidated financial statements of Providence Journal, which, in the opinion
of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of financial position and
results of operations for such periods. Operating results for the nine months
ended September 30, 1994 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1994.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------------ ------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $175,028 $169,840 $167,008 $172,453 $179,499 $129,473 $138,531
Operating Loss......... (3,077) (16,437) (31,793) (10,899) (16,833) (6,661) (2,103)
Interest, Fees and
Other Income.......... 3,969 11,900 38,964 47,877 5,806 4,135 3,959
Interest Expense....... (16,856) (15,701) (10,102) (6,455) (2,578) (1,947) (2,038)
Equity in Loss of
Affiliates............ (703) (1,313) (72) (11,328) (7,350) (3,183) (4,818)
Income (Loss) from
Continuing Operations
before Income Taxes... (16,667) (21,551) (3,003) 19,195 (20,955) (7,656) (5,000)
Income (Loss) from
Continuing Operations. (11,902) (13,248) (6,619) 7,358 (15,190) (6,653) (3,573)
Income (Loss) Per
Common Share From
Continuing Operations. $(117.88) $(132.26) $ (75.38) $ 85.53 $(178.08) $ (77.97) $ (42.06)
Cash Dividends Paid Per
Common Share.......... $ 23.25 $ 39.00 $ 86.00 $ 94.60 $ 104.00 $ 78.00 $ 85.80
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
-------------------------------------------- ------------
1989 1990 1991 1992 1993 1994
-------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........... $446,340 $784,063 $594,098 $793,433 $775,685 $748,749
Net assets of
discontinued cable
television operations
included in Total
Assets................ 32,262 36,924 39,603 380,385 376,156 366,384
Long-term Debt......... 156,632 28,568 28,608 253,106 276,601 271,055
Stockholders' Equity... 205,153 460,321 399,938 391,967 359,575 343,257
</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 186,500 and 268,600,
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".)
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
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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 "Summary--Pre-Merger Transactions" and "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 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 20.9% interest in
Television Food Network, which develops cable television programming related to
food, its preparation and related topics; a 40.33% interest in Linkatel
Pacific, L.P., formed to pursue the development of alternative access networks;
a 16% interest in Partners Stations Network, L.P. formed in 1994 to develop and
produce television programming; and a 50% interest in Copley/Colony, Inc.,
engaged in cable television operations. Providence Journal's 50% interest in
Copley/Colony, Inc. will be transferred to Continental in the Merger. These
investments have been accounted for using the equity method and, combined with
Providence Journal's 50% interest in KHC, represented a combined investment of
$100.6 million as of September 30, 1994.
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, are therefore reported as
a discontinued operation for all periods presented. 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 $812,000 net of
tax. Income (loss) from these businesses as well as the gain on the sale of
this cellular business and paging business are reported as discontinued
operations.
Operating results of these discontinued operations were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------- ------------------
1991 1992 1993 1993 1994
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues..................... $98,018 $112,334 $177,417 $132,253 $132,340
Income (Loss) Before Income
Taxes....................... 19,319 4,510 (8,581) (4,081) (2,347)
Income Taxes (Benefits)...... 8,506 2,955 (1,087) 146 1,140
Income (Loss) from
Discontinued Operations..... $10,813 $ 1,555 $ (7,494) $ (4,228) $ (3,486)
======= ======== ======== ======== ========
</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 collateralized by all the assets of the Lowell Sun Companies and an
interest in 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.
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
September 30, 1994.
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CONSOLIDATED RESULTS OF OPERATIONS. The following table summarizes Providence
Journal's financial results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------- --------------------
1991 1992 1993 1993 1994
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Publishing................. $118,169 $120,515 $124,914 $ 89,975 $ 92,933
Broadcast Television (1) .. 39,381 42,156 44,532 32,112 37,901
Other...................... 9,458 9,782 10,053 7,386 7,697
-------- -------- -------- --------- ---------
167,008 172,453 179,499 129,473 138,531
Operating Income (Loss):
Publishing................. 3,919 10,590 9,891 6,962 5,785
Broadcast Television (1) .. (11,020) (6,401) (3,188) (2,860) 2,796
Other...................... (6,455) (647) (2,650) 409 717
Corporate.................. (18,237) (14,441) (20,886) (11,172) (11,401)
-------- -------- -------- --------- ---------
(31,793) (10,899) (16,833) (6,661) (2,103)
Other Income (Expense):
Interest, Fees and Other
Income.................... 38,964 47,877 5,806 4,135 3,959
Interest Expense........... (10,102) (6,455) (2,578) (1,947) (2,038)
Equity in Loss of
Affiliates................ (72) (11,328) (7,350) (3,183) (4,818)
-------- -------- -------- --------- ---------
28,790 30,094 (4,122) (995) (2,897)
Income (Loss) from
Continuing Operations
Before Income Taxes....... (3,003) 19,195 (20,955) (7,656) (5,000)
Income Taxes (Benefits).... 3,616 11,837 (5,765) (1,003) (1,427)
-------- -------- -------- --------- ---------
Income (Loss) from
Continuing Operations..... (6,619) 7,358 (15,190) (6,653) (3,573)
Income (Loss) from
Discontinued Operations,
Net of Tax................ 10,813 1,555 (7,494) (4,228) (3,486)
-------- -------- -------- --------- ---------
Income (Loss) Before
Extraordinary Item and
Changes in Accounting
Methods................... 4,194 8,913 (22,684) (10,881) (7,059)
Extraordinary Item, Net of
Tax ...................... -- -- 1,551 1,551 --
Cumulative Effect of
Changes in Accounting
Methods, Net of Tax....... (2,974) 1,257 -- -- --
-------- -------- -------- --------- ---------
Net Income (Loss).......... $ 1,220 $ 10,170 $(21,133) $ (9,330) $ (7,059)
======== ======== ======== ========= =========
</TABLE>
- --------
(1) Includes only those subsidiaries which are majority 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.
First Nine Months 1994 Compared with First Nine Months 1993. Providence
Journal's revenues increased 7% for the first nine months of 1994, while
operating loss was down 68.4%. Significant improvements in the PJC Broadcasting
Business were partially offset by a decrease in operating profit for the
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PJC Publishing Business. Corporate expenses were flat for the first nine months
of 1994. Overall operating loss decreased from $(6.7) million in the first nine
months of 1993 to $(2.1) million in 1994.
For the first nine months, loss from continuing operations decreased from
$(6.7) million in 1993 to $(3.6) million in 1994, reflecting the improved
operating results offset by a $(1.6) million increase in equity in loss of
affiliates. During 1994's first nine months, equity in loss of affiliates of
$(4.8) million included losses from two development operations, Television Food
Network and Linkatel, L.P. Providence Journal's share of these losses totaled
$(3.5) million in first nine months of 1994 as compared to no losses for the
comparable prior year period. These start-up businesses are expected to be
unprofitable for the foreseeable future. Offsetting these losses from
affiliated start-up businesses was a decrease of $1.7 million in Providence
Journal's 50% share of losses from KHC and Copley/Colony which have been
accounted for using the equity method in the accompanying financial statements.
In January 1993, Providence Journal retired an industrial revenue bond with a
face value of $9.5 million for $7.2 million. The gain resulting from this
transaction, totaling $1.6 million net of tax, has been presented as an
extraordinary item in the nine months ended September 30, 1993 and the year
ended December 31, 1993.
1993 Compared with 1992. Revenues grew 4.1% between years showing modest
growth in both the PJC Publishing Business and the PJC Broadcasting Business.
Operating loss increased 54.4% from $(10.9) to $(16.8) million. The PJC
Broadcasting Business showed a substantial decrease in operating loss, from
$(6.4) million in 1992 to $(3.2) 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 1993 valuation adjustments were recorded in the
fourth quarter totaling $(2.7) million 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 quarter of 1993. Additionally,
the appraised value of the Providence Journal Class A Common Stock and the
Providence Journal Class B Common Stock increased from $7,191 per share in
November 1992 to $8,745 per share in November 1993, resulting in additional
deferred compensation associated with an Incentive Unit Plan for senior
executives.
Interest, fees and other income decreased $42.1 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 Communications. This note was
settled in full in connection with the acquisition of Palmer's cable television
assets 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 in 1993 as a
result of decreased management fees paid to Providence Journal by Palmer and
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 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
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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 consists of the operating results
of the majority owned cable businesses, which are expected to be acquired by
Continental in the Merger, and the remaining investments in its cellular system
and paging subsidiary, which were sold in 1994, resulting in a gain of $0.8
million, net of tax. The significant decrease from income of $1.6 million in
1992 to loss of $(7.5) million in 1993 results from the acquisition of the
Palmer cable 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.
1992 Compared with 1991. Consolidated 1992 revenues of $172.5 million
increased 3.3% compared with 1991. Operating loss decreased significantly from
$(31.8) million in 1991 to $(10.9) million in 1992, reflecting the effect of
the improving economy on both the PJC Publishing Business and the PJC
Broadcasting Business. In 1991, the PJC Publishing Business was particularly
hurt by the Rhode Island credit union crises and its impact on the local
economy. The Providence Journal recorded valuation adjustments in 1991 which
totaled $(6.0) million relating to the Omni Biltmore Hotel.
Corporate overhead expense decreased from $18.2 million in 1991 to $14.4
million in 1992, reflecting lower deferred compensation associated with
Providence Journal's Incentive Unit Plan. Interest, fees and other income
increased $8.9 million in 1992 as compared to 1991 primarily as a result of
management fee income received in 1992 from KHC as previously mentioned. Equity
in loss of affiliates was only $(.1) million in 1991 compared to $(11.3)
million in 1992. In February 1992, Providence Journal acquired 50% of KHC for
$105 million. Providence Journal's 50% share of operations in KHC has been
accounted for under the equity method in 1992 and amounted to $(12.6) million.
Net income of $1.2 million for 1991 includes a $(3.0) million charge for the
cumulative effect of change in accounting method, net of tax for the
amortization of program rights.
ANALYSIS BY SEGMENT
Publishing Segment. The following table sets forth certain operating and
other data for the nine month periods ended September 30, 1993 and 1994 and the
years ended December 31, 1991, 1992 and 1993.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------- ------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT CIRCULATION)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising.................... $ 85,500 $ 88,047 $ 93,087 $ 66,406 $ 68,592
Circulation.................... 32,431 32,328 31,028 23,084 23,018
Other.......................... 238 140 799 485 1,323
-------- -------- -------- -------- ---------
118,169 120,515 124,914 89,975 92,933
Operating Expense................ 105,170 99,538 103,597 74,437 78,609
Depreciation & Amortization...... 9,080 10,387 11,426 8,576 8,539
-------- -------- -------- -------- ---------
Operating Income................. $ 3,919 $ 10,590 $ 9,891 $ 6,962 $ 5,785
======== ======== ======== ======== =========
Average Net Paid Circulation(1)
Daily.......................... 202,200 197,100 192,500 -- 186,500
Sunday......................... 265,000 268,100 269,100 -- 268,600
</TABLE>
- --------
(1) See "Description of Providence Journal Publishing Business--Circulation and
Pricing" for description of Average Net Paid Circulation.
95
<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 an average of 4% annually over the last three years, mostly due to
price increases. Advertising revenue for fiscal 1994 is expected to increase
approximately 3% over 1993.
Average net paid daily circulation has declined 8% since 1991. 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 $1.3
million for the first nine months of 1994 as compared to $.5 million in the
comparable prior year period.
Operating expenses increased 5.6% in the first nine months of 1994 as
compared with the comparable prior year period, 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.
Operating expenses decreased 5.4% in 1992 as compared to 1991. In 1991, the
Journal restructured its distribution operations from individual circulation
offices to regional circulation centers. Management estimates this
restructuring represented a savings of $3 million annually, primarily from a
reduction in headcount of 69 employees. The cost of implementing this
restructuring was $5.7 million, of which $3.4 million was charged to operations
in 1991 and $2.3 million in 1992.
Depreciation and amortization has steadily increased over the last three
years, 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.
Operating income has fluctuated over the last three years with operating
expense increases greater than revenue increases in all years except 1992.
Publishing Outlook. Publishing results in 1995 are expected to be impacted by
two critical factors: The timing and extent of economic recovery in Rhode
Island 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.
96
<PAGE>
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.
Broadcast cashflow is considered a good indicator in evaluating performance.
It represents operating income or loss plus depreciation and amortization,
amortization of non-barter program rights, and corporate expenses, less cash
payments for programming. Broadcast cashflow 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 nine
month periods ended September 30, 1993 and 1994 and the years ended December
31, 1991, 1992 and 1993. The actual results for all periods presented represent
the operating data for the four wholly owned Stations. Pro forma results for
the nine months ended September 30, 1993 and 1994 and the year ended December
31, 1993 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, 1993.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
PROFOMA PROFORMA
1993 1994 1993 1994
------- ------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National Revenues....... $13,552 $17,062 $ 52,341 $ 61,071
Local and Regional Reve-
nues................... 19,015 23,009 56,439 66,094
Other Revenue........... 4,195 3,616 9,363 9,306
Agency Commissions...... (4,650) (5,786) (15,402) (18,145)
------- ------- -------- --------
Net Revenues............ 32,112 37,901 102,741 118,326
Operating and
Administrative
Expenses............... 28,018 29,211 77,784 84,493
Depreciation and
Amortization........... 6,954 5,894 17,662 16,245
------- ------- -------- --------
Total Operating Ex-
penses................. 34,972 35,105 95,446 100,738
------- ------- -------- --------
Operating Income (Loss). $(2,860) $ 2,796 $ 7,295 $ 17,588
======= ======= ======== ========
OTHER DATA:
Broadcast Cashflow...... $ 5,051 $ 9,613 $ 25,536 $ 35,721
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993
1991 1992 1993 PRO FORMA
-------- ------- ------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National Revenues..................... $ 19,109 $20,181 $19,475 $ 74,503
Local and Regional Revenues........... 20,996 23,827 27,180 82,657
Other Revenue......................... 4,936 4,463 4,536 11,998
Agency Commissions.................... (5,660) (6,315) (6,659) (22,286)
-------- ------- ------- --------
Net Revenues.......................... 39,381 42,156 44,532 146,872
Operating and Administrative Expenses. 38,872 38,395 39,038 109,620
Depreciation and Amortization......... 11,829 10,162 8,682 23,379
-------- ------- ------- --------
Total Operating Expenses.............. 50,401 48,557 47,720 132,999
-------- ------- ------- --------
Operating Income (Loss)............... $(11,020) $(6,401) $(3,188) $ 13,873
======== ======= ======= ========
OTHER DATA:
Broadcast Cashflow.................... $ 3,609 $ 4,298 $ 7,352 $ 39,688
======== ======= ======= ========
</TABLE>
97
<PAGE>
Nine Months Ended September 30, 1993 Compared to Nine Months Ended September
30, 1994 (actual and pro forma). General improvement in the local and national
economies and increased retail spending were the major factors in increasing
net revenues for the period ended September 30, 1994, as compared with the same
period in 1993, on both an actual and pro forma basis. Total pro forma net
revenues were $118.3 million for the nine months ended September 30, 1994, as
compared to pro forma net revenues of $102.7 million for the same period in
1993, an increase of $15.6 million or 15.2%. Actual net revenues were $37.9
million for the period ended September 30, 1994, as compared with actual net
revenues of $32.1 million for the same period in 1993, an increase of $5.8
million or 18%. 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
periods 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 $29.2 million
for the nine months ended September 30, 1994, as compared to $28.0 million for
the same period in 1993, an increase of $1.2 million or 4.3%. Total pro forma
operating and administrative expenses were $84.5 million for the nine months
ended September 30, 1994, as compared to $77.8 million for the same period in
1993, an increase of $6.7 million or 8.6%. Pro forma operating expenses for the
first nine months of 1994 were affected by the cost associated with increased
news and entertainment programming as well as a new local marketing agreement
in Honolulu.
The decrease in depreciation and amortization on both a pro forma and actual
basis reflects management's effort to control capital spending.
The combined effect of these factors resulted in pro forma operating income
of $17.6 million for the nine month period ended September 30, 1994, as
compared to $7.3 million, for the same period in 1993, an increase of $10.3
million. Actual operating income was $2.8 million for the nine month period
ended September 30, 1994, as compared to an operating loss of $(2.9) million
for the same period in 1993, an increase of $5.7 million.
Years Ended December 31, 1991, 1992 and 1993. Increases in net revenue for
these periods were modest, as reflected by the 7.0% and 5.6% increases from
1991 to 1992 and from 1992 to 1993, respectively. Local and regional revenues
experienced increases of 13.5% and 14.1% over the same years, respectively,
while national revenues were relatively flat or 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
small or no increases in operating and administrative expenses which totaled
$38.6, $38.4 and $39.0 million for the years ended December 31, 1991, 1992 and
1993, respectively. Excess overhead was eliminated, procedures were
centralized, and the programming purchasing strategy of the PJC Broadcasting
Business was revised.
Depreciation and amortization expense decreased 14.1% to $10.2 million from
1991 to 1992. It decreased 14.6% to $8.7 million from 1992 to 1993. This is a
direct reflection of management's effort to control capital expenditures.
The operating losses for the years ended December 31, 1991, 1992 and 1993
totaled $(11.0), $(6.4) and $(3.2) million, respectively.
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
98
<PAGE>
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. The television 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 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 operation.
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". 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 September 30, 1994, stockholders' equity
has been increased by $2.3 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 $82.7
million was available at September 30, 1994. Providence Journal also has a $240
million term loan facility amortizing in varying amounts through 2001.
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.
99
<PAGE>
Cash Flow. During 1993, Providence Journal generated $23.4 million in cash
from continuing operations, compared with $19.3 million in 1992. During the
first nine months of 1994, Providence Journal generated $18.6 million in cash
from continuing operations, compared with $16.5 million for the same period in
1993. The increase results primarily from improved operating results.
Cash used in investing activities of continuing operations during 1993
totaled $(15.8) million as compared to $(103.4) million in 1992. The Providence
Journal's 50% investment in KHC totaled $105 million in 1992. Cash used in
investing activities of continuing operations in the first nine months of 1994
totaled $(4.5) million compared to a use of $(9.1) million in 1993's comparable
period reflecting primarily a decrease in capital expenditures and investments
in affiliates.
Cash used for financing activities was $(14.7) million in 1993 as compared to
cash provided of $152.1 million in 1992 reflecting proceeds of $234.1 million
from a revolving credit and loan facility used for the 50% purchase of KHC and
purchase of cable television systems from Palmer Communications. Providence
Journal paid dividends to stockholders of $8.9 million and $8.1 million in 1993
and 1992, respectively. During the first nine months of 1994, cash used in
financing activities was $(22.2) million as compared with $(18.5) million in
the prior year comparable period, the increase resulting partially from an
increase in treasury stock purchases. Dividends to stockholders of $7.3 million
were paid during the first nine months of 1994. As discussed elsewhere herein,
the proposed recapitalization of Providence Journal is expected to reduce
future dividends payable on common shares of New Providence Journal.
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.
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 common shares of New Providence Journal. For a description of the
internal transactions that will occur before the Merger can be consummated, see
"Summary--The Pre-Merger Transactions" and "Pre-Merger Transactions".
Prior to the Restructuring described below, 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
$257 million will be applied to discharge existing indebtedness of Providence
Journal, approximately $289 million will be applied to discharge existing
indebtedness of KBC, approximately $265 million (including transaction costs)
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 costs associated with the
Merger and certain deferred compensation totalling $75 million. In addition New
Providence Journal will incur the NPJ Indebtedness in the principal amount of
approximately $200 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.
100
<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 September 30, 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,
1993 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
September 30, 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, 1993.
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, 1993 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, 1993.
101
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 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.......... $ 1,400 $ 3,003 $ 960,695(1) 265,000(2) $ 4,403
257,345(3)
298,350(3)
65,000(5)
45,000(6)
30,000(7)
Accounts Receivable,
Net.................. 21,265 21,700 42,965
Inventories........... 864 864
Television Program
Rights............... 5,164 8,060 13,224
Prepaid Expenses and
Other Current Assets. 12,097 1,312 13,409
------------ ------------ --------
Total Current Assets. 40,790 34,075 74,865
------------ ------------ --------
Investments in
Affiliated Companies... 100,560 265,000(2) 347,444(4) 8,696
9,420(5)
Notes Receivable........ 20,239 20,239
Television Program
Rights, Net............ 3,817 4,599 8,416
Property and Equipment,
at Cost Less
Accumulated
Depreciation........... 133,590 56,300 189,890
Intangible Assets and
Goodwill, Net.......... 49,025 125,788 34,100(4) 208,913
Other Assets............ 34,344 14,197 16,000(6) 32,541
Net Assets of
Discontinued Cable
Operations............. 366,384 271,215 157,040(4) 869,059(9) --
9,420(5)
65,000(5)
------------ ------------ --------
$ 748,749 $ 506,174 $543,560
============ ============ ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current Liabilities
Accounts Payable and
Accrued Expenses...... 25,667 5,948 31,615
Current Installments
of Long-term Debt..... 3,498 26,405 2,500(3) 998
26,405(3)
Current Portion of
Television Program
Rights Payable........ 5,895 7,179 13,074
------------ ------------ --------
Total Current Liabil-
ities............... 35,060 39,532 45,687
------------ ------------ --------
Long-term Debt.......... 271,055 271,945 254,845(3) 960,695(1) 221,905
271,945(3)
755,000(9)
Television Program
Rights Payable......... 2,413 5,233 7,646
Other Liabilities and
Deferrals.............. 96,964 24,160 30,000(7) 9,000(4) 100,124
------------ ------------ --------
Total Liabilities.... 405,492 340,870 375,362
------------ ------------ --------
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 71(10) 47
21(4)
Additional Paid-in
Capital.............. 1,225 210,314 210,314(4) 129(10) 1,354
Retained Earnings
(Deficit)............ 346,944 (45,031) 45,000(6) 45,031(4) 164,437
645,000(10) 530,941(9)
7,448(8)
16,000(6)
Unrealized Gain on Se-
curities held for
Sale, Net............ 2,322 2,322
Treasury Stock........ (7,448) 7,448(8) --
------------ ------------ --------
Total Stockholders'
Equity.............. 343,257 165,304 168,198
------------ ------------ --------
Total Liabilities and
Stockholders' Equi-
ty.................. $ 748,749 $ 506,174 $543,560
============ ============ ========
</TABLE>
See accompanying notes to pro forma financial statements
102
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------------------
KING NEW
PROVIDENCE HOLDING PRO FORMA ADJUSTMENTS PROVIDENCE
JOURNAL CORP. --------------------- JOURNAL
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................ $179,499 $102,340 -- -- $ 281,839
Selling, General, and
Administrative......... 174,920 71,272 -- 2,034(11) 244,158
Depreciation and
Amortization........... 21,412 14,697 1,673(12) -- 37,782
-------- -------- ---------
Operating Income (Loss). (16,833) 16,371 -- -- (101)
Interest Expense........ (2,578) (8,972) 7,608(13) -- (19,158)
Other Income, Net....... 5,806 288 2,034(11) -- 4,060
Equity in Loss of
Affiliates............. (7,350) -- 6,806(11) (544)
-------- -------- ---------
Income (Loss) from
Continuing Operations,
before Income Taxes
(Benefits)............. (20,955) 7,687 -- -- (15,743)
Income Taxes (Benefits). (5,765) 6,787 -- 669(12) (2,690)
-- 3,043(13)
-------- -------- ---------
Income (Loss) from
Continuing Operations.. $(15,190) $ 900 (13,053)
======== ======== =========
Loss Per Share from
Continuing Operations.. $(178.08) -- -- $ (153.02)
======== =========
Weighted Average shares
outstanding............ 85,302 85,302
======== =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 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................ $138,531 $ 80,425 -- -- $ 218,956
Selling, General, and
Administrative......... 124,960 55,785 -- 1,526(11) 179,219
Depreciation and
Amortization........... 15,674 10,351 1,255(12) -- 27,280
-------- -------- ---------
Operating Income (Loss). (2,103) 14,289 -- -- 12,457
Interest Expense........ (2,038) (6,443) 7,124(13) -- (15,605)
Other Income, Net....... 3,959 281 1,526(11) -- 2,714
Equity in Loss of
Affiliates............. (4,818) -- 2,184(11) (2,634)
-------- -------- ---------
Income (Loss) from
Continuing Operations,
before Income Taxes
(Benefits)............. (5,000) 8,127 -- -- (3,068)
Income Taxes (Benefits). (1,427) 4,406 -- 502(12) (373)
-- 2,850(13)
-------- -------- ---------
Income (Loss) from
Continuing Operations.. $ (3,573) $ 3,721 -- -- $ (2,695)
======== ======== =========
Loss Per Share from
Continuing Operations.. $ (42.06) -- -- $ (31.73)
======== =========
Weighted Average Shares
Outstanding............ 84,947 84,947
======== =========
</TABLE>
See accompanying notes to pro forma financial statements
103
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET AND STATEMENTS 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 $205.7 million, respectively.
(2) To record the purchase by Providence Journal of the minority 50% ownership
in KHC for $265 million (including transaction expenses).
(3) To record the repayment of outstanding borrowings of $257.3 million and
$298.3 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 and allocation of the excess of the purchase price over book value
for KHC as follows: $25.1 million has been allocated to the PJC
Broadcasting Business; and $157 million has been allocated to the
discontinued cable operations. Also, to adjust deferred taxes associated
with the purchase of KHC.
(5) To record the purchase by Providence Journal of the minority interests in
various cable entities for an aggregate of $65 million and record the
reclassification of investments in affiliates to net assets of
discontinued cable operations.
(6) To record expenditures incurred in connection with the transactions, which
are estimated at approximately $45 million consisting of the working
capital adjustment, legal, accounting, investment banking and severance.
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. These amounts have been recorded as reductions to
retained earnings.
(7) To record the payment of deferred compensation for $30 million, which is
an estimate of the amount to be paid in cash 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 gain is estimated to be
approximately $530.9 million. This gain is not reflected in the pro forma
Statements of Operations.
(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.
37,728 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 KHC.
(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 $222 million at the beginning of the
period, carrying an effective interest rate of 8.7%.
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
December 31, 1994, 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 individuals own
shares of both Providence Journal Class A Common Stock and Providence Journal
Class B Common Stock, the number of Providence Journal shareholders is
approximately 470.
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 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 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.
104
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF PROVIDENCE JOURNAL AND NEW PROVIDENCE
JOURNAL
The executive officers and Directors of New Providence Journal following the
Restructuring and the PJC Spin-Off will 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 T. 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 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.
105
<PAGE>
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, President and Chief Operating
Officer before assuming his current positions. He has been a Director of
Providence Journal since 1987. 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. 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 19 .
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 of the following Scudder, Stevens & Clark investment
companies: Scudder Cash Investment Trust; Scudder California Tax Free Trust;
Scudder Portfolio Trust; Scudder Investment Trust; Scudder Municipal Trust; and
Scudder State Tax Free Trust.
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, a trustee of Eastern Utilities Associates, as well as a
trustee or director of the following ten 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.
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.
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.
106
<PAGE>
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 19 to 19 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 and a member of the Executive Committee since 1989. 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.
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.
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.
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 and has
been since 1989.
Harry Dyson, 58, is currently Treasurer and Secretary and has been 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.
107
<PAGE>
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 the 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, $ 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.
108
<PAGE>
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
Chairman, Chief 1993 $600,000 $360,000 $71,386 $1,013,800 $30,702
Executive Officer 1992 600,000 300,000 -- -- 702
and Publisher
Trygve E. Myhren........ 1994
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
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
Vice President-- 1993 260,000 156,000 -- 407,000 702
Broadcast and Cable 1992 240,000 120,000 -- -- 702
Television
John A. Bowers.......... 1994
Vice President-- 1993 180,000 108,000 14,180 273,800 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. During 1993 Mr.
Hamblett, Mr. Myhren and Mr. Stack were granted allowances to purchase
vehicles including tax reimbursement for $20,229, $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, 55 shares; and Mr. Bowers, 37 shares. According to a May, 1994
appraisal, each unit is valued at $7,300. 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 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
$9,000, respectively. The remaining amounts shown in the table are amounts
contributed under the employer 401(k) plan.
109
<PAGE>
OPTION/SAR GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------------------
NAME GRANTED(1) FISCAL YEAR PRICE($/SH) 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 $19,972 and $23,542, respectively.
PROVIDENCE JOURNAL INCENTIVE STOCK UNIT PLAN. The following table relates to
the Providence Journal Incentive Stock Unit Plan (the "IUP"), created in 1971.
The IUP provides incentive compensation to key officers and members of the
Board 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.
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.
110
<PAGE>
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. 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. Providence Journal management estimates the cash payout
upon termination of the IUP will be $30 million. Such estimate has been
included as a pro forma adjustment in the Providence Journal Pro Forma
Condensed Balance Sheet included herein.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
APPRECIATED VALUE OF
IUP
ACCUMULATED UNITS AT FISCAL YEAR-END
NAME VESTED/NON-VESTED VESTED/NON-VESTED
---- ----------------- ----------------------
<S> <C> <C>
Stephen Hamblett...................... 2,016/ 55 $13,027,691/$ 581,409
Trygve E. Myhren...................... 636/176 $ 2,139,954/$ 741,727
Jack C. Clifford...................... 505/ 15 $ 2,744,220/$ 160,603
James F. Stack........................ 182/125 $ 445,703/$ 356,975
John A. Bowers........................ 73/111 $ 77,239/$ 144,636
--------- ----------------------
3,412/482 $18,434,807/$1,985,350
</TABLE>
RETIREMENT BENEFITS. The following table illustrates the maximum annual
benefits payable as a single life annuity under the basic benefit formula in
the Pension Plan (see below) to an officer retiring at age 65 with the
specified combination of final average salary and years of credited service.
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>
111
<PAGE>
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, 14 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 Internal Revenue 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 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 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
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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, even if prior to a change of control.
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. Mr. Hamblett, the Chairman
of the Board and Chief Executive Officer of Providence Journal, served as a
member of the Executive Committee during 1993.
STOCK INCENTIVE PLANS OF PROVIDENCE JOURNAL ASSUMED BY NEW PROVIDENCE JOURNAL
Providence Journal maintains the following Stock Incentive Plans that 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 June 30, 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 June 30, 1995, and assuming stockholder approval
of the Plan of Reorganization and the Merger at the Providence Journal Special
Meeting, the 1994 Employee Stock Option Plan shall remain in effect until the
earlier of five (5) 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
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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.
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
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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 the 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.
Rules 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.
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 the Providence Journal at its Annual Meeting in April, 1995. If
such approval has not occurred by June 30, 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
June 30, 1995, and assuming stockholder approval of the Restructuring, the PJC
Spin-Off 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 (5) 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.
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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 (5) shares of Providence Journal Class A Common
Stock on October 1, 1994 and 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 vested and
exercisable, irrespective of the original vesting schedule or any attempt by
the Executive Committee to alter this right of immediate vesting.
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 the 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. 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
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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 Non-Employee
Director Stock Option Plan is designed to comply with 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 and 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 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 its will be paid out, net of
withholding, in actual shares of 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 (5) member Executive Committee of the Board of Directors. Four (4) 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 1993 and 1994, 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 and 1994.
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.
e. in 1994, implementation of non-qualified stock option plans as a more
relevant and competitive long-term incentive. The plans will replace the ISU.
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 have been based upon an annual fair market appraisal of an
independent appraisal firm. 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]
<TABLE>
<CAPTION>
YEAR-END PJC PEER GROUP S&P
-------- -------- ---------- --------
<S> <C> <C> <C>
1988 $ 100.00 $ 100.00 $ 100.00
1989 $ 162.96 $ 118.24 $ 131.49
1990 $ 167.14 $ 89.48 $ 127.32
1991 $ 214.03 $ 101.36 $ 166.22
1992 $ 207.14 $ 116.39 $ 178.97
1993 $ 254.90 $ 133.46 $ 196.85
</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 NEW PROVIDENCE JOURNAL CAPITAL STOCK
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 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. (See "Ownership of Providence Journal Capital Stock".)
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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 (the "NPJ Rights Agreement") (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 (12) 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 defined in the NPJ Rights Agreement). 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. The Rights are not
exercisable until after the date on which New Providence Journal's right to
redeem has expired. The Rights expire on January 31, 2005, unless earlier
redeemed by New Providence Journal in accordance with the NPJ Rights Agreement.
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". 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.
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 adjustments from time to time as
provided in Sections 11 and 13 of the NPJ Rights Agreement. The purchase price
may be adjusted as 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.
If at any time after a Stock Acquisition Date (as defined in the NPJ Rights
Agreement), New Providence Journal is acquired in a merger, each holder of a
Right shall have the right to receive stock in the acquiring company based on
an allocation as set forth in the NPJ Rights Agreement.
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.
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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 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, 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
September 30, 1994, Providence Journal Cable owned and managed cable television
systems passing approximately 1,249,000 Homes and serving approximately 753,000
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 basic
service, which includes 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 basic service revenues by the stated basic
service rate. Basic service revenues include charges for basic programming,
bulk and commercial accounts and non-premium cable programming services, but
exclude premium per-event and digital audio services. 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 which 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
September 30, 1994, Providence Journal Cable's monthly rates for basic cable
service averaged $9.63 company-wide with a low of $7.06 and a high of $16.78,
second tier cable programming service rates averaged $7.59 with a range of
$2.48 to $14.86, a la carte rates averaged $0.68 per channel with a low of
$0.30 and a high of $1.25, 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 $14.0 million in 1993, representing a compound growth
rate of 10%. 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 32%
to $4.9 million during 1993. 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, 1991.
<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF
-------------------------------- SEPTEMBER 30
1991 1992 1993 1994
-------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Homes Passed by Cable(1)........ 553,000 1,202,000 1,224,000 1,249,000
Number of Basic Subscribers(2).. 303,000 722,000 738,000 753,000
Basic penetration(3)............ 54.9% 60.0% 60.3% 60.3%
Number of Premium
Subscriptions(4)............... 241,000 440,000 467,000 506,000
Premium Penetration(5).......... 79.4% 61.0% 63.3% 67.2%
Monthly Revenue per Average
Basic Subscriber(6)............ $31.02 $30.78 $30.63 $29.81
</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 added to the bulk equivalent to determine the
total subscriber number.
(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 and the nine month period ended
September 30, 1994.
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PROVIDENCE JOURNAL CABLE'S SYSTEMS
The following table sets forth information relating to Providence Journal
Cable's systems as of September 30, 1994.
COMBINED SUMMARY SUBSCRIBER DATA
SEPTEMBER 1994
<TABLE>
<CAPTION>
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........ 99,460 62,375 62.7% 41,702 66.9%
Lowell, MA.............. 67,611 43,616 64.5% 36,221 83.0%
Pawtucket, RI........... 33,063 17,722 53.6% 13,807 77.9%
Westerly, RI............ 24,506 15,122 61.7% 9,426 62.3%
New York................ 67,507 58,228 86.3% 45,683 78.5%
Florida................. 142,911 76,711 53.7% 51,222 66.8%
Lakewood, CA............ 27,576 14,028 50.9% 12,251 87.3%
--------- ------- ----- ------- ------
TOTAL COLONY............ 462,634 287,802 62.2% 210,312 73.1%
--------- ------- ----- ------- ------
COLONY CABLEVISION:
Naples, FL.............. 171,638 104,338 60.8% 54,194 51.9%
Palm Desert, CA......... 105,404 65,887 62.5% 44,744 67.9%
--------- ------- ----- ------- ------
TOTAL COLONY CABLEVI-
SION................... 277,042 170,225 61.4% 98,938 58.1%
--------- ------- ----- ------- ------
COPLEY/COLONY(1):
Costa Mesa, CA.......... 40,290 21,605 53.6% 20,583 95.3%
Harbor, CA.............. 53,668 21,473 40.0% 26,336 122.6%
Cypress, CA............. 19,725 10,862 55.1% 10,416 95.9%
--------- ------- ----- ------- ------
TOTAL COPLEY/COLONY..... 113,683 53,940 47.4% 57,335 106.3%
--------- ------- ----- ------- ------
KING VIDEOCABLE(2):
Tujunga, CA............. 44,222 31,421 71.1% 16,435 52.3%
Santa Clarita, CA....... 33,476 27,570 82.4% 15,731 57.1%
Riverside, CA........... 35,624 23,389 65.7% 16,644 71.2%
Placerville, CA......... 26,449 17,854 67.5% 11,196 62.7%
Lodi, CA................ 26,519 14,166 53.4% 9,710 68.5%
San Andreas, CA......... 17,039 11,167 65.5% 4,208 37.7%
Mammoth Lakes, CA....... 8,486 7,350 86.6% 2,703 36.8%
Mt. Shasta, CA.......... 8,267 5,553 67.2% 2,758 49.7%
Menifee, CA............. 1,950 1,721 88.3% 1,016 59.0%
Ellensburg, WA.......... 9,080 5,670 62.4% 2,228 39.3%
Twin Falls, ID.......... 23,507 14,875 63.3% 7,796 52.4%
American Falls, ID...... 2,287 1,119 48.9% 570 50.9%
Brooklyn Park, MN....... 107,359 52,595 49.0% 31,571 60.0%
St. Croix, MN........... 51,159 26,736 52.3% 16,997 63.6%
--------- ------- ----- ------- ------
TOTAL KING.............. 395,424 241,186 61.0% 139,563 57.9%
--------- ------- ----- ------- ------
TOTAL PROVIDENCE JOURNAL
CABLE.................. 1,248,783 753,153 60.3% 506,148 67.2%
========= ======= ===== ======= ======
</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 87% 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, including lower per
mile rebuild costs due to a reduction in the number of required amplifiers, the
elimination of headends, lower ongoing maintenance and utility costs and
improved picture quality and reliability.
As of September 30, 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
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amended. (See "Legislation and Regulation--Cable Communications Policy Act of
1984" and "Federal Regulation".)
As of September 30, 1994, Providence Journal Cable held 138 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 141,311 basic subscribers (approximately
18.8% of basic subscribers of Providence Journal Cable as of September 30,
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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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
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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 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
proposed in the last Congress, but not enacted, that would have allowed
nationwide entry by telephone companies into video program delivery, is likely
to be reintroduced in the current Congress. 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. 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.
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EMPLOYEES
At September 30, 1994, Providence Journal Cable had 1,278 full-time and 206
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
Providence Journal Cable is a party to various 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 the Providence
Journal Company'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 Company),
Colony Cablevision (a wholly owned division of Providence Journal Company since
December 1992), Copley/Colony, Inc., (a 50% owned joint venture of Colony), and
King Videocable (a 50% owned joint venture of Providence Journal Company 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 and 1993 and
the combined balance sheet data as of December 31, 1992 and 1993 have been
derived from the audited combined financial statements of Providence Journal
Cable. The combined statement of operations data for the three years ended
December 31, 1989, 1990 and 1991 and the combined balance sheet data as of
December 31, 1989, 1990 and 1991 have been derived from the separate audited
financial statements of Colony and Copley/Colony, Inc. The combined statement
of operations data for the nine months ended September 30, 1993 and 1994 and
the combined balance sheet data as of September 30, 1994 have been derived from
the unaudited financial statements of Providence Journal Cable that, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the nine months
ended September 30, 1994 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1994.
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total Revenue........... $103,979 $114,937 $118,791 $199,684 $281,593 $ 209,442 $ 211,320
Operating expenses...... 45,140 50,049 48,554 76,523 103,637 77,590 85,459
Selling, general and
administrative
expenses............... 25,586 27,396 28,951 45,180 62,446 45,080 43,903
Depreciation and
amortization........... 22,536 23,179 24,640 58,750 92,710 69,656 66,550
Allocation of corporate
overhead (1)........... 3,596 5,947 7,751 6,513 9,651 5,806 5,636
-------- -------- -------- -------- -------- --------- ---------
Operating income........ 7,121 8,366 8,895 12,718 13,149 11,310 9,772
Interest expense, net
(2).................... (1,451) (1,139) (1,300) (19,600) (41,000) (31,900) (30,600)
Loss on abandonment of
assets................. -- -- -- -- (8,244) -- --
Other, net.............. -- -- 4,766 3,675 (779) 1,649 1,622
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 5,670 7,227 12,361 (3,207) (36,874) (18,941) (19,206)
Provision for income
taxes.................. 2,441 3,648 6,166 694 (11,219) (5,371) (4,995)
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
change in accounting
principle and
extraordinary loss..... 3,229 3,579 6,195 (3,901) (25,655) (13,570) (14,211)
Cumulative effect of
change in accounting
principle.............. -- -- -- 4,831 -- -- --
Extraordinary loss, net
of tax benefit......... (249) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------- ---------
Income (loss) before
minority interests..... $ 2,980 $ 3,579 $ 6,195 $ 930 $(25,655) $ (13,570) $ (14,211)
======== ======== ======== ======== ======== ========= =========
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------ AS OF
1989 1990 1991 1992 1993 SEPTEMBER 30, 1994
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $138,301 $140,747 $133,921 $867,150 $813,306 $ 784,488
Long term debt.......... 25,583 22,500 17,500 15,000 -- --
Amounts due to parent
companies.............. 3,097 5,915 1,235 596,885 593,073 587,428
Group equity............ $ 44,172 $ 45,662 $ 51,929 $ 89,334 $ 70,403 $ 59,677
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA (3).............. $ 33,253 $ 37,492 $ 41,286 $ 77,981 $115,510 $ 86,772 $ 81,958
EBITDA as a Percentage
of Revenue............. 32.0% 32.6% 34.8% 39.1% 41.0% 41.4% 38.8%
Net Cash Provided by
Operating Activities... $ 24,534 $ 20,741 $ 28,932 $ 53,736 $ 67,261 $ 53,435 $ 44,421
Capital Expenditures.... $ 22,435 $ 22,605 $ 18,722 $ 27,374 $ 46,415 $ 31,282 $ 36,023
</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) Includes 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PROVIDENCE JOURNAL CABLE
Four cable entities encompass 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, Inc. (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.
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
previously owned by Palmer Communications, Inc. 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 and unaudited 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 which 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------
1991 1992 1993 1993 1994
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Revenues:
Basic cable service........ $ 78,590 $141,262 $205,846 $ 156,161 $ 151,444
Premium cable service...... 27,005 38,193 44,643 32,655 33,944
Advertising sales.......... 6,998 9,946 14,042 9,915 11,760
Pay-per-view............... 2,748 3,727 4,887 3,661 3,889
Other...................... 3,450 6,556 12,175 7,050 10,283
-------- -------- -------- --------- ---------
Total Revenues........... 118,791 199,684 281,593 209,442 211,320
Operating expenses......... 48,554 76,523 103,637 77,590 85,459
Selling, general and
administrative expenses... 28,951 45,180 62,446 45,080 43,903
Depreciation and
amortization.............. 24,640 58,750 92,710 69,656 66,550
Allocation of corporate
overhead.................. 7,751 6,513 9,651 5,806 5,636
-------- -------- -------- --------- ---------
Operating income......... 8,895 12,718 13,149 11,310 9,772
Interest expense, net...... (1,300) (19,600) (41,000) (31,900) (30,600)
Loss on abandonment of
assets.................... -- -- (8,244) -- --
Other, net................. 4,766 3,675 (779) 1,649 1,622
-------- -------- -------- --------- ---------
Income (loss) before income
taxes and cumulative
effect of change in
accounting principle...... 12,361 (3,207) (36,874) (18,941) (19,206)
Provision for income taxes. 6,166 694 (11,219) (5,371) (4,995)
-------- -------- -------- --------- ---------
Income (loss) before change
in accounting principle... 6,195 (3,901) (25,655) (13,570) (14,211)
Cumulative effect of change
in accounting principle... -- 4,831 -- -- --
-------- -------- -------- --------- ---------
Income (loss) before
minority interests........ $ 6,195 $ 930 $(25,655) $(13,570) $(14,211)
======== ======== ======== ========= =========
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
---------------------------- --------------------
1991 1992 1993 1993 1994
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUBSCRIBER INFORMATION:
Basic Subscribers.......... 303,000 722,000 738,000 722,000 753,000
Premium Subscriptions...... 241,000 440,000 467,000 459,000 506,000
Premium Penetration........ 79.4% 61.0% 63.3% 63.6% 67.2%
Monthly Revenue per Average
Basic Subscriber.......... $ 31.02 $ 30.78 $ 30.63 $ 30.79 $ 29.81
Average Monthly Premium
Revenue per Subscription.. $ 9.13 $ 8.80 $ 8.22 $ 8.09 $ 7.77
</TABLE>
Nine months ended September 30, 1994 compared with nine months ended
September 30, 1993. Revenues rose 1% in the first nine months of 1994 compared
with the same period in 1993, reflecting higher basic subscriber levels. Basic
subscribers were up 2% in the first nine months to 753,000 from the December
31, 1993 level with the highest growth in basic subscribers in Hialeah,
Florida, Los Angeles, California and Minneapolis, Minnesota. Monthly revenue
per average basic subscriber was $29.81 in the first nine months of 1994
compared with $30.79 in the comparable period of 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 3.9% while premium subscriptions
increased from 459,000 at September 30, 1993 to 506,000 as of September 30,
1994. The 506,000 premium subscriptions represent
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<PAGE>
an 8.4% increase from the December 31, 1993 level, as new promotional programs
attracted more subscribers. The premium penetration percentage increased from
63.6% to 67.2% during the twelve months ended September 30, 1994. Average
monthly premium revenue per subscription was $8.09 in last year's first nine
months compared with $7.77 in 1994's first nine months. This decline is due to
promotional programs used to attract new premium subscribers at discounted
rates.
First nine months' operating, selling, general and administrative expenses in
1994, excluding depreciation and amortization and allocated corporate overhead,
rose 5.5%. The overall increase in expenses was primarily due to the 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 over the prior year's nine months, reflecting this change in
capitalization policy as well as full amortization of certain intangible assets
associated with the King Videocable acquisition.
Operating income and loss before minority interests both declined due to the
effects of the mandated rate freeze and higher operating expenses.
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 with the Company's purchase of the Naples, Florida
area system on November 30, 1992 and Palm Desert, California area system on
December 31, 1992. Providence Journal's investment in King Videocable added
approximately 222,000 basic subscribers to Providence Journal Cable as of
February 25, 1992. 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. Further internal growth advanced basic subscribers
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 at cable systems
deemed to face effective competition by the FCC. The impact of adjusting rates
to the FCC benchmark was a reduction in revenues for Providence Journal Cable
of approximately $4.9 million 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% between years.
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. 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.
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 $41.0 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 31, 1993 with an average effective interest rate of 7.6%
for 1993. Also, negatively impacting the fourth quarter
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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.
1992 Compared with 1991. Revenues increased 68.1% reflecting ten months of
activity for King Videocable's combined financial results as of the purchase
date, February 25, 1992, and one month of activity for Colony Cablevision's
combined financial results as of the purchase date, November 30, 1992 (the
Naples, Florida system only). Additionally, Providence Journal Cable acquired
Lakewood Cable, Inc. in January 1992, adding approximately 14,000 subscribers.
Basic subscribers increased from 303,000 in 1991 to 722,000 in 1992 as a result
of these acquisitions. Monthly revenue per average basic subscriber declined
from $31.02 in 1991 to $30.78 in 1992, reflecting lower subscriber rates and
premium penetration in acquired businesses.
Premium subscriptions grew 82.6% to 440,000. The premium penetration
percentage was 61.0% in 1992, down from 79.4% in 1991. This decline in premium
penetration results primarily from a low penetration of 54.7% within the King
Videocable subscriber base acquired in February, 1992. Average monthly premium
revenue per subscription decreased from $9.13 in 1991 to $8.80 in 1992.
Operating and selling, general and administrative expenses grew 57.0%,
somewhat less than the 68.1% increase in revenue. Depreciation and amortization
more than doubled to $58.8 million in 1992 reflecting the impact of the
acquisitions.
Operating income increased 43.0% to $12.7 million in 1992 as a result of the
expansion of the PJC Cable Business. Income before minority interests in 1992
was $0.9 million as compared to income before minority interests in 1991 of
$6.2 million. This significant decrease reflects allocated intercompany
interest expense in 1992 totaling $16.5 million on intercompany debt related to
acquisition financings. Offsetting the increase in interest in 1992 was a $4.8
million cumulative benefit for 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 $587.4 million at December 31, 1993 and September 30, 1994,
respectively.
Net cash from operations in 1993 increased $13.5 million from the prior year
resulting from the expansion of the PJC Cable Business through the acquisitions
previously discussed. Net cash from operations in the first nine months of 1994
decreased by $9.0 million compared to the same period in 1993 because of
subscriber rate reductions and increased operating expenses.
At December 31, 1992, Providence Journal Cable had a note payable for $15
million payable in annual installments of $2.5 million. In December 1993,
Providence Journal Cable settled this note payable and incurred a prepayment
penalty equal to $546,000 (included with interest expense).
Providence Journal Cable invests heavily in its cable plant, continually
replacing and modernizing its technology by rebuilding and upgrading its
systems with fiber-optic cable. Capital expenditures increased 69.6% in 1993 to
$46.4 million as compared to $27.4 million in 1992, continuing a substantial
upward trend that began in 1992 and reflecting the expansion of the PJC Cable
Business. 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 November 1994 and the closing of the Merger.
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<PAGE>
During 1992, Providence Journal Cable acquired cable television systems with
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 NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------ ------------------
1992 1993 1993 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided by operating
activities............................ $ 53,736 $ 67,261 $ 53,435 $ 44,421
Capital expenditures................... (27,374) (46,415) (31,282) (36,023)
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 and the nine months ended September 30, 1994
were as follows:
<TABLE>
<CAPTION>
EBITDA % EBITDA
(MILLIONS) INCREASE MARGIN
---------- -------- ------
<S> <C> <C> <C>
1991............................................ $ 41.3 10.1% 34.8%
1992............................................ $ 78.0 88.9% 39.1%
1993............................................ $115.5 48.1% 41.0%
Nine Months ended September 30, 1994............ $ 82.0 38.8%
</TABLE>
EBITDA has increased each year from 1988 to 1993. EBITDA's substantial
increases in 1992 and 1993 were aided by the 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-
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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. In connection with
the rate regulations, Providence Journal Cable answered an FCC inquiry about a
la carte pricing and packaging and has not yet received a final determination
on that inquiry from the FCC.
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. 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.
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DESCRIPTION OF CONTINENTAL
BUSINESS
Continental is currently the fourth largest cable television system operator
in the United States. Continental's six management regions operate cable
television systems/1/ in 16 states, principally in suburban areas and mid-
sized cities. As of September 30, 1994, Continental's systems and those of its
domestic affiliates passed approximately 5,311,000 Homes and provided cable
service to approximately 3,009,000 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 6,982,000 Homes and
serving approximately 3,988,000 basic subscribers in 20 states. Continental
also participates in cable television ventures outside of the United States.
Continental owns an approximate 50% interest in one of the largest cable
television operators 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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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 on a limited
basis 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 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 September 30, 1994, Continental's systems and those of its domestic
affiliates served approximately 3,009,000 basic subscribers and passed
approximately 5,311,000 Homes, making it the fourth 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 6,982,000 Homes and serving approximately 3,988,000
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 located in 16 states and are divided
into six management regions, with no single region accounting for more than
27% 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, 13 years of experience with Continental and
16 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 September 30, 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 83% 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 six 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, 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 September 30, 1994, Continental's 86.0% 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 $35.08 as of September 30, 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 20 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 subscribers and non-
subscribers 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
certain 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 $53 million for the
year ended December 31, 1993 (representing a 31% compound annual growth rate in
advertising revenues) and accounted for 2.3% and 4.5% of total Company revenues
for the years ended December 31, 1989 and 1993, respectively. Continental has
increased its advertising sales through its participation in several regional
cable advertising interconnects (an association 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 Advertising
("NCA"), 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 19%
compound annual growth in pay-per-view revenues from December 31, 1989 to
December 31, 1993; for the year ended December 31, 1993, 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 nine months ended
September 30, 1994 as compared to the same period in 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 17% over the past two 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. To date, local franchise authorities in systems representing
approximately 45% of Continental's 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 43% of Continental's subscriber base. Premium
services such as HBO and Showtime, as well as pay-per-view channels, remain
unregulated. In addition, systems serving approximately 3% 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 is defending
certain of its service rates using the FCC's benchmark methodology in regulated
systems serving approximately 20% of its subscribers and is defending certain
of its service rates using the cost-of-service methodology in regulated systems
serving approximately 25% of its 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 nine months ended September
30, 1994. (See "Management's Discussion and Analysis of Financial Condition
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and Results of 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.
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!"), New England Cable News and QVC. (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, SEPTEMBER 30,
------------------------------- -------------
1991 1992 1993 1994
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Homes Passed by Cable(1)........ 4,880,000 4,981,000 5,192,000 5,311,000
Number of Basic Subscribers(2).. 2,784,000 2,856,000 2,895,000 3,009,000
Basic Penetration(3)............ 57.0% 57.3% 55.8% 56.7%
Number of Premium
Subscriptions(4)............... 2,603,000 2,545,000 2,454,000 2,588,000
Premium Penetration(5).......... 93.5% 89.1% 84.8% 86.0%
Monthly Revenue per Average
Basic Subscriber(6)............ $32.98 $34.46 $35.76 $35.08
</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. In reporting Homes passed and subscriber and
other data for the Continental 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 year ended December 31, 1993 and the nine months
ended September 30, 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 and the nine month period ended
September 30, 1994.
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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
September 30, 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).. 357,791 236,634 66.1% 198,955 84.1%
Southern New England (MA). 270,024 197,567 73.2% 168,685 85.4%
Northern New England (NH,
ME)...................... 225,067 168,269 74.8% 83,415 49.6%
Western New England (MA,
CT)...................... 218,949 146,129 66.7% 116,045 79.4%
New York
(Havistraw/Ossining)..... 76,765 58,291 75.9% 54,522 93.5%
--------- --------- ---- --------- -----
Total................... 1,148,596 806,890 70.3% 621,622 77.0%
========= ========= ==== ========= =====
CALIFORNIA REGION
Southern California....... 1,038,229 323,222 31.1% 428,861 132.7%
Greater Metropolitan
Fresno................... 271,681 144,610 53.2% 154,191 106.6%
Greater Metropolitan
Stockton................. 120,662 67,670 56.1% 58,255 86.1%
Yuba City, California..... 43,468 31,840 73.2% 20,710 65.0%
Reno, Nevada.............. 13,103 9,431 72.0% 6,465 68.6%
--------- --------- ---- --------- -----
Total................... 1,487,143 576,773 38.8% 668,482 115.9%
========= ========= ==== ========= =====
SOUTHEAST REGION
Jacksonville, Florida..... 355,578 207,047 58.2% 183,710 88.7%
Pompano, Florida.......... 232,086 141,951 61.2% 96,404 67.9%
Richmond, Virginia........ 240,052 152,846 63.7% 112,514 73.6%
--------- --------- ---- --------- -----
Total................... 827,716 501,844 60.6% 392,628 78.2%
========= ========= ==== ========= =====
MIDWEST REGION
Greater Metropolitan
Chicago (West)........... 407,310 240,923 59.1% 252,850 105.0%
St. Louis, Missouri....... 171,186 94,954 55.5% 107,275 113.0%
St. Paul, Minnesota....... 146,604 61,512 42.0% 58,062 94.4%
Southern Illinois......... 84,289 59,310 70.4% 32,737 55.2%
--------- --------- ---- --------- -----
Total................... 809,389 456,699 56.4% 450,924 98.7%
========= ========= ==== ========= =====
OHIO REGION
Greater Dayton............ 245,345 163,550 66.7% 93,579 57.2%
Greater Metropolitan
Cleveland................ 120,020 81,601 68.0% 57,546 70.5%
North Central Ohio........ 118,420 81,049 68.4% 47,744 58.9%
--------- --------- ---- --------- -----
Total................... 483,785 326,200 67.4% 198,869 61.0%
========= ========= ==== ========= =====
MICHIGAN REGION
Greater Metropolitan
Detroit.................. 173,731 119,001 68.5% 121,855 102.4%
Lansing and Greater
Metropolitan Lansing..... 124,404 83,892 67.4% 38,881 46.3%
--------- --------- ---- --------- -----
Total................... 298,135 202,893 68.1% 160,736 79.2%
========= ========= ==== ========= =====
Affiliated Companies(1)..... 256,664 137,702 53.7% 94,355 68.5%
--------- --------- ---- --------- -----
Total................... 5,311,428 3,009,001 56.7% 2,587,616 86.0%
========= ========= ==== ========= =====
SYSTEMS DESIGNATION:
Consolidated Systems...... 5,054,764 2,871,299 56.8% 2,493,261 86.8%
Affiliated Companies(1)... 256,664 137,702 53.7% 94,355 68.5%
--------- --------- ---- --------- -----
Total................... 5,311,428 3,009,001 56.7% 2,587,616 86.0%
========= ========= ==== ========= =====
</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. 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 six 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 22% of Continental's total Homes passed and
27% of its total basic subscribers as of September 30, 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 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 bandwidth 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 represents approximately 28% of
Continental's total Homes passed and 19% of its total basic subscribers as of
September 30, 1994. This region includes its systems in Los Angeles, where
Continental is the largest cable operator, with over 80% of its basic
subscribers clustered in geographically contiguous franchises served by two
headends. This region also includes Continental's Northern California cluster,
which includes the cities of Fresno, Visalia, Stockton, and Yuba City, as well
as Reno, Nevada. An upgrade of the Los Angeles systems, that will bring its
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, the California region's subscriber base
will increase by 50%, to more than 860,000 basic subscribers.
Southeast. The Southeast region represents approximately 16% of Continental's
total Homes passed and 17% of its total basic subscribers as of September 30,
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 40%, to more than 700,000 basic subscribers.
Midwest. The Midwest region represents approximately 15% of Continental's
total Homes passed and 15% of its total basic subscribers as of September 30,
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 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 bandwidth 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 86,000 basic subscribers. These basic
subscribers combined with those resulting from the Merger will increase this
region's basic subscribers by 37% to more than 620,000 basic subscribers.
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Ohio. The Ohio region represents approximately 9% of Continental's total
Homes passed and 11% of its total basic subscribers as of September 30, 1994.
This region includes systems in 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 Ohio region is approximately
$36,200.
Michigan. This region represents approximately 6% of Continental's total
Homes passed and 7% of its total basic subscribers as of September 30, 1994.
This region includes Continental's systems in greater metropolitan Detroit and
Lansing, which includes the communities of Southfield, Dearborn Heights,
Westland, Roseville, Lansing and Jackson. The median household income for the
communities served by Continental in the Michigan region is approximately
$43,400.
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 1,176,000 basic subscribers
(approximately 39% of the basic subscribers of Continental and its domestic
affiliates as of September 30, 1994) are scheduled to expire through 1998. 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:
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 cash 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 32,000 basic subscribers in Florida for a cash purchase price of
approximately $67,000,000. These systems are in close proximity to
Continental's existing systems in the region.
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In January 1995, Continental entered into a purchase and sale agreement
to acquire several cable television systems serving approximately 86,000
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 in cash. This acquisition is
expected to close in 1995. Continental is also negotiating 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 Columbia and N-COM
systems are in close proximity to Continental's existing systems in the
Michigan region. There can be no assurances that the Columbia and N-COM
transactions will be consummated. (See "Management's Discussion and
Analysis of Financial Conditions 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>
SEPTEMBER 30,
1994
-------------
<S> <C>
Homes Passed by Cable(1)
Continental..................................................... 5,311,000
Providence Journal.............................................. 1,249,000
Other(2)........................................................ 422,000
---------
Total........................................................... 6,982,000
=========
Number of Basic Subscribers(3)
Continental..................................................... 3,009,000
Providence Journal.............................................. 753,000
Other(2)........................................................ 226,000
---------
Total........................................................... 3,988,000
=========
Basic Penetration(4)
Continental..................................................... 56.7%
Providence Journal.............................................. 60.3%
Other(2)........................................................ 53.6%
---------
Total........................................................... 57.1%
=========
Number of Premium Subscriptions(5)
Continental..................................................... 2,588,000
Providence Journal.............................................. 506,000
Other(2)........................................................ 232,000
---------
Total........................................................... 3,326,000
=========
Premium Penetration(6)
Continental..................................................... 86.0%
Providence Journal.............................................. 67.2%
Other(2)........................................................ 102.7%
---------
Consolidated.................................................... 83.4%
=========
</TABLE>
152
<PAGE>
- --------
(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 acquisitions of cable television systems in Florida in
November 1994 and pending acquisitions in Michigan and Illinois 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 September 30, 1994, through wholly owned
subsidiaries, Continental held minority ownership positions in the following
domestic cable companies.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
------------------------------
HOMES TOTAL BASIC PERCENTAGE
INVESTMENT PASSED SUBSCRIBERS OWNERSHIP
---------- ------- ----------- ----------
<S> <C> <C> <C>
Insight Communications Company, L.P.............. 289,700 145,997 34.42%
Meredith/New Heritage Strategic Partners, L.P.... 265,168 135,725 37.90%
N-COM Limited Partnership II(1).................. 89,588 52,974 33.77%
Prime Cable of Hickory, L.P...................... 50,004 34,159 33.30%
Inland Bay Cable TV Associates................... 19,480 13,766 49.00%
------- -------
Total.......................................... 713,940 382,621
======= =======
</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".)
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 and has signed a letter of intent for a joint venture in Australia.
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
153
<PAGE>
Continental Merger Stock--International Investments".) Continental's
international investments include the following:
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 one of the largest cable television operators 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 September 30, 1994, Fintelco had over 260,000 subscribers in
the province of Buenos Aires, 188,000 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 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 to
grow through acquisitions in these regions.
As of September 30, 1994, Continental had invested approximately
US$108,300,000 in Fintelco and its subsidiaries and had committed to invest an
additional US$26,365,000. 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
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<PAGE>
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$33.3 million (based upon exchange rates as of September 30, 1994) to be paid
through 1996. In addition, Continental has made commitments to SCV to lend up
to approximately US$42 million (based upon exchange rates at September 30,
1994) if third party 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 Private Ltd. ("Optus"), a provider of long-distance and cellular
telephone services in Australia, 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). 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.
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
155
<PAGE>
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".)
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. At September 30, 1994, there were
approximately 2,525 buildings in service connected to TCG networks which span
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 billion nationally, and
switched access services for business represent approximately $45 billion of
the $86.5 billion local telecommunications services market in the United
States.
Through September 30, 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 $46.8 million through 2003, of which $24
million was borrowed at September 30, 1994.
In addition to Continental, the other partners in TCG currently include Cox
Cable Communications, Inc., ("Cox"), TCI and Comcast, which have interests of
30%, 30% and 20%, respectively.
The recently announced business arrangement between Sprint and TCI, Cox and
Comcast (the "Cable Partners") 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, an Executive Vice President of
Continental, and Nancy Hawthorne, a Senior Vice President and Chief Financial
Officer of Continental, serve on the Board of Directors of TCG.
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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") in the 51 Major Trading Areas ("MTAs") of the
United States. A partnership between Continental and Cablevision Systems
Corporation has filed an application with the FCC to bid for PCS licenses in
the Boston, Massachusetts and Cleveland, Ohio MTAs, and Continental
independently has filed an application with the FCC to bid for broadband PCS
licenses in other MTAs, which represent no more than 6.1 million people in the
aggregate. Both the partnership and Continental submitted bids in the first
round of the FCC auctions which began December 5, 1994. There can be no
assurance that this partnership or Continental will be the high bidders in
their respective MTAs. In addition to the direct ownership of these licenses,
this partnership or Continental may invest in entities that are awarded
broadband PCS licenses, may acquire PCS licenses after the auctions from the
successful bidders, and may affiliate with the successful bidders.
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 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 188,000
subscribers nationwide as of November 30, 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 has an investment of $11.9 million in PrimeStar as of September
30, 1994. In addition, a subsidiary of Continental has issued a $38.8 million
standby letter of credit on behalf of PrimeStar to
157
<PAGE>
guarantee a portion of the financing that PrimeStar is incurring to construct a
successor satellite system. Jeffrey T. DeLorme, an Executive Vice President of
Continental, serves on the Board of Directors 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>
1991 1992 1993
---- ------ -------
<S> <C> <C> <C>
Revenues............................................... $700 $5,200 $10,900
Growth Rate............................................ -- 643% 110%
Subscribers............................................ 13.2 44.2 66.8
Growth Rate............................................ -- 235% 51%
</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 $43 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. Comcast and TCI have made a tender offer to purchase all
outstanding QVC shares at $46 per share (which would value Continental's QVC
investment at $27.4 million), and Continental intends to tender its QVC shares.
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 10.2% 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 June 30, 1994, was distributed to over 25 million customers,
representing 44% of U.S. cable television subscribers. Continental's partners
in E! are Comcast, Cox, Newhouse Broadcasting Corp. and TCI, each with a 10.2%
interest, and Time Warner Cable, with a 49% interest. Robert A. Stengel, a
Senior Vice President of Continental, serves on the Board of Directors of E!.
The following is a summary of financial and operating statistics for E!
(information is in thousands except for percentage figures):
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $14,400 $22,100 $31,700
Growth Rate..................................... 73.5% 53.5% 43.4%
Subscribers..................................... 18,600 20,200 23,800
Growth Rate..................................... 5.5% 8.1% 18.3%
</TABLE>
National Cable Advertising. Continental has an 18.75% limited partnership
interest in NCA, a partnership that represents cable television companies to
advertisers. NCA 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 NCA are Cox, Time
Warner Cable and Comcast, each with an 18.75% 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 $2.6 million for
the nine months ended September 30, 1994. William T. Schleyer, an Executive
Vice President 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.
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<PAGE>
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 Board of Directors 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. Michael J.
Ritter, President and Director of Continental, serves on the Board of Directors
of 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.
COMPETITION
Continental's operating strategy, especially its focus on 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.
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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 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
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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
proposed in the last Congress, but not enacted, that would have allowed
nationwide entry by telephone companies into video program delivery, is likely
to be reintroduced in the current Congress. 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
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.
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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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CAPITALIZATION
The following table sets forth Continental's actual and pro forma
consolidated capitalization at September 30, 1994, after giving effect to the
Merger, the Continental Recapitalization Amendment, and other pro forma
transactions described in the Notes to Continental's Pro Forma Condensed
Consolidated Balance Sheet and Statements of Income included elsewhere in this
Joint Proxy Statement-Prospectus. The Continental Stock Split is reflected in
both the actual and pro forma share information. 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 SEPTEMBER 30,
1994
------------------------
ACTUAL PRO FORMA
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Senior Debt:
8 1/2% Senior Notes................................ $ 200,000 $ 200,000
8 5/8% Senior Notes................................ 100,000 100,000
8 7/8% Senior Debentures........................... 275,000 275,000
9% Senior Debentures............................... 300,000 300,000
9 1/2% Senior Debentures........................... 525,000 525,000
1990 Credit Agreement(1)........................... 722,650 --
1992 Credit Facility............................... 186,750 --
1994 Credit Facility(1)............................ -- 1,734,324
New Cable Indebtedness............................. -- 755,000
Prudential Notes................................... 150,000 150,000
----------- -----------
Total Senior Debt................................ 2,459,400 4,039,324
Subordinated Debt:
10 5/8% Senior Subordinated Notes.................. 100,000 100,000
11% Senior Subordinated Debentures................. 300,000 300,000
12 7/8% Senior Subordinated Debentures............. 325,000 --
Senior Subordinated Floating Rate Debentures....... 100,000 100,000
----------- -----------
Total Subordinated Debt.......................... 825,000 500,000
----------- -----------
Other Debt:.......................................... 26,120 26,120
----------- -----------
Total Debt....................................... 3,310,520 4,565,444
----------- -----------
Redeemable Common Stock, $.01 par value; 16,684,150
shares outstanding.................................. 227,844 227,844
----------- -----------
Stockholders' Equity (Deficiency):
Preferred Stock, $.01 par value; 193,870,042
authorized, none issued........................... -- --
Series A Convertible Preferred Stock, $.01 par
value; 1,142,858 shares authorized and
outstanding; liquidation preference of
478,301,000....................................... 11 11
Series B Preferred Stock, $.01 par value, 4,987,113
shares authorized, and outstanding................ -- 50
Class A Common Stock, $.01 par value; 425,000,000
shares authorized, 35,267,284 shares outstanding.. 3 353
Class B Common Stock, $.01 par value; 200,000,000
shares authorized, 90,297,750 shares outstanding.. 36 903
Additional Paid-In Capital......................... 557,424 1,201,156
Unearned Compensation.............................. (14,912) (14,911)
Net Unrealized Holding Gain on Marketable Equity
Securities........................................ 60,526 60,526
Deficit:........................................... (2,261,402) (2,278,188)
----------- -----------
Stockholders' Equity (Deficiency)................ (1,658,314) (1,030,100)
----------- -----------
Total Capitalization........................... $ 1,880,050 $ 3,763,188
=========== ===========
</TABLE>
(1) The 1994 Credit Facility represents an amendment and restatement of the
1990 Credit Agreement.
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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, 1991 through December 31, 1993
and the nine months ended September 30, 1993 and 1994 contained elsewhere
herein. The unaudited selected historical financial information for the nine
months ended September 30, 1993 and 1994 reflects all adjustments of a normal
recurring nature that are, in the opinion of management, necessary for a fair
presentation of that information. Results of operations for the nine months
ended September 30, 1993 and 1994 are not necessarily indicative of the results
that may be expected for any other interim period or the year as a whole.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------------------- -------------------
1989(1) 1990 1991 1992 1993 1993 1994
--------- --------- ---------- ---------- ---------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 780,610 $ 938,032 $1,039,163 $1,113,475 $1,177,163 $ 880,238 $885,636
Costs and Expenses:
Operating.............. 257,737 316,199 347,469 365,513 382,195 286,903 300,077
Selling, General and
Administrative........ 199,119 231,338 246,986 259,632 267,376 198,390 195,901
Depreciation and
Amortization.......... 235,266 264,139 269,363 279,403 284,563 210,950 210,728
Non-Cash Stock
Compensation(2)....... 4,354 6,903 10,067 9,683 11,004 8,069 8,502
--------- --------- ---------- ---------- ---------- --------- --------
Total................ 696,476 818,579 873,885 914,231 945,138 704,312 715,208
--------- --------- ---------- ---------- ---------- --------- --------
Operating Income........ 84,134 119,453 165,278 199,244 232,025 175,926 170,428
--------- --------- ---------- ---------- ---------- --------- --------
Interest (Net).......... 268,089 312,422 323,123 289,479 276,698 201,936 223,580
Other (Income)
Expenses(3)............ (5,334) 1,000 1,936 11,071 (10,978) 3,773 12,192
--------- --------- ---------- ---------- ---------- --------- --------
Total................ 262,755 313,422 325,059 300,550 265,720 205,709 235,772
--------- --------- ---------- ---------- ---------- --------- --------
Loss before Income
Taxes, Extraordinary
Item and Cumulative
Effect of Accounting
Change................. (178,621) (193,969) (159,781) (101,306) (33,695) (29,783) (65,344)
Benefit (Provision) for
Income Taxes........... 3,984 (1,482) (1,861) (1,654) 7,921 9,408 24,752
--------- --------- ---------- ---------- ---------- --------- --------
Loss before
Extraordinary Item and
Cumulative Effect of
Accounting Change...... (174,637) (195,451) (161,642) (102,960) (25,774) (20,375) (40,592)
Extraordinary Item...... (18,169) -- -- -- -- -- --
--------- --------- ---------- ---------- ---------- --------- --------
Loss before Cumulative
Effect of Accounting
Change................. (192,806) (195,451) (161,642) (102,960) (25,774) (20,375) (40,592)
Cumulative Effect of
Accounting Change...... -- -- -- -- (184,996) (184,996) --
--------- --------- ---------- ---------- ---------- --------- --------
Net Loss................ (192,806) (195,451) (161,642) (102,960) (210,770) (205,371) (40,592)
Preferred Stock
Preferences............ (55,496) (61,102) (5,771) (16,861) (34,115) (25,355) (27,325)
--------- --------- ---------- ---------- ---------- --------- --------
Loss Available for
Common Stockholders.... $(248,302) $(256,553) $ (167,413) $ (119,821) $ (244,885) $(230,726) $(67,917)
========= ========= ========== ========== ========== ========= ========
Loss Per Common Share:
Before Extraordinary
Item and Cumulative
Effect of Accounting
Change................. $ (44.88) $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (10.04) $ (14.89)
Extraordinary Item...... (3.54) -- -- -- -- -- --
Cumulative Effect of
Accounting Change...... -- -- -- -- (40.55) (40.62) --
--------- --------- ---------- ---------- ---------- --------- --------
Net Loss................ $ (48.42) $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (50.66) $ (14.89)
========= ========= ========== ========== ========== ========= ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1989 1990 1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............ $ 2,200,636 $ 2,175,120 $ 2,082,182 $ 2,003,196 $ 2,091,853 $ 2,169,566 $ 2,329,351
Total Debt.............. 2,518,662 3,127,347 3,338,281 3,011,669 3,177,178 3,209,680 3,310,520
Redeemable Preferred
Stock.................. 548,801 157,835 -- -- -- -- --
Redeemable Common Stock. 427,748 436,700 445,463 223,716 213,548 230,764 227,844
Stockholder's Equity
(Deficiency)........... (1,500,869) (1,759,535) (1,919,525) (1,486,231) (1,667,088) (1,690,824) (1,658,314)
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1989(1) 1990 1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(4)............... $323,754 $390,495 $444,708 $488,330 $527,592 $394,945 $389,658
EBITDA to Revenues...... 41.5% 41.6% 42.8% 43.9% 44.8% 44.9% 44.0%
Total Debt to EBITDA(4). 7.78 8.01 7.51 6.17 6.02 6.10 6.37
EBITDA to Total Interest
Expense................ 1.21 1.25 1.38 1.69 1.91 1.96 1.74
Net Cash Provided From
Operating Activities... 64,783 82,196 123,543 215,045 250,504 167,288 149,084
Capital Expenditures.... 182,688 166,938 145,846 145,189 185,691 131,835 183,818
</TABLE>
- --------
(1) In July 1989, in four separate redemption transactions, Continental
acquired all of the outstanding limited partnership interests of the
American Partnerships, four partnerships managed by American Cablesystems
Corporation ("American"), a subsidiary of Continental acquired in 1988 (the
"American Partnerships"). The aggregate price paid with respect to the
American Partnerships, including the retirement of substantially all
outstanding debt of each of the American Partnerships (other than debt
owing to American) and the payment of fees and expenses, was approximately
$380,000,000.
(2) 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.)
(3) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, gains on
sale of marketable equity securities of $16,032,000 during 1989, and gains
of ($10,253,000) and ($17,067,000) from Continental's sales of its
investment in affiliates in 1992 and 1993, respectively (before post-
closing adjustments). (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental".)
(4) 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".)
For purposes of calculating the ratio of Total Debt to EBITDA for the nine
months ended September 30, 1993 and 1994, EBITDA has been annualized.
165
<PAGE>
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------- -------------------
1991 1992 1993 1993 1994
---------- ---------- ---------- --------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Basic Cable Service.... $ 714,425 $ 791,351 $ 846,538 $ 634,734 $633,053
Premium Cable Service.. 260,773 249,038 242,981 182,214 183,582
Advertising............ 31,468 43,392 52,618 37,257 40,435
Pay-Per-View........... 24,522 22,375 26,151 20,117 19,047
Other.................. 7,975 7,319 8,875 5,916 9,519
---------- ---------- ---------- --------- --------
Total................. 1,039,163 1,113,475 1,177,163 880,238 885,636
Operating, Selling,
General and
Administrative
Expenses............... 594,455 625,145 649,571 485,293 495,978
Depreciation and
Amortization........... 269,363 279,403 284,563 210,950 210,728
Non-Cash Stock
Compensation........... 10,067 9,683 11,004 8,069 8,502
---------- ---------- ---------- --------- --------
Operating Income........ 165,278 199,244 232,025 175,926 170,428
Interest................ 323,123 289,479 276,698 201,936 223,580
Other (Income) Expenses. 1,936 11,071 (10,978) 3,773 12,192
---------- ---------- ---------- --------- --------
Loss before Income Taxes
and Cumulative Effect
of
Accounting Change...... (159,781) (101,306) (33,695) (29,783) (65,344)
Benefit (Provision) for
Income Taxes........... (1,861) (1,654) 7,921 9,408 24,752
---------- ---------- ---------- --------- --------
Loss before Cumulative
Effect of Accounting
Change................. (161,642) (102,960) (25,774) (20,375) (40,592)
Cumulative Effect of
Change in Accounting
Principle.............. -- -- (184,996) (184,996) --
---------- ---------- ---------- --------- --------
Net Loss................ $ (161,642) $ (102,960) $ (210,770) $(205,371) $(40,592)
========== ========== ========== ========= ======== ===
OTHER DATA:
EBITDA.................. $ 444,708 $ 488,330 $ 527,592 $ 394,945 $389,658
EBITDA as a % of
Revenue................ 42.8% 43.9% 44.8% 44.9% 44.0%
</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) 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.
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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 nine months ended September 30, 1994
increased only 0.6% over the same period in 1993 as a result of rate reductions
and revenue reserves recorded in connection with the FCC rate regulations. 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.
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.
Nine Months Ended September 30, 1994 Compared to Nine Months Ended September
30, 1993--Revenues increased by 0.6% (or $5,398,000) to $885,636,000. The June
30, 1994 acquisition of a cable television system in Manchester, New Hampshire
serving approximately 44,000 basic subscribers accounted for $3,018,000 of such
increase. (See "Domestic Acquisitions and Investments--Domestic Acquisitions".)
Excluding the effects of this acquisition, revenue increased by 0.3% (or
$2,380,000) as a result of a 1.7% increase in basic subscribers and an increase
in premium and certain other revenue, net of a decrease in monthly basic
revenue per average basic subscriber from $25.73 to $25.13. The $.60 decrease
reflected (i) a decrease of $.18 in basic revenues primarily due to rate
reductions made in accordance with the FCC's rate regulations, offset by
increases in installation revenues, and (ii) a decrease of $.42 due to a
$10,500,000 non-cash revenue reserve recorded during the nine months ended
September 30, 1994. (See "Liquidity and Capital Resources--Recent Legislation"
and "Legislation and Regulation".) Revenues from premium cable services
increased by $923,000 (excluding the acquisition of the cable system in
Manchester, New Hampshire) due to an increase in premium subscriptions from
2,473,000 to 2,588,000. The increase in revenues was also due to a $3,178,000
increase in advertising revenue and a $3,603,000 increase in other revenue due
to continued growth in home shopping revenue, net of a $1,070,000 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 2.2% to
$495,978,000, primarily due to the Manchester acquisition and to increases in
programming costs and wages. Depreciation and amortization expenses decreased
0.1% to $210,728,000. Non-cash stock compensation increased 5% to $8,502,000
due to the vesting of a greater percentage of shares issued under Continental's
Restricted Stock Purchase Program as compared to the same period in 1993.
Operating income decreased 3% to $170,428,000. Interest expense increased
approximately 10.7% to $223,580,000 due to a 4% increase in average debt
outstanding and an increase in the effective interest rate from 8.7% to 9.3%.
Equity in net loss of affiliates increased from $7,812,000 to $14,413,000,
primarily due to Continental recording its proportionate share of losses from
TCG and its affiliates.
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<PAGE>
As a result of such factors, loss before the cumulative effect of the
accounting change for the nine months ended September 30, 1994, compared to
September 30, 1993, increased by $20,217,000 to $40,592,000, and net loss for
the nine months ended September 30, 1994, compared to September 30, 1993,
decreased from $205,371,000 to $40,592,000. 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.
1993 Compared to 1992--Revenues increased 6% to $1,177,163,000, as a result
of a 1% increase in basic subscribers to 2,915,000 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% to $284,563,000. 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 16% to $232,025,000. Interest expense decreased 4% to
$276,698,000 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 ("NCC"). 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.
1992 Compared to 1991--Revenues increased 7% to $1,113,475,000 as a result
of a 3% increase in basic subscribers to 2,876,000 and an increase in monthly
revenue per average basic subscriber from $32.98 to $34.46. The $1.48 increase
reflected primarily (i) an increase of $1.79 due to basic rate increases and
revenue growth from other basic services, (ii) an increase of $.34 in
advertising revenue, (iii) a decrease of $.08 in pay-per-view revenue due to
the lack of availability of high-profile sporting events which could be
offered as compared to 1991, a condition that prevailed industry-wide in 1992,
and (iv) a decrease of $.57
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<PAGE>
in premium subscription revenue due to the decrease in the pay-to-basic
percentage from 92.9% to 88.5%, again reflecting industry-wide trends. The
total number of premium subscriptions decreased from 2,603,000 to 2,545,000 in
1992.
Operating, selling, general and administrative expenses increased 5% to
$625,145,000, a rate of growth less than that of revenues, reflecting continued
operating efficiencies. Depreciation and amortization expenses increased 4% to
$279,403,000 primarily as a result of the write-off of previously deferred
financing costs. Non-cash stock compensation decreased 4% to $9,683,000 due to
the vesting of a reduced percentage of shares issued under Continental's
Restricted Stock Purchase Program as compared to 1991. Operating income
increased 21% to $199,244,000. Interest expense decreased 10% to $289,479,000
due to a reduction in debt of $326,612,000 and lower effective interest rates
during 1992. Other (income) expenses included a preliminary gain on the sale of
Continental's interest in NCC of $10,253,000, before post-closing adjustments.
Other (income) expenses also included a charge of $10,280,000 due to the
litigation relating to the American Partnerships. As a result of such factors,
1992 net loss decreased $58,682,000 to $102,960,000.
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 increased 8% to
$527,592,000 and 10% to $488,330,000 during the years ended December 31, 1993
and 1992, respectively. The increases were a direct result of increases in
revenue. EBITDA decreased 1% to $389,658,000 during the nine months ended
September 30, 1994 compared to the nine months ended September 30, 1993
primarily as a result of rate reductions and the recording of revenue reserves
in connection with the FCC's rate regulations.
* * * *
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
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<PAGE>
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.
The following table sets forth for the period indicated certain items from
Continental's Statements of Consolidated Cash Flows.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1994
-----------------
<S> <C>
NET CASH PROVIDED FROM OPERATING ACTIVITIES............ $ 149,084
=========
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES:
Net Borrowings (Repayments).......................... $ 133,342
Stock Repurchased and Dividends Paid................. (4,755)
Issuance of Stock.................................... --
Other................................................ 779
---------
Total.............................................. $ 129,366
=========
NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES:
Acquisitions, Net of Liabilities Assumed and Cash
Acquired............................................ $ (47,990)
Property, Plant and Equipment........................ (183,818)
Investments.......................................... (157,587)
Other Assets......................................... (424)
Purchase of Marketable Equity Securities............. --
Proceeds from Sale of Marketable Equity Securities... 17,553
Proceeds from Sale of Investments.................... --
---------
Total.............................................. $(372,266)
=========
</TABLE>
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 $18,800,000 in financing fees,
which will be reflected in other assets for the year ended December 31, 1994.
On November 16, 1994, Continental borrowed $345,923,000 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 $11,314,000,
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.
Credit Arrangements of Continental. On September 30, 1994, taking into
account the 1994 Credit Facility as if it were outstanding on September 30,
1994 and the application of certain borrowings thereunder to prepay and
terminate the 1990 Credit Agreement and the 1992 Credit Facility and to redeem
the 12 7/8% Senior Subordinated Debentures, Continental had the following
credit arrangements: (i) the 1994 Credit Facility; (ii) $150,000,000 of 10.12%
Senior Notes due 1999 to The Prudential Life Insurance Company (the
170
<PAGE>
"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
$26,120,000 on September 30, 1994. As of January 15, 1995, Continental had
credit availability of $780,580,000 under the 1994 Credit Facility.
In addition, Continental has provided a standby letter of credit of
$38,750,000 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 over
the next two years 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, 1993
(giving effect to the closing of the 1994 Credit Facility and the refinancing
of the 1992 Credit Facility with a portion of the proceeds from the 1994 Credit
Facility) for the years ending December 31, 1994, 1995, 1996, 1997 and 1998
will be $21,526,000, $24,250,000, $27,250,000, $30,550,000 and $33,250,000,
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
September 30, 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 6.75%.
. As of September 30, 1994, Continental had $600,000,000 of Interest Rate
Cap Agreements ("Caps"), which limit 6-month LIBOR to approximately 7%.
Continental amortizes the cost of its Caps over the life of the Cap
agreement as an adjustment to interest expense.
As of September 30, 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 64%. 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 first nine months of 1994, capital expenditures, excluding
acquisitions, totalled $183,818,000, and expenditures for the acquisition in
Manchester, New Hampshire totalled $47,990,000 (subject to post-closing
adjustments), respectively. Continental budgeted approximately $275,000,000 for
capital expenditures for its systems during 1994 and 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
$65,000,000 for DBS home-premises equipment in connection with its role as a
distributor for PrimeStar. However, Continental is continually reevaluating 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
171
<PAGE>
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. (See "Domestic
Operating Strategy--Technologically Advanced Systems".)
In November 1994, Continental purchased several cable television systems
serving approximately 32,000 basic subscribers in Florida for approximately
$67,000,000. 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. This acquisition is
expected to close in 1995. In January 1995, Continental entered into a
purchase and sale agreement to purchase several cable television systems
serving approximately 86,000 basic subscribers near Chicago, Illinois, for
approximately $168,500,000. This acquisition is expected to close in 1995. In
addition, Continental anticipates that it will acquire a cable system serving
approximately 12,000 basic subscribers in Northern California for
approximately $17,000,000 in 1995. Continental is also negotiating 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. For the most part, these cable television systems
serve communities that are contiguous or in close proximity to existing
Continental systems. Continental is continually reevaluating its acquisition
plans, and 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 $46,800,000
to TCG through 2003, of which $24,000,000 was advanced as of September 30,
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.
Continental also owns an approximate 10% partnership interest in PrimeStar
and has an investment of $11,850,000 as of September 30, 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.
International Investments. During the nine-month period ended September 30,
1994, Continental advanced US$108,300,000 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
subject to certain regulatory approvals. (See "International Operations".) In
addition, Continental has recorded commitments to contribute an additional
US$26,365,000 to Fintelco in order to finance a portion of certain
acquisitions of Argentine cable television systems.
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 US$33,300,000 (based on
exchange rates at September 30, 1994) in additional capital through 1996. In
addition, Continental has committed to lend up to approximately US$42,000,000
(based on exchange rates at September 30, 1994) if third-party debt financing
is unavailable to SCV. (See "International Operations".)
172
<PAGE>
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.
Other Investment Activities. During the nine months ended September 30, 1994,
Continental sold all of its shares of common stock of International CableTel,
Incorporated for approximately $17,553,000.
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 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 a private placement of
Continental Class A Common Stock which occurred in November 1993. 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.
173
<PAGE>
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 from 1,228,193 to 667,366 shares (30,704,825 and
16,684,150 shares, respectively, giving effect to the Continental
Recapitalization Amendment and the Continental Stock Split) (representing
approximately % 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's 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 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 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 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 or that the terms available for such financing would
be favorable to Continental.
174
<PAGE>
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. 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.
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 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 is defending certain of its
service rates using the FCC's benchmark methodology in regulated systems
serving approximately 20% of its subscribers, and is defending certain of its
service rates using the cost-of-service methodology in regulated systems
serving approximately 25% of its 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 3% 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 52% of Continental's basic
subscribers are currently not subject to rate regulation because either a rate
complaint has not been filed or 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.
If Continental is not successful in its current and any future cost-of-
service filings, the FCC rate regulations could have a material adverse impact
on Continental's future results of operations.
175
<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 September 30, 1994, and gives effect to (i) the
Merger and certain related transactions, including the assumption of $755,000
of additional indebtedness; (ii) the closing of the 1994 Credit Facility (an
amendment and restatement of the 1990 Credit Agreement) and prepayment of a
previously existing bank facility; (iii) the redemption of the 12 7/8% Senior
Subordinated Debentures ("12 7/8% Debt") at a redemption price equal to
106.438%; and (iv) various other acquisitions of domestic cable television
systems (Columbia Cable of Michigan, Clay Cablevision, Cablevision of Chicago,
and N-Com); and (v) the Continental Stock Split, in each instance as though
each of such events had occurred as of September 30, 1994. The following
unaudited Pro Forma Condensed Statements of Operations for the nine months
ended September 30, 1994 and year ended December 31, 1993 give effect to each
of the foregoing as though each of such events and the Manchester acquisition
had occurred at January 1, 1993. 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 Statements of Operations are not
necessarily indicative of the actual results of operations which would have
been reported if the acquisitions described above had occurred as of the
beginning of the respective periods 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.
176
<PAGE>
PRO FORMA CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 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.................... $ 28,824 $ 2,877 (1) $ 12,901 $ 168 $ $ 13,069
(18,800)(2)
Accounts Receivable--
net.................... 47,414 1,121 (1) 48,535 23,837 -- 72,372
Prepaid Expenses and
Other.................. 8,037 (1,500)(1) 6,537 4,625 -- 11,162
Supplies................ 48,821 -- 48,821 6,829 -- 55,650
Marketable Equity
Securities............. 144,558 -- 144,558 -- -- 144,558
Investments............. 305,725 -- 305,725 -- -- 305,725
Property, Plant and
Equipment--net......... 1,273,748 152,378 (1) 1,426,126 253,878 166,122 (4) 1,846,126
Intangible and Other
Assets--net............ 472,224 349,737 (1) 833,585 495,151 842,380 (4) 2,171,116
11,624 (2)
----------- -------- ----------- -------- ---------- -----------
TOTAL................. $ 2,329,351 $497,437 $ 2,826,788 $784,488 $1,008,502 $ 4,619,778
=========== ======== =========== ======== ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Accounts Payable........ $ 45,717 $ 441 (1) $ 46,158 $ 11,190 $ -- $ 57,348
Accrued Interest........ 62,849 -- 62,849 -- -- 62,849
Accrued and Other
Liabilities............ 185,712 3,557 (1) 189,269 32,250 -- 221,519
Debt.................... 3,310,520 479,000 (1) 3,810,444 -- 755,000 (4) 4,565,444
20,924 (2)
Due to Affiliate........ -- -- -- 587,428 (587,428)(4) --
Deferred Income Taxes... 152,110 21,615 (1) 162,411 66,589 282,961 (4) 511,961
(11,314)(2)
Minority Interest in
Subsidiaries........... 2,913 -- 2,913 27,354 (27,354)(4) 2,913
Redeemable Common Stock. 227,844 -- 227,844 -- -- 227,844
Stockholders' Equity
(Deficiency):
Series A Convertible
Preferred Stock....... 11 -- 11 -- -- 11
Series B Convertible
Preferred Stock....... -- -- -- -- 50 (4) 50
Common Stock........... 39 935 (3) 974 -- 282 (4) 1,256
Additional Paid-In
Capital............... 557,424 (935)(3) 556,489 -- 644,668 (4) 1,201,157
Unearned Compensation.. (14,912) -- (14,912) -- -- (14,912)
Net Unrealized Holding
Gain on Marketable
Equity Securities..... 60,526 -- 60,526 -- -- 60,526
Retained Earnings
(Deficit)............. (2,261,402) (16,786)(2) (2,278,188) 59,677 (59,677)(4) (2,278,188)
----------- -------- ----------- -------- ---------- -----------
TOTAL................. $ 2,329,351 $497,437 $ 2,826,788 $784,488 $1,008,502 $ 4,619,778
=========== ======== =========== ======== ========== ===========
</TABLE>
See Notes to Pro Forma Condensed Balance Sheets.
177
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEETS
The following adjustments are presented to reflect the effects of recording
the acquisitions and applying purchase accounting to the accounts of the
following cable systems; (i) Columbia Cable of Michigan, purchase price of
approximately $155,000,000; (ii) Clay Cablevision, purchase price of
approximately $67,000,000; (iii) Cablevision of Chicago, purchase price of
approximately $168,500,000; and (iv) N-Com Limited Partnership II, 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......................... $409,403
Liabilities of Cable Television Systems assumed.................... 71,097
--------
Total $480,500
========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment.............. $152,378
Estimated Fair Value of Acquired Franchises........................ 328,122
Deferred Taxes Related to Property, Plant and Equipment and
Acquired Franchise Write-up ($480,500-$425,078) X 39%............. (21,615)
--------
458,885
--------
Excess of Purchase Price Over Property, Plant and Equipment and
Acquired Franchises............................................... $ 21,615
========
</TABLE>
(1) To record the fair value of property, plant and equipment, franchise costs
and certain current asset and current liabilities of the above cable
television systems. Continental will borrow $479,000,000 in debt to finance
the acquisitions and refinance liabilities assumed. As of September 30,
1994 a deposit of $1,500,000 was recorded relating to Clay Cablevision. The
preliminary estimates of the fair value of property, plant and equipment
and acquired franchises may change upon final appraisal.
(2) To record (i) an increase in debt due to the payment of a premium of
$20,924,000 for the redemption of the 12 7/8% Debt; (ii) a net increase of
$11,624,000 to other assets as a result of the deferral of $18,800,000 in
fees associated with the closing of the 1994 Credit Facility and the write-
off of $7,176,000 relating to the 12 7/8% Debt; and (iii) deferred tax
benefit as a result of the premium paid and unamortized costs written off.
(3) To record the increase in Continental Common Stock due to the Continental
Stock Split.
178
<PAGE>
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
Net Working Capital Deficit and Other Assets/Liabilities of
Providence Journal Cable Assumed by Continental.................. 74,570
----------
Total.......................................................... $1,474,570
==========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment............ $ 420,000
Estimated Fair Value of Acquired Franchises...................... 1,054,570
Deferred Taxes Related to Property, Plant and Equipment
and Acquired Franchise Write-up ([$1,474,570--$749,029] X 39%).. (282,961)
----------
1,191,609
----------
Excess of Purchase Price Over Property, Plant and Equipment
and Acquired Franchises......................................... $ 282,961
==========
</TABLE>
(4) To record $755,000,000 of New Cable Indebtedness which was borrowed to (i)
repay Providence Journal and KHC's existing indebtedness, (ii) to purchase
all of the remaining interests of the Kelso Partnerships in KHC and (iii)
to purchase the minority interests in certain PJC Cable Subsidiaries. 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 Shares to be issued to shareholders of Providence
Journal Company in exchange for shares of Restructured PJC Common Stock. 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 PJ Cable. Such
amount may change upon final appraisal.
179
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $1,177,163 $102,769 (1) $1,279,932 $281,593 $ -- $1,561,525
Costs and Expenses:
Operating.............. 382,195 42,441 (1) 424,636 103,637 -- 528,273
Selling, General and
Administrative........ 267,376 19,863 (1) 287,239 62,446 -- 349,685
Allocated Corporate
Overhead from Parent
Companies............. 9,651 (9,651)(4) --
Restricted Stock
Purchase Program...... 11,004 11,004 -- -- 11,004
1,371 (3)
Depreciation and
Amortization.......... 284,563 27,138 (1) 313,072 92,710 (17,710)(5) 388,072
---------- -------- ---------- -------- ------- ----------
Total................ 945,138 90,813 1,035,951 268,444 (27,361) 1,277,034
---------- -------- ---------- -------- ------- ----------
Operating Income........ 232,025 11,956 243,981 13,149 27,361 284,491
---------- -------- ---------- -------- ------- ----------
Interest Expense--net... 276,698 (21,088)(2) 287,525 41,779 5,362 (6) 334,666
31,915 (1)
Other Expenses--net..... (11,162) 2,477 (1) (8,685) 8,244 -- (441)
Minority Interest....... 184 -- 184 -- -- 184
---------- -------- ---------- -------- ------- ----------
Loss from Operations.... (33,695) (1,348) (35,043) (36,874) 21,999 (49,918)
Income Tax Benefit...... (7,921) (525)(7) (8,446) (11,219) 8,579 (7) (11,086)
---------- -------- ---------- -------- ------- ----------
Net Loss................ $ (25,774) $ (823) $ (26,597) $(25,655) $13,420 $ (38,832)
========== ======== ========== ======== ======= ==========
Pro Forma Per Share
Data:
Earnings Per Share..... $ (.59)
==========
Average Common Shares
Outstanding........... 142,315 (8)
==========
</TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $885,636 $77,077 (1) $962,713 $211,320 $ -- $1,174,033
Costs and Expenses:
Operating.............. 300,077 32,170 (1) 332,247 85,459 -- 417,706
Selling, General and
Administrative........ 195,901 14,862 (1) 210,763 43,903 -- 254,666
Allocated Corporate
Overhead from Parent
Companies............. 5,636 (5,636)(4) --
Restricted Stock
Purchase Program...... 8,502 8,502 -- -- 8,502
1,028 (3)
Depreciation and
Amortization.......... 210,728 19,246 (1) 231,002 66,550 (10,300)(5) 287,252
-------- ------- -------- -------- ------- ----------
Total................ 715,208 67,306 782,514 201,548 (15,936) 968,126
-------- ------- -------- -------- ------- ----------
Operating Income........ 170,428 9,771 180,199 9,772 15,936 205,907
-------- ------- -------- -------- ------- ----------
Interest Expense--net... 223,580 (19,359)(2) 229,208 28,978 6,112 (6) 264,298
24,987 (1)
Other Expenses--net..... 12,275 1,857 (1) 14,132 -- 14,132
Minority Interest....... (83) -- (83) -- -- (83)
-------- ------- -------- -------- ------- ----------
Loss from Operations.... (65,344) 2,286 (63,058) (19,206) 9,824 (72,440)
Income Tax (Benefit).... (24,752) 892 (7) (23,860) (4,995) 3,831 (7) (25,024)
-------- ------- -------- -------- ------- ----------
Net Loss................ $(40,592) $ 1,394 $(39,198) $(14,211) $ 5,993 $ (47,416)
======== ======= ======== ======== ======= ==========
Pro Forma Per Share
Data:
Earnings Per Share..... $ (.58)
==========
Average Common Shares
Outstanding........... 142,319 (8)
==========
</TABLE>
See Notes to Pro Forma Condensed Statement of Operations.
180
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(1) To record the results of operations for the cable television systems
acquired or to be acquired. 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
also include an adjustment for interest expense as a result of the
additional debt incurred to finance the acquisitions and an adjustment to
depreciation and amortization to reflect the increased book value for
property, plant and equipment and intangible 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 Merger are amortized over 40
years. Such depreciation and amortization may change upon final appraisal.
(2) To record the decrease in interest expense as a result of the redemption of
the $325,000,000 of 12 7/8% Debt. The incremental interest rate was 6% and
6 1/2% for the year ended December 31, 1993 and the nine months ended
September 30, 1994, respectively.
(3) To record the increase in amortization expense as a result of the net
increase in other assets due to deferred financing costs
(4) To reverse the PJC Cable Business' Allocated Corporate Overhead from Parent
Companies.
(5) To adjust depreciation and amortization expense relating to the increased
book value for property, plant and equipment and intangible asset costs.
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 record additional interest expense due to the increase in debt as a
result of the New Cable Indebtedness, net of repayment of the PJC Cable
Business' intercompany debt. The incremental interest rate was 6% and 6
1/2% for the year ended December 31, 1993 and the nine months ended
September 30, 1994, respectively.
(7) To record the tax effect at an effective rate of 39%.
(8) Represents mid-point in the range of shares to be outstanding upon the
consummation of the Merger and the Continental Stock Split (each share of
Common Stock shall become 25 shares of Common Stock).
181
<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 January 1, 1995 there were 150 holders of record of the Continental
Class A Common Stock and 268 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>
Chairman of the Board, Chief Executive
Amos B. Hostetter, Jr.(1)........ Officer and Director
Timothy P. Neher................. Vice Chairman of the Board and Director
President, Chief Operating Officer and
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
William T. Schleyer.............. Executive Vice President
Jeffrey T. DeLorme............... Executive Vice President
Senior Vice President and Chief
Nancy Hawthorne.................. Financial Officer
<CAPTION>
NAMES OF OTHER OFFICERS POSITION WITH CONTINENTAL
----------------------- -------------------------
<C> <S>
Andrew L. Dixon, Jr.............. Senior Vice President--Human Resources
Senior Vice President--Engineering and
David M. Fellows................. Technology
Senior Vice President and Corporate
Richard A. Hoffstein............. Controller
Frederick C. Livingston.......... Senior Vice President--Marketing
Senior Vice President--Corporate and
Robert J. Sachs.................. Legal Affairs
Robert A. Stengel................ Senior Vice President--Programming
Senior Vice President--Information
Robert A. Strickland............. Systems
P. Eric Krauss................... Treasurer
Nancy B. Larkin.................. Vice President--Community Relations
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
182
<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 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. 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.
Michael J. Ritter (53) is the President and Chief Operating Officer of
Continental. He has been a Director since 1991 and has been employed by
Continental since 1980. 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. Mr. Ritter has announced his
intention to retire as President and Chief Operating Officer of Continental,
effective April 1995.
183
<PAGE>
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 (51) has been general partner of the following venture
capital 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. and Manugistics, Inc. 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.
William T. Schleyer (43) is an Executive Vice President of Continental.
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 Cable Television Laboratories, Inc., the research and development
arm of the cable industry, and TCG. He has been employed by Continental since
1978. Mr. Schleyer's appointment as President and Chief Operating Officer of
Continental has been announced and will be effective in April 1995.
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.
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 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.
184
<PAGE>
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.
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 (48) 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 (45) 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 the Treasurer of Continental. Prior to December 1993,
he was the Assistant Treasurer of Continental. He has been employed by
Continental since January 1, 1990. He was formerly employed by The First
National Bank of Boston since 1986. Mr. Krauss' appointment as a Vice President
and the Treasurer of Continental has been announced and will be effective in
April 1995.
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 (32) 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 (28) 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.
Patrick K. Miehe (46) 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 January 1, 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.
185
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -----------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK AWARDS COMPENSA-
NAME AND 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 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 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(5) -- 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 January 27,
1995, the amounts of the loans outstanding to certain of the Continental
Named Executive Officers were as follows: William T. Schleyer ($466,508),
Jeffrey T. DeLorme ($452,679) and Nancy Hawthorne ($362,055). 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. Mr. DeLorme has
an additional loan from an Unrestricted Subsidiary of Continental of which
the current amount outstanding is $400,000. Since the beginning of the
fiscal year ended December 31, 1992, the largest aggregate amounts of
indebtedness of the following executive officers were as follows: William
T. Schleyer ($898,571), Jeffrey T. DeLorme ($1,007,679) and Nancy Hawthorne
($636,519). (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>
186
<PAGE>
- --------
(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) 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 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 January 27, 1995, the amounts of the loans
outstanding to the three executive officers named above were as follows: Amos
B. Hostetter, Jr. ($1,662,750), 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. ($3,134,686), 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.
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
187
<PAGE>
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, nontax-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 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
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<PAGE>
shares to Corporate Offshore Partners for a purchase price of $18,237,450, both
of which are investment partnerships affiliated with Lazard Freres & Co.
("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 the Preferred Equity 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.
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.
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) 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 January 15, 1995 (giving
effect to the Merger, the Continental Recapitalization Amendment and the
Continental Stock Split), with respect to the shares of
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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 these same reasons, 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 January 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>
PERCENTAGE OF NUMBER OF
NUMBER OF OUTSTANDING SHARES OF PERCENTAGE OF
SHARES OF SHARES OF CONTINENTAL OUTSTANDING
CONTINENTAL CONTINENTAL PREFERRED CONTINENTAL
COMMON STOCK(1) COMMON STOCK(2) SHARES OF
BENEFICIALLY STOCK AFTER BENEFICIALLY PREFERRED
NAME OWNED THE MERGER OWNED STOCK
---- --------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Amos B. Hostetter, Jr.(3). 45,272,425 30.97% -- --
Timothy P. Neher(4)....... 1,671,725 1.14 -- --
Michael J. Ritter......... 589,900 * -- --
Roy F. Coppedge III(5)...... 7,514,075 5.14 -- --
Jonathan H. Kagan(6)...... 28,571,450 16.35 1,142,858 100.00
Robert B. Luick(7)........ 233,625 * -- --
Henry F. McCance(8)....... 258,125 * -- --
Lester Pollack(6)......... 28,571,450 16.35 1,142,858 100.00
Vincent J. Ryan(9)........ 5,724,950 3.92 -- --
William T. Schleyer....... 766,200 * -- --
Jeffrey T. Delorme........ 391,525 * -- --
Nancy Hawthorne........... 209,325 * -- --
Stephen Hamblett.......... 100,305 * -- --
Trygve E. Myhren.......... 990 * -- --
Directors and Executive
Officers as a Group (14
persons)(6).............. 91,299,495 52.22 1,142,858 100.00
H. Irving Grousbeck(10)... 10,033,000 6.86 -- --
Boston Ventures Company
Limited Partnership III
Boston Ventures Limited
Partnership III(11).... 3,034,525 2.08 -- --
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 -- --
Boston Ventures Limited
Partnership IVA(11).... 1,298,000 * -- --
---------- -----
Total as a group...... 7,514,075 5.14 -- --
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
NUMBER OF OUTSTANDING SHARES OF PERCENTAGE OF
SHARES OF SHARES OF CONTINENTAL OUTSTANDING
CONTINENTAL CONTINENTAL PREFERRED CONTINENTAL
COMMON STOCK(1) COMMON STOCK(2) SHARES OF
BENEFICIALLY STOCK AFTER BENEFICIALLY PREFERRED
NAME OWNED THE MERGER OWNED STOCK
---- --------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............. 18,223,825 11.09 728,953 63.78
First Plaza Group
Trust(12)(13)........ 4,285,725 2.85 171,429 15.00
The State Board of
Administration of
Florida(12).......... 1,902,100 1.28 76,084 6.66
Vencap Holdings (1992)
Pte Ltd(12).......... 1,785,700 1.21 71,428 6.25
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 16.57%(14) 1,142,858 100.00
</TABLE>
- --------
*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 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 25.65% of
the Continental Common Stock and approximately 2.71% 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 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
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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.
(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,350 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
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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) FPGT is a trustee for certain pension plans and has sole voting and
dispositive power with respect to the shares held by it. Pursuant to the
Co-Investment Agreement, FPGT has agreed, 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
January 15, 1995, there were outstanding 8,640,100 shares of Continental Class
A Common Stock and 109,264,675 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). 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.
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<PAGE>
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.
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
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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 class voting rights
with respect to certain matters. The affirmative vote of 66 2/3% of the
Continental Series A Preferred Stock is necessary (A) to 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.
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
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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 single 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 "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 Redemption Price
by 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 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
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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 Redemption Price.
Continental may elect to redeem the Continental Series A Preferred Stock by
paying the 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 election of Directors is then
beneficially owned, directly or indirectly, by individuals and entities who
were the beneficial owners of 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
Continental 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 (including the Continental
Common Stock) to 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
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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 , 1995 was
%. As a result, assuming the Effective Time occurred on March , 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 %. However,
there can be no assurances that the actual dividend rate on the Continental
Series B Preferred Stock will be greater or less than %. 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.
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
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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, 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
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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 ("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
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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 "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 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 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 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 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 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 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 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 Redemption Price per share
of Continental Series B Preferred Stock (or portion thereof to be paid in
shares
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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 Class A Common
Stock for any period, shall mean the average of the daily closing prices per
share of 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 on 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) 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
Continental's voting Common Stock in payment of all or any portion of the
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
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and any holder of shares of Continental Series B Preferred Stock to be redeemed
shall look only to Continental for the payment of the 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 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 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 the
NASDAQ 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
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representing shares of preferred stock of such successor entity of a class or
series having substantially similar terms to those for 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 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 may be removed, with or without 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 provide
that removal of Directors shall be made only for cause.
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.
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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 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 of
Continental 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
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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
36,900,409 shares of Continental Class A Common Stock, 109,264,675 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) 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 143,449,675 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, 44,916,875
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, 94,381,775 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.
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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 pursuant to 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 Common Stock
(approximately shares, based on the number of shares of Continental Common
Stock that will be outstanding after the Merger and assuming the conversion of
all outstanding shares of Continental Series A Preferred Stock in Continental
Common Stock), 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.
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.)
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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 2,343,750 shares of Continental Class B
Common Stock to certain of its officers and employees pursuant to its 1995
Restricted Stock Purchase Program V, including 707,500 shares to persons deemed
to be affiliates of Continental and 1,636,250 shares to non-affiliates of
Continental. Such shares are subject to vesting over the next eight 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 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 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,
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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.
"Unrestricted Subsidiaries" are subsidiaries that have not been so designated
as Restricted Subsidiaries. The Unrestricted Subsidiaries are not 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 party 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. The 1994 Credit
Facility is an amendment and restatement of the 1990 Credit Agreement. 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 January 15, 1995,
Continental had credit availability of $780,580,000 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 of (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
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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 September 30, 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 64%. 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 September 30, 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 6.75%. As of September 30, 1994, Continental had $600,000,000 of
Caps, which limit 6-month LIBOR to approximately 7%. 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 dividends paid to Continental or
another Restricted Subsidiary which 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 $443,000,000 was available as of
September 30, 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
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(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 issue
of Continental Class A Common Stock issued in 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
Prudential Notes and the Floating Rate 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".)
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 September 30, 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.
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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.
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.
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
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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 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 also provide for any class or series of stock to
vote as a class for the proposed amendment if the amendment would change the
number or par value of the aggregate authorized shares of a class. 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
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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. (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-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 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
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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 WITH RESPECT TO 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.
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
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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 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.
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 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 and Class B Common Stock share ratably in
dividends, but the right of holders of either Continental Class A or 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).
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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 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 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 approval is not
required); (b) acquisitions which 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 in the NASDAQ system 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 appraisal rights.
Pursuant to Rhode Island Law, the stockholders of Providence Journal will have
appraisal 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 in the NASDAQ system 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 in the NASDAQ system 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".)
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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".)
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
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the case of a corporation whose Board of Directors is classified, stockholders
may effect such removal only for cause unless the charter provides otherwise.
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 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
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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.
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.
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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 amends 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.
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
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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 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
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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 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") offerings at a discounted
package price. The Company has not to date created such a la carte packages. 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
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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.
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 ADI. 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
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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. 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 which 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.
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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.
Rather, the franchising authority is estopped 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 the Company'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 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 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 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. In its video dialtone order, the
FCC concluded that neither the 1984 Cable Act nor its rules apply to prohibit
the interexchange carriers (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
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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.
As part of the same proceeding, 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.
The telephone industry has continued to lobby Congress for legislation that
will permit LECs to provide video programming directly to consumers within
their service areas. Bills were introduced in the last Congress that would have
permitted the LECs to provide cable television service over their own
facilities conditioned on establishing a video programming affiliate that would
maintain separate records to prevent cross-subsidization. Provisions in these
bills would also have prohibited telephone companies from purchasing existing
cable television systems within their telephone service areas with certain
exceptions. None of these bills were adopted. Similar legislation is expected
to be introduced in the current Congress. The outcome of these FCC, legislative
or court proceedings and proposals or the effect of such outcome on cable
system operations cannot be predicted.
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 which 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 1993, 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.
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 which 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
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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 includes 30 MHz frequency blocks of
spectrum (Blocks "A" and "B") licensed by MTA. The next auction, which has not
yet been scheduled, 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.
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 which 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
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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 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 are
required to pay regulatory fees of $0.37 per subscriber, which, pursuant to a
recent FCC order, may be passed on to subscribers as "external cost"
adjustments to rates for basic cable service. 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
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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 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 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.
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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.
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.
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 which are 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.
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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 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, 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
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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 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 which
could be ascertained as of the date of the merger which 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.
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PROVIDENCE JOURNAL
Each stockholder of Providence Journal has the right to dissent from the
Restructuring, the PJC Spin-Off 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
Restructuring, the PJC Spin-Off and the Merger with respect to all of the
Providence Journal Common Stock registered in his, her or its name. A
stockholder who votes in favor of the Plan of Reorganization and the Merger
Agreement, 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 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 Agreement. If
the Merger is approved by the required vote, and the stockholder shall not have
voted in favor thereof, the stockholder must, within ten (10) 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
Restructuring, PJC Spin-Off and Merger is 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 Agreement,
excluding any appreciation or depreciation in anticipation of the Merger. Any
stockholder failing to make demand within such ten (10) day period shall be
bound by the terms of the Restructuring, the PJC Spin-Off 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 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 AGREEMENT, WHETHER IN PERSON AT THE PROVIDENCE JOURNAL SPECIAL
MEETING OR BY PROXY, OR ABSTAINING FROM VOTING ON THE MERGER, DOES NOT BY
ITSELF CONSTITUTE A PROPER WRITTEN OBJECTION.
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 Merger shall be
abandoned or the stockholders shall revoke the authority to effect 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
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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 Restructuring, 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 Restructuring 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 Restructuring was effected, upon surrender of
the 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 Restructuring 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.
236
<PAGE>
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
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 PJC Spin-Off 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.
237
<PAGE>
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 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, 1992 and 1993 and for each of the
two years ended December 31, 1993 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 consolidated financial statements and schedule of Providence Journal
Company and Subsidiaries as of the year ended December 29, 1991 (prior to
restatement for discontinued operations of the Providence Journal's cable
businesses) have been audited by Coopers & Lybrand as stated in their reports
appearing herein.
The combined financial statements of Providence Journal Cable as of December
31, 1992 and 1993 and for each of the two years ended December 31, 1993 have
been included in this Joint Proxy Statement-Prospectus in reliance upon the
reports of KPMG Peat Marwick LLP and Deloitte & Touche LLP,
238
<PAGE>
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 Colony Communications, Inc. and
Copley/Colony, Inc., both as of December 31, 1990 and 1991 and for each of the
two years ended December 31, 1991, have been audited by Coopers & Lybrand as
stated in their reports appearing herein.
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 in 1993) 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.
The financial statements as of December 31, 1993 and 1992 and for each of the
two years ended December 31, 1993 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 December 31, 1993 and for the year ended
December 31, 1993 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, 1994 and 1993, 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 1992 and for each of the two years ended December 31,
1993 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 consolidated financial statements as of December 31, 1993 and for the
year then ended of United Broadcasting Company, Inc. and Subsidiaries included
in this Joint Proxy Statement Prospectus have been audited by Councilor,
Buchanan & Mitchell, P.C., independent auditors, as stated in their report
appearing herein.
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.
239
<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, 1992 and 1993, and (Unaudited)
September 30, 1994..................................................... F-5
Consolidated Statements of Operations, for the Years Ended December 29,
1991, December 31, 1992 and 1993, and (Unaudited) Nine Months Ended
September 30, 1993 and 1994............................................ F-6
Consolidated Statements of Stockholders' Equity for the Years Ended
December 29, 1991, December 31, 1992 and 1993, and (Unaudited) Nine
Months Ended September 30, 1994........................................ F-7
Consolidated Statements of Cash Flows for the Years Ended December 29,
1991, December 31, 1992 and 1993, and (Unaudited) Nine Months Ended
September 30, 1993 and 1994............................................ F-8
Notes to Consolidated Financial Statements.............................. F-9
KING HOLDING CORP. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-28
Consolidated Balance Sheets, December 31, 1992 and 1993 and (Unaudited)
September 30, 1994..................................................... F-29
Consolidated Statements of Operations for the Period February 25, 1992
to December 31, 1992 and the year ended December 31, 1993 and
(Unaudited) Nine Months Ended September 30, 1993 and 1994.............. F-30
Consolidated Statements of Stockholders' Equity for the Period February
25, 1992 to December 31, 1992 and the year ended December 31, 1993 and
(Unaudited) the Nine Months Ended September 30, 1994................... F-31
Consolidated Statements of Cash Flows, for the Period February 25, 1992
to December 31, 1992 and the year ended December 31, 1993 and
(Unaudited) the Nine Months Ended September 30, 1993 and 1994.......... F-32
Notes to Consolidated Financial Statements.............................. F-33
PROVIDENCE JOURNAL CABLE
Independent Auditors' Reports........................................... F-42
Combined Balance Sheets, December 31, 1992 and 1993, and (Unaudited)
September 30, 1994..................................................... F-44
Combined Statements of Operations for the Years Ended December 31, 1991
(Unaudited), 1992, and 1993, and (Unaudited) Nine Months Ended
September 30, 1993 and 1994............................................ F-45
Combined Statements of Changes in Group Equity for the Years Ended
December 31, 1991 (Unaudited), 1992 and 1993, and (Unaudited) Nine
Months Ended September 30, 1994........................................ F-46
Combined Statements of Cash Flows, for the Years Ended December 31, 1991
(Unaudited), 1992 and 1993, and (Unaudited) Nine Months Ended September
30, 1994............................................................... F-47
Notes to Combined Financial Statements.................................. F-48
COLONY COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-57
Consolidated Balance Sheets, December 31, 1991 and 1990................. F-58
Consolidated Statements of Income and Retained Earnings for the Years
Ended December 31, 1991 and 1990....................................... F-59
Consolidated Statements of Cash Flows, for the Years Ended December 31,
1991 and 1990.......................................................... F-60
Notes to Consolidated Financial Statements.............................. F-61
COPLEY/COLONY INC.
Independent Auditors' Report............................................ F-67
Consolidated Balance Sheets, December 31, 1991 and 1990................. F-68
Consolidated Statements of Operations for the Years Ended December 31,
1991 and 1990.......................................................... F-69
Consolidated Statements of Cash Flows, for the Years Ended December 31,
1991 and 1990.......................................................... F-70
Notes to Consolidated Financial Statements.............................. F-71
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-75
Consolidated Balance Sheets, December 31, 1992 and 1993, and (Unaudited)
September 30, 1994..................................................... F-77
Statements of Consolidated Operations, for the Years Ended December 31,
1991, 1992, and 1993, and (Unaudited) nine Months Ended September 30,
1993 and 1994.......................................................... F-78
Statements of Consolidated Shareholders' Equity (Deficiency), for the
Years Ended December 31, 1991, 1992 and 1993, and (Unaudited), Nine
Months Ended September 30, 1994........................................ F-79
Statements of Consolidated Cash Flows, for the Years Ended December 31,
1991, 1992 and 1993, and (Unaudited), Nine Months Ended September 30,
1993 and 1994.......................................................... F-80
Notes to Consolidated Financial Statements.............................. F-81
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ADDITIONAL ACQUIREES OF CONTINENTAL CABLEVISION, INC.
COLUMBIA CABLE OF MICHIGAN (A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
Report of Independent Public Accountants............................... F-95
Statements of Assets, Liabilities and Control Account, December 31,
1993 and 1992......................................................... F-96
Statements of Operations and Control Account, for the Years Ended
December 31, 1993 and 1992............................................ F-97
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1992.................................................................. F-98
Notes to Financial Statements.......................................... F-99
Statements of Assets, Liabilities and Control Account (Unaudited),
September 30, 1994.................................................... F-101
Statements of Operations and Control Account (Unaudited), for the Nine
Months Ended September 30, 1994....................................... F-102
Statements of Cash Flows (Unaudited), for the Nine Months Ended
September 30, 1994.................................................... F-103
Notes to Financial Statements (Unaudited).............................. F-104
CLAY CABLEVISION (A DIVISION OF RIFKIN CABLE INCOME PARTNERS, L.P.)
Report of Independent Accountants...................................... F-105
Balance Sheet, December 31, 1993....................................... F-106
Statement of Operations, for the Year Ended December 31, 1993.......... F-107
Statements of Cash Flows, for the Year Ended December 31, 1993......... F-108
Notes to Financial Statements.......................................... F-109
Balance Sheet (Unaudited), September 30, 1994.......................... F-112
Statement of Operations (Unaudited), for the Nine Months Ended
September 30, 1994.................................................... F-113
Statement of Cash Flows (Unaudited), for the Nine Months Ended
September 30, 1994.................................................... F-114
Notes to Financial Statements (Unaudited).............................. F-115
N-COM LIMITED PARTNERSHIP II
Report of Independent Auditors......................................... F-118
Consolidated Balance Sheet, September 30, 1994 and 1993................ F-119
Consolidated Statement of Operations and Partners' Net Capital
Deficiency, for the Year Ended
September 30, 1994 and 1993........................................... F-120
Consolidated Statement of Cash Flows, for the Year Ended September 30,
1994 and 1993......................................................... F-121
Notes to Consolidated Financial Statements............................. F-122
CABLEVISION OF CHICAGO (A LIMITED PARTNERSHIP)
Independent Auditors' Report........................................... F-126
Balance Sheets, December 31, 1993 and 1992............................. F-127
Statements of Operations and Partners' Deficiency, for the Years ended
December 31, 1993 and 1992............................................ F-128
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1992.................................................................. F-129
Notes to Financial Statements.......................................... F-130
Balance Sheets (Unaudited), September 30, 1994......................... F-137
Statements of Operations and Partners' Deficiency (Unaudited), for the
Nine Months Ended September 30, 1994.................................. F-138
Statements of Cash Flows (Unaudited), for the Nine Months Ended
September 30, 1994.................................................... F-139
Notes to Financial Statements (Unaudited).............................. F-140
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................... F-141
Consolidated Balance Sheet, December 31, 1993.......................... F-142
Consolidated Statement of Income, for the Year Ended December 31, 1993. F-144
Consolidated Statement of Retained Earnings, for the Year Ended
December 31, 1993..................................................... F-145
Consolidated Statement of Cash Flows, for the Year Ended December 31,
1993.................................................................. F-146
Notes to Consolidated Financial Statements............................. F-147
</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, 1992 and 1993
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. 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, 1992 and 1993 was $92,398,000 and $85,154,000,
respectively and its equity in losses of King Holding Corp. was $12,602,000 and
$7,244,000 for the period from February 25, 1992 through December 31, 1992 and
for the year ended December 31, 1993, 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. The accompanying consolidated financial statements of Providence
Journal Company and subsidiaries for the year ended December 29, 1991, were
audited by other auditors whose report thereon dated February 12, 1992,
expressed an unqualified opinion on those statements, before the restatement
described in note 2 to the consolidated financial statements.
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
1992 and 1993 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, 1992 and 1993, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
We also audited the adjustments described in note 2 that were applied to
restate the 1991 consolidated financial statements. In our opinion, such
adjustments are appropriate and have been properly applied.
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 11, 1994, except as to note 2
which is as of November 18, 1994,
and note 11(b) which is as of
October 26, 1994.
F-3
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of
Providence Journal Company
We have audited the consolidated statements of operations, stockholders
equity and cash flows (all prior to restatement for discontinued operations of
the Company's cable television businesses) of Providence Journal Company for
the year ended December 29, 1991. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows
(prior to restatement for discontinued operations of the Company's cable
television businesses) of Providence Journal Company for the year ended
December 29, 1991 in conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the Company changed its
method of accounting for television program rights in 1991.
Coopers & Lybrand
Boston, Massachusetts
February 12, 1992
F-4
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1992 1993 1994
-------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash........................................ $ 977 1,017 1,400
Accounts receivable, net of allowance for
doubtful accounts of $2,501 in 1992, $2,134
in 1993 and $2,610 in 1994................. 22,981 24,432 21,265
Inventories................................. 1,414 1,022 864
Television program rights, net (note 9)..... 5,647 5,006 5,164
Prepaid expenses and other current assets... 1,317 1,703 2,483
Federal and state income tax receivable..... -- 667 4,455
Deferred income taxes (note 7).............. 3,522 5,159 5,159
-------- ------- -------
Total current assets...................... 35,858 39,006 40,790
Investments in affiliated companies (note 3).. 106,648 101,780 100,560
Notes receivable (note 4)..................... 25,350 22,599 20,239
Television program rights, net (note 9)....... 4,228 3,093 3,817
Property, plant and equipment (note 5)........ 246,865 252,402 256,722
Less accumulated depreciation................. 94,768 110,082 123,132
-------- ------- -------
Net property, plant and equipment......... 152,097 142,320 133,590
License costs, goodwill and other intangible
assets, net.................................. 54,812 51,420 49,025
Other assets (notes 1(c) and 11(a))........... 24,317 30,302 34,344
Net assets of discontinued operations (note
2)........................................... 390,123 385,165 366,384
-------- ------- -------
$793,433 775,685 748,749
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................ $ 10,785 7,657 6,849
Accrued expenses and other liabilities (note
6)......................................... 25,442 25,782 18,818
Current installments of long-term debt (note
8)......................................... 10,503 3,505 3,498
Current portion of television program rights
payable (note 9)........................... 6,090 5,251 5,895
Federal and state income taxes payable...... 4,494 -- --
-------- ------- -------
Total current liabilities................. 57,314 42,195 35,060
Long-term debt, excluding current installments
(note 8)..................................... 253,106 276,601 271,055
Television program rights payable (note 9).... 2,795 2,246 2,413
Other liabilities............................. 43,910 45,984 47,950
Deferred income taxes (note 7)................ 15,295 14,271 16,429
Deferred compensation......................... 29,046 34,813 32,585
-------- ------- -------
Total liabilities......................... 401,466 416,110 405,492
-------- ------- -------
Commitments and contingencies (notes 2, 3, 9,
10, 11 and 14)...............................
Stockholders' equity (notes 11(e) and 15):
Class A common stock, par value $2.50 per
share; authorized 600,000 shares; issued
37,979 shares, 38,353 shares, and 38,639
shares in 1992, 1993, and 1994,
respectively............................... 95 96 96
Class B common stock, par value $2.50 per
share; authorized 300,000 shares; issued
47,671 shares, 47,297 shares and 47,281
shares in 1992, 1993, and 1994,
respectively............................... 119 118 118
Additional capital.......................... 1,225 1,225 1,225
Retained earnings........................... 391,298 361,293 346,944
Unrealized gain on securities held for sale,
net........................................ -- -- 2,322
Treasury stock, at cost, 100 shares, 427
shares and 961 shares in 1992, 1993, and
1994, respectively......................... (770) (3,157) (7,448)
-------- ------- -------
Total stockholders' equity................ $391,967 359,575 343,257
-------- ------- -------
$793,433 775,685 748,749
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------------
1991 1992 1993 1993 1994
-------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................... $167,008 172,453 179,499 129,473 138,531
-------- ------- ------- ------- -------
Expenses:
Operating and
administrative........... 169,339 161,125 171,557 119,585 124,960
Depreciation and
amortization............. 22,040 21,566 21,412 16,549 15,674
Write-down of assets (note
5)....................... 7,422 661 3,363 -- --
-------- ------- ------- ------- -------
Total expenses............ 198,801 183,352 196,332 136,134 140,634
-------- ------- ------- ------- -------
Operating loss............. (31,793) (10,899) (16,833) (6,661) (2,103)
Other income (expense):
Interest income and
management fees from
related parties (notes 3
and 12(a))............... 31,158 41,788 4,520 3,449 3,174
Interest expense.......... (10,102) (6,455) (2,578) (1,947) (2,038)
Equity in loss of
affiliates (note 3)...... (72) (11,328) (7,350) (3,183) (4,818)
Other income.............. 7,806 6,089 1,286 686 785
-------- ------- ------- ------- -------
Total other income
(expense)................ 28,790 30,094 (4,122) (995) (2,897)
-------- ------- ------- ------- -------
Income (loss) from
continuing operations,
before income taxes,
discontinued operations,
extraordinary item and
cumulative effect of
accounting changes........ (3,003) 19,195 (20,955) (7,656) (5,000)
Income tax expense
(benefit) (note 7)........ 3,616 11,837 (5,765) (1,003) (1,427)
-------- ------- ------- ------- -------
Income (loss) from
continuing operations,
before discontinued
operations, extraordinary
item and cumulative effect
of accounting changes..... (6,619) 7,358 (15,190) (6,653) (3,573)
Discontinued operations
(note 2):
Income (loss) from
operations of
discontinued segments,
net of income taxes...... 9,240 1,555 (7,494) (4,228) (4,298)
Gain on disposal of
segments, net............ 1,573 -- -- -- 812
-------- ------- ------- ------- -------
Income (loss) before
extraordinary item and
cumulative effect of
accounting changes........ $ 4,194 8,913 (22,684) (10,881) (7,059)
Extraordinary item, net of
income taxes of $799 (note
8)........................ -- -- 1,551 1,551 --
Cumulative effect of
changes in accounting
principles, net (notes 7,
9 and 11)................. (2,974) 1,257 -- -- --
-------- ------- ------- ------- -------
Net income (loss).......... $ 1,220 10,170 (21,133) (9,330) (7,059)
======== ======= ======= ======= =======
Net income (loss) per
common share:
From continuing
operations............... $ (75.38) 85.53 (178.08) (77.97) (42.06)
From discontinued
operations............... 123.14 18.08 (87.85) (49.54) (41.05)
Extraordinary item........ -- -- 18.18 18.18 --
Changes in accounting
principles............... (33.87) 14.61 -- -- --
-------- ------- ------- ------- -------
Net income (loss) per
common share.............. $ 13.89 118.22 (247.75) (109.33) (83.11)
======== ======= ======= ======= =======
Weighted average shares
outstanding............... 87,813 86,026 85,302 85,330 84,947
======== ======= ======= ======= =======
</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
30, 1990............. 60,636 $151 54,048 $135 $1,225 $ 565,420 -- (20,240) $(106,610) $460,321
Treasury stock
activity:
Tender offer and
other purchases..... -- -- -- -- -- -- -- (7,583) (53,798) (53,798)
Expenses related to
tender offer........ -- -- -- -- -- -- -- -- (258) (258)
Retirement........... (21,660) (54) (6,063) (15) -- (159,827) -- 27,723 159,896 --
Conversion upon sale
of Class B to Class A
common stock......... 10 -- (10) -- -- -- -- -- -- --
Dividends declared,
$86 per share........ -- -- -- -- -- (7,546) -- -- -- (7,546)
Net income........... -- -- -- -- -- 1,220 -- -- -- 1,220
------- ---- ------- ---- ------ --------- ------- ------- --------- --------
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
Tender offer and
other purchases
(unaudited).......... -- -- -- -- -- -- -- (534) (4,291) (4,291)
Conversion upon sale
of Class B to Class A
common stock
(unaudited).......... 16 -- (16) -- -- -- -- -- -- --
Dividends declared,
$85.80 per share
(unaudited).......... -- -- -- -- -- (7,290) -- -- -- (7,290)
Cumulative effect of
change in accounting
principle (note 1(c))
(unaudited).......... -- -- -- -- -- -- 5,120 -- -- 5,120
Decrease in
unrealized gain on
securities held for
sale (unaudited)..... -- -- -- -- -- -- (2,798) -- -- (2,798)
Net loss (unaudited). -- -- -- -- -- (7,059) -- -- -- (7,059)
------- ---- ------- ---- ------ --------- ------- ------- --------- --------
Balances at September
30, 1994 (unaudited). 38,369 $ 96 47,281 $118 $1,225 $ 346,944 $ 2,322 (961) $ (7,448) $343,257
======= ==== ======= ==== ====== ========= ======= ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------------
1991 1992 1993 1993 1994
--------- --------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income (loss) from
continuing operations. $ (6,619) 7,358 (15,190) (6,653) (3,573)
Adjustments to
reconcile income
(loss) from continuing
operations to cash
flows provided by
continuing operations:
Depreciation and
amortization.......... 22,040 21,566 21,412 16,549 15,674
Program rights
amortization.......... 8,438 8,080 7,674 5,109 5,026
Writedown of assets.... 7,422 661 3,363 -- --
Equity in loss of
affiliates............ 72 11,328 7,350 3,183 4,818
Interest income on
notes receivable...... (20,543) (22,611) -- -- --
Other liabilities...... -- 1,353 1,942 19 1,966
Deferred income taxes.. (6,118) (1,093) (4,846) (69) (12)
Net provision
(payments) for
deferred compensation. 7,368 (2,952) 5,767 1,360 (2,229)
(Gain) loss on sale of
assets................ (7) (503) 124 (82) (110)
Changes in assets and
liabilities:
Accounts receivable,
inventories, prepaid
expenses and other
current assets........ 32 1,731 (2,111) 2,533 (1,077)
Accounts payable,
accrued expenses,
other current
liabilities and income
taxes payable......... 17,055 (6,141) (1,167) (5,205) (1,763)
Other, net............. (347) 476 (935) (261) (145)
--------- --------- -------- ------- -------
Cash flows provided by
continuing
operations........... 28,793 19,253 23,383 16,483 18,575
Income (loss) from
discontinued
operations............. 10,813 1,555 (7,494) (4,228) (3,486)
Adjustments to reconcile
net income (loss) from
discontinued operations
to cash flows provided
by (used in)
discontinued
operations............. (170,507) 28,291 52,451 39,684 32,951
--------- --------- -------- ------- -------
Cash flows provided by
(used in) operating
activities........... (130,901) 49,099 68,340 51,939 48,040
--------- --------- -------- ------- -------
Investing activities:
Investments in
marketable securities. -- -- (5,551) (5,551) --
Investments in
affiliates............ (491) (105,820) (5,783) (2,501) (6,823)
Dividends from
affiliate............. -- 2,939 3,301 5,380 3,225
Additions to property,
plant and equipment,
net................... (40,136) (20,030) (11,597) (8,886) (4,247)
Principal collections
on notes receivable... -- 15,959 2,751 1,672 2,757
Proceeds from sale of
marketable securities
and other assets...... 238,426 3,501 1,073 786 553
--------- --------- -------- ------- -------
Cash flows provided by
(used in) investing
activities of
continuing operations. 197,799 (103,451) (15,806) (9,100) (4,535)
Investment in
discontinued
operations............ (15,541) (97,062) (37,555) (24,484) (21,229)
--------- --------- -------- ------- -------
Cash flows provided by
(used in) investing
activities........... 182,258 (200,513) (53,361) (33,584) (25,764)
--------- --------- -------- ------- -------
Financing activities:
Proceeds from long-term
debt.................. 35,431 234,100 30,000 6,661 --
Principal payments on
long-term debt........ (11,266) (43,602) (11,153) (11,050) (5,553)
Payments for financing
costs................. (653) (7,097) -- -- --
Principal payments on
television program
rights payable........ (8,150) (8,112) (7,296) (5,090) (5,097)
Cash dividends paid.... (7,546) (8,128) (8,872) (6,656) (7,290)
Purchase of treasury
stock, net of
reissued.............. (54,056) (10,014) (2,387) (2,387) (4,291)
--------- --------- -------- ------- -------
Cash flows provided by
(used in) financing
activities on
continuing operations. (46,240) 157,147 292 (18,522) (22,231)
Financing activities of
discontinued
operations............ (5,584) (5,000) (15,000) -- --
--------- --------- -------- ------- -------
Cash flows provided by
(used in) financing
activities........... (51,824) 152,147 (14,708) (18,522) (22,231)
--------- --------- -------- ------- -------
Increase (decrease) in
cash................. (467) 733 271 (167) 45
Net cash provided by
(used in)
discontinued
operations........... 38 (117) (231) 79 338
--------- --------- -------- ------- -------
Increase (decrease) in
cash of continuing
operations............. (429) 616 40 (88) 383
Cash at beginning of
period................. 790 361 977 977 1,017
--------- --------- -------- ------- -------
Cash at end of period... $ 361 977 1,017 889 1,400
========= ========= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1991, DECEMBER 31, 1992 AND 1993
(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"),
including its remaining investments in discontinued cellular telephone and
paging entities.
. 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 cost. 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.
The Company, for 1992 and 1993, has reported financial results on a calendar-
year basis. During 1991 the Company, except for Colony, reported on a fiscal
year which ended on the last Sunday of the calendar year. Colony reported on a
calendar-year basis during 1991.
(b) Cash
A cash management program is operated under which 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.
Supplemental cash flow information, excluding discontinued operations, is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1991 1992 1993
---------- ----------------
<S> <C> <C> <C>
Income taxes paid during the year................ $ 176,517 9,823 9,815
========== ======= =======
Interest paid during the year, net of amounts
capitalized..................................... $ 5,511 10,686 20,285
========== ======= =======
Obligations incurred for acquisition of televi-
sion program rights (non-cash transaction)...... $ 8,715 5,428 5,898
========== ======= =======
</TABLE>
F-9
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
During 1992, the Company acquired certain assets and assumed certain
liabilities in connection with various purchase business combinations, as
follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets (primarily property, plant and equipment) ac-
quired........................................................... $ 86,388
=========
Intangible assets acquired........................................ $ 270,325
=========
Liabilities assumed............................................... $ 24,214
=========
Exchange of note receivable in connection with purchase business
combination...................................................... $ 250,555
=========
</TABLE>
(c) Marketable Equity Securities
Marketable equity securities consist of common stocks and are included in
other assets on the accompanying consolidated balance sheets. Prior to January
1, 1994, marketable equity securities were stated at the lower of aggregate
cost or market value. 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.
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, the cost and fair market value of marketable
equity securities totaled $5,873 and $14,406, respectively.
(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 $1,810 and $1,433 at
December 31, 1992 and 1993, 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.................................... 10-45 years
Machinery and equipment....................................... 3-11
Furniture and fixtures........................................ 5-10
Broadcast equipment........................................... 5-20
</TABLE>
F-10
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
(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.
Amortization expense on intangible assets charged to continuing operations
totaled $5,173, $3,851 and $3,649 in 1991, 1992, and 1993, respectively.
Accumulated amortization on intangible assets totaled $29,962 and $33,363 at
December 31, 1992 and 1993, 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.
(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).
Pursuant to the deferred method under APB Opinion 11, which was applied prior
to 1992, deferred income taxes were recognized for income and expense items
that are reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable in the year of the
calculation. Under the deferred method, deferred taxes were not adjusted for
subsequent changes in tax rates.
(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). Prior to 1992, the
Company recognized these benefits on the pay-as-you-go method (i.e.: cash
basis). 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.
F-11
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(j) Interest Rate Swaps
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.
(k) Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of and for the nine months ended
September 30, 1993 and 1994 are unaudited, however, they include all
adjustments (consisting of normal recurring adjustments) considered necessary
by management for presentation of the financial position and results of
operations for these periods. The results of operations for interim periods are
not necessarily indicative of the results that may be expected for the entire
year.
(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 entered into a Letter of Intent dated
October 25, 1994 with its partner whereby both parties have agreed in
principle 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.
F-12
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In addition, Continental will assume substantially all liabilities of the
Company's cable television businesses, including $755 million 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.
If the Merger Agreement is terminated under certain limited circumstances,
the Company may be required to pay to 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.
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.
Income (loss) from discontinued operations includes allocated interest
expense totaling $1,679, $8,774 and $19,807 in 1991, 1992 and 1993,
respectively. Interest allocated to discontinued operations was limited to the
associated interest on debt that is to be repaid in connection with the merger.
In addition, in 1991, the Company sold one of its two remaining investments
in cellular systems for $25,330, and the second investment was disposed of in
1994. The Company also sold its paging subsidiary in 1994. As a result of the
cellular system disposed of in 1991, the Company recorded a gain of $1,573 (net
of operating losses during the phase-out period equal to $1,512, and net of
income taxes of $777).
The results of operations of the cable television segment and the cellular
system and 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,
----------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues....................................... $ 98,018 112,334 177,417
Costs and expenses............................. (78,699) (107,824) (185,998)
-------- -------- --------
Income (loss) before income taxes.............. 19,319 4,510 (8,581)
Income tax expense (benefit)................... 8,506 2,955 (1,087)
-------- -------- --------
Net income (loss).............................. $ 10,813 1,555 (7,494)
======== ======== ========
</TABLE>
F-13
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(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 and receives annual governance fees of $1,000 all of which
have been included with interest income and 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 management fees of $2,104 and $2,525 in 1992
and 1993, respectively, which has also been included in interest income and
management fees from related parties. The Company charged King $300 for
accounting services in 1993 and is also entitled to reimbursement for expenses
incurred in its capacity as manager and was reimbursed $2,202 and $2,842 by
King in 1992 and 1993, respectively.
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 and 339 shares, during 1992 and 1993, respectively, of King's Class B
nonvoting common stock at $0.10 per share. 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.
(b) Copley/Colony, Inc.
Colony owns 50% of Copley/Colony, Inc. ("Copley/Colony") a joint venture,
with Copley Press Electronics Company, engaged in cable television operations.
Colony has a management agreement with Copley/Colony to operate its cable
television systems and charged Copley/Colony management fees of $708, $744 and
$738 in 1991, 1992 and 1993, respectively, which have been included in interest
income and management fees from related parties. Colony charged Copley/Colony
processing fees for customer billings totaling $521, $542 and $559 in 1991,
1992 and 1993, respectively. At December 31, 1992 and 1993, Colony had a net
balance due to Copley/Colony totaling $2,455 and $3,451, respectively.
(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 20.92% interest
in Television Food Network, G.P. (a development stage enterprise) 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 has accounted for this investment under the
equity method.
The Company invested $5,001 in the partnership in October 1993. In addition,
it has agreed to invest $2,000 in both 1994 and 1995. During 1993, the Company
was reimbursed $50 from TVFN for administrative and accounting services. The
Company also grants TVFN carriage rights on its cable networks.
F-14
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(d) Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary
Colony/Linkatel Network, Inc., invested in Linkatel Pacific, L.P. (a
development stage enterprise) with two other communications companies. The
Company has a 33.33% (as of December 31, 1993) limited interest in the
partnership, which was formed to pursue the development of alternative access
networks. The investment is accounted for under the equity method.
At December 31, 1993, the Company had invested $501 in Linkatel Pacific, L.P.
and had loaned an additional $500 through a non-interest bearing demand note
that will be converted to equity in 1994. In addition, the Company has
committed to invest an additional $8,000 by 1995.
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, 1992 and 1993, and for the years ended December 29, 1991 and December 31,
1992 and 1993 is as follows:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Current assets.............................................. $ 37,385 64,974
Current liabilities......................................... 31,172 47,769
-------- -------
Working capital........................................... 6,213 17,205
Property, plant and equipment, net.......................... 188,086 174,469
Intangible and other assets................................. 436,320 417,600
Long-term liabilities....................................... 419,909 395,964
-------- -------
Stockholders' equity...................................... $210,710 213,310
======== =======
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Revenues......................................... $23,285 175,134 210,333
======= ======= =======
Operating income (loss).......................... $ (665) 14,113 11,432
======= ======= =======
Loss from continuing operations before cumulative
effect of change in accounting principle........ $ (143) (24,093) (20,644)
======= ======= =======
Net loss (including net losses from development
stage enterprises totaling $7,031 in 1993)...... $ (143) (22,575) (20,644)
======= ======= =======
</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,
1993 amounts outstanding bear interest at a floating rate of prime plus 1.25%.
The advance is collateralized by all the 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
F-15
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Land........................................................ $ 16,855 17,361
Machinery and equipment..................................... 97,671 93,801
Buildings and improvements.................................. 75,324 75,993
Broadcast equipment......................................... 38,770 37,593
Furniture and fixtures...................................... 16,709 27,003
Construction in progress.................................... 1,536 651
-------- -------
$246,865 252,402
======== =======
</TABLE>
During 1991 and 1992 the Company capitalized interest expense on construction
projects totaling $580 and $174, respectively. No interest was capitalized
during 1993. Depreciation expense on property, plant and equipment used in
continuing operations totaled $16,867, $17,715 and $17,761 in 1991, 1992 and
1993, 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 $5,984 and $561 in 1991 and 1992, respectively. In 1991, Broadcasting
wrote down land and buildings and broadcast equipment by $1,438 on its
relocation of two television stations to new premises.
(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>
1992 1993
------- ------
<S> <C> <C>
Purchase price payable on Palmer Communications, Inc.
acquisition................................................ $10,717 6,045
Salaries, wages and other employee benefits................. 4,243 7,825
Unearned revenue............................................ 2,639 3,211
Other....................................................... 7,843 8,701
------- ------
$25,442 25,782
======= ======
</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. As a result of applying
Statement 109 in 1992, pretax income from continuing operations for the year
ended December 31, 1992 was decreased $283 due to the effects of adjustments
for prior purchase business combinations. The 1991 financial statements have
not been restated to apply the provisions of Statement 109.
F-16
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Total income tax expense has been allocated as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------ ------
<S> <C> <C> <C>
Income (loss) from continuing operations............ $ 3,616 11,837 (5,765)
Income (loss) from discontinued operations.......... 8,506 2,955 (1,087)
Extraordinary item.................................. -- -- 799
Changes in accounting principles.................... (1,532) (4,460) --
------- ------ ------
$10,590 10,332 (6,053)
======= ====== ======
</TABLE>
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- ------
<S> <C> <C> <C>
Year ended December 29, 1991:
U.S. Federal.................................... $ 4,294 (6,118) (1,824)
State........................................... 5,440 -- 5,440
-------- ------ ------
$ 9,734 (6,118) 3,616
======== ====== ======
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)
======== ====== ======
</TABLE>
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>
1991 1992 1993
-------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)........ $ (1,021) 6,526 (7,125)
Increase (decrease) in income taxes resulting
from:
Equity in net loss of King Holding Corp........ -- 4,285 2,463
State and local income taxes, net of federal
income tax benefit............................ 3,591 1,117 (219)
Rehabilitation credit.......................... -- -- (1,248)
Amortization of goodwill....................... -- 138 271
Equity in earnings of affiliate not subject to
taxation because of dividends received
deduction for tax purposes.................... 24 (447) (47)
Adjustment of estimated income tax liabilities
of prior years................................ 299 -- --
Other, net..................................... 723 218 140
-------- ------ ------
$ 3,616 11,837 (5,765)
======== ====== ======
</TABLE>
F-17
<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, 1992 and 1993 are presented below:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Gross deferred tax assets:
Deferred compensation.................................. $ 13,062 14,892
State net operating loss carryforwards................. 4,493 4,481
Investment and other reserves.......................... 3,773 5,219
Partnership investment, principally due to book and tax
basis differences..................................... 2,093 1,325
Self-insurance reserves................................ 1,178 1,103
Vacation accrual....................................... 813 811
Postretirement benefits................................ 875 942
Accounts receivable, principally due to allowance for
doubtful accounts..................................... 575 598
Other.................................................. 3,399 3,364
-------- -------
Total gross deferred tax assets...................... 30,261 32,735
Less valuation allowance............................. (4,141) (4,535)
-------- -------
Net deferred tax assets.............................. 26,120 28,200
-------- -------
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest................. (19,538) (19,470)
Intangibles, principally due to differences in basis... (11,944) (11,758)
Pension income......................................... (4,011) (4,355)
Property taxes......................................... (719) (228)
Other.................................................. (1,681) (1,501)
-------- -------
Total gross deferred liabilities..................... (37,893) (37,312)
-------- -------
Net deferred tax liability........................... $(11,773) (9,112)
======== =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1992 was
$4,723. The net change in the total valuation allowance was a decrease of $582
in 1992 and an increase of $1,339 in 1993. Changes to the valuation allowance
relate principally to deferred tax assets recorded for state net operating loss
carryforwards.
For the year ended December 29, 1991, the deferred income tax benefit results
from timing differences in the recognition of income and expense for income tax
and financial reporting purposes. The sources and tax effects of those timing
differences are presented below:
<TABLE>
<S> <C>
Excess of tax over book depreciation............................... $ 1,365
Pension income..................................................... 236
Write-down of assets............................................... (2,884)
Deferred compensation.............................................. (3,815)
Change in reserves................................................. (1,689)
Other, net......................................................... 669
-------
$(6,118)
=======
</TABLE>
F-18
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
At December 31, 1993, the Company had net operating loss carryforwards for
state income tax purposes of approximately $100,000 which are available to
offset future state taxable income, if any, expiring in various years from 1997
through 2008.
(8) LONG-TERM DEBT
At December 31, 1992 and 1993, long-term debt consists of the following:
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of
interest averaging 5.4% and 4.8% in 1992 and 1993,
respectively............................................ $235,000 $262,000
Bonds payable at various rates of interest averaging 3.5%
payable through December 2022........................... 19,600 10,000
Note payable at an annual rate of interest equal to 18%
payable through April 2002.............................. 8,904 8,014
Other.................................................... 105 92
-------- --------
Total long-term debt................................... 263,609 280,106
Less current installments................................ 10,503 3,505
-------- --------
Long-term debt, excluding current installments......... $253,106 $276,601
======== ========
</TABLE>
Scheduled principal payments on outstanding debt total $280,106 and are due
in the following years: 1994--$3,505; 1995--$13,589; 1996--$26,015; 1997--
$45,525; 1998--$60,035 and thereafter--$131,437.
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,
acquire the assets of Palmer 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, 1993, the Company had
$78,000 available for use under the agreement. Commitments under the $240,000
revolving credit and term loan will reduce on a quarterly basis beginning in
the fourth quarter of 1994, beginning at $2,500 and increasing to $10,000 per
quarter.
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, sales of subsidiaries and minimum cash flow requirements.
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.
F-19
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 totaling approximately $6,883 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 $7,497 and are due
in the following years: 1994--$5,251; 1995--$1,338; 1996--$735; and 1997--
$173.
Prior to 1991, television program rights were recorded at the net present
value of the related liabilities and amortized using the straight-line method
over the contracted number of showings. The Company changed its accounting
policy in 1991 to reflect a better matching of program rights amortization
with estimated future revenues. The new method of accounting for program
rights was applied retroactively to program rights acquired in prior years.
The cumulative effect of the change in method resulted in a charge to 1991
operations totaling $2,974, net of the related income tax benefit. The effect
of the change in 1991 was to increase pre-tax income from continuing
operations by $310.
Television program rights are reviewed periodically and, if necessary,
adjusted to estimated net realizable value. Accumulated amortization on
television program rights totaled $20,605 and $17,272 at December 31, 1992 and
1993, 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: 1994--
$4,897; 1995--$4,273; 1996--$3,702; 1997--$3,593; 1998--$3,191 and
thereafter--$18,964. Rental expense for the years ended December 29, 1991 and
December 31, 1992 and 1993, was $1,618, $1,604 and $2,173, respectively.
(11) PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plans
The Company has two noncontributory defined benefit retirement plans and
several defined contribution plans covering substantially all employees. The
Company's funding policy for the defined benefit plans is to
F-20
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
The funded status of the defined benefit plans is as follows:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations............................. $(42,362) (47,939)
======== =======
Accumulated benefit obligations........................ $(45,282) (51,926)
======== =======
Projected benefit obligations............................ $(59,844) (68,045)
Plan assets at fair value (primarily corporate equity and
debt securities, government securities and real estate). 89,776 95,230
-------- -------
Excess of plan assets over projected benefit obligations. $ 29,932 27,185
======== =======
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:
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Unrecognized net gain.................................... $ 5,123 1,564
Unrecognized net transition asset being amortized princi-
pally over 18 years..................................... 14,412 13,184
Unrecognized prior service cost due to plan amendment.... (4,899) (3,856)
Prepaid pension cost (included in other assets).......... 15,296 16,293
-------- -------
Excess of plan assets over projected benefit obliga-
tions................................................. $ 29,932 27,185
======== =======
</TABLE>
The components of 1991, 1992 and 1993 pension income as determined by the
plans' actuary are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
-------- ------ ------
<S> <C> <C> <C>
Service cost...................................... $ (1,510) (1,556) (1,971)
Interest cost..................................... (4,266) (4,309) (5,022)
Actual return on plan assets...................... 14,885 6,594 8,681
Net amortization of unrecognized net assets and
deferrals........................................ (7,269) 1,284 (691)
-------- ------ ------
Pension income.................................. $ 1,840 2,013 997
======== ====== ======
The Company recorded additional pension expense, relating to early retirement
incentives, totaling $1,147 during the year ended December 31, 1991.
The assumptions used in the above valuations are as follows:
<CAPTION>
1991 1992 1993
-------- ------ ------
<S> <C> <C> <C>
Discount rate..................................... 8.0% 8.0% 7.5%
Rate of increase in compensation levels........... 4.0 5.5 5.0
Expected long-term rate of return on assets....... 9.0 8.5 8.5
======== ====== ======
</TABLE>
F-21
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(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 $1,165, $1,115 and
$1,086 in 1991, 1992 and 1993, respectively.
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 $8,923, $2,492 and $5,330 in 1991, 1992 and 1993, 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, the
amount accrued under this plan equaled $23,385.
(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
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).
Postretirement benefit cost of $103 for the year ended December 29, 1991,
which was recorded on a cash basis, has not been restated.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheets at December
31, 1992 and 1993:
<TABLE>
<CAPTION>
1992 1993
------ -----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $2,669 2,327
Fully eligible active plan participants....................... 522 681
------ -----
Accrued postretirement benefit cost......................... $3,191 3,008
====== =====
</TABLE>
Net periodic postretirement benefit cost for 1992 and 1993 included the
following components:
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Service cost........................................................ $ 24 26
Interest cost....................................................... 227 226
---- ---
Net periodic postretirement benefit cost.......................... $251 252
==== ===
</TABLE>
For measurement purposes relating to the medical plan in 1992 and 1993, 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 8.0% in 1992 and 7.5% in 1993.
F-22
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(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, the vested benefit obligation was $211 and the accumulated
benefit obligation was $1,649. The projected benefit obligation totaled $4,154
at December 31, 1993.
The net periodic pension cost for 1993 of $1,501 includes service cost and
interest cost of $1,255 and $246, respectively.
The assumptions used at December 31, 1993 are as follows:
<TABLE>
<S> <C>
Discount rate........................................................... 7.5%
Rate of increase in compensation levels................................. 5.0%
</TABLE>
(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 either one share of Class A Common Stock or one Class A
voting Trust Certificate, as the Executive Committee shall in its own
discretion determine. 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 in actual shares of Class A Common
Stock or Class A Voting Certificates. Participants will be offered an
opportunity to defer such payout. Vesting is accelerated for death, total
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. In
October 1993, 655 units were awarded and compensation expense totaling $405 was
recorded in the consolidated statement of operations for the year ended
December 31, 1993.
(f) Change in Control Agreements
The Company has agreements with certain executives 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 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 299% of their highest base pay
and average bonus received during the prior three years as a lump sum severance
payment. A voluntary resignation provides six month severance. Dismissal for
cause results in no severance.
In a supplemental agreement also executed on October 11, 1993, the Company
committed to paying the severance stated above in event an individual was
involuntarily terminated as a result of corporate restructuring, even if prior
to a change-in-control. In addition, the agreement specified that severance
would be discretionary if the Company wished to retain the executive subsequent
to the restructuring (even though diminished responsibilities) and the
executive declined.
(12) ACQUISITIONS
(a) Palmer Communications, Inc.
In December 1992, the Company completed the acquisition of the cable
television assets of Palmer for approximately $326,000. These cable television
systems are located in Naples, Florida and Palm Desert,
F-23
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
California and have approximately 168,000 subscribers. The acquisition was
completed in two stages. The first, acquiring the Florida assets of Palmer, was
completed on November 30, 1992. The second, acquiring the California assets of
Palmer, was completed on December 31, 1992. 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.
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 $30,450 and $31,452 during 1991 and 1992, respectively.
In December 1990, Colony and Palmer also entered into a management agreement
to manage Palmer's cable systems in Naples, Florida and Palm Desert, California
through December 1996. Colony received a management fee based on the percentage
of budgeted operating income achieved. In 1991 and 1992, management fee income
totaled $2,370 and $2,770, respectively. As a result of the acquisition of
Palmer, the management agreement was terminated.
(b) Other Acquisitions
In January 1992, Colony completed the acquisition of Lakewood Cable, Inc.
("Lakewood") in Lakewood, California for $25,473. Lakewood is a provider of
cable television services with approximately 14,000 subscribers. 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.
(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 the 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.
F-24
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The estimated fair value of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1992 AT DECEMBER 31, 1993
---------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Notes receivable.............. $ 26,160 25,128 22,599 22,599
========== ========= ========== ==========
Long-term debt................ $ 278,609 280,246 280,106 283,409
========== ========= ========== ==========
Television program rights
payable...................... $ 8,433 7,817 7,497 7,016
========== ========= ========== ==========
</TABLE>
(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.
(14) COMMITMENTS AND CONTINGENCIES
The Company has outstanding payment commitments at December 31, 1993 for
television programming not yet available for broadcast totaling $16,872.
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.
F-25
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
(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.
On December 10, 1990, the Company commenced a tender offer, open to all
shareholders, to purchase shares of its Class A and Class B common stock at a
price of $7,000 per share in cash. The purpose of the tender offer was to
provide liquidity to shareholders. The offer period expired on January 18,
1991, and 6,449 shares were tendered in January 1991 for $45,143. The Company
subsequently purchased another 1,134 shares in 1991 for $8,655. In 1991, the
Company retired all but 100 shares of treasury stock comprising Class B shares.
The retirement had no effect on total stockholders' equity. During 1993 the
Company purchased 337 shares for $2,460 and during 1992 the Company purchased
and retired 1,311 shares for $10,014.
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, consisted of 221 Class A shares and 206
Class B shares.
(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 has four stations that serve markets in
Louisville, Charlotte, Tucson and Albuquerque.
Operating results and other financial data for the principal business
segments of the Company for 1991, 1992 and 1993 are presented below. Operating
income (loss) by business segment is total revenue less operating expenses. In
computing operating income (loss) by business segment, none of the following
items has been included: other income (expense), income taxes and extraordinary
items.
F-26
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Identifiable assets by business segment are those assets used in Company
operations in each segment. Capital expenditures are reported exclusive of
acquisitions.
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Publishing.................................. $118,169 $120,515 $124,914
Broadcasting................................ 39,381 42,156 44,532
Other....................................... 9,458 9,782 10,053
-------- -------- --------
$167,008 $172,453 $179,499
======== ======== ========
Operating income (loss):
Publishing.................................. 3,919 10,590 9,891
Broadcasting................................ (11,020) (6,401) (3,188)
Corporate................................... (18,237) (14,441) (20,886)
Other....................................... (6,455) (647) (2,650)
-------- -------- --------
$(31,793) $(10,899) $(16,833)
======== ======== ========
Identifiable assets:
Publishing.................................. $159,241 $158,878 $162,327
Broadcasting................................ 114,405 116,837 108,305
Discontinued operations..................... 52,492 390,123 385,165
Investments in affiliated companies......... 15,211 106,648 101,780
Other....................................... 253,017 20,947 18,108
-------- -------- --------
$594,366 $793,433 $775,685
======== ======== ========
Depreciation and amortization:
Publishing.................................. $ 9,080 $ 10,387 $ 11,426
Broadcasting................................ 11,829 10,162 8,682
Other....................................... 1,131 1,017 1,304
-------- -------- --------
$ 22,040 $ 21,566 $ 21,412
======== ======== ========
Capital expenditures:
Publishing.................................. $ 18,269 $ 14,870 $ 9,962
Broadcasting................................ 11,259 3,746 1,368
Other....................................... 10,608 1,414 267
-------- -------- --------
$ 40,136 $ 20,030 $ 11,597
======== ======== ========
</TABLE>
F-27
<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, 1992 and 1993, 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 year ended December 31, 1993. 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. at December 31,
1992 and 1993, and the results of their operations and their cash flows for the
periods ended December 31, 1992 and 1993 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 11, 1994
(except for the fifth paragraph
of Note 1 as to which the date
is February 22, 1994, and Note 2 as to
which the date is November 18, 1994)
F-28
<PAGE>
KING HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------ SEPTEMBER 30,
1992 1993 1994
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.............. $ 647 $ 833 $ 3,003
Accounts receivable--net............... 18,956 23,685 21,700
Film and syndication rights, current
portion............................... 7,084 10,589 8,060
Prepaid and other current assets....... 2,182 2,137 1,312
-------- -------- --------
Total current assets................. 28,869 37,244 34,075
-------- -------- --------
PROPERTY AND EQUIPMENT--Net.............. 62,407 58,389 56,300
-------- -------- --------
OTHER ASSETS:
Film and syndication rights, long-term
portion............................... 1,098 4,567 4,599
Deferred financing costs--net.......... 13,590 12,107 10,995
Intangible assets--net................. 137,647 130,887 125,788
Long-term pension asset................ 3,521 3,481 3,151
Other assets........................... 441 94 51
-------- -------- --------
Total other assets................... 156,297 151,136 144,584
NET ASSETS OF DISCONTINUED OPERATIONS.... 309,554 286,930 271,215
-------- -------- --------
TOTAL ASSETS......................... $557,127 $533,699 $506,174
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt...... $ -- $ 15,000 $ 26,405
Current portion of film and syndication
rights................................ 7,364 9,614 7,179
Accounts payable and other accrued
expenses.............................. 8,854 9,756 5,948
Deferred income taxes.................. 513 -- --
-------- -------- --------
Total current liabilities............ 16,731 34,370 39,532
-------- -------- --------
LONG-TERM OBLIGATIONS:
Long-term debt......................... 331,000 300,000 271,945
Film and syndication rights............ 2,087 5,525 5,233
Deferred income taxes.................. 17,417 17,948 19,279
Other.................................. 5,095 5,213 4,881
-------- -------- --------
Total long-term obligations.......... 355,599 328,686 301,338
-------- -------- --------
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 21
Additional paid-in capital............. 209,979 210,314 210,314
Accumulated deficit.................... (25,203) (39,692) (45,031)
-------- -------- --------
Total stockholders' equity........... 184,797 170,643 165,304
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $557,127 $533,699 $506,174
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
KING HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD SEPTEMBER 30
FEBRUARY 25, 1992 YEAR ENDED ------------------
TO DECEMBER 31, 1992 DECEMBER 31, 1993 1993 1994
-------------------- ----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Gross broadcast
revenues............. $ 97,241 $117,967 $ 81,381 $ 92,783
Less agency
commission........... 12,775 15,627 10,752 12,358
-------- -------- -------- --------
Net revenues........ 84,466 102,340 70,629 80,425
-------- -------- -------- --------
COSTS AND EXPENSES:
Operating............. 38,666 41,721 30,015 34,287
Selling, general and
administrative....... 16,395 27,517 18,621 19,972
Management and other
fees paid to related
parties.............. 2,131 2,034 1,595 1,526
Depreciation and
amortization......... 12,364 14,697 10,717 10,351
-------- -------- -------- --------
Total............... 69,556 85,969 60,948 66,136
-------- -------- -------- --------
OPERATING INCOME........ 14,910 16,371 9,681 14,289
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net
of allocation to
discontinued
operations........... (7,696) (8,972) (6,694) (6,443)
Other--net............ (26,741) 288 497 281
-------- -------- -------- --------
Total other expense. (34,437) (8,684) (6,197) (6,162)
-------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES.... (19,527) 7,687 3,484 8,127
INCOME TAX PROVISION
(BENEFIT).............. (5,590) 6,787 2,785 4,406
-------- -------- -------- --------
INCOME (LOSS) FROM CON-
TINUING OPERATIONS..... (13,937) 900 699 3,721
LOSS FROM DISCONTINUED
OPERATIONS, NET OF
TAXES.................. (11,266) (15,389) (8,973) (9,060)
-------- -------- -------- --------
NET LOSS................ $(25,203) $(14,489) $ (8,274) $ (5,339)
======== ======== ======== ========
INCOME (LOSS) PER COMMON
SHARE:
Income (loss) from
continuing
operations........... $ (77.45) $ 4.26 $ 3.31 $ 17.62
Discontinued
operations........... (62.60) (72.86) (42.49) (42.90)
-------- -------- -------- --------
Net loss per common
share.................. $(140.05) $ (68.60) $ (39.18) $ (25.28)
======== ======== ======== ========
Weighted average shares
outstanding............ 179,952 211,198 211,198 211,198
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
KING HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(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 COM-
PANY 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 re-
lated to warrant bo-
nuses................... -- -- 335 -- 335
Net loss................. -- -- -- (14,489) (14,489)
------- ----- -------- -------- --------
BALANCE, DECEMBER 31, 1993. -- 21 210,314 (39,692) 170,643
Net loss (unaudited)..... -- -- -- (5,339) (5,339)
------- ----- -------- -------- --------
BALANCE, SEPTEMBER 30, 1994
(Unaudited)............... $ -- $ 21 $210,314 $(45,031) $165,304
======= ===== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
KING HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------
PERIOD
FEBRUARY 25, 1992 YEAR ENDED
TO DECEMBER 31, 1992 DECEMBER 31, 1993 1993 1994
-------------------- ----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Income (loss) from
continuing operations. $(13,937) $ 900 $ 699 $ 3,721
-------- -------- -------- --------
Adjustments to
reconcile income
(loss) from continuing
operations to net cash
provided by operating
activities:
Depreciation and
amortization......... 12,364 14,697 10,717 10,351
Compensation costs
related to warrant
bonuses.............. 335 251
Deferred income
taxes................ (13,603) 18 1,331
Changes in assets and
liabilities:
Accounts receivable... r5,755 (4,695) 1,339 2,017
Prepaid and other
current assets....... 1,124 905 555 914
Accounts payable and
other accrued
expenses............. (2,422) 838 1,127 (4,138)
Other, net............ 1,235 457 1,291 1,611
Film and syndication
rights assets and
liabilities.......... (1,509) (1,286) (153) (142)
-------- -------- -------- --------
Total adjustments.... 2,944 11,269 15,127 11,944
-------- -------- -------- --------
Net cash provided by
(used in) continuing
operating
activities.......... (10,993) 12,169 15,826 15,665
-------- -------- -------- --------
Loss from discontinued
operations............. (11,266) (15,389) (8,973) (9,060)
Adjustments to derive
cash flows from
discontinued operating
activities:
Change in net operating
assets................ 25,571 36,500 22,401 25,001
Net cash provided by
discontinued
operating
activities.......... 14,305 21,111 13,428 15,941
-------- -------- -------- --------
Net cash provided by
operating
activities.......... 3,312 33,280 29,254 31,606
-------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Sale of short-term
investments........... 608 -- -- --
Purchase of property
and equipment, net.... (2,705) (3,086) (3,894) (3,275)
Increase in other
assets, net........... (45) (250) (100) (225)
-------- -------- -------- --------
Net cash used in
investing activities
of continuing
operations.......... (2,142) (3,336) (3,994) (3,500)
Net cash used in
investing activities
of discontinued
operations.......... (11,859) (13,873) (7,527) (9,286)
-------- -------- -------- --------
Net cash used in
investing
activities.......... (14,001) (17,209) (11,521) (12,786)
-------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments of notes
payable--net.......... (19,000) (16,000) (16,000) (16,650)
Increase in other long-
term liabilities...... 28 118 -- --
-------- -------- -------- --------
Net cash used in
financing
activities.......... (18,972) (15,882) (16,000) (16,650)
-------- -------- -------- --------
NET INCREASE (DECREASE). (29,661) 189 1,733 2,170
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD (INCLUDING
CASH AND CASH
EQUIVALENTS INCLUDED IN
NET ASSETS OF
DISCONTINUED
OPERATIONS)............ 30,348 687 687 876
-------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD:
Continuing operations.. 647 833 2,381 3,003
Included in net assets
of discontinued
operations............ $ 40 $ 43 $ 39 $ 43
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1993
AND 1994 IS UNAUDITED)
(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. The Company was formed as a joint venture between the
Providence Journal Company and subsidiaries (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.
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).
Interim Financial Information--The consolidated financial statements for the
nine months ended September 30, 1993 and 1994 are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments and accruals) which the Company considers necessary for a fair
presentation of the operating results and cash flows for these periods. Results
for interim periods are not necessarily indicative of results for the entire
year.
Revenue Recognition--Revenues from broadcast activities are recognized as
advertisements are broadcast. Revenues from cable activities are recognized as
the services are provided. In 1993, the Congress of the United States passed
the 1992 Cable Act (the Act). Under the provisions of the Act, the Company's
cable television revenues became subject to various regulations designed to
reduce rates to cable customers. The impact of these regulations reduced
Videocable's revenues by approximately $900 for the year ended December 31,
1993.
Further, additional regulations were announced during 1994 to be effective
July 1, 1994. Management has implemented the rules in a manner it believes to
be consistent with the regulations promulgated by the FCC. 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 pending litigation challenging certain aspects of the 1992 Cable
Act. The outcome of this litigation cannot be predicted.
Investment in Nonconsolidated Partnerships--The Company has made certain
investments in advertising partnerships. These investments are accounted for
using the equity method and are included in other long-term assets. Income
attributable to the Company's proportional share of the partnerships' earnings
is reported within other expense.
F-33
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Allowance for Doubtful Accounts--The allowance for doubtful accounts of the
continuing operations at December 31, 1992 and 1993 aggregated $975 and $715,
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 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.
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, 1992 and 1993
aggregated $1,235 and $2,718, 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 periodically assesses the recoverability of
intangible assets based on judgements as to future undiscounted 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
and 1993 is as follows:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Cash paid for interest expense.............................. $22,765 $25,453
Cash paid for income taxes.................................. 373 3,021
</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.
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-34
<PAGE>
KING HOLDING CORP.
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 merge. The Providence Journal has entered into a Letter
of Intent dated October 25, 1994 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 plant 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>
PERIOD ENDED
FEBRUARY 25, NINE MONTHS ENDED
1992 TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1992 1993 1993 1994
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Revenues....................... $ 66,006 $ 83,538 $ 61,862 $ 62,668
Costs and expenses............. (82,602) (106,342) (74,910) (75,853)
-------- --------- -------- --------
(Loss) before income taxes..... (16,956) (22,804) (13,048) (13,185)
Income tax benefit............. 5,330 7,415 4,075 4,125
-------- --------- -------- --------
Net (loss)..................... $(11,266) $ (15,389) $ (8,973) $ (9,060)
======== ========= ======== ========
</TABLE>
The Company does not anticipate a loss on the disposal of its Videocable
operations.
3. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1992 1993
------- --------
<S> <C> <C>
Land and buildings........................................ $40,051 $ 40,118
Broadcast equipment....................................... 24,629 27,625
Office equipment.......................................... 1,929 2,749
Leasehold improvements.................................... 1,176 1,176
Construction-in-process................................... 1,303 1,422
------- --------
Total................................................. 69,088 73,090
Less accumulated depreciation and amortization............ (6,681) (14,701)
------- --------
Property and equipment--net............................... $62,407 $ 58,389
======= ========
</TABLE>
F-35
<PAGE>
KING HOLDING CORP.
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>
1992 1993
-------- --------
<S> <C> <C>
FCC license agreements................................... $ 59,780 $ 59,780
Goodwill................................................. 28,774 28,774
Advertiser relations..................................... 47,200 47,200
Other.................................................... 7,479 7,484
-------- --------
Total................................................ 143,233 143,238
Less accumulated amortization............................ (5,586) (12,351)
-------- --------
Intangible assets--net................................... $137,647 $130,887
======== ========
</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 $5,000 was outstanding on December 31, 1993. Borrowings outstanding under
the facility are payable in full in February 2000. The term loan of $310,000 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, 1993, the
interest rate on the revolving credit facility was 5%. Interest rates on the
term loan ranged between 5% and 5.07%, 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 and $187 for the periods ended December
31, 1992 and 1993, 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 minimum levels of net worth and debt
service coverage, all as defined in the Credit Agreement:
At December 31, 1993, long-term debt is due as follows:
<TABLE>
<S> <C>
1994........................................................ $ 15,000
1995........................................................ 27,500
1996........................................................ 37,500
1997........................................................ 40,000
1998........................................................ 40,000
Thereafter.................................................. 155,000
--------
Total................................................... $315,000
========
</TABLE>
F-36
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
To minimize interest rate risk and access lower rates in certain markets, the
Company has entered into interest rate "swap" agreements with unrelated parties
covering $250,000 of notional principal amount. The "swap" agreements, which
allow the Company to access the fixed rate debt markets, were effective March
25, 1992 and expire March 25, 1999. At December 31, 1993, $250,000 in
outstanding debt was covered by these agreements. Interest cost associated with
the "swap" position was approximately $6,433 and $9,915, respectively, for the
periods ended December 31, 1992 and 1993.
Videocable has been allocated interest (including amortization of deferred
financing costs) of $16,355, $19,054, $14,234 and $13,765 for the period
February 25, 1992 to December 31, 1992, the year ended December 31, 1993 and
the nine months ended September 30, 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% in 1992 and 1993. The common stock and assets of the
Company are pledged to secure 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 has been reported as other expense 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 and 1993 is as
follows:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Service cost for benefits earned during the period......... $ 696 $ 852
Interest cost on projected benefit obligation.............. 1,463 1,804
Return on Plan assets...................................... (412) (2,481)
Net deferral............................................... (1,427) 323
------- -------
Total.................................................. $ 320 $ 498
======= =======
</TABLE>
The following table sets forth the Plan's funded status and obligations at
December 31, 1992 and 1993 without regard to the effect of the discontinued
operations:
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of $17,838 and
$20,753 in 1992 and 1993, respectively................. $(18,259) $(20,787)
======== ========
Projected benefit obligation............................ $(22,862) $(25,110)
Plan assets at fair value, consisting of cash and equity
securities............................................. 25,872 27,123
-------- --------
Plan assets in excess of projected benefit obligation... 3,010 2,013
Unrecognized net loss................................... 1,427 1,926
-------- --------
Pension asset........................................... $ 4,437 $ 3,939
======== ========
</TABLE>
F-37
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The discount rate and assumed rate of increase in future compensation levels
used in determining the projected benefit obligation was 8% and 5.5%,
respectively. The expected long-term rate of return on Plan assets was 8.5%.
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 for the year ended December 31, 1993.
Pension expense allocated to Videocable, pursuant to these plans, aggregated
$40 and $60 for 1992 and 1993, respectively. Further, prepaid pension costs
with respect to the defined benefit plan of $515 and $457 have been allocated
to Videocable at December 31, 1992 and 1993, respectively.
Prior to the Acquisition (Note 1), Broadcasting maintained an Employee Stock
Purchase Plan (the ESPP). At the consummation of the Acquisition, the ESPP was
terminated, and a final liquidating distribution was made in September 1992.
The Company incurred no cost related to the ESPP for the periods ended December
31, 1992 and 1993.
7. INCOME TAXES
The income tax provision (benefit) for continuing operations recorded for the
periods ended December 31, 1992 and 1993 consists of the following:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Currently payable:
Federal................................................. $ 4,236 $ 5,577
State................................................... 434 579
-------- -------
Total................................................. 4,670 6,156
-------- -------
Deferred:
Federal................................................. (9,146) 651
State................................................... (1,114) (20)
-------- -------
Total................................................. (10,260) 631
-------- -------
Income tax (benefit) provision............................ $ (5,590) $ 6,787
======== =======
</TABLE>
A reconciliation of the net income tax benefit computed using the U.S.
federal statutory rate and the effective rate for the periods ended December
31, 1992 and 1993 is as follows:
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Statutory tax rate............................................... (34)% 34%
Amortization of goodwill......................................... 8 23
State and local taxes, net of federal tax benefit................ (2) 4
Enacted future rate change....................................... -- 25
Other............................................................ -- 2
--- ---
Effective tax rate............................................... (28)% 88%
=== ===
</TABLE>
F-38
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The significant components of deferred income tax provision (benefit)
attributable to income from continuing operations for the periods ended
December 31, 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Deferred income tax (exclusive of the effects of other
components below)...................................... $ (9,661) $(1,950)
(Increase) decrease in alternative minimum tax.......... (526) 701
State net operating loss benefit, net of federal tax.... (73) --
Enacted future rate change.............................. -- 1,880
-------- -------
Total deferred tax provision (benefit).............. $(10,260) $ 631
======== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1992 and 1993 are presented below:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts....................................... $ 341 $ 372
Film and syndication rights, principally due to different
accounting methods...................................... 1,093 714
Compensated absences, principally due to accrual for
financial reporting purposes............................ 328 265
Net operating loss carryforwards......................... 522 321
Alternative minimum tax credit carryforwards............. 3,476 2,574
Other.................................................... 350 (1,035)
------- -------
Gross deferred tax assets.................................. 6,110 3,211
------- -------
Deferred tax liabilities:
Property and equipment, principally due to basis
differences............................................. 22,444 18,121
Retirement plan, principally due to accrual for financial
reporting purposes...................................... 1,431 1,304
Enacted future rate increases............................ -- 1,880
Other.................................................... 165 (146)
------- -------
Gross deferred tax liabilities............................. 24,040 21,159
------- -------
Net deferred tax liabilities............................... $17,930 $17,948
======= =======
</TABLE>
At December 31, 1993, the Company has net operating loss carryforwards of
$78,000 for state income tax purposes (of which $72,000 relates to
carryforwards of discontinued operations) which are available to offset future
state taxable income, if any, through 2008. 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. In addition, the Company has
alternative minimum tax credit carryforwards of approximately $2,574 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
F-39
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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, 1993, film and syndication rights liabilities
related to programs available for broadcast are due as follows:
<TABLE>
<S> <C>
1994......................................................... $ 9,614
1995......................................................... 4,376
1996......................................................... 516
1997......................................................... 408
1998......................................................... 190
Thereafter................................................... 35
-------
Total.................................................... $15,139
=======
</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 consolidated
financial statements. At December 31, 1993, the Company had executed contracts
aggregating $4,890 (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, 1993,
minimum payments required under noncancelable leases with terms in excess of
one year for continuing operations are as follows:
<TABLE>
<S> <C>
1994.......................................................... $ 389
1995.......................................................... 381
1996.......................................................... 372
1997.......................................................... 325
1998.......................................................... 264
Thereafter.................................................... 157
------
Total..................................................... $1,888
======
</TABLE>
Rent expense under operating leases from continuing operations aggregated
$324 and $383 for the periods ended December 31, 1992 and 1993, 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 (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 for
1993.
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, 1993, the
Providence Journal had been awarded warrant bonuses providing for the purchase
of 1,389 shares, of the Company's Class B nonvoting common stock at $0.10 per
share. Compensation expense
F-40
<PAGE>
KING HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
recorded related to these warrant issuances aggregated $335 in 1993. Based upon
the letter of intent whereby the Providence Journal will buy out the Investor
Shareholder for a fixed price, it is not probable that the Providence Journal
will exercise any outstanding warrants.
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 and $2,842 during 1992 and
1993, 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 and 1993, Videocable has been
allocated expenses under the terms of the Management Agreement, and other
related fees discussed above, aggregating $2,131 and $2,034, 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, 1992 and 1993.
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
approximated $17,343.
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.
The Company has outstanding letter of credit commitments amounting to $740.
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, 1992 and 1993, and the related
combined statements of operations, changes in group equity, and cash flows for
the years then ended. These combined financial statements are the
responsibility of Providence Journal Cable's management. Our responsibility is
to express an opinion for these combined financial statements based on our
audits. We did not audit the financial statements of King Videocable Company,
which statements reflect total assets constituting 45 percent of the related
combined totals in 1992 and 1993, and total revenues constituting 33 percent
and 30 percent in 1992 and 1993, 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,
1992 and 1993, and the results of their operations and their cash flows for the
years then ended 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
January 6, 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, 1992 and 1993, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the year ended December 31, 1993. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of King
Videocable Company at December 31, 1992 and 1993, and the results of their
operations and their cash flows for the periods ended December 31, 1992 and
1993 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
November 30, 1994
F-43
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1992 1993 1994
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash........................................... $ 396 $ 543 $ 168
Accounts receivable, less allowance for
doubtful accounts of $804 and $805 at December
31, 1992 and 1993, respectively, and $491 at
September 30, 1994............................ 22,385 23,176 23,837
Inventory (note 4)............................. 4,897 5,914 6,829
Prepaid expenses............................... 4,377 3,629 4,625
Property, plant and equipment, net (note 5).... 273,499 256,199 253,878
Franchise costs and other intangible assets,
net (note 6).................................. 557,809 519,553 490,475
Other assets................................... 3,787 4,292 4,676
-------- -------- --------
Total assets................................... $867,150 $813,306 $784,488
======== ======== ========
LIABILITIES AND GROUP EQUITY
----------------------------
Accounts payable............................... 15,279 16,298 11,190
Accrued expenses............................... 13,434 16,082 19,186
Deferred revenue............................... 13,404 13,456 13,064
Long-term debt (note 7)........................ 15,000 -- --
Deferred income taxes (note 9)................. 79,144 69,030 66,589
Minority interests in combined entities........ 44,670 34,964 27,354
Amounts due to parent companies (note 8)....... 596,885 593,073 587,428
-------- -------- --------
Total liabilities............................ 777,816 742,903 724,811
Commitments and contingencies (notes 2, 10, 11
and 12)
Group equity................................... 89,334 70,403 59,677
-------- -------- --------
Total liabilities and group equity........... $867,150 $813,306 $784,488
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-44
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------------
1991 1992 1993 1993 1994
----------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue (note 2)............ $118,791 $199,684 $281,593 $209,442 $211,320
-------- -------- -------- -------- --------
Operating costs and
expenses:
Operating............... 48,554 76,523 103,637 77,590 85,459
Selling, general and
administrative......... 28,951 45,180 62,446 45,080 43,903
Depreciation and
amortization........... 24,640 58,750 92,710 69,656 66,550
Allocated overhead from
parent companies (note
8(b)).................. 7,751 6,513 9,651 5,806 5,636
-------- -------- -------- -------- --------
Total operating costs
and expenses......... 109,896 186,966 268,444 198,132 201,548
-------- -------- -------- -------- --------
Operating income.......... 8,895 12,718 13,149 11,310 9,772
Interest income (expense)
and other income
(expense), net (notes 3
and 7)................... 2,567 591 (1,841) (142) 1,716
Allocated interest income
(expense) from parent
companies, net (note
8(a)).................... 899 (16,516) (39,938) (30,109) (30,694)
Loss on abandonment of
assets (note 5).......... -- -- (8,244) -- --
-------- -------- -------- -------- --------
Income (loss) before
income taxes, cumulative
effect of accounting
change and minority
interests................ 12,361 (3,207) (36,874) (18,941) (19,206)
Provision for income taxes
(note 9)................. 6,166 694 (11,219) (5,371) (4,995)
-------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change and
minority interests....... 6,195 (3,901) (25,655) (13,570) (14,211)
Cumulative effect at
January 1, 1992 of change
in accounting for income
taxes (note 9)........... -- 4,831 -- -- --
-------- -------- -------- -------- --------
Income (loss) before
minority interests....... 6,195 930 (25,655) (13,570) (14,211)
Minority interests in
combined entities........ 72 4,152 6,724 3,782 3,485
-------- -------- -------- -------- --------
Net income (loss)......... $ 6,267 $ 5,082 $(18,931) $ (9,788) $(10,726)
======== ======== ======== ======== ========
</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, 1990
(unaudited)....................$55,203.
Net income (unaudited)......... 6,267
-------
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 (unaudited)............(10,726).
-------
Balance at September 30, 1994
(unaudited)....................$59,677.
=======
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------------
1991 1992 1993 1993 1994
----------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)..... $ 6,267 $ 5,082 $(18,931) $(9,788) $(10,726)
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Change in accounting
for
income taxes........ -- (4,831) -- -- --
Depreciation and
amortization........ 24,640 58,750 92,710 69,656 66,550
Loss on abandonment
of assets........... -- -- 8,244 -- --
Equity in income of
affiliates.......... -- (183) (1,187) (1,457) (1,069)
Minority interests in
combined entities... (72) (4,152) (6,724) (3,782) (3,485)
Deferred income
taxes............... (1,183) 2,261 (10,114) 352 (2,441)
Decrease (increase)
in accounts
receivable, prepaid
expenses and other
assets.............. 997 (6,575) (456) (472) (2,012)
(Decrease) increase
in accounts payable,
accrued expenses,
and deferred
revenue............. (1,717) 3,384 3,719 (1,074) (2,396)
-------- ------- -------- ------- --------
Net cash provided by
operating
activities......... 28,932 53,736 67,261 53,435 44,421
-------- ------- -------- ------- --------
Investing activities:
Cash distributions
received
from affiliates...... -- 50 1,095 885 997
Net property, plant,
and equipment and
intangibles.......... (18,722) (27,374) (46,415) (31,282) (36,023)
-------- ------- -------- ------- --------
Net cash used in
investing
activities......... (18,722) (27,324) (45,320) (30,397) (35,026)
-------- ------- -------- ------- --------
Financing activities:
Cash distributions to
minority
shareholders......... -- (3,085) (2,982) (2,982) (4,125)
Principal payments on
long-term debt....... (5,583) (5,000) (15,000) -- --
Net decrease in
amounts due to parent
companies............ (4,680) (18,116) (3,812) (20,401) (5,645)
-------- ------- -------- ------- --------
Net cash used in
financing
activities......... (10,263) (26,201) (21,794) (23,383) (9,770)
-------- ------- -------- ------- --------
Increase (decrease) in
cash.................. (53) 211 147 (345) (375)
Cash at beginning of
period................ 238 185 396 396 543
-------- ------- -------- ------- --------
Cash at end of period.. $ 185 $ 396 $ 543 $ 51 $ 168
======== ======= ======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(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).
Investments in 50% joint 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.
Providence Journal Cable operates cable television systems with approximately
753,000 (unaudited) aggregate subscribers as of September 30, 1994. Cable
franchise areas are located in California, Florida, Massachusetts, New York,
Rhode Island, Minnesota, Idaho and Washington state. Providence Journal Cables
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, 1992 and 1993, Providence Journal
Cable reclassified outstanding checks to accounts payable totaling $3,855 and
$6,132, respectively.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- ------ -----
(UNAUDITED)
<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)........................................... $ 9,603 11,863 1,250
======= ====== =====
Interest paid during the year, net of amounts
capitalized...................................... $ 2,636 2,102 2,092
======= ====== =====
</TABLE>
F-48
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
During 1992, Providence Journal Cable acquired certain assets and assumed
certain liabilities in connection with purchase business combinations, as
follows:
<TABLE>
<S> <C>
Tangible assets (primarily property, plant and equipment).......... $198,418
========
Intangible assets.................................................. $557,625
========
Liabilities assumed................................................ $ 84,002
========
Financing from parent companies.................................... $649,259
========
Capitalization of KVC (net of minority interest)................... $ 22,782
========
</TABLE>
(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....................................... 15-20 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 five 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
$2,258 (unaudited), $18,968 and $39,814 for the years ended December 31, 1991,
1992 and 1993, 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 partnerships which
are accounted for using the equity method. 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-49
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(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.
(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 income (loss) (see note 9).
Prior to 1992 Providence Journal Cable recorded income taxes in accordance with
Accounting Principles Board Opinion No. 11. Under this method, deferred income
taxes were recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax purposes using
the tax rate applicable in the year of the calculation.
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.
(i) Unaudited Combined Interim Financial Statements
The combined financial statements as of and for the nine months ended
September 30, 1994 and 1993 are unaudited, however, they include all
adjustments (consisting of normal recurring adjustments) considered necessary
by management for presentation of the financial position and results of
operations for these periods. The results of operations for interim periods are
not necessarily indicative of the results that may be expected for the entire
year.
(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
F-50
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
under either a "benchmark" or "cost of service" method. Effective September 1,
1993, all 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 to face effective competition by
the FCC. The impact of adjusting rates to the bench-mark at September 1, 1993
was a reduction in revenue of approximately $4,896 (unaudited) for the four
months ended December 31, 1993.
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.
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. These cable television systems are located in Naples, Florida and
Palm Desert, California and have approximately 168,000 subscribers. The
acquisition was completed in two stages. The first, acquiring the Florida
assets, was completed on November 30, 1992. The second, acquiring the
California assets, was completed on December 31, 1992.
Prior to the acquisition of Cablevision, Colony managed Cablevision and
received a management fee totaling $2,370 in 1991 and $2,770 in 1992 which has
been included with interest and 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 initial 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. Lakewood is a provider of
cable television services with approximately 14,000 subscribers.
F-51
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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.
The following unaudited pro forma summary presents the combined results of
operations during 1991 and 1992 as if the aforementioned acquisitions had
occurred as of January 1, 1991, and does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or of
results which may occur in the future.
<TABLE>
<CAPTION>
1991 1992
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue.............................................. $253,000 267,000
Operating income (loss).............................. $ (500) 3,600
Net loss............................................. $(24,000) (13,000)
</TABLE>
(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.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Cable systems............................................... $371,626 369,636
Land and buildings.......................................... 29,337 29,483
Machinery and equipment..................................... 23,609 23,953
Furniture and fixtures...................................... 7,510 7,543
Construction in progress.................................... 10,557 4,381
-------- -------
442,639 434,996
Less accumulated depreciation............................... 169,140 178,797
-------- -------
$273,499 256,199
======== =======
</TABLE>
During 1991, 1992 and 1993, Providence Journal Cable capitalized interest
expense on construction in progress of $149 (unaudited), $109 and $223,
respectively. Depreciation expense on property, plant and equipment totaled
$22,382 (unaudited), $39,782 and $52,896 in 1991, 1992 and 1993, 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.
F-52
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(6) FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
Franchise costs and other intangible assets consist of the following:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Franchise costs............................................. $445,511 446,760
Goodwill.................................................... 107,299 107,299
Non-compete agreements...................................... 19,633 19,633
Other intangible assets..................................... 16,019 16,328
-------- -------
588,462 590,020
Less accumulated amortization............................... 30,653 70,467
-------- -------
$557,809 519,553
======== =======
</TABLE>
(7) LONG-TERM DEBT
At December 31, 1992, Providence Journal Cable had a note payable outstanding
for $15,000, payable in annual installments of $2,500. Interest expense on this
note totaled $2,763 (unaudited), $2,268 and $1,546 in 1991, 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).
(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 1992 and 1993:
<TABLE>
<CAPTION>
1992 1993
-------- -------
<S> <C> <C>
Beginning balance......................................... $ 4,382 596,885
Financing in connection with acquisitions................. 649,259 --
Allocated interest and overhead........................... 23,029 49,589
Repayments and other activity, net........................ (79,785) (53,401)
-------- -------
$596,885 593,073
======== =======
</TABLE>
The effective rates on interest allocated on amounts due to parent companies
were 8.27% and 7.57% during 1992 and 1993, respectively.
(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 $7,751
(unaudited), $6,513 and $9,651 in 1991, 1992 and 1993, 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.
F-53
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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 $1,000 in annual fees to both the Journal and 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 and $2,034 were allocated to KVC in
1992 and 1993, respectively. These expenses have been included in the
allocation of corporate overhead discussed in the preceding paragraph.
(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 is determined as of January 1, 1992 and is reported
separately in the combined statement of operations for the year ended December
31, 1992. Prior years' financial statements have not been restated to apply the
provisions of Statement 109.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1991 (unaudited):
U.S. Federal.................................... $ 5,562 (1,183) 4,379
State........................................... 1,787 -- 1,787
------- ------ -------
$ 7,349 (1,183) 6,166
======= ====== =======
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)
======= ====== =======
</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>
1991
(UNAUDITED) 1992 1993
----------- ------ -------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)...... $ 4,202 (1,090) (12,533)
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income tax benefit.......................... 1,179 1,085 521
Amortization of goodwill..................... 677 1,211 1,198
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................................... 108 (208) (196)
------- ------ -------
$ 6,166 694 (11,219)
======= ====== =======
</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, 1992 and 1993 are presented below:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Deferred tax assets:
State net operating loss carryforwards.................. $ 5,241 5,658
Alternative minimum tax credit carryforward............. 1,706 1,489
Uniform capitalization and Section 263A depreciation.... 1,139 1,434
Deferred compensation and vacation accrual.............. 527 655
Self-insurance reserves................................. 365 437
Partnership investment, principally due to basis differ-
ences.................................................. 150 1,084
Other................................................... 388 722
------- -------
Total gross deferred tax assets....................... 9,516 11,479
Less valuation allowance.............................. (4,867) (5,456)
------- -------
Net deferred tax assets............................... 4,649 6,023
------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in amortiza-
tion................................................... $52,259 $47,891
Plant and equipment, principally due to differences in
depreciation and capitalized interest.................. 30,556 25,895
Installment sale gain................................... 452 250
Other................................................... 526 1,017
------- -------
Total gross deferred tax liabilities.................. 83,793 75,053
------- -------
Total net deferred tax liability...................... $79,144 69,030
======= =======
</TABLE>
The 1992 beginning valuation allowance for deferred tax assets was $4,584.
The net change in the total valuation allowance was an increase of $283 and
$589 in 1992 and 1993, respectively. Changes to the valuation allowance relate
principally to deferred tax assets recorded for state net operating loss
carryforwards.
For the year ended December 31, 1991, deferred income taxes result from
temporary differences in the recognition of income and expenses for income tax
and financial reporting purposes. The sources and tax effects of those
temporary differences are presented below (unaudited):
<TABLE>
<S> <C>
Excess of financial statement over tax depreciation............... $ (1,386)
Excess of financial statement over tax amortization............... (467)
Uniform capitalization and Section 263A depreciation.............. (350)
Gain on sale of assets, due to basis differences.................. 360
Alternative minimum tax carryforward.............................. (561)
Tax net operating loss carryforward utilized...................... 1,209
Other, net........................................................ 12
--------
Total deferred income tax benefit............................... $ (1,183)
========
</TABLE>
F-55
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
At December 31, 1993, Providence Journal Cable has net operating loss
carryforwards for state income tax purposes of $94,000 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 1991, 1992
and 1993, rental expense for all leases, including pole rentals, totaled $2,489
(unaudited), $3,973 and $5,081, respectively.
At December 31, 1993, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<S> <C>
1994............................................................... $ 2,586
1995............................................................... 2,282
1996............................................................... 1,886
1997............................................................... 1,563
1998............................................................... 1,304
Thereafter......................................................... 4,915
-------
$14,536
=======
</TABLE>
(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 multi-employer defined benefit plan sponsored by Broadcasting, covering
substantially all employees of KVC. Expenses recorded under these plans totaled
$518 (unaudited), $774 and $1,516 in 1991, 1992 and 1993, respectively. Prepaid
pension costs with respect to the defined benefit plan of $515 and $457 have
been allocated to KVC at December 31, 1992 and 1993, 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, 1993.
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
Cables 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 $262,000
at December 31, 1993) 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 $315,000 at December 31, 1993) 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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
Colony Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Colony
Communications, Inc. as of December 31, 1991 and 1990, and the related
consolidated statements of income and retained earnings 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 consolidated financial position of Colony
Communications, Inc. as of December 31, 1991 and 1990, and the consolidated
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
February 12, 1992
F-57
<PAGE>
COLONY COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1991 AND 1990
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1991 1990
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash....................................................... $ 31 $ 69
Accounts receivable, less allowances of $387 in 1991 and
$565 in 1990.............................................. 4,801 6,251
Current portion of notes receivable (Note B)............... 508 --
Prepaid expenses........................................... 1,296 886
-------- --------
Total current assets..................................... 6,636 7,206
Loans receivable from parent company......................... 12,912 3,628
Investment in affiliate (Note C)............................. 14,581 14,653
Property, plant and equipment, net (Note D).................. 75,026 78,440
Franchise costs and other intangible assets, net (Notes A and
E).......................................................... 16,275 15,979
Notes receivable (Note B).................................... 1,308 --
Other assets................................................. 165 90
-------- --------
$126,903 $119,996
======== ========
LIABILITIES
Current:
Accounts payable (Note A).................................. $ 4,108 $ 4,876
Accrued expenses........................................... 4,455 3,886
Accounts payable--Copley/Colony, Inc. (Note C)............. 4,077 2,049
State and local taxes payable.............................. 716 195
Current installments of long-term debt (Note F)............ 2,500 3,083
-------- --------
Total current liabilities................................ 15,856 14,089
Long-term debt (Note F)...................................... 17,500 22,500
Deferred federal income taxes (Note G)....................... 12,423 13,389
Deferred compensation........................................ 504 403
Minority interest in subsidiary (Note E)..................... 14,545 14,410
Commitments and contingencies (Notes H, I, K, L and M).......
STOCKHOLDER'S EQUITY
Capital stock, par value $1 per share; authorized 80,000
shares; issued and outstanding 50,000 shares................ 50 50
Capital contributed in excess of par value................... 10,700 10,700
Retained earnings............................................ 55,325 44,455
-------- --------
Total stockholder's equity............................... 66,075 55,205
-------- --------
$126,903 $119,996
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-58
<PAGE>
COLONY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1990
------- -------
<S> <C> <C>
Revenue from CATV services.................................... $94,542 $92,772
------- -------
Expenses:
Operating................................................... 38,481 39,918
Administrative and selling.................................. 19,775 18,139
Depreciation and amortization............................... 17,623 16,193
Taxes, other than income.................................... 3,024 3,464
------- -------
78,903 77,714
------- -------
Operating income.............................................. 15,639 15,058
Interest and other income (Notes A, C, and J)................. 4,511 1,621
Interest expense.............................................. (2,763) (2,793)
Equity in loss of affiliate (Note C).......................... (72) (325)
------- -------
17,315 13,561
Gain on sale of ad sales divisions, (Note B).................. 2,160 --
------- -------
Income from operations before income taxes.................... 19,475 13,561
Income taxes (Note G)......................................... 8,605 6,124
------- -------
Net income................................................ 10,870 7,437
Retained earnings--beginning of year.......................... 44,455 37,018
------- -------
Retained earnings--end of year................................ $55,325 $44,455
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-59
<PAGE>
COLONY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1990
(IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1990
-------- --------
<S> <C> <C>
Operating activities:
Net income............................................... $ 10,870 $ 7,437
Depreciation and amortization............................ 17,623 16,193
Deferred compensation.................................... 101 (13)
Equity in loss of affiliate.............................. 72 325
Deferred federal income taxes............................ (966) (933)
Minority interest share of income........................ 195 135
Net gain on disposal of property, plant and equipment.... (1,787) (16)
Changes in assets and liabilities:
Accounts receivable and prepaid expenses................ 1,040 (646)
Accounts payable, accrued expenses and accounts
payable--Copley/Colony, Inc. .......................... 1,829 (797)
State and local taxes payable........................... 521 (235)
Other assets............................................. (7) 5
-------- --------
Cash flows from operating activities................... 29,491 21,455
-------- --------
Investing activities:
Purchases of property, plant and equipment............... (14,437) (17,392)
Cash proceeds from sale of assets........................ 1,393 73
Buyout of minority interest.............................. (1,167) --
Payments related to franchise costs and other intangible
assets.................................................. (451) (124)
-------- --------
Cash flows used in investing activities................ (14,662) (17,443)
-------- --------
Financing activities:
Minority interest capital call contribution.............. -- 286
Intercompany financing................................... (9,284) (3,129)
Principal payments on debt............................... (5,583) (1,167)
-------- --------
Cash flows used in financing activities................ (14,867) (4,010)
-------- --------
Net increase (decrease) in cash............................ (38) 2
Cash at beginning of year.................................. 69 67
-------- --------
Cash at end of year........................................ $ 31 $ 69
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-60
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES:
The significant accounting policies of Colony Communications, Inc. (a wholly-
owned subsidiary of Providence Journal Company) and its subsidiaries (the
"Company") are as follows:
Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of Colony Communications, Inc. and its wholly-owned
and majority-owned subsidiaries and partnership. Investment in an affiliate
is accounted for using the equity method.
Basis of Presentation
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Cash
The Company participates in the cash management program of its parent.
Under this program, outstanding checks in excess of cash are not accounted
for as reductions of cash until presented to the bank for payment. At
December 31, 1991 and 1990, the Company reclassified $210,000 and $990,000,
respectively, of outstanding checks to accounts payable.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; betterments are
capitalized. The Company provides for depreciation using the straight-line
method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................. 20 years
Cable systems, machinery and equipment.................... 3-10 years
Furniture and fixtures.................................... 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.
Franchise Costs and Other Intangible Assets
Franchise costs represent the amount paid to acquire the operating
franchises of the Company. These costs are amortized using the straight-
line method over the lives of the respective franchises which range from
thirteen to twenty-five years beginning when the franchise is awarded. All
costs incurred from the award of the franchise until subscriber revenue is
earned are capitalized and amortized over five years.
Goodwill, primarily resulting from the purchase of stock that was held by
minority interests and the fair market value of assets contributed to a
partnership by the minority shareholder, is amortized over the life of the
franchise agreements.
Amortization expense on franchise costs and other intangible assets
totaled $1,276,000 and $1,103,000 in 1991 and 1990, respectively.
Accumulated amortization on intangible assets totaled $5,902,000 and
$4,626,000 at December 31, 1991 and 1990, respectively.
F-61
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intercompany Loans
Intercompany loans bear interest at the prime rate and are classified as
noncurrent in the financial statements. The Company received interest from
its parent of $899,000 and $255,000 in 1991 and 1990, respectively.
Income Taxes
The Company files a consolidated federal income tax return and (to the
extent eligible) consolidated Rhode Island and Massachusetts state income
tax returns with its parent. Income taxes are computed based on its effect
on the consolidated tax provision.
The Company's policies for financial reporting purposes regarding
principally depreciation and amortization differ from those used for
federal income tax purposes, thereby giving rise to deferred income taxes.
In 1990, the Company changed its method of tax accounting for installation
revenue to the same method used for financial statement reporting.
B. SALE OF AD SALES DIVISIONS:
During 1991, the Company sold four of its Ad Sales Divisions resulting in a
gain of $2,160,000. The total selling price was $3,500,000, of which $700,000
was received in cash and $2,800,000 in noninterest bearing installment notes,
payable from March 1991 through December 1994. The installment notes are
included in the balance sheet net of the unamortized discount of $434,000 at
December 31, 1991. The discount is based on an imputed interest of 8%. Payments
on installment notes due in 1991 totaling $550,000 were received.
C. INVESTMENT IN AFFILIATE:
The Company owns 50% of Copley/Colony, Inc., a joint venture with Copley
Press Electronics Company engaged in cable television operations. The venture
has operations in seven franchise areas located in southeastern California.
Summarized financial information for Copley/Colony, Inc. for the years ended
December 31, 1991 and 1990 is as follows:
<TABLE>
<CAPTION>
1991 1990
------- -------
(IN THOUSANDS)
<S> <C> <C>
Assets.............................................. $34,100 $36,679
Liabilities......................................... 4,937 7,373
Revenues............................................ 24,083 22,458
Company's share of losses........................... 72 325
</TABLE>
The Company has a management agreement with Copley/Colony, Inc. to operate
its cable television systems. In 1991 and 1990, the Company charged
Copley/Colony, Inc. $708,000 and $657,000, respectively, in management fees
which have been included as a component of interest and other income. In
addition, the Company charges Copley/Colony, Inc. processing fees for customer
billing. The total amounts charged for this service were $521,000 and $476,000
in 1991 and 1990, respectively, which have been applied as a reduction to
administrative and selling expenses. The Company pays all operating expenses on
behalf of Copley/Colony and collects all cash receipts. The net balance of
these transactions has been included in accounts payable--Copley/Colony, Inc.
F-62
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1991 1990
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 1,586 $ 1,586
Buildings......................................... 11,592 10,107
Cable systems..................................... 138,691 129,504
Machinery and equipment........................... 13,785 14,464
Furniture and fixtures............................ 3,442 2,984
Construction in progress.......................... 2,135 3,454
-------- --------
171,231 162,099
Less: accumulated depreciation.................... 96,205 83,659
-------- --------
$ 75,026 $ 78,440
======== ========
</TABLE>
During 1991 and 1990, the Company capitalized interest expense on
construction in progress projects of $149,000 and $292,000, respectively.
Depreciation expense on property, plant and equipment totaled $16,347,000 and
$15,090,000 in 1991 and 1990, respectively.
E. MINORITY INTEREST:
Effective April 14, 1989, a subsidiary of the Company, Dynamic Cablevision of
Florida, Inc. ("Dynamic"), formed a limited partnership with an unrelated
partner. Dynamic has approximately a 90% ownership interest and acts as the
general partner. The partnership was formed to provide cable television
services to various franchises in south Florida. The formation of the
partnership has been accounted for as a purchase. Accordingly, the fixed
assets, franchise licenses and other intangible assets contributed by the
limited partner were recorded at their fair values. Included in the
consolidated financial statements is the limited partner's minority interest of
$14,446,000 and $14,332,000 in 1991 and 1990, respectively. The minority
interest share of income was $127,000 and $57,000 for 1991 and 1990,
respectively.
In 1991, the Company acquired an additional ten percent of the outstanding
shares of one of its subsidiaries from minority shareholders for $1,167,000.
The excess of the fair value of the shares acquired over the fair value of the
net assets totaled $1,121,000 and has been accounted for as goodwill. The
remaining minority interest of the subsidiary totaling $99,000 and $78,000 in
1991 and 1990, respectively, is included in the minority interest account. The
minority interest share of income was $68,000 and $78,000 for 1991 and 1990,
respectively.
F. LONG-TERM DEBT:
At December 31, 1991, the Company has a note payable outstanding for
$20,000,000, payable in annual installments of $2,500,000. The note bears
interest at 11.25%.
On December 1, 1991, the Company made an optional prepayment of $2,500,000 on
the note payable. This prepayment resulted in a change in the maturity date of
the note from December 2000 to 1999. The note payable contains restrictive
covenants which, among other things, include limitations as to payment of
dividends, levels of indebtedness, lease obligations, sales of subsidiaries and
minimum net worth requirements.
F-63
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Scheduled principal payments on outstanding debt are (in thousands):
<TABLE>
<S> <C>
1992......................................................... $ 2,500
1993......................................................... 2,500
1994......................................................... 2,500
1995......................................................... 2,500
1996......................................................... 2,500
Thereafter................................................... 7,500
-------
$20,000
=======
</TABLE>
Interest paid, net of capitalized interest, on outstanding debt totaled
$2,683,000 and $2,652,000 for 1991 and 1990, respectively.
G. FEDERAL AND STATE INCOME TAXES:
Income taxes consist of the following:
<TABLE>
<CAPTION>
1991 1990
------- -------
(IN THOUSANDS)
<S> <C> <C>
Federal:
Current.................................................. $7,373 $5,350
Deferred................................................. (966) (933)
State, currently payable................................... 2,198 1,707
------- -------
$8,605 $6,124
======= =======
</TABLE>
Income taxes differ from expected income taxes computed at the statutory
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1991 1990
------------ -------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Income before income taxes.................... $19,475 $13,561
======= =======
Expected tax.................................. 6,622 34.0% 4,610 34.02%
Increase (decrease) in income taxes resulting
from:
State income taxes, net of federal tax
benefit.................................... 1,450 7.4 1,127 8.3
Goodwill amortization....................... 406 2.1 131 1.0
Other, net.................................. 127 .7 256 1.9
------- ---- ------- -----
$ 8,605 44.2% $ 6,124 45.2%
======= ==== ======= =====
</TABLE>
Increases (decreases) in deferred income taxes are as follows:
<TABLE>
<CAPTION>
1991 1990
------- -------
(IN THOUSANDS)
<S> <C> <C>
Tax over (under) book depreciation and amortization....... $(650) $ 31
Tax (over) under net gain on sale of assets............... 360 (58)
Tax over (under) book depreciation and amortization for
Partnership.............................................. (467) (86)
Capitalization of inventory costs......................... (223) (208)
Other, net................................................ 14 (612)
------- -------
$(966) $(933)
======= =======
</TABLE>
F-64
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Federal and certain state income taxes are reimbursed by the Company to its
parent through the intercompany account.
H. OPERATING LEASES:
The Company has certain noncancelable operating leases with renewal options
for land, buildings and equipment. In 1991 and 1990, rental expense for all
leases totaled $2,134,000 and $2,098,000, respectively.
At December 31, 1991, commitments under noncancelable lease agreements are
(in thousands):
<TABLE>
<S> <C>
1992.......................................................... $ 874
1993.......................................................... 618
1994.......................................................... 529
1995.......................................................... 462
1996.......................................................... 289
Thereafter.................................................... 1,250
------
$4,022
======
</TABLE>
The leases for land and buildings are subject to annual consumer price index
adjustments.
I. PENSIONS:
The Company has a defined contribution retirement plan which includes a
401(k) plan and covers substantially all of its employees. The Company matches
participants' contributions up to a maximum of 1% of participants'
compensation. Pension costs are funded as accrued. The Company elected, under
the plan, to take into income forfeitures totaling $42,000 and $331,000 in 1991
and 1990, respectively. Pension expense, net of forfeitures, totaled $449,000
in 1991, and $332,000 in 1990.
J. MANAGEMENT AGREEMENT:
As of December 1990, the Company and Palmer Communications, Inc. ("Palmer")
entered into a management agreement to manage Palmer's cable systems in the
Naples, Florida and the Palm Desert, California areas through December 1996.
These systems include approximately 168,000 subscribers. The Company receives a
management fee based on the percentage of budgeted operating income achieved.
Management fee income totaled $2,370,000 and $101,000 in 1991 and 1990,
respectively, and has been included as a component of interest and other
income.
K. COMMITMENTS AND CONTINGENCIES:
The Company has outstanding payment commitments at December 31, 1991,
totaling $7,432,000 payable in 1992, primarily for construction of cable
systems.
The Company has, or participates with its parent in, insurance programs for
workers' compensation, general liability, auto and certain health coverages
which are a form of self-insurance. The Company'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.
L. LITIGATION:
The Company 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 adequately covered by insurance or, if not so
F-65
<PAGE>
COLONY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
covered, 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 of the Company.
M. SUBSEQUENT EVENTS:
On January 31, 1992, the Company acquired a 14,000 subscriber cable system in
Lakewood, California, at a purchase price of approximately $25 million.
F-66
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Copley/Colony, Inc.:
We have audited the accompanying consolidated balance sheets of
Copley/Colony, Inc. as of December 31, 1991 and 1990, and the related
consolidated statements of operations and accumulated deficit and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Copley/Colony,
Inc. as of December 31, 1991 and 1990, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Coopers & Lybrand
Boston, Massachusetts
February 12, 1992
F-67
<PAGE>
COPLEY/COLONY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1991 AND 1990
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1990
------- -------
<S> <C> <C>
ASSETS
------
Current:
Cash (including restricted cash of $100 in 1991 and 1990).. $ 154 $ 169
Accounts receivable, less allowance for doubtful accounts
of $98 in 1991 and $131 in 1990........................... 1,281 1,384
Accounts receivable--Colony Communications, Inc. (Note A).. 4,077 2,049
Prepaid expenses........................................... 174 114
------- -------
Total current assets..................................... 5,686 3,716
------- -------
Other investments............................................ 250 250
Property, plant and equipment (Note B):
Land and building.......................................... 1,755 1,755
Leasehold improvements..................................... 1,194 1,170
Cable systems.............................................. 49,617 47,620
Machinery and equipment.................................... 3,775 3,515
Furniture and fixtures..................................... 1,088 1,002
Construction in progress................................... 448 975
------- -------
57,877 56,037
Less accumulated depreciation................................ 36,853 31,439
------- -------
21,024 24,598
Other assets................................................. 24 24
Franchise costs and other intangible assets (Notes B and C).. 7,116 8,091
------- -------
$34,100 $36,679
======= =======
LIABILITIES
-----------
Current:
Accounts payable........................................... $ 1,329 $ 3,801
Accrued expenses........................................... 1,096 985
Federal and state taxes payable............................ 311 177
------- -------
Total current liabilities................................ 2,736 4,963
------- -------
Deferred federal income taxes (Note D)....................... 2,166 2,383
Deferred compensation........................................ 35 27
Commitments and contingencies (Notes E, F, G, and H).........
STOCKHOLDERS' EQUITY
--------------------
Common stock (Note I):
Class A, par value $1 per share; authorized 2,000 shares;
issued and outstanding 1,000 shares....................... 1 1
Class B, par value $1 per share; authorized 1,000 shares;
issued and outstanding 1,000 shares....................... 1 1
Capital contributed in excess of par value................... 40,721 40,721
Accumulated deficit.......................................... (11,560) (11,417)
------- -------
Total stockholders' equity............................... 29,163 29,306
------- -------
$34,100 $36,679
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-68
<PAGE>
COPLEY/COLONY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1990
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1990
-------- --------
<S> <C> <C>
Revenue from CATV services.................................. $ 23,285 $ 21,764
Management fee income (Note J).............................. 798 694
-------- --------
24,083 22,458
-------- --------
Expenses:
Operating (Note A)........................................ 10,073 10,131
Administrative and selling................................ 5,678 5,453
Depreciation and amortization............................. 7,017 6,986
Taxes, other than income.................................. 1,182 997
-------- --------
23,950 23,567
-------- --------
Operating income (loss)..................................... 133 (1,109)
Interest and other income................................... 432 397
-------- --------
Income (loss) before income taxes (benefits)................ 565 (712)
Income taxes (benefits) (Note D)............................ 708 (62)
-------- --------
Net loss................................................ (143) (650)
Accumulated deficit--beginning of year...................... (11,417) (10,767)
-------- --------
Accumulated deficit--end of year............................ $(11,560) $(11,417)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-69
<PAGE>
COPLEY/COLONY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1990
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1991 1990
------- -------
<S> <C> <C>
Operating activities:
Net loss................................................... $ (143) $ (650)
Depreciation and amortization.............................. 7,017 6,986
Deferred federal income tax................................ (217) (63)
Deferred compensation...................................... 8 5
Loss on disposition of property, plant and equipment....... 229 23
Changes in assets and liabilities:
Accounts receivable and prepaid expenses.................. 43 26
Accounts payable and accrued expenses..................... (2,361) 800
Federal and state taxes payable........................... 134 162
Other assets............................................... -- (53)
------- -------
Cash flows from operations................................... 4,710 7,236
------- -------
Investing activities:
Purchases of property, plant and equipment................. (2,703) (3,307)
Proceeds from sale of property and equipment............... 13 2
Buy out of minority shareholders........................... -- (1,644)
Payments related to franchise costs and other intangible
assets.................................................... (7) 53
Purchase of other investments.............................. -- (250)
------- -------
Cash flows used in investing activities...................... (2,697) (5,146)
------- -------
Financing activities:
Accounts receivable--Colony Communications, Inc. .......... (2,028) (2,019)
------- -------
Cash flows used in financing activities...................... (2,028) (2,019)
------- -------
Net increase (decrease) in cash.............................. (15) 71
Cash (including restricted cash) at beginning of year........ 169 98
------- -------
Cash (including restricted cash) at end of year.............. $ 154 $ 169
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-70
<PAGE>
COPLEY/COLONY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. JOINT VENTURE:
Copley/Colony, Inc. (the "Company") is a joint venture between Copley Press
Electronics Company ("Copley") and Colony Communications, Inc. ("Colony") to
operate cable television systems. At December 31, 1991, the Company and its
wholly-owned subsidiaries have operations in seven franchise areas in
California. Colony acts as manager for the Company, earning the greater of 3%
of gross revenues or a fixed fee per month. In 1991 and 1990, Colony charged
the Company $708,000 and $657,000, respectively, in management fees. In
addition, Colony charges the Company processing fees for customer billing. The
total amounts charged for this service were $521,000 and $476,000 in 1991 and
1990, respectively. Colony pays all operating expenses on behalf of the Company
and collects all cash receipts. The net balance has been included in accounts
receivable--Colony Communications, Inc.
B. ACCOUNTING POLICIES:
The accounting policies of the Company and its subsidiaries are as follows:
Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of the Company and its wholly-owned subsidiaries.
Basis of Presentation
Certain prior year amounts have been reclassified to conform with the
current year.
Restricted Cash
The Company is required to maintain a cash account for certain franchise
areas in accordance with the franchise agreement.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; betterments are
capitalized. The Company provides for depreciation using the straight-line
method. The estimated useful lives are:
<TABLE>
<S> <C>
Building and leasehold improvements...................... 15-20 years
Cable systems, machinery and equipment................... 3-10 years
Furniture and fixtures................................... 10 years
</TABLE>
Depreciation expense was $6,035,000 and $6,250,000 in 1991 and 1990,
respectively. When assets are sold or retired, the related cost and
accumulated depreciation are removed from the respective accounts and any
resulting gain or loss is credited or charged to income.
Franchise, Goodwill and Other Intangible Assets
Franchise costs represent the amount paid to acquire the operating
franchises of the Company. These costs are amortized using the straight-
line method over the lives of the respective franchises which range from
ten to fifteen years beginning when the franchise is awarded. All costs
incurred from the award of the franchise until subscriber revenue is
earned, are capitalized and amortized over five years. Goodwill, primarily
resulting from the purchase of stock held by minority interests (see Note
C), is amortized over the life of the franchise agreements. Amortization
expense on intangible assets totaled $982,000 and $736,000 in 1991 and
1990, respectively. Accumulated amortization on intangible assets totaled
$4,981,000 and $3,999,000 at December 31, 1991 and 1990, respectively.
F-71
<PAGE>
COPLEY/COLONY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company files a consolidated federal income tax return and (to the
extent eligible) a consolidated state income tax return. The Company's
policies for financial reporting purposes regarding principally
depreciation and amortization differ from those used for federal income tax
purposes, thereby giving rise to deferred income taxes.
C. STOCK REDEMPTION OF MINORITY SHAREHOLDERS:
In 1990, the Company acquired the remaining outstanding shares in certain of
its subsidiaries from minority shareholders in exchange for full settlement of
$2,089,000 of outstanding notes receivable and related accrued interest plus
$1,644,000 of cash paid in 1990 and $1,954,000 of cash paid in 1991, which was
included in accounts payable at December 31, 1990. The acquisitions have been
accounted for as purchases. The excess of the fair value of the shares over the
fair value of the net assets totaled $5,575,000 and has been accounted for as
goodwill.
D. FEDERAL AND STATE INCOME TAXES:
Income taxes consist of the following:
<TABLE>
<CAPTION>
1991 1990
----- ----
<S> <C> <C>
Federal:
Current....................................................... $ 561
Deferred...................................................... (217) $(62)
State, currently payable........................................ 364 --
----- ----
Income taxes (benefit).......................................... $ 708 $(62)
===== ====
</TABLE>
At December 31, 1991, the Company has loss carryforwards for federal tax
purposes of $5,392,000, expiring in years through 2005 and federal alternative
minimum tax credit carryforwards of $561,000. There are no loss carryforwards
for book purposes.
Income taxes differ from expected income taxes computed at the statutory
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1991 1990
------------ -------------
AMOUNT RATE AMOUNT RATE
------ ----- ------ -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) before income taxes.............. $565 $(712)
==== =====
Expected tax expense (benefit)................. 192 34.0% (242) (34.0)%
State income tax net of federal benefit........ 240 42.4
Goodwill amortization.......................... 271 48.0 178 25.0
Other.......................................... 5 .9 2 .3
---- ----- ----- -----
Income taxes (benefit)......................... $708 125.3% $ (62) (8.7)%
==== ===== ===== =====
</TABLE>
F-72
<PAGE>
COPLEY/COLONY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Increases (decreases) in deferred income taxes are as follows:
<TABLE>
<CAPTION>
1991 1990
------ -----
(IN
THOUSANDS)
<S> <C> <C>
Tax over (under) book depreciation and amortization.......... $ (736) $(345)
Capitalization of inventory costs............................ (128) (117)
Tax net operating loss carryforward utilized................. 1,209 441
Alternative minimum taxes.................................... (561) --
Other, net................................................... (1) (41)
------ -----
$ (217) $ (62)
====== =====
</TABLE>
E. OPERATING LEASES:
The Company has certain noncancelable operating leases with renewal options
for buildings and equipment. Rental expense charged to operations totaled
$355,000 and $485,000 in 1991 and 1990, respectively. At December 31, 1991,
commitments under noncancelable operating lease agreements are (in thousands):
<TABLE>
<S> <C>
1992.................................................................. $ 237
1993.................................................................. 232
1994.................................................................. 220
1995.................................................................. 210
1996.................................................................. 200
Thereafter............................................................ 527
------
$1,626
======
</TABLE>
The leases for buildings are subject to annual consumer price index
adjustments.
F. PENSIONS:
The Company has a noncontributory retirement plan which includes a 401(k)
plan and covers substantially all of its employees. The Company matches
participant contributions up to a maximum of 1% of compensation. Pension costs
are funded as accrued. Pension expense charged to operations was $69,000 in
1991 and $106,000 (net of pension forfeitures of $44,000) in 1990.
G. COMMITMENTS AND CONTINGENCIES:
The Company has commitments as of December 31, 1991 totaling $841,000 payable
in 1992, primarily for construction of CATV systems.
The Company participates with Colony in insurance programs for workers'
compensation, general liability, auto and certain health coverages which are a
form of self-insurance. The Company'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.
H. LITIGATION
The Company is party to various legal actions 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
F-73
<PAGE>
COPLEY/COLONY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
or are of such kind, or involve such amounts that unfavorable disposition would
not have a material effect on the financial position of the Company.
I. COMMON STOCK:
The Company has two classes of common stock: Class A and Class B. The Class A
stock is entitled to four votes per share and the Class B stock is entitled to
one vote per share. At December 31, 1991 and 1990, Copley held all Class A
stock and Colony held all Class B stock. The Class B stock is convertible into
an equal number of shares of Class A stock at the option of the holder.
J. MANAGEMENT AGREEMENT FOR COMMUNITY CABLEVISION COMPANY:
The Company manages a cable system in Newport Beach, California. Management
fees are based on a combination of both revenues and profits. The management
fees earned during 1991 and 1990 totaled $798,000 and $694,000, respectively,
and have been included under the caption, "management fee income," in the
statement of operations and accumulated deficit.
F-74
<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, 1992 and 1993 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, 1993. 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, 1992 and 1993
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 12 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1994
(March 9, 1994 as to
Notes 5 and 15 to the consolidated
financial statements)
F-75
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER, 30
1992 1993 1994
----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Cash and Cash Equivalents.............. $ 27,352 $ 122,640 $ 28,824
Accounts Receivable--net............... 36,085 44,530 47,414
Prepaid Expenses and Other............. 5,172 4,800 8,037
Supplies............................... 26,598 31,638 48,821
Marketable Equity Securities........... 35,517 58,676 144,558
Investments............................ 35,275 136,186 305,725
Property, Plant and Equipment--net..... 1,213,848 1,211,507 1,273,748
Intangible Assets--net................. 559,269 387,719 392,909
Other Assets--net...................... 64,080 94,157 79,315
----------- ----------- -----------
Total.............................. $ 2,003,196 $ 2,091,853 $ 2,329,351
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Accounts Payable....................... $ 40,851 $ 43,342 $ 45,717
Accrued Interest....................... 56,637 72,424 62,849
Accrued and Other Liabilities.......... 151,315 145,191 185,712
Debt................................... 3,011,669 3,177,178 3,310,520
Deferred Income Taxes.................. 626 105,041 152,110
Minority Interest in Subsidiaries...... 4,613 2,217 2,913
Redeemable Common Stock, $.01 par
value; 751,305,
670,682 and 667,366 shares
outstanding........................... 223,716 213,548 227,844
Commitments and Contingencies (Notes 3,
5, 8, 14 and 15)...................... -- -- --
Shareholders' Equity (Deficiency):
Preferred Stock, $.01 par value;
1,557,142 shares authorized; none
outstanding.......................... -- -- --
Series A Convertible Preferred Stock,
$.01 par value:
1,142,858 shares authorized and
outstanding; liquidation preference
$416,861,000, $450,976,000 and
$478,301,000......................... 11 11 11
Class A Common Stock, $.01 par value;
7,500,000 shares authorized; 137,373,
248,060
and 280,279 shares outstanding....... 1 2 3
Class B Common Stock, $.01 par value;
7,500,000 shares authorized;
3,665,820, 3,652,420
and 3,611,910 shares outstanding..... 37 37 36
Additional Paid-In Capital............ 558,679 577,249 557,424
Unearned Compensation................. (34,919) (23,577) (14,912)
Net Unrealized Holding Gain on
Marketable
Equity Securities.................... -- -- 60,526
Deficit............................... (2,010,040) (2,220,810) (2,261,402)
----------- ----------- -----------
Shareholders' Equity (Deficiency).... (1,486,231) (1,667,088) (1,658,314)
----------- ----------- -----------
Total.............................. $ 2,003,196 $ 2,091,853 $ 2,329,351
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-76
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------
1991 1992 1993 1993 1994
---------- ---------- ---------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................ $1,039,163 $1,113,475 $1,177,163 $ 880,238 $885,636
Costs and Expenses:
Operating............. 347,469 365,513 382,195 286,903 300,077
Selling, General and
Administrative....... 246,986 259,632 267,376 198,390 195,901
Restricted Stock
Purchase Program..... 10,067 9,683 11,004 8,069 8,502
Depreciation and
Amortization......... 269,363 279,403 284,563 210,950 210,728
---------- ---------- ---------- --------- --------
Total............. 873,885 914,231 945,138 704,312 715,208
---------- ---------- ---------- --------- --------
Operating Income........ 165,278 199,244 232,025 175,926 170,428
---------- ---------- ---------- --------- --------
Other (Income) Expense:
Interest.............. 323,123 289,479 276,698 201,936 223,580
Equity in Net Loss of
Affiliates........... 3,380 9,402 12,827 7,812 14,413
Gain on Sale of
Marketable Equity
Securities........... -- -- (4,322) (4,322) (1,204)
Gain on Sale of
Investments.......... -- (10,253) (17,067) (1,148) --
Partnership
Litigation........... 1,827 10,280 (2,325) 913 --
Minority Interest in
Net Income(Loss) of
Subsidiaries......... 47 136 184 158 (83)
Dividend Income....... (2,281) (330) (650) (477) (676)
Other................. (1,037) 1,836 375 837 (258)
---------- ---------- ---------- --------- --------
Total............. 325,059 300,550 265,720 205,709 235,772
---------- ---------- ---------- --------- --------
Loss From Operations
Before Income Taxes
and Cumulative Effect
of Change in
Accounting for
Income Taxes......... (159,781) (101,306) (33,695) (29,783) (65,344)
Income Tax Expense
(Benefit)............ 1,861 1,654 (7,921) (9,408) (24,752)
---------- ---------- ---------- --------- --------
Loss Before Cumulative
Effect of Change in
Accounting for
Income Taxes......... (161,642) (102,960) (25,774) (20,375) (40,592)
Cumulative Effect of
Change in Accounting
for Income Taxes..... -- -- (184,996) (184,996) --
---------- ---------- ---------- --------- --------
Net Loss.............. (161,642) (102,960) (210,770) (205,371) (40,592)
Preferred Stock
Preferences.......... (5,771) (16,861) (34,115) (25,355) (27,325)
---------- ---------- ---------- --------- --------
Loss Applicable to
Common Shareholders.. $ (167,413) $ (119,821) $ (244,885) $(230,726) $(67,917)
========== ========== ========== ========= ========
Loss Per Common Share:
Loss Before
Cumulative Effect of
Change in Accounting
for Income Taxes.... $ (35.61) $ (25.06) $ (13.13) $ (10.04) $ (14.89)
Cumulative Effect of
Change in Accounting
for Income Taxes.... -- -- (40.55) (40.62) --
---------- ---------- ---------- --------- --------
Net Loss.............. $ (35.61) $ (25.06) $ (53.68) $ (50.66) $ (14.89)
========== ========== ========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-77
<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,
1991................... $-- $ 32 $ -- $ -- $(22,685) $ -- $(1,736,882)
Net Loss............... -- -- -- -- -- -- (161,642)
Preferred Stock
Dividends............. -- -- -- (5,771) -- -- --
Accretion of Redeemable
Common Stock.......... -- -- -- (207) -- -- (8,556)
Common Stock Issued for
Acquisition........... -- -- -- 6,401 -- -- --
Restricted Stock
Purchase Program:
Stock Issued.......... -- -- -- 360 (360) -- --
Stock Vested.......... -- -- -- -- 10,067 -- --
Stock Forfeited....... -- -- -- (783) 501 -- --
---- ------ ------ --------- -------- -------- -----------
Balance, December 31,
1991................... -- 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
Purchase 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)
Net Loss............... -- -- -- -- -- -- (40,592)
Adjustment due to
change in accounting
principle for
marketable equity
securities net of
income taxes of
$56,434 -- -- -- -- -- 84,650 --
Accretion of Redeemable
Common Stock.......... -- -- -- (15,377) -- -- --
Restricted Stock
Purchase Program:
Stock Vested.......... -- -- -- -- 8,502 -- --
Stock Forfeited....... -- -- -- (163) 163 -- --
Stock Exchanged for
Loans................. -- -- -- (611) -- -- --
Conversion of Class B
to Class A Common
Stock................. -- 1 (1) -- -- -- --
Stock Repurchased...... -- -- -- (3,674) -- -- --
Change in Unrealized
Gain, net of income
taxes of $14,563...... -- -- -- -- -- (24,124) --
---- ------ ------ --------- -------- -------- -----------
Balance September 30,
1994................... $ 11 $ 3 $ 36 $ 557,424 $(14,912) $ 60,526 $(2,261,402)
==== ====== ====== ========= ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-78
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ----------------------
1991 1992 1993 1993 1994
--------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............... $(161,642) $ (102,960) $ (210,770) $ (205,371) $ (40,592)
Adjustments to
Reconcile Net Loss to
Net Cash Provided from
Operating Activities:
Cumulative Effect of
Change in Accounting
for
Income Taxes........ -- -- 184,996 184,996 --
Depreciation and
Amortization........ 269,363 279,403 284,563 210,950 210,728
Restricted Stock
Purchase Program.... 10,067 9,683 11,004 8,069 8,502
Equity in Net Loss of
Affiliates.......... 3,380 9,402 12,827 7,812 14,413
Gain on Sale of
Marketable Equity
Securities.......... -- -- (4,322) (4,322) (1,204)
Gain on Sale of
Investments......... -- (10,253) (17,067) (1,148) --
Minority Interest in
Net Income (Loss) of
Subsidiaries........ 47 136 184 158 (83)
Deferred Income
Taxes............... -- -- (9,788) (11,074) (26,456)
Accrued Interest..... (11,086) (10,965) 15,787 4,953 (9,575)
Accounts Payable,
Accrued and Other
Liabilities......... 17,838 40,649 (3,633) (6,400) 15,045
Other Working Capital
Changes............. (4,424) (50) (13,277) (21,335) (21,694)
--------- ----------- ----------- ----------- ---------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES... 123,543 215,045 250,504 167,288 149,084
--------- ----------- ----------- ----------- ---------
FINANCING ACTIVITIES:
Proceeds from
Borrowings--net....... 616,950 918,000 1,534,850 1,534,850 291,750
Repayment of
Borrowings............ (406,016) (1,292,712) (1,369,341) (1,336,839) (158,408)
Redemption of Preferred
Stock and Dividends
Paid.................. (163,606) -- -- -- --
Increase (Decrease) in
Minority Interests.... (1,765) 389 (2,580) (1,013) 779
Issuance of Series A
Convertible Preferred
Stock................. -- 394,349 -- -- --
Issuance of Common
Stock................. -- 153,840 46,500 -- --
Repurchase of Common
Stock and Redeemable
Common Stock.......... (282) (233,984) (31,232) (107) (4,755)
--------- ----------- ----------- ----------- ---------
NET CASH PROVIDED FROM
(USED FOR)
FINANCING ACTIVITIES... 45,281 (60,118) 178,197 196,891 129,366
--------- ----------- ----------- ----------- ---------
INVESTING ACTIVITIES:
Acquisitions, Net of
Liabilities Assumed
and Cash Acquired..... (5,490) -- -- -- (47,990)
Property, Plant and
Equipment............. (145,846) (145,189) (185,691) (131,835) (183,818)
Investments............ (9,077) (17,908) (106,819) (74,127) (157,587)
Other Assets........... (4,523) (12,996) (39,728) (30,649) (424)
Purchase of Marketable
Equity Securities..... -- -- (8,042) (8,042) --
Proceeds from Sale of
Marketable Equity
Securities............ -- -- 5,719 5,719 17,553
Proceeds from Sale of
Investment--net....... -- 34,253 1,148 1,148 --
--------- ----------- ----------- ----------- ---------
NET CASH USED FOR
INVESTING ACTIVITIES... (164,936) (141,840) (333,413) (237,786) (372,266)
--------- ----------- ----------- ----------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 3,888 13,087 95,288 126,393 (93,816)
BALANCE AT BEGINNING OF
PERIOD................. 10,377 14,265 27,352 27,352 122,640
--------- ----------- ----------- ----------- ---------
BALANCE AT END OF
PERIOD................. $ 14,265 $ 27,352 $ 122,640 $ 153,745 $ 28,824
========= =========== =========== =========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-79
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 IS
UNAUDITED)
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 $396,000, $766,000 and $908,000 in 1991, 1992 and 1993,
respectively, and $517,200 and $1,260,000 for the nine months ended September
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. Franchise costs, net of accumulated amortization, at
December 31, 1992 and 1993 and September 30, 1994 are $510,973,000,
$365,887,000 and $392,909,000, respectively. Other assets represent deferred
financing costs and loans to employees (see Note 11). Accumulated amortization
aggregated $521,081,000, $622,453,000 and $692,094,000 at December 31, 1992 and
1993 and September 30, 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, 1992 and 1993 and
September 30, 1994 is $9,072,000, $9,435,000 and $9,758,000, 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
F-80
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 15
years. Investments in less than 20% owned companies whose equity securities do
not 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 uses derivative financial instruments as a means of managing
interest-rate risk associated with current debt or anticipated debt
transactions that have a high probabilty of being executed. Derivative
financial instruments used include Interest Rate Exchange Agreements and
Interest Rate Cap Agreements. These instruments are matched with either fixed
or variable rate debt and are recorded 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, 1992 and 1993.
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 (See Notes 4, 5, 7 and 9).
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
4,701,000, 4,782,000, 4,562,000, 4,554,000 and 4,560,000 for the years ended
December 31, 1991, 1992 and 1993 and the nine months ended September 30, 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 and 1993 and the nine months ended September 30, 1993 and 1994.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, as amended, Accounting by Creditors for
Impairment of a Loan (SFAS 114), which, is
F-81
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
effective for fiscal years beginning after December 15, 1994. SFAS 114
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.
In October 1994, the Financial Accounting Standards Board issued 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 and is effective for fiscal years ending after
December 15, 1994.
Reclassifications
Certain amounts have been reclassified from previous presentation in the
accompanying consolidated financial statements.
Unaudited Information
In the opinion of management, the consolidated financial statements for the
unaudited periods include all adjustments (consisting of a normal recurring
nature) necessary for a fair presentation of such information. The consolidated
results of operations and cash flows for the nine months ended September 30,
1993 and 1994 are not necessarily indicative of results that would be expected
for a full year.
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, 1991,
1992 and 1993 and for the nine months ended September 30, 1993 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Acquisition:
Fair Value of Assets
Acquired.................... $ 6,401 $ -- $ -- $ -- $ --
Common Stock Issued for
Acquisition................. (6,401) -- -- -- --
-------- -------- -------- -------- --------
Total...................... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
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 3,471 --
Bases of Properties Received. -- -- (19,984) (3,471) --
Promissory Note Issued to
Buyer....................... -- 24,000 -- -- --
-------- -------- -------- -------- --------
Proceeds Received from
Disposition............... $ -- $ 34,253 $ -- $ -- $ --
======== ======== ======== ======== ========
Accretion of Redeemable Common
Stock......................... $ 8,763 $ 13,806 $ 14,766 $ 7,048 $ 15,377
======== ======== ======== ======== ========
Accretion of Series A
Convertible Preferred Stock... $ -- $ 16,861 $ 34,115 $ 25,355 $ 27,325
======== ======== ======== ======== ========
Cash Paid During the Period for
Interest...................... $334,209 $301,210 $261,846 $199,033 $236,411
======== ======== ======== ======== ========
Cash Paid During the Period for
Income Taxes.................. $ 1,801 $ 1,259 $ 2,370 $ 1,962 $ 2,342
======== ======== ======== ======== ========
</TABLE>
F-82
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
During 1991, the Company purchased cable television systems for approximately
$5,490,000 and also purchased for stock the non-owned interest in a partnership
managed by the Company for approximately $6,401,000. This investment was
previously accounted for using the equity method. The effect of these
acquisitions on the Company's results of operations was not material. On June
30, 1994, the Company purchased a cable television system for approximately
$47,990,000, subject to post closing adjustments. In November, 1994, the
Company purchased several cable television systems for approximately
$67,000,000, subject to post closing adjustments. The accompanying financial
statements reflect the results of operations commencing on the acquisition
dates.
Subsequent to September 30, 1994, the Company entered into purchase and sale
agreements to purchase several cable television systems for approximately
$323,500,000. These transactions are expected to close in 1995.
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 common stock and preferred stock to
shareholders of Providence Journal Company in exchange for shares of
Restructured PJC. The Company will also assume approximately $755,000,000 of
liabilities of Restructured PJC. The fair value of the shares to be exchanged
is $645,000,000. The Merger will be accounted for using the purchase method of
accounting and is expected to close in 1995.
4. MARKETABLE EQUITY SECURITIES
At December 31, 1992 and 1993, marketable equity securities were carried at
cost and had an aggregate market value of $142,538,000 and $199,596,000,
respectively. 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 a decrease to shareholders' equity (deficiency).
These securities have an aggregate cost basis of $42,161,000 as of September
30, 1994. During the nine months ended September 30, 1994, the Company
recognized a gross unrealized holding loss of $38,687,000 and a gross realized
gain of $1,204,000.
5. INVESTMENTS
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
CURRENT ---------------- SEPTEMBER 30,
OWNERSHIP 1992 1993 1994
--------- ------- -------- -------------
<S> <C> <C> <C> <C>
Equity Method Investments:
Teleport Communications Group,
Inc. (TCG)...................... 20% $ -- $ 62,631 $ 77,555
TCG Partners..................... 20% -- 4,842 3,740
Regional TCG Partnerships........ 10%-30% -- 19,056 35,423
Fintelco S.A..................... 50% -- -- 136,522
Other............................ 20%-50% 12,646 21,917 19,700
------- -------- --------
12,646 108,446 272,940
------- -------- --------
Cost Method Investments............ 22,629 27,740 32,785
------- -------- --------
Total.......................... $35,275 $136,186 $305,725
======= ======== ========
</TABLE>
F-83
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management's estimated fair value of cost method investments are $36,634,000
and $40,543,000 as of December 31, 1992 and 1993, 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 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 nine months ended September 30,
1994, the CableTel marketable equity securities were sold at an additional
realized gain of $1,204,000.
In addition to its equity investment, the Company has made commitments to TCG
to loan up to $46,800,000 through 2003, of which $24,000,000 was outstanding as
of September 30, 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.
During the nine months ended September 30, 1994, the Company has advanced
$108,300,000 in cash and recorded commitments of $26,365,000 to Fintelco, S.A.
which owns and operates cable television systems in Argentina. Upon receipt of
all necessary governmental approvals permitting the Company to hold an equity
interest in an Argentine cable television company, all advances will be
converted into approximately a 50% equity interest in this company. The initial
investment in Fintelco 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. Capital contributions for this 25%
ownership interest will be approximately $42,000,000 to be paid through 1996.
In addition, the Company has made commitments to SCV to loan up to
approximately $42,000,000, if third party debt financing cannot be obtained by
SCV.
As of September 30, 1994, the Company has an investment of $11,850,000 in
PrimeStar Partners, L.P. (PrimeStar), a limited partnership that provides
direct broadcast satellite services. During 1994, a wholly owned subsidiary of
the Company issued a standby letter of credit of $38,750,000 on behalf of
PrimeStar. 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 $75,271,000 as of
September 30, 1994. As a result of the increase in commitments and other
qualitative factors, the Company accounts for its investment in PrimeStar using
the equity method.
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-84
<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,
------------------ SEPTEMBER 30,
1992 1993 1994
-------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, Plant and Equipment............... $ 49,000 $ 106,000 $ 190,000
Total Assets................................ 165,000 253,000 412,000
Total Liabilities........................... 165,000 196,000 330,000
Equity...................................... -- 57,000 82,000
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 39,000 $ 49,000 $ 63,000 $ 46,000 $ 99,000
Depreciation and
Amortization............. 20,000 20,000 22,000 16,000 23,000
Operating Loss............ (4,000) (4,000) (5,000) (3,000) (300)
Net Loss.................. (15,000) (21,000) (19,000) (14,000) (15,000)
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1992 1993 1994
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and Buildings....................... $ 48,806 $ 50,040 $ 54,498
Reception and Distribution Facilities.... 1,834,816 1,893,925 2,041,162
Equipment and Fixtures................... 223,345 249,192 276,160
---------- ---------- ----------
Total.................................. 2,106,967 2,193,157 2,371,820
Less-Accumulated Depreciation............ 893,119 981,650 1,098,072
---------- ---------- ----------
Property, Plant and Equipment-net...... $1,213,848 $1,211,507 $1,273,748
========== ========== ==========
</TABLE>
7. DEBT
Total debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1992 1993 1994
----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank Indebtedness:
The Company........................... $ 1,717,425 $ 754,550 $ 909,400
Unrestricted Subsidiary............... 195,875 -- --
----------- ---------- ----------
Total Bank Indebtedness............. 1,913,300 754,550 909,400
----------- ---------- ----------
Insurance Company Notes................. 191,000 171,500 150,000
Senior Secured Notes.................... 31,231 -- --
Senior Notes and Debentures............. -- 1,400,000 1,400,000
Subordinated Debt....................... 850,000 825,000 825,000
Other................................... 26,138 26,128 26,120
----------- ---------- ----------
Total............................... $3,011,669 $3,177,178 $3,310,520
=========== ========== ==========
</TABLE>
F-85
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At September 30, 1994, the Company's Bank Indebtedness includes the Term Loan
and the Credit Agreement. The Term Loan of $722,650,000 bears interest at a
rate between the agent bank's prime rate (6% at December 31, 1993 and 7.75% at
September 30, 1994) and prime plus 1%, depending on certain financial tests. At
September 30, 1994, the Credit Agreement consists of a $497,750,000 revolving
credit facility, of which $186,750,000 is outstanding. Borrowings under the
Credit Agreement bear interest at a rate between the agent bank's prime rate
(6% at December 31, 1993 and 7.75% at September 30, 1994) plus 1/2% and prime
plus 1 1/4%, depending on certain financial tests.
In October 1994, the Company entered into a $2,200,000,000 unsecured reducing
revolver credit agreement (Reducing Revolver), which represents an amendment
and restatement of the Term Loan. Borrowings under the Reducing Revolver were
utilized to refinance the Credit Agreement. 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 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, SEPTEMBER 30,
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, dividends and the repurchase of certain capital stock in excess
of $440,000,000, 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:
F-86
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1992 1993 1994
-------- -------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
10 5/8% Senior Subordinated Notes, Due
June 15, 2002............................ $100,000 $100,000 $ 100,000
12 7/8% Senior Subordinated Debentures,
Due
November 1, 2004......................... 350,000 325,000 325,000
Senior Subordinated Floating Rate
Debentures, Due November 1, 2004......... 100,000 100,000 100,000
11% Senior Subordinated Debentures, Due
June 1, 2007............................. 300,000 300,000 300,000
-------- -------- ---------
Total................................... $850,000 $825,000 $ 825,000
======== ======== =========
</TABLE>
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 these debentures
for a price equal to 106.438% of their principal amounts plus accrued interest
thereon. As a result of the redemption, the Company will record an
extraordinary loss of $28,100,000, less an income tax benefit of $11,314,000.
The Senior Subordinated Floating Rate Debentures bear interest at LIBOR plus
3% through November 1996, increasing to LIBOR plus 6.5% through maturity.
The Company currently has Interest Rate Exchange Agreements (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, which currently is 6%. In
addition, the Company has $700,000,000 of Interest Rate Cap Agreements (Caps)
expiring in 1995 and 1996, which limit six month LIBOR to approximately 7%. 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.
The fair value of total debt is estimated to be $3,137,955,000 and
$3,510,020,000 as of December 31, 1992 and 1993, respectively. The fair value
is based on recent trades and dealer quotes, adjusted for an unrealized loss of
$101,178,000 and $94,547,000, respectively, which represents the fair value of
interest rate exchange agreements based on estimates obtained from dealers.
Annual maturities of debt (assuming the Credit Agreement and the Term Loan
are converted to the Reducing Revolver pursuant to its provisions) for the five
years subsequent to December 31, 1993, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1994.......................................................... $ 21,526
1995.......................................................... 24,250
1996.......................................................... 27,250
1997.......................................................... 30,550
1998.......................................................... 33,250
Thereafter.................................................... 3,040,352
----------
Total....................................................... $3,177,178
==========
</TABLE>
8. COMMITMENTS
The Company and its subsidiaries have entered into various operating lease
agreements, with total commitments of $37,463,000 as of December 31, 1993.
Commitments under such agreements for the years 1994-1998 approximate
$8,191,000, $7,403,000, $6,538,000, $4,315,000 and $3,519,000, respectively.
The Company and its subsidiaries also rent pole space from various companies
under agreements which are
F-87
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
generally terminable on short notice. Lease and rental costs charged to
operations for the years ended December 31, 1991, 1992, and 1993 were
$16,500,000, $17,876,000 and $18,378,000, respectively and $13,973,000 and
$15,215,000 for the nine months ended September 30, 1993 and 1994,
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 initial estimated repurchase cost for the entire 1,528,193 shares of
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.
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.
In December 1993, the Company repurchased 64,176 Redeemable Common shares for
approximately $31,125,000. This transaction, 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. The fair value of the
Redeemable Common Stock is estimated at $286,721,000 and $339,365,000 as of
December 31, 1992 and 1993, respectively, based on the estimate of the Purchase
Price at these dates of $382 and $506 per share, respectively, as determined by
the Company's investment banker.
During 1994, the Company repurchased 8,705 of Class B shares and 1,099 Class
A shares. As a result of these repurchases, the Company reduced its future
obligation to repurchase shares pursuant to the 1998-1999 Share Repurchase
Program to 667,366 shares. 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 Nine Months Ended September 30,
1994........................................ $ (1,081) $ -- $ (3,674)
========= ===== =========
</TABLE>
F-88
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1991, the Company redeemed the remaining outstanding shares of
Redeemable Preferred Stock for approximately $163,606,000.
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
September 30, 1994, there were 282,463 and 4,277,092 Class A and Class B shares
of common stock outstanding, respectively. Shareholders' Equity (Deficiency)
reflects only 280,279 and 3,611,910 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. Subsequent to September 30, 1994, the
Company sold shares of Class A Common Stock for approximately $30,100,000.
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 the third anniversary of the purchase date, 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 nine months ended September 30,
1994, the carrying value of the Convertible Preferred has been increased by
$27,325,000 to reflect the Accreted Value of $478,301,000 as of September 30,
1994.
After the fifth anniversary of the purchase date, 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.
On the tenth anniversary of the purchase date, 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
F-89
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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, 1991, 1992, and 1993 were 1,200, 108,450 and
1,600, respectively, none were issued during the nine months ended September
30, 1994. At December 31, 1992 and 1993 and September 30, 1994, 119,728, 78,327
and 58,806 shares, respectively, were not yet vested. In connection with the
Restricted Stock Purchase Program, a wholly-owned subsidiary of the Company has
loaned approximately $20,580,000, $14,035,000 and $13,541,000 at December 31,
1992 and 1993 and September 30, 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>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1991 1992 1993 1993 1994
------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal..................... $ -- $ -- $ 647 $ 791 $ --
State....................... 1,861 1,654 1,220 875 1,704
Deferred:
Federal..................... -- -- (7,968) (6,896) (21,263)
State....................... -- -- (1,820) (4,178) (5,193)
------- ------- -------- -------- ---------
Total..................... $ 1,861 $ 1,654 $ (7,921) $ (9,408) $ (24,752)
======= ======= ======== ======== =========
</TABLE>
F-90
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Differences between the effective income tax rate and the federal statutory
rates are summarized as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------
1991 1992 1993 1993 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Federal Statutory Rate...... (34.0)% (34.0)% (35.0)% (35.0)% (35.0)%
Enacted Tax Rate Change..... -- -- 12.4 9.8 --
Net Operating Losses without
Current Income Tax Benefit. 16.8 14.8 -- -- --
Depreciation and
Amortization Not Deductible
for Tax Purposes........... 11.1 17.4 -- 1.2 .3
Gain on Sale of Investment.. 6.9 -- -- -- --
State Income Tax, Net of
Federal Income Tax Benefit. .8 1.1 (1.2) (4.2) (3.4)
Other....................... (.4) 2.3 .3 (3.4) .2
------- ------- ------- ------ ------
Total..................... 1.2 % 1.6 % (23.5)% (31.6)% (37.9)%
======= ======= ======= ====== ======
</TABLE>
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,
------------------------
1991 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accelerated Depreciation and Amortization.......... $ 13,051 $ 7,811
Restricted Stock Purchase Program.................. (3,301) 7,469
Gain on Sale of Investment......................... (4,080) 3,486
Deferred Income.................................... -- (4,555)
Utilization of Accounting Net Operating Losses..... (1,561) (7,669)
Other.............................................. (4,109) (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, SEPTEMBER 30,
1993 1994
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and Amortization.................. $(533,242) $(577,055)
Unrealized Holding Gain on Marketable Equity
Securities.................................... -- (41,871)
Other.......................................... (14,989) (11,103)
Deferred Tax Assets:
Net Operating Loss Carryforwards............. 490,499 498,414
Tax Credit Carryforwards..................... 60,304 59,730
Other........................................ 49,858 70,956
Valuation Allowance.......................... (157,471) (151,181)
--------- ---------
Net Deferred Tax Liability..................... $(105,041) $(152,110)
========= =========
</TABLE>
The Company and its subsidiaries have net operating loss carryforwards of
approximately $959,000,000 at December 31, 1993 for federal income tax purposes
expiring through 2008, and investment tax credit carryforwards of approximately
$60,000,000 expiring through 2005.
F-91
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, $27,000,000 of the valuation allowance will be allocated to reduce
goodwill and other intangible assets. The net change of the valuation allowance
during 1993 and the nine months ended September 30, 1994, was an increase of
$34,971,000 and a decrease of $6,290,000, respectively. The 1993 increase
relates to state net operating loss carryforwards that were not expected to be
realized and the 1994 decrease relates to the expiration of investment tax
credit carryforwards.
A recently 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.
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,
--------------------------
1991 1992 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year..... $ 2,241 $ 2,479 $ 2,584
Interest Cost on Projected Benefit Obligations... 856 1,118 1,336
Actual Return on Plan Assets..................... (1,231) (179) (136)
Other Items...................................... 802 (422) (615)
-------- ------- -------
Total.......................................... $ 2,668 $ 2,996 $ 3,169
======== ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial Present Value of:
Vested Benefit Obligation............................. $ (5,757) $ (8,384)
Non-Vested Benefit Obligation......................... (1,390) (1,647)
-------- --------
Accumulated Benefit Obligation.......................... (7,147) (10,031)
Effect of Projected Salary Increases.................... (9,285) (10,553)
-------- --------
Projected Benefit Obligation............................ (16,432) (20,584)
Plan Assets at Market Value............................. 8,735 11,350
-------- --------
Funded Status........................................... (7,697) (9,234)
Deferred Transition Loss................................ 1,335 1,264
Unrecognized Prior Service Cost......................... (95) (89)
Unrecognized Net Loss................................... 790 1,884
-------- --------
Accrued Pension Cost................................ $ (5,667) $ (6,175)
======== ========
</TABLE>
F-92
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The actuarial assumptions as of the year-end measurement date are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1992 1993
------------
<S> <C> <C>
Discount Rate................................................... 8.5% 7.75%
Expected Long-Term Rate of Return............................... 9.0% 9.0%
Rate of Increase in Future Salary Levels........................ 5.5% 4.75%
</TABLE>
At December 31, 1993, 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. Total costs for the years
ended December 31, 1991, 1992 and 1993 and the nine months ended September 30,
1993 and 1994 were $1,961,000, $2,418,000, $2,550,000, $1,541,000 and
$1,604,000, respectively.
14. CONTINGENCIES
On March 18, 1993, the Company received a favorable jury verdict in federal
district court in Massachusetts determining that the Company properly
discharged its fiduciary duties in connection with the redemption of the
limited partnership interests in the four limited partnerships acquired in 1989
for an aggregate purchase price of approximately $380,000,000. The plaintiff
limited partners had alleged that the Company had acquired the partnership
interests at unfairly low prices. The jury also found that the Company had not
misrepresented any fact or opinion in making the offers to acquire the
partnership interests. An unspecified fact, however, was found to have been
omitted. The Company entered into a settlement agreement on May 14, 1993,
settling all claims and counterclaims in the suit, which was subsequently
approved by the court. Pursuant to the settlement agreement, the Company has
contributed to a settlement fund of $6,158,554.
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. 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. 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
benchmarks 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
F-93
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
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
$10,500,000 revenue reserve as of September 30, 1994.
If the Company is not successful in its current and future cost-of-service
showings, the FCC rate regulations could have a material adverse impact on the
Company's future results of operations.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for 1992, 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>
1992
Revenues....................... $ 267,840 $ 277,887 $ 280,877 $286,871
Depreciation and Amortization.. 67,124 70,208 69,965 72,106
Restricted Stock Purchase
Program....................... 2,441 2,427 2,405 2,410
Operating Income............... 47,008 49,573 52,171 50,492
Net Loss....................... (30,802) (27,597) (15,139) (29,422)
Loss Applicable to Common
Shareholders.................. (30,802) (28,298) (23,205) (37,516)
Loss Per Common Share.......... (6.43) (5.90) (4.58) (8.38)
1993
Revenues....................... $ 287,542 $ 297,238 $ 295,458 $296,925
Depreciation and Amortization.. 69,024 69,882 72,044 73,613
Restricted Stock Purchase
Program....................... 2,690 2,689 2,690 2,935
Operating Income............... 57,766 62,648 55,512 56,099
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
Depreciation and Amortization.. 68,767 69,374 72,587
Restricted Stock Purchase
Program....................... 2,838 2,837 2,827
Operating Income............... 57,975 60,198 52,255
Net Loss....................... (12,007) (8,348) (20,237)
Loss Applicable to Common
Shareholders.................. (20,885) (17,357) (29,675)
Loss Per Common Share.......... (3.81) (4.57) (6.51)
</TABLE>
See Notes to Consolidated Financial Statements.
F-94
<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 1992, and have issued our report thereon dated February 25, 1994. 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 1992, 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 1992, 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 25, 1994
F-95
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF ASSETS, LIABILITIES AND CONTROL ACCOUNT
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
ASSETS
------
CASH................................................ $ 674,099 $ 281,921
----------- -----------
SUBSCRIBER RECEIVABLES, net of allowance for
doubtful accounts of $213,482 and $118,245 in 1993
and 1992, respectively............................. 573,723 466,142
----------- -----------
INVESTMENT IN CABLE TELEVISION SYSTEMS (Notes 3 and
4):
Property, plant and equipment, at cost............ 54,140,130 48,317,637
Less--Accumulated depreciation.................... (18,032,166) (14,566,182)
----------- -----------
36,107,964 33,751,455
Franchising costs, net of accumulated amortization
of $13,245,295 and $11,598,874 in 1993 and 1992,
respectively..................................... 4,257,209 5,886,630
Goodwill and other intangible assets, net of
accumulated amortization of $2,390,633 and
$2,082,686 in 1993 and 1992, respectively........ 637,415 946,943
----------- -----------
Total investment in cable television systems.... 41,002,588 40,585,028
----------- -----------
OTHER ASSETS, net................................... 991,729 779,023
----------- -----------
$43,242,139 $42,112,114
=========== ===========
LIABILITIES AND CONTROL ACCOUNT
-------------------------------
LIABILITIES:
Accounts payable and accrued expenses............. $ 1,868,647 $ 1,753,350
Subscriber advance payments and deposits.......... 632,171 635,155
----------- -----------
Total liabilities............................... 2,500,818 2,388,505
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
CONTROL ACCOUNT, excess of assets over liabilities.. 40,741,321 39,723,609
----------- -----------
$43,242,139 $42,112,114
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-96
<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 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
REVENUES.............................................. $25,130,342 $22,452,626
----------- -----------
EXPENSES:
Service costs....................................... 9,402,956 8,454,466
Selling, general and administrative expenses........ 4,168,761 3,617,718
----------- -----------
Total expenses.................................... 13,571,717 12,072,184
----------- -----------
Operating income.................................. 11,558,625 10,380,442
----------- -----------
DEPRECIATION AND AMORTIZATION (Notes 3 and 4)......... 7,046,029 6,081,409
GAIN (LOSS) ON DISPOSAL OF EQUIPMENT, net............. 57,958 (937,241)
----------- -----------
DIVISION INCOME (Note 3).............................. 4,570,554 3,361,792
CONTROL ACCOUNT, beginning of year.................... 39,723,609 33,786,624
ADVANCES FROM (TO) PARENT............................. (3,552,842) 2,575,193
----------- -----------
CONTROL ACCOUNT, end of year.......................... $40,741,321 $39,723,609
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-97
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division income (Note 3).......................... $ 4,570,554 $ 3,361,792
----------- ------------
Adjustments to reconcile division income to net
cash provided by operating activities:
Depreciation and amortization................... 7,046,029 6,081,408
(Gain) loss on disposal of equipment............ (57,958) 937,241
Change in assets and liabilities--
Net change in subscriber receivables, other
assets, accounts payable and accrued expenses
and subscriber advance payments and deposits. (208,405) (280,754)
----------- ------------
Total adjustments........................... 6,779,666 6,737,895
----------- ------------
Net cash provided by operating activities... 11,350,220 10,099,687
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in existing cable
television systems............................... (7,574,365) (12,615,410)
Proceeds on disposal of equipment................. 169,165 65,006
----------- ------------
Net cash used in investing activities....... (7,405,200) (12,550,404)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (to) parent......................... (3,552,842) 2,575,193
----------- ------------
Net cash provided by (used in) financing
activities................................. (3,552,842) 2,575,193
----------- ------------
Net increase in cash........................ 392,178 124,476
CASH, beginning of year............................. 281,921 157,445
----------- ------------
CASH, end of year................................... $ 674,099 $ 281,921
=========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-98
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(1) PARTNERSHIP FORMATION:
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.
(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, will expand
governmental regulation of rates for basic and other cable services.
Regulations and interpretations are still being promulgated by the FCC.
Michigan is currently unable to predict the ultimate outcome of the proposed
cable regulations or the effect on its future operating cash flows. Michigan
believes it is in compliance in all material respects with the provisions of
the Act and current regulations.
(3) SIGNIFICANT ACCOUNTING POLICIES:
Basis of financial statement presentation--
Since Michigan is a division of the Partnership, it has no provision for
income taxes, interest on debt, management fees under the Partnership
Agreement, or management expenses of the Partnership. Therefore, these
statements are not indicative of the financial position or the results of
operations of Michigan had it been operated as an unaffiliated entity.
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 $619,000
in 1993 and 1992, respectively.
Intangible assets--
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
$1,651,000, $263,000 and $49,000, respectively, in 1992.
(4) PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1993 and 1992, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Cable systems and equipment......................... $51,855,580 $46,012,807
Land, buildings and improvements.................... 808,174 796,660
Vehicles............................................ 770,857 749,177
Furniture and fixtures.............................. 705,519 758,993
----------- -----------
$54,140,130 $48,317,637
=========== ===========
</TABLE>
F-99
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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>
In 1993 and 1992, the Partnership invested approximately $370,000 and
$7,503,000 to replace existing cable systems and equipment. As a result, the
Partnership recorded a loss in 1992 on the disposal of the existing cable
systems and equipment of approximately $937,000, which was included in the 1992
loss on disposal of equipment.
(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 $153,000 in 1993 and 1992, respectively.
(6) COMMITMENTS:
Under various lease and rental agreements, Michigan had rental expense of
approximately $114,000 and $96,000 in 1993 and 1992, respectively. Approximate
future minimum annual payments under these agreements are as follows:
<TABLE>
<S> <C>
1994............................................. $98,000
1995............................................. 47,000
1996............................................. 37,000
1997............................................. 31,000
1998............................................. 16,000
Thereafter....................................... 71,000
</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 $154,000 in 1993 and 1992,
respectively.
F-100
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF ASSETS, LIABILITIES AND CONTROL ACCOUNT
(UNAUDITED)
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
------
CASH......................................................... $ 5,334
------------
SUBSCRIBER RECEIVABLES, net of allowance for doubtful
accounts of $198,970........................................ 537,260
------------
INVESTMENT IN CABLE TELEVISION SYSTEMS (Note 3):
Property, plant and equipment, at cost..................... 57,533,595
Less--Accumulated depreciation............................. (22,049,585)
------------
35,484,010
Franchising costs, net of accumulated amortization of
$14,475,469............................................... 3,037,435
Goodwill and other intangible assets, net of accumulated
amortization of $2,607,641................................ 408,758
------------
Total investment in cable television systems............. 38,930,203
------------
OTHER ASSETS, net............................................ 810,889
------------
$ 40,283,686
============
LIABILITIES AND CONTROL ACCOUNT
-------------------------------
LIABILITIES:
Accounts payable and accrued expenses...................... $ 1,456,147
Subscriber advance payments and deposits................... 682,667
------------
Total liabilities........................................ 2,138,814
------------
COMMITMENTS AND CONTINGENCIES (Note 2)
CONTROL ACCOUNT, excess of assets over liabilities........... 38,144,872
------------
$ 40,283,686
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-101
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF OPERATIONS AND CONTROL ACCOUNT
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
REVENUES........................................................... $19,514,964
-----------
EXPENSES:
Service costs.................................................... 7,568,006
Selling, general and administrative expenses..................... 3,366,129
-----------
Total expenses................................................. 10,934,135
-----------
Operating income............................................... 8,580,829
-----------
DEPRECIATION AND AMORTIZATION (Note 3)............................. 5,669,548
GAIN ON DISPOSAL OF EQUIPMENT, net................................. 26,975
OTHER EXPENSE...................................................... 6,483
-----------
DIVISION INCOME (Note 3)........................................... 2,931,773
CONTROL ACCOUNT, beginning of year................................. 40,741,321
ADVANCES TO PARENT................................................. (5,528,222)
-----------
CONTROL ACCOUNT, end of nine months................................ $38,144,872
===========
</TABLE>
The accompanying notes to financial statementsare an integral part of these
statements.
F-102
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Division income (Note 3)........................................ $ 2,931,773
-----------
Adjustments to reconcile division income to net cash provided by
operating activities:
Depreciation and amortization................................. 5,669,548
Gain on disposal of equipment................................. (26,975)
Change in assets and liabilities--
Net change in subscriber receivables, other assets, accounts
payable and accrued expenses and subscriber advance
payments and deposits...................................... (144,806)
-----------
Total adjustments......................................... 5,497,767
-----------
Net cash provided by operating activities................. 8,429,540
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in existing cable television systems..... (3,597,058)
Proceeds on disposal of equipment............................... 26,975
-----------
Net cash used in investing activities..................... (3,570,083)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to parent.............................................. (5,528,222)
-----------
Net cash used in financing activities..................... (5,528,222)
-----------
Net decrease in cash...................................... (668,765)
CASH, beginning of period......................................... 674,099
-----------
CASH, end of period............................................... $ 5,334
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-103
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1994
(1) PARTNERSHIP FORMATION:
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 and 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.
On November 1, 1994, Michigan and the Partnership signed an Agreement
providing for the sale of substantially all of the assets of Michigan to
Continental Cablevision of Manchester, Inc. The sale is expected to close 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, will expand
governmental regulation of rates for basic and other cable services.
Regulations and interpretations are still being promulgated by the FCC.
Michigan is currently unable to predict the ultimate outcome of the proposed
cable regulations or the effect on its future operating cash flows. Michigan
believes it is in compliance in all material respects with the provisions of
the Act and current regulations.
(3) SIGNIFICANT ACCOUNTING POLICIES:
Basis of financial statement presentation--
Since Michigan is a division of the Partnership, it has no provision for
income taxes, interest on debt, management fees under the Partnership
Agreement, or management expenses of the Partnership. Therefore, these
statements are not indicative of the financial position or the results of
operations of Michigan had it been operated as an unaffiliated entity. In the
opinion of management, the financial statements for the unaudited period
include all adjustments (consisting of a normal recurring nature) necessary for
a fair presentation of such information. The results of operations and cash
flow for the period presented are not necessarily indicative of results that
would be expected for a full year.
Property, plant and equipment--
Property, plant and equipment is recorded at purchased cost, together with
labor and indirect labor costs amounting to approximately $245,000 during the
nine month period.
Intangible assets--
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
$1,230,000, $196,000 and $33,000 respectively, during the nine month period.
F-104
<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 December 31, 1993 and the results of its operations
and its cash flows for the year 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
December 7, 1994
Denver, Colorado
F-105
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
------
Cash.............................................................. $ 27,455
Subscriber accounts receivable, net of allowance for doubtful
accounts of $92,395.............................................. 259,784
Other receivables................................................. 46,982
Prepaid expenses and deposits..................................... 155,546
Property, plant and equipment, at cost:
Cable television transmission and distribution systems and
related equipment.............................................. 19,492,264
Land, buildings, vehicles and furniture and fixtures............ 1,747,908
-----------
21,240,172
Less accumulated depreciation................................... (8,986,564)
-----------
Net property, plant and equipment............................. 12,253,608
Franchise costs and other assets, net of accumulated amortization
of $10,804,409................................................... 12,922,909
-----------
Total assets.................................................. $25,666,284
===========
LIABILITIES AND DIVISION DEFICIT
--------------------------------
Accounts payable and accrued liabilities.......................... $ 1,030,766
Subscriber deposits and prepayments............................... 259,416
Interest payable.................................................. 586,095
Advances from RCIP................................................ 27,917,329
-----------
Total liabilities............................................. 29,793,606
Commitments (Note 4)
Division deficit.................................................. (4,127,322)
-----------
Total liabilities and division deficit............................ $25,666,284
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
REVENUE
Service......................................................... $11,820,418
Installation and other.......................................... 436,000
-----------
Total revenue................................................. 12,256,418
===========
COSTS AND EXPENSES
Operating expense............................................... 4,623,746
Selling, general and administrative expense..................... 1,526,100
Depreciation and amortization................................... 3,280,650
Managements fees................................................ 632,939
Loss on retirement of assets.................................... 192,677
-----------
Total costs and expenses...................................... 10,256,112
-----------
Operating income.................................................. 2,000,306
Interest expense.................................................. 2,800,165
-----------
Net loss.......................................................... $ (799,859)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................ $ (799,859)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................. 3,280,650
Loss on retirement of assets.................................. 192,677
Decrease in accounts payable and accrued liabilities,
subscriber deposits and prepayments and interest payable..... (161,645)
Increase in subscriber accounts receivables, prepaid expenses
and other.................................................... (10,180)
-----------
Net cash provided by operating activities................... 2,501,643
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment...................... (1,615,880)
Proceeds from disposal of assets................................ 30,740
-----------
Net cash used in investing activities....................... (1,585,140)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from RCIP.............................................. 5,716,536
Repayments to RCIP.............................................. (6,618,738)
Net change in division deficit.................................. (17,658)
-----------
Net cash used in financing activities....................... (919,860)
-----------
Net decrease in cash.............................................. (3,357)
Cash at beginning of year......................................... 30,812
-----------
Cash at end of year............................................... $ 27,455
===========
</TABLE>
Interest paid for the year ended December 31, 1993 was $2,853,640.
The accompanying notes are an integral part of these financial statements.
F-108
<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 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.
Franchise Costs
Franchise costs are 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.
F-109
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 $229,741 and $145,356, 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 $27,917,329 at December 31, 1993, 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 9.85 percent, which represents RCIP's average monthly
overall borrowing rate. Interest allocated to Clay for the year totaled
$2,800,165, of which $586,095 is reflected as interest payable at December 31,
1993.
3. LOSS ON RETIREMENT OF ASSETS
During 1993, Clay recognized a loss on retirement of assets of $192,677. The
majority of the loss was the result of the completion of the distribution
system rebuild in Fernandina Beach.
4. 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 December 31, 1993
F-110
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are: $21,363 in 1994; $12,991 in 1995; $10,485 in 1996; $6,288 in 1997; $5,092
in 1998; and $17,882 thereafter, totaling $74,101.
Total rental expense for the year ended December 31, 1993 was $140,893,
including $95,315 relating to cancelable pole rental agreements.
5. 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-111
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
BALANCE SHEET
(UNAUDITED)
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 and other assets, net of accumulated amortization
of $11,965,764.................................................. 11,802,609
------------
Total assets................................................. $ 23,766,866
============
LIABILITIES AND DIVISION DEFICIT
--------------------------------
Accounts payable and accrued liabilities......................... $ 922,651
Subscriber deposits and prepayments.............................. 262,616
Interest payable................................................. 1,154,445
Advances from RCIP............................................... 26,450,447
------------
Total liabilities............................................ 28,790,159
Commitments (Note 4)
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-112
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF OPERATIONS
(UNAUDITED)
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-113
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF CASH FLOWS
(UNAUDITED)
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
Increase in accounts payable and accrued liabilities,
subscriber deposits and prepayments and interest payable..... 463,435
Decrease in subscriber accounts receivables, prepaid expenses
and other.................................................... 71,408
-----------
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-114
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 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.
Franchise Costs
Franchise costs are 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.
F-115
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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.
4. 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 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.
F-116
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Total rental expense for the nine months ended September 30, 1994 was
$127,822, including $94,180 relating to cancelable pole rental agreements.
5. 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-117
<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, 1994 and 1993, 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, 1994 and 1993, 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
Detroit, Michigan
F-118
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash......................................... $ 1,484,300 $ 1,670,307
Subscriber and other accounts receivable;
less allowance for doubtful accounts of
$3,965 in 1994 and $3,668 in 1993........... 933,394 1,086,328
Prepaid expenses............................. 184,566 256,645
------------ ------------
Total current assets....................... 2,602,260 3,013,280
Property, plant and equipment, at cost:
Land and improvements........................ 16,000 16,000
Building and improvements.................... 338,921 332,501
Cable television distribution systems........ 16,662,687 14,915,497
Vehicles..................................... 511,167 327,027
Other equipment and furniture................ 375,213 310,621
Construction in progress..................... 975,838 710,744
------------ ------------
18,879,826 16,612,390
Less accumulated depreciation.................. (6,856,833) (4,164,921)
------------ ------------
Net property, plant and equipment.............. 12,022,993 12,447,469
Other assets, at cost:
Intangible assets, less accumulated
amortization................................ 24,408,514 33,662,304
Other assets................................. 22,910 22,960
------------ ------------
24,431,424 33,685,264
------------ ------------
$ 39,056,677 $ 49,146,013
============ ============
LIABILITIES AND PARTNER'S NET CAPITAL DEFICIENCY:
- -------------------------------------------------
Current liabilities:
Accounts payable............................. $ 463,774 $ 430,233
Accrued liabilities:
Programming costs............................ 473,986 343,479
Compensation and related taxes............... 134,093 166,449
State taxes.................................. 9,200 97,467
Interest..................................... 214,558 169,442
Other........................................ 293,828 392,899
Unearned subscriber revenues................... 947,731 1,071,722
Long-term debt due within one year............. 3,775,000 1,770,366
------------ ------------
Total current liabilities.................. 6,312,170 4,442,057
Deferred management fee and incentive
compensation.................................. 1,480,910 1,200,114
Long-term debt................................. 69,930,001 68,844,857
Partners' net capital deficiency............... (38,666,404) (25,341,015)
------------ ------------
$ 39,056,677 $ 49,146,013
============ ============
</TABLE>
See accompanying notes.
F-119
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF OPERATIONS AND PARTNERS' NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues:
Subscriber....................................... $ 18,830,785 $ 18,607,097
Other............................................ 892,080 676,987
------------ ------------
19,722,865 19,284,084
Operating expenses:
Direct operating expenses........................ 8,403,794 7,653,673
Selling, general and administrative.............. 3,284,911 3,602,595
------------ ------------
11,688,705 11,256,268
------------ ------------
Operating income before depreciation and
amortization...................................... 8,034,160 8,027,816
Depreciation and amortization...................... 12,079,983 11,750,559
------------ ------------
Operating loss..................................... (4,045,823) (3,722,743)
Interest expense................................... 9,279,566 8,233,622
------------ ------------
Net loss........................................... (13,325,389) (11,956,365)
Partner's net capital deficiency at beginning of
year.............................................. (25,341,015) (13,384,650)
------------ ------------
Partner's net capital deficiency at end of year.... $(38,666,404) $(25,341,015)
============ ============
</TABLE>
See accompanying notes.
F-120
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................... $(13,325,389) $(11,956,365)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Deferred interest.............................. 6,107,973 5,563,729
Depreciation and amortization.................. 12,079,983 11,750,559
Deferred management fee and incentive
compensation.................................. 280,796 469,560
Loss on disposal of equipment.................. 106,806 81,828
Changes in cash due to:
Accounts receivable.......................... 152,934 174,663
Prepaid expenses............................. 72,079 (69,952)
Accounts payable............................. 33,541 (149,237)
Accrued liabilities.......................... (44,071) 68,423
Unearned subscriber revenue.................. (123,991) (174,943)
------------ ------------
Net cash provided by operating activities.. 5,340,661 5,758,265
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................. (2,402,656) (2,101,790)
Other assets..................................... (105,817) (10,527)
------------ ------------
Net cash used in investing activities...... (2,508,473) (2,112,317)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt......... 1,477,450 49,759,502
Principal payment of long-term debt and capital
lease obligations............................... (4,495,645) (52,029,872)
------------ ------------
Net cash used in financing activities.............. (3,018,195) (2,270,370)
------------ ------------
Net increase (decrease) in cash............ (186,007) 1,375,578
Cash, beginning of year............................ 1,670,307 294,729
------------ ------------
Cash, end of year.................................. $ 1,484,300 $ 1,670,307
============ ============
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 3,623,092 $ 4,459,959
============ ============
</TABLE>
See accompanying notes.
F-121
<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-122
<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 1994 1993
-------- ------------ ----------- -----------
<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 200,254 94,388
Organization costs........................ 5.25 years 832,785 832,785
Refinancing costs......................... 4-5 years 1,778,732 1,778,732
----------- -----------
48,860,237 48,754,371
Less accumulated amortization............. 24,451,723 15,092,067
----------- -----------
$24,408,514 $33,662,304
=========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Senior Secured Credit Agreement..................... $45,170,000 $48,875,000
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.. 14,968,264 10,721,965
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.......... 13,566,737 11,008,598
Other notes payable................................. -- 9,660
----------- -----------
73,705,001 70,615,223
Less current portion due within one year............ 3,775,000 1,770,366
----------- -----------
$69,930,001 $68,844,857
=========== ===========
</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-123
<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 (7.125%
and 5.3125% at September 30, 1994 and 1993, 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, 1994 the
management fee amounted to $345,230 ($338,565 for September 30, 1993). 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 $278,000 and $273,400
for the year ended September 30, 1994 and 1993, 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-124
<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
$0 and $324,792 for the years ended September 30, 1994 and 1993, 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.
F-125
<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 1992, 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 1992, 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
March 4, 1994, except for note 11,
which is as of June 21, 1994.
Jericho, New York
F-126
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents.......................... $ 338,921 $ 279,234
Accounts receivable-subscribers (less allowance for
doubtful accounts of $134,359 and $191,618)....... 406,088 543,444
Other receivables.................................. 492,404 257,463
Prepaid expenses................................... 138,221 174,836
Prepaid franchise fees............................. 26,751 102,945
Property, plant and equipment, net................. 21,439,681 22,859,887
Deferred acquisition and development costs (less
accumulated amortization of $1,303,910 and
$1,185,458)....................................... 153,459 271,911
Deferred financing costs (less accumulated
amortization of $882,733 and $596,045)............ 1,887,570 1,138,727
Other intangibles (less accumulated amortization of
$981,128 and $797,167)............................ 306,603 490,564
Deposits and other assets.......................... 103,567 84,069
------------ ------------
$ 25,293,265 $ 26,203,080
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
------------------------------------
Accounts payable................................... $ 4,554,299 $ 4,612,970
Accounts payable to affiliates, net................ 290,490 784,092
Subordinated amounts payable to affiliates......... 26,128,491 29,954,443
Accrued liabilities:
Interest......................................... 621,086 556,317
Franchise fees................................... 800,171 782,260
Payroll and related benefits..................... 1,315,645 897,794
Other............................................ 1,855,132 2,104,045
Debt:
Affiliates....................................... 12,314,460 22,386,094
Other............................................ 65,574,730 48,414,947
------------ ------------
Total liabilities.............................. 113,454,504 110,492,962
------------ ------------
Commitments & contingencies
Partners' deficiency
General partners................................. (1,149,108) (1,110,394)
Limited partners................................. (87,012,131) (83,179,488)
------------ ------------
Total partners' deficiency..................... (88,161,239) (84,289,882)
------------ ------------
$ 25,293,265 $ 26,203,080
============ ============
</TABLE>
See accompanying notes to financial statements.
F-127
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Revenues--net...................................... $ 34,562,384 $ 33,233,263
Technical expenses (including affiliate amounts of
$1,482,000 and $1,361,000)........................ 14,044,681 13,600,510
Selling, general and administrative expenses
(including affiliate amounts of $2,432,000 and
$2,195,000)....................................... 9,054,082 8,898,674
Depreciation and amortization...................... 5,593,100 5,751,320
------------ ------------
Operating income............................... 5,870,521 4,982,759
------------ ------------
Other income (expense):
Interest income.................................. 30,607 18,057
Interest expense (including affiliate amounts of
$3,977,000 and $5,925,000)...................... (9,760,220) (10,442,456)
Miscellaneous, net............................... (12,265) (136,741)
------------ ------------
(9,741,878) (10,561,140)
------------ ------------
Net loss....................................... $ (3,871,357) $ (5,578,381)
============ ============
Partners' deficiency:
Beginning of year................................ $(84,289,882) $(78,711,501)
Net loss allocated to general partners........... (38,714) (55,784)
Net loss allocated to limited partners........... (3,832,643) (5,522,597)
------------ ------------
End of year...................................... $(88,161,239) $(84,289,882)
============ ============
</TABLE>
See accompanying notes to financial statements.
F-128
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (3,871,357) $(5,578,381)
------------ -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 5,593,100 5,751,320
Amortization of deferred financing costs........ 286,688 102,199
Loss (gain) on sale of equipment................ (3,745) 11,957
Changes in asset and liability accounts:
Accounts receivable--subscribers.............. 137,356 (50,740)
Other receivables............................. (234,941) (98,810)
Prepaid expenses and franchise fees........... 112,809 268,537
Deposits and other assets..................... (19,498) (60)
Accounts payable and accrued liabilities...... 192,947 1,807,217
Accounts payable and subordinated amounts
payable to affiliates, net................... (4,319,554) 6,328,727
------------ -----------
Total adjustments........................... 1,745,162 14,120,347
------------ -----------
Net cash provided by (used in) operating
activities................................. (2,126,195) 8,541,966
------------ -----------
Cash flows from investing activities:
Capital expenditures.............................. (3,871,749) (3,816,651)
Proceeds from sale of equipment................... 5,013 1,066
------------ -----------
Net cash used in investing activities....... (3,866,736) (3,815,585)
------------ -----------
Cash flows from financing activities:
Proceeds from bank debt........................... 70,750,000 1,250,000
Repayment of bank debt............................ (53,510,980) (5,429,020)
Payment of debt to affiliates..................... (10,071,634) --
Payments on capital lease obligations............. (79,237) (159,359)
Additions to deferred financing costs............. (1,035,531) (425,000)
------------ -----------
Net cash provided by (used in) financing
activities................................. 6,052,618 (4,763,379)
------------ -----------
Net increase (decrease) in cash and cash
equivalents........................................ 59,687 (36,998)
Cash and cash equivalents at beginning of year...... 279,234 316,232
------------ -----------
Cash and cash equivalents at end of year............ $ 338,921 $ 279,234
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-129
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992
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
Prepaid Franchise Fees
The Company has prepaid franchise fees to certain municipalities. Such
prepaid amounts are amortized to expense as the appropriate franchise fee is
earned by the municipality.
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.
F-130
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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, 1993,
the carrying amount of net assets for financial statement purposes was less
than their tax bases by approximately $7,433,000.
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
$14,444,000 (of which approximately $8,500,000 represents interest on the CSSC
subordinated demand note) and $5,220,000 during the years ended December 31,
1993 and 1992, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items with their
estimated useful lives shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- ESTIMATED
1993 1992 USEFUL LIVES
----------- ----------- -------------
<S> <C> <C> <C>
Cable television transmission and
distribution systems:
Converters............................ $11,495,679 $11,609,974 5 years
Headends.............................. 4,293,869 4,034,201 9 years
Distribution systems.................. 60,552,666 57,928,693 12 years
Program, service and test equipment... 3,977,009 3,870,334 7 years
Microwave equipment and satellite
receivers............................ 2,771,254 2,771,254 7 1/2 years
Construction materials and supplies... 99,347 92,956
----------- -----------
83,189,824 80,307,412
Land.................................... 410,464 410,464
Building................................ 3,185,848 3,185,848 25 years
Furniture and fixtures.................. 622,250 613,265 8 years
Vehicles................................ 2,168,845 2,152,020 4 years
Leasehold improvements.................. 1,722,247 1,642,867 Term of Lease
----------- -----------
91,299,478 88,311,876
Less accumulated depreciation and
amortization........................... 69,859,797 65,451,989
----------- -----------
$21,439,681 $22,859,887
=========== ===========
</TABLE>
At December 31, 1993 and 1992, property, plant and equipment include
approximately $32,000 and $123,000 respectively, of net assets recorded under
capital leases.
F-131
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. DEBT
Debt at December 31, 1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Partners:
C of I subordinated note, due July 31, 1994,
bearing interest at 10%.......................... $ -- $ 2,611,970
CSC subordinated demand note, bearing interest at
14% (Note 6)..................................... 12,314,460 12,314,460
CCI subordinated note, due July 31, 1994, bearing
interest at 18%.................................. -- 2,366,362
CSSC subordinated demand note, bearing interest at
14%.............................................. -- 5,093,302
----------- -----------
Total partners.................................. $12,314,460 $22,386,094
=========== ===========
Other:
Bank debt......................................... $65,550,000 $48,310,980
Capital lease obligations (Note 5)................ 24,730 103,967
----------- -----------
Total other..................................... $65,574,730 $48,414,947
=========== ===========
</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. The Company may borrow up to $83,500,000 under the New
Credit Agreement, of which $7,555,000 is restricted for certain letters of
credit. Undrawn funds available to the Company under the New Credit Agreement
as of December 31, 1993 amount to approximately $10,395,000.
The New Credit Agreement includes a $58,500,000 term loan, of which
$58,000,000 is outstanding at December 31, 1993, and a $25,000,000 revolving
line of credit, of which $7,550,000 is outstanding at December 31, 1993.
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 $2,500,000 on each of December 31, 1996 and
1997, $3,125,000 on December 31, 1998 and $5,625,000 on December 31, 1999.
The New Credit Agreement provides that the revolving line of credit may be
used for general and working capital purposes, and also to pay an aggregate
amount not to exceed $8,255,352 (less any amount drawn under a letter of credit
issued in respect of an obligation relating to subordinated amounts payable to
an affiliate) of additional accrued but unpaid management fees and accrued
interest thereon to Cablevision Systems Company on or before December 31, 1994.
Based on the outstanding borrowings as of December 31, 1993, future payments
under the terms of the New Credit Agreement are as follows: 1994--$2,100,000;
1995--$4,200,000; 1996--$7,800,000; 1997--$9,900,000; 1998--$11,100,000;
thereafter--$23,400,000.
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, 1993 after obtaining a waiver on December 16, 1993
for the ratio of Senior Debt to Annualized Operating Cash Flow.
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
F-132
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
prime rate or the London Interbank Offering Rate (LIBOR) as the borrowing base
rate. At December 31, 1993, the weighted average interest rate on the bank debt
was 6.95%. 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.
The Company has entered into interest rate swap agreements with three banks
on a notional amount of $35,000,000 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 three to five years. As of December 31, 1993, 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.
On December 31, 1992 the Company had subordinated notes outstanding to C of I
and CCI, of $2,611,970 and $2,366,362, respectively. Accrued interest payable
on these notes at December 31, 1992 was approximately $344,000 which was
included in accounts payable to affiliates in the accompanying balance sheet at
December 31, 1992. In 1993, the Company borrowed approximately $5,300,000 under
the credit agreement to redeem the outstanding notes and accrued interest
thereon.
The subordinated demand note in the amount of $5,093,302 at December 31, 1992
bore interest at 14% and was payable to CSSC. During 1993 and 1992, the Company
accrued interest of approximately $195,000 and $1,720,000, respectively.
Cumulative unpaid interest on this demand note amounted to approximately
$8,282,000 at December 31, 1992 and was included in subordinated amounts
payable to affiliates in the accompanying balance sheet. On February 8, 1993,
the Company borrowed $14,300,000 to retire the note, including interest thereon
through February 8, 1993 and to pay a portion of the accrued interest
outstanding on unpaid management fees (see note 6).
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 $457,000 in 1993 and $484,000 in 1992.
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 $196,000 in 1993 and $188,000 in 1992.
The Company's capital lease obligation of approximately $25,000 is due in its
entirety 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, 1993, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1994.................................................. $ 650,893
1995.................................................. 539,802
1996.................................................. 511,508
1997.................................................. 444,357
1998.................................................. 445,507
Thereafter............................................ 389,309
----------
Total future minimum lease payments................... $2,981,376
==========
</TABLE>
F-133
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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 1992 were approximately
$1,209,000 and $1,163,000, respectively. In addition, interest accrues on the
unpaid balance at prime (6% for 1993) plus two percent. For 1993 and 1992 the
Company accrued approximately $1,097,000 and $1,002,000, respectively, for
interest on unpaid management fees. Cumulative unpaid management fees and
interest thereon at December 31, 1993 and 1992 amounted to $15,458,000 and
$13,882,000, respectively. Unpaid management fees and interest are included in
subordinated amounts payable to affiliates in the accompanying balance sheets.
On February 8, 1993, the Company paid approximately $730,000 of accrued
interest outstanding on unpaid management fees. Subsequent payments are subject
to certain limitations and restrictions as defined in the New Credit Agreement.
CSSC entered into an agreement with a program supplier allowing all cable
systems managed by CSSC or CSC to offer certain programming to their
subscribers. The contract is for a ten-year period and requires minimum yearly
payments escalating to approximately $12,838,000 in 1994. Each of the related
cable systems offering this program service to its subscribers, including the
Company, pays its proportionate share of the minimum yearly payment based on
the relative number of subscribers. Charges to the Company in respect of this
agreement in 1993 and 1992 were approximately $514,000 and $531,000
respectively.
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 1992 amounted
to $12,314,460 (see note 4), and accrued interest thereon approximated
$10,089,000 and $7,209,000 at December 31, 1993 and 1992, 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 1992 the Company was charged
approximately $1,482,000 and $1,361,000, 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 $567,000 in 1993 and $581,000 in 1992. Amounts owed these
companies at December 31, 1993 and 1992 were approximately $830,000 and
$879,000, respectively of which approximately $161,000 and $297,000,
respectively are included in accounts payable to affiliates and approximately
$582,000 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 1992, these expenses
amounted to approximately $1,223,000 and $1,032,000, respectively. Amounts owed
CSC at December 31, 1993 and 1992 were approximately $264,000 and $308,000,
respectively, and are included in accounts payable to affiliates in the
accompanying balance sheets.
7. PENSION PLAN
Prior to January 1, 1993, the Company was a participant, with other
affiliates, in a defined contribution pension plan covering substantially all
employees. The Company contributed three percent of each eligible
F-134
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
employee's annual compensation, and employees could voluntarily contribute up
to ten percent of their annual compensation. Employee contributions were fully
vested. Employer contributions became vested in years three through seven.
Effective January 1, 1993, the Board of Directors of CSC approved the
adoption of an amended and restated Pension and 401(K) Savings Plan (the
"Plan"), in part to permit employees of CSC and its affiliates to make
contributions to the Plan on a pre-tax salary reduction basis in accordance
with the provisions of Section 401(K) of the Internal Revenue Code, and to
introduce new investment options under the Plan. The Company contributes 1 1/2%
of 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 1992, the cost associated with these
plans was approximately $130,000.
The Company does not provide any postretirement benefits for its employees.
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 but the company will be
required at various times through year end 1995 to obtain amendments to or
waivers of the debt to cash flow covenant in order to borrow under the Credit
Agreement. (See Note 11)
10. RECENT CABLE TELEVISION REGULATIONS
On October 5, 1992, Congress enacted the 1992 Cable Act which represents a
significant change in the regulatory framework under which cable television
systems operate. The principal provisions of the 1992 Cable Act were phased in
through October 1993. As a result of the initial FCC rate regulations
significant rate reductions were required.
The Company is currently in the process of attempting to analyze the
additional impact of the recently released FCC rate regulations. Although it is
not possible at this time to predict the ultimate financial impact
F-135
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of these rate regulations on the Company, the Company expects further
significant rate reductions will be required.
In connection with the implementation of its revised rate structure resulting
from the initial FCC rate regulation, the Company introduced a number of
measures, including the provision of alternate service offerings and
repackaging of certain services in order to mitigate the negative impact of FCC
regulation on the Company's rate structure. Following the latest FCC rate
regulation the Company intends to introduce additional marketing measures. The
Company is not able to predict fully the extent of the effect any of such
measures will have in mitigating the impact of rate regulation. Additionally,
because the FCC has not yet released the rules establishing the specific
methodologies to be used to arrive at acceptable cost of service rate
structures, the Company cannot predict whether it will utilize a cost of
service methodology to determine rates.
11. SUBSEQUENT EVENTS
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 modifies
certain restrictive covenants principally relating to financial ratios through
the maturity date of the loan.
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 1992
----------- -----------
<S> <C> <C>
Losses allocated to partners for financial reporting
purposes............................................ $(3,871,357) $(5,578,381)
Depreciation and amortization adjustments for tax
purposes............................................ 2,347,793 3,004,019
Management fees and related interest................. 1,575,798 2,164,765
Interest payments on debt to affiliates.............. -- (6,459,850)
Other................................................ (385,026) (173,409)
----------- -----------
Tax loss allocable to partners....................... $ (332,792) $(7,042,856)
=========== ===========
Tax loss allocable to general partners............... $ (3,328) $ (70,429)
=========== ===========
Tax loss allocated to limited partners............... $ (329,464) $(6,972,427)
=========== ===========
</TABLE>
F-136
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
ASSETS
------
Cash and cash equivalents........................................ $ 430
Accounts receivable-subscribers (less allowance for doubtful
accounts of $197)............................................... 511
Other receivables................................................ 577
Prepaid expenses................................................. 78
Prepaid franchise fees........................................... 9
Property, plant and equipment, net............................... 22,231
Deferred acquisition and development costs (less accumulated
amortization of $1,393)......................................... 64
Deferred financing costs (less accumulated amortization of
$1,106)......................................................... 1,868
Other intangibles (less accumulated amortization of $1,119)...... 169
Deposits and other assets........................................ 147
--------
$ 26,084
========
LIABILITIES AND PARTNERS' DEFICIENCY
------------------------------------
Liabilities:
Accounts payable and accrued expenses.......................... $ 9,523
Accounts payable to affiliates, net............................ 127
Subordinated amounts payable to affiliates..................... 22,171
Debt:
Affiliates..................................................... 12,314
Other.......................................................... 73,516
--------
Total liabilities............................................ 117,651
Partners' deficiency............................................. (91,567)
--------
$ 26,084
========
</TABLE>
See accompanying notes to financial statements
F-137
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS AND PARTNERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
------------------
<S> <C>
Revenues--net................................................ $ 25,656
Operating expenses:
Technical.................................................. 10,624
Selling, general and administrative........................ 6,870
Depreciation and amortization.............................. 3,981
--------
Operating profit......................................... 4,181
--------
Other deductions:
Interest expense, net...................................... 7,537
Miscellaneous.............................................. 50
--------
7,587
--------
Net loss................................................. (3,406)
Partners' deficiency:
Beginning of year.......................................... (88,161)
--------
End of period.............................................. $(91,567)
========
</TABLE>
See accompanying notes to financial statements
F-138
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................... $(3,406)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................ 3,981
Amortization of deferred financing costs..................... 223
Amortization of prepaid franchise fees....................... 18
Gain on sale of equipment.................................... (5)
Changes in asset and liabilities:
Accounts receivable--subscribers........................... (105)
Other receivables.......................................... (85)
Prepaid expenses........................................... 60
Deposits and other assets.................................. (44)
Accounts payable and accrued expenses...................... 377
Accounts payable and subordinated amounts payable to
affiliates, net........................................... 4,134
-------
Total adjustments........................................ 8,554
-------
Net cash provided by operating activities................ 5,148
Cash flows from investing activities:
Capital expenditures........................................... (4,550)
Proceeds from sale of equipment................................ 11
-------
Net cash used in investing activities.................... (4,539)
-------
Cash flows from financing activities:
Proceeds from bank debt........................................ 10,635
Repayment of bank debt......................................... (2,670)
Payment of capital lease obligations........................... (25)
Payment of subordinated amounts payable to affiliates.......... (8,255)
Additions to deferred debt financing........................... (203)
-------
Net cash provided by financing activities................ (518)
-------
Net increase in cash and cash equivalents........................ 91
Cash and cash equivalents at beginning of year................... 339
-------
Cash and cash equivalents at end of period....................... $ 430
=======
</TABLE>
See accompanying notes to financial statements
F-139
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION
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 3, 2020, unless
earlier termination occurs as provided in the partnership agreement.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
NOTE 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of September 30, 1994 and for the nine month
period then ended are unaudited; however, in the opinion of management, such
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results for the period
presented.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's audited
financial statements for the fiscal year ended December 31, 1993.
The results of operations for the interim period are not necessarily
indicative of the results that might be expected for future interim periods or
for the full year ending December 31, 1994.
NOTE 3. DEBT
Debt at September 30, 1994 consists of :
<TABLE>
<S> <C>
Affiliates:
Subordinated demand note, bearing interest at 14%.................... $12,314
-------
Total affiliates................................................. 12,314
-------
Other:
Senior bank notes:
Bearing interest at 1.00% over prime rate.......................... 3,516
LIBO Rate notes.................................................... 70,000
-------
Total other...................................................... 73,516
-------
$85,830
=======
</TABLE>
F-140
<PAGE>
INDEPENDENT AUDITORS' REPORT
MARCH 29, 1994, EXCEPT FOR
NOTES 7 AND 10
AS TO
WHICH THE DATE IS DECEMBER 1, 1994
The Board of Directors,
United Broadcasting Company, Inc.
and Subsidiaries,
Bethesda, Maryland
We have audited the accompanying consolidated balance sheet of United
Broadcasting Company, Inc. and Subsidiaries as of December 31, 1993, and the
related consolidated statements of income, retained earnings, and cash flows
for the year then ended. These financial statements are the responsibility of
the Corporations' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides 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 United Broadcasting Company,
Inc. and Subsidiaries as of December 31, 1993, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 10 to the financial statements, the Corporations'
provision for income taxes on continuing operations previously reported as
$1,077,972 should have been $1,075,580. In addition, the income from
subsidiaries of continuing operations previously reported as $2,777 should have
been eliminated. These discoveries were made subsequent to the issuance of the
financial statements. The financial statements have been restated to reflect
these corrections.
Further, the amounts previously reported in Note 7 for gross revenues of the
discontinued segment during 1993 and gain on the sale of assets of $51,819,460
and $34,262,364, respectively, should have been $53,800,977 and $34,257,568,
respectively. Also, dollar amounts of the remaining assets and liabilities have
been added to Note 7. As indicated in Note 10 to the financial statements,
income from continuing operations previously reported as $874,848 should have
been $1,520,689, net income from operations of discontinued segment previously
reported as $620,990 should have been a loss of ($426,609), gain on disposal of
segment previously reported as $19,928,856 should have been $20,330,614, and
total discontinued operations previously reported as $20,549,846 should have
been $19,904,005. These discoveries were made subsequent to the issuance of the
financial statements. The financial statements have been restated to reflect
these corrections.
Councilor, Buchanan & Mitchell, P.C.
Bethesda, Maryland
F-141
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and Cash Equivalents
(Including Certificates
of Deposit, Commercial
Paper and Money Market
Funds of $30,265,314)
(Note 1)................. $31,792,507
Investments (Municipals)
(Note 1)................. 5,850,000
Accounts Receivable (Net
of Allowance for
Uncollectible Accounts of
$177,603) (Note 1)....... 3,333,512
Notes Receivable Current
(Notes 1 and 3).......... 1,000,000
Accrued Interest
Receivable............... 123,743
Inventory (Note 1)........ 137,460
Deferred Tax Asset (Note
5)....................... 806,170
Prepaid Expenses
Cash..................... 312,994
Trade.................... 412,314
-----------
Total Current Assets.... $43,768,700
-----------
PROPERTY AND EQUIPMENT, AT
COST, LESS ACCUMULATED
DEPRECIATION OF $12,796,853
(NOTES 1, 2 AND 4)......... $10,156,917
-----------
EXCESS OF COST OVER NET
ASSETS ACQUIRED, NET OF
ACCUMULATED AMORTIZATION OF
$458,333 (NOTE 1).......... $ 1,518,537
-----------
OTHER ASSETS:
Capitalized Legal Fees and
Contract Costs (Less
Accumulated Amortization
of $180,981)............. $ 1,072,595
Note Receivable Long-Term
(Notes 1 and 3)............ 137,934
Miscellaneous............. 27,941
-----------
Total Other Assets...... $ 1,238,470
-----------
TOTAL ASSETS................ $56,682,624
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-142
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts Payable.................................................. $ 730,641
Notes Payable--Due Within One Year (Note 4)....................... 253,333
Prepaid Cable Television Revenue.................................. 480,214
Income Taxes Payable.............................................. 7,665,732
Other............................................................. 997,173
-----------
Total Current Liabilities....................................... $10,127,093
-----------
DEFERRED REVENUES (NOTE 1)
Deferred Covenant Revenue......................................... $ 4,027,778
Other Deferred Revenues
Cash............................................................ 53,577
Trade........................................................... 208,040
-----------
Total Deferred Revenues......................................... $ 4,289,395
-----------
LONG-TERM LIABILITIES
Notes Payable--Due After One Year (Note 4)........................ $ 871,684
Deferred Income Taxes (Notes 1 and 5)............................. 9,496,166
-----------
Total Long-Term Liabilities..................................... $10,367,850
-----------
STOCKHOLDERS' EQUITY:
Capital Stock--$100 Par Value, 311 Shares Authorized, 180.27
Shares Issued and Outstanding.................................... $ 18,027
Nonvoting Capital Stock--$100 Par Value, 2,000 Shares Authorized,
677.68 Shares Issued, 543.68 Shares Outstanding.................. 67,768
Additional Paid-in Capital........................................ 6,000
Retained Earnings (Exhibit C)..................................... 33,925,165
-----------
Total........................................................... $34,016,960
Less Cost of 134 Shares of Nonvoting Treasury Stock (Note 1)... 2,118,674
-----------
Total Stockholders' Equity...................................... $31,898,286
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $56,682,624
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-143
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
OPERATING REVENUES:
Cable Advertising:
Cash.......................................................... $ 561,271
Trade......................................................... 157,848
Cable Television................................................ 11,392,974
Other (Rental, Converter Charges)............................... 497,641
-----------
Total....................................................... $12,609,734
-----------
OPERATING EXPENSES:
Cash............................................................ $ 9,845,872
Trade........................................................... 124,086
-----------
Total....................................................... $ 9,969,958
-----------
Operating Income.................................................. $ 2,639,776
Other Revenues.................................................... 159,627
-----------
Income Before Interest Expense and Provision for Income Taxes..... $ 2,799,403
Interest Expense.................................................. (203,134)
-----------
Income From Continuing Operations Before Provision for Income
Taxes............................................................ $ 2,596,269
-----------
PROVISION FOR INCOME TAXES (INCOME TAX BENEFIT) (NOTES 1 AND 5):
Currently Payable............................................... $ 1,138,010
Deferred (Benefit).............................................. (62,430)
-----------
Total Provision for Income Taxes.............................. $ 1,075,580
-----------
Income from Continuing Operations............................. $ 1,520,689
-----------
DISCONTINUED OPERATIONS (NOTE 7):
Net Loss from Operations of Discontinued Segment (Net of Income
Tax Benefit of $213,582)......................................... $ (426,609)
Gain on Disposal of Segment (Less Applicable Income Taxes of
$14,996,772)..................................................... $20,330,614
-----------
Total Discontinued Operations............................... $19,904,005
-----------
NET INCOME........................................................ $21,424,694
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-144
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Retained Earnings, January 1....................................... $15,254,771
Net Income (Exhibit B)............................................. 21,424,694
Stock Redemption (Note 9).......................................... (2,000,172)
Stock Cancellation (Note 1)........................................ (754,128)
-----------
RETAINED EARNINGS, DECEMBER 31..................................... $33,925,165
===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-145
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................ $ 21,424,694
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization................... $ 2,184,405
Trade Revenues and Expenses..................... (28,625)
Gain on Sale of Assets.......................... (34,143,766)
Loss from Limited Partnership................... 8,761
Changes in Assets and Liabilities:
Decrease in Accounts Receivable-Affiliates and
Other........................................ 606,831
Increase in Accrued Interest Receivable....... (104,261)
Increase in Inventory......................... (16,744)
Increase in Deferred Tax Asset................ (272,212)
Decrease in Prepaid Expenses.................. 64,371
Decrease in Miscellaneous Assets.............. 30,744
Decrease in Accounts Payable.................. (350,938)
Increase in Prepaid Cable Television Revenue.. 95,990
Increase in Income Taxes--Current............. 7,606,839
Decrease in Other Liabilities................. (153,027)
Increase in Deferred Covenant Revenue......... 4,027,778
Decrease in Deferred Revenue.................. (11,862)
Increase in Deferred Income Taxes Payable..... 8,082,434
-----------
Total Adjustments........................... ($12,373,282)
------------
Net Cash Provided by Operating Activities..... 9,051,412
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Assets...................... $36,517,144
Capital Expenditures.............................. (1,594,703)
Increase in Notes Receivable...................... (637,934)
Purchases of Investments.......................... (22,569,400)
Maturities of Investments......................... 18,104,890
-----------
Net Cash Provided by Investing Activities....... $ 29,819,997
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Notes Payable............... ($8,057,083)
Stock Redemptions................................. (2,001,627)
-----------
Net Cash Used in Financing Activities........... ($10,058,710)
------------
Net Increase in Cash and Cash Equivalents........... 28,812,699
Cash and Cash Equivalents at Beginning of Year...... 2,979,808
------------
Cash and Cash Equivalents at End of Year............ $ 31,792,507
============
Cash Paid During the Year for:
Interest.......................................... $ 397,538
Income Taxes...................................... $ 524,025
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-146
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following comments comprise the significant accounting policies the
Corporations follow in preparing and presenting their financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of United
Broadcasting Company, Inc. (UBC) and Subsidiaries:
<TABLE>
<CAPTION>
PRINCIPAL
CORPORATION ACTIVITY LOCATION
----------- --------- ---------------
<S> <C> <C>
PARENT:
United Broadcasting Company, Inc................. Radio Washington, DC
WHOLLY-OWNED SUBSIDIARIES:
United Broadcasting Company of Eastern Maryland,
Inc............................................. Radio Baltimore, MD
United Broadcasting Company of New York, Inc..... Radio New York, NY
Friendly Broadcasting Company.................... Radio Cleveland, OH
United Television Company of New Hampshire, Inc.. Inactive Manchester, NH
United Cable Company of New Hampshire, Inc....... Cable-TV Manchester, NH
G. O. Enterprises, Inc........................... Cable-TV Bradford, VT
Tele-Broadcasters of California, Inc............. Radio San Gabriel, CA
Intercontinental Radio, Inc...................... Radio San Mateo, CA
</TABLE>
During 1993, United Broadcasting Company of Eastern Maryland, Inc. and United
Broadcasting Company of New York, Inc. were liquidated under section 332 of the
Internal Revenue Code and merged into United Broadcasting Company, Inc. On
December 31, 1993, United Television Company of New Hampshire, Inc. was
liquidated under section 332 of the Internal Revenue Code and merged into
Friendly Broadcasting Company.
All significant intercompany balances and transactions between the
Corporation and its subsidiaries have been eliminated in the consolidation.
Cash Equivalents and Investments
In accordance with Statement of Financial Accounting Standards No. 95, the
Corporation considers certificates of deposit and commercial paper with
original maturities to the Corporation of three months or less to be cash
equivalents, and those with original maturities of more than three months to be
investments. Investments are stated at cost which approximates market value.
Significant Concentrations of Credit Risk
Financial instruments that potentially subject the Corporation and its
subsidiaries to credit risk include cash deposits, cash equivalents, temporary
investments, accounts receivable and notes receivable. The cash deposits and
cash equivalents are in demand and time deposit accounts, certificates of
deposit, money market accounts, commercial paper and tax exempt common trust
funds and are substantially all in one financial institution which is federally
insured and located in the Washington, D.C., metropolitan area. The temporary
investments are in municipal debt instruments under the custody of the same
financial institution. The current notes receivable are unsecured and are with
the same financial institution. The long-term note is secured by radio
broadcasting assets and Stock of the Corporation and is with another party
located in the Washington,
F-147
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D.C., area. The accounts receivable consist primarily of radio and cable
advertising revenues in the areas served by the Corporation's present and
former properties.
Inventory
Inventory is stated at cost, with cost determined under the first-in, first
out method. The inventory consists of items held by United Cable Company of New
Hampshire, Inc. and G. O. Enterprises, Inc. to be used in cable installations
and repairs and maintenance.
Excess of Cost Over Net Assets Acquired
Goodwill in the amount of $976,870 in 1993, which relates to assets acquired
prior to November 1, 1970, is included in excess of cost over net assets
acquired and is not being amortized. Goodwill in the amount of $1,000,000
acquired subsequent to October 31, 1970, is being amortized by the straight-
line method over twenty years. During 1993, goodwill in the amount of $749,112
was written off in conjunction with the sale of assets to which it related.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
and lives for financial statement and income tax purposes), allowance for
doubtful receivables (deductible for financial statement purposes but not for
income tax purposes), accrued vacation expense (deductible for financial
statement purposes but not for income tax purposes) and initial hook-up
revenues (deferred for financial statement purposes but recognized for income
tax purposes). The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses and tax credits that are
available to offset future taxable income.
Depreciation
Depreciation of property and equipment is provided for by the declining-
balance and straight-line methods as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Buildings...................................................... 10-33 Years
Leasehold Improvements......................................... 5-33 Years
Radio Broadcasting Equipment................................... 5-20 Years
Cable Broadcasting Equipment................................... 5-20 Years
Furniture and Equipment........................................ 5-10 Years
Automobiles and Trucks......................................... 3-5 Years
</TABLE>
Nonvoting Treasury Stock
As of December 31, 1992, nonvoting treasury stock consisted of 182 shares of
nonvoting capital stock which was owned by two of the Corporation's
subsidiaries. As explained above, during 1993, United Broadcasting Company of
Eastern Maryland, Inc. was liquidated under section 332 of the Internal Revenue
Code. Consequently, 48 shares of treasury stock held by the subsidiary were
canceled. As a result, nonvoting treasury stock consists of 134 shares of
nonvoting capital stock as of December 31, 1993, which is owned by one of the
Corporation's subsidiaries.
F-148
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Revenues
The sale of the assets of one of the radio properties during 1993 was
accompanied by a covenant not to compete. The deferred revenue as of December
31, 1993, associated with the covenant is being amortized over 29 months, the
remaining life of the covenant. The Company intends to transfer the covenant
and the related deferred revenues to a successor entity.
Other deferred revenues include deferred revenues related to initial hook-up
fees of the cable television operations, which are amortized by the straight-
line method over five years. Deferred advertising revenues are recognized when
the related services are rendered.
Changes in Classification and Reclassifications
Capitalized Legal Fees and Contract Costs which were previously included in
Property Plant and Equipment have been reclassified to other assets.
Uncollectible Accounts
The allowance for uncollectible accounts is based upon estimated actual
collectibility as determined by periodic management review of outstanding
accounts receivable.
Investment in Partnership
The sale of the assets of Intercontinental Radio, Inc. (Intercontinental)
during 1993 included a 25% interest in a general partnership, Mt. Diablo Group.
Intercontinental accounted for its investment in the partnership under the
equity method. The following is a summary of activity for 1993:
<TABLE>
<S> <C>
Capital account, January 1, 1993................................. $ 29,739
Loss from Rental Activities...................................... (8,781)
Interest Income.................................................. 20
Distribution..................................................... (20,978)
--------
Capital account, December 31, 1993............................... $ --
========
</TABLE>
NOTE 2--PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<S> <C>
Land......................................................... $ 1,666,425
Buildings.................................................... 1,546,238
Leasehold Improvements....................................... 214,567
Radio Broadcasting Equipment................................. 1,027,520
Cable Television Equipment................................... 17,096,088
Furniture and Equipment...................................... 1,097,818
Automobiles and Trucks....................................... 305,114
------------
Total Property and Equipment............................... $ 22,953,770
Less Accumulated Depreciation and Amortization............. (12,796,853)
------------
Net........................................................ $ 10,156,917
============
</TABLE>
Depreciation and amortization expenses in 1993 are $2,184,405.
F-149
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--NOTES RECEIVABLE
During 1992 and 1993, the Corporation agreed to lend $1,000,000 to
NationsBank of Maryland, N.A., Trustee U/W Richard Eaton, the majority
shareholder. Under the terms of the unsecured notes, interest is paid at a rate
equal to the highest effective rate of interest among the per annum rates of
interest in effect, either fixed rate or variable rate, under the Corporation's
loan facility with American Security Bank dated May 23, 1991, calculated using
the same method for calculating interest used in the loan facility. The
interest income related to the notes was $52,478 and $10,163 during 1993 and
1992 respectively, all of which is outstanding. The notes are due on December
31, 1994, and the interest rate in effect as of December 31, 1993, was 6.5%.
During 1993, in connection with the sale of the assets of radio station WINX,
the Corporation took back a promissory note for $145,000. The note, which is
from a stockholder of the Corporation, is collateralized by certain radio
broadcasting assets and the Stock of the Corporation pursuant to a Pledge and
Security Agreement. The note bears interest at 10%, payable monthly, commencing
April 1, 1993, with the principal balance and all unpaid interest due on April
1, 1995. The principal balance has been reduced by $7,066 from the redemption
of common stock.
NOTE 4--NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<S> <C>
TYPE OF LOAN
------------
Loans Secured by Property and Equipment:
American Security Bank, Due March 31, 2001, Interest
Currently floating at the Bank's Base Rate plus .25% but may
be fixed for terms of 5 years at option of the Corporation,
Monthly Payments of Interest Only and Quarterly Principal
Installments of $13,333..................................... $ 375,017
NationsBank of Maryland Trustee U/A Richard Eaton Dated
9/11/72, Interest at the Prime Rate as published in The Wall
Street Journal plus one percent (1%), Interest Payable
Quarterly, Quarterly Principal Payments of $50,000
commencing July 1, 1993, with a Balloon Payment due May 15,
1995........................................................ $ 750,000
----------
Total Notes Payable........................................ $1,125,017
Less Notes Payable--Due Within One Year.................... (253,333)
----------
Notes Payable--Due After One Year.......................... $ 871,684
==========
</TABLE>
The American Security Bank loan in the amount of $375,017 is secured by the
land and premises on East Industrial Park Drive of United Cable Company of New
Hampshire, Inc. The rate of interest as of December 31, 1993, was 6.25%.
The NationsBank loan is secured by the mortgage on the property at Carlstadt,
New Jersey. The rate of interest as of December 31, 1993, was 7%. The total
interest expense in relation to the mortgage was $60,159 and $40,825 for 1993
and 1992 respectively.
During December 1993, a six and one-half year term loan with American
Security Bank was paid in full. The rate of interest was tied to the bank's
base rate and varied between the bank's base rate and the bank's base rate plus
one percent.
F-150
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of notes payable are as follows:
<TABLE>
<S> <C>
1994............................................................ $ 253,333
1995............................................................ 603,333
1996............................................................ 53,333
1997............................................................ 53,333
1998............................................................ 53,333
1999 and Thereafter............................................. 108,352
----------
Total......................................................... $1,125,017
==========
</TABLE>
NOTE 5--INCOME TAXES
The Company's total deferred tax liabilities, deferred tax assets, and
deferred tax asset valuation allowances are as follows:
<TABLE>
<S> <C>
Total deferred tax assets..................................... $ 1,820,571
Less valuation allowance...................................... --
-----------
$ 1,820,571
Total deferred tax liabilities................................ (10,510,567)
-----------
Net deferred tax liability.................................... ($8,689,996)
===========
These amounts have been presented in the Company's financial statements as
follows:
Current deferred tax asset.................................... $ 806,170
Non-Current deferred tax liability............................ (9,496,166)
-----------
Net deferred tax liability.................................... ($8,689,996)
===========
</TABLE>
Total provision for income taxes differs from the amount that would result
from applying the regular tax rates to income from continuing operations before
provision for income taxes due to the Federal Alternative Minimum Tax, and
state income taxes on subsidiaries having taxable income.
During 1993, the Internal Revenue Service completed an examination of the
Corporation's income tax returns for the years 1989, 1990 and 1991. No change
to the returns resulted from this examination.
NOTE 6--COMMITMENTS AND CONTINGENT LIABILITIES
As previously reported, on May 28, 1987, a complaint was filed seeking
declaratory and injunctive relief from the Corporation. The relief requested
encompasses recognition and enforcement of Plaintiff's alleged right of first
refusal with respect to the indirect sale or transfer of the assets of United
Cable Company of New Hampshire, Inc. ("United Cable") by way of the sale of
capital stock of United Broadcasting Company, Inc. ("United"). The parties to
this action have entered into a settlement agreement as of August 27, 1993,
pursuant to which the assets of United Cable are scheduled to be transferred to
the Plaintiff on June 30, 1994, by way of its purchase of the stock of United.
On December 29, 1992, one of the Corporation's radio stations was served with
a Summons and Complaint naming that station as one of several contributory
infringers in a copyright infringement claim against a recording artist and
record company. In essence, the complaint alleges that a certain recording by a
F-151
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
national artist broadcast on the Corporation's station infringed Plaintiff's
copyright in its song. The Corporation's station broadcast the alleged
infringing recording under its blanket license with the performing rights
society Broadcast Music International (BMI) and thus has tendered the suit to
BMI for defense and indemnification pursuant to the terms of its license. This
litigation is presently in the discovery phase. According to the Corporation's
counsel, the likelihood of liability for the Corporation cannot be assessed at
this time.
As previously reported, on or about April 2, 1993, one of the Corporation's
radio stations was served with a Summons and Complaint by a former employee of
that station claiming breach of employment contract, fraud and breach of the
implied covenant of good faith and fair dealing against the station and its
General Manager. The Corporation and the General Manager agreed to joint
representation by the Corporation's outside counsel. Subsequently, the
Corporation agreed to settle this matter for a nuisance value of $3,000 whereby
all claims will be dismissed with prejudice as against the Corporation and the
General Manager.
A class action lawsuit has been filed in Superior Court of California, County
of San Francisco against the Corporation, present and former employees and
other non-employees. The Plaintiffs claim to have been subjected to traffic
delays on the San Francisco Bay Bridge on May 26, 1993 ("Bay Bridge incident"),
as a result of a certain alleged obstruction of traffic involving employees of
the Corporation. They bring the suit on behalf of themselves and similarly
situated individuals claiming special and general damages of not less than
$4,000,000, interest, punitive damages, attorneys' fees and costs as a result
of such delays. Recently, defendants moved to dismiss the second-amended
complaint for failure to state a permissible cause of action. Consequently, the
Court dismissed the second-amended complaint on February 14, 1994 without leave
to amend. Plaintiffs may decide to appeal from the trial court's order.
According to the Corporation's counsel, the outcome of any such appeal, if
taken, cannot be predicted with certainty at this time.
A second claim based upon the Bay Bridge incident also was filed in San
Francisco Superior Court but has not to date been served upon the Corporation.
This claim is on behalf of an individual claiming, among other things, damages
for emotional distress.
A third claim based upon the Bay Bridge incident from another individual was
filed in Municipal Court. No lawsuit is currently pending, however, because the
Plaintiff failed to serve the Defendants properly and the Court dismissed the
action.
As reported in the notes to the Consolidated Financial Statements for the
year ending December 31, 1992, the litigation involving a dispute relating to
insurance coverage for a previously settled third party action was settled on
terms which are subject to a confidentiality provision. By virtue of this
settlement, there will be no further trials or appeals of either the Complaint
or Cross-complaint in that litigation.
Pursuant to the terms of certain sale agreements conveying the assets of the
Corporation's radio stations to various buyers, the Corporation has agreed to
indemnify such buyers under various circumstances, including, but not limited
to, indemnification for liability arising from the operation of the stations by
the Corporation prior to sale.
As a requirement of the Franchise agreement ("The Agreement") with the City
of Manchester, United Cable Company of New Hampshire, Inc. is required to
maintain a letter of credit in the amount of $50,000 to ensure the faithful
performance of and compliance with the Agreement.
The Corporation has entered into an employment agreement with its President.
This agreement terminates on the earlier of (a) the date on which occurs
closing of the purchase, merger, consolidation or
F-152
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
otherwise of more than 50% of the voting stock of the Corporation or (b)
December 31, 1994. The agreement includes the following provisions, among
others: (a) payment to the President of a base salary and related benefits
appropriate to the President's position in the Corporation; and (b) purchase by
the Corporation in cash and promissory note payable over 24 months of any and
all capital stock of the Corporation owned by the President on the date of
termination. The estimated total potential commitment for future salary
payments described in this paragraph is approximately $162,500 as of December
31, 1993.
As of December 31, 1993, the Corporation had committed to make severance
payments totaling $53,231 to certain employees of radio stations WJMO-AM and
WJMO-FM.
United Broadcasting Company, Inc. and its Subsidiaries are obligated as
lessees under various leases for broadcast and office facilities which have
remaining terms of more than one year. The leases expire on various dates from
June 30, 1994, through February 29, 2009. The annual lease payments will
increase in accordance with various amounts stipulated in the leases and
changes in the Consumer Price Index.
The minimum future annual rental commitments are as follows:
<TABLE>
<S> <C>
1994.............................................................. $163,360
1995.............................................................. 116,122
1996.............................................................. 79,988
1997.............................................................. 29,400
1998.............................................................. 29,400
1999 and Thereafter............................................... 298,900
--------
Total........................................................... $717,170
========
</TABLE>
Rental expense for 1993 was $691,940. The contingent rental expense was
$62,576.
NOTE 7--SALE OF CORPORATE ASSETS
On March 10, 1993, the Board of Directors adopted a formal plan for the
disposal of the radio broadcasting segment of the Corporation's business. As of
December 31, 1993, the assets of radio stations WJZE (Washington, D.C.), WERQ-
AM and WERQ-FM (Baltimore, MD), WINX (Rockville, MD) and KSOL (San Mateo, CA)
had been sold. On February 17, 1994, the assets of radio stations WJMO-AM and
WJMO-FM (Cleveland, OH) were sold. As of the date of the auditors' report,
contracts are pending or letters of intent have been signed with respect to the
sales of the assets of the remaining stations, for which closing is estimated
to occur by August 31, 1994.
Gross revenues of the discontinued segment during 1993 were $53,800,977,
which include $34,257,568 resulting from the gain on the sale of assets. The
remaining assets in the amount of $44,103,365 which excludes the investment in
United Cable of New Hampshire, Inc. and liabilities in the amount of
$20,931,834 of the discontinued segment consist principally of cash and cash
equivalents, accounts receivable, prepaid expenses, notes receivable, deferred
tax assets, radio broadcasting equipment, accounts payable, notes payable,
deferred revenues, current and deferred income taxes payable and accrued
expenses.
Pursuant to a Stock Purchase Agreement dated August 27, 1993, by and between
the Shareholders of the Company and Continental Cablevision, Inc., the
Management of the Company intends to transfer all Non-United Cable Company of
New Hampshire, Inc. assets and liabilities to a successor entity.
F-153
<PAGE>
UNITED BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--EMPLOYEES' PROFIT SHARING PLAN
United Broadcasting Company, Inc. and Subsidiaries, with the exception of
United Television Company of New Hampshire, Inc., have in effect a defined
contribution profit sharing plan for all employees who meet eligibility
requirements. Pursuant to collective bargaining, current union employees are
not participants in the Profit Sharing Plan. Currently, contributions to the
Profit Sharing Plan are made solely by the Company and are at the discretion of
the Board of Directors. The total contribution to the plan for 1993, which was
funded in January 1994, was $400,000.
All funds are held by a bank as trustee under the trust agreement. There is
no unfunded liability. The Corporation has reserved the right to modify, amend,
or terminate the plan. In the event of termination, the entire amount
contributed and the accumulated earnings under the plan must be applied to the
payment of benefits to the participants or their beneficiaries.
NOTE 9--REDEMPTION OF CAPITAL STOCK
During 1993, UBC redeemed 3.63 shares of voting and 10.92 shares of nonvoting
capital stock for $2,000,000. Under Maryland law, corporations may not reflect
treasury stock on their balance sheets. Accordingly, the par value of voting
and nonvoting capital stock issued has been reduced by $1,455, and retained
earnings has been reduced for the remainder of the redemption price plus legal
fees of $1,627 incurred in connection with the redemption.
NOTE 10--RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of the financial statements, the allocation of
taxes between continuing and discontinued operations has changed. Taxes on
continuing operations decreased by $2,392 and correspondingly taxes on
discontinued operations increased by the same amount. In addition, the income
from subsidiaries of continuing operations has been eliminated.
Subsequent to the issuance of the financial statements, the results of
operations of the discontinued segment from January 1, 1993, to March 10, 1993,
have been reclassified from continuing operations to net loss from operations
of discontinued segment. In addition, the results of operations of the
discontinued segment from March 10, 1993, to December 31, 1993, have been
reclassified to gain on disposal of segment.
F-154
<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
Distribution with Respect to Shares Represented by Unexchanged
1.7 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>
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<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
I-8
<PAGE>
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
I-9
<PAGE>
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
- --------
/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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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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
II-22
<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
II-24
<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) a Restated Agreement and Plan of Merger (the "Merger
Agreement") with 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 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 Journals common stock to
Providence Journals shareholders on a pro rata basis; (iii) Continental will
assume or incur $755 million of New 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 28,260,300 shares of Continental Class A
Common Stock and 4,987,100 shares of Continental Series B Preferred Stock (or
33,247,400 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 shareholders 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
shareholders 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, 1993 and their
unaudited financial statements for the month period ended , 1994;
(ii) KHC's audited consolidated financial statements for the years ended
December 31, 1992 and December 31, 1993 and unaudited consolidated
financial statements for the month period ended , 1994; (iii) the
Colony Cablevision divisions internally prepared unaudited income
statements for the years ended December 31, 1991 through December 31, 1993
and the month period ended , 1994; (iv) internally prepared
consolidating pro forma financial statements for the year ended December
31, 1993 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 Continentals audited financial statements for the years ended
December 31, 1991 through 1993 and its unaudited financial statements for
the months ended , 1994;
6. reviewed certain operating and financial information of Continental,
including projections, provided to us by Continentals management;
7. met with certain members of the senior managements of Providence
Journal, the PJC Cable Business, KBC and Continental to discuss each
companys 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 Continentals 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 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 shareholders 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.
(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, 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 stockholders; 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 stockholders 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 which 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
stockholders;
c. Cash in lieu of fractional shares of the corporations described in
the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares 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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<PAGE>
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, and thereby to enhance
the value of, the Cable Division (the "Cable Division") of the Providence
Journal Company (the "Company") by providing an opportunity for its key
officers to participate in significant incentives that will contribute to the
enhancement of the Company's shareholder value.
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 Participants, including the
percentage of the bonus pool for which each such Participant is eligible, 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 , 1994. The
bonus opportunity awards have been calculated based upon achieving 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
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.
(c) Comparable results with respect to the 1995 cash flow objective of
the Cable Division (the "1995 Objective").
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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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. . . . Filed
herewith as Exhibit 3.1.
3.1A Certificate of Designation of Continental relating to the Continental
Series A Preferred Stock . . . Filed herewith as Exhibit 3.1A.
3.1B Form of Certificate of Designation of Continental relating to the
Continental Series B Preferred Stock. . . . Filed as Exhibit A to
Annex I.
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3.1C Form of Amendment to Continental's Restated Certificate of
Incorporation increasing the number of authorized shares. . . . To be
filed by amendment.
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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 . . . Filed herewith as Exhibit 4.4.
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. . . . Filed herewith as Exhibit 4.5.
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)
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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. . . . Filed herewith as Exhibit 10.13.#
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. . . . Filed herewith as Exhibit
10.14.
10.15 Supplemental Executive Retirement Plan. . . . Filed herewith as
Exhibit 10.15.#
10.16 Form of Registration Rights Agreement with New Providence Journal. .
. . To be filed by amendment.
10.17 Form of Restricted Stock Purchase Agreements for 1995. . . . Filed
herewith as Exhibit 10.17.#
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.
-------
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 fixed charges. . . . Filed
herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to fixed charges. . . .
Filed herewith as Exhibit 12.2.
21 Subsidiaries of Continental. . . . Filed herewith as Exhibit 21.
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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. . .
. . Filed herewith as Exhibit 23.7.
23.8 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. . . .
Filed herewith as Exhibit 23.8.
24 Power of Attorney. . . . Filed herewith as Page II-5.
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule VIII--Valuation and Qualifying Accounts and Reserves. . . .
Filed herewith as Exhibit 99.
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.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
COMMONWEALTH OF MASSACHUSETTS, ON THE 27TH DAY OF JANUARY, 1995.
Continental Cablevision, Inc.
/s/ Amos B. Hostetter, Jr.
By: _________________________________
Amos B. Hostetter, Jr.
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED; AND EACH OF THE UNDERSIGNED OFFICERS AND
DIRECTORS OF CONTINENTAL CABLEVISION, INC. ("CONTINENTAL"), HEREBY SEVERALLY
CONSTITUTE AND APPOINT AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER, MICHAEL J.
RITTER, NANCY HAWTHORNE, W. LEE H. DUNHAM AND PATRICK K. MIEHE, AND EACH OF
THEM, TO SIGN FOR HIM OR HER, AND IN HIS OR HER NAME IN THE CAPACITY INDICATED
BELOW, ALL AMENDMENTS TO SUCH REGISTRATION STATEMENT ON FORM S-4 RELATING TO
CLASS A COMMON STOCK AND SERIES B PREFERRED STOCK OF CONTINENTAL FOR THE
PURPOSE OF REGISTERING SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO THE MERGER AND RELATED TRANSACTIONS DESCRIBED HEREIN,
HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR
ATTORNEYS TO SUCH REGISTRATION STATEMENTS AND ANY AND ALL AMENDMENTS THERETO.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Amos B. Hostetter, Jr. Director and January 27, 1995
- ------------------------------------- Chairman of the
AMOS B. HOSTETTER, JR. Board (principal
executive officer)
/s/ Timothy P. Neher Director and Vice January 27, 1995
- ------------------------------------- Chairman of the
TIMOTHY P. NEHER Board
Director and January 27, 1995
- ------------------------------------- President
MICHAEL J. RITTER
/s/ Nancy Hawthorne Chief Financial January 27, 1995
- ------------------------------------- Officer and Senior
NANCY HAWTHORNE Vice President
(principal
financial officer)
/s/ Richard A. Hoffstein Senior Vice January 27, 1995
- ------------------------------------- President and
RICHARD A. HOFFSTEIN Corporate
Controller
(principal
accounting officer)
/s/ Roy F. Coppedge III Director January 27, 1995
- -------------------------------------
ROY F. COPPEDGE III
/s/ Jonathan H. Kagan Director January 27, 1995
- -------------------------------------
JONATHAN H. KAGAN
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert B. Luick Director January 27, 1995
- -------------------------------------
ROBERT B. LUICK
/s/ Henry F. McCance Director January 27, 1995
- -------------------------------------
HENRY F. MCCANCE
/s/ Lester Pollack Director January 27, 1995
- -------------------------------------
LESTER POLLACK
/s/ Vincent J. Ryan Director January 27, 1995
- -------------------------------------
VINCENT J. RYAN
</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. . . . Filed
herewith as Exhibit 3.1.
3.1A Certificate of Designation of Continental relating to the
Continental Series A Preferred Stock . . . Filed herewith as
Exhibit 3.1A.
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. . . .
To be filed by amendment.
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 . . . Filed herewith as
Exhibit 4.4.
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. . . . Filed herewith as Exhibit 4.5.
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. . . . Filed herewith as Exhibit
10.13.#
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. . . . Filed herewith
as Exhibit 10.14.
10.15 Supplemental Executive Retirement Plan. . . . Filed herewith as
Exhibit 10.15.#
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.16 Form of Registration Rights Agreement with New Providence
Journal. . . . To be filed by amendment.
10.17 Form of Restricted Stock Purchase Agreements for 1995. . . .
Filed herewith as Exhibit 10.17.#
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.
-------
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 fixed charges. . . . Filed
herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to fixed charges. . .
. Filed herewith as Exhibit 12.2.
21 Subsidiaries of Continental. . . . Filed herewith as Exhibit 21.
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. . . . . Filed herewith as Exhibit 23.7.
23.8 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. .
. . Filed herewith as Exhibit 23.8.
24 Power of Attorney. . . . Filed herewith as Page II-5.
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule VIII--Valuation and Qualifying Accounts and Reserves. .
. . Filed herewith as Exhibit 99.
</TABLE>
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
EDGAR Typeset Version
----- ---------------
The graph on page 119 of this Joint Proxy Statement - Prospectus is a
rise-over-run graph that depicts the cumulative return value of a $100
investment in PJC over a five year period compared to the cumulative return
value of a $100 investment in the S&P 500 and the cumulative return value of a
$100 investment in a group of peer issuers over the same time period.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL CABLEVISION, INC.
Under Sections 242 and 245
of the
Delaware General Corporation Law
CONTINENTAL CABLEVISION, INC. (hereinafter the "Corporation"), a
corporation organized and existing under the laws of the State of Delaware,
hereby certifies as follows:
FIRST: The name of the Corporation is Continental Cablevision, Inc.
-----
SECOND: The original Certificate of Incorporation of the Corporation was
------
filed with the Secretary of State, Dover, Delaware, on May 29, 1963.
THIRD: This Restated Certificate of Incorporation restates, integrates and
-----
further amends the provisions of the Certificate of Incorporation of the
Corporation as heretofore amended, restated or supplemented.
FOURTH: This Restated Certificate of Incorporation is intended to
------
constitute a tax-free recapitalization of the Corporation under Section
368(a)(1)(E) of the Internal Revenue Code of 1986, as amended.
FIFTH: This Restated Certificate of Incorporation was duly adopted by the
-----
Board of Directors and stockholders of the Corporation pursuant to Sections 242
and 245 of the Delaware General Corporation Law.
SIXTH: The text of this Restated Certificate of Incorporation of the
-----
Corporation as amended, restated and supplemented is hereby restated and further
amended to read in its entirety as follows:
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
CONTINENTAL CABLEVISION, INC.
FIRST: The name of the corporation (hereinafter the "Corporation") is
-----
CONTINENTAL CABLEVISION, INC.
SECOND: The respective names of the County and of the City within the
------
County in which the registered office of the Corporation is located in the State
of Delaware are the County of Kent and the City of Dover. The name of the
registered agent of the Corporation is The Prentice-Hall Corporation System,
Inc. The street and number of said registered office and the address by street
and number of said registered agent is 32 Loockerman Square, Suite L-100, Dover,
Kent County, Delaware 19901.
THIRD: The nature of the business of the Corporation and the objects or
-----
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
FOURTH: The aggregate number of shares of all classes of stock which the
------
Corporation is authorized to issue is 17,700,000 shares, of which 2,700,000
shall be shares of Preferred Stock, $.01 par value per share (the "Preferred
Stock"), and 15,000,000 shall be shares of Common Stock, $.01 par value per
share (the "Common Stock"), of which 7,500,000 shall be shares of Class A Common
Stock, $.01 par value per share (the "Class A Common Stock"), and 7,500,000
shall be shares of Class B Common Stock, $.01 par value per share (the "Class B
Common Stock").
On the effective date of this Restated Certificate of Incorporation, each
issued share of the Corporation's existing common stock, par value $.01,
outstanding as of said effective date (the "Existing Common Stock") shall,
without any action on the part of the holders thereof, be reclassified and
changed into one fully paid and nonassessable share of Class A Common Stock, and
the aggregate amount of stated capital represented by such shares of Class A
Common Stock shall be equal to the aggregate amount of stated capital
represented by the shares of Existing Common Stock so reclassified and changed.
Any and all such shares issued for which the full consideration has been
paid or delivered, shall be deemed fully paid stock and the holders of such
shares shall not be liable for any further call or assessment or any other
payment thereon.
-2-
<PAGE>
No holder of any of the shares of stock of this Corporation, whether now or
hereafter authorized or issued, shall be entitled as of right to purchase or
subscribe for (1) any unissued stock of any class, or (2) any additional share
of any class to be issued by reason of any increase of the authorized stock of
the Corporation of any class, or (3) bonds, certificates of indebtedness,
debentures or other securities convertible into stock of the Corporation or
carrying any right to purchase stock of any class of the Corporation, but any
such unissued stock or additionally authorized issue of any stock or other
securities convertible into stock of the Corporation may be issued and disposed
of pursuant to resolution of the Board of Directors to such persons, firms,
corporations, associations or other entities and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its discretion.
Every reference in this Restated Certificate of Incorporation to a majority
or other portion of shares of stock, including the provisions set forth in
Articles NINTH and TENTH below, shall refer to such majority or other portion of
the votes of such shares of stock.
Preferred Stock. The Board of Directors is expressly authorized to provide
---------------
for the issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting powers,
full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the Delaware General Corporation Law, including, without limitation, the
authority to determine with respect to the shares of any such class or series
(i) whether such shares shall be redeemable, and, if so, the terms and
conditions of such redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates; (ii) whether such shares shall be entitled to receive
dividends (which may be cumulative or non-cumulative) and, if so, the rates and
conditions of such dividends, including the times at which such dividends are
payable and the preferences in relation to the dividends payable on any other
class or classes or any other series of the same or any other class or classes
of stock; (iii) the rights of such shares in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of such shares; (iv) whether
such shares shall be convertible into, or exchangeable for, shares of any other
class or classes
-3-
<PAGE>
of stock, or of any other series of the same or any other class or classes of
stock, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine; (v) whether the class or series shall have a sinking
fund for the redemption or purchase of such shares, and, if so, the terms and
amount of such sinking fund; and (vi) any other relative rights, preferences or
limitations.
Common Stock. Subject to all the rights which may be granted to holders of
------------
the Preferred Stock and except as otherwise required by applicable law, the
relative voting, dividend, liquidation and other rights, preferences and
limitations or restrictions of the Class A Common Stock and the Class B Common
Stock are as follows:
A. Voting Rights and Powers. Except as otherwise provided in this Restated
------------------------
Certificate of Incorporation, with respect to all matters upon which
stockholders are entitled to vote, the holders of the outstanding shares of
Class A Common Stock shall be entitled to one vote in person or by proxy for
each share of Class A Common Stock standing in the name of such stockholders on
the record of stockholders, and the holders of the outstanding shares of Class B
Common Stock shall be entitled to ten votes in person or by proxy for each share
of Class B Common Stock standing in the name of such stockholders on the record
of stockholders. Except as otherwise required by applicable law or any other
provision of this Restated Certificate of Incorporation, holders of Class A
Common Stock and Class B Common Stock shall vote together as a single class on
all matters submitted to the stockholders for a vote, including any amendment to
this Restated Certificate of Incorporation which would increase or decrease the
number of authorized shares of Class A Common Stock and Class B Common Stock,
subject to any voting rights which may be granted to holders of Preferred Stock.
B. Dividends and Distributions. At any time shares of Class A Common Stock
---------------------------
are outstanding, as and when dividends or other distributions payable in either
cash, capital stock of the Corporation (other than Class A Common Stock or Class
B Common Stock) or other property of the Corporation may be declared by the
Board of Directors, the amount of any such dividend payable on each share of
Class A Common Stock shall in all cases be equal to the amount of such dividend
payable on each share of Class B Common Stock, and the amount of any such
dividend payable on each share of Class B Common Stock shall in all cases be
equal to the amount of the dividend payable on each share of Class A Common
Stock. Dividends and distributions payable in shares of Class A Common Stock
may not be made on or to shares of any class of the Corporation's capital stock
other than the Class A Common Stock and dividends payable in shares of Class B
Common Stock may not be made on or to shares of any class of the Corporation's
capital stock other than the Class B Common Stock. If a dividend or
-4-
<PAGE>
distribution payable in shares of Class B Common Stock shall be made
simultaneously on the shares of Class B Common Stock, and the number of shares
of Class B Common Stock payable on each share of Class B Common Stock pursuant
to such dividend or distribution shall be equal to the number of shares of Class
A Common Stock payable on each share of Class A Common Stock pursuant to such
dividend or distribution. If a dividend or distribution payable in shares of
Class B Common Stock shall be made on the shares of Class B Common Stock, a
dividend or distribution payable in shares of Class A Common Stock shall be made
simultaneously on the shares of Class A Common Stock, and the number of shares
of Class A Common Stock payable on each share of Class A Common Stock pursuant
to such dividend or distribution shall be equal to the number of shares of Class
B Common Stock payable on each share of Class B Common Stock pursuant to such
dividend or distribution.
C. Distribution of Assets Upon Liquidation. In the event the Corporation
---------------------------------------
shall be liquidated, dissolved or wound up, whether voluntarily or
involuntarily, after there shall have been paid or set aside for the holders of
all shares of the Preferred Stock then outstanding the full preferential amounts
to which they may be entitled, if any, under the resolutions authorizing the
issuance of such Preferred Stock, the net assets of the Corporation remaining
thereafter shall be distributed equally to each share of Class A Common Stock
and Class B Common Stock.
D. Optional Conversion of Class A Common Stock.
-------------------------------------------
(i) At any time commencing after the effective date of this Restated
Certificate of Incorporation and ending 180 days thereafter, (the "Initial
Conversion Period"), each fully paid share of the Class A Common Stock
outstanding as of the effective date of this Restated Certificate of
Incorporation, may be converted at the election of the registered holder
thereof, as of the effective date of this Restated Certificate of
Incorporation, into one share of Class B Common Stock. Any registered
holder of shares of Class A Common Stock may elect to convert any or all of
such shares at one time or at various times in such holder's discretion
during such Initial Conversion Period. Such rights shall be exercised by
the surrender of the certificate representing each share of Class A Common
Stock (which certificate may be the certificate representing shares of
Existing Common Stock, which on the effective date of this Restated
Certificate of Incorporation automatically represents shares of Class A
Common Stock) to be converted to the Corporation at its principal executive
offices, accompanied by a written notice of the election by the registered
holder thereof to convert and (if so required by the Corporation) by
instruments of transfer, in form satisfactory to the Corporation, duly
-5-
<PAGE>
executed by such holder or his duly authorized attorney. The issuance of a
certificate or certificates for shares of Class B Common Stock upon
conversion of shares of Class A Common Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance. Each such
certificate shall be issued to or registered in such name as provided in
Section D (ii) below. As promptly as practicable after the surrender for
conversion of a certificate or certificates representing shares of Class A
Common Stock, the Corporation will deliver to, or upon the written order
of, the registered holder of such certificate or certificates, a
certificate or certificates representing the number of shares of Class B
Common Stock issuable upon such conversion. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of
the surrender of the certificate or certificates representing shares of
Class A Common Stock (or, if the transfer books of the Corporation shall be
closed on such date, then immediately prior to the close of business on the
first date thereafter that said books shall be open), and all rights of
such holder arising from ownership of shares of Class A Common Stock shall
cease at such time and the person or persons in whose name or names that
certificate or certificates representing shares of Class B Common Stock are
to be issued shall be treated for all purposes as having become the record
holder or holders of such shares of Class B Common Stock at such time and
shall have and may exercise all the rights and powers appertaining thereto.
The Corporation shall reserve and keep available, solely for the purpose of
issuance upon conversion of outstanding shares of Class A Common Stock,
such number of shares of Class B Common Stock as may be issuable upon the
conversion of all such outstanding shares of Class A Common Stock,
provided, that the Corporation may deliver shares of Class B Common Stock
which are held in the treasury of the Corporation for shares of Class A
Common Stock converted. All shares of Class B Common Stock which may be
issued upon conversion of shares of Class A Common Stock will, upon
issuance, be fully paid and nonassessable. The aggregate amount of stated
capital represented by shares of Class B Common Stock issued upon
conversion of shares of Class A Common Stock shall be the same as the
aggregate amount of stated capital represented by the shares of Class A
Common Stock so converted.
(ii) Shares of Class B Common Stock issued upon conversion of shares
of Class A Common Stock shall be issued to or registered in the names of
the beneficial owners (as defined in Section E below) thereof and not in
"street" or "nominee" names; provided, however, that shares of Class A
Common Stock registered either in "street" or "nominee" names as of the
effective date of this Restated Certificate
-6-
<PAGE>
of Incorporation, may continue to be registered in such names when issued
as shares of Class B Common Stock upon conversion of the Class A Common
Stock, provided such registered owner files a certificate with the
Corporation identifying the names of all beneficial owners of such shares.
If there is more than one beneficial owner of shares of Class B Common
Stock, the shares may be registered in the name of one such beneficial
owner, provided such registered owner files a certificate with the
Corporation identifying the names of all beneficial owners of such shares.
The Corporation may, in connection with preparing a list of stockholders
entitled to vote at any meeting of stockholders, or as a condition to the
registration of shares of Class B Common Stock on the Corporation's books,
require the furnishing of such affidavits or other proof as it deems
necessary to establish that the registered owner of such shares is in fact
the beneficial owner, or to establish the identity of the economic owner
(as defined in Section E below) of such shares.
(iii) The Corporation shall note on the certificates for shares of
Class B Common Stock issued upon conversion of shares of Class A Common
Stock that the shares represented by such certificates are subject to the
restrictions on transfer and registration of transfer imposed by Section E
below.
E. Automatic Conversion of Class B Common Stock Upon Non-Permitted Transfer
------------------------------------------------------------------------
of Class B Common Stock.
-----------------------
(i) No person holding shares of Class B Common Stock may transfer, and
the Corporation shall not register the transfer of, any share of Class B
Common Stock, whether by sale, assignment, merger, consolidation, gift,
bequest, appointment or otherwise, except to a Permitted Transferee (as
defined below) of the economic owner of the share of Class B Common Stock
(the "Class B Holder") (such transfer being referred to herein as a
"Permitted Transfer"). Any purported transfer of economic, record or
beneficial ownership of shares of Class B Common Stock other than in
accordance with the terms of this Section E shall, without any act on
anyone's part, result in the conversion of each share of the purportedly
transferred shares of Class B Common Stock into one share of Class A Common
Stock effective on the date of such purported transfer, and the stock
certificates formerly representing such shares of Class B Common Stock
shall thereupon and thereafter be deemed to represent such number of shares
of Class A Common Stock. The term Permitted Transferee has the following
meanings with respect to each Class B Holder:
-7-
<PAGE>
(a) the following persons shall be "Permitted Transferees" of
each Class B Holder who is a natural person:
1. The spouse or former spouse of such Class B Holder, any
lineal descendant of a grandparent of such Class B Holder or a
grandparent of the spouse or former spouse of such Class B Holder
and any spouse or former spouse of such lineal descendant (such
lineal descendants, their spouses or former spouses and the
spouse or former spouses shall constitute such Class B Holder's
"Family Members");
2. A voting trust, or, the trustee or trustees of such
voting trust solely in their capacities as trustees of such
voting trust, of which a Controlling Number (as defined in clause
(iii) of this Section E) of such trustees are any of the
following (each a "Qualified Person"): such Class B Holder, one
of such Class B Holder's Family Members or an executive officer
(as defined in Rule 3b-7 of the General Rules and Regulations
under the Exchange Act, as in effect on April 1, 1992) of the
Corporation or any wholly owned subsidiary of the Corporation;
3. A trust (other than a voting trust) or, the trustee or
trustees of such trust solely in their capacities as trustees of
such trust, solely for the benefit of such Class B Holder or one
or more of such Class B Holder's Permitted Transferees described
in any subclause of this clause (a) other than subclause (2) or
this subclause (3);
4. Any organization contributions to which are deductible
for federal income, estate or gift tax purposes or any split-
interest trust described in Section 4947 of the Internal Revenue
Code of 1986, as it may from time to time be amended, if a
Controlling Number of the members of the Board of Directors or
other governing body or group having the ultimate authority,
inter alia, to vote, dispose or direct the voting or disposition
----------
of the shares of Class B Common Stock held by such organization
("Governing Body") are Qualified Persons (a "Charitable
Organization");
5. A corporation of which a majority of the outstanding shares of capital
stock entitled to vote generally for the election of
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<PAGE>
directors is beneficially owned by and under the control of, or a
partnership of which a majority of the partnership interests
entitled to participate in the management of the partnership are
beneficially owned by and under the control of, such Class B
Holder or his or her Permitted Transferees described in any
subclause of this clause (a) other than this subclause (5); and
6. If the Class B Holder is deceased, bankrupt or insolvent,
the estate of such Class B Holder.
(b) the following persons shall have the "Permitted Transferees" as
indicated:
1. In the case of any corporation which is a Class B Holder,
"Permitted Transferee" means (X) any person with economic
ownership of a majority of the outstanding shares of capital
stock entitled to vote generally for the election of directors of
such corporation as of the effective date of this Restated
Certificate of Incorporation, and the Permitted Transferees of
such person, or (Y) any entity which is more than 90% owned by
such corporation.
2. In the case of any partnership which is a Class B Holder,
"Permitted Transferee" means (X) each of the partners of such
partnership as of the effective date of this Restated
Certificate, and the Permitted Transferees of such partners,
provided that either such partnership or the general partner(s)
of such partnership retains all voting rights with respect to the
Class B Common Stock or (Y) any partner of a limited partnership,
or affiliate of such partner of a limited partnership, provided
such limited partnership was a party to, or had agreed to be
bound by, a contract with the Corporation for the purchase of
shares of Preferred Stock of the Corporation as of the effective
date of this Restated Certificate of Incorporation and provided
further that such partner, or affiliate of such partner, as the
case may be, in its individual capacity, separately agrees to be
bound by the terms of such contract.
3. In the case of a revocable trust which is a Class B
Holder, "Permitted Transferee" means (x) with respect to shares
of Class B Common Stock held by such trust as a Class B Holder,
the
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<PAGE>
settlor of such trust and Permitted Transferees of such
settlor and the beneficiaries of such trust as of the effective
date of this Restated Certificate of Incorporation and Permitted
Transferees of such beneficiaries, and (y) with respect to each
share of Class B Common Stock transferred to such trust in a
Permitted Transfer, any person who transferred such share of
Class B Common Stock to such trust and any Permitted Transferee
of any such transferor, and (z) with respect to each Subsequent
Class B Share, any person who is a Permitted Transferee with
respect to the share of Class B Common Stock in respect of which
such Subsequent Class B Share was issued.
4. In the case of a trust (other than a voting trust or a
Charitable Organization) which was irrevocable on the effective
date of this Restated Certificate of Incorporation, "Permitted
Transferee" means with respect to shares of Class B Common Stock
held by such trust as a Class B Holder and with respect to each
share of Class B Common Stock transferred to such trust in a
Permitted Transfer and with respect to each Subsequent Class B
Share, 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.
5. In the case of a voting trust or any other trust (other
than a Charitable Organization or a trust described in paragraph
(3) or (4) above), "Permitted Transferee" means (X) with respect
to each share of Class B Common Stock transferred to such trust
in a Permitted Transfer, any person who transferred such share of
Class B Common Stock to such trust and any Permitted Transferee
of any such transferor, and (Y) with respect to each Subsequent
Class B Share any person who is a Permitted Transferee with
respect to the share of Class B Common Stock in respect of which
such Subsequent Class B Share was issued.
6. In the case of any Charitable Organization, "Permitted
Transferee" means (X) with respect to any share of Class B Common
Stock transferred to such Charitable Organization in a Permitted
Transfer, the transferor in such Permitted Transfer and any
Permitted Transferee of such transferor, and (Y) with respect to
each
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<PAGE>
Subsequent Class B Share held by such Charitable Organization,
any person who is a Permitted Transferee with respect to the
share of Class B Common Stock in respect of which such Subsequent
Class B Share was issued.
7. In the case of any corporation or partnership (other than
a Charitable Organization), "Permitted Transferee" means (X) with
respect to each share of Class B Common Stock so transferred to
such corporation or partnership in a Permitted Transfer, the
transferor in such Permitted Transfer and any Permitted
Transferee of such transferor, and (Y) with respect to each
Subsequent Class B Share held by such corporation or partnership,
any person who is a Permitted Transferee with respect to the
share of Class B Common Stock in respect of which such Subsequent
Class B Share was issued.
8. In the case of a holder of Class B Common Stock which is
the estate of a deceased, bankrupt or insolvent Class B Holder,
"Permitted Transferee" means, with respect to each share of Class
B Common Stock transferred to such estate in a Permitted Transfer
and with respect to each Subsequent Class B Share, a Permitted
Transferee of such deceased, bankrupt or insolvent Class B
Holder.
(ii) Notwithstanding anything to the contrary set forth herein,
any Class B Holder may pledge his shares of Class B Common 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 D.
In the event of foreclosure or other similar action with respect to
such shares by the pledgee, such pledged shares of Class B Common
Stock may only be transferred to a Permitted Transferee of the pledgor
or converted into shares of Class A Common Stock, as the pledgee may
elect; provided however, in the event of foreclosure or other similar
action taken with respect to shares of Existing Common Stock pledged
prior to the effective date of this Restated Certificate of
Incorporation (including any extensions, amendments, or renewals of
such pledge, or of any underlying indebtedness for which such shares
have been pledged as collateral security, occurring before or after
the effective date of this Restated Certificate of Incorporation),
such
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<PAGE>
pledged shares may be transferred as Class B Common Stock (i) to
the pledgee, whether or not such pledgee is a Permitted Transferee, or
(ii) to the pledgor of such shares and Permitted Transferees of such
pledgor, whether or not such transfer is a Permitted Transfer.
(iii) For purposes of this Section E:
(a) The term "Controlling Number" means the minimum number
of trustees, in the case of a trust, or members of a Governing
Body, in the case of any other form of entity, whose affirmative
vote is necessary to take any action on, or whose negative vote,
abstention or failure to attend is sufficient to prevent any
action with respect to the voting or disposition of shares of
capital stock held by such entity.
(b) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(c) The term "Subsequent Class B Share" means any share of
Class B Common Stock issued by the Corporation to a Class B
Holder in respect of an existing share of Class B Common Stock
held by such Class B Holder.
(d) The relationship of any person that is derived by or
through legal adoption shall be considered a natural one.
(e) A minor for whom shares of Class B Common Stock are held
pursuant to the Uniform Gifts to Minors Act, as in effect in any
state, or any similar law, shall be considered a Class B Holder.
(f) Unless otherwise specified, the term "person" means both
natural persons and legal entities.
(g) Subject to (iv) below, each reference to a corporation
shall include any successor corporation resulting from merger or
consolidation, provided such corporation is the surviving
corporation, and each reference to a partnership shall include
any successor partnership resulting solely from the death,
bankruptcy or other withdrawal of a partner.
(h) The term "beneficial owner" has the meaning ascribed to
such term in Rule 13d-3 of the
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<PAGE>
General Rules and Regulations under the Exchange Act, as in
effect on April 1, 1992 and the term "economic owner" has the
meaning ascribed to the term "beneficial owner" in Rule 16a-
1(a)(2) of the Exchange Act, as in effect on April 1, 1992.
(iv) If at any time after the effective date of this Restated
Certificate of Incorporation, any of the following events shall occur:
(a) A Controlling Number of the trustees of any voting trust
that is a Permitted Transferee of a Class B Holder shall cease to
be Qualified Persons;
(b) A Controlling Number of the Governing Body of any
Charitable Organization that is a Permitted Transferee of a Class
B Holder shall cease to be Qualified Persons;
(c) A corporation or partnership that first became a Class B
Holder as a result of a Permitted Transfer shall thereafter by
reason of any transfer of the beneficial ownership of the capital
stock or partnership interests thereof cease to be a Permitted
Transferee of the transferor in such Permitted Transfer;
(d) A majority of the shares of capital stock entitled to
vote in the election of directors of a corporation or a majority
of the partnership interests of a partnership entitled to
participate in the management of a partnership, which in each
case was a Permitted Transferee of a Class B Holder as the result
of a Permitted Transfer, shall cease to be beneficially owned and
controlled by the owners thereof on the first date upon which
such corporation or partnership was a Permitted Transferee of
such owners; or
(e) Any other transferee who at the time of such transfer is
a Permitted Transferee, but thereafter shall fail to meet the
requirements of a "Permitted Transferee" pursuant to this Section
E (an "Unpermitted Transferee"),
then such trustee, Charitable Organization, corporation, partnership, majority
of stockholders in a corporation, holders of a majority of partnership
interests in a partnership or such Unpermitted Transferee shall immediately
notify the Corporation of such change in status, and at any time after the
occurrence of any such event, the Corporation shall (after receipt of such
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<PAGE>
notice from such trustee, Charitable Organization, corporation, partnership or
Unpermitted Transferee or otherwise learning of such change in status) give
written notice to the trustees of such voting trust, to the Charitable
Organization, or to the corporation, partnership or other Unpermitted
Transferee, as the case may be, that, without any further act, each share of
Class B Common Stock held by such entity shall be converted into one share of
Class A Common Stock effective upon the giving of such notice, and the stock
certificates formerly representing the shares of Class B Common Stock held by
such entity shall thereupon and thereafter be deemed to represent such shares of
Class A Common Stock. In the absence of such notice to the Corporation from the
respective holder, the Corporation, may, in its sole discretion, conclusively
presume that such trustee, Charitable Organization, corporation, partnership,
majority of stockholders in a corporation, holders of a majority of partnership
interests in a partnership or such Unpermitted Transferee, as the case may be,
is or are entitled to hold Class B Common Stock.
(v) Notwithstanding anything to the contrary contained in this
Section E, any repurchase by the Corporation of Class B Common Stock
shall be deemed to be a Permitted Transfer.
(vi) Shares of Class B Common Stock issued upon transfer to a
Permitted Transferee shall be issued to or registered in the names of
the beneficial owners thereof and not in "street" or "nominee" names.
If there is more than one beneficial owner of such transferred shares
of Class B Common Stock, the shares may be registered in the name of
one such beneficial owner, provided such registered owner files a
certificate with the Corporation identifying the names of all
beneficial owners of such shares. The Corporation may, in connection
with preparing a list of stockholders entitled to vote at any meeting
of stockholders, or as a condition to the transfer or the registration
of shares of Class B Common Stock on the Corporation's books, require
the furnishing of such affidavits or other proof as it deems necessary
to establish that the registered owner of such shares is in fact the
beneficial owner of such shares, or to establish the identity of the
economic owner, as the case may be, of such shares or to establish
that any transferee of such shares is a Permitted Transferee of a
Class B Holder.
(vii) The Corporation shall note on the certificates for shares
of Class B Common Stock issued upon transfer that the shares
represented by such certificates are subject to the restrictions on
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<PAGE>
transfer and registration of transfer imposed by this Section E.
F. Optional Conversion of the Class B Common Stock. At any time after the
-----------------------------------------------
effective date of this Restated Certificate of Incorporation, each fully paid
share of the Class B Common Stock may be converted at the election of the holder
thereof into one share of Class A Common Stock. Any holder of shares of Class B
Common Stock may elect to convert any or all of such shares at one time or at
various times in such holder's discretion. Such rights shall be exercised by
the surrender of the certificate representing each share of Class B Common Stock
to be converted to the Corporation at its principal executive offices,
accompanied by a written notice of the election by the holder thereof to convert
and (if so required by the Corporation) by instruments of transfer, in form
satisfactory to the Corporation, duly executed by such holder or his duly
authorized attorney. The issuance of a certificate or certificates for shares
of Class A Common Stock upon conversion of shares of Class B Common Stock shall
be made without charge for any stamp or other similar tax in respect of such
issuance. However, if any such certificate or certificates is or are to be
issued in a name other than that of the holder of the shares of Class B Common
Stock to be converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable in
respect of any such transfer, or shall establish to the satisfaction of the
Corporation that such tax has been paid. As promptly as practicable after the
surrender for conversion of a certificate or certificates representing shares of
Class B Common Stock and payment of any tax as hereinabove provided, the
Corporation will deliver to, or upon the written order of, the holder of such
certificate or certificates, a certificate or certificates representing the
number of shares of Class A Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of the certificate or certificates
representing shares of Class B Common Stock (or, if the transfer books of the
Corporation shall be closed on such date, then immediately prior to the close of
business on the first date thereafter that said books shall be open), and all
rights of such holder arising from ownership of shares of Class B Common Stock
shall cease at such time and the person or persons in whose name or names that
certificate or certificates representing shares of Class A Common 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 Common Stock at such time and shall have
and may exercise all the rights and powers appertaining thereto. The
Corporation shall reserve and keep available, solely for the purpose of issuance
upon conversion of outstanding shares of Class B Common Stock, such number of
shares of Class A Common Stock as may be issuable upon the conversion of all
such outstanding shares of
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<PAGE>
Class B Common Stock, provided, that the Corporation may deliver shares of Class
A Common Stock which are held in the treasury of the Corporation for shares of
Class B Common Stock converted. All shares of Class A Common Stock which may be
issued upon conversion of shares of Class B Common Stock will, upon issuance, be
fully paid and nonassessable. The aggregate amount of stated capital represented
by shares of Class A Common Stock issued upon conversion of shares of Class B
Common Stock shall be the same as the aggregate amount of stated capital
represented by the shares of Class B Common Stock so converted.
G. Mandatory Conversion of Class B Common Stock. At any time after the
--------------------------------------------
Initial Conversion Period when the number of outstanding shares of Class B
Common Stock as reflected on the stock transfer books of the Corporation falls
below 7-1/2% of the aggregate number of the issued and outstanding shares of
Class A Common Stock and Class B Common Stock of the Corporation, or the Board
of Directors and the holders of a majority of the outstanding shares of Class B
Common Stock approve the conversion of all of the shares of Class B Common Stock
into Class A Common Stock, then, immediately upon the occurrence of either such
event, without any further act, the outstanding shares of Class B Common Stock
shall be converted into shares of Class A Common Stock in accordance with
Section F above. In the event of such a conversion, certificates formerly
representing outstanding shares of Class B Common Stock shall thereupon and
thereafter be deemed to represent the number of shares of Class A Common Stock
into which such shares of Class B Common Stock are convertible.
H. Other Rights. Except as otherwise required by the Delaware General
------------
Corporation Law or as otherwise provided in this Restated Certificate of
Incorporation, each share of Class A Common Stock and each share of Class B
Common Stock shall have identical powers, preferences, rights and privileges.
I. Issuance of the Common Stock and the Preferred Stock. The Board of
----------------------------------------------------
Directors of the Corporation may from time to time authorize by resolution the
issuance of any or all shares of the Common Stock and the Preferred Stock herein
authorized in accordance with the terms and conditions set forth in this
Restated Certificate of Incorporation for such purposes, in such amounts, to
such persons, corporations, or entities, for such consideration, and in the case
of the Preferred Stock, in one or more series or classes, all as the Board of
Directors in its discretion may determine and without any vote or other action
by the stockholders, except as otherwise required by law.
FIFTH: For the management of the business and for the conduct of the
-----
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and stockholders, it is
further provided that:
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<PAGE>
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authorities herein 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 by the Corporation, subject, nevertheless, to
the provisions of the laws of the State of Delaware, of this Restated
Certificate of Incorporation and the By-Laws of the Corporation;
(b) The number of directors of the Corporation shall be as specified
in the By-Laws of the Corporation but such number may from time to time be
increased or decreased in such manner as may be prescribed by the By-Laws.
Commencing at the 1992 annual meeting of stockholders, the directors shall
be divided into three classes, designated Class A, Class B and Class C,
respectively, with the initial term of office of the initial Class A
directors to expire at the 1993 annual meeting of stockholders, the initial
term of office of the initial Class B directors to expire at the 1994
annual meeting of stockholders, and the initial term of office of the
initial Class C directors to expire at the 1995 annual meeting of
stockholders. At each subsequent annual meeting of stockholders following
the initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election. Each director shall hold office until the annual meeting of the
stockholders held in the year in which his term expires and his successor
is duly elected and qualified, or until his earlier death, resignation or
removal in the manner provided herein. Directors shall be allocated as
evenly as possible to the three classes;
(c) Newly created directorships resulting from any increase in the
authorized number of directors or any vacancy in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or otherwise shall, unless otherwise provided by law or by
resolution of the Board of Directors, be filled by a majority vote of the
directors then in office, though less than a quorum, or by a sole remaining
director, and directors so chosen shall hold
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<PAGE>
office for a term expiring at the annual meeting of stockholders at which
the term of office of the class of directors to which they have been chosen
expires. If there are no directors in office, any officer or stockholder
may call a special meeting of stockholders in accordance with the
provisions of the By-Laws of the Corporation, at which meeting such
vacancies shall be filled. No decrease in the authorized number of
directors shall shorten the term of any incumbent director; and
(d) Unless and except to the extent that the By-Laws of the
Corporation shall so require, the election of directors of the Corporation
need not be by written ballot. Directors need not be stockholders.
SIXTH: No director shall be personally liable to the Corporation or any
-----
stockholder for monetary damages for breach of fiduciary duty as director,
except, in addition to any and all other requirements for such liability, (i)
for any breach of such directors' duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) to the extent
provided under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction for which such director derived an improper personal benefit.
Neither the amendment nor repeal of this Article SIXTH nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article SIXTH shall reduce, eliminate, or adversely affect the effect of this
Article SIXTH in respect of any matter occurring, or any cause of action, suit
or claim that, but for this Article SIXTH, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
SEVENTH: The Corporation shall indemnify each officer, director, employee
-------
or agent of the Corporation (and his or her heirs, successors and
administrators) to the fullest extent permitted by law, subject to any
limitations set forth in the By-Laws.
EIGHTH: Stock Ownership and Governmental Regulations
------ --------------------------------------------
(a) Requests for Information. So long as the Corporation or any of
------------------------
its subsidiaries holds any authority or licenses from, or has any contracts
with or obligations to, any recognized governmental authority, or if the
Corporation has a good faith reason to believe that the ownership, or
proposed ownership, of shares of stock of the
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<PAGE>
Corporation by any stockholder or any person presenting any shares of stock
of the Corporation for transfer into his name (a "Proposed Transferee") may
be inconsistent with, or in violation of, any provision of any applicable
governmental regulation or law, such stockholder or Proposed Transferee,
upon request of the Corporation, shall furnish promptly to the Corporation
such information (including without limitation, information with respect to
citizenship, other ownership interests and affiliations) as the Corporation
shall reasonably request to determine whether the ownership of, or the
exercise of any rights with respect to, shares of stock of the Corporation
by such stockholder or Proposed Transferee is inconsistent with, or in
violation of, any applicable governmental regulation or law.
(b) Denial of Rights, Refusal to Transfer. If any stockholder or
-------------------------------------
Proposed Transferee from whom information is requested should fail to
respond to such request pursuant to Section (a) of this Article EIGHTH, or
the Corporation shall conclude, in its good faith judgment, that the
ownership of, or the exercise of any rights of ownership with respect to,
shares of stock of the Corporation, by such stockholder or Proposed
Transferee, could result in any inconsistency with, or violation of, any
applicable governmental regulation or law, so that such inconsistency with
or violation of any applicable governmental regulation or law would
materially adversely affect the Corporation's business or the business of
any of the Corporation's significant subsidiaries, the Corporation may: (i)
refuse to permit the transfer of shares of stock of the Corporation to such
Proposed Transferee, (ii) suspend the rights of stock ownership the
exercise of which would result in any inconsistency with, or violation of,
any applicable governmental regulation or law (such refusal of transfer or
suspension to remain in effect until the earlier to occur of the following
events: (x) the requested information has been received, (y) the
Corporation has determined that such transfer, or the exercise of such
suspended rights as the case may be, is permissible under such governmental
regulation or law, or (z) the Corporation exercises its right to redeem
such shares pursuant to Section (c) below (provided all the requirements of
Section (c) have been met)) or
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<PAGE>
(iii) may redeem such stock pursuant to the requirements of Section (c)
below (provided all the requirements of Section (c) have been met). The
Corporation may exercise any and all appropriate remedies, in law or in
equity, in any court of competent jurisdiction, against any such
stockholder or Proposed Transferee, with a view towards obtaining such
information or preventing or curing any situation which would cause any
inconsistency with, violation of, or failure to comply with, any material
additional requirements under any provision of any applicable governmental
regulation or law.
(c) Redemption of Stock. Notwithstanding any other provision of this
-------------------
Restated Certificate of Incorporation to the contrary, the Corporation, in
its sole discretion, may redeem any or all shares of the Corporation's
outstanding stock pursuant to Section 151(b) of the Delaware General
Corporation Law or any other applicable provision of law, to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency held by the Corporation or any of
its subsidiaries to conduct any portion of the business of the Corporation
or any of its subsidiaries, which license or franchise is conditioned upon
some or all of the holders of the Corporation's stock possessing prescribed
qualifications, according to the following terms:
(1) The redemption price of the shares to be redeemed pursuant to
this Article EIGHTH shall be equal to the lesser of (i) the Fair
Market Value (as defined below) or (ii) if such stock was purchased by
such Disqualified Holder (as defined below) within one year of the
Redemption Date (as defined below), such Disqualified Holder's
purchase price for such shares;
(2) The redemption price of such shares may be paid in cash,
Redemption Securities (as defined below) or any combination thereof;
(3) If less than all of the shares held by Disqualified Holders
are to be redeemed, the shares to be redeemed shall be selected in
such manner as shall be determined by the Board of Directors, which
may include
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<PAGE>
selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the
Board of Directors;
(4) At least thirty (30) days' written notice of the Redemption
Date shall be given to the record holders of the shares selected to be
redeemed (unless waived in writing by any such holder), provided that
the Redemption Date may be the date on which written notice shall be
given to record holders if the cash or Redemption Securities necessary
to effect the redemption shall have been deposited in trust for the
benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be
redeemed;
(5) From and after the Redemption Date, any and all rights of
whatever nature which may be held by the owners of shares selected for
redemption (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series
as such shares), shall cease and terminate and they shall thenceforth
be entitled only to receive the cash or Redemption Securities payable
upon redemption; and
(6) Such redemption shall be made in accordance with any other
terms and conditions as the Board of Directors shall determine from
time to time.
(7) For purposes of this Section (c),
(i) "Disqualified Holder" shall mean any holder of shares of
stock of the Corporation whose holding of such stock, either
individually or when taken together with the holding of shares of
stock of the Corporation by any other holders, may result, in the
judgment of the Board of Directors, in the loss of, or the
failure to secure the reinstatement of any license or franchise
from any governmental agency held by the Corporation or any of
its subsidiaries to conduct any portion of the business of the
Corporation or any of its subsidiaries.
(ii) "Fair Market Value" of a share of the Corporation's
stock of any class or series shall mean
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<PAGE>
the average Closing Price for such share for each of the 45 most
recent days on which shares of stock of such class or series
shall have been traded preceding the day on which notice of
redemption shall be given pursuant to subparagraph (c)(4) of this
Article EIGHTH; provided, however, that if shares of stock of
such class or series are not traded on any securities exchange or
in the over-the-counter market, "Fair Market Value" shall be
determined by the Board of Directors in good faith. "Closing
Price" on any day means the reported closing sales price or, in
case no such sale takes place, the average of the reported
closing bid and asked prices on the principal United States
securities exchange registered under the Exchange Act on which
such stock is listed, or if such stock is not listed on any such
exchange, the highest closing sales price or bid quotation for
such stock on the National Association of Securities Dealers,
Inc. Automated Quotations System or any similar system then in
use, or if no such prices or quotations are available, the fair
market value on the day in question as determined by the Board of
Directors in good faith.
(iii) "Redemption Date" shall mean the date fixed by the
Board of Directors for the redemption of any shares of stock of
the Corporation pursuant to this Article EIGHTH.
(iv) "Redemption Securities" shall mean (X) any debt or
equity securities of the Corporation or any of its subsidiaries
or (Y) any debt or equity securities of any other corporation
unaffiliated with the Corporation, or (Z) any combination
thereof, having such terms and conditions as shall be approved by
the Board of Directors and which, together with any cash to be
paid as part of the redemption price, in the opinion of any
nationally recognized investment banking firm selected by the
Board of Directors (which may be a firm which provides other
investment banking, brokerage or other services to the
Corporation), has a value, at the time notice of redemption is
given pursuant to subparagraph (c)(4) of this Article EIGHTH, at
least equal to the price required to be paid pursuant to
subparagraph (c)(1) of this Article EIGHTH (assuming, in the case
of Redemption Securities to be publicly traded, such Redemption
Securities were fully distributed and subject only to normal
trading activity).
(d) Legends. The Corporation shall note on the certificates of its
-------
capital stock that the shares represented by such certificates are
-22-
<PAGE>
subject to the restrictions set forth in this Article EIGHTH.
(e) Certain Definitions. For purposes of this Article EIGHTH, the
-------------------
word "person" shall include not only natural persons but partnerships,
associations, corporations, joint ventures and other entities, and the word
"regulation" shall include not only regulations but rules, published
policies and published controlling interpretations by an administrative
agency or body empowered to administer the provisions of any governmental
regulation.
NINTH: In furtherance and not in limitation of the powers conferred by the
-----
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered to make, alter, amend, and repeal the By-Laws. The By-Laws of the
Corporation may be amended, altered, changed or repealed, and a provision or
provisions inconsistent with the provisions of the By-Laws as they exist from
time to time may be adopted, only by the majority of the entire Board of
Directors or by the affirmative vote of the holders of record representing not
less than sixty-six and two-thirds percent (66-2/3%) of the then outstanding
shares entitled to vote generally in the election of directors.
TENTH: Except for the provisions in Articles FOURTH, FIFTH, SIXTH,
-----
SEVENTH, EIGHTH, NINTH, and this Article TENTH, which shall not be amended,
altered, changed or repealed except by the approval of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the total number of the then
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, the Corporation reserves the right at any time and from
time to time to amend, alter, change or repeal any provision contained in this
Restated Certificate of Incorporation (including provisions as may hereafter be
added or inserted in this Restated Certificate of Incorporation as authorized by
the laws of the State of Delaware) in the manner now or hereafter prescribed by
law; and all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other person whomsoever by and pursuant to
this Restated Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the rights reserved in this Article TENTH. From
time to time any of the provisions of this Restated Certificate of Incorporation
may be amended, altered or repealed, and other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted in the
manner and at the time prescribed by said laws, and all rights at any time
conferred upon the stockholders of the Corporation by this Restated Certificate
of
-23-
<PAGE>
Incorporation are granted subject to the provisions of this Article TENTH.
Executed at Boston, Massachusetts on May 8, 1992.
Attest: CONTINENTAL CABLEVISION, INC.
/s/ W. Lee H. Dunham /s/ Michael J. Ritter
- -------------------- ----------------------------
W. Lee H. Dunham, Michael J. Ritter, President
Assistant Secretary
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<PAGE>
EXHIBIT 3.1A
CONTINENTAL CABLEVISION, INC.
CERTIFICATE OF DESIGNATION
OF SERIES A PARTICIPATING CONVERTIBLE
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 April
27, 1992, adopted the following resolution creating a series of Preferred Stock
designated as Series A Participating Convertible 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 A Participating Convertible Preferred Stock" (the "Series
A Preferred Stock"). The number of shares initially constituting the Series A
Preferred Stock shall be 1,142,858, which number may be decreased (but not
increased) by the Board of Directors without a vote of stockholders; provided,
--------
however, that such number may not be decreased below the number of then
- -------
outstanding shares of Series A Preferred Stock.
(b) The Series A Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution or winding up, rank prior to or pari passu
with all classes and
<PAGE>
-2-
series of the Corporation's preferred stock (other than preferred stock that is
not convertible into or exchangeable for any class or series of the
Corporation's equity securities or for any other property, including without
limitation securities other than the Corporation's equity securities referred to
herein) and prior to all classes of the Common Stock, par value $.01 per share,
of the Corporation (the "Common Stock").
Section 2. Dividends and Distributions. (a) The holders of shares of
---------------------------
Series A 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 A Preferred Stock as to payment of dividends, shall be entitled to
receive, when, as and if declared by the Board of Directors, out of the assets
of the Corporation legally available therefor, subject to the provision for
adjustment hereinafter set forth, one times the aggregate per share amount of
all cash dividends, and one times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
with a record date following the Issue Date. 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 Common Stock in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock without making an identical subdivision, combination or consolidation of
the outstanding shares of Series A Preferred Stock, then in each such case the
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event or the record date therefor, whichever is
earlier, shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. An
adjustment made pursuant to this paragraph (a) shall become effective (i) in the
case of any such dividend or distribution, immediately after the close of
business on the record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (ii) in the case of
any such subdivision, combination, consolidation or reclassification, at the
close of business on the day upon which such corporate action becomes effective.
(b) The Corporation shall declare a dividend or distribution in the Series
A Preferred Stock as provided in paragraph (a) of this Section 2 immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock), which dividend or distribution
shall be paid to the holders of Series A Preferred
<PAGE>
-3-
Stock simultaneously with the payment of the dividend or distribution on the
Common Stock.
(c) Dividends paid on the shares of Series A Preferred Stock in an amount
less than the total amount of such dividends at the time payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A 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.
(d) The holders of shares of Series A 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 A Preferred Stock shall have the following
rights:
(a) So long as the Series A Preferred Stock is outstanding, each share of
Series A Preferred Stock shall entitle the holder thereof to vote on all matters
voted on by holders of the capital stock of the Corporation into which such
share of Series A Preferred Stock is convertible, voting together as a single
class with the other shares entitled to vote, at all meetings of the
stockholders of the Corporation. With respect to any such vote, each share of
Series A Preferred Stock shall entitle the holder thereof to cast the number of
votes equal to the number of votes which could be cast in such vote by a holder
of the shares of capital stock of the Corporation into which such share of
Series A Preferred Stock is convertible on the record date for such vote.
(b) The affirmative vote of the holders of at least 66-2/3% of the voting
power represented by the outstanding shares of Series A 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 (i) increase the
authorized number of shares of or issue (including on conversion or exchange of
any convertible or exchangeable securities or by reclassification) any shares
of, Series A Preferred Stock, (ii) authorize, adopt or approve an amendment to
the Restated Certificate of Incorporation of the Corporation which would
decrease the aggregate number of authorized shares of Series A Preferred Stock,
increase or decrease the par value of the shares of Series A Preferred Stock, or
alter or change the powers, preferences or special rights of the shares of
Series A Preferred Stock so as to affect such shares of Series A Preferred Stock
adversely, or (iii) purchase any shares of Series A Preferred Stock when
dividends on the Series A Preferred Stock are in arrears or there exists a
redemption default under Section 5.
<PAGE>
-4-
(c) If on any date (i) the Corporation shall have breached any of its
obligations under the Purchase Agreement (as defined in Section 11) and such
breach shall have continued for 30 days after notice thereof has been given to
the Corporation and shall be continuing at the time the holders of Series A
Preferred Stock exercise their rights under this Section 3(c), (ii) dividends or
distributions payable on the Series A Preferred Stock shall have been in arrears
and not paid in full, or (iii) the Corporation shall have failed to satisfy its
obligation to redeem shares of Series A Preferred Stock pursuant to Section 5(b)
or Section 5(c), then, the number of directors constituting the Board of
Directors shall, without further action, be increased by two and the holders of
shares of Series A 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 Parity Stock (as defined in
Section 11), 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 Section 3(c) ("Defaulted Parity Stock"), to elect the
directors of the Corporation to fill such newly created directorships, the
remaining directors to be elected by the other classes of stock entitled to vote
therefor (including the Series A 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 directors shall continue as directors and
such additional voting right shall continue until such time as (A) all such
breaches are no longer continuing, (B) all dividends payable on the Series A
Preferred Stock shall have been paid in full or (C) any mandatory redemption
obligation provided in Section 5(b) or Section 5(c) which has become due shall
have been satisfied or all necessary funds have been set aside for payment, as
the case may be, at which time such additional directors shall cease to be
directors and such additional voting right of the holders of Series A Preferred
Stock shall terminate subject to revesting in the event of each and every
subsequent event of the character indicated above.
(d) (i) The foregoing rights of holders of shares of Series A Preferred
Stock to take any actions as provided in subsections (b) and (c) of this Section
3 may be exercised at any annual meeting of stockholders or at a special meeting
of stockholders or holders of Series A 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 Series A 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 A Preferred Stock, if the holders of Series
A Preferred Stock are to vote
<PAGE>
-5-
separately as a single class, or the holders of record of 20% of the voting
power represented by the outstanding shares of Series A Preferred Stock and
Defaulted Parity Stock, if the holders of shares of Series A Preferred Stock are
to vote as a class with the holders of shares of any Parity 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 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 A Preferred Stock shall have the right, voting separately as a single
class or as a class with the holders of shares of any Parity Stock, to elect
directors of the Corporation as provided in this Section 3 or to take any
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 A
Preferred Stock, if the holders of shares of Series A 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 A Preferred
Stock and Defaulted Parity Stock, if the holders of shares of Series A Preferred
Stock are to vote as a class with the holders of shares of any Parity 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 A
Preferred Stock, if the holders of Series A Preferred Stock are to vote
separately as a single class, or the holders of shares of Series A
Preferred Stock and Defaulted Parity Stock, if the holders of shares of
Series A Preferred Stock are to vote as a class with the holders of shares
of any Parity Stock, shall not prevent the election of directors other than
those to be elected by the holders of shares of Series A Preferred Stock or
the holders of shares of Series A Preferred Stock and Defaulted Parity
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 A
Preferred Stock or the holders of shares of Series A Preferred Stock and
Defaulted Parity 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 A
Preferred Stock, if the holders of Series A Preferred Stock are to vote
separately as a single class, or the holders of shares of Series A
Preferred Stock and Defaulted Parity Stock, if the holders of Series A
Preferred Stock are to vote as a class with the holders of shares of
<PAGE>
-6-
any Parity 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 A Preferred Stock or the holders of shares of Series A Preferred
Stock and Defaulted Parity 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 (b) and (c) of this
Section 3 by the holders of shares of Series A Preferred Stock or the holders of
shares of Series A Preferred Stock and Defaulted Parity Stock, as the case may
be, each such holder 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
Series A Preferred Stock or Defaulted Parity Stock is then convertible (provided
that if shares of Defaulted Parity Stock are not convertible into Common Stock,
the holders thereof will be entitled to one vote per share) 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 (as defined in Section 11) 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 A Preferred Stock
or the holders of shares of Series A Preferred Stock and Defaulted Parity Stock,
as the case may be, as provided in paragraph (c) of this Section 3 shall, unless
his term shall expire earlier or be terminated in accordance with Section 3(c),
hold office until the annual meeting of stockholders next succeeding his
election or until his successor, if any, is elected and qualified.
In case any vacancy shall occur among the directors elected by the holders
of shares of Series A Preferred Stock or the holders of shares of Series A
Preferred Stock and Defaulted Parity Stock, as the case may be, as provided in
paragraph (c) 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 both directors so elected by the holders of Series A Preferred
Stock or the holders of Series A Preferred Stock and Defaulted Parity Stock, as
the case may be, shall cease to serve as directors before their terms shall
expire, the holders of the Series A Preferred Stock or the holders of Series A
Preferred Stock and Defaulted Parity 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.
<PAGE>
-7-
Any director elected by the holders of shares of Series A Preferred Stock
voting separately as a single class or the holders of shares of Series A
Preferred Stock voting as a class with the holders of shares of Defaulted Parity
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 A Preferred Stock or a majority of the voting
power represented by the outstanding shares of Series A Preferred Stock and
Defaulted Parity Stock, as the case may be. A special meeting of the holders of
shares of Series A Preferred Stock or the holders of shares of Series A
Preferred Stock and Defaulted Parity Stock, as the case may be, may be called in
accordance with the procedures set forth in subparagraph (d)(i) of this Section
3.
Section 4. Certain Restrictions. (a) Whenever the Corporation breaches any
--------------------
of its obligations under the Purchase Agreement, thereafter and until such
breach has been cured, or whenever dividends or distributions payable on shares
of Series A Preferred Stock as provided in Section 2 are not paid in full,
thereafter and until all unpaid dividends or distributions payable, whether or
not declared, on the outstanding shares of Series A Preferred Stock shall have
been paid in full or declared and set apart for payment, or whenever the
Corporation shall not have redeemed shares of Series A Preferred Stock at a time
required by Section 5(b) or Section 5(c), thereafter and until all mandatory
redemption obligations provided in Section 5(b) and Section 5(c) which have come
due shall have been satisfied or all necessary funds have been set apart for
payment, the Corporation shall not declare or pay dividends, or make any other
distributions, on any shares of Junior Stock or Parity Stock (as such terms are
defined in Section 11), other than dividends or distributions 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 A
Preferred Stock.
(b) Whenever the Corporation breaches any of its obligations under the
Purchase Agreement, thereafter and until such breach has been cured, or whenever
dividends or distributions payable on shares of Series A Preferred Stock as
provided in Section 2 are not paid in full, thereafter and until all unpaid
dividends or distributions payable, whether or not declared, on the outstanding
shares of Series A Preferred Stock shall have been paid in full or declared and
set apart for payment, or whenever the Corporation shall not have redeemed
shares of Series A Preferred Stock at a time required by Section 5(b) or Section
5(c), thereafter and until all mandatory redemption obligations provided in
Section 5(b) and Section 5(c) which have come due shall have been satisfied or
all necessary funds have been set apart for payment, the Corporation shall not:
(i) redeem,
<PAGE>
-8-
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 (A) the Corporation may at any time
--------
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 A Preferred Stock and (B) the
Corporation may accept shares of any Parity Stock for conversion; or (ii) redeem
or purchase or otherwise acquire for consideration any shares of Series A
Preferred Stock; provided that the Corporation (A) may accept shares of Series A
--------
Preferred Stock surrendered for conversion into shares of capital stock of the
Corporation pursuant to Section 8, or (B) may redeem shares of Series A
Preferred Stock as to which any holder of Series A Preferred Stock has exercised
the right to cause such redemption pursuant to Section 5(b) or Section 5(c),
provided that if not all shares of Series A Preferred Stock the holders of which
have elected to cause the redemption thereof are to be redeemed by the
Corporation pursuant to Section 5(b) or Section 5(c), as the case may be, then
the Corporation shall redeem shares pursuant to this clause (B) pro rata in
relation to the total number of shares of Series A Preferred Stock the holders
of which had elected to cause the redemption thereof pursuant to Section 5(b) or
Section 5(c), as the case may be; or (iii) make or extend any loan or advance to
any stockholder of the Corporation or any Affiliate or Associate of such
stockholder other than a Subsidiary of the Corporation.
(c) 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 or to make or extend any loan or advance specified in clause
(iii) of Section 4(b) unless the Corporation could, pursuant to paragraph (b) of
this Section 4, purchase such shares at such time and in such manner or make or
extend such loan or advance at such time, as the case may be.
Section 5. Mandatory Conversion; Redemption. (a) (i) The Corporation shall
--------------------------------
not have any right to require the conversion of any shares of Series A Preferred
Stock on or prior to the fifth anniversary of the Issue Date. After such date,
subject to satisfaction of the requirements set forth in subparagraph (ii) of
this Section 5(a), the Corporation shall have the right, in accordance with the
procedures set forth in subparagraph (e)(i) of this Section 5, to require the
conversion of shares of Series A Preferred Stock.
(ii) The Corporation shall have the right, at its sole option and election,
to require the conversion of shares of Series A Preferred Stock, in whole but
not in part, at any time by delivering notice of conversion to the record
holders of Series A Preferred Stock, if, for a period of 20 Trading Days (as
defined in Section 11) during the period commencing on any date following the
fifth anniversary of the Issue Date, and ending on the date notice of conversion
is given, the Current Market Price (as defined in Section 11) of the number of
shares of Common Stock into which a share of Series A Preferred Stock is then
<PAGE>
-9-
convertible is greater than 137.5% of the Accreted Value (as defined in Section
11) as of the date notice of conversion is given. Notwithstanding the
foregoing, if the Common Stock is not then publicly traded, the determination of
Current Market Price shall be made as of the date that is two Business Days
following the next release by the Company of its quarterly financial statements
after notice of conversion is given, with such determination to be made within
three weeks of the date of such financial statement release.
In connection with any such mandatory conversion, the Corporation shall pay
to the persons entitled thereto all unpaid dividends payable under Section 2 on
the Series A Preferred Stock to be converted, whether or not declared, to the
date fixed for conversion.
(b) (i) By written notification delivered to the Corporation in accordance
with the procedures set forth in subparagraph (e)(ii) of this Section 5, any
record holder of shares of Series A Preferred Stock may require the Corporation
to redeem any or all of the shares of Series A Preferred Stock held by such
holder (the "Redemption Right") at a price per share equal to the Redemption
Price (as defined in Section 11). The Corporation, at its option, may elect to
redeem shares of Series A Preferred Stock, in whole but not in part, at the
Redemption Price and on the same other terms as the Redemption Right by notice
delivered in accordance with the procedures set forth in subparagraph (e)(ii) of
this Section 5. The Corporation may satisfy its obligation under this
subparagraph (b)(i) to pay the Redemption Price by paying, at the option of the
Corporation, cash and/or shares of Common Stock as provided in subparagraph (ii)
below.
(ii) The Corporation, at its option, may satisfy its obligation to pay the
portion of the Redemption Price constituting the Accreted Value in respect of
each share of Series A Preferred Stock to be redeemed pursuant to paragraph
(b)(i) of this Section 5 by making an election not more than 30 or less than 20
Trading Days prior to the tenth anniversary of the Issue Date to issue shares of
Common Stock in respect of all or any portion of the Accreted Value. Such
election shall be set forth in a certificate signed on behalf of the Corporation
by the 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 Accreted Value as
to which such election was made shall be given in the notice required by
subparagraph (e)(ii) of this Section 5. If any holder of Series A Preferred
Stock would be entitled upon conversion of such shares of Series A Preferred
Stock to receive shares of Class B Common Stock (as defined in Section 11) under
Section 8 hereof, such holder shall be entitled to receive any shares of Common
Stock issued in accordance with this paragraph (b) of this Section 5 in shares
of Class B Common Stock.
<PAGE>
-10-
Except as set forth below, the number of shares of Common Stock to be
issued pursuant to this subparagraph (ii) shall be determined by dividing the
Accreted Value per share of Series A Preferred Stock through the date of
redemption (or portion thereof to be paid in shares of Common Stock) by the
Current Market Price of a share of Common Stock (with such Common Stock valued,
in the case it is publicly traded, for the period of 15 Trading Days ending one
Trading Day prior to the date of the notice given in accordance with
subparagraph (e)(ii) of this Section 5 (the Current Market Price during such
period referred to herein as the "Valuation Price")). If the Common Stock is
publicly traded and the Valuation Price does not equal the Base Price (as
defined in Section 11), then an adjustment shall be made as follows: if the Base
Price is less than the Valuation Price, then the amount payable by the
Corporation upon redemption for each share of Series A Preferred Stock shall
equal (A) the portion of the Accreted Value that the Corporation has elected to
pay in cash, plus (B) the number of shares of Common Stock issuable based upon
the Valuation Price, plus (C) an amount in cash equal to the difference between
(x) the portion of the Accreted Value that the Corporation has elected to pay in
shares of Common Stock and (y) the number of shares of Common Stock issuable at
the Valuation Price multiplied by the Base Price. In addition, if the Valuation
Price exceeds the Base Price by more than 10 percent, the Corporation, at its
option, may substitute cash for any portion of the Accreted Value that was to be
paid in Common Stock; if the Valuation Price exceeds the Base Price by 10
percent or less, the Corporation, at its option, may redeem all the shares of
Series A Preferred Stock for cash. If the Base Price exceeds the Valuation
Price, the number of shares of Common Stock issuable by the Corporation in
payment of the Accreted Value (or applicable portion thereof) shall equal the
number of shares of Common Stock issuable based upon the Base Price.
In connection with any such redemption, the Corporation shall pay to the
persons entitled thereto all unpaid dividends payable under Section 2 on the
shares of Series A Preferred Stock to be redeemed, whether or not declared, to
the date fixed for redemption; and unless the exchange of shares of Common Stock
for Series A Preferred Stock is exempt from the registration requirements of the
Securities Act (as defined in Section 11), the Corporation shall register such
exchange under such Act, and such exchange shall not be completed until such
registration is effective.
(c) (i) In the event there occurs a Change in Control (as defined in
Section 11) and as of the date of consummation of such Change in Control the
Current Market Price of the number of shares of Common Stock into which a share
of Series A Preferred Stock is then convertible is below the Accreted Value of a
share of Series A Preferred Stock, any record holder of shares of Series A
Preferred Stock, in accordance with the procedures set forth in subparagraph
(e)(iii) of this Section 5, may require the Corporation to redeem any or all of
the shares of Series A Preferred Stock held by such holder at a price per
<PAGE>
-11-
share equal to the Redemption Price. The Corporation, at its option, may elect
to redeem the shares of Series A Preferred Stock by paying the portion of the
Redemption Price constituting the Accreted Value in cash and/or shares of Common
Stock valued at 90% of the Base Price, as provided in subparagraph (ii) below.
(ii) The Corporation, at its option, may satisfy its obligation to pay the
portion of the Redemption Price constituting the Accreted Value in respect of
each share of Series A Preferred Stock to be redeemed pursuant to paragraph
(c)(i) of this Section 5 by making an election not more than 30 days following
the date of the Change in Control to issue shares of Common stock in respect of
all or any portion of the Accreted Value. Such election shall be set forth in a
certificate signed on behalf of the Corporation by the 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 Accreted Value as to which such election was made shall be
given in the notice required by subparagraph (e)(iii) of this Section 5. If any
holder of Series A Preferred Stock would be entitled upon conversion of such
shares of Series A Preferred Stock to receive shares of Class B Common Stock
under Section 8 hereof, such holder shall be entitled to receive any shares of
Common Stock issued in accordance with this paragraph (c) of this Section 5 in
shares of Class B common Stock.
The number of shares of Common Stock to be issued on the date of redemption
pursuant to this subparagraph (ii) shall be determined by dividing the Accreted
Value per share of Series A Preferred Stock through the date of redemption (or
portion thereof to be paid in shares of Common Stock) by 90% of the Base Price.
Notwithstanding anything to the contrary contained in the preceding paragraph,
(x) the Corporation, at its option, may elect to substitute cash for any portion
of the Accreted Value that was to be paid in Common Stock, provided that, unless
the holders of a majority of the voting power represented by the then
outstanding shares of Series A Preferred Stock shall otherwise agree, such
substitution may be made only if it would not cause the date of redemption to be
delayed beyond the date set forth in the notice previously given by the
Corporation in accordance with subparagraph (e)(iii) of this Section 5, and (y)
if the Corporation has elected pursuant to the immediately preceding paragraph
of this subparagraph (ii) to redeem the shares of Series A Preferred Stock by
paying less than 75% of the Accreted Value in shares of Common Stock, then the
Corporation may elect to substitute Common Stock (valued at 90% of the Base
Price) for any portion of the Accreted Value that was to be paid in cash,
provided that, in the case of either (x) or (y) of this paragraph, if the Common
Stock is publicly traded and as a result of such election the percentage of the
Accreted Value to be paid in Common Stock would differ by more than 10 percent,
the Corporation has made and publicly announced such election at least 18
Trading Days prior to the date of redemption. Upon
<PAGE>
-12-
redemption, each holder of a share of Series A Preferred Stock shall be entitled
to receive (A) the portion of the Accreted Value that the Corporation has
elected to pay in cash, plus (B) the number of shares of Common Stock issuable
based upon the first sentence of this paragraph.
In connection with any such redemption, the Corporation shall pay to the
persons entitled thereto all unpaid dividends payable under Section 2 on the
shares of Series A Preferred Stock to be redeemed, whether or not declared, to
the date fixed for redemption; and unless the exchange of shares of Common Stock
for Series A 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.
(d) If shares of Common Stock to be issued in exchange for any shares of
Series A Preferred Stock pursuant to subparagraph (b)(ii) or subparagraph
(c)(ii) of this Section 5 are to be issued in a name or names other than that of
the holder of such shares, no such issuance shall be made (i) 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 Common Stock in
such name or names, (ii) unless such issuance is registered under the Securities
Act and all applicable state securities laws, the holder of the applicable
shares of Series A Preferred Stock which are to be exchanged for 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 and (iii) until the Corporation is satisfied
that such issuance is in accordance with the Purchase Agreement and the transfer
restrictions contained therein. Other than the taxes specified in clause (i)
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 Common
Stock in exchange for shares of Series A Preferred Stock pursuant hereto.
No fractions of shares of Common Stock shall be issued upon any exchange of
shares of Series A Preferred Stock pursuant to subparagraph (b)(ii) or
subparagraph (c)(ii) of this Section 5, but 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 A 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 A Preferred Stock so surrendered.
(e) (i) Notice of the mandatory conversion of shares of Series A Preferred
Stock pursuant to paragraph (a) of this Section 5 shall be given by publication
in a newspaper of general circulation in the Borough of Manhattan, The City of
New York,
<PAGE>
-13-
not less than 30, nor more than 60, days prior to the date fixed for conversion,
if the Series A Preferred Stock is listed on any national securities exchange or
traded in the over-the-counter market; and, in any case, a similar notice shall
be mailed at least 30, but not more than 60, days prior to the date fixed for
conversion to each record holder of shares of Series A Preferred Stock to be
converted, at such holder's address as it appears on the transfer books of the
Corporation.
(ii) Not more than 30 nor less than 20 days prior to the tenth anniversary of
the Issue Date, the Corporation shall, if the Series A Preferred Stock is listed
on any national securities exchange or traded in the over-the-counter market,
give notice by publication in a newspaper of general circulation in the Borough
of Manhattan, The City of New York, (A) of each holder's right to require the
Corporation to redeem any or all shares of Series A Preferred Stock held by him,
pursuant to paragraph (b) of this Section 5 or (B) that the Corporation has
elected in accordance with paragraph (b) of this Section 5 to redeem all shares
of the Series A Preferred Stock. 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), whether the Corporation has elected to deliver cash and/or
shares of Common Stock in respect of the portion of the Redemption Price
constituting the Accreted Value (and if the Corporation has elected to pay a
combination of cash and Common Stock, the relative proportions thereof) and, if
the Corporation has not elected to redeem the Series A Preferred Stock, the
procedures to be followed by such holder in exercising his right to cause such
redemption and in either event the procedures to be followed to receive payment
of the Redemption Price; and, in any case, a similar notice shall be mailed
concurrently to each record holder of shares of Series A Preferred Stock, at
such holder's address as it appears on the transfer books of the Corporation;
provided, however, that if the Series A Preferred Stock is owned of record by 50
- -------- -------
or fewer holders or groups of affiliated holders, the Corporation shall publicly
announce the information contained in the notice by issuance of a press release
and such notice shall be mailed in no event less than 20 Business Days prior to
the tenth anniversary of the Issue Date, and shall set forth (A) if the
Corporation has not elected to redeem the Series A Preferred Stock, that the
redemption date shall be two Business Days after receipt by the Corporation of
the notice by the holder referred to in the penultimate sentence of this
subparagraph (ii), and, if the Corporation has elected to redeem the Series A
Preferred Stock, that the redemption date shall be 20 Business Days after the
public announcement by the Corporation of the information contained in the
notice and (B) if the Corporation has not elected to redeem the Series A
Preferred Stock, the procedures to be followed by such holder in exercising his
right to cause such redemption and in either event the procedures to be followed
to receive payment of the Redemption Price. Failure by the Corporation to give
the notice prescribed by the preceding sentence, or the formal insufficiency of
any such notice, shall not prejudice the rights of any holder of
<PAGE>
-14-
shares of Series A Preferred Stock to cause the Corporation to redeem any such
shares held by him. In the event the Corporation has not elected to redeem the
Series A Preferred Stock and a record holder of shares of Series A Preferred
Stock shall elect to require the Corporation to redeem any or all such shares of
Series A Preferred Stock pursuant to paragraph (b) of this Section 5, such
holder shall deliver within 30 days of the mailing to him of the Corporation's
notice described in this paragraph (e)(ii), or, if no notice is given, within 30
days following the last day the Corporation was required to give notice of the
Redemption Right in accordance with this paragraph (e)(ii) (in which case the
date of redemption shall be (1) if the Series A Preferred Stock is not owned of
record by 50 or fewer holders or groups of affiliated holders, the date which is
45 Business Days following the last day the Corporation was required to give
notice of the Redemption Right in accordance with this paragraph (e)(ii), after
which date the right of such holders to require the Corporation to redeem shares
of Series A Preferred Stock pursuant to paragraph (b) of this Section 5 shall
terminate, or (2) if the Series A Preferred Stock is owned of record by 50 or
fewer holders or groups of affiliated holders, that date which is two Business
Days after the delivery to the Corporation of an election to redeem), a written
notice, in the form specified by the Corporation (if the Corporation did in fact
give the notice required by this paragraph (e)(ii)), to the Corporation so
stating, specifying the number of shares to be redeemed pursuant to paragraph
(b) of this Section 5. The Corporation shall redeem the number of shares so
specified on the date fixed for redemption in accordance with the provisions of
this Certificate.
(iii) Within 30 days following a Change in Control of the kind described in
paragraph (c) of this Section 5, the Corporation shall, if the Series A
Preferred Stock is listed on any national securities exchange or traded in the
over-the-counter market, give notice by publication in a newspaper of general
circulation in the Borough of Manhattan, The City of New York, of such Change in
Control, which notice shall set forth each holder's right to require the
Corporation to redeem any or all shares of Series A Preferred Stock held by him,
the redemption date (which date shall be not more than 60, nor less than 45,
days from the date of such notice), whether the Corporation has elected to
deliver cash and/or shares of Common Stock in respect of the portion of the
Redemption Price constituting the Accreted Value (and if the Corporation has
elected to pay a combination of cash and Common Stock, the relative proportions
thereof) and the procedures to be followed by such holder in exercising his
right to cause such redemption; and, in any case, a similar notice shall be
mailed concurrently to each record holder of shares of Series A Preferred Stock,
at such holder's address as it appears on the transfer books of the Corporation.
Failure by the Corporation to give the notice prescribed by the preceding
sentence, or the formal insufficiency of any such notice, shall not prejudice
the rights of any holder of shares of Series A Preferred Stock to cause the
Corporation to
<PAGE>
-15-
redeem any such shares held by him. In the event a record holder of shares of
Series A Preferred Stock shall elect to require the Corporation to redeem any or
all such shares of Series A Preferred Stock pursuant to paragraph (c) of this
Section 5, such holder shall deliver within 30 Business Days of the mailing to
him of the Corporation's notice described in this paragraph (e)(iii), or, if no
notice is given, within 30 Business Days following the last day the corporation
was required to give notice of the Change in Control in accordance with this
paragraph (e)(iii) (in which case the Corporation shall be deemed to have
elected to deliver cash in payment of the Redemption Price (and the provisions
of clause (y) of the second paragraph of subparagraph (c)(ii) of this Section 5
shall not apply) and the date of redemption shall be the date which is 45
Business Days following the last day the Corporation was required to give notice
of the Change in Control in accordance with this paragraph (e)(iii), after which
date the right of such holders to require the Corporation to redeem shares of
Series A Preferred Stock pursuant to paragraph (c) of this Section 5 shall
terminate), a written notice, in the form specified by the Corporation (if the
Corporation did in fact give the notice required by this paragraph (e)(iii)), to
the Corporation so stating, specifying the number of shares to be redeemed
pursuant to paragraph (c) of this Section 5. The Corporation shall redeem the
number of shares so specified on the date fixed for redemption in accordance
with the provisions of this Certificate.
(f) On the date of any conversion or redemption being made pursuant to
paragraph (a), (b) or (c) of this Section 5 which is specified in a notice given
pursuant to paragraph (e) of this Section 5, the Corporation shall, and at any
time after such notice shall have been mailed and before the date of redemption
the Corporation may, (i) deposit for the benefit of the holders of shares of
Series A Preferred Stock to be redeemed the funds and/or shares of Common Stock,
as applicable, necessary for such conversion or 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 $2,000,000,000
or (ii) if the Corporation so elects in connection with any such conversion or
redemption other than a redemption pursuant to paragraph (c) of this Section 5,
segregate and hold in trust for the benefit of the holders of shares of Series A
Preferred Stock to be redeemed the funds and/or shares of Common Stock, as
applicable, necessary for such conversion or 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 A Preferred Stock to be converted or
redeemed shall look only to the Corporation for the payment of the Redemption
Price. In the event that moneys and/or shares are
<PAGE>
-16-
deposited or segregated and held in trust pursuant to this paragraph (f) in
respect of shares of Series A Preferred Stock that are converted in accordance
with the provisions of Section 8, such moneys and/or shares shall, upon such
conversion, be released from any such deposit or trust and revert to the
Corporation. After such reversion, any such bank or trust company shall pay over
to the Corporation such moneys and/or shares and shall be relieved of all
responsibility to the holders of such converted shares in respect thereof. Any
interest and/or shares accrued on funds and/or shares deposited pursuant to this
paragraph (f) shall be paid from time to time to the Corporation.
(g) Notice of conversion or redemption having been given as aforesaid, upon
the deposit or segregation in trust of funds and/or shares pursuant to paragraph
(f) in respect of shares of Series A Preferred Stock to be converted or redeemed
pursuant to paragraph (a), (b) or (c) of this Section 5, notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the date of conversion or redemption designated in
the notice of conversion or 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 Series A
Preferred Stock to be redeemed shall cease and terminate, excepting only the
right to receive the Redemption Price therefor and the right to convert such
shares into shares of Common Stock until the close of business on the second
Business Day preceding the date of redemption, in accordance with Section 8.
Section 6. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
converted, 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 A 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, par value $.01 per share, of the Corporation and may
be reissued as part of another series of Preferred Stock, par value $.01 per
share, of the Corporation subject to the conditions or restrictions on issuance
set forth herein.
Section 7. Liquidation, Dissolution or Winding Up. (a) If the Corporation
--------------------------------------
shall commence a voluntary case under the Federal bankruptcy laws or any other
applicable Federal or State bankruptcy, insolvency or similar law, or consent to
the entry of an-order for relief in an involuntary case under any such law or to
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in
<PAGE>
-17-
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or State bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 90 consecutive days and on account of any such event the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made (i) to the holders
of shares of Common Stock or of any shares of other capital stock of the
Corporation ranking junior to the Series A Preferred Stock upon liquidation,
dissolution or winding up unless, prior thereto, the holders of shares of Series
A Preferred Stock, subject to Section 8, shall have received the Liquidation
Preference with respect to each share, or (ii) to the holders of shares of
capital stock of the Corporation ranking on a parity with the Series A Preferred
Stock upon liquidation, dissolution or winding up, except distributions made
ratably on all such parity capital stock of the Corporation and the Series A
Preferred Stock in proportion to the total amounts to which the holders of all
shares of such parity stock of the Corporation and the Series A Preferred Stock
are entitled upon such liquidation, dissolution or winding up.
(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. Conversion. (a) Each share of Series A Preferred Stock shall be
----------
convertible at the option of the holder thereof at any time after the Issue Date
into fully paid and nonassessable shares of Common Stock. If the holder is an
Investor (as defined in Section 11) or a Permitted Transferee (as defined in
Section 11) of such Investor which has agreed to be bound by the provisions of
Article VI of the Purchase Agreement applicable to such Investor, the Series A
Preferred Stock held by such Investor or Permitted Transferee shall be
convertible into Class B Common Stock; provided, however, that such shares shall
-------- -------
have been held at all times by either an Investor or a Permitted Transferee
which has agreed to be bound by the provisions of Article VI of the Purchase
Agreement applicable to such Investor. In all other cases, the Series A
Preferred Stock shall be convertible only into Class A Common Stock (as defined
in Section 11). The number of shares of Common Stock deliverable upon
conversion of a share of Series A Preferred Stock, adjusted as hereinafter
provided, is referred to herein as the "conversion ratio". The conversion ratio
shall be one, subject to adjustment from time to time pursuant to paragraph (g)
of this Section 8.
<PAGE>
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(b) Conversion of the Series A Preferred Stock may be effected by any such
holder upon the surrender to the Corporation at the principal office of the
Corporation in the Commonwealth of Massachusetts (the "Transfer Agent") or at
the office of any agent or agents of the Corporation, as may be designated by
the Board of Directors of the Corporation, of the certificate for such Series A
Preferred Stock to be converted at any time after the Issue Date accompanied by
a written notice stating that such holder elects to convert all or a specified
whole number of such shares in accordance with the provisions of this Section 8
and specifying the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In case such notice shall
specify a name or names other than that of such holder, such notice shall be
accompanied by payment of all issue, stamp, documentation and transfer taxes
payable upon the issuance of shares of Common Stock in such name or names.
Other than such taxes, the Corporation will pay any and all issue, stamp,
documentation, transfer 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
Common Stock on conversion of Series A Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within five Business Days after the
surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if such notice shall specify a name or names other than
that of such holder, (x) payment of all transfer taxes (or the demonstration to
the satisfaction of the Corporation that such taxes have been paid), (y) unless
such issuance is registered under the Securities Act and all applicable state
securities laws, the holder of the applicable shares of Series A Preferred Stock
which are to be exchanged for 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
and (z) satisfaction of the Corporation that such issuance is in accordance with
the Purchase Agreement and the transfer restrictions contained therein, the
Corporation shall deliver or cause to be delivered (i) certificates representing
the number of validly issued, fully paid and nonassessable full shares of Common
Stock to which the holder of shares of Series A Preferred Stock being converted
shall be entitled and (ii) if less than the full number of shares of Series A
Preferred Stock evidenced by the surrendered certificate or certificates is
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by such surrendered certificate or certificates less
the number of shares being converted. Such conversion shall be deemed to have
been made at the close of business on the date of giving of such notice and of
such surrender of the certificate or certificates representing the shares of
Series A Preferred Stock to be converted so that the rights of the holder
thereof as to the shares being converted shall cease except for the right to
receive shares of Common Stock in accordance herewith, and the person entitled
to receive the shares of Common Stock shall be treated for all purposes as
having become the record holder of such shares of common Stock at such time.
The Corporation shall
<PAGE>
-19-
not be required to convert, and no surrender of shares of Series A Preferred
Stock shall be effective for that purpose, while the transfer books of the
Corporation for the Common Stock are closed for any purpose (but not for any
period in excess of 2 days); but the surrender of shares of Series A Preferred
Stock for conversion during any period while such books are so closed shall
become effective for conversion immediately upon the reopening of such books, as
if the conversion had been made on the date such shares of Series A Preferred
Stock were surrendered, and at the conversion ratio in effect at the date of
such surrender.
(c) In case any shares of Series A Preferred Stock are to be redeemed
pursuant to Section 5, such right of conversion shall cease and terminate as to
the shares of Series A Preferred Stock to be redeemed at the close of business
on the second Business Day next preceding the date fixed for redemption unless
the Corporation shall default in the payment of the Redemption Price.
(d) The conversion ratio shall be subject to adjustment from time to time
in certain instances as hereinafter provided. Upon conversion, the Corporation
shall pay to any holder of shares of Series A Preferred Stock surrendered for
conversion any unpaid dividends payable under Section 2 on the shares of Series
A Preferred Stock surrendered for conversion.
(e) In connection with the conversion of any shares of Series A Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the Trading Day on which
such shares of Series A Preferred Stock are deemed to have been converted. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion by the same holder at the same time, the number of full shares of
Common Stock issuable on conversion thereof shall be computed on the basis of
the total number of shares of Series A Preferred Stock so surrendered.
(f) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Series A Preferred Stock.
(g) The conversion ratio shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall at any time or from time to time
after the Issue Date pay a dividend or make a
<PAGE>
-20-
distribution on the outstanding shares of Common Stock in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock without making an identical
subdivision, combination or consolidation of the outstanding shares of
Series A Preferred Stock, then, and in each such case, the conversion ratio
in effect immediately prior to such event or the record date therefor,
whichever is earlier, shall be adjusted by multiplying such ratio by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event. An adjustment made pursuant to this clause (i) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (y) in the case of any such subdivision,
combination, consolidation or reclassification, at the close of business on
the day upon which such corporate action becomes effective.
(ii) For purposes of this paragraph (g), the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Corporation.
(iii) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of Directors of
the Corporation (which may be the firm of independent public accountants
regularly employed by the Corporation) shall be presumptively correct for
any computation made under this paragraph (g).
(iv) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the number of
shares of Common Stock issuable upon exercise of the right of conversion
granted by this paragraph (g) or in the conversion ratio then in effect
shall be required by reason of the taking of such record.
(h) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (g)(i) of this Section 8), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each
<PAGE>
-21-
of the foregoing being referred to as a "Transaction"), each share of Series A
Preferred Stock then outstanding shall thereafter be convertible into, in lieu
of the Common Stock issuable upon such conversion prior to the consummation of
such Transaction, the kind and amount of shares of stock and other securities
and property (including cash) receivable upon the consummation of such
Transaction by a holder of that number of shares of Common Stock into which one
share of Series A Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash, securities or property
received by holders of Common Stock in any tender or exchange offer that is a
step in such Transaction). In any such case, if necessary, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions set forth in this Section 8 with respect to rights
and interests thereafter of the holders of shares of Series A Preferred Stock to
the end that the provisions set forth herein for the protection of the
conversion rights of the Series A Preferred Stock shall thereafter be
applicable, as nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion of the shares of
Series A Preferred Stock remaining outstanding (with such adjustments in the
conversion price and number of shares issuable upon conversion and such other
adjustments in the provisions hereof as the Board of Directors shall determine
to be appropriate). In case securities or property other than Common Stock shall
be issuable or deliverable upon conversion as aforesaid, then all references in
this Section 8 shall be deemed to apply, so far as appropriate and as nearly as
may be, to such other securities or property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 11) thereof shall assume, by written
instrument mailed to each record holder of shares of Series A Preferred Stock if
such shares are held by 50 or fewer holders or groups of affiliated holders or
to each Transfer Agent for the shares of Series A Preferred Stock if such shares
are held by a greater number of holders, the obligation to deliver to such
holder such cash and such securities to which, in accordance with the foregoing
provisions, such holder is entitled and such Surviving Person shall have mailed
to each holder of shares of Series A Preferred Stock, if such shares are held by
50 or fewer holders or groups of affiliated holders, or to each Transfer Agent
for the shares of Series A Preferred Stock, if such shares are held by a greater
number of holders, an opinion of independent counsel for such Person stating
that such assumption agreement is a valid, binding and enforceable agreement of
the Surviving Person (subject to customary exceptions) and (ii) proper provision
is made to ensure that the holders of shares of Series A Preferred Stock will be
entitled to receive the benefits afforded by Section 5(c).
<PAGE>
-22-
(i) In case at any time or from time to time the Corporation shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Common Stock of the
Corporation or consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety, or there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, then, in any one or more of said cases the Corporation shall give
at least 10 days' prior written notice (the time of mailing of such notice shall
be deemed to be the time of giving thereof) to the registered holders of the
Series A Preferred Stock at the addresses of each as shown on the books of the
Corporation maintained by the Transfer Agent thereof of the date on which (i)
the books of the Corporation shall close or a record shall be taken for such
stock dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which paragraph (h) applies the Corporation shall
give at least 30 days, prior written notice as aforesaid. Such notice shall
also specify the date as of which the holders of the Common Stock and of the
Series A Preferred Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock or Series A Preferred Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale or conveyance or participate in such dissolution, liquidation or winding
up, as the case may be. Failure to give such notice shall not invalidate any
action so taken.
Section 9. Reports as to Adjustments. Upon any adjustment of the
-------------------------
conversion ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion set forth
in Section 8, then, and in each such case, the Corporation shall promptly
deliver to the Transfer Agent of the Series A Preferred Stock and Common Stock a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the conversion ratio then in effect following such adjustment and the increased
or decreased number of shares issuable upon the conversion set forth in Section
8. The Corporation shall also promptly after the making of such adjustment give
written notice to the registered holders of the Series A Preferred Stock at the
address of each holder as shown on the books of the Corporation maintained by
the Transfer Agent thereof, which notice shall state the conversion ratio then
in effect, as adjusted, and the increased or decreased number of
<PAGE>
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shares issuable upon the exercise of the right of conversion granted by Section
8, and shall set forth in reasonable detail the method of calculation of each
and a brief statement of the facts requiring such adjustment. Where appropriate,
such notice to record holders of the Series A Preferred Stock may be given in
advance and included as part of the notice required under the provisions of
Section 8(i).
Section 10. Certain Covenants. Any registered holder of Series A 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 11. Definitions. For the purposes of this Certificate of
-----------
Designation of Series A Participating Convertible Preferred Stock, the following
terms shall have the meanings indicated:
"Accreted Value" per share of Series A Preferred Stock, as of any date,
shall mean the sum of $350 and an amount calculated to provide the holder of a
share of Series A Preferred Stock, as of such date, with a yield of 8% thereon,
compounded semi-annually in arrears, from the Issue Date to and including such
date, provided that such Accreted Value shall be reduced by the Fair Market
Value at such date of any dividends or distributions which have been previously
paid on such share of Series A Preferred Stock, assuming the same 8% per annum
yield from the date of payment of such dividend or distribution and compounded
on the same basis. The Fair Market Value of any non-cash dividend or
distribution shall be (a) in the case of any securities, the Current Market
Price of such securities (which in the case such securities are publicly traded
shall be valued during the period of 15 Trading Days commencing on the fifth
Business Day following the payment of such dividend or distribution) and (b) in
the case of any other property, the Fair Market Value of such property on a
fully-distributed basis as determined at the time of such distribution 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 A
Preferred Stock (the fees and expenses of which shall be paid by the
Corporation).
"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 Common Stock, shall
mean the Current Market Price valued, in the case the Common Stock is not
publicly traded, on the date of redemption or, in the case the Common Stock is
publicly traded, for the period of 15 Trading Days ending one Trading Day prior
to the date of redemption or conversion.
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"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Change in Control" shall mean:
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of the combined voting or economic power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors, but excluding, for this purpose, any such acquisition by (i) the
Corporation 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 voting
securities of the Corporation immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to such
acquisition, of the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors; or
(b) approval by the stockholders of the Corporation 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 the Corporation 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 power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation resulting from such reorganization, merger or consolidation; or
(c) the sale or other disposition of all or substantially all the assets of
the Corporation in one transaction or series of related transactions.
"Class A Common Stock" and "Class B 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 Common Stock
or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of 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
<PAGE>
-25-
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 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 Common Stock or such other securities are listed or admitted to
trading or, if the 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 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
Common Stock or such other securities selected by the Board of Directors of the
Corporation. If the 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 A 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 Common Stock in an underwritten
public offering after being reduced by pro forma expenses and underwriting
discounts. If securities other than 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 (a) Corporate
Advisors, L.P., so long as the Investors own at least 10% of the voting power
represented by the then outstanding shares of Series A Preferred Stock, or (b)
the holders of a majority of the voting power represented by the outstanding
shares of series A Preferred Stock, if the Investors own less than 10% of the
voting power represented by the then outstanding shares of Series A Preferred
Stock (in either case, the fees and expenses of which shall be paid by the
Corporation).
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Investor" shall mean any of the initial holders of the Series A Preferred
Stock, provided that for purposes of Section 8(a) hereof, the State Board and
the Co-Investors (as such terms
<PAGE>
-26-
are defined in the Purchase Agreement) shall be Investors only if either (a) the
Management Agreement (as defined in the Purchase Agreement) or the Co-Investment
Agreement (as defined in the Purchase Agreement), respectively, or other similar
agreements remain in effect or (b) if such agreements are no longer in effect,
such persons agree to be bound by the provisions of Article VI of the Purchase
Agreement applicable to the other Investors.
"Issue Date" shall mean the date on which shares of Series A Preferred
Stock are issued in accordance with the Purchase 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 A Preferred Stock.
"Liquidation Preference" with respect to a share of Series A Preferred
Stock shall mean the greater of (a) the Accreted Value as of the date of the
liquidation, dissolution or winding up and (b) the aggregate amount that would
be distributable to the holders of Common Stock in respect of the number of
shares of Common Stock into which a share of Series A Preferred Stock is then
convertible, plus, in either case, an amount per share equal to all unpaid
dividends thereon, whether or not declared, to the date of such liquidation,
dissolution or winding up.
"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 A Preferred Stock.
"Permitted Transferee" shall have the meaning assigned to such term in the
Corporation's Restated Certificate of Incorporation.
"Person" shall mean any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall mean the Stock Purchase Agreement dated April
27, 1992, between the Corporation, the Investors and Corporate Advisors, L.P.
"Redemption Price" in respect of a share of Series A Preferred Stock shall
mean the Accreted Value 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.
<PAGE>
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"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.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the Series A
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such surviving Person is a direct or indirect
-------- -------
Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving
Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day.
"Transaction" has the meaning specified in Section 8(h).
IN WITNESS WHEREOF, Continental Cablevision, Inc. has caused this
Certificate to be duly executed in its corporate name as of this 15th day of
June, 1992.
CONTINENTAL CABLEVISION, INC.
By/s/ Amos B. Hostetter, Jr.
----------------------------
Chairman of the Board
Attest:
/s/ Patrick K. Miehe
- ----------------------------
Assistant Secretary
<PAGE>
EXHIBIT 4.4
================================================================================
CONTINENTAL CABLEVISION, INC.
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of October 1, 1994
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent and as a Managing Agent
THE BANK OF NEW YORK,
as a Managing Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
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1. RESTATEMENT; DEFINITIONS................................................ 1
1.1. Restatement...................................................... 1
1.2. Definitions; Certain Rules of Construction....................... 1
2. THE CREDITS............................................................. 20
2.1. Revolving Loan................................................... 20
2.1.1. Revolving Loan Accounts................................. 21
2.1.2. Maturity, etc........................................... 22
2.2. Money Market Rate Credit....................................... 22
2.2.1. Request by the Company.................................. 22
2.2.2. Dissemination of Requests for Bids for
Money Market Loans..................................... 23
2.2.3. Bids for Money Market Loans............................. 23
2.2.4. Acceptance of Bids by the Company....................... 24
2.2.5. Funding by the Administrative Agent;
Money Market Loan Account, etc......................... 25
2.2.6. Funding; Legal Requirements............................. 26
2.2.7. Prepayments in Respect of Money Market
Loans.................................................. 27
2.3. Swingline Credit................................................. 27
2.3.1. Swingline Loan Account.................................. 28
2.3.2. Maturity, etc........................................... 28
2.4. Maximum Amount of Credit......................................... 28
2.5. Credit Reserves.................................................. 29
2.5.1. Commercial Paper, Etc................................... 29
2.5.2. Qualifying Reinvestments................................ 31
2.6. Application of Proceeds; Specifically Prohibited
Applications.................................................... 31
2.7. Nature of Obligations of Lenders to Make Loans................... 31
2.7.1. Revolving Loans......................................... 31
2.7.2. Money Market Loans...................................... 32
2.7.3. Swingline Loans......................................... 32
3. INTEREST; EURODOLLAR PRICING OPTIONS; FEES; ETC......................... 32
3.1. Interest on Revolving Loan....................................... 32
3.1.1. Computations of Interest................................ 33
3.2. Eurodollar Pricing Options....................................... 33
3.2.1. Election of Eurodollar Pricing Options.................. 33
3.2.2. Notices Relating to Eurodollar Pricing
Options................................................ 35
3.3. Additional Provisions Concerning Eurodollar
Pricing Options................................................. 35
3.3.1. Selection of Eurodollar Interest
Periods................................................ 35
3.3.2. Additional Interest Relating to
Eurodollar Pricing Options............................. 35
3.3.3. Change in Applicable Laws, Regulations,
etc.................................................... 36
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3.3.4. Funding Procedure....................................... 37
3.4. Interest on Money Market Loans................................... 37
3.5. Interest on Swingline Loan....................................... 37
3.6. Commitment Fees.................................................. 38
3.6.1. Revolving Loan.......................................... 38
3.6.2. Swingline Loan.......................................... 38
3.7. Capital Adequacy................................................. 38
3.8. Taxes............................................................ 40
4. PAYMENT................................................................. 41
4.1. Payment at Maturity.............................................. 41
4.2. Contingent Required Prepayments.................................. 42
4.2.1. Excess Credit Exposure.................................. 42
4.2.2. Proceeds from Asset Sales............................... 42
4.2.3. Allocation of Payments.................................. 42
4.3. Voluntary Prepayments............................................ 43
4.4. Payment and Interest Cutoff, etc................................. 43
5. CONDITIONS TO MAKING LOANS.............................................. 43
5.1. Conditions to Making Initial Loans............................... 43
5.1.1. Notes................................................... 43
5.1.2. Amended Note Agreement.................................. 44
5.1.3. Termination of 1992 Credit Agreement.................... 44
5.1.4. Release of Collateral................................... 44
5.1.5. Guarantors' Contribution Agreement...................... 44
5.1.6. Payment of Fees......................................... 44
5.1.7. Legal Opinions.......................................... 45
5.2. Conditions to Making Each Loan................................... 45
5.2.1. Company Officer's Certificate........................... 45
5.2.2. Proper Proceedings...................................... 45
5.2.3. Legality, etc........................................... 46
5.2.4. General................................................. 46
6. GUARANTEES.............................................................. 46
6.1. Guarantees of Credit Obligations................................. 46
6.2. Waivers.......................................................... 47
6.3. Certain Representations.......................................... 49
6.4. Power to Amend, etc.............................................. 49
6.5. Information Regarding the Company, etc........................... 50
6.6. No Subrogation; Subordination.................................... 50
6.7. Further Assurances............................................... 51
6.8. Release of Guarantors and Restricted
Subsidiaries.................................................... 51
7. COVENANTS............................................................... 52
7.1. Corporate Existence; Conduct of Business......................... 52
7.2. Financial Statements, etc........................................ 52
7.2.1. Quarterly Reports....................................... 52
7.2.2. Annual Reports.......................................... 53
7.2.3. Audits.................................................. 55
7.2.4. ERISA Reports........................................... 55
7.2.5. Public Reports.......................................... 56
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7.2.6. Defaults............................................... 56
7.2.7. Other Events........................................... 56
7.2.8. Requested Information.................................. 56
7.2.9. Notice of Certain Redemptions of
Subordinated Debt..................................... 57
7.2.10. Notice of Certain Redemptions of 1992
Preferred Stock...................................... 58
7.2.11. Confidentiality....................................... 58
7.3. Insurance....................................................... 59
7.4. Taxes; Claims................................................... 59
7.5. Maintenance of Properties....................................... 59
7.6. Statutory Compliance............................................ 59
7.7. Indebtedness.................................................... 60
7.8. Liens........................................................... 62
7.9. Investments..................................................... 63
7.10. Sales of Assets; etc........................................... 64
7.11. Mergers........................................................ 67
7.12. Distributions.................................................. 67
7.13. Certain Financial Tests........................................ 69
7.13.1. Consolidated Total Debt to Consolidated
Operating Income..................................... 69
7.13.2. Consolidated Operating Cash Flow to Pro
Forma Interest Payments.............................. 69
7.13.3. Consolidated Operating Cash Flow to Pro
Forma Total Debt Service............................. 69
7.14. ERISA.......................................................... 70
7.15. No Amendments to Certain Agreements............................ 70
7.16. Transactions with Affiliates................................... 70
7.17. Interest Rate Protection....................................... 71
8. REPRESENTATIONS AND WARRANTIES......................................... 72
8.1. Organization, Qualification and Standing........................ 72
8.1.1. The Company............................................ 72
8.1.2. Subsidiaries........................................... 72
8.1.3. Capitalization......................................... 72
8.2. Authorization, etc.............................................. 73
8.3. Litigation...................................................... 73
8.4. Financial Statements............................................ 74
8.5. Title to Properties............................................. 74
8.6. No Adverse Developments......................................... 74
8.7. Defaults........................................................ 74
8.8. Pension Plans................................................... 75
9. EVENTS OF DEFAULT....................................................... 75
9.1. Events of Default............................................... 75
9.2. Certain Actions Following an Event of Default................... 78
9.2.1. Specific Performance; Exercise of
Remedies.............................................. 78
9.2.2. Acceleration........................................... 78
9.2.3. Enforcement of Payment; Setoff......................... 78
9.3. Annulment of Defaults........................................... 78
9.4. Waivers......................................................... 79
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9.5. Course of Dealing................................................ 79
10. EXPENSES; INDEMNITY; AGENT'S FEE....................................... 79
10.1. Fees and Expenses............................................... 79
10.2. Indemnification................................................. 80
10.3. Administrative Agent's Fee...................................... 81
11. NOTICES................................................................ 81
12. OPERATIONS............................................................. 82
12.1. Interests in Revolving Loan..................................... 82
12.2. Company to Pay Administrative Agent............................. 82
12.3. Lender Operations for Advances and Payments,
etc............................................................ 82
12.3.1. Advances and Payments.................................. 82
12.3.2. Delinquent Lenders; Nonperforming
Lenders............................................... 83
12.4. Sharing of Payments, etc........................................ 83
12.5. Administrative Agent's Authority to Act......................... 84
12.6. Administrative Agent's Resignation.............................. 85
12.7. Amendments, Consents, Waivers, etc.............................. 85
12.7.1. Modifications to Voting Percentages.................... 86
12.7.2. Obligations to Make New Loans.......................... 86
12.8. Concerning the Administrative Agent............................. 87
12.8.1. Action in Good Faith, etc.............................. 87
12.8.2. No Implied Duties, etc................................. 87
12.8.3. Validity, etc.......................................... 87
12.8.4. Compliance............................................. 87
12.8.5. Employment of Administrative Agents and
Counsel............................................
12.8.6. Reliance on Documents and Counsel...................... 88
12.8.7. Administrative Agent's Reimbursement................... 88
12.8.8. Rights as a Lender..................................... 88
12.9. Independent Credit Decision..................................... 89
12.10. Indemnification................................................. 89
12.11. Waiver of Pro Rata Event....................................... 90
12.12. Amendment to Section 12........................................ 90
13. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS.......... 90
13.1. Assignments by Lenders.......................................... 90
13.1.1. Assignees and Assignment Procedures.................... 90
13.1.2. Terms of Assignment and Acceptance..................... 92
13.1.3. Register............................................... 93
13.1.4. Acceptance of Assignment and
Assumption............................................ 93
13.1.5. Federal Reserve Bank................................... 93
13.1.6. Further Assurances..................................... 93
13.2. Credit Participants............................................. 94
13.3. Replacement of Lenders.......................................... 94
14. FOREIGN PERSONS........................................................ 96
15. REPLACEMENT NOTES...................................................... 97
16. SURVIVAL OF COVENANTS.................................................. 97
17. VENUE; SERVICE OF PROCESS.............................................. 97
18. WAIVER OF JURY TRIAL................................................... 98
19. GENERAL................................................................ 98
</TABLE>
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<PAGE>
EXHIBITS
<TABLE>
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1 - Effective Rates
2.1.1 - Note
2.2.1 - Money Market Loan Bid Request
2.2.2 - Invitation to Bid on Money Market Loan
2.2.3A - Money Market Loan Bid
2.2.3B - List of Money Market Loan Bids
2.2.4A - List of Acceptances and Non-Acceptances of
Money Market Loan Bids
2.2.4B - Acceptance of Money Market Loan Bid
2.2.4C - Non-Acceptance of Money Market Loan Bid
2.2.4D - Notice of Money Market Loan
5.2.1 - Officer's Certificate
7.7 - Indebtedness
8.1 - Company and its Restricted Subsidiaries
12.1 - Lenders and Revolving Percentage Interests
13.1.1 - Assignment and Acceptance
</TABLE>
<PAGE>
CONTINENTAL CABLEVISION, INC.
AMENDED AND RESTATED
CREDIT AGREEMENT
This Agreement, dated as of October 1, 1994, is among Continental
Cablevision, Inc., a Delaware corporation, its Subsidiaries from time to time
party hereto, the Lenders from time to time party hereto, The First National
Bank of Boston, both in its capacity as a Lender and in its capacity as
Administrative Agent and as a Managing Agent for itself and the other Lenders,
and The Bank of New York, both in its capacity as a Lender and in its capacity
as a Managing Agent for itself and the other Lenders. The parties agree as
follows:
1. RESTATEMENT; DEFINITIONS.
1.1. Restatement. Effective as of the Initial Closing Date, this
-----------
Agreement amends and restates in its entirety the Credit Agreement dated as of
May 1, 1989, as amended and in effect on the date hereof, among the Company,
certain of its Subsidiaries and a group of lenders for which The First National
Bank of Boston is acting as agent.
1.2. Definitions; Certain Rules of Construction. Except as otherwise
------------------------------------------
explicitly specified to the contrary or unless the context clearly requires
otherwise, (a) the capitalized term "Section" refers to sections of this
Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation" and (e) accounting terms not otherwise defined herein shall have the
meaning provided under generally accepted accounting principles. References to
"the date hereof" shall mean the date first set forth above. Certain
capitalized terms are used in this Agreement and in the other Lender Agreements
with the specific meanings defined below:
1.2.1. "Administrative Agent" means The First National Bank of Boston
--------------------
in its capacity as administrative agent for the Lenders hereunder, as well
as its successors and assigns in such capacity pursuant to Section 12.6.
1.2.2. "Affected Lender" is defined in Section 13.3.
---------------
1.2.3. "Affiliate" means, with respect to any Person, (a) a spouse of
---------
such Person, (b) any relative (by blood, adoption or marriage) of such
Person within the third degree, (c) any director or officer of such Person,
(d) any other Person controlling, controlled by or under direct or indirect
common control with such Person, (e) any other
<PAGE>
Person directly or indirectly holding 5% or more of any class of the
capital stock or other shares of beneficial interest of such Person, (f)
any other Person of which 5% or more of any class of its capital stock or
other shares of beneficial interest is held directly or indirectly by such
Person, (g) any other Person who constitutes a general partner of such
Person (or a Subsidiary of such Person) and (h) any other Person of whom
such Person constitutes a general partner.
1.2.4. "Agents" means each of the Managing Agents, Canadian Imperial
------
Bank of Commerce, Mellon Bank, N.A., NationsBank of Texas, N.A. and The
Toronto-Dominion Bank or any Lenders acting as successor Agents hereunder
from time to time.
1.2.5. "Amended Note Agreement" is defined in Section 5.1.2.
----------------------
1.2.6. "Applicable Rate Reference Period" means, for any fiscal
--------------------------------
quarter of the Company, the most recent prior fiscal quarter of the Company
for which financial statements have been (or are required to have been)
furnished to the Lenders prior to the commencement of the fiscal quarter in
question in accordance with Section 7.2.1 or, in the case of the fourth
quarter of a fiscal year, Section 7.2.2. (For example, for the fiscal
quarter from October 1, 1994 through December 31, 1994, the Applicable Rate
Reference Period will be the fiscal quarter ended June 30, 1994.)
1.2.7. "Asset Sale" is defined in Section 4.2.2.
----------
1.2.8. "Asset Sale Designation" is defined in Section 2.5.2.
----------------------
1.2.9. "Assignee" is defined in Section 13.1.1.
--------
1.2.10. "Assignment and Acceptance" is defined in Section 13.1.1.
-------------------------
1.2.11. "Banking Day" means a day on which dealings may be effected
-----------
in Eurodollar deposits by first class banks in the inter-bank Eurodollar
market in New York, New York and at each Eurodollar Office of the
Administrative Agent and on which banks may conduct business in Boston,
Massachusetts and New York, New York.
1.2.12. "Bankruptcy Code" means Title 11 of the United States Code
---------------
(or any successor statute) and the rules and regulations thereunder, all as
from time to time in effect.
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<PAGE>
1.2.13. "Bankruptcy Default" means an Event of Default under Section
------------------
9.1.9.
1.2.14. "Base Rate" means the greater of (a) the rate of interest
---------
from time to time announced by the Administrative Agent at the Boston
Office as its "Base Rate", and (b) with respect to any day designated by
the Administrative Agent by notice to the Company given prior to 12:00 noon
(Boston time) on such date, the sum of (i) 1/2% plus (ii) the Federal Funds
----
Rate; provided, however, that no such designation may be made with respect
-------- -------
to more than 12 days in any calendar year.
1.2.15. "Basic Eurodollar Rate" as applied to any Eurodollar Interest
---------------------
Period means the quotient (rounded if necessary to the nearest 1/100%)
obtained by dividing (a) the sum of the Basic Reference Eurodollar Rates of
the Managing Agents for such Eurodollar Interest Period by (b) the number
of Managing Agents, all as determined by the Administrative Agent on the
basis of the Basic Reference Eurodollar Rates furnished to it by the
Managing Agents. Each determination by the Administrative Agent of any
Basic Eurodollar Rate pursuant to the foregoing sentence shall, in the
absence of manifest error, be conclusive; provided, however, that at the
-------- -------
request of the Company or any Lender the Administrative Agent shall
demonstrate the basis for such determination.
1.2.16. "Basic Reference Eurodollar Rate" as applied to any
-------------------------------
Eurodollar Interest Period and any Managing Agent means the rate of
interest at which Eurodollar deposits in an amount equal to such Managing
Agent's Revolving Percentage Interest in the portion of the Loans as to
which a Eurodollar Pricing Option has been elected and which have a term
corresponding to the Eurodollar Interest Period in question are offered to
such Managing Agent by first-class banks in the inter-bank Eurodollar
market for delivery in immediately available funds at a Eurodollar Office
of such Managing Agent on the first day of such Eurodollar Interest Period
as determined by such Managing Agent at approximately 10:00 a.m. (Boston
time) two Banking Days prior to the date upon which the Eurodollar Interest
Period in question is to commence. Each determination by any Managing
Agent of any Basic Reference Eurodollar Rate shall, in the absence of
manifest error, be conclusive; provided, however, that at the request of
-------- -------
the Company or any Lender, such Managing Agent shall demonstrate the basis
for such determination.
1.2.17. "Boston Office" means the principal banking office of the
-------------
Administrative Agent in Boston, Massachusetts.
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<PAGE>
1.2.18. "Capitalized Lease" means any lease which is required to be
-----------------
capitalized on the balance sheet of the lessee in accordance with generally
accepted accounting principles and Statement Nos. 13 and 98 of the
Financial Accounting Standards Board.
1.2.19. "Closing Date" means each of the Initial Closing Date, the
------------
Revolving Loan Closing Dates, the Money Market Loan Closing Dates and the
Swingline Loan Closing Dates.
1.2.20. "Code" means the Internal Revenue Code of 1986, as amended
----
(or any successor statute), and the rules and regulations thereunder,
collectively and as from time to time in effect.
1.2.21. "Commitment" means, with respect to any Lender, such Lender's
----------
Revolving Percentage Interest in the obligations to extend the credits
contemplated by the Lender Agreements. The initial Commitments are set
forth in Exhibit 12.1.
1.2.22. "Commitment Fee Rate" means:
-------------------
(a) for each day in any fiscal quarter of the Company for which the
amount of Consolidated Total Debt outstanding on the last day of the
Applicable Rate Reference Period is less than 550% of four times
Consolidated Operating Income for such Applicable Rate Reference Period,
the rate of 1/4% per annum; and
(b) at any other time, the rate of 3/8% per annum; provided, however,
-------- -------
that effective on the date the Company notifies the Administrative Agent
that the Company's long-term senior debt is rated Baa3 or higher by Moody's
or BBB-or higher by S&P (or, if Moody's or S&P shall hereafter change
rating categories, the comparable new rating category) and ending on the
date on which such debt no longer has either such rating, the applicable
Commitment Fee Rate determined pursuant to this clause (b) shall be 5/16%
per annum.
1.2.23. "Company" means Continental Cablevision, Inc., a Delaware
-------
corporation.
1.2.24. "Consolidated Interest Expense" means, for any period, the
-----------------------------
aggregate amount of interest (including cash payments in the nature of
interest under Capitalized Leases, interest rate protection agreements and
Redeemable Preferred Stock) required to be accrued or paid in cash by the
Company and its Restricted Subsidiaries on all Indebtedness,
-4-
<PAGE>
including the Loan, whether such interest was or is to be reflected as an
item of expense or capitalized.
1.2.25. "Consolidated Operating Cash Flow" means, for any period, the
--------------------------------
total of (a) Consolidated Operating Income minus (b) taxes based upon or
-----
measured by net income that are actually paid in cash during such period in
respect of the continuing, ordinary operations of the Company and its
Restricted Subsidiaries (but not in any event including cash taxes paid in
respect of extraordinary gains).
1.2.26. "Consolidated Operating Income" means, for any period, the
-----------------------------
operating income (or loss) before depreciation, amortization, non-cash
regulatory reserves and non-operating expenses such as non-cash restricted
stock purchase program expenses, other non-cash expenses, interest and
income taxes, but including all operating income (or loss) on account of
management fees, of the Company and its Restricted Subsidiaries for such
period, determined in accordance with generally accepted accounting
principles on a consolidated basis, after eliminating all intercompany
items, excluding any extraordinary or nonrecurring items and the write-up
of any asset.
For purposes of calculating Consolidated Operating Income, income (or
loss) of the Company's Unrestricted Subsidiaries will be reflected in
Consolidated Operating Income only to the extent that the Company and its
Restricted Subsidiaries actually receive dividends or similar payments from
the Company's Unrestricted Subsidiaries.
For purposes of calculating Consolidated Operating Income, operating
income (or loss) of the Company and its Restricted Subsidiaries for the
most recently completed fiscal periods shall include the operating income
(or loss) of any Restricted Subsidiary designated or acquired after the
commencement of such fiscal periods (including Operating Assets acquired by
the Company or a Restricted Subsidiary). If Consolidated Operating Income
includes the operating income (or loss) of any Restricted Subsidiary or
Operating Assets for any fiscal period prior to its acquisition by the
Company or a Restricted Subsidiary and if, in the opinion of the Company,
the actual financial statements of such newly acquired Restricted
Subsidiary or Operating Assets for such period are unavailable or
inaccurate, then (a) such operating income (or loss) may be determined from
pro forma financial statements of such newly acquired Restricted Subsidiary
or Operating Assets for such period in a form approved in writing by all of
the Managing Agents, and (b) the Company shall furnish to the Lenders with
each quarterly calculation under Section 7.2.1 or 7.2.2 such
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<PAGE>
financial information relating to such Restricted Subsidiary or Operating
Assets for such prior period as the Managing Agents may reasonably request.
1.2.27. "Consolidated Total Debt" means, at any date as of which the
-----------------------
amount thereof shall be determined, the total of (a) all Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated basis,
including all guarantees by the Company or any of its Restricted
Subsidiaries in respect of Indebtedness of others, and all obligations of
the Company and its Restricted Subsidiaries, contingent or otherwise, in
respect of reimbursement obligations under letters of credit (calculated in
respect of the maximum outstanding amount of such letters of credit), minus
-----
(b) cash and Investments permitted by Section 7.9.1 then owned by the
Company and its Restricted Subsidiaries.
1.2.28. "Control Group Person" means any Person which is a member of
--------------------
the controlled group or under common control with the Company within the
meaning of sections 414(b) or 414(c) of the Code or section 4001(b)(1) of
ERISA.
1.2.29. "Credit Obligations" means all present and future obligations
------------------
and Indebtedness of the Company or any Guarantor owing to any Lender or the
Administrative Agent under this Agreement or under any other Lender
Agreement, as from time to time amended or modified, including without
limitation the obligation to pay the Loan and the obligation of the Company
to pay interest, commitment fees, Agent's fees and other indemnities,
charges and amounts from time to time owed hereunder or under any other
Lender Agreement.
1.2.30. "Credit Participant" is defined in Section 13.2.
------------------
1.2.31. "Default" means an Event of Default or an event or condition
-------
which with the passage of time or giving of notice, or both, would become
such an Event of Default, and in any event shall include the filing against
the Company or any of its Restricted Subsidiaries of an involuntary case
under the Bankruptcy Code.
1.2.32. "Delinquency Period" is defined in Section 12.3.2.
------------------
1.2.33. "Delinquent Lender" is defined in Section 12.3.2.
-----------------
1.2.34. "Delinquent Payment" is defined in Section 12.3.2.
------------------
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<PAGE>
1.2.35. "Distribution" means (a) the declaration or payment of any
------------
dividend (other than payments made in capital stock which does not
constitute Indebtedness of the payor) in respect of any shares of capital
stock of the Company or any of its Restricted Subsidiaries, (b) the
purchase, redemption or other retirement of any shares of capital stock of
the Company or any of its Restricted Subsidiaries (other than payments made
in capital stock which does not constitute Indebtedness of the payor), (c)
any other payment (other than payments made in capital stock which does not
constitute Indebtedness of the payor) to the holder of any shares of
capital stock of the Company or any of its Restricted Subsidiaries in
respect of such capital stock, and (d) any payment of principal of or
interest on, or redemption or defeasance of, Subordinated Debt.
1.2.36. "Effective Rate" means, with respect to each portion of the
--------------
Revolving Loan with interest based upon the Eurodollar Rate or the Base
Rate, as the case may be, for each day in any fiscal quarter of the
Company, the sum of:
(a) the rate for such portion shown in Exhibit 1 next to the ratio of
(i) the Consolidated Total Debt outstanding on the last day of the
Applicable Rate Reference Period to (ii) four times Consolidated Operating
Income for such Applicable Rate Reference Period; provided, however, that
-------- -------
in the case of any portion of the Revolving Loan that is subject to a
Eurodollar Pricing Option having a Eurodollar Interest Period in excess of
six months in duration, the amount in this clause (a) will be the
applicable Eurodollar Rate plus the applicable Weighted Average Long-Term
----
Pricing Option Spread; plus
----
(b) an additional 2% per annum effective on the day the
Administrative Agent notifies the Company that the interest rates hereunder
are increasing as a result of the occurrence and continuance of an Event of
Default under Section 9.1.1 until the earlier of such time as (i) such
Event of Default is no longer continuing or (ii) such Event of Default is
deemed pursuant to Section 9.3 no longer to exist; minus
-----
(c) 1/8% per annum effective on the date the Company notifies the
Administrative Agent that the Company's long term senior debt has been
rated at least BBB- by S&P or Baa3 by Moody's (or if S&P or Moody's changes
its rating categories, the comparable new rating category) and ending on
the date on which such debt no longer has either such rating; provided,
--------
however that the Effective Rate with respect to each portion of the
-------
Revolving Loan with interest based upon the Base Rate shall never be less
than the Base
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<PAGE>
Rate (or, in the event clause (b) above applies, the sum of 2% plus the
----
Base Rate).
1.2.37. "ERISA" means the federal Employee Retirement Income Security
-----
Act of 1974, as amended (or any successor statute), and the rules and
regulations thereunder, collectively and as from time to time in effect.
1.2.38. "Eurodollar Interest Period" means any period of one, two,
--------------------------
three or six months, or such greater number of months up to 60 months, all
commencing on any Banking Day, which shall be selected as provided in
Section 3.2 and in Section 3.3.1 as the term of a Eurodollar Pricing
Option. Subject to Section 3.3.1, (a) the number of days in any month
shall be determined by the Administrative Agent in accordance with the then
current banking practice in the inter-bank Eurodollar market with respect
to Eurodollar deposits at any Eurodollar Office, and (b) if any Eurodollar
Interest Period so selected would otherwise end on a date which is not a
Banking Day, such Eurodollar Interest Period shall instead end on the
immediately preceding or succeeding Banking Day as determined by the
Administrative Agent in accordance with the then current banking practice
in the inter-bank Eurodollar market with respect to Eurodollar deposits at
any Eurodollar Office. Each such determination by the Administrative Agent
shall, in the absence of manifest error, be conclusive; provided, however,
-------- -------
that at the request of the Company or any Lender the Administrative Agent
shall demonstrate the basis for such determination.
1.2.39. "Eurodollar Office" means such non-United States office or
-----------------
offices or international banking facility or facilities of any Managing
Agent as such Managing Agent may from time to time select.
1.2.40. "Eurodollar Pricing Options" means the options granted
--------------------------
pursuant to Section 3.2 to have the interest on all or any portion of the
Revolving Loan computed on the basis of a Eurodollar Rate.
1.2.41. "Eurodollar Rate" means for any Eurodollar Interest Period
---------------
shall mean the rate, rounded if necessary to the nearest 1/100%, obtained
by dividing (a) the Basic Eurodollar Rate for such Eurodollar Interest
Period by (b) an amount equal to 1 minus the Eurodollar Reserve Rate;
-----
provided, however, that if at any time during such Eurodollar Interest
-------- -------
Period the Eurodollar Reserve Rate changes, the Eurodollar Rate for such
Eurodollar Interest Period shall automatically be adjusted to reflect such
change, effective as of the date of such change.
-8-
<PAGE>
1.2.42. "Eurodollar Reserve Rate" means the stated maximum rate as
-----------------------
changed from time to time (expressed as a decimal) of all reserves
(including any basic, supplemental, marginal or emergency reserve or any
reserve asset), if any, required by any Legal Requirement to be maintained
by the Administrative Agent against "Eurocurrency liabilities" as specified
in Regulation D of the Board of Governors of the Federal Reserve System, or
against (a) any other category of liabilities that includes deposits by
reference to which the interest rate on portions of the Revolving Loan
subject to Eurodollar Pricing Options is determined, (b) the principal
amount of or interest on any loan hereunder subject to a Eurodollar Pricing
Option, or (c) any other category of extensions of credit, or other assets,
that includes loans by a non-United States office of any Lender to United
States residents.
1.2.43. "Eurodollars" means deposits of United States Funds in a non-
-----------
United States office or an international banking facility of a Lender.
1.2.44. "Event of Default" is defined in Section 9.1.
----------------
1.2.45. "Exchange Act" means the federal Securities Exchange Act of
------------
1934 (or any successor statute) and the rules and regulations thereunder,
all as from time to time in effect.
1.2.46. "FCC License" means any cellular telephone, CARS, earth
-----------
station, business radio, microwave or special safety radio service license
issued by the Federal Communications Commission pursuant to the
Communications Act of 1934, as amended.
1.2.47. "Federal Funds Rate" means for any day, the rate equal to the
------------------
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
such weighted average is published for such day (or, if such day is not a
Banking Day, for the immediately preceding Banking Day) by the Federal
Reserve Bank of New York or, if such rate is not so published for such a
Banking Day, the average of the quoted rates for such Banking Day on such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by the Administrative Agent. Each
determination by the Administrative Agent of the Federal Funds Rate shall,
in the absence of manifest error, be conclusive; provided, however, that at
-------- -------
the request of the Company or any Lender the Administrative Agent shall
demonstrate the basis of such determination.
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<PAGE>
1.2.48. "Final Maturity Date" means October 10, 2003.
-------------------
1.2.49. "Financial Officer" of the Company (or other specified
-----------------
Person) means its chairman of the board of directors, vice chairman of the
board of directors, chief executive officer, chief financial officer, chief
operating officer, president, treasurer, assistant treasurer or any of its
vice presidents whose primary responsibility is for its financial affairs,
all of whose incumbency and signatures have been certified to the
Administrative Agent by the secretary or other appropriate attesting
officer of the Company (or such specified Person).
1.2.50. "Franchise" means any franchise, permit, license or other
---------
authorization granted by any governmental unit or authority for the
construction and operation of a cable television system or the reception
and transmission of signals by microwave, including without limitation, any
material FCC License.
1.2.51. "Guarantor" means each Restricted Subsidiary which is or
---------
subsequently becomes party to this Agreement as a Guarantor; provided,
--------
however, that in no event shall the term "Guarantor" include any Restricted
-------
Subsidiary which has been released as a Guarantor in accordance with
Section 6.8.
1.2.52. "Guarantors' Contribution Agreement" is defined in Section
----------------------------------
5.1.5.
1.2.53. "Hostetter Group" means each of Amos B. Hostetter, Jr., his
---------------
heirs, executors and administrators, trusts for himself or his family and
charitable foundations to which shares of the Company's capital stock,
beneficially owned by any one of the foregoing, have been transferred.
1.2.54. "Indebtedness" means all obligations, contingent or
------------
otherwise, which in accordance with generally accepted accounting
principles should be classified upon the obligor's balance sheet as
liabilities in respect of borrowed money, notes or similar instruments,
Capitalized Leases, the deferred purchase price of property or Redeemable
Preferred Stock, and all guarantees, endorsements and other contingent
obligations in respect of Indebtedness of others.
1.2.55. "Indentures" means the 1989 Indentures and the 1992
----------
Indentures.
1.2.56. "Initial Closing Date" means October 17, 1994 or such other
--------------------
date prior to December 31, 1994 agreed to by the Company and the
Administrative Agent as the first Closing Date hereunder.
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<PAGE>
1.2.57. "Investment" means with respect to any Person (a) any share
----------
of capital stock, evidence of Indebtedness or other security issued by any
other Person, (b) any loan, advance, extension of credit to, or
contribution to the capital of, any other Person, (c) the acquisition of
the stock or assets of a business or (d) any other investment; provided,
--------
however, that the term "Investment" shall not include (i) fixed assets or
-------
inventory acquired in the ordinary course of business and payable in
accordance with customary trade terms, (ii) advances to employees for
travel expenses, drawing accounts and similar expenditures, (iii) stock or
other securities acquired in connection with the satisfaction or
enforcement of Indebtedness or claims due or owing to the Company or any of
its Subsidiaries or as security for any such Indebtedness or claim, (iv)
any investment or purchase made through the issuance of common stock of the
payor or (v) demand deposits in banks or trust companies. The amount of an
Investment outstanding at any time shall be determined in accordance with
generally accepted accounting principles; provided, however, that no
-------- -------
Investment shall be increased as a result of an increase in the
undistributed retained earnings of the Person in whom an Investment was
made or decreased as a result of an equity in the losses of any such
Person.
1.2.58. "Investment Subsidiary" means Continental Cablevision Asset
---------------------
Management Corporation, a Massachusetts corporation, and such other
Unrestricted Subsidiaries that the Company hereafter from time to time
designates to the Administrative Agent as Investment Subsidiaries.
1.2.59. "Legal Requirement" means any requirement imposed upon any
-----------------
Lender by any law of any applicable jurisdiction or by any regulation,
order, interpretation, ruling or official directive of the Board of
Governors of the Federal Reserve System or any other central bank or any
other board or governmental or administrative agency of any applicable
jurisdiction or of any political subdivision of any such jurisdiction. Any
requirement imposed by any such regulation, order, ruling or official
directive not having the force of law shall be deemed to be a Legal
Requirement if any Lender reasonably believes that compliance therewith is
in the best interest of such Lender, and if the Company provides its
written consent with respect thereto, which consent shall not be
unreasonably withheld.
1.2.60. "Lender" means each of the Persons listed as lenders on
------
Exhibit 12.1, as from time to time in effect, including each of The First
National Bank of Boston, The Bank of New York and the other Agents in their
capacities as Lenders, and such other Persons who may from time to time own
a Revolving Percentage Interest in the Credit
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<PAGE>
Obligations, but the term "Lender" shall not include any Person holding a
participation in the Credit Obligations under Section 13.2.
1.2.61. "Lender Agreement" means each of the following documents:
----------------
(a) this Agreement and the Notes;
(b) all financial statements, reports, notices, assignments or
certificates delivered to the Administrative Agent or the Lenders by the
Company or any Guarantor in connection herewith or therewith; and
(c) any other present or future agreement or instrument from time to
time entered into among the Company, any Guarantor or any other Person
guaranteeing or providing collateral for the Credit Obligations, on the one
hand, and the Administrative Agent (on behalf of all of the Lenders) or all
of the Lenders, on the other hand, relating to, amending or modifying this
Agreement or any other Lender Agreement referred to above or which is
stated to be a Lender Agreement, each as from time to time in effect.
1.2.62. "Loan" means the Revolving Loan, the Money Market Loan and
----
the Swingline Loan, collectively.
1.2.63. "Loan Accounts" means each of the Revolving Loan Accounts,
-------------
the Money Market Loan Accounts and the Swingline Loan Account.
1.2.64. "Long-Term Pricing Option Spread" means the interest
-------------------------------
increment, expressed as a decimal, over the applicable Eurodollar Rate of
which each Lender advises the Administrative Agent pursuant to Section
3.2.1 with respect to a proposed Eurodollar Interest Period exceeding six
months in duration.
1.2.65. "Management Group" means, collectively, the Hostetter Group
----------------
and the other officers of the Company and its Subsidiaries.
1.2.66. "Managing Agents" means The First National Bank of Boston and
---------------
The Bank of New York or any Lenders acting as successor Managing Agents
hereunder from time to time.
1.2.67. "Margin Stock" means "margin stock" within the meaning of
------------
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings thereunder, as from
time to time in effect.
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1.2.68. "Maximum Amount of Credit" is defined in Section 2.4.
------------------------
1.2.69. "Money Market Loan" is defined in Section 2.2.
-----------------
1.2.70. "Money Market Loan Accounts" is defined in Section 2.2.5.1.
--------------------------
1.2.71. "Money Market Loan Closing Date" is defined in Section 2.2.1.
------------------------------
1.2.72. "Money Market Loan Interest Payment Date" is defined in
---------------------------------------
Section 2.2.1.
1.2.73. "Money Market Loan Maturity Date" is defined in Section
-------------------------------
2.2.1.
1.2.74. "Money Market Rates" is defined in Section 2.2.3.
------------------
1.2.75. "Moody's" means Moody's Investors Service, Inc.
-------
1.2.76. "Net Cash Proceeds" means the cash proceeds of an Asset Sale
-----------------
net of (a) any Indebtedness secured by assets being sold in such Asset Sale
required to be paid from such proceeds, (b) the proportionate interests of
any other stockholders of the seller in such proceeds, (c) income taxes
that, as estimated by the Company in good faith, will be required to be
paid by the Company and its Restricted Subsidiaries in cash as a result of,
and within 15 months after, such Asset Sale, and (d) all reasonable
expenses of the Company or such seller incurred in connection with the
Asset Sale.
1.2.77. "1989 Indentures" means the Indentures initially between the
---------------
Company and National Westminster Bank USA, as trustee, dated as of November
1, 1989, relating to the 1989 Subordinated Debt, as previously furnished to
the Administrative Agent.
1.2.78. "1989 Subordinated Debt" means the Company's Senior
----------------------
Subordinated Debentures and Senior Subordinated Floating Rate Debentures,
each due 2004, issued in the aggregate principal amounts of $350,000,000
and $100,000,000, respectively, in accordance with the 1989 Indentures.
1.2.79. "1992 Credit Agreement" is defined in Section 5.1.3.
---------------------
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<PAGE>
1.2.80. "1992 Indentures" means the indentures initially between the
---------------
Company and Morgan Guaranty Trust Company of New York, as trustee, relating
to the 1992 Subordinated Debt, as previously furnished to the Lenders.
1.2.81. "1992 Preferred Stock" means the Series A Participating
--------------------
Convertible Preferred Stock, $.01 par value per share, of the Company.
1.2.82. "1992 Preferred Stock Redemption Event" means (a) the
-------------------------------------
exercise by holders of the 1992 Preferred Stock of their right to cause the
Company to redeem any of such shares following the occurrence of a
Preferred Stock Change of Control Event (as defined in the 1992 Indentures)
and (b) the irrevocable election by the Company to redeem such shares in
cash.
1.2.83. "1992 Subordinated Debt" means the Senior Subordinated Notes
----------------------
due 2002 and the Senior Subordinated Debentures due 2007 issued by the
Company in accordance with the 1992 Indentures.
1.2.84. "Nonperforming Lender" is defined in Section 12.3.2.
--------------------
1.2.85. "Note" is defined in Section 2.1.1.
----
1.2.86. "Note Agreement" means the Note Agreement dated September 20,
--------------
1989, as amended and in effect from time to time, between the Company and
The Prudential Insurance Company of America.
1.2.87. "Operating Assets" means (a) a group of tangible and
----------------
intangible assets used by a Person to provide cable television or
telecommunications services or to conduct any related activities, or (b)
all of the outstanding capital stock of, or other equity interests in, a
Person engaged in the provision of cable television or telecommunications
services or conducting any related activities; provided, however, that the
-------- -------
assets, capital stock or other equity interests of a Person acquired by the
Company or a Restricted Subsidiary shall constitute Operating Assets only
to the extent such assets are held by, or such Person is designated as, a
Restricted Subsidiary after consummation of such acquisition.
1.2.88. "Payment Date" means the last Banking Day of each March,
------------
June, September and December of each year.
1.2.89. "Performing Lender" is defined in Section 12.3.2.
-----------------
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<PAGE>
1.2.90. "Person" means a corporation, association, partnership, joint
------
venture, company, trust, organization, business, individual or government
or any governmental agency or political subdivision thereof.
1.2.91. "PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor entity.
1.2.92. "Plan" means any pension plan subject to Title IV of ERISA
----
established or maintained, or to which contributions are made, by the
Company or any of its Restricted Subsidiaries or any Control Group Person.
1.2.93. "Pro Forma Debt Service" means, for any period, the sum of
----------------------
(a) Pro Forma Interest Payments plus (b) the aggregate amount of principal
----
(including payments in the nature of principal under Capitalized Leases and
Redeemable Preferred Stock) required to be paid in cash by the Company and
its Restricted Subsidiaries on all Indebtedness, including the Loan.
1.2.94. "Pro Forma Interest Payments" means, for any period, the sum
---------------------------
of (a) the aggregate amount of interest (including payments in the nature
of interest under Capitalized Leases and interest rate protection
agreements) required to be accrued or paid in cash by the Company and its
Restricted Subsidiaries during the period in question on all Indebtedness,
including the Loan, whether such interest was or is to be reflected as an
item of expense or capitalized, and (b) the aggregate amount of dividends
on capital stock of the Company required to be paid in cash by the Company
during the period in question. For purposes of computing projected
interest for any period under the preceding sentence, (i) the amount of
Indebtedness or capital stock outstanding on the first day of such period
shall be assumed to remain outstanding during the entire period except to
the extent that such Indebtedness or capital stock is subject to a
mandatory prepayment of principal or a mandatory redemption of capital
stock, as the case may be, during such period, (ii) if the Company and the
Restricted Subsidiaries have committed to incur additional Indebtedness or
issue additional capital stock during such period, interest or cash
dividends on such additional Indebtedness or capital stock, as the case may
be, shall be taken into account from and after the date on which such
Person is committed to incur it, (iii) where interest varies with or
depends on a floating rate, the rate in effect on the first day of such
period will be assumed to be in effect and remain constant during the
entire period for which interest is being computed, (iv) where interest is
fixed for a portion of such period, the floating rate that would otherwise
have been applicable on the first day of such
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<PAGE>
period will be assumed to be in effect and remain constant during the
balance of such period after the fixed rate terminates, and (v) where
interest is subject to an interest rate protection agreement, the effective
interest cost to the Company and its Restricted Subsidiaries shall be
deemed to be the interest rate set forth in such interest rate protection
agreement.
1.2.95. "Pro Forma Ratio" means, with respect to any Asset Sale, the
---------------
ratio of Consolidated Total Debt as of the date of consummation of the
Asset Sale, on a pro forma basis giving effect to any repayment of the Loan
and any other Indebtedness from the Net Cash Proceeds of the Asset Sale, to
four times Consolidated Operating Income for the most recently completed
fiscal quarter for which financial statements have been (or are required to
have been) furnished to the Lenders in accordance with Section 7.2.1 or
7.2.2, on a pro forma basis giving effect to (a) the reduction in
Consolidated Operating Income resulting from such Asset Sale and any other
Asset Sale since the end of such fiscal quarter and (b) to the increase in
Consolidated Operating Income resulting from any acquisition of Operating
Assets since the end of such fiscal quarter.
1.2.96. "Pro Rata Event" is defined in Section 12.7.1.
--------------
1.2.97. "Purchase Price" means, with respect to any Qualifying
--------------
Reinvestment, the purchase price of the Operating Assets acquired in such
Qualifying Reinvestment which is paid on the closing of such acquisition in
cash or capital stock of the Company without giving effect to any post-
closing adjustments.
1.2.98. "Qualifying Reinvestment" means, with respect to any Asset
-----------------------
Sale, the acquisition by the Company or a Restricted Subsidiary of
Operating Assets which satisfies one of the following conditions: (a) such
acquisition occurs within 90 days prior to such Asset Sale or (b)(i) within
180 days after such Asset Sale the Company or a Restricted Subsidiary has
executed and delivered a binding agreement pursuant to which the Company or
a Restricted Subsidiary is committed to acquire Operating Assets and (ii)
within 180 days after the execution and delivery of such agreement, the
Company or a Restricted Subsidiary actually acquires such Operating Assets.
1.2.99. "Redeemable Preferred Stock" means preferred stock with
--------------------------
redemption obligations that (a) are either (i) fixed or (ii) at the option
of the holder and (b) may be satisfied only by the payment of cash,
Indebtedness or property other than capital stock of the issuer (unless
such capital stock constitutes Redeemable Preferred Stock). By
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<PAGE>
way of illustration, the 1992 Preferred Stock does not constitute
Redeemable Preferred Stock.
1.2.100. "Redemption Amount" means (a) in the case of one of the
-----------------
events described in paragraph (i) or (ii) of Section 7.2.9, the aggregate
redemption price (as determined in accordance with the applicable
Indenture) of all of the then outstanding Subordinated Debt which is to be
redeemed or (b) in the case of a proposed Preferred Stock Redemption
Payment, the aggregate redemption price (as determined in accordance with
the applicable indenture) of the maximum aggregate principal amount of
Subordinated Debt which the Company might be required to redeem subsequent
to the irrevocable election described in paragraph (iii) of Section 7.2.9.
1.2.101. "Redeployment Rate" means the quotient (rounded if necessary
-----------------
to the nearest 1/100%) obtained by dividing (a) the sum of the Reference
Redeployment Rates of the Managing Agents by (b) the number of Managing
Agents, all as determined by the Administrative Agent on the basis of the
Reference Redeployment Rates furnished to it by the Managing Agents. Each
determination by the Administrative Agent of the Redeployment Rate pursuant
to the foregoing sentence shall, in the absence of manifest error, be
conclusive; provided, however, that at the request of the Company or any
-------- -------
Lender the Administrative Agent shall demonstrate the basis for such
determination.
1.2.102. "Reference Redeployment Rates" as applied to any Managing
----------------------------
Agent means the rate of interest at which Eurodollar deposits on a date
approximating the date of prepayment or termination of a Eurodollar Pricing
Option, in an amount equal to (or approximating) such Managing Agent's
Revolving Percentage Interest in the portion of the Loan subject to such
Eurodollar Pricing Option and having a maturity date approximating the last
Banking Day of such Eurodollar Interest Period, are offered by such
Managing Agent in the inter-bank Eurodollar market for delivery in
immediately available funds at the Eurodollar Office (or a similar rate if
such rate is for any reason not offered by such Managing Agent). Each
determination by a Managing Agent of any Reference Redeployment Rate shall,
in the absence of manifest error, be conclusive; provided, however, that at
-------- -------
the request of the Company or any Lender, such Managing Agent shall
demonstrate the basis for such determination.
1.2.103. "Register" is defined in Section 13.1.3.
--------
1.2.104. "Remaining Dollar-Years" of any Indebtedness means, at any
----------------------
date, the sum of the products obtained by
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multiplying (a) the amount of each remaining installment or other scheduled
payment of principal (or in the case of a revolving credit facility, each
scheduled reduction in the revolving credit commitment), including the
maximum amount currently redeemable at the option of the holder, by (b) the
number of years (calculated to the nearest twelfth) which will elapse
between such date and the making of the payment or earliest exercise of
such redemption option (or in the case of a revolving credit facility, such
scheduled reduction in the revolving credit commitment).
1.2.105. "Replacement Lender" is defined in Section 13.3.
------------------
1.2.106. "Request Date" is defined in Section 2.2.1.
------------
1.2.107. "Restricted Subsidiary" means (a) any Subsidiary designated
---------------------
as a Restricted Subsidiary in Exhibit 8.1 as in effect on the Initial
Closing Date, and (b) any Subsidiary hereafter designated by a Financial
Officer of the Company certifying that such Subsidiary is a Person (i) 80%
of (A) the voting stock or (B) the equity, partnership or other beneficial
interests of which is owned by the Company or its Restricted Subsidiaries,
(ii) which is organized under the laws of the United States of America or
any state thereof or the District of Columbia and has substantially all of
its properties and assets located within the United States of America,
(iii) which conducts its business so as to derive its revenues from the
cable television or telecommunications businesses and related activities,
and (iv) immediately after such Person becomes a Restricted Subsidiary, no
Default exists; provided, however, that in no event shall the term
-------- -------
"Restricted Subsidiary" include a Subsidiary released in accordance with
Section 6.8. No Restricted Subsidiary may subsequently become an
Unrestricted Subsidiary, except in accordance with Section 6.8.
1.2.108. "Revolving Loan" is defined in Section 2.1.1.
--------------
1.2.109. "Revolving Loan Accounts" is defined in Section 2.1.1.
-----------------------
1.2.110. "Revolving Loan Closing Date" is defined in Section 2.1.
---------------------------
1.2.111. "Revolving Percentage Interest" means, for each Lender, its
-----------------------------
percentage interest in the Commitments to make the Revolving Loan as set
forth in Exhibit 12.1 as from time to time in effect.
1.2.112. "S&P" means Standard & Poor's Corporation.
---
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<PAGE>
1.2.113. "Senior Subordinated Debt" means each of the 1989
------------------------
Subordinated Debt and the 1992 Subordinated Debt.
1.2.114. "Stated Maximum" is defined in Section 2.4.
--------------
1.2.115. "Subordinated Debt" means (a) the Senior Subordinated Debt
-----------------
and (b) Indebtedness (including redeemable preferred stock that constitutes
Indebtedness) subordinated to the Credit Obligations and permitted by
Section 7.7.7 or 7.7.9.
1.2.116. "Subsidiary" means any Person of which the Company (or other
----------
specified parent) shall at the time, directly or indirectly through one or
more of its Subsidiaries, own at least a majority of (a) the outstanding
voting stock or (b) the equity, partnership or other beneficial interests.
1.2.117. "Swingline Commitment" is defined in Section 2.3.
--------------------
1.2.118. "Swingline Lender" means The First National Bank of Boston
----------------
in its capacity as swingline lender hereunder.
1.2.119. "Swingline Loan" is defined in Section 2.3.1.
--------------
1.2.120. "Swingline Loan Account" is defined in Section 2.3.1.
----------------------
1.2.121. "Swingline Loan Closing Date" is defined in Section 2.3.
---------------------------
1.2.122. "Swingline Rate" means the sum of (a) the rate per annum
--------------
agreed from time to time between the Swingline Lender and the Company in a
separate written agreement; provided, however, that in no event shall the
-------- -------
Swingline Rate be less than the Effective Rate calculated on the basis of
the Eurodollar Rate or greater than the Effective Rate calculated on the
basis of the Base Rate; plus (b) an additional 2% per annum effective on
----
the day the Administrative Agent notifies the Company that the interest
rates hereunder are increasing as a result of the occurrence and
continuance of an Event of Default under Section 9.1.1 until the earlier of
such time as (i) such Event of Default is no longer continuing of (ii) such
Event of Default is deemed pursuant to Section 9.3 no longer to exist.
1.2.123. "Tax" means any tax, levy, impost, duty, deduction,
---
withholding or other charges of whatever nature at any time required by any
Legal Requirement having the force of law (a) to be paid by any Lender or
(b) to be
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withheld or deducted from any payment otherwise required hereby to be made
by the Company to any Lender, other than taxes imposed upon or measured by
the net income of such Lender.
1.2.124. "United States Funds" means such coin or currency of the
-------------------
United States of America as at the time shall be legal tender therein for
the payment of public and private debts.
1.2.125. "Unrestricted Subsidiary" means any Subsidiary of the
-----------------------
Company (or other specified Person) other than a Restricted Subsidiary.
1.2.126. "Voting Percentage Interest" means, for each Lender, (a) the
--------------------------
amount of its Commitment to make the Revolving Loan (plus, in the case only
----
of the Swingline Lender, the Swingline Commitment) divided by (b) the
Stated Maximum; provided, however, that upon the occurrence of a Pro Rata
-------- -------
Event, the Voting Percentage Interests shall be calculated as set forth in
Section 12.7.1.
1.2.127. "Weighted Average Life to Maturity" of any Indebtedness
---------------------------------
means, at any date, the number of years obtained by dividing the Remaining
Dollar-Years of such Indebtedness by the outstanding principal amount of
the Indebtedness (or, in the case of a revolving credit facility, the
maximum amount of revolving credit commitment, regardless of the amount of
revolving loans then outstanding).
1.2.128. "Weighted Average Long-Term Pricing Option Spread" means
------------------------------------------------
with respect to any Eurodollar Pricing Option having a Eurodollar Interest
Period in excess of six months in duration, the average of the Long-Term
Pricing Option Spread of which each Lender shall have advised the
Administrative Agent with respect to such Eurodollar Pricing Option,
weighted according to the Lenders' respective Revolving Percentage
Interests in the portion of the Revolving Loan subject to such Eurodollar
Pricing Option.
2. THE CREDITS.
2.1. Revolving Loan. Subject to all the terms and conditions hereof, and
--------------
so long as no Default exists, on such Banking Days prior to the Final Maturity
Date, as the Company may from time to time request by not fewer than one Banking
Day prior telephone notice to The First National Bank of Boston in its capacity
as administrative agent hereunder (in such capacity, the "Administrative
Agent"), which telephone notice shall be promptly confirmed in writing, or such
longer notice period required by Section 3.2.1 if a Eurodollar Pricing Option is
requested, the
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<PAGE>
Lenders will severally lend to the Company, in accordance with their respective
Revolving Percentage Interests, such amounts (not less than $5,000,000 in the
aggregate and in integral multiples of $100,000, or in such greater amounts as
required by Section 3.2.1 if a Eurodollar Pricing Option is requested) as the
Company shall have so requested, by causing the Administrative Agent to debit
the amount of such loans to the Revolving Loan Accounts and to credit the amount
thereof to the general account of the Company with the Administrative Agent at
the Boston Office; provided, however, that in no event shall the combined
-------- -------
aggregate principal amount of loans at any time outstanding under this Section
2.1 and Sections 2.2 and 2.3 exceed the Maximum Amount of Credit. Each date on
which any loan is made under this Section 2.1 is referred to herein as a
"Revolving Loan Closing Date". In connection with each request for a loan under
this Section 2.1, the Company shall furnish to the Administrative Agent by
telecopy no later than 4:00 p.m. on the applicable Revolving Loan Closing Date
(with a duplicate furnished promptly by mail) a certificate dated such Revolving
Loan Closing Date in substantially the form of Exhibit 5.2.1 and signed by the
Company, together with any other documents required by Section 5.
2.1.1. Revolving Loan Accounts. The Administrative Agent shall
-----------------------
establish on its books separate loan accounts on behalf of each Lender
(collectively, the "Revolving Loan Accounts"), each of which shall reflect
the loans made by such Lender to the Company pursuant to this Section 2.1,
and all of which shall be administered by the Administrative Agent as
follows: (a) the Administrative Agent shall debit to each Revolving Loan
Account, and each such Revolving Loan Account shall evidence, the principal
amount of loans from time to time made by each Lender to the Company
pursuant to this Section 2.1, and (b) the Administrative Agent shall credit
each Revolving Loan Account with all payments made on account of the
principal amount of Indebtedness evidenced by such Revolving Loan Account.
All such payments received by the Administrative Agent shall be credited to
the several Revolving Loan Accounts in accordance with the respective
principal amounts thereof. The aggregate principal amount of Indebtedness
from time to time evidenced by the Revolving Loan Accounts is referred to
as the "Revolving Loan". The Company's obligations to pay each Lender's
Revolving Percentage Interest in the Revolving Loan shall be evidenced by a
separate note of the Company substantially in the form of Exhibit 2.1.1
(each a "Note"), payable to each Lender in a maximum principal amount equal
to such Lender's Revolving Percentage Interest in the Revolving Loan.
2.1.2. Maturity, etc. The Revolving Loan shall bear interest as
-------------
provided in Section 3.1, shall be payable and prepayable as provided in
Section 4 and shall have a stated maturity of the Final Maturity Date.
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<PAGE>
2.2. Money Market Rate Credit. As provided in this Section 2.2, the
------------------------
Company may request, and one or more Lenders, each acting in its sole and
absolute discretion, may offer to make, loans on a money market basis (each such
loan made by any of the Lenders pursuant to this Section 2.2 being referred to
herein as a "Money Market Loan"), which the Company may, in its sole and
absolute discretion, agree to accept; provided, however, that in no event shall
-------- -------
the aggregate principal amount of Money Market Loans at any one time outstanding
exceed an amount equal to (a) $200,000,000 minus (b) the amount, if any,
-----
designated by the Company pursuant to Section 2.5.1(a); and provided, further,
-------- -------
that in no event shall the combined aggregate principal amount of loans at any
one time outstanding under this Section 2.2 and Sections 2.1 and 2.3 exceed the
Maximum Amount of Credit.
2.2.1. Request by the Company. Subject to all the terms and
----------------------
conditions hereof and so long as there shall exist no Default, the Company
may, at any time prior to the Final Maturity Date, by telex or telecopy
notice to the Administrative Agent substantially in the form of Exhibit
2.2.1 received not later than 10:00 a.m. (Boston time) on any Banking Day
(the "Request Date"), request bids for loans pursuant to this Section 2.2
to be made on the following Banking Day (the "Money Market Loan Closing
Date"), such request to specify (a) the aggregate amount of the proposed
loans, which shall not be less than $10,000,000 and which shall be in
integral multiples of $1,000,000, (b) the proposed maturity date or dates
(each such date a "Money Market Loan Maturity Date") for such proposed
loans (which maturity dates shall be not later than the earlier of (i) the
270th day following the applicable Money Market Loan Closing Date and (ii)
the Final Maturity Date), (c) the proposed dates (each such date a "Money
Market Loan Interest Payment Date"), if any, prior to the applicable Money
Market Loan Maturity Date on which accrued but unpaid interest shall be due
and payable on the principal amount of such proposed loans and (d) which
Lenders will be requested to submit bids for such proposed Money Market
Loans. No more than 25 Eurodollar Pricing Options and Money Market Loans
in the aggregate may be outstanding at any one time. The Company will pay
to the Administrative Agent quarterly in arrears an auction fee in respect
of each request submitted by the Company pursuant to this Section 2.2.1 in
an amount equal to $100 for each Lender to be requested to submit any bid,
with a minimum fee of $1,000 for each Request Date; provided, however, that
-------- -------
no such fee shall be payable with respect to any such request if the
Administrative Agent shall have failed to perform its duties under this
Section 2.2 within the time periods established by this Section 2.2.
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2.2.2. Dissemination of Requests for Bids for Money Market Loans.
---------------------------------------------------------
Promptly upon receipt of each request submitted by the Company pursuant to
Section 2.2.1, and in any event not later than 2:00 p.m. (Boston time) on
the applicable Request Date, the Administrative Agent shall, by telex or
telecopy notice (or by telephonic notice on a reasonable efforts basis,
promptly confirmed by telex or telecopy) to each Lender (or to such Lenders
as the Company may have specified) in substantially the form of Exhibit
2.2.2, notify each such Lender of such request, which notice shall
constitute an invitation on behalf of the Company for each such Lender to
submit bids pertaining to the proposed Money Market Loans in accordance
with Section 2.2.3.
2.2.3. Bids for Money Market Loans. Each Lender requested pursuant
---------------------------
to Section 2.2.2 may, in its sole and absolute discretion, respond to such
invitation by submitting a bid by telex or telecopy notice to the
Administrative Agent no later than 9:00 a.m. (Boston time) on the proposed
Money Market Loan Closing Date. Such notice shall be substantially in the
form of Exhibit 2.2.3A, which notice shall constitute an offer by such
Lender to the Company to make Money Market Loans on the proposed Money
Market Loan Closing Date in the principal amounts specified in the notice
from such Lender, which principal amounts (a) may be for all or any portion
of the proposed Money Market Loans, notwithstanding the Revolving
Percentage Interest of such Lender, (b) may be different principal amounts
for different Money Market Loan Maturity Dates (subject to an over-all
maximum) and (c) shall be an integral multiple of $1,000,000 maturing on
the Money Market Loan Maturity Dates requested by the Company, with accrued
and unpaid interest on the principal amount thereof to be due and payable
on the Money Market Loan Interest Payment Dates, if any, requested by the
Company, and on such Money Market Loan Maturity Dates, such interest to
accrue at the rates per annum (which shall be in integral multiples of
1/100%) specified in such notice (the "Money Market Rates"). The
Administrative Agent shall disregard any bid (i) not submitted by 9:00 a.m.
(Boston time) on the proposed Money Market Loan Closing Date or (ii) not
substantially in the form of Exhibit 2.2.3A, or not complete, or containing
qualifying, conditional or similar language, or terms different from or in
addition to those set forth in the pertinent request, and any late or non-
conforming bid shall be deemed not to have been given for any purpose of
this Agreement. The Administrative Agent shall promptly, and in any event
not later than 10:00 a.m. (Boston time) on the proposed Money Market Loan
Closing Date, by telephonic notice to the Company, confirmed in writing,
forward to the Company in substantially the form of Exhibit 2.2.3B, all
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<PAGE>
bids submitted in compliance with this Section 2.2.3. Notwithstanding the
foregoing provisions of this Section 2.2.3, The First National Bank of
Boston, if it is then the Administrative Agent, shall submit its own bid,
if any, to the Company by telex or telecopy not later than 8:45 a.m.
(Boston time) on the proposed Money Market Loan Closing Date.
2.2.4. Acceptance of Bids by the Company. Not later than 10:30 a.m.
---------------------------------
(Boston time) on the applicable Money Market Loan Closing Date, the Company
shall by telex or telecopy notice to the Administrative Agent substantially
in the form of Exhibit 2.2.4A, indicate its acceptance or non-acceptance of
each offer submitted pursuant to Section 2.2.3. In the case of acceptance,
such notice shall be irrevocable and shall specify the aggregate principal
amount of each offered Money Market Loan that is accepted. Such notice
shall be deemed to constitute the certification of the Company that the
closing conditions for such Money Market Loans contained in Section 5.2
(other than the delivery of an officer's certificate) have been satisfied.
The Company may accept each such offer in whole or in part; provided,
--------
however, that (a) the aggregate principal amount of all Money Market Loans
-------
accepted and made on any Money Market Loan Closing Date may not exceed the
applicable amount set forth in the applicable request, (b) the principal
amount of each Money Market Loan shall be an integral multiple of
$1,000,000, and (c) acceptance of offers for Money Market Loans with the
same Money Market Loan Maturity Date may be made only on the basis of
ascending quoted Money Market Rates; and provided, further, that if offers
-------- -------
are made by two or more Lenders having the same Money Market Rate for a
greater aggregate principal amount than the amount in respect of which
offers at such rate are accepted, the principal amount of such Money Market
Loans in respect of which such offers are accepted at such rate shall be
allocated by the Administrative Agent among such Lenders as nearly as
possible (in integral multiples of $1,000,000) in proportion to the
aggregate principal amount of such offers. Determinations by the
Administrative Agent of the amounts of Money Market Loans pursuant to the
immediately preceding sentence shall be conclusive in the absence of
manifest error. The Administrative Agent shall, not later than 11:15 a.m.
(Boston time) on the Money Market Loan Closing Date, notify each Lender who
submitted an offer for the particular loans requested pursuant to Section
2.2.1 whether any offer has been accepted (substantially in the form of
Exhibit 2.2.4B) or rejected (substantially in the form of Exhibit 2.2.4C)
and, if accepted, in what principal amount and maturity. In the event the
Company fails to provide such notice to the Administrative Agent by 10:30
a.m. (Boston time) on the Money Market Loan Closing Date, the
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<PAGE>
Administrative Agent may conclusively presume that all such offers have
been rejected by the Company and, in such event, the Administrative Agent
shall, not later than 11:15 a.m. (Boston time), so notify each Lender which
submitted an offer. Each time a Money Market Loan is made, the
Administrative Agent shall send a notice to the Company and each Lender in
substantially the form of Exhibit 2.2.4D specifying the principal amount
and maturity date of such Money Market Loan.
2.2.5. Funding by the Administrative Agent; Money Market Loan
------------------------------------------------------
Account, etc. Each Money Market Loan by any Lender will be made on the
------------
terms offered by such Lender and accepted by the Company in accordance with
this Section 2.2 at the Boston Office on the applicable Money Market Loan
Closing Date by debiting the amount thereof to the applicable Money Market
Loan Accounts and by crediting the amount thereof to the Revolving Loan
Accounts for the account of the Lenders in accordance with their respective
Revolving Percentage Interests or as the Company shall have otherwise
specified by written notice to the Administrative Agent. In conjunction
with each closing under this Section 2.2, the Company shall furnish to the
Administrative Agent by telecopy not later than 4:00 p.m. (Boston time) on
the applicable Money Market Loan Closing Date (with a duplicate furnished
promptly by mail) a certificate dated such Money Market Loan Closing Date
in substantially the form of Exhibit 5.2.1 and signed by the Company,
together with any other documents required by Section 5.
2.2.5.1. Money Market Loan Account. The Administrative Agent
-------------------------
will establish on its books separate loan accounts (the "Money Market
Loan Accounts") for each Lender extending a Money Market Loan which
the Administrative Agent shall administer as follows: (a) the
Administrative Agent shall debit to the pertinent Money Market Loan
Account, and the pertinent Money Market Loan Account shall evidence,
the principal amount of all Money Market Loans from time to time made
by such Lender and (b) the Administrative Agent shall credit to the
pertinent Money Market Loan Account, all payments made on account of
the principal amount of Indebtedness evidenced by the pertinent Money
Market Loan Account. The Administrative Agent shall also maintain
records of the Money Market Rate and Money Market Loan Maturity Date
with respect to each Money Market Loan.
2.2.5.2. Maturity Date; Interest; Repayment. The stated
----------------------------------
maturity date of each Money Market Loan shall be the applicable Money
Market Loan Maturity Date for such Money Market Loan. The Company
will pay interest on
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<PAGE>
the principal amount of each Money Market Loan at the applicable Money
Market Rate (plus an additional 2% per annum effective on the day the
----
Administrative Agent notifies the Company that the interest rates
hereunder are increasing as a result of the occurrence and continuance
of an Event of Default under Section 9.1.1 until the earlier of such
time as (a) such Event of Default is no longer continuing or (b) such
Event of Default is deemed pursuant to Section 9.3 no longer to exist)
for such Money Market Loan on each applicable Money Market Loan
Interest Payment Date, if any, and on the applicable Money Market Loan
Maturity Date for such Money Market Loan. Upon the maturity of any
Money Market Loan, so long as either (i) no Event of Default then
exists or (ii) the Administrative Agent shall have received the
consent of all the Lenders if an Event of Default then exists, the
Administrative Agent shall debit the Revolving Loan Accounts of the
Company in the principal amount of such Money Market Loan for the
account of the Lenders in accordance with their respective Revolving
Percentage Interests and shall credit the same amount to the pertinent
Money Market Loan Account.
2.2.6. Funding; Legal Requirements. Each Lender extending a Money
---------------------------
Market Loan may fund the principal amount of Money Market Loans made by
such Lender in any manner it may choose. If the cost to such Lender of
maintaining such funding is increased after the effectiveness of any Money
Market Loan, by reason of the imposition or increase of any reserve
(including, without limitation, any basic, supplemental, marginal or
emergency reserve, reserve asset, special deposit, insurance premium or
assessment) required by any Legal Requirement to be maintained or paid by
such Lender on or in respect of such Money Market Loan or the funding by
such Lender of such Money Market Loan, then the Company will, on demand by
the Administrative Agent, pay to the Administrative Agent for the account
of such Lender such additional amount as is necessary to reimburse such
Lender for such increase in its costs. Such costs shall be computed by
determining the amount by which such Legal Requirement effectively
increases the cost to such Lender of funding in the manner chosen by such
Lender the principal amount of such Money Market Loan, and by computing the
additional interest which would have been owing to such Lender hereunder if
the Money Market Rate applicable to such Money Market Loan had been
increased by the amount of such effective increase in cost as of the date
of such increase. The determination by such Lender of the amount of any
such costs incurred by such Lender and the allocation, if any, of such
costs among the Company and other customers which have arrangements with
such Lender similarly funded, if done in
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good faith and if any such allocation is made on an equitable basis, shall,
in the absence of manifest error, be conclusive; provided, however, that at
-------- -------
the request of the Company such Lender shall demonstrate the basis for such
determination or provide an explanation, reasonably satisfactory to the
Company, why such determination may not be demonstrated. Each Lender
agrees that if, after the payment by the Company of any additional amount
referred to in the foregoing provisions of this Section 2.2.6 for the
account of such Lender, any part thereof is subsequently recovered or used
as a credit by such Lender, such Lender shall reimburse the Company to the
extent of the amount so recovered or used. A certificate of an officer of
such Lender setting forth the amount of such recovery or utilization and
the basis therefor shall be conclusive; provided, however, that at the
-------- -------
request of the Company, such Lender shall demonstrate the basis for such
recovery or utilization or provide an explanation, reasonably satisfactory
to the Company, why such basis may not be demonstrated.
2.2.7. Prepayments in Respect of Money Market Loans. If any Money
--------------------------------------------
Market Loan is prepaid prior to the applicable Money Market Loan Maturity
Date (including as a result of acceleration), the Company will make the
payment, if any, which would be required by Section 3.3.2 with respect to
such prepayment (such payment to be calculated as if (a) such Money Market
Loan constituted Indebtedness evidenced by the Revolving Loan Accounts
subject to a Eurodollar Pricing Option and (b) the applicable Money Market
Rate was the Basic Eurodollar Rate). For purposes of this Section 2.2.7,
if any portion of the principal amount of a Money Market Loan which was to
have been made pursuant to this Section 2.2 is not outstanding on the
applicable Money Market Loan Closing Date other than by reason of a Lender
failing to perform its obligations hereunder, the Company shall be deemed
to have prepaid such Money Market Loan with respect to such principal
amount.
2.3. Swingline Credit. Subject to all the terms and conditions hereof,
----------------
and so long as no Default exists, on such Banking Days prior to the Final
Maturity Date as the Company may from time to time request (each a "Swingline
Loan Closing Date") by telephone notice to the Swingline Lender and to the
Administrative Agent, if other than the Swingline Lender, given not later than
3:00 p.m. (Boston time) on the Swingline Loan Closing Date, which telephone
notice shall be promptly confirmed in writing, the Swingline Lender will lend to
the Company such amount, which shall not be less than $100,000 and shall be in
an integral multiple of $50,000, as the Company shall have so requested, by
causing the Administrative Agent to debit the amount of such loan to the
Swingline Loan Account and to credit
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<PAGE>
the amount thereof to the general account of the Company with the Administrative
Agent at the Boston Office; provided, however, that in no event shall the
-------- -------
aggregate principal amount of all loans at any one time outstanding under this
Section 2.3 exceed $25,000,000 (the "Swingline Commitment"); and provided,
--------
further, that in no event shall the combined aggregate principal amount of loans
- -------
at any one time outstanding under this Section 2.3 and Sections 2.1 and 2.2
exceed the Maximum Amount of Credit. In connection with each request for a loan
under this Section 2.3, the Company shall furnish to the Agent by telecopy no
later than 4:00 p.m. (Boston time) on the applicable Swingline Loan Closing Date
(with a duplicate furnished promptly by mail) a certificate dated such Swingline
Loan Closing Date in substantially the form of Exhibit 5.2.1 and signed by the
Company, together with any other documents required by Section 5.
2.3.1. Swingline Loan Account. The Administrative Agent shall
----------------------
establish on its books a loan account for the Company (the "Swingline Loan
Account"), which shall reflect the loans made by the Swingline Lender
pursuant to this Section 2.3 and which shall be administered by the
Administrative Agent as follows: (a) the Administrative Agent shall debit
to the Swingline Loan Account, and the Swingline Loan Account shall
evidence, the principal amount of loans from time to time made by the
Swingline Lender to the Company pursuant to this Section 2.3, and (b) the
Administrative Agent shall credit the Swingline Loan Account with all
payments made on account of the principal amount of Indebtedness evidenced
thereby. The principal amount of Indebtedness from time to time evidenced
by the Swingline Loan Account is referred to as the "Swingline Loan".
2.3.2. Maturity, etc. The Swingline Loan shall bear interest as
-------------
provided in Section 3.5, shall be payable and prepayable as provided in
Section 4 and shall have a stated maturity of the Final Maturity Date.
2.4. Maximum Amount of Credit. The combined aggregate principal amount of
------------------------
all loans at any one time outstanding under Sections 2.1, 2.2 and 2.3 shall not
at any time exceed an amount (the "Maximum Amount of Credit") equal to:
(a) (i) the lesser of (A) during each period specified in the table
below, the amount specified in such table:
<TABLE>
<CAPTION>
Period Maximum Amount
------ --------------
<S> <C>
Initial Closing Date
through December 30, 1997 $2,200,000,000
December 31, 1997
through December 30, 1998 $2,090,000,000
</TABLE>
-28-
<PAGE>
<TABLE>
<S> <C>
December 31, 1998
through December 30, 1999 $1,870,000,000
December 31, 1999
through December 30, 2000 $1,540,000,000
December 31, 2000
through December 30, 2001 $1,175,000,000
December 31, 2001
through December 30, 2002 $ 815,000,000
December 31, 2002
through the Final Maturity
Date $ 375,000,000
</TABLE>
or (B) the amount (being an integral multiple of $5,000,000 unless the
Company terminates the entire Maximum Amount of Credit) irrevocably
specified from time to time by at least three Banking Days prior
written notice from the Company to the Administrative Agent,
minus (ii) the aggregate principal amount of all Asset Sale
-----
Designations which are automatically rescinded pursuant to clause (b)
of the last sentence of Section 2.5.2 (the amount determined pursuant
to this clause (a) is referred to herein as the "Stated Maximum"),
minus (b) all unborrowed amounts for which designations are in effect
-----
pursuant to Section 2.5.
2.5. Credit Reserves.
---------------
2.5.1. Commercial Paper, Etc. From time to time prior to the Final
----------------------
Maturity Date, so long as no Default shall exist, the Company may designate
an amount of the credit available under Section 2.1 as dedicated for use in
connection with one of the following corporate purposes:
(a) the issuance or proposed issuance by the Company of commercial
paper (in aggregate face amount or aggregate principal amount, as the case
may be, at any one time outstanding not to exceed an amount equal to (i)
$200,000,000 minus (ii) the Money Market Loans then outstanding); or
-----
(b) representations by the Company or any Guarantor to a governmental
authority to which the Company or such Guarantor is applying for an FCC
License or Franchise; or
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<PAGE>
(c) representations by the Company or any Guarantor to any other
Person for any other lawful corporate purpose.
Such designation shall be made by the Company in writing to the
Administrative Agent and shall state the amount to be so dedicated, the
period of such dedication (which shall not extend past the Final Maturity
Date) and the purpose for such dedication, together with computations
demonstrating that the Company may borrow hereunder (a) the aggregate
outstanding principal amount then evidenced by the Revolving Loan Accounts,
plus (b) all unborrowed amounts for which designations are already in
----
effect under this Section 2.5.1, plus (c) the amount to be designated.
----
Upon receipt of such a designation the Administrative Agent shall, if so
requested by the Company, inform the commercial paper placement agent,
governmental authority or other Person, as the case may be, for which such
designation was made that such amount has been set aside under this
Agreement for borrowing subject to the terms and conditions of this
Agreement. Notice to such agent, authority or other Person shall include
an express disclaimer of any third party beneficiary rights of such agent,
authority or other Person hereunder. Amounts designated hereunder may be
borrowed only for the purpose so designated. The Company may terminate any
designation hereunder prior to its original term, or reduce any amount
previously designated, at any time by notice to the Administrative Agent;
provided, however, that the Company shall have, as shall be appropriate
-------- -------
under the circumstances in the reasonable judgment of the Administrative
Agent, (1) terminated the commercial paper program and redeemed all
commercial paper issued thereunder or provided evidence satisfactory to the
Administrative Agent that such designation is no longer necessary, (2) sold
the assets or cable television system to which such designation related and
the purchaser thereof shall have assumed the Company's obligations related
to such designation, (3) satisfied the obligation related to such
designation or (4) advised the governmental authority or other Person for
which such designation was made of such termination or reduction, and in
each such case the Company shall have provided satisfactory evidence
thereof to the Administrative Agent.
2.5.2. Qualifying Reinvestments. An amount of the credit available
------------------------
under Section 2.1 equal to any repayment required to be made pursuant to
Section 4.2.2 (assuming the Loan at the time exceeds the amount to be
prepaid) in connection with an Asset Sale shall be automatically designated
to be available hereunder only if a Qualifying Reinvestment occurs in
respect of such Asset Sale (each, an "Asset Sale Designation"). So long as
such Asset Sale Designation remains in effect, the amount of the Loan
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<PAGE>
subject to an Asset Sale Designation may only be borrowed for a subsequent
Qualifying Reinvestment in respect of such Asset Sale; provided, however,
-------- -------
that the Company shall only be entitled to borrow amounts which are subject
to such Asset Sale Designation in an amount equal to 50% of the Purchase
Price of such Qualifying Reinvestment. Each Asset Sale Designation (a) may
be rescinded by the Company from time to time by written notice from the
Company to the Administrative Agent in an amount equal to 50% of the
Purchase Price of a Qualifying Reinvestment only upon the consummation of
such a Qualifying Reinvestment, and (b) shall be automatically rescinded to
the extent any Asset Sale Designation remains in effect after the later to
occur of the following (i) 180 days after such Asset Sale or (ii) if one or
more binding agreements was executed and delivered within such period in
accordance with clause (b) of the definition of "Qualifying Reinvestment",
180 days after the date the last of such agreements was so executed and
delivered.
2.6. Application of Proceeds; Specifically Prohibited Applications. The
-------------------------------------------------------------
Company covenants that the proceeds of the loans made pursuant to this Agreement
will be applied only to lawful corporate purposes of the Company, which purposes
may include refinancing the 1992 Credit Agreement and repaying the Company's 12
7/8% Senior Subordinated Debentures due November 1, 2004 issued under one of the
1989 Indentures. In addition, the Company will not directly or indirectly apply
any part of the proceeds of any loan made pursuant to this Agreement to the
purchasing or carrying of any Margin Stock; provided, however, that the Company
-------- -------
may apply proceeds of such loans to make Investments in any Investment
Subsidiary, in accordance with Section 7.9.5 to enable the Investment
Subsidiaries to purchase or carry Margin Stock.
2.7. Nature of Obligations of Lenders to Make Loans.
----------------------------------------------
2.7.1. Revolving Loans. The Lenders' obligations under this
---------------
Agreement to make a Revolving Loan are several and are not joint or joint
and several. If on the Initial Closing Date or any Revolving Loan Closing
Date, one or more Lenders holding more than 50% of the Revolving Percentage
Interests shall fail to perform such obligations, the other Lenders not so
failing shall be relieved of their obligations to make any such loan. In
the case of any other such failure to perform by any Lender, the aggregate
amount of the commitment to make the loans provided for in this Section 2
shall be reduced by the amount of the commitment hereunder of the Lenders
so failing to perform, and the Revolving Percentage Interests of each other
Lender shall be appropriately adjusted, but such reduction and adjustment
shall not relieve such Lenders from any of their obligations
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<PAGE>
to make such loans. The other Lenders not so failing may, if they so
desire, assume in such proportions as they may agree upon among themselves
the obligations of any Lender who fails to perform any such obligations.
2.7.2. Money Market Loans. The obligation to make a Money Market
------------------
Loan shall be an obligation solely of such Lenders which offered to make
such loan in accordance with Section 2.2 and whose offers were accepted
thereunder.
2.7.3. Swingline Loans. The obligation to make a Swingline Loan
---------------
shall be an obligation solely of the Swingline Lender.
3. INTEREST; EURODOLLAR PRICING OPTIONS; FEES; ETC.
3.1. Interest on Revolving Loan. The Revolving Loan shall accrue and bear
--------------------------
interest at a rate per annum which shall at all times equal the Effective Rate.
Prior to any stated or accelerated maturity of the Revolving Loan, the Company
will, on each Payment Date, beginning December 31, 1994, pay the accrued and
unpaid interest on the Indebtedness evidenced by the Revolving Loan Accounts
which was not subject to a Eurodollar Pricing Option. On the last day of each
Eurodollar Interest Period or on any earlier termination of any Eurodollar
Pricing Option, the Company will pay the accrued and unpaid interest on the
portion of the Revolving Loan which was subject to the Eurodollar Pricing Option
which expired or terminated on such date; provided, however, that if any
-------- -------
Eurodollar Interest Period is longer than three months, the Company will also
pay on each Payment Date in such Eurodollar Interest Period the amount of
accrued and unpaid interest on the portion of the Revolving Loan subject to the
Eurodollar Pricing Option having such Eurodollar Interest Period. On any stated
or accelerated maturity of the Revolving Loan, all accrued and unpaid interest
thereon shall be immediately due and payable, including without limitation any
accrued and unpaid interest on any portion thereof which is subject to a
Eurodollar Pricing Option. All payments of interest under this Section 3.1 in
respect of the Revolving Loan shall be made by the Company to the Administrative
Agent for the account of the Lenders in accordance with their respective
Revolving Percentage Interests; provided, however, that payments of interest on
-------- -------
portions of the Revolving Loan that are subject to a Eurodollar Pricing Option
having a Eurodollar Interest Period in excess of six months in duration shall be
distributed to each Lender in accordance with the Long-Term Pricing Option
Spread quoted by such Lender with respect to such Eurodollar Pricing Option
under Section 3.2.2.
3.1.1. Computations of Interest. The Effective Rate with respect to
------------------------
the portions of the Revolving Loan for which no Eurodollar Pricing Option
is at the time in effect shall
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<PAGE>
be calculated on a daily basis and on the basis of a year of 365 or 366
days, whichever is applicable. Except as provided in the preceding
sentence and in Sections 3.5 and 3.6, calculations of amounts of interest
and of amounts expressed as interest for all purposes of this Agreement
shall be made on a daily basis and on the basis of a 360-day year.
3.2. Eurodollar Pricing Options.
--------------------------
3.2.1. Election of Eurodollar Pricing Options. Subject to all the
--------------------------------------
terms and conditions hereof and so long as there exists no Default on the
date which is three Banking Days prior to the commencement of the
Eurodollar Interest Period selected in such notice, the Company may, by
notice to the Administrative Agent received not less than three Banking
Days prior to the commencement of the Eurodollar Interest Period selected
in such notice, elect to have all or such portion of the Revolving Loan, as
the Company may specify in such notice accrue and bear daily interest
during the Eurodollar Interest Period so selected at a per annum rate equal
to the Effective Rate computed on the basis of the Eurodollar Rate for such
Eurodollar Interest Period; provided, however, that:
-------- -------
(a) no such election shall become effective if, prior to the
commencement of such Eurodollar Interest Period:
(i) the electing or granting of such Eurodollar Pricing
Option would violate a Legal Requirement;
(ii) any Managing Agent determines that Eurodollar deposits
in an amount equal to the portion of the Revolving Loan as to
which such Eurodollar Pricing Option has been elected and which
have a term corresponding to the proposed Eurodollar Interest
Period are not readily available in the inter-bank Eurodollar
market for delivery at any Eurodollar Office or that by reason of
circumstances affecting such market adequate and reasonable
methods do not exist for ascertaining the interest rate
applicable to such deposits for the proposed Eurodollar Interest
Period;
(iii) in the case of an election of a Eurodollar Interest
Period exceeding six months in duration, the Administrative Agent
is advised by any Lender that Eurodollar deposits in an amount
equal to such Lender's Revolving Percentage
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<PAGE>
Interest in the portion of the Revolving Loan as to which such
Eurodollar Pricing Option has been elected and which have a term
corresponding to the proposed Eurodollar Interest Period are not
readily available in the inter-bank Eurodollar market for
delivery at any non-United States office or international banking
facility of such Lender or of a correspondent bank with which
such Lender has an arrangement for the funding of Eurodollar
loans; or
(iv) in the case of an election of a Eurodollar Interest
Period exceeding six months in duration, any Lender shall not
have advised the Administrative Agent of the applicable Long-Term
Pricing Option Spread of such Lender pursuant to Section 3.2.2;
(b) any such election made with respect to any portion of the
Revolving Loan shall be in an amount not less than $10,000,000 and in
increments of $1,000,000; and
(c) no such election will be made if it would result in there
being more than 25 Eurodollar Pricing Options and Money Market Loans
in the aggregate outstanding at any one time.
Each notice of election of a Eurodollar Pricing Option shall be
irrevocable, except that the Company may specify in such notice a maximum
Eurodollar Rate or, in the case of a proposed Eurodollar Interest Period
exceeding six months in duration, a maximum combined Eurodollar Rate and
Weighted Average Long-Term Pricing Option Spread which it will accept for
the Eurodollar Interest Period in question, and the Eurodollar Interest
Period elected in such notice shall not become effective if the applicable
Eurodollar Rate (or Eurodollar Rate plus Weighted Average Long-Term Pricing
----
Option Spread, if applicable) exceeds such specified maximum.
3.2.2. Notices Relating to Eurodollar Pricing Options. The
----------------------------------------------
Administrative Agent will promptly inform each Lender of each notice from
the Company received by the Administrative Agent pursuant to Section 3.2.1
and the Eurodollar Interest Period and any maximum Eurodollar Rate (or
Eurodollar Rate plus Weighted Average Long-Term Pricing Option Spread, if
----
applicable) specified by the Company in such notice. If the proposed
Eurodollar Interest Period exceeds six months in duration, each Lender
willing to give effect to such proposed Eurodollar Pricing Option exceeding
six months in duration shall advise the Administrative Agent not later
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<PAGE>
than two Banking Days prior to the commencement of such proposed Eurodollar
Interest Period by telephone (promptly confirmed in writing) of the Long-
Term Pricing Option Spread such Lender would charge with respect to the
proposed Eurodollar Pricing Option. Upon determination by the
Administrative Agent of the Eurodollar Rate for any Eurodollar Interest
Period selected by the Company, the Administrative Agent will promptly
inform each Lender of the Eurodollar Rate so determined or, if applicable,
the reason why the Company's election will not become effective; provided,
--------
however, that if the Company's election will not become effective because
-------
the Eurodollar Rate determined by the Administrative Agent exceeds the
maximum Eurodollar Rate specified by the Company with respect to a proposed
Eurodollar Pricing Option, the Administrative Agent shall inform each
Lender by telephone on a reasonable efforts basis, telex or telecopy no
later than 11:00 a.m. (Boston time) on such date of determination that the
Company's election will not become effective.
3.3. Additional Provisions Concerning Eurodollar Pricing Options.
-----------------------------------------------------------
3.3.1. Selection of Eurodollar Interest Periods. Eurodollar Interest
----------------------------------------
Periods shall be selected so that no Eurodollar Interest Period shall
expire later than the Final Maturity Date.
3.3.2. Additional Interest Relating to Eurodollar Pricing Options.
----------------------------------------------------------
If any portion of the Revolving Loan which is subject to a Eurodollar
Pricing Option is repaid or any Eurodollar Pricing Option is terminated on
a date which is prior to the last Banking Day of the Eurodollar Interest
Period applicable to such Eurodollar Pricing Option for any reason (other
than (a) a Legal Requirement not having the force of law or (b) the payment
in full of the Credit Obligations as a result of the failure of any Lender
to perform its obligations hereunder), the Company will pay to the
Administrative Agent for the account of each Lender in accordance with its
interest therein, for the period commencing on the date of such repayment
or termination and ending on such last Banking Day, an amount equal to
daily interest on the principal amount of its portion of the Revolving Loan
so repaid or as to which a Eurodollar Pricing Option was so terminated at a
per annum rate equal to the difference (if positive) of (i) the Basic
Eurodollar Rate applicable to such Eurodollar Pricing Option minus (ii) the
-----
Redeployment Rate.
Amounts of interest due under this Section 3.3.2 shall be payable in
arrears on each Payment Date and on the last Banking Day of the Eurodollar
Interest Period applicable to
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<PAGE>
the Eurodollar Pricing Option that is terminated, notwithstanding the prior
payment in full of the Credit Obligations and the prior termination of this
Agreement. The determination by the Administrative Agent of amounts of
additional interest payable hereunder shall, in the absence of manifest
error, be conclusive; provided, however, that at the request of the Company
-------- -------
or any Lender the Administrative Agent shall demonstrate the basis for such
determination or provide an explanation, reasonably satisfactory to the
Company or such Lender, why such determination may not be demonstrated.
For purposes of this Section 3.3.2, if any portion of the Revolving
Loan which was to have been subject to a Eurodollar Pricing Option is not
outstanding on the first day of the Eurodollar Interest Period applicable
to such Eurodollar Pricing Option other than by reason of a Lender failing
to perform its obligations hereunder, the Company shall be deemed to have
terminated such Eurodollar Pricing Option with respect to such portion of
the Revolving Loan.
3.3.3. Change in Applicable Laws, Regulations, etc. If any Legal
-------------------------------------------
Requirement shall restrict any Lender from maintaining through the purchase
or holding of Eurodollar deposits any portion of the Revolving Loan subject
to a Eurodollar Pricing Option or otherwise from giving effect to its
obligations as contemplated hereby, (a) the Administrative Agent may by
notice thereof to the Company terminate all of the relevant portions of
such Eurodollar Pricing Options as to which such Lender actually shall have
funded its Revolving Percentage Interest through the purchase of Eurodollar
deposits (without giving effect for the purposes of this Section 3.3.3 to
the second sentence of Section 3.3.4), (b) the portion of each then
outstanding loan subject to such terminated Eurodollar Pricing Options
shall immediately bear interest thereafter at the Effective Rate computed
on the basis of the Base Rate and (c) if such Legal Requirement shall have
the force of law and shall have made it unlawful for such Lender so to fund
such portion of the Revolving Loan or otherwise to give effect to its
obligations as contemplated hereby, the Company shall indemnify such Lender
as provided in Section 3.3.2.
3.3.4. Funding Procedure. The Lenders have indicated that, if the
-----------------
Company elects a Eurodollar Pricing Option, one or more Lenders may wish to
purchase Eurodollar deposits in the inter-bank Eurodollar market to fund
their respective Revolving Percentage Interests in such portion of the
Revolving Loan subject to such Eurodollar Pricing Option; provided,
--------
however, that each Lender may fund all or any portion of its Revolving
-------
Percentage Interest in any portion of the Revolving Loan which is subject
to a Eurodollar
-36-
<PAGE>
Pricing Option in any manner it may choose. The provisions of this
Agreement relating to the funding and pricing of such Indebtedness are
included only for the purpose of conducting operations hereunder, and it is
therefore understood that, regardless of the manner selected by any Lender
to fund any such Indebtedness, all operations hereunder, including without
limitation, the determination of the interest rate applicable to any such
Indebtedness and the amounts payable under Sections 3.3.2 or 3.8 (but
excluding operations under Section 3.3.3), shall be conducted as if all the
Lenders had actually funded their respective Revolving Percentage Interests
in all such Indebtedness through the purchase of deposits in like amount
having terms coterminous with the applicable Eurodollar Interest Periods
relating thereto and through the transfer of such deposits from the
applicable Eurodollar Office to one of their offices in the United States.
It shall be the responsibility of each Lender to inquire of the
Administrative Agent whether or not a Eurodollar Pricing Option which has
been elected by the Company will become effective prior to purchasing
deposits in order to fund loans under this Agreement. Any Lender may
specify through which office such Lender shall be funding or booking its
Revolving Percentage Interest in the portion of the Revolving Loan subject
to Eurodollar Pricing Options by designating such office in Exhibit 12.1
hereto or otherwise from time to time by notice to the Company and the
Administrative Agent.
3.4. Interest on Money Market Loans. The Company will pay interest on
------------------------------
each Money Market Loan at the rate and on the dates specified in Section
2.2.5.2.
3.5. Interest on Swingline Loan. The Swingline Loan shall accrue and bear
--------------------------
interest at a rate per annum which shall at all times equal the Swingline Rate.
Interest on the Swingline Loan shall be calculated on a daily basis and on the
basis of a year of 365 or 366 days, whichever is applicable. Prior to any
stated or accelerated maturity of the Swingline Loan, the Company will on each
Payment Date, beginning December 31, 1994, pay the accrued and unpaid interest
on such Indebtedness. On any stated or accelerated maturity of the Swingline
Loan all accrued and unpaid interest thereon shall be forthwith due and payable.
All payments of interest hereunder in respect of the Swingline Loan shall be
made by the Company to the Administrative Agent for the account of the Swingline
Lender.
3.6. Commitment Fees.
---------------
3.6.1. Revolving Loan. In consideration of the Lenders' commitments
--------------
to make the Revolving Loan for the period during which such commitments are
outstanding, the
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<PAGE>
Company shall pay the Administrative Agent for the Lenders' accounts on
each Payment Date commencing December 31, 1994 and ending on the Final
Maturity Date and on the date of any earlier termination of this Agreement,
an amount equal to daily interest, computed on the basis of a year of 365
or 366 days, whichever is applicable, for the immediately preceding
calendar quarter or portion thereof ending on such date, as the case may
be, at the Commitment Fee Rate on the amount, if any, by which (a) the
average daily Stated Maximum, as from time to time in effect during such
quarter or portion thereof minus the Swingline Commitment exceeded (b) the
-----
average daily Revolving Loan during such quarter or portion thereof. The
Administrative Agent shall promptly credit in immediately available funds
to each Lender in proportion to its Revolving Percentage Interest its share
of all payments made pursuant to this Section 3.6.1.
3.6.2. Swingline Loan. In consideration of the Swingline Lender's
--------------
commitment to make the Swingline Loan for the period during which such
commitment is outstanding, the Company shall pay the Administrative Agent
for the Swingline Lender's account on each Payment Date commencing December
31, 1994 and ending on the Final Maturity Date and on the date of any
earlier termination of this Agreement, an amount equal to daily interest,
computed on the basis of a year of 365 or 366 days, whichever is
applicable, for the immediately preceding calendar quarter or portion
thereof ending on such date, as the case may be, at the Commitment Fee Rate
on the amount, if any, by which (a) the average daily Swingline Commitment,
as from time to time in effect during such quarter or portion thereof,
exceeded (b) the average daily Swingline Loan during such quarter or
portion thereof. The Administrative Agent shall promptly credit in
immediately available funds to the Swingline Lender all payments pursuant
to this Section 3.6.2.
3.7. Capital Adequacy.
----------------
(a) If after the date hereof any Lender shall have determined that
compliance with any applicable law, governmental rule, regulation or order
regarding capital adequacy of banks or bank holding companies, or any
change therein (including without limitation, any change according to a
prescribed schedule of increasing requirements, whether or not in effect or
known on the date hereof), or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender with any guideline, request or
directive regarding capital adequacy (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) of
any such authority, central
-38-
<PAGE>
bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's capital with respect to, or as a
consequence of, (i) its unfunded commitments to extend credit hereunder or
(ii) loans made hereunder on the basis of Eurodollar Pricing Options and
Money Market Loans (but not loans the interest on which is computed with
reference to the Base Rate) to a level below that which such Lender could
have achieved but for such change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy immediately before
such change or compliance and assuming that its capital was fully utilized
prior to such change or compliance) by an amount deemed by such Lender to
be material, then, within 30 days after demand, the Company shall pay to
the Administrative Agent for the account of such Lender as from time to
time specified by such Lender such additional amounts as shall be
sufficient to compensate such Lender for such reduced return relating to
its commitments to make such loans hereunder, together with interest on
each such amount from the date demanded until payment in full thereof at
the Effective Rate based upon the Base Rate. A certificate of an officer
of such Lender setting forth the amount to be paid to it hereunder shall,
in the absence of manifest error, be conclusive; provided, however, that at
-------- -------
the request of the Company, such Lender shall demonstrate the basis for
such determination. Each Lender agrees that if, after the payment by the
Company of any such additional amount for the account of such Lender, any
part thereof is subsequently recovered by such Lender, such Lender shall
promptly reimburse the Company to the extent of the amount so recovered. A
certificate of an officer of such Lender setting forth the amount of such
recovery and the basis therefor shall, in the absence of manifest error, be
conclusive; provided, however, that at the request of the Company, such
-------- -------
Lender shall demonstrate the basis for such calculation or provide an
explanation, reasonably satisfactory to the Company, why such calculation
may not be demonstrated.
(b) The Administrative Agent may include in the charges to the
account of the Company for interest under this Agreement amounts owed under
this Section 3.7 as a result of events affecting capital adequacy to the
extent that such events are generally applicable, and to apply uniformly,
to the Lenders. The payment by the Company of such amounts shall fulfill
its obligations under this Section 3.7 with respect to the amounts so
charged and paid. Each Lender's determination of the allocated amount of
such costs among the Company and other customers which have arrangements
with such Lender similar to the credit provided hereunder, if done in good
faith and if such allocation is made on an equitable basis, shall, in the
absence of
-39-
<PAGE>
manifest error, be conclusive; provided, however, that at the request of
-------- -------
the Company, the Lender shall demonstrate the basis for such determination.
(c) Each Lender will use its best efforts to inform the Company and
the Administrative Agent of any events affecting capital adequacy occurring
after the date hereof which will require payments to be made under this
Section 3.7 promptly after it becomes aware of such event, but the failure
of any of the Lenders to inform the Company or the Administrative Agent of
any such event shall not affect any of the obligations of the Company
hereunder.
3.8. Taxes.
-----
(a) If (i) any Lender shall be subject to any Tax or (ii) the
Company shall be required to withhold or deduct any Tax, the Company
will, within 30 days after demand by the Administrative Agent, pay to
the Administrative Agent for the Lenders' respective accounts such
additional amount as is necessary to enable each Lender to receive on
an after-tax basis the full amount of all payments of the Credit
Obligations (in the case of the portion of the Loan on which interest
is determined at the Effective Rate based upon the Base Rate, only to
the extent not adequately compensated by an increase in the Base
Rate), together with interest on such amount from the date demanded
until payment in full thereof at the Effective Rate based upon the
Base Rate. The determination by each Lender of such additional amount
owing to such Lender shall, in the absence of manifest error, be
conclusive; provided, however, that at the request of the Company such
-------- -------
Lender shall demonstrate the basis for such determination. Each
Lender agrees that if, after the payment by the Company of any such
additional amount for the account of such Lender, any part thereof is
subsequently recovered by such Lender, such Lender shall promptly
reimburse the Company to the extent of the amount so recovered. A
certificate of an officer of such Lender setting forth the amount of
such recovery and the basis therefor shall be conclusive; provided,
--------
however, that at the request of the Company such Lender shall
-------
demonstrate the basis for such calculation or provide an explanation,
reasonably satisfactory to the Company, why such calculation may not
be demonstrated.
(b) The Administrative Agent may include in the charges to the
account of the Company for interest under this Agreement amounts owed
under this Section 3.8 as a result of Legal Requirements to the
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extent that such Legal Requirements are or are deemed hereby to be
generally applicable, and to apply uniformly, to all of the Lenders.
The payment by the Company of such amounts shall fulfill its
obligations under this Section 3.8 with respect to the amounts so
charged and paid. Any Lender's determination of the amount of such
costs and the allocation, if any, of such costs among the Company and
other customers which have arrangements with such Lender similar to
the Credit Obligations, if done in good faith and if such allocation
is made on an equitable basis, shall, in the absence of manifest
error, be conclusive; provided, however, that at the request of the
-------- -------
Company such Lender shall demonstrate the basis for such determination
or provide an explanation, reasonably satisfactory to the Company, why
such determination may not be demonstrated.
(c) Each Lender will use its best efforts to inform the Company
and the Administrative Agent of the imposition of, or any change in,
any Tax occurring after the date hereof which will require payments to
be made under this Section 3.8 promptly after such Lender becomes
aware of such Tax or change therein, but the failure of any Lender so
to inform the Company or the Administrative Agent shall not affect any
of the obligations of the Company hereunder.
4. PAYMENT.
4.1. Payment at Maturity. Except as set forth in Section 2.2.5.2, on each
-------------------
Money Market Loan Maturity Date, the Company will pay to the Administrative
Agent for credit to the applicable Money Market Loan Account the outstanding
principal amount of the Money Market Loan maturing on such date, together with
all accrued and unpaid interest with respect thereto. On the Final Maturity
Date, the Company shall pay to the Administrative Agent for credit to the
Revolving Loan Accounts the entire outstanding principal amount of Indebtedness
evidenced thereby, together with all accrued and unpaid interest with respect
thereto. On the Final Maturity Date, the Company shall pay to the
Administrative Agent for credit to the Swingline Loan Account the entire
outstanding principal amount of Indebtedness evidenced thereby, together with
all accrued and unpaid interest with respect thereto. On any accelerated
maturity of the Indebtedness evidenced by any Loan Account, the Company shall
pay to the Administrative Agent for credit to the Loan Accounts the entire
outstanding principal amount of Indebtedness evidenced thereby, together with
all accrued and unpaid interest with respect thereto, and all other Credit
Obligations owing by it to any Lender.
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4.2. Contingent Required Prepayments.
-------------------------------
4.2.1. Excess Credit Exposure. If at any time the Revolving Loan
----------------------
exceeds the limits set forth in Section 2.4, the Company will promptly pay
the amount of such excess to the Administrative Agent for the account of
the Lenders.
4.2.2. Proceeds from Asset Sales. At any time when the Pro Forma
-------------------------
Ratio equals or exceeds 5.50 to 1.00, upon consummation by the Company or
any of its Restricted Subsidiaries of a sale, disposition or exchange of
assets permitted by Section 7.10.3 or 7.10.4 (the "Asset Sale"), the
Company shall pay to the Administrative Agent for the account of the
Lenders as a repayment of the Revolving Loan an amount equal to 50% of the
Net Cash Proceeds received by the Company or such Restricted Subsidiary
from the Asset Sale; provided, however, that the amount of such repayment
-------- -------
shall be reduced by an amount equal to 50% of the Purchase Price of any
Qualifying Reinvestment consummated prior to such Asset Sale; and provided
--------
further, however, that any such repayment shall only reduce the Maximum
------- -------
Amount of Credit to the extent required pursuant to Section 2.4(a)(ii).
4.2.3. Allocation of Payments. Contingent prepayments required to be
----------------------
made by the Company pursuant to Section 4.2 shall be paid to the
Administrative Agent for the Lenders' several accounts in accordance with
their Revolving Percentage Interests and shall be allocated first to the
portion of the Revolving Loan not subject to Eurodollar Pricing Options,
and then to the portion of the Revolving Loan subject to Eurodollar Pricing
Options. Such prepayments allocated to the portion of the Revolving Loan
subject to Eurodollar Pricing Options shall be due and payable on the
earlier of (a) the earliest maturity dates of the Eurodollar Interest
Periods relating to such Eurodollar Pricing Options or (b) 90 days after
payment would otherwise be required under Section 4.2.2.
4.3. Voluntary Prepayments. In addition to the prepayments required by
---------------------
Section 4.2, at any time or from time to time upon not less than one Banking Day
prior written notice to the Administrative Agent (except that no such notice
need be given in the event of an automatic payment on a Money Market Loan
Closing Date in accordance with Section 2.2.5), the Company shall have the right
to prepay, without premium or penalty of any type (except as provided in Section
2.2.7 or 3.3.2), all or any part of the Revolving Loan or any Money Market Loan
in such amounts as are not less than $5,000,000 and in integral multiples of
$100,000 in the aggregate for all such payments on such date, unless such
payment is equal to the entire outstanding principal amount of the Revolving
Loan or such Money Market Loan, as the
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case may be. At any time or from time to time upon telephone notice to the
Swingline Lender and to the Administrative Agent, if other than the Swingline
Lender, given not later than 3:00 p.m. (Boston time) on any Banking Day, which
telephone notice shall be promptly confirmed in writing, the Company shall have
the right to prepay, without premium or penalty of any type, all or any part of
the outstanding principal amount of the Swingline Loan in such amounts as are
not less than $100,000 and in integral multiples of $50,000, unless such payment
is equal to the entire outstanding principal amount of the Swingline Loan.
4.4. Payment and Interest Cutoff, etc. Notice of prepayment having been
--------------------------------
given in compliance with Section 4.3 (and whether or not notice is given of
payments required by Section 4.1 or 4.2), the amount specified to be prepaid
shall become due and payable on the date specified for prepayment and from and
after such date (except to the extent that the Company shall fail to make
payment thereof) interest thereon shall cease to accrue. Unless otherwise
specified by the Company, (a) all prepayments of the Revolving Loan shall be
allocated first to the portion of such Indebtedness not subject to Eurodollar
Pricing Options and (b) all prepayments of any portion of the Revolving Loan
subject to Eurodollar Pricing Options shall be applied in the chronological
order of the respective maturities of such Eurodollar Pricing Options.
5. CONDITIONS TO MAKING LOANS.
5.1. Conditions to Making Initial Loans. The Lenders' several obligations
----------------------------------
to make the loans contemplated by Sections 2.1, 2.2 and 2.3 shall be subject to
the satisfaction, on or before the Initial Closing Date, of the following
conditions, as well as the conditions set forth in Section 5.2:
5.1.1. Notes. The Company shall have duly executed and delivered to
-----
the Administrative Agent a Note for each Lender.
5.1.2. Amended Note Agreement. The Company shall have delivered to
----------------------
the Administrative Agent a copy of the Amended and Restated Note Agreement
(the "Amended Note Agreement") between the Company and The Prudential
Insurance Company of America, the terms of which shall be the same as set
forth in the Note Agreement, except to the extent modified on substantially
the terms set forth in the term sheet previously furnished to the Lenders,
and shall be otherwise reasonably satisfactory to the Administrative Agent,
and the Amended Note Agreement shall be in full force and effect.
5.1.3. Termination of 1992 Credit Agreement. From a portion of the
------------------------------------
proceeds of the Revolving Loan extended on the Initial Closing Date, the
Company shall prepay in its
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entirety the Indebtedness outstanding under the Credit Agreement dated as
of May 15, 1992, as in effect on the Initial Closing Date, among the
Company, the Guarantors, The First National Bank of Boston and a group of
lenders for which The First National Bank of Boston is acting as agent (the
"1992 Credit Agreement"), together with all interest thereon and other
amounts owing in respect thereof, and, in connection with such prepayment,
the 1992 Credit Agreement shall have been terminated.
5.1.4. Release of Collateral. In connection with the execution by
---------------------
the Company of the Note Agreement Amendment and the prepayment by the
Company of all amounts owing in respect of the 1992 Credit Agreement, the
Pledge Agreement dated as of July 3, 1989, as in effect on the Initial
Closing Date, among the Company, the Guarantors, The First National Bank of
Boston and a group of lenders (including, without limitation, The
Prudential Insurance Company of America) for which The First National Bank
of Boston is acting as collateral agent shall have been terminated and all
pledged collateral thereunder shall have been released.
5.1.5. Guarantors' Contribution Agreement. The Company shall have
----------------------------------
delivered to the Administrative Agent a copy of a guarantors' contribution
agreement (the "Guarantors' Contribution Agreement") among the Guarantors
pursuant to which the Guarantors shall have agreed to make contributions
among themselves as a result of payments by the Guarantors under their
respective guarantees of the Credit Obligations, and such Guarantors'
Contribution Agreement shall be in full force and effect.
5.1.6. Payment of Fees. The Company shall have paid (a) to the
---------------
Administrative Agent (i) for the respective accounts of the Lenders certain
closing fees as previously agreed among the Company and such Lenders and
(ii) for the respective accounts of the Administrative Agent and the
Managing Agents, certain fees and expenses of the Administrative Agent and
the Managing Agents as previously agreed upon among the Company, the
Administrative Agent and the Managing Agents and (b) the reasonable fees
and disbursements of the Administrative Agent's counsel for which
statements have been rendered on or prior to the Initial Closing Date.
5.1.7. Legal Opinions. On the Initial Closing Date, the Lenders
--------------
shall have received from the following counsel their respective opinions
with respect to the transactions contemplated by the Lender Agreements,
which opinions shall be in form and substance satisfactory to the Managing
Agents:
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(a) Sullivan & Worcester, counsel for the Company and the Guarantors.
(b) Ropes & Gray, special counsel for the Administrative Agent.
The Company authorizes and directs Sullivan & Worcester to furnish the
foregoing opinion.
5.2. Conditions to Making Each Loan. The Lenders' several obligations to
------------------------------
make any loan contemplated by Section 2.1, 2.2, or 2.3 shall be subject to the
satisfaction, on or before the Closing Date for such loan, of the following
conditions:
5.2.1. Company Officer's Certificate. The representations and
-----------------------------
warranties contained in Sections 6.3 and 8 shall be true and correct on and
as of each Closing Date with the same force and effect as though made on
and as of such Closing Date (after giving effect to any supplements to
Exhibit 8.1 furnished prior to such Closing Date in accordance with
Sections 7.2.1 and 7.2.2); no Default shall have occurred or shall exist
after giving effect to the loan to be made on such Closing Date; between
June 30, 1994 and such Closing Date, neither the business, operations,
assets nor the condition, financial or otherwise, of the Company and its
Restricted Subsidiaries on a consolidated basis shall have been adversely
affected in any material manner as a result of any event or development;
and the Administrative Agent will have received a certificate to these
effects and indicating any change in the Company's charter, by-laws or
signing officers in substantially the form of Exhibit 5.2.1 dated such
Closing Date and signed by a Financial Officer.
5.2.2. Proper Proceedings. All proper corporate or partnership
------------------
proceedings shall have been taken by the Company and each Guarantor to
authorize this Agreement and each other Lender Agreement to which it is a
party and the transactions contemplated hereby and thereby. All necessary
consents, approvals and authorizations of, or filings with, any
governmental or administrative agency or any other Person to or of any of
the transactions contemplated hereby or by any other Lender Agreement shall
have been obtained or made and shall be in full force and effect.
5.2.3. Legality, etc. The making of the loans shall not (a) subject
-------------
any Lender to any penalty or special tax (other than a Tax for which it is
indemnified by the Company pursuant to Section 3.8) or (b) be prohibited
by, or violate, any law or governmental order or regulation applicable to
any Lender, the Company or any Guarantor.
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<PAGE>
5.2.4. General. All instruments and legal and corporate proceedings
-------
in connection with the loans and other transactions contemplated by this
Agreement shall be satisfactory in form and substance to the Administrative
Agent, and the Administrative Agent shall have received copies of all
documents, including legal opinions, records of corporate proceedings and a
certificate as to the incumbency of officers, which the Administrative
Agent may have reasonably requested in connection therewith.
6. GUARANTEES.
6.1. Guarantees of Credit Obligations. Each of the Guarantors hereby
--------------------------------
unconditionally jointly and severally guarantees that the Credit Obligations
will be paid in full in cash when due and payable, whether at the stated or
accelerated maturity thereof or upon any mandatory or voluntary prepayment
pursuant to this Agreement or otherwise, this guarantee being a guarantee of
payment and not of collectability and being absolute and in no way conditional
or contingent. In the event that any part of the Credit Obligations shall not
have been so paid in full when due and payable, each Guarantor will, promptly
upon receipt of notice from the Administrative Agent or any Lender, or without
notice, upon the occurrence of a Bankruptcy Default, pay or cause to be paid to
the Administrative Agent or such Lender, as the case may be, the amount thereof
as is then due and payable and unpaid. The obligations of each Guarantor under
this Agreement shall not be affected by the invalidity or unenforceability of
any of the Credit Obligations as against the Company, any other guarantor
thereof or any other Person. If for any reason a court of competent
jurisdiction in a final, nonappealable decision shall determine that any portion
of the guarantee by any Guarantor hereunder is not enforceable, such guarantee
shall continue in full force and effect to the maximum extent permitted by law.
For purposes hereof, the Credit Obligations shall be due and payable when and as
the same shall be due and payable under this Agreement or any other Lender
Agreement notwithstanding the fact that the collection or enforcement thereof
may be stayed or enjoined under the Bankruptcy Code or other applicable law.
Each Guarantor acknowledges that the Administrative Agent and the Lenders have
entered into this Agreement (and, to the extent that the Lenders may enter into
any future Lender Agreement, will have entered into such Agreement) in reliance
on this Section 6 being a continuing agreement and the irrevocability of the
guarantee hereunder, and each Guarantor agrees that this guarantee may not be
revoked in whole or in part. The obligations of each Guarantor hereunder shall
terminate when the Lenders' commitments to extend credit hereunder shall have
been irrevocably terminated and all of the Credit Obligations have been
indefeasibly paid in full in cash and discharged; provided, however, that if a
-------- -------
claim is made upon the Administrative Agent or any holder of any Credit
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<PAGE>
Obligation at any time for repayment or recovery of any amounts or any property
(whether tangible or intangible) received by any of them from any source in
payment on account of any Credit Obligations and such one of them repays or
returns any amounts or property so received (including interest thereon to the
extent required to be paid by such one of them) or becomes liable for any part
of such claim by reason of (a) any judgment, decree or order of any court or
administrative body having competent jurisdiction, or (b) any settlement or
compromise of any such claim, each Guarantor shall remain jointly and severally
liable under this Section 6 for the amounts or property so repaid or returned or
the amounts for which the Administrative Agent or any holder of any Credit
Obligation becomes liable (such amounts, together with an amount equal to the
greater of the value of such property when it was received by any of them, or
when it was returned by such one of them being deemed part of the Credit
Obligations) to the same extent as if such amount or property had never been
received by such one of them, notwithstanding any termination hereof or the
cancellation of any note or other agreement evidencing any of the Credit
Obligations, and each Guarantor shall, upon notice from the Administrative
Agent, pay to the Administrative Agent an amount equal to the amount of such
repayment or return or of such claim for which the Administrative Agent or any
holder of any Credit Obligation has so become liable. If the stock, partnership
interest or other beneficial interest of a Guarantor is sold or exchanged in
accordance with Section 7.10 so that it is no longer a Subsidiary of the
Company, or if a Guarantor is released in accordance with Section 6.8, such
Guarantor shall automatically be released from any further obligations under
this Agreement, including the guarantee contained in this Section 6, without the
necessity of any further action on the part of the Company, such Guarantor or
the Lenders.
6.2. Waivers. Except to the extent that any of the following are
-------
expressly required by the provisions of any of the Lender Agreements, each
Guarantor hereby waives (a) presentment, demand for payment and protest of
nonpayment of any of the Credit Obligations, and notices of protest, dishonor or
nonperformance, (b) notice of acceptance of this guarantee and notice that
credit has been extended by the Lenders in reliance on such Guarantor's
guarantee of the Credit Obligations, (c) notice of any Default under this
Agreement or any other Lender Agreement or the Lenders' inability to enforce
performance of the Company's obligations to any holder of Credit Obligations,
(d) demand for performance or observance of, and any enforcement of any
provision of, the Credit Obligations or any pursuit or exhaustion of rights or
remedies against the Company or any other obligor on or guarantor of the Credit
Obligations, pursuant to this Agreement or any other Lender Agreement or
otherwise, and any requirements of diligence or promptness on the part of the
Administrative Agent or any holder of the Credit Obligations in connection
therewith, (e) any action or nonaction on the part of
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<PAGE>
the Administrative Agent or any holder of Credit Obligations which may impair or
prejudice the rights of any Guarantor, including without limitation subrogation
rights or rights to obtain exoneration, contribution, indemnification or any
other reimbursement or compensation from the Company, any other guarantor or
obligor in respect of the Credit Obligations or any other Person, (f) any
defense based upon an election of remedies by the Administrative Agent or the
holders of the Credit Obligations, (g) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal, (h) any and all demands and notices of every kind and description
with respect to the foregoing or which may be required to be given by any
statute or rule of law and (i) all defenses (other than indefeasible payment in
full) which the Company may now or hereafter have to the payment of the Credit
Obligations which could otherwise be asserted by such Guarantor. In addition to
the defenses referred to above which have been expressly waived hereunder, each
Guarantor waives all other defenses (other than indefeasible payment in full)
which it may now or hereafter have to the payment by it of the Credit
Obligations. No delay or omission on the part of the Administrative Agent or
any holder of any Credit Obligation shall operate as a waiver or relinquishment
of such right. No action which the Administrative Agent, the holder of any
Credit Obligation, the Company or any Guarantor may take or refrain from taking
with respect to the Credit Obligations, including any amendments thereto or
modifications thereof or waivers with respect thereto, shall affect the
provisions of this Agreement or the obligations of the Guarantors hereunder.
None of the rights of the Administrative Agent or of any holder of any Credit
Obligation shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of any of them or the Company or any Guarantor, by
any noncompliance by any Guarantor with the terms, provisions and covenants of
this Agreement, regardless of any knowledge thereof which the Administrative
Agent or any holder of the Credit Obligations may have or otherwise be charged
with. Each Guarantor hereby agrees to waive, and does hereby absolutely and
irrevocably waive and relinquish the benefit and advantage of, and does hereby
covenant not to assert, any appraisement, valuation, stay, extension, redemption
or similar laws, now or at any time hereafter in force, which might delay,
prevent or otherwise impede the performance or enforcement of this Agreement or
any other Lender Agreement or the Credit Obligations.
6.3. Certain Representations. Each Guarantor hereby represents that it
-----------------------
has determined (a) that it is in its best interest and in pursuance of its
corporate or partnership purposes as an integral part of the business conducted
and proposed to be conducted by the Company and its Subsidiaries (including such
Guarantor), and reasonably necessary and
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convenient in connection with the conduct of the business conducted and proposed
to be conducted by it, to induce the Lenders to enter into this Agreement and to
extend credit to the Company hereunder by making the guarantees contemplated by
this Section 6, (b) that the credit available hereunder will directly or
indirectly inure to its benefit, and (c) that by virtue of the foregoing it is
receiving at least fair consideration and reasonably equivalent value from the
Lenders for its guarantee. Each Guarantor acknowledges that it has been advised
by the Lenders that they are unwilling to enter into this Agreement unless the
guarantees contemplated by this Section 6 are given by the Guarantors. Each
Guarantor represents that it will not be rendered insolvent as a result of
entering into this Agreement, and that, after giving effect to the transactions
contemplated by this Agreement, it will have assets having a fair saleable value
in excess of the amount required to pay its probable liability on its existing
debts as they become absolute and matured, and that it has, and will have,
adequate capital for the conduct of its business and the ability to pay its
debts from time to time incurred in connection therewith as such debts mature.
6.4. Power to Amend, etc. Each Guarantor hereby grants to the Lenders and
-------------------
the holders of the Credit Obligations full power in the Lenders' or their
uncontrolled discretion, without notice to such Guarantor, such notice being
hereby expressly waived, and without in any way affecting the liability of such
Guarantor under this guarantee:
(a) To waive compliance with, and any Default under, and to consent
to any amendment to or modification of any term or provision of, or to give
any waiver in respect of, this Agreement, any other Lender Agreement, the
Credit Obligations or any guarantee thereof (each as from time to time in
effect);
(b) To grant any one or more extensions or renewals of the Credit
Obligations (for any period, no matter how long), any total or partial
release (by operation of law or otherwise), discharge, compromise or
settlement with respect to the obligations of the Company or any other
Person in respect of the Credit Obligations, whether or not rights against
the other Guarantors under this Section 6 are reserved in connection
therewith;
(c) To obtain, modify or release any present or future guarantees of
the Credit Obligations and to proceed against such guarantees in any order;
(d) To collect or liquidate any of the Credit Obligations in any
manner or to refrain from collecting or liquidating any of the Credit
Obligations; and
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(e) To extend credit under this Agreement or any other Lender
Agreement, or otherwise, in such amount as the Lenders may determine, even
though the condition of the Company (financial or otherwise on an
individual or consolidated basis) may have deteriorated since the date
hereof.
6.5. Information Regarding the Company, etc. Each Guarantor acknowledges
--------------------------------------
and agrees that it has made such investigation as it deems desirable of the
risks undertaken by such Guarantor in entering into this Agreement and is fully
satisfied that it understands all such risks. Each Guarantor hereby waives any
obligation which may now or hereafter exist on the part of the Administrative
Agent or any holder of any Credit Obligation to inform such Guarantor of the
risks being undertaken by entering into this Agreement or of any changes in such
risks and, from and after the date hereof, each Guarantor undertakes to keep
itself informed of such risks and any changes therein. Further, each Guarantor
hereby expressly waives any duty which may now or hereafter exist on the part of
the Administrative Agent or any holder of any Credit Obligation to disclose to
such Guarantor any matter related to the business, operations, character,
collateral, credit or condition (financial or otherwise) or prospects of the
Company, its Subsidiaries or Affiliates or their properties or management,
whether now or hereafter known by the Administrative Agent or any holder of any
Credit Obligation. Each Guarantor represents, warrants and agrees that it
assumes sole responsibility for obtaining from the Company and its Subsidiaries
all information concerning this Agreement and all other Lender Agreements and
all other information as to the Company, its Subsidiaries and Affiliates or
their properties or management or anything relating to any of the above as such
Guarantor deems necessary or desirable.
6.6. No Subrogation; Subordination. Each Guarantor hereby covenants and
-----------------------------
agrees that (a) it will not at any time enforce or otherwise exercise any rights
of indemnification, reimbursement, subrogation, contribution or other similar
rights with respect to the Credit Obligations against any Person, including
without limitation any other guarantor of the Credit Obligations (except
pursuant to the Guarantors' Contribution Agreement) or the Company, and (b) all
Indebtedness, claims and liabilities now or hereafter owing by the Company to
such Guarantor are hereby subordinated to the prior payment in full of the
Credit Obligations and are so subordinated as a claim against the Company or any
of its assets, whether such claim be in the ordinary course of business or in
the event of voluntary or involuntary liquidation, dissolution, insolvency or
bankruptcy, so that no payment with respect to any such Indebtedness, claim or
liability will be made or received while any of the Credit Obligations are
outstanding or prior to the termination of the Lenders' commitments hereunder;
provided, however, that the
- -------- -------
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subordination provisions of this clause (b) shall apply only so long as any
Default shall exist.
6.7. Further Assurances. Each Guarantor will, upon the request of the
------------------
Administrative Agent or any Lender from time to time, execute, acknowledge and
deliver, and file and record, all such instruments, and take all such action, as
the Administrative Agent or the Lenders may reasonably deem necessary or
advisable to carry out the intent and purpose of this Agreement and the Lender
Agreements. The Company and each Guarantor shall from time to time cause any of
the Company's present or future wholly owned Restricted Subsidiaries (within 30
days after any such future wholly owned Restricted Subsidiary becomes a wholly
owned Restricted Subsidiary) that are not Guarantors to guarantee the payment
and performance of the Credit Obligations in accordance with this Section 6. The
Company and each Guarantor shall use reasonable efforts to obtain all outside
stockholder consents for any of its future Restricted Subsidiaries that are not
wholly owned by the Company or the Guarantors and that are not Guarantors to
guarantee the payment and performance of the Credit Obligations and, once such
outside stockholder consents have been obtained, to cause such Restricted
Subsidiary to guarantee the payment and performance of the Credit Obligations in
accordance with this Section 6.
6.8. Release of Guarantors and Restricted Subsidiaries. The Company may by
-------------------------------------------------
10 Banking Days prior written notice to the Administrative Agent designate any
Restricted Subsidiary to be released as a Guarantor (if necessary) and as a
Restricted Subsidiary; provided, however, that immediately after giving effect
-------- -------
to any such release, (a) no Default shall exist and (b) the assets of the
Restricted Subsidiaries so released could have been sold or exchanged in
accordance with Section 7.10.3 or Section 7.10.4.
7. COVENANTS. Each of the Company and the Guarantors covenants that it will
comply and will cause each of its Subsidiaries to comply with the following
provisions:
7.1. Corporate Existence; Conduct of Business. Each of the Company and its
Restricted Subsidiaries will take the necessary steps to preserve its corporate
existence and will conduct their respective businesses so as to derive their
revenues from the cable television and telecommunications businesses and related
activities; provided, however, that the foregoing provisions shall not prevent
-------- -------
any merger permitted by Section 7.11 or the liquidation of any Restricted
Subsidiary if in the good faith judgment of the Company's board of directors
such liquidation is in the best interests of the Company and is not materially
disadvantageous to the holders of the Credit Obligations.
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7.2. Financial Statements, etc. Each of the Company and its Subsidiaries
--------------------
will maintain a system of accounting in which full and correct entries will be
made of all dealings and transactions in relation to their respective businesses
and affairs in accordance with generally accepted accounting principles.
7.2.1. Quarterly Reports. Within 60 days after the end of each of the
-----------------
first three quarters of each fiscal year, the Company will furnish to each
Lender copies of the balance sheet of the Company and its Subsidiaries as
of the end of such quarter and the statements of income and cash flows of
the Company and its Subsidiaries for the portion of the fiscal year then
ended, all in reasonable detail, which statements shall be consolidated and
by group (including the Company and its Restricted Subsidiaries as such a
group), shall have been prepared without audit and shall be certified by a
Financial Officer as presenting fairly the financial condition and results
of operations of the Company and its Subsidiaries in accordance with
generally accepted accounting principles consistently followed, subject to
normal year-end audit adjustments, it being understood, however, that such
financial statements may not contain all of the explanatory footnotes which
accompany the audited year-end financial statements, together with a
certificate by such Financial Officer as to the following:
(a) stating that he or she has reviewed this Agreement and has
made, or caused to be made under his or her supervision, a review of
the transactions and conditions of the Company and its Restricted
Subsidiaries during the accounting period covered by such financial
statements;
(b) stating that such review has not disclosed the existence
during such accounting period (and that such officer does not have
knowledge of the existence, as of the date of such certificate) of any
Default or, if any Default existed or exists, specifying the nature
and period of existence thereof and what action the Company has taken,
is taking or proposes to take with respect thereto;
(c) stating, when appropriate, the effects on such financial
statements of any change in the Company's method of accounting for
system development costs;
(d) stating the amount and term of, and purpose for, amounts
designated under Section 2.5 during such quarter;
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(e) demonstrating as at the end of such accounting period in
reasonable detail compliance with Sections 7.7.2, 7.7.6, 7.7.8,
7.7.9(d), 7.7.10, 7.7.11, 7.9.4, 7.10.3, 7.10.4, 7.12.2 and 7.13 (and,
if at the end of such accounting period there were in effect any
designations of amounts under Section 2.5.1(b) or 2.5.1(c), compliance
with Section 7.13 on a pro forma basis assuming that such designated
amounts actually had been advanced hereunder on the date of
designation under Section 2.5);
(f) containing a report setting forth the number of homes
passed, subscribers and subscribers receiving premium services, as at
the end of such accounting period, through the cable television
systems owned and operated by the Company and its Restricted
Subsidiaries;
(g) supplementing Exhibit 8.1 with any changes in the
information set forth therein during such fiscal quarter;
(h) showing a schedule of intercompany Indebtedness among the
Company and its Restricted Subsidiaries; and
(i) stating the amount of any cash payments made by the Company
or any Restricted Subsidiary during such quarter in respect of any
amount for which the Company has established regulatory reserves.
7.2.2. Annual Reports. Within 90 days after the end of each fiscal
--------------
year, the Company will furnish to each Lender copies of the balance sheet
and supplemental schedules of the Company and its Subsidiaries as at the
end of such year and the statements of income and cash flows and
supplemental schedules of the Company and its Subsidiaries for such year,
all in reasonable detail, which statements shall be consolidated and by
group (including the Company and its Restricted Subsidiaries as such a
group), shall include explanatory notes thereto and shall be accompanied by
the following:
(a) a certificate or report of Deloitte & Touche (or other
independent public accountants of recognized standing selected by the
Company and satisfactory to the Administrative Agent) to the effect
that such statements present fairly in all material respects the
financial condition and results of operations of the Company and its
Subsidiaries in accordance with generally accepted accounting
principles, applied on a basis consistent with that of prior years;
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(b) the statement of such accountants (i) briefly setting forth
the scope of their examination (which shall include a review of the
relevant provisions of this Agreement, as such provisions relate to
accounting matters), and stating that in their judgment such
examination is sufficient to enable them to give such certificate and
(ii) that they have reviewed the computations by the Company described
in clause (d) below and that in the course of their audit of the
Company nothing has come to their attention to lead them to believe
that any Default exists or, if such is not the case, specifying the
Default or possible Default and the nature thereof, it being
understood that the examination by such accountants cannot be relied
upon to give them knowledge of any such Default except as it relates
to accounting or auditing matters;
(c) the statement of the Company as to the amount and term of,
and purpose for, amounts designated under Section 2.5 during the last
quarter of such fiscal year;
(d) computations by the Company demonstrating, as of the close
of such fiscal year, compliance with Sections 7.7.2, 7.7.6, 7.7.8,
7.7.9(d), 7.7.10, 7.7.11, 7.9.4, 7.10.3, 7.10.4, 7.12.2 and 7.13 (and,
if at the close of such fiscal year there were in effect any
designations of amounts under Section 2.5.1(b) or 2.5.1(c), compliance
with Section 7.13 on a pro forma basis assuming that such designated
amounts actually had been advanced hereunder on the date of
designation under Section 2.5);
(e) a report of the Company setting forth the number of homes
passed, subscribers and subscribers receiving premium services, as at
the end of such fiscal year, through the cable television systems
owned and operated by the Company and its Restricted Subsidiaries;
(f) supplements to Exhibit 8.1 showing any changes in the
information set forth therein during the last fiscal quarter of such
fiscal year;
(g) a schedule of intercompany Indebtedness among the Company
and its Restricted Subsidiaries; and
(h) stating the amount of any cash payments made by the Company
or any Restricted Subsidiary during the last fiscal quarter of such
fiscal year in respect of any amount for which the Company has
established regulatory reserves.
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7.2.3. Audits. Promptly upon receipt thereof, the Company shall
------
deliver to each Managing Agent copies of all other reports submitted to the
Company by independent public accountants in connection with any annual,
interim or special audit of the books of the Company or any of its
Restricted Subsidiaries made by such accountants.
7.2.4. ERISA Reports. Each of the Company and its Restricted
-------------
Subsidiaries will furnish the Administrative Agent with copies of any
request for waiver of the funding standards or extension of the
amortization periods required by sections 303 and 304 of ERISA or section
412 of the Code promptly after any such request is submitted by any of them
to the Department of Labor or the Internal Revenue Service, as the case may
be. Promptly after a reportable event as defined by section 4043 of ERISA
occurs as to which the PBGC has not waived the 30-day reporting
requirements under its rules and regulations thereunder, or the Company or
any of its Restricted Subsidiaries receives notice that the PBGC or any
Control Group Person has instituted or intends to institute proceedings to
terminate any Plan, or prior to the Plan administrator's terminating a Plan
pursuant to section 4041 of ERISA, the Company will notify the
Administrative Agent and will furnish to the Administrative Agent a copy of
any notice of such reportable event which is required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its institution of
such proceedings or its intent to institute such proceedings, or any notice
to the PBGC that a Plan is to be terminated, as the case may be. As soon as
available and in any event within nine months after the end of each fiscal
year, the Company will provide each Managing Agent with a calculation of
the current value of the benefits guaranteed under Title IV of ERISA of
each Plan and of the current value of each such Plan's assets allocable to
such benefits as at the end of such fiscal year (or as at the end of the
most recently completed Plan year if it is not concurrent with such fiscal
year).
7.2.5. Public Reports. Promptly upon their becoming available, the
--------------
Company shall deliver to each Lender copies of all financial statements
sent by the Company or any of its Subsidiaries to shareholders (other than
the Company or any of its Subsidiaries) and all reports, notices and proxy
statements sent by the Company to its shareholders, and all regular and
periodic reports (without exhibits) and effective registration statements
(without exhibits) filed by the Company with any securities exchange or
with the Securities and Exchange Commission or its successor, and the
Company shall deliver to the Managing Agents copies of all press releases
and other statements made available generally by the Company to the public
concerning material
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developments in the business of the Company and its Subsidiaries.
7.2.6. Defaults. Immediately upon becoming aware of the existence of
--------
any Default, the Company shall deliver to the Lenders written notice
specifying the nature and period of existence thereof and what action the
Company has taken, is taking or proposes to take with respect thereto.
7.2.7. Other Events.
------------
(a) Immediately upon becoming aware that the holder of any evidence
of Indebtedness or other security of the Company or any of its Restricted
Subsidiaries has given notice or taken any other action with respect to a
claimed default, the Company shall deliver to the Lenders a written notice
specifying the notice given or action taken by such holder and the nature
of the claimed default and what action the Company has taken, is taking or
proposes to take with respect thereto.
(b) Promptly upon any of the Company's Financial Officers obtaining
knowledge thereof, the Company shall promptly notify the Administrative
Agent of (i) the receipt by the Company or any of its Restricted
Subsidiaries of notice from any federal, state or local governmental
authority of the institution of proceedings to revoke, terminate or suspend
any Franchise now or hereafter held by the Company or any of its Restricted
Subsidiaries and (ii) any abandonment or expiration of a Franchise now or
hereafter held by the Company or any of its Restricted Subsidiaries.
7.2.8. Requested Information. The Company will with reasonable
---------------------
promptness furnish such other data as any Lender may reasonably request,
and will from time to time permit each Lender by or through any of its
officers, agents, employees, attorneys or accountants to inspect and make
extracts from its books and records.
7.2.9. Notice of Certain Redemptions of Subordinated Debt. Prior to
--------------------------------------------------
making any payments of principal, premium (if any) and interest on
Subordinated Debt in connection with (a) Put Option Redemption Dates (as
defined in the Indentures), (b) Control Redemption Dates (as defined in the
1989 Indentures), (c) Preferred Event Redemption Dates (as defined in the
1992 Indentures), or (d) any comparable mandatory redemption obligation in
respect of Subordinated Debt other than the Senior Subordinated Debt, the
Company shall give notice of each proposed payment, together with the
certificate referred to below, to the Administrative
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Agent no later than the date specified in the applicable paragraph below:
(i) 20 days prior to the date that the Company shall give notice
of a proposed Put Option Stock Repurchase or Put Option Borrowing
(each as defined in the Indentures) or of any comparable mandatory
redemption obligation in respect of Subordinated Debt other than the
Senior Subordinated Debt or request the trustee under any indentures
to give such a notice;
(ii) the later of (a) 20 days prior to the occurrence of any
transaction which would constitute a Change of Control Event (as
defined in the 1989 Indentures) or of any comparable mandatory
redemption obligation in respect of Subordinated Debt other than the
1989 Subordinated Debt or (b) one day after the first date that the
Company knows or reasonably should have know of any such transaction
or proposed transaction; or
(iii) five Banking Days prior to an irrevocable election by the
Company to make a Preferred Stock Redemption Payment (as defined in
the 1992 Indentures) or of a comparable irrevocable election as a
result of a cash redemption of the 1992 Preferred Stock with respect
to any Subordinated Debt other than the 1992 Subordinated Debt.
Together with the delivery of notice to the Administrative Agent required
by this Section 7.2.9, the Company will deliver to the Administrative Agent
a certificate executed by a Financial Officer either (1)(i) stating that no
Default exists and that either (x) the Company has adequate available funds
on hand which are dedicated to pay the Redemption Amount or (y) assuming
that the Company were to incur additional Indebtedness in an amount equal
to the portion of the Redemption Amount which will be financed through
additional Indebtedness to be incurred by the Company and its Restricted
Subsidiaries, no Default would exist after giving effect to the incurrence
of such additional Indebtedness, and (ii) including calculations
demonstrating compliance with Section 7.13.1 on a pro forma basis after
giving effect to the redemption of Subordinated Debt in a principal amount
equal to the Redemption Amount and, if applicable, the incurrence of such
additional Indebtedness, or (2) setting forth the nature of the present
Default or the Default anticipated upon payment of the Redemption Amount.
7.2.10. Notice of Certain Redemptions of 1992 Preferred Stock. Prior
-----------------------------------------------------
to making any cash redemption of the
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1992 Preferred Stock in connection with a 1992 Preferred Stock Redemption
Event the Company shall give notice to the Administrative Agent no later
than five Banking Days prior to the Company's irrevocable election to make
such a cash redemption. Together with the delivery of such notice, the
Company will deliver to the Administrative Agent a certificate executed by
a Financial Officer either (a)(i) stating that no Default exists and that
either (A) the Company has adequate available funds on hand which are
dedicated to satisfy such cash redemption or (B) assuming that the Company
were to incur additional Indebtedness in an amount equal to the portion of
such cash redemption which will be financed through additional Indebtedness
to be incurred by the Company and its Restricted Subsidiaries, no Default
would exist after giving effect to the incurrence of such additional
Indebtedness, and (ii) including calculations demonstrating compliance with
Section 7.13.1 on a pro forma basis after giving effect to such cash
redemption and, if applicable, the incurrence of such additional
Indebtedness, or (b) setting forth the nature of the present Default or the
Default anticipated upon payment of such cash redemption.
7.2.11. Confidentiality. The Lenders acknowledge that some of the
---------------
information furnished to them pursuant to this Section 7.2 may be received
by them prior to the time it shall have been made public and the Lenders
agree that they will keep all information so furnished to them pursuant to
this Section 7.2 confidential and will make no disclosure of such
information until it shall have become public, subject, however, to their
obligations under law or regulatory requirements or pursuant to subpoenas
or other process, to make information available to governmental agencies
and examiners or to others; provided, however, that any Lender may divulge
such information (a) to its attorneys and accountants and to its commercial
banking Affiliates which are wholly owned by the same corporate parent as
such Lender, (b) to other financial institutions which are creditors of the
Company, the representatives of such creditors and governmental authorities
having jurisdiction in connection with the enforcement of the Credit
Obligations or following the occurrence of any Event of Default in
connection with discussions relating to a modification or restructuring of
Indebtedness of the Company, (c) with the prior written consent of the
Company, and (d) to Credit Participants, prospective Credit Participants
and prospective Lenders who agree to maintain the confidentiality of such
information in accordance with this Section 7.2.11. The provisions of this
Section 7.2.11 shall survive the termination of this Agreement.
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7.3. Insurance. The Company will maintain or cause to be maintained, with
---------
financially sound and reputable insurers, insurance with respect to the
properties and business of the Company and its Restricted Subsidiaries against
loss or damage of the kinds customarily insured against by corporations of
established reputation engaged in the same or a similar business and similarly
situated of such types and in such amounts as is customarily carried under
similar circumstances by such other corporations in the reasonable determination
of the Company's management.
7.4. Taxes; Claims. The Company will, and will cause each Restricted
Subsidiary to, pay or make provision for all taxes, assessments and other
governmental charges validly imposed upon it or any of its properties or assets
or in respect of any of its Franchises, business, income or profits before any
substantial penalty or interest accrues thereon, and all claims (including
without limitation, claims for labor, services, materials and supplies) for sums
which have become due and payable and which by law have or might become a lien
or charge upon any of its properties or assets; provided, however, no such tax,
assessment, charge or claim need be paid if it is then being contested in good
faith by appropriate proceedings and the Company shall have created adequate
reserves on its books with respect thereto.
7.5. Maintenance of Properties. The Company and its Restricted
-------------------------
Subsidiaries shall maintain and keep the properties used or, in the good faith
judgment of the Company's management, useful in its business in good repair,
working order and condition, and shall make or cause to be made all repairs,
renewals and replacements thereof deemed by the Company's management to be
necessary or appropriate.
7.6. Statutory Compliance. Each of the Company and its Restricted
--------------------
Subsidiaries will comply in all material respects with all valid and applicable
statutes, rules and regulations of the United States of America, of the states
thereof and their counties, municipalities and other subdivisions and of any
other jurisdiction applicable to it, whether foreign or domestic, except where
compliance therewith shall at the time be contested in good faith by appropriate
proceedings.
7.7. Indebtedness. Neither the Company nor any Restricted Subsidiary will
------------
create, incur, suffer or permit to exist, or assume or guarantee, either
directly or indirectly, or otherwise become liable with respect to, any
Indebtedness, except the following:
7.7.1. The Credit Obligations.
7.7.2. Unsecured Indebtedness for the deferred purchase price of
property in aggregate principal amount not
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exceeding $50,000,000 at any one time outstanding and Indebtedness secured
by purchase money security interests (including Capitalized Leases) to the
extent permitted by Section 7.8.5.
7.7.3. Indebtedness of any Restricted Subsidiary to the Company or
any other Restricted Subsidiary, and Indebtedness of the Company to any
Restricted Subsidiary.
7.7.4. Indebtedness of the Company (a) described in Part A of
Exhibit 7.7 as in effect on the dates set forth therein, together with
guarantees by the Guarantors of such Indebtedness, and (b) described in
Part B of Exhibit 7.7 as in effect on the dates set forth therein, on the
terms set forth in the indentures referred to in Exhibit 7.7 as in effect
on the dates set forth therein.
7.7.5. Indebtedness of the Company's Restricted Subsidiaries
described in Part C of Exhibit 7.7 as in effect on the dates set forth
therein.
7.7.6. Indebtedness of the Company not in excess of $150,000,000 in
the aggregate at any one time outstanding, which Indebtedness shall be
unsecured, shall be for a term of no more than 90 days and shall not be
refunded or otherwise refinanced by other Indebtedness permitted by this
Section 7.7.6.
7.7.7. Other Indebtedness of the Company for which the amount, terms
(including subordination terms, if applicable) and lender have been
approved by the prior written consent of the holders of at least a majority
of the Voting Percentage Interests.
7.7.8. Indebtedness of the Company with respect to commercial paper
in aggregate face amount or aggregate principal amount, as the case may be,
at any one time outstanding not exceeding the amount of credit reserved
with respect thereto in accordance with Section 2.5.1(a).
7.7.9. Indebtedness of the Company which:
(a) is unsecured and, in the reasonable determination of the
Managing Agents at the time of the incurrence thereof, has a commercially
reasonable interest rate given the then-prevailing market conditions and
the Company's then-current credit rating;
(b) to the extent such Indebtedness is not subordinated to the
Credit Obligations, has, in the reasonable determination of the Managing
Agents, terms no more restrictive or burdensome in any material respect on
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the Company and its Restricted Subsidiaries than the terms of this
Agreement; provided, however, that to the extent certain terms of such
-------- -------
Indebtedness relate to the Company's mandatory redemption obligations in
respect of such Indebtedness, such terms shall be no more restrictive or
burdensome in any material respect on the Company and its Restricted
Subsidiaries than the most restrictive and burdensome terms relating to the
Company's mandatory redemption obligations in respect of the Senior
Subordinated Debt;
(c) to the extent such Indebtedness is subordinated to the Credit
Obligations, has, in the reasonable determination of the Managing Agents,
(i) terms no more restrictive or burdensome in any material respect on the
Company and its Restricted Subsidiaries than the most restrictive and
burdensome applicable terms of any Senior Subordinated Debt or (ii)
subordination terms at least as favorable to the Lenders as the most
favorable subordination terms of any Senior Subordinated Debt; and
(d) shall have no scheduled principal payments on or prior to January
1, 2004, except that up to $300,000,000 of Indebtedness permitted by this
Section 7.7.9 may have scheduled principal payments on or prior to January
1, 2004 so long as (i) immediately after giving effect to such Indebtedness
and any concurrent permanent reduction of the Maximum Amount of Credit, the
Weighted Average Life to Maturity of such Indebtedness is longer than the
Weighted Average Life to Maturity of the Loan and (ii) the Maximum Amount
of Credit will be permanently reduced in an amount of not less than 50% of
the aggregate net proceeds of such Indebtedness (after deducting
underwriting discounts and other expenses of the Company specifically
related to the incurrence of such Indebtedness).
7.7.10. Guarantees by the Company and its Restricted Subsidiaries of
Indebtedness of other Persons in an aggregate principal amount not to
exceed $200,000,000 at any time outstanding.
7.7.11. Letters of credit issued on behalf of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $50,000,000 at
any time outstanding.
7.8. Liens. Neither the Company nor any Restricted Subsidiary will
-----
mortgage, pledge or otherwise encumber any of its property, or permit any lien
or security interest to exist thereon, except the following:
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7.8.1. Liens for taxes, assessments or governmental charges or claims
the payment of which is not at the time required by Section 7.4.
7.8.2. Liens of mechanics, carriers, warehousemen or materialmen
arising in the ordinary course of business in respect of obligations which
are not overdue or which are being contested in good faith.
7.8.3. Liens, other than Liens created by section 4068 of ERISA,
resulting from deposits or pledges made in the ordinary course of business
to secure payment of workers' compensation, unemployment insurance, old age
pension or other social security, or in connection with or to secure the
performance of bids, tenders or contracts made in the ordinary course of
business, or to secure statutory obligations or surety, performance or
appeal bonds.
7.8.4. Liens in respect of judgments or awards the payment of which
is not at the time required by Section 7.4.
7.8.5. Purchase money security interests (including mortgages, any
conditional sale or other title retention agreement and any Capitalized
Lease); provided, however, that the principal amount of Indebtedness
secured by each such security interest in each such item (or group of
items) of property shall not exceed the cost of the item (or group of
items) subject thereto and each such security interest shall attach only to
the particular item (or group of items) so acquired and any additions or
accessions thereto.
7.8.6. Encumbrances in respect of easements, rights of way, zoning
restrictions, restrictions on the use of real property and minor defects
and irregularities in the title thereto, landlord's or lessor's liens under
leases to which the Company or any of its Restricted Subsidiaries is a
party and other similar encumbrances, none of which in the reasonable
opinion of the Company interferes with the use of the property by the
Company or such Restricted Subsidiary in the ordinary conduct of its
business.
7.8.7. Liens of utilities and other Persons pursuant to pole
agreements, and restrictions on the transfer of rights under Franchises or
pole agreements, and any encumbrances created in favor of franchising
authorities and subscribers by provisions of Franchises on cable television
plant and equipment located in the areas covered thereby.
7.8.8. Pledges of Investments in Unrestricted Subsidiaries to secure
contractual obligations (including, without limitation, Indebtedness) of
Unrestricted Subsidiaries.
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7.8.9. Leases or subleases granted to others in the ordinary course
of business and not materially interfering with the ordinary conduct of the
business of the Company and its Restricted Subsidiaries, taken as a whole.
7.9. Investments. Neither the Company nor any of its Restricted
-----------
Subsidiaries shall have outstanding or acquire or commit itself to acquire or
hold any Investment except the following:
7.9.1. Investments in
(a) negotiable certificates of deposit, time deposits, short-term
obligations and bankers' acceptances issued by any Lender or any United
States bank or trust company having capital and surplus and undivided
profits aggregating at least $100,000,000 and rated Prime-1 by Moody's or
A-1 by S&P;
(b) short-term obligations issued by corporations rated Prime-1 by
Moody's or A-1 by S&P;
(c) any direct obligation of the United States of America or any
agency or instrumentality thereof which (i) has a remaining maturity at the
time of purchase of not more than two years or (ii) is subject to a
repurchase agreement with one of the Lenders, banks or trust companies
referred to in clause (a) hereof exercisable within two years from the time
of purchase; and
(d) repurchase agreements with any of the banks or trust companies
referred to in clause (a) hereof.
7.9.2. Investments in Restricted Subsidiaries or in the Company.
7.9.3. Investments evidenced by deposits with, and advances to,
suppliers of goods and services in the ordinary course of business.
7.9.4. Investments in any Person who is an employee of the Company or
any of its Restricted Subsidiaries (other than an employee who is an
Affiliate); provided, however, that the aggregate outstanding amount of
such Investments shall not at any time exceed $1,000,000.
7.9.5. Investments in Affiliates (other than the Company and its
Restricted Subsidiaries), including the acquisition of ownership interests
in Affiliates; provided, however, that, immediately after any such
-------- -------
Investment is made, no Event of Default shall exist; and provided, further,
-------- -------
that any transfer of assets (other than cash) shall
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be permitted under this Section 7.9.5 only to the extent permitted by
Section 7.10.
7.10. Sales of Assets; etc. Neither the Company nor any of its Restricted
--------------------
Subsidiaries will sell any of its assets (including Investments in Subsidiaries)
and no Restricted Subsidiary will issue any shares of its capital stock, or
rights or options to acquire such stock, to any Person other than the Company or
any of the Guarantors, except the following:
7.10.1. Normal retirements and replacements of property and equipment
in the ordinary course of business.
7.10.2. Sales of Investments in Unrestricted Subsidiaries (including,
without limitation, the Investment Subsidiaries).
7.10.3. Sales of assets (including Investments in Restricted
Subsidiaries) by the Company or any of its Restricted Subsidiaries for a
cash consideration representing the fair value thereof at the time of such
sale (as determined in good faith by the board of directors of the Company
or the executive committee thereof in the case of any transaction involving
consideration exceeding $50,000,000); provided, however, that immediately
-------- -------
after giving effect to any such sale,
(a) no Default shall exist;
(b) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (d) below, for
all assets sold pursuant to this Section 7.10.3 by the Company and its
Restricted Subsidiaries during the immediately preceding twelve-month
period up to and including the date of such sale (other than sales
that were or would otherwise have been permitted by the other
provisions of this Section 7.10), together with all Restricted
Subsidiaries released during such period in accordance with Section
6.8 and Operating Asset exchange shortfalls during such period deemed
asset sales pursuant to Section 7.10.4, shall not exceed 15%; and
(c) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (e) below and
netted against certain amounts in the event of a Qualifying
Reinvestment as provided in such clause (e), for all assets sold
pursuant to this Section 7.10.3 by the Company and its Restricted
Subsidiaries during the period commencing on the later of June 30,
1994 and the date which is five years prior to the date of such sale
and ending on the
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date of such sale (other than sales that were or would otherwise have
been permitted by the other provisions of this Section 7.10), together
with all Restricted Subsidiaries released during such period in
accordance with Section 6.8 and Operating Asset exchange shortfalls
during such period deemed asset sales pursuant to Section 7.10.4,
shall not exceed 30%.
(d) For purposes of calculating the foregoing clause (b) and
clause (b) of Section 7.10.4, the percentage accounted for by each
asset so sold or Restricted Subsidiary so released is that percentage
of Consolidated Operating Income in the most recently completed period
of four fiscal quarters for which financial statements have been (or
are required to have been) furnished to the Lenders in accordance with
Section 7.2.1 or 7.2.2 preceding such sale or release which was
contributed by such asset or released Restricted Subsidiary.
(e) For purposes of calculating the foregoing clause (c) :
(i) for each group of Operating Assets acquired in a
Qualifying Reinvestment, the percentage of Consolidated Operating
Income contributed by such Operating Assets shall be determined
by measuring (A) the Consolidated Operating Income of such
Operating Assets (on a pro forma basis) during the most recently
completed period of four fiscal quarters for which financial
statements have been (or are required to have been) furnished to
the Lenders in accordance with Section 7.2.1 or 7.2.2 prior to
the acquisition of such Operating Assets against (B) the
Consolidated Operating Income of the Company and its Restricted
Subsidiaries during such period, and
(ii) the aggregate percentage of Consolidated Operating
Income for all assets so sold or Restricted Subsidiaries so
released equals (a) the sum of the historical percentages
calculated in accordance with the foregoing clause (d) in respect
of assets sold or Restricted Subsidiaries released during the
applicable five-year (or shorter) period minus (b) the sum of the
historical percentages calculated in accordance with the
foregoing clause (i) in respect of Operating Assets acquired in a
Qualifying Reinvestment during such five-year (or shorter)
period.
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<PAGE>
7.10.4. The Company and its Restricted Subsidiaries may exchange
Operating Assets for Operating Assets of another Person; provided, however,
-------- -------
that immediately after giving effect to any such exchange,
(a) no Default shall exist; and
(b) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (d) of Section
7.10.3, for all Operating Assets so exchanged by the Company and its
Restricted Subsidiaries during the immediately preceding twelve-month
period up to and including the date of such exchange (other than
transactions that were or would otherwise have been permitted by the
other provisions of this Section 7.10) shall not exceed 15%.
In the event that any Operating Assets acquired by the Company and its
Restricted Subsidiaries in any such exchange contribute less Consolidated
Operating Income (on a pro forma basis) than the Operating Assets
transferred by the Company and its Restricted Subsidiaries in such exchange
(in each case calculated in accordance with clause (d) of Section 7.10.3),
the amount of such shortfall in Consolidated Operating Income shall be
considered an asset sale under Section 7.10.3. In connection with an
exchange of Operating Assets permitted by this Section 7.10.4, the Company
and its Restricted Subsidiaries, on the one hand, and the other Person
party to such exchange, on the other hand, may receive or give cash and
other consideration to the extent necessary to reflect differences in the
values of the Operating Assets being exchanged.
7.10.5. So long as immediately after giving effect thereto no Default
exists, Restricted Subsidiaries may transfer assets to the Company or any
Guarantor.
7.11. Mergers. Neither the Company nor any of its Restricted Subsidiaries
-------
will enter into any merger or consolidation, except the following:
7.11.1. Any Restricted Subsidiary may consolidate with or merge into
the Company or any other Guarantor if the Company or a Guarantor, as the
case may be, shall be the surviving corporation.
7.11.2. Any corporation or partnership other than the Company or a
Restricted Subsidiary may merge into the Company or a Restricted Subsidiary
or any Restricted Subsidiary may consolidate with or merge into any other
corporation or partnership, if:
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<PAGE>
(a) the Company or a Restricted Subsidiary, as the case may be,
shall be the surviving corporation or partnership (except that if a
Guarantor is party to such consolidation or merger, the Company or a
Guarantor must be the surviving corporation or partnership),
(b) prior to such merger, such other corporation or partnership
had conducted its business so as to derive its revenues from the cable
television and/or telecommunications business and related activities
and
(c) immediately after giving effect to such merger, no Default
exists.
7.11.3. Any Restricted Subsidiary may consolidate with or merge into
any other Person in connection with the sale of the assets of such
Restricted Subsidiary to the extent permitted by Section 7.10.
7.12. Distributions. Neither the Company nor any of its Restricted
-------------
Subsidiaries shall make any Distribution, except that:
7.12.1. Any Restricted Subsidiary may make Distributions to the
Company or any Guarantor and, so long as after giving effect thereto no
Default exists, any Restricted Subsidiary that is not a Guarantor.
7.12.2. So long as immediately after giving effect thereto no Default
exists, the Company may make Distributions to its securities holders not
permitted by the other provisions of this Section 7.12 so long as
immediately after giving effect thereto the aggregate amount of all
Distributions made pursuant to this Section 7.12.2 or pursuant to Section
7.12.4(a) since June 30, 1994 does not exceed the sum of:
(a) $400,000,000 plus
(b) the excess, if any, of (i) Consolidated Operating Income
from June 30, 1994 through the Company's fiscal quarter most recently
ended for which financial statements have been (or are required to
have been) furnished to the Lenders in accordance with Section 7.2.1
or 7.2.2, taken as a single accounting period, over (ii) 120% of
Consolidated Interest Expense for such period, taken as a single
accounting period, plus
----
(c) the aggregate net proceeds received by the Company since
June 30, 1994 from the issuance or sale of any capital stock of the
Company;
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provided, however, that until the Company has received cash or Operating
-------- -------
Assets having an aggregate value (after deducting underwriting discounts,
if any, and other expenses of the Company specifically related to such
sale) of at least $100,000,000 from the sale of capital stock not
constituting Indebtedness after June 30, 1994, the Company shall not pay
cash dividends on its capital stock outstanding as of the Initial Closing
Date.
7.12.3. So long as immediately after giving effect thereto no Event
of Default exists, the Company and its Restricted Subsidiaries may make
payments of principal of and premium, if any, and interest on, and may
redeem, defease or otherwise acquire for value, Subordinated Debt
(including, without limitation, the Senior Subordinated Debt).
7.12.4. So long as immediately after giving effect thereto no Default
exists, (a) any Restricted Subsidiary may, on a pro rata basis with respect
to all its stockholders or partners, as the case may be, pay dividends on
or make other Distributions with respect to, stock or partnership interests
owned by minority investors; provided, however, that immediately after
giving effect thereto, the aggregate amount of all Distributions made
pursuant to this clause (a) or pursuant to Section 7.12.2 shall not exceed
the sum described in Section 7.12.2; and (b) the Company or any of its
Restricted Subsidiaries may redeem or purchase stock or partnership
interests of a Restricted Subsidiary owned by a minority stockholder or
partner, as the case may be, for fair value (as determined in good faith by
the Company).
7.13. Certain Financial Tests.
-----------------------
7.13.1. Consolidated Total Debt to Consolidated Operating Income. On
--------------------------------------------------------
the last day of each fiscal quarter of the Company specified in the table
below, Consolidated Total Debt shall not exceed the percentage specified in
such table of four times Consolidated Operating Income for such fiscal
quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Percentage
--------------------- ----------
<S> <C>
September 30, 1994 through
March 31, 1995 690%
June 30, 1995 through
March 31, 1996 675%
June 30, 1996 through
December 31, 1996 650%
</TABLE>
-68-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
March 31, 1997 through
June 30, 1997 625%
September 30, 1997 through
December 31, 1997 600%
March 31, 1998 through
December 31, 1998 550%
March 31, 1999 through
December 31, 1999 500%
March 31, 2000 and
thereafter 450%
</TABLE>
7.13.2. Consolidated Operating Cash Flow to Pro Forma Interest
------------------------------------------------------
Payments. On the last day of each fiscal quarter of the Company specified
--------
in the table below, four times Consolidated Operating Cash Flow for such
fiscal quarter shall equal or exceed the percentage specified in such table
of Pro Forma Interest Payments for the four consecutive fiscal quarters of
the Company commencing immediately after such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Percentage
--------------------- ----------
<S> <C>
September 30, 1994 through
December 31, 1997 150%
March 31, 1998 through
December 31, 1998 175%
March 31, 1999 and
thereafter 200%
</TABLE>
7.13.3. Consolidated Operating Cash Flow to Pro Forma Total Debt
--------------------------------------------------------
Service. On the last day of each fiscal quarter of the Company commencing
-------
after September 30, 1994, four times Consolidated Operating Cash Flow for
such fiscal quarter shall equal or exceed 110% of Pro Forma Total Debt
Service for the four consecutive fiscal quarters of the Company commencing
immediately after such date.
7.14. ERISA. Each of the Company and its Restricted Subsidiaries will
-----
meet, and will cause all Control Group Persons to meet, all minimum funding
requirements applicable to any Plan imposed by ERISA or the Code, and will at
all times comply in all material respects with the provisions of ERISA and the
Code which are applicable to the Plans. At no time shall the actuarial present
value of benefits liabilities under the Plans, calculated in a manner consistent
with Statement No. 87 of the Financial Accounting Standards Board, exceed the
current value of the
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<PAGE>
aggregate net assets of the Plans by more than $5,000,000. Neither the Company
nor any of its Restricted Subsidiaries will permit any event or condition to
exist which would permit any Plan to be terminated pursuant to sections 4041(c)
or 4042 of ERISA under circumstances which would cause the lien provided for in
section 4068 of ERISA to attach to the assets of the Company or any of its
Restricted Subsidiaries.
7.15. No Amendments to Certain Agreements. The provisions of the
-----------------------------------
agreements referred to in Exhibit 7.7 shall not be amended, modified, waived or
terminated without the prior written consent of the Administrative Agent, acting
pursuant to the consent of the holders of at least a majority of the Revolving
Percentage Interests, so as (a) to increase the amounts paid or payable by the
Company and its Restricted Subsidiaries, (b) to increase the other obligations
of the Company and its Restricted Subsidiaries thereunder in any material
respect, or (c) to affect the subordination provisions with respect to any
Indebtedness.
7.16. Transactions with Affiliates. Neither the Company nor any of its
----------------------------
Restricted Subsidiaries shall effect any transaction with any Affiliate (other
than the Company and its Restricted Subsidiaries) on a basis less favorable to
the Company or its Restricted Subsidiary in question than would be the case if
such transaction had been effected with a Person that was not an Affiliate;
provided, however, that the foregoing prohibition shall not extend to the
- -------- -------
following:
(a) contracts of employment and compensation for services rendered
which have been duly authorized by a disinterested majority of the
Company's board of directors or of the compensation committee thereof;
(b) any transactions permitted by Sections 7.7 or 7.9;
(c) the provision of goods and services to any Unrestricted
Subsidiary if such goods and services are billed to such Unrestricted
Subsidiary on the basis of the provider's cost therefor;
(d) any guarantee of the obligations of any Affiliate so long as such
obligations contain terms which, in all material respects, are no less
favorable to such Affiliate than those terms which could, at the time, be
obtained in comparable transactions;
(e) the provision of management services to Affiliates; or
(f) any other transaction with an Affiliate of the Company (other
than a Person owning beneficially or of record 5% or more of the Company's
common stock) or any
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<PAGE>
Restricted Subsidiary, if such transaction (i) is not otherwise prohibited
by this Agreement and (ii) a disinterested majority of the Company's board
of directors shall have determined that such transaction is in the best
interests of the Company or such Restricted Subsidiary, such determination
to be evidenced by a resolution of the Company's board of directors (a copy
of which, certified by the secretary or an assistant secretary of the
Company, shall be delivered to each Managing Agent).
7.17. Interest Rate Protection. At any time when Consolidated Total Debt
------------------------
as of the last day of the most recently completed fiscal quarter for which
financial statements have been (or are required to have been) furnished in
accordance with Section 7.2.1 or 7.2.2 exceeds 550% of four times Consolidated
Operating Income for such fiscal quarter, the Company shall have in effect
interest rate protection agreements (including Indebtedness bearing interest at
fixed rates), each in form satisfactory to the Administrative Agent, covering at
least 50% in principal amount of such Consolidated Total Debt.
8. REPRESENTATIONS AND WARRANTIES. To induce each Lender to enter into this
Agreement, the Company and each Guarantor represents and warrants that:
8.1. Organization, Qualification and Standing.
----------------------------------------
8.1.1. The Company. The Company (a) is a corporation duly organized,
-----------
validly existing and in good standing under the laws of the State of
Delaware, (b) has the power and authority to own its property and to carry
on its business and (c) is duly qualified to do business and is in good
standing as a foreign corporation in all places where the failure to be so
qualified is likely to result in any material adverse effect on the
business or assets or on the condition, financial or otherwise, of the
Company and its Restricted Subsidiaries on a consolidated basis.
8.1.2. Subsidiaries. Each of the Company's Restricted Subsidiaries,
------------
including each Guarantor, (a) is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
state of its organization, (b) has the power and authority to own its
property and to carry on its business and is duly qualified to do business
and (c) is in good standing as a foreign corporation or partnership, as the
case may be, in all places where the failure to be so qualified is likely
to result in any material adverse effect on the business or assets or on
the condition, financial or otherwise, of the Company and its Restricted
Subsidiaries on a consolidated basis. Exhibit 8.1, after giving effect to
any supplement furnished in accordance with Section 7.2.1 or 7.2.2 prior to
the date
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<PAGE>
such representation or warranty is made, correctly sets forth, as to each
Subsidiary of the Company its name, the jurisdiction of its organization,
whether it is a Restricted Subsidiary, the number of shares of capital
stock or the amount of other equity, partnership or other beneficial
interests of such Subsidiary owned, beneficially or of record, by the
Company or one of its Subsidiaries, the names of the Person or Persons
owning of record at least 6% of the outstanding capital stock, equity,
partnership or other beneficial interests of such Subsidiary not owned by
the Company or one of its Subsidiaries, and the percentage of each class of
such stock, equity, partnership or other beneficial interest owned of
record by each Person.
8.1.3. Capitalization. The Company and its Subsidiaries own the
--------------
outstanding capital stock, equity, partnership or other beneficial
interests of each Subsidiary shown as owned by them, respectively, in
Exhibit 8.1, after giving effect to any supplement furnished in accordance
with Section 7.2.1 or 7.2.2 prior to the date such representation or
warranty is made, in each case free of any mortgage, pledge, lien, charge,
encumbrance or option, except as set forth therein, and all of such stock,
equity, partnership or other beneficial interests, to the extent
applicable, is validly issued and outstanding, fully paid and nonassessable
except as set forth on Exhibit 8.1. There are no outstanding rights,
options, warrants, conversion rights or agreements for the purchase or
acquisition by third parties from any of the Company's Restricted
Subsidiaries of any shares of its capital stock, equity, partnership or
other beneficial interests.
8.2. Authorization, etc. The execution, delivery and performance (a) by
the Company of this Agreement, the Notes and the other Lender Agreements to
which it is a party, and (b) by each Guarantor of this Agreement and each other
Lender Agreement to which it is a party, have been duly authorized by all
necessary corporate or partnership action on the part of the Company or such
Guarantor and do not violate the charter, by-laws or partnership agreement, as
the case may be, or any Franchise or other agreement (including leases) or any
law or order, regulation, ruling or requirement of a court or public body or
authority to which the Company or any Guarantor is a party or by which it is
bound. No approval, authorization or other action by any governmental authority
or any other Person not heretofore obtained is required to be obtained by the
Company or any Guarantor in connection with the execution, delivery and
performance of this Agreement or any other Lender Agreement or the transactions
contemplated hereby or thereby, or the making of any borrowing by the Company
hereunder. Neither the Company nor any of its Subsidiaries (other than the
Investment Subsidiaries) owns any Margin Stock. Each of this Agreement, the
Notes and the
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<PAGE>
other Lender Agreements as of the date furnished to the Lenders is the valid and
binding obligation of the Company and each Guarantor and is enforceable against
each such Person in accordance with its terms.
8.3. Litigation. There is no litigation, at law or in equity, or any
----------
proceeding involving the Company or any Subsidiary before any federal, state or
municipal board or other governmental or administrative agency or
instrumentality pending, or to the knowledge of the Company or any Guarantor
threatened, which involves a material risk of any judgment or liability not
fully covered by insurance which with any significant likelihood may result in
any material adverse change in the business or assets or in the condition,
financial or otherwise, of the Company and its Restricted Subsidiaries on a
consolidated basis or which seeks to enjoin the consummation of any of the
transactions contemplated by this Agreement or any Lender Agreement, and no
judgment, decree or order of any court, board or other governmental or
administrative agency or instrumentality has been issued against the Company or
any of its Subsidiaries which has, or will have a material adverse effect on the
business, operations or assets or on the condition, financial or otherwise, of
the Company and its Restricted Subsidiaries on a consolidated basis.
8.4. Financial Statements. All balance sheets, earnings statements and
--------------------
other financial data which have been furnished by the Company to the Lenders
present fairly the financial condition as of the date and the results of the
operations for the period or periods stated to be covered thereby of the Company
and its Subsidiaries, and all other information, reports and other papers and
data furnished to the Lenders by or on behalf of the Company or any Guarantor
are accurate and correct in all material respects and complete insofar as
completeness may be necessary to give the Lenders true and accurate information
as to the subject matter contained therein, except that (a) interim financial
statements may not contain explanatory notes as are included in those for the
fiscal year which may be useful or necessary for understanding or evaluating
certain data set forth therein and (b) no representation or warranty is made
with respect to projections. All Indebtedness of the Company and its Restricted
Subsidiaries required to be set forth on Exhibit 7.7 pursuant to Section 7.7.4
or 7.7.5 is referred to in Exhibit 7.7 as of the dates specified therein.
8.5. Title to Properties. None of the assets of the Company or any
-------------------
Restricted Subsidiary is subject to any security agreement, mortgage, pledge,
lien or encumbrance, except liens or security interests permitted by Section
7.8.
8.6. No Adverse Developments. Since June 30, 1994, neither the financial
condition, business, operations, affairs,
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<PAGE>
prospects, properties nor assets of the Company and its Restricted Subsidiaries,
taken as a whole, have been materially adversely affected as the result of any
legislative or regulatory change, or any revocation, amendment or termination,
or any such action pending or threatened, of any franchise or license (including
any Franchise) or right to do business, or any fire, explosion, flood, drought,
windstorm, earthquake, accident, casualty, labor trouble, riot, condemnation,
requisition, embargo, act of God or of the public enemy or of armed forces, or
other casualty (whether or not related to the foregoing), whether or not insured
against.
8.7. Defaults. Neither the Company nor any Restricted Subsidiary is in
--------
default under any provision of its charter or by-laws or partnership agreement,
as the case may be, any agreement (including leases) to which it is a party or
by which it is bound or any law or order, regulation, ruling or requirement of
any court or public body or authority so as to affect adversely in any material
manner the business, assets or condition, financial or otherwise, of the Company
and its Restricted Subsidiaries on a consolidated basis.
8.8. Pension Plans. Each Plan maintained by the Company or any of its
-------------
Restricted Subsidiaries or any Control Group Person or to which any of them
makes contributions is in material compliance with the applicable provisions of
ERISA and the Code. As of the Initial Closing Date, neither the Company, any of
its Restricted Subsidiaries nor any Control Group Person maintains, contributes
to or participates in any pension plan that is a "defined benefit plan" as
defined in ERISA, except for The Continental Cablevision Retirement Plan. The
Company, its Restricted Subsidiaries and any Control Group Person have since
1980 maintained, contributed to or participated in no "multiemployer plan" as
defined in ERISA. The Company, each of its Subsidiaries and each Control Group
Person have met all of the funding standards applicable to the Plans, and there
exists no event or condition which would permit the institution of proceedings
to terminate any Plan under section 4042 of ERISA. The current value of benefits
liabilities under Title IV of ERISA of each Plan does not exceed the current
value of the Plans' assets allocable to such benefits by more than $5,000,000.
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<PAGE>
8.9. Disclosure. Neither this Agreement nor any agreement, document,
----------
certificate or statement furnished pursuant hereto to any Lender by or on behalf
of the Company or any of its Restricted Subsidiaries in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading; provided, however, that nothing
herein shall be deemed to require disclosure by the Company or any of its
Restricted Subsidiaries to any Lender with respect to general economic
conditions, competition or increased federal, state or municipal regulation.
9. EVENTS OF DEFAULT.
9.1. Events of Default. Each of the following events is referred to as an
-----------------
"Event of Default":
9.1.1. The Company shall fail to pay to the Administrative Agent for
the account of any Lender when due and payable (a) any interest on any
Credit Obligation or fees or expenses with respect thereto and such failure
shall continue for five days or (b) any principal of any Credit Obligation
and such failure shall continue for two days.
9.1.2. The Company or any of its Restricted Subsidiaries shall fail
to perform or observe any of the provisions of Sections 7.2.9, 7.2.10, 7.7,
7.8, 7.10, 7.11, 7.12, 7.13 or 7.15.
9.1.3. The Company or any of its Restricted Subsidiaries shall fail
to perform or observe any of the provisions of Sections 7.9, 7.14, 7.16 or
7.17 and such failure shall continue for five days after the earlier of (a)
notice to the Company from the Administrative Agent or (b) any of the
Company's officers or directors obtains knowledge of any such failure.
9.1.4. The Company or any of its Restricted Subsidiaries shall fail
to perform or observe any other covenant, agreement or provision to be
performed or observed by it under this Agreement or any other Lender
Agreement and such failure shall continue for 15 days after the earlier of
(a) notice thereof from the Administrative Agent to the Company or (b) any
of the Company's officers or directors obtains knowledge of any such
failure.
9.1.5. Any representation, warranty, statement, certificate, schedule
or report made herein or in any other Lender Agreement or furnished
hereunder or thereunder shall prove to have been false or misleading in any
materially adverse respect as of the time made or furnished and shall
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<PAGE>
not have been corrected within five days after a Financial Officer of the
Company has actual knowledge thereof.
9.1.6. (a) Any event of default with respect to any Indebtedness of
the Company or any Restricted Subsidiary outstanding in an aggregate
principal amount exceeding $25,000,000 which permits the acceleration of
the maturity thereof, (b) any acceleration of the maturity of any
Indebtedness of the Company or any Restricted Subsidiary outstanding in an
aggregate principal amount exceeding $25,000,000, (c) the failure of the
Company or any Restricted Subsidiary to make any payment of any such
Indebtedness for borrowed money outstanding in an aggregate principal
amount exceeding $25,000,000 when due and payable and such failure shall
continue beyond the period of grace, if any, therein specified or (d) the
receipt by the Administrative Agent of a notice furnished pursuant to
Section 7.2.9 or 7.2.10 that includes a certification as to Defaults or
anticipated Defaults under Section 7.2.9(2) or 7.2.10(b), respectively.
9.1.7. The Management Group shall fail to own, directly or
indirectly, at least 25% of the voting power of the Company's capital
stock; provided, however, that so long as the Management Group maintains a
-------- -------
block of the voting power of the Company's capital stock larger than any
block held by any other Person together with "affiliates" (as defined in
Rule 12b-2 under the Exchange Act) of such Person and any members of a
"group" (within the meaning of Rule 13d-1 under the Exchange Act) with such
Person, the voting power of the Management Group may decrease below 25%
after an offering and sale of capital stock by the Company.
9.1.8. Franchises covering 25% (or 15% in the event that Consolidated
Total Debt as of the last day of the most recently completed fiscal quarter
for which financial statements have been (or are required to have been)
furnished in accordance with Section 7.2.1 or 7.2.2 exceeded 550% of four
times Consolidated Operating Income for such fiscal quarter) of the
subscribers of the Company and its Restricted Subsidiaries (as of the
respective dates of expiration or termination) shall have expired or been
terminated since the date hereof without having been renewed, extended or
replaced.
9.1.9. The Company or any of its Restricted Subsidiaries shall:
(a) commence a voluntary case under the Bankruptcy Code, or
authorize, by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
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<PAGE>
(b) file an answer or other pleading admitting or failing to deny the
material allegations of a petition filed against it commencing an
involuntary case under the Bankruptcy Code, or seeking, consenting to or
acquiescing in the relief therein provided, or fail to controvert timely
the material allegations of any such petition;
(c) have entered against it an order for relief in any involuntary
case commenced under the Bankruptcy Code (or other law dealing with
insolvency, bankruptcy or receivership) or not have any such case dismissed
within 30 days after the commencement thereof;
(d) seek relief as a debtor under any applicable law, other than the
Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in or become subject to
such relief;
(e) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors or (iii) assuming custody of, or appointing
a receiver or other custodian for, all or a substantial portion of its
property; or
(f) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the appointment
of a receiver or other custodian for all or a substantial portion of its
property.
9.2. Certain Actions Following an Event of Default. If one or more Events
---------------------------------------------
of Default shall occur, then, in each and every such case:
9.2.1. Specific Performance; Exercise of Remedies. The Administrative
------------------------------------------
Agent may (and, upon the request of such Lenders as shall hold at least 66
2/3% of the Voting Percentage Interests, shall) proceed to protect and
enforce the Lenders' and its rights by suit in equity, action at law and/or
other appropriate proceeding either for specific performance of any
covenant or condition contained in this Agreement or any other Lender
Agreement or in any instrument or assignment delivered to the
Administrative Agent pursuant to this Agreement or any other Lender
Agreement, or in aid of the exercise of any power granted in this Agreement
or any other Lender Agreement or any such instrument or assignment.
9.2.2. Acceleration. Unless there shall have occurred a Bankruptcy
------------
Default, in which case the unpaid balance of
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<PAGE>
the Credit Obligations shall become immediately due and payable, the
Administrative Agent may (and, upon the request of such Lenders as shall
hold at least 66 2/3% of the Voting Percentage Interests, shall) by notice
in writing to the Company declare all or any portion of the unpaid balance
of the Credit Obligations then outstanding to be immediately due and
payable, and thereupon such unpaid balance or portion thereof shall become
so due and payable without presentation, protest or further demand or
notice of any kind, all of which are hereby expressly waived, and the
Lenders' obligation to make further loans hereunder shall terminate.
9.2.3. Enforcement of Payment; Setoff. The Administrative Agent may
------------------------------
(and, upon the request of such Lenders as shall hold at least 66 2/3% of
the Voting Percentage Interests, shall) proceed to enforce payment of the
Credit Obligations or a portion thereof in such manner as it may elect, and
each Lender may offset and apply toward the payment of the Credit
Obligations or a portion thereof any Indebtedness from such Lender to the
Company or any other obligor, including any Indebtedness represented by
deposits in any general or special account maintained with such Lender,
regardless of the adequacy of any security for the Credit Obligations, and
the Lenders shall have no duty to determine the adequacy of such security
in connection with any such offset.
9.3. Annulment of Defaults. A Default or an Event of Default shall not be
---------------------
deemed to have occurred or to be in existence for any purpose of this Agreement
if the Administrative Agent, with the consent of such Lenders as shall hold the
amount of Voting Percentage Interests required by Section 12.7, shall have
waived such Default or Event of Default in writing or stated in writing that the
same has been cured to its reasonable satisfaction, but no such waiver shall
extend to or affect any subsequent Default or Event of Default or impair any of
the Lenders' rights or any rights of the Administrative Agent upon the
occurrence thereof.
9.4. Waivers. The Company hereby waives to the extent permitted by
-------
applicable law (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof),
protests, notices of protest and notices of dishonor in connection with the
Loan, (b) any requirement of diligence or promptness on the Lenders' or the
Administrative Agent's part in the enforcement of their or its rights under this
Agreement or any other Lender Agreement, (c) any and all notices of every kind
and description which may be required to be given by any statute or rule of law
and (d) any defense of any kind which it may now or hereafter have with respect
to its liability under this Agreement (other than
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indefeasible payment in full of any of the Credit Obligations), under any other
Lender Agreement or with respect to any of the Credit Obligations.
9.5. Course of Dealing. No course of dealing between the Company, any
-----------------
Guarantor and the Administrative Agent or any Lender shall operate as a waiver
of any of the Lenders' or the Administrative Agent's rights under this Agreement
or any other Lender Agreement or with respect to any of the Credit Obligations.
No delay or omission on the Lenders' or the Administrative Agent's part in
exercising any right under this Agreement or any other Lender Agreement or with
respect to any of the Credit Obligations shall operate as a waiver of such right
or any other right hereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver or consent shall be binding upon the Lenders unless it is in writing
and signed by the Administrative Agent or such Lenders as may be required by
Section 12.7. The making of a loan hereunder during the existence of a Default
shall not constitute a waiver thereof.
10. EXPENSES; INDEMNITY; AGENT'S FEE.
10.1. Fees and Expenses. Whether or not the transactions contemplated
-----------------
hereby shall be consummated, the Company will bear (a) all expenses of the
Managing Agents (including the reasonable fees and disbursements of the
Administrative Agent's special counsel) in connection with the preparation of
the Lender Agreements and the transactions contemplated hereby and thereby and
operations hereunder or thereunder and (b) all expenses incurred by the Managing
Agents, the Lenders or any holder of any Credit Obligation in connection with
the enforcement of any rights hereunder or under any Lender Agreement, including
without limitation costs of collection and reasonable attorneys' fees and
out-of-pocket expenses.
10.2. Indemnification. The Company will indemnify each Managing Agent,
---------------
each Lender, the directors, officers, employees and agents of each Managing
Agent and each Lender and each other Person, if any, who controls such Managing
Agent or any Lender, and hold such Managing Agent, each Lender and such other
Persons harmless from and against any and all claims, damages, losses,
liabilities, judgments and expenses (including without limitation all reasonable
fees and expenses of counsel and all expenses of litigation or preparation
therefor) which such Managing Agent, any Lender or such other Persons may incur
or which may be asserted against such Managing Agent, any Lender or such other
Persons in connection with or arising out of any investigation, litigation or
proceeding involving the Company, any of its Affiliates or any officer, director
or employee thereof or this Agreement or the other Lender Agreements (including
compliance with or contesting of any subpoenas or other process issued
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against such Managing Agent, any Lender or any director, officer or employee of
such Managing Agent, any Lender or any Person, if any, who controls such
Managing Agent or any Lender in any proceeding involving the Company or any of
its Affiliates or any Lender Agreement), whether or not such Managing Agent or
any Lender is a party thereto, other than claims, damages, losses, liabilities
or judgments (a) asserted by one or more Lenders against another Lender in
connection with operations hereunder governed by Section 12, (b) with respect to
any matter as to which such Managing Agent, any Lender or such other Person
seeking indemnity shall have been finally adjudicated to have acted with gross
negligence or willful misconduct or (c) brought by the Company against any
Lender. The Company will also indemnify the Lenders against and hold them
harmless from any liability, loss or damage resulting from the violation by the
Company of Section 2.6.
Promptly upon receipt by any indemnified party hereunder of notice of the
commencement of any action against such indemnified party for which a claim is
to be made against the Company hereunder, such indemnified party shall notify
the Company in writing of the commencement thereof, although the failure to
provide such notice shall not affect the indemnification rights of any such
indemnified party hereunder to the extent such indemnified party demonstrates to
the reasonable satisfaction of the Company that such failure to provide notice
does not prejudice the Company in its defense of such claim. The Company shall
have the right, at its option upon notice to the indemnified parties, to defend
any such matter at its own expense and with its own counsel, except as provided
below, which counsel must be reasonably acceptable to the indemnified parties.
The indemnified party shall cooperate with the Company in the defense of such
matter. The indemnified party shall have the right to employ separate counsel
and to participate in the defense of such matter at its own expense. In the
event that (i) the employment of separate counsel by an indemnified party has
been authorized in writing by the Company, (ii) the Company has failed to assume
the defense of such matter or (iii) the named parties to any such action
(including impleaded parties) include any indemnified party who has been advised
by counsel that there may be one or more legal defenses available to it, or
prospective bases for liability against it, which are different from those
available to or against the Company and its Affiliates, then the Company shall
not have the right to assume the defense of such matter with respect to such
indemnified party. The Company shall not be liable for any compromise or
settlement of any such matter effected without the written consent of the
Company, which consent may not be unreasonably delayed. The Company shall not
compromise or settle any such matter against an indemnified party without the
written consent of the indemnified party, which consent may not be unreasonably
delayed, unless such settlement or compromise does not involve any payment of
money by the
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indemnified party or any injunctive relief or factual findings or stipulations
binding on the indemnified party.
10.3. Administrative Agent's Fee. The Company will pay to the
--------------------------
Administrative Agent quarterly in arrears on each Payment Date, commencing
December 31, 1994, a fee for its services as Administrative Agent hereunder in
such amount as the Company and the Administrative Agent shall agree upon from
time to time.
11. NOTICES. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answerback,
in the case of a telecopy by a confirmation receipt or in the case of another
teletransmission by whatever means of confirmation as shall at the time be
customary) or (b) in the case of a letter, five business days shall have elapsed
after the same shall have been deposited in the United States mails, with first-
class postage prepaid and registered or certified.
If to the Company or any of its Subsidiaries, to it in care of the Company
at its address set forth in Exhibit 8.1 (as supplemented pursuant to Sections
7.2.1 and 7.2.2), to the attention of the treasurer.
If to any Lender or any Agent, to it at its address set forth in Exhibit
12.1 or in the Register, with a copy to the Administrative Agent.
12. OPERATIONS. The making of loans and operations under this Agreement shall
be governed by the following provisions:
12.1. Interests in Revolving Loan. The percentage interest of each Lender
---------------------------
in the Revolving Loan shall be computed based on the maximum principal amount
for each Lender as set forth on Exhibit 12.1. Upon the consummation of any
assignment pursuant to Section 13.1 or 13.3, the Administrative Agent shall
modify Exhibit 12.1 to reflect such assignment. The interests of the respective
Lenders in Money Market Loans or of the Swingline Lender in the Swingline Loan
are not included in the Revolving Percentage Interests.
12.2. Company to Pay Administrative Agent. The Company shall be fully
-----------------------------------
protected in making all payments in respect of the Credit Obligations to the
Administrative Agent notwithstanding
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any notice to the contrary from any Lender other than the Administrative Agent.
12.3. Lender Operations for Advances and Payments, etc.
------------------------------------------------
12.3.1. Advances and Payments. Each advance under this Agreement
---------------------
shall be made by the Administrative Agent and shall be (a) for its own
account as a Lender (i) with respect to the Revolving Loan to the extent of
its Revolving Percentage Interest and (ii) with respect to Money Market
Loans and Swingline Loans made by it and (b) for the account of the other
Lenders (i) with respect to the Revolving Loan to the extent of their
respective Revolving Percentage Interests and (ii) with respect to Money
Market Loans made by such Lenders. The obligations of each Lender to make
any loan hereunder shall be several (and not joint or joint and several) in
accordance with its respective interests. Each Lender hereby authorizes and
requests the Administrative Agent to advance for such Lender's account,
pursuant to the terms hereof, its Revolving Percentage Interest in each
Revolving Loan and its interest in each Money Market Loan to be made by
such Lender, and each Lender agrees forthwith to reimburse the
Administrative Agent in immediately available funds for the amount of such
Revolving Percentage Interest or such Money Market Loan. All payments of
principal, interest and commitment fees in respect of the loans made
pursuant to Section 2, including prepayments, shall, as a matter of
convenience, be made to the Administrative Agent at the Boston Office and
the shares thereof shall be credited forthwith to the Lenders by the
Administrative Agent in immediately available funds in proportion to their
respective interests in such loans.
12.3.2. Delinquent Lenders; Nonperforming Lenders. In the event that
-----------------------------------------
any Lender fails to reimburse the Administrative Agent pursuant to Section
12.3.1 for the interests of such Lender (a "Delinquent Lender") in any
credit advanced by the Administrative Agent pursuant hereto, overdue
amounts (the "Delinquent Payment") due from the Delinquent Lender to the
Administrative Agent shall bear interest, payable by the Delinquent Lender
on demand, at a per annum rate equal to (a) the Federal Funds Rate for the
first four days overdue and (b) the sum of 2% plus the Federal Funds Rate
for any longer period. Such interest shall be payable to the Administrative
Agent for its own account for the period commencing on the date of the
Delinquent Payment and ending on the date the Delinquent Lender reimburses
the Administrative Agent on account of the Delinquent Payment (to the
extent not paid by the Company as provided below) and the accrued interest
thereon (the "Delinquency Period"), whether pursuant to the assignments
referred to below or otherwise. Upon notice by the
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Administrative Agent, the Company will pay to the Administrative Agent the
principal (but not the interest) portion of the Delinquent Payment. During
any other period in which any Lender is not performing its obligations to
extend credit under Section 2 (a "Nonperforming Lender"), the Nonperforming
Lender shall be deemed to have assigned to each Lender that is not a
Nonperforming Lender (a "Performing Lender") all principal and other
payments made by the Company under Section 4 that would have thereafter
otherwise been payable under the Lender Agreements to the Nonperforming
Lender. The Administrative Agent shall credit a portion of such payments to
each Performing Lender in an amount equal to the Revolving Percentage
Interest of such Performing Lender divided by one minus the Revolving
Percentage Interest of the Nonperforming Lender until the respective
portions of the Revolving Loan owed to all the Lenders are the same as the
Revolving Percentage Interests of the Lenders immediately prior to the
failure of the Nonperforming Lender to perform its obligations under
Section 2. The foregoing provisions shall be in addition to any other
remedies the Administrative Agent, the Performing Lenders or the Company
may have under law or equity against the Delinquent Lender as a result of
the Delinquent Payment or against the Nonperforming Lender as a result of
its failure to perform its obligations under Section 2.
12.4. Sharing of Payments, etc. Each Lender agrees that (a) if by
------------------------
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of a proportion of the aggregate amount of principal or interest due
with respect to its Revolving Percentage Interest in the Revolving Loan which is
greater than the proportion received by any other Lender in respect of the
aggregate amount of principal and interest due with respect to the Revolving
Percentage Interest in the Revolving Loan of such other Lender and (b) if such
inequality shall continue for more than 10 days, the Lender receiving such
proportionately greater payment shall purchase participations in the Revolving
Percentage Interests in the Revolving Loan held by the other Lenders, and such
other adjustments shall be made from time to time (including rescission of such
purchases of participations in the event the unequal payment originally received
is recovered from such Lender through bankruptcy proceedings or otherwise), as
may be required so that all such payments of principal and interest with respect
to the Revolving Loan held by the Lenders shall be shared by the Lenders pro
rata in accordance with their respective Revolving Percentage Interests;
provided, however, that this Section 12.4 shall not impair the right of any
Lender to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of Indebtedness of the
Company or any Guarantor other than the Company's or such Guarantor's
Indebtedness with respect to the Revolving Loan. Each Lender
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that grants a participation in the Credit Obligations to a Credit Participant
shall require as a condition to the granting of such participation that such
Credit Participant agree to share payments received in respect of the Credit
Obligations as provided in this Section 12.4. The provisions of this Section
12.4 are for the sole and exclusive benefit of the Lenders and no failure of any
Lender to comply with the terms hereof shall be available to the Company or any
Guarantor as a defense to the payment of the Credit Obligations.
12.5. Administrative Agent's Authority to Act. Each Lender hereby
---------------------------------------
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the other Lender
Agreements as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto. In
acting hereunder and thereunder, the Administrative Agent is acting for its own
account as a Lender to the extent of its Revolving Percentage Interest in the
Revolving Loan and of its interest in Money Market Loans and Swingline Loans
made by it and for the account of the other Lenders to the extent of each of
their Revolving Percentage Interests or each of their interests in the Money
Market Loans made by them. All action in connection with the enforcement or
exercise of any remedies (other than the Lenders' rights of set-off as provided
in Section 9.2.3) in respect of the Credit Obligations and the Lender Agreements
shall be taken by the Administrative Agent, and each Lender hereby authorizes
the Administrative Agent to take such actions on its behalf.
12.6. Administrative Agent's Resignation. The Administrative Agent may
----------------------------------
resign at any time by giving at least 60 days' prior written notice of its
intention to do so and upon the appointment by such Lenders as own at least a
majority of the Voting Percentage Interests of a successor Administrative Agent
satisfactory to the Company. If no successor Administrative Agent shall have
been so appointed and shall have accepted such appointment within 45 days after
the retiring Administrative Agent's giving of such notice of resignation, then
the retiring Administrative Agent may with the consent of the Company, which
shall not be unreasonably withheld, appoint a successor Administrative Agent
which shall be a bank or a trust company organized under the laws of the United
States of America or any state thereof and having a combined capital, surplus
and undivided profit of at least $100,000,000; provided, however, that any
successor Administrative Agent appointed under this sentence may be removed upon
the written request of such Lenders as hold at least a majority of the Voting
Percentage Interests, which request shall also appoint a successor
Administrative Agent satisfactory to the Company. Upon the appointment of a new
Administrative Agent hereunder, the term "Administrative Agent" shall for all
purposes of this Agreement thereafter mean such
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successor. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, or the removal hereunder of any successor Administrative
Agent, the provisions of this Agreement shall continue to inure to the benefit
of such Administrative Agent as to any actions taken or omitted to be taken by
it while it was Administrative Agent under this Agreement.
12.7. Amendments, Consents, Waivers, etc. Except as otherwise set forth
----------------------------------
herein, the Administrative Agent may (and upon the request of such Lenders as
hold at least a majority of the Voting Percentage Interests shall) take or
refrain from taking any action under this Agreement or any other Lender
Agreement, giving its written consent to any modification of or amendment to and
waiving in writing compliance with any covenant or condition in this Agreement
or any other Lender Agreement or any Default or Event of Default hereunder or
thereunder, all of which actions shall be binding upon all Lenders; provided,
--------
however, that:
- -------
(a) Without the written consent of such Lenders as hold at least a
majority of the Voting Percentage Interests, no written modification of or
amendment to or waiver of compliance with or waiver of any provision of
this Agreement shall be made, except as provided below in this Section 12.7
and in Sections 12.7.1 and 12.12.
(b) Without the written consent of such Lenders as hold 100% of the
Voting Percentage Interests, subject to Section 12.7.1, the Administrative
Agent shall not give its written consent to:
(i) any forgiveness or similar reduction in the principal of, or
any reduction in the stated rate of interest on, or the stated amount
of any fee relating to, the Credit Obligations;
(ii) any extension or postponement of the stated time of payment
of the principal amount of, interest on, or any fee relating to, the
Credit Obligations;
(iii) any increase in the amount, or extension of the term, of
the Lenders' commitments hereunder beyond those provided for under
Sections 2 and 12.1;
(iv) any total or partial release or termination of the
guarantees provided in Section 6, except to the extent otherwise
permitted by Section 6.8 or in connection with a sale of the stock in
or assets of or merger of a Restricted Subsidiary permitted by
Sections 7.10 and 7.11; and
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(v) any alteration of the Lenders' rights of set-off contained
in Section 9.2.3.
12.7.1. Modifications to Voting Percentages. After the occurrence of
-----------------------------------
(a) an Event of Default under Sections 9.1.1 or 9.1.9, (b) the acceleration
of all or any part of the Credit Obligations, (c) any exercise of rights of
setoff contained in Section 9.2.3 or (d) any other Event of Default if
Lenders holding at least 66 2/3% of the principal amount of the then
outstanding Credit Obligations shall have so notified the Administrative
Agent (each a "Pro Rata Event"), all references in the preceding provisions
of this Section 12.7 to Voting Percentage Interests, and all references in
this Agreement to Voting Percentage Interests (except as provided in
Section 12.7.2), shall be deemed to be references to such Lenders as shall
at the time of determination hold the specified percentage of the principal
amount of the Credit Obligations then outstanding.
12.7.2. Obligations to Make New Loans. Notwithstanding Section
-----------------------------
12.7.1, if after a Pro Rata Event this Agreement is modified or amended, or
any waiver or consent is granted hereunder, the Lenders shall not be
required to make any loan pursuant to Section 2 unless such modification,
amendment, waiver or consent shall have been approved by the requisite
holders of the Voting Percentage Interests (determined without regard to
Section 12.7.1).
12.8. Concerning the Administrative Agent. The following provisions shall
-----------------------------------
apply to the Administrative Agent and the conduct of the Administrative Agent's
duties hereunder:
12.8.1. Action in Good Faith, etc. The Administrative Agent and its
-------------------------
officers, directors, employees and agents shall be under no liability to
any Lender, to any future holder of any interest in the Credit Obligations
or to the Company or any Guarantor for any action or failure to act taken
or suffered in good faith and without gross negligence, and any action or
failure to act in accordance with an opinion of its counsel selected with
reasonable care shall conclusively be deemed to be in good faith. The
Administrative Agent shall in all cases be entitled to rely, and shall be
fully protected in relying, on instructions given to the Administrative
Agent by the required holders of Voting Percentage Interests as provided in
this Agreement.
12.8.2. No Implied Duties, etc. The Administrative Agent shall have
----------------------
and may exercise such powers as are specifically delegated to the
Administrative Agent under this Agreement or any other Lender Agreement
together with all other powers as may be incidental thereto. The
Administrative Agent shall have no implied duties to any
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Person or any obligation to take any action under this Agreement or any
other Lender Agreement except for any action specifically provided for in
this Agreement or any other Lender Agreement to be taken by the
Administrative Agent. Before taking any action under this Agreement or any
other Lender Agreement, the Administrative Agent may request a reasonable
specific indemnity satisfactory to it from each Lender in addition to the
general indemnity provided for in Section 12.10, and until the
Administrative Agent has received such specific indemnity, the
Administrative Agent shall not be obligated to take (although it may in its
sole discretion take) any such action under this Agreement or any other
Lender Agreement.
12.8.3. Validity, etc. The Administrative Agent shall not be
-------------
responsible to any Lender or any future holder of any interest in the
Credit Obligations (a) for the legality, validity, enforceability or
effectiveness of this Agreement or any other Lender Agreement or (b) for
any recitals, reports, representations, warranties or statements contained
in or made in connection with this Agreement or any other Lender Agreement.
12.8.4. Compliance. The Administrative Agent shall not be obligated
----------
to ascertain or inquire as to the performance or observance of any of the
terms of this Agreement or any other Lender Agreement, and in connection
with any extension of credit under this Agreement or any other Lender
Agreement, the Administrative Agent shall be fully protected in relying on
a certificate of the Company as to the fulfillment by the Company of any
conditions to such extension of credit.
12.8.5. Employment of Administrative Agents and Counsel. The
-----------------------------------------------
Administrative Agent may execute any of its duties as Administrative Agent
under this Agreement or any other Lender Agreement by or through employees,
agents and attorneys-in-fact and shall not be answerable to any Lender, the
Company or the Guarantors (except as to money or securities received by the
Administrative Agent or the Administrative Agent's authorized agents) for
the default or misconduct of any such employees, agents or attorneys-in-
fact selected by the Administrative Agent with reasonable care. The
Administrative Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder.
12.8.6. Reliance on Documents and Counsel. The Administrative Agent
---------------------------------
shall be entitled to rely, and shall be fully protected in relying, upon
any affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype
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message or writing believed in good faith by the Administrative Agent to be
genuine and correct and to have been signed, sent or made by the Person in
question, including without limitation any telephonic or oral statement
made by such Person and, with respect to legal matters, upon the opinion of
counsel selected by the Administrative Agent with reasonable care.
12.8.7. Administrative Agent's Reimbursement. Each Lender severally
------------------------------------
agrees to reimburse the Administrative Agent in the amount of its Revolving
Percentage Interest thereof for any expenses not reimbursed by the Company
or the Guarantors (without limiting their obligation to make such
reimbursement): (a) for which the Administrative Agent is entitled to
reimbursement by the Company or the Guarantors under this Agreement or any
other Lender Agreement, and (b) after the occurrence of a Default, for any
other reasonable expenses incurred by the Administrative Agent on the
Lenders' behalf in connection with the enforcement of their rights under
this Agreement or any other Lender Agreement.
12.8.8. Rights as a Lender. With respect to any credit extended by
------------------
it hereunder, The First National Bank of Boston shall have the same rights
and powers hereunder as any other Lender and may exercise such rights and
powers as though it were not the Administrative Agent, and unless the
context otherwise specifies, The First National Bank of Boston shall be
treated in its capacity as a Lender as though it were not the
Administrative Agent hereunder. Without limiting the generality of the
foregoing, the Revolving Percentage Interest and the Voting Percentage
Interest of The First National Bank of Boston shall be included in any
computations of Revolving Percentage Interests or Voting Percentage
Interests hereunder. The First National Bank of Boston and its Affiliates
may accept deposits from, lend money to, act as trustee for and generally
engage in any kind of banking or trust business with the Company and any of
its Affiliates and any Person who may do business with or own an equity
interest in the Company or any of its Affiliates, all as if such bank were
not the Administrative Agent and without any duty to account therefor to
the other Lenders.
12.9. Independent Credit Decision. Each Lender acknowledges that it has
---------------------------
independently and without reliance upon the Managing Agents, based on the
financial statements and other documents referred to in Section 8.4, on the
other representations and warranties contained herein and on such other
information with respect to the Company and the Guarantors as such Lender has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and to make the loans
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provided for hereunder. Each Lender represents to the Managing Agents that such
Lender will continue to make its own independent credit and other decisions in
taking or not taking action under this Agreement or any other Lender Agreement.
Each Lender expressly acknowledges that neither the Managing Agents nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to such Lender, and no act
by the Managing Agents taken under this Agreement or any other Lender Agreement,
including without limitation any review of the affairs of the Company and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Managing Agents. Except for notices, reports and other documents expressly
required to be furnished to each Lender by the Administrative Agent under this
Agreement or any other Lender Agreement, no Managing Agents shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition, financial or
otherwise, or creditworthiness of the Company or any of its Subsidiaries or
other Affiliates which may come into the possession of any Managing Agent or any
of their respective officers, directors, employees, agents, attorneys-in-fact or
affiliates.
12.10. Indemnification. The holders of the Credit Obligations hereby agree
---------------
to indemnify each Managing Agent (to the extent not reimbursed by the Company or
the Guarantors and without limiting their obligation to do so), ratably
according to such holders' Voting Percentage Interests, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments and
suits, and any and all reasonable costs, expenses or disbursements, of any kind
whatsoever which may at any time be imposed on, incurred by or asserted against
such Managing Agent relating to or arising out of this Agreement, any other
Lender Agreement, the transactions contemplated hereby or thereby, or any action
taken or omitted by such Managing Agent in connection with any of the foregoing;
provided, however, that the foregoing shall not extend to actions or omissions
- -------- -------
which were not taken in good faith or which were taken with gross negligence by
such Managing Agent.
12.11. Waiver of Pro Rata Event. A Pro Rata Event shall not be deemed to
------------------------
have occurred or to exist for any purpose of this Agreement if each Lender shall
have waived such event in writing or stated in writing that the same has been
cured to its reasonable satisfaction, but no such waiver shall extend to or
affect any subsequent Pro Rata Event.
12.12. Amendment to Section 12. Any of the provisions of this Section 12
-----------------------
(other than Sections 12.2, 12.3, 12.6 and 12.7 and this Section 12.12) may be
amended or waived by the agreement of such Lenders as hold 100% of the Voting
Percentage Interests and without prior notice to the Company; provided, however,
-------- ------
that
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notice of any such amendment that has been made shall be given to the Company.
Sections 12.2, 12.3, 12.6, 12.7 and 12.12 may be amended only with the consent
of all the Lenders and the Company.
13. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS. Any
reference in this Agreement to any of the parties hereto shall be deemed to
include the successors and assigns of such party, and all covenants and
agreements by or on behalf of the Company, the Guarantors, the Agents or the
Lenders that are contained in this Agreement or any other Lender Agreements
shall bind and inure to the benefit of their respective successors and assigns;
provided, however, that (a) the Company and the Guarantors may not assign their
rights or obligations under this Agreement except for mergers or liquidations
permitted by Section 7.11, and (b) the Lenders shall not be entitled to assign
their respective interests in the Loan hereunder except as set forth below in
this Section 13.
13.1. Assignments by Lenders.
----------------------
13.1.1. Assignees and Assignment Procedures. Each Lender may (a)
-----------------------------------
without the consent of the Administrative Agent or the Company if the
proposed assignee is already a Lender hereunder or an Affiliate of a Lender
hereunder or (b) otherwise with the consents of the Administrative Agent
and the Company (which consents will not be unreasonably withheld), in
compliance with Section 14 and with applicable laws in connection with such
assignment, assign to one or more commercial banks or other financial
institutions (each, an "Assignee") all or a portion of its interests,
rights and obligations under this Agreement and the other Lender
Agreements, including all or a portion of its Commitment, the portion of
the Loan at the time owing to it and the Note held by it; provided,
--------
however, that:
-------
(i) the aggregate amount of the Commitment of the assigning Lender
subject to each such assignment to any Assignee other than another Lender
(determined as of the date of the Assignment and Acceptance with respect to
such assignment) shall not be less than the lesser of (a) $10,000,000 or
(b) the assigning Lender's total Commitment ;
(ii) after giving effect to such assignment, the assigning
Lender's Commitment shall not be less than $10,000,000 (unless such Lender
is assigning its entire Commitment); and
(iii) the parties to each such assignment shall execute and deliver
to the Administrative Agent and the Company an Assignment and Acceptance
(the "Assignment and Acceptance") substantially in the form of Exhibit
13.1.1,
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<PAGE>
together with the Note subject to such assignment, any documents required
by Section 14 and a processing and recordation fee of $2,500 payable by the
assigning Lender or the Assignee to the Administrative Agent.
Upon acceptance and recording pursuant to Section 13.1.4, from and after
the effective date specified in each Assignment and Acceptance (which
effective date shall be at least five Banking Days after the execution
thereof unless waived by the Administrative Agent and the Company):
(1) the Assignee shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement; and
(2) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 3.3.2, 3.7,
3.8 and 10, as well as (except as otherwise set forth in the
Assignment and Acceptance) to any fees accrued for its account
hereunder and not yet paid).
13.1.2. Terms of Assignment and Acceptance. By executing and
----------------------------------
delivering an Assignment and Acceptance, the assigning Lender and Assignee
shall be deemed to confirm to and agree with each other and the other
parties hereto as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Lender Agreement or any
other instrument or document furnished pursuant hereto;
(b) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Company and its Subsidiaries or the performance or observance by the
Company or any of its Subsidiaries of any of its obligations under this
Agreement, any other Lender Agreement or any other instrument or document
furnished pursuant hereto;
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<PAGE>
(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Sections 7.1 and 7.2 and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; Agreement,
together with copies of the most recent financial statements delivered
pursuant to Sections 7.1 and 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision
to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without reliance upon the
Administrative Agent, such assigning Lender or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
(e) such Assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Administrative Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in accordance with the
terms of this Agreement all the obligations which are required to be
performed by it as a Lender.
13.1.3. Register. The Administrative Agent shall maintain at the
--------
Boston Office a register (the "Register") for the recordation of (a) the
names and addresses of the Lenders and the Assignees which assume rights
and obligations pursuant to an assignment under Section 13.1.1, (b) the
Revolving Percentage Interest of each such Lender as set forth in Exhibit
12.1 and (c) the amount of the Loan owing to each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Company, the Administrative Agent and the Lenders may treat
each Person whose name is registered therein for all purposes as a party to
this Agreement. The Register shall be available for inspection by the
Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
13.1.4. Acceptance of Assignment and Assumption. Upon its receipt of
---------------------------------------
(a) a completed Assignment and Acceptance executed by an assigning Lender
and an Assignee, together with the Note subject to such assignment, (b) the
processing and recordation fee referred to in Section 13.1.1, (c) any
required consent by itself and the Company and (d) any documents required
by Section 14, the Administrative Agent shall (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Company. Within
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five Banking Days after receipt of notice, the Company, at its own expense,
shall execute and deliver to the Administrative Agent, in exchange for the
surrendered Note, a new Note to the order of such Assignee in a principal
amount equal to the applicable Commitment and Loan assumed by it pursuant
to such Assignment and Acceptance and, if the assigning Lender has retained
a Commitment and Loan, a new Note to the order of such assigning Lender in
a principal amount equal to the applicable Commitment and Loan retained by
it. Each such new Note shall be in an aggregate principal amount equal to
the aggregate principal amount of the applicable surrendered Note, and
shall be dated the date of the assignment.
13.1.5. Federal Reserve Bank. Notwithstanding the foregoing
--------------------
provisions of this Section 13, any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the
other Lender Agreements to a Federal Reserve Bank; provided, however, that
-------- -------
no such pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Lender Agreement.
13.1.6. Further Assurances. The Company and its Restricted
------------------
Subsidiaries shall sign such documents and take such other actions from
time to time reasonably requested by a Assignee to enable it to share in
the benefits of the rights created by the Lender Agreements.
13.2. Credit Participants. Each Lender may, without the consent of the
-------------------
Company or the Administrative Agent, in compliance with applicable laws in
connection with such participation, sell to one or more commercial banks or
other financial institutions (each a "Credit Participant") participations in all
or a portion of its interests, rights and obligations under this Agreement and
the other Lender Agreements, including all or a portion of its Commitment, the
Loan owing to it and the Note held by it; provided, however, that:
-------- -------
(a) such Lender's obligations under this Agreement and the other
Lender Agreements shall remain unchanged;
(b) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of the
cost protection provisions contained in Sections 3.3.2, 3.7, 3.8 and 10,
but shall not be entitled to receive any greater payment thereunder than
the selling Lender would have been entitled to receive with respect to the
interest so sold if such interest had not been sold; and
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<PAGE>
(d) the Company, the Guarantors, the Agents and the other Lenders
shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and such
Lender shall retain the sole right to enforce the obligations of the
Company relating to the Loan and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments,
modifications or waivers with respect to any fees payable hereunder or the
amount of principal of or the rate at which interest is payable on the
Loan, or the stated dates for payments of principal of or interest on the
Loan).
Each of the Company and each Guarantor agrees, to the fullest extent permitted
by applicable law, that any Credit Participant and any Lender purchasing a
participation from another Lender pursuant to this Section 13.2 may exercise all
rights of payment (including the right of set-off), with respect to its
participation as fully as if such Credit Participant or such Lender were the
direct creditor of the Company and each Guarantor and a Lender hereunder in the
amount of such participation.
13.3. Replacement of Lenders. In the event that any Lender, or, to the
----------------------
extent applicable, any Credit Participant, (the "Affected Lender"):
(a) fails to perform its obligations to fund any Loan on any Closing
Date or to comply with Section 7.2.11;
(b) demands payment under the Money Market Loan reimbursement
provisions of Section 2.2.7, the capital adequacy provisions of Section 3.7
or the Tax provisions in Section 3.8 in an amount the Company deems
materially in excess of the amounts with respect thereto demanded by the
other Lenders;
(c) refuses to consent to a proposed amendment, modification, waiver
or other action that is consented to by the holders of the requisite Voting
Percentage Interests in accordance with Sections 12.7(a); or
(d) refuses to consent to a proposed amendment, modification, waiver
or other action requiring consent of the holders of 100% of the Voting
Percentage Interests under Section 12.7(b);
then, so long as no Event of Default exists, the Company shall have the right to
seek a replacement lender which meets the requirements of Section 14 and which
is reasonably satisfactory to the Managing Agents (the "Replacement Lender").
The Replacement Lender shall purchase the interests of the Affected Lender in
the Loan and its Commitment and shall assume the
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<PAGE>
obligations of the Affected Lender hereunder and under the other Lender
Agreements upon execution by the Replacement Lender of an Assignment and
Acceptance and the tender by it to the Affected Lender of a purchase price
agreed to by it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of all accrued Credit Obligations then owed to the
Affected Lender). Upon consummation of such assignment, the Replacement Lender
shall become party to this Agreement as a signatory hereto and shall have all
the rights and obligations of the Affected Lender under this Agreement and the
other Lender Agreements with a Voting Percentage Interest equal to the Voting
Percentage Interest of the Affected Lender, and the Affected Lender shall be
released from its obligations hereunder and under the other Lender Agreements,
and no further consent or action by any party shall be required. Upon the
consummation of such assignment, the Company, the Administrative Agent and the
Affected Lender shall make appropriate arrangements so that a new Note is issued
to the Replacement Lender. The Company and the Guarantors shall sign such
documents and take such other actions reasonably requested by the Replacement
Lender to enable it to share in the benefits of the rights created by the Lender
Agreements. Until the consummation of an assignment in accordance with the
foregoing provisions of this Section 13.3, the Company shall continue to pay to
the Affected Lender any Credit Obligations as they become due and payable.
14. FOREIGN PERSONS. If any Lender constitutes a Person which is not
incorporated or organized under the laws of the United States of America or a
state thereof, such Lender shall deliver to the Company and the Administrative
Agent the following:
(a) two valid, duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case
may be, certifying in each case that such Person is entitled to receive
payments under this Agreement and the Note payable to it, without deduction
or withholding of any United States federal income taxes; and
(b) a valid, duly completed Internal Revenue Service Form W-8 or W-9
or successor applicable form, as the case may be, to establish an exemption
from United States backup withholding tax.
Each such Person which delivers to the Company and the Administrative Agent
a Form 1001 or 4224 and Form W-8 or W-9 pursuant to this Section 14 further
undertakes to deliver to the Company and the Administrative Agent two further
copies of Forms 1001 or 4224 and Form W-8 or W-9, or successor applicable forms,
or other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or otherwise is required to be
resubmitted as a condition to obtaining an exemption from withholding tax or
after the
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<PAGE>
occurrence of any event requiring a change in the most recent form previously
delivered by it to the Company and the Administrative Agent, and such extensions
or renewals thereof as may reasonably be requested by the Company and the
Administrative Agent. Such Forms 1001 or 4224 shall certify that such Person is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. The foregoing documents
need not be delivered in the event any change in treaty, law or regulation or
official interpretation thereof has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such transferee from duly completing and delivering any
such letter or form with respect to it or such Person advises the Company that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax, and in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding tax. Until such
time as the Company and the Administrative Agent have received such forms
indicating that payments hereunder are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax treaty,
the Company shall withhold taxes from such payments at the applicable statutory
rate.
15. REPLACEMENT NOTES. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Note and, in the
case of loss, theft or destruction, upon delivery of an unsecured indemnity of
any Lender in form reasonably satisfactory to the Company and, in the case of
mutilation, upon surrender and cancellation of such Note, the Company will issue
a new Note, of like tenor, in the principal amount of the Note replaced.
16. SURVIVAL OF COVENANTS. All covenants, agreements, representations and
warranties made herein or in any other Lender Agreement and in certificates
delivered pursuant hereto or thereto shall be deemed to have been material and
relied on by the Lenders, notwithstanding any investigation made by the Lenders
or on their behalf, and shall survive the execution and delivery to them hereof
and thereof. The covenants contained in Sections 2.2.6, 3.3.2, 3.7, 3.8, 7.2.11,
10, 12.8.7 and 12.10 shall survive the termination of this Agreement.
17. VENUE; SERVICE OF PROCESS. Each of the Company and the Guarantors:
(a) irrevocably submits to the nonexclusive jurisdiction of the state
courts of The Commonwealth of Massachusetts and to the nonexclusive
jurisdiction of the United States District Court for the District of
Massachusetts for the purpose of any suit, action or other proceeding
arising out of or based upon this Agreement or
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<PAGE>
any other Lender Agreement or the subject matter hereof or thereof; and
(b) to the extent not prohibited by applicable law that cannot be
waived, waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such proceeding brought in any of the above-named courts,
any claim that it is not subject personally to the jurisdiction of such
court, that its property is exempt or immune from attachment or execution,
that such proceeding is brought in an inconvenient forum, that the venue of
such proceeding is improper, or that this Agreement or any other Lender
Agreement, or the subject matter hereof or thereof, may not be enforced in
or by such court.
Each of the Company and the Guarantors consents to service of process in any
such proceeding in any manner at the time permitted by Chapter 223A of the
General Laws of The Commonwealth of Massachusetts and agrees that service of
process by registered or certified mail, return receipt requested, at its
address specified in or pursuant to Section 11 is reasonably calculated to give
actual notice.
18. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY, THE GUARANTORS, THE AGENTS AND THE
LENDERS WAIVES, AND COVENANTS NOT TO ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER LENDER AGREEMENT
OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY
CONNECTED WITH THE DEALINGS OF THE COMPANY, THE GUARANTORS, THE AGENTS OR THE
LENDERS IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each of the
Company and the Guarantors acknowledges that it has been informed by the
Managing Agents that the provisions of this Section 18 constitute a material
inducement upon which each of the Lenders has relied and will rely in entering
into this Agreement and any other Lender Agreement, and that it has reviewed the
provisions of this Section 18 with its counsel. Any Lender, any Agent, the
Company or any Guarantor may file an original counterpart or a copy of this
Section 18 with any court as written evidence of the consent of the Company, the
Guarantor, the Agents and the Lenders to the waiver of their rights to trial by
jury.
19. GENERAL. All covenants, agreements, representations and warranties made in
this Agreement or any other Lender Agreement or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof.
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<PAGE>
The invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Lender Agreements
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous
understandings and agreements, whether written or oral. This Agreement may be
executed in any number of counterparts which together shall constitute one
instrument. This Agreement shall be governed by and construed in accordance with
the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts.
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<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By /s/ P. Eric Krauss
------------------------------
Treasurer
AMERICAN CABLESYSTEMS CORPORATION
AMERICAN CABLESYSTEMS NORTHEAST, INC
AMERICAN CABLESYSTEMS OF CALIFORNIA, INC.
AMERICAN CABLESYSTEMS OF FLORIDA, INC.
AMERICAN CABLESYSTEMS OF NEW YORK, INC.
CONTINENTAL CABLEVISION FLORIDA LIMITED, INC.
CONTINENTAL CABLEVISION NORTHEAST LIMITED, INC.
CONTINENTAL CABLEVISION NORTHERN COOK COUNTY LIMITED,
INC.
CONTINENTAL CABLEVISION OF CALIFORNIA, INC.
CONTINENTAL CABLEVISION OF COOK COUNTY, INC.
CONTINENTAL CABLEVISION OF ILLINOIS, INC.
CONTINENTAL CABLEVISION OF JACKSONVILLE, INC.
CONTINENTAL CABLEVISION OF MANCHESTER, INC.
CONTINENTAL CABLEVISION OF MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF MICHIGAN, INC.
CONTINENTAL CABLEVISION OF NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF NORTHERN COOK COUNTY, INC.
CONTINENTAL CABLEVISION OF OHIO, INC.
CONTINENTAL CABLEVISION OF ST. LOUIS COUNTY, INC.
CONTINENTAL CABLEVISION OF ST. PAUL, INC.
CONTINENTAL CABLEVISION OF SIERRA VALLEYS, INC.
CONTINENTAL CABLEVISION OF SOUTHERN MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF VIRGINIA, INC.
CONTINENTAL CABLEVISION OF WESTERN NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF WILL COUNTY, INC.
CONTINENTAL CABLEVISION SERVICES, INC.
CONTINENTAL CABLEVISION WILL COUNTY LIMITED, INC.
FRESNO CABLE TV LIMITED
NOR CAL CABLEVISION, INC.
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POMPANO TELECABLE CORPORATION
SAN JOAQUIN TV SERVICES, INC.
TELCAB COMMUNICATIONS, INC.
By /s/ P. Eric Krauss
--------------------------
As Treasurer of each of the
foregoing corporations
AMERICAN CABLESYSTEMS OF FLORIDA,
A LIMITED PARTNERSHIP
By AMERICAN CABLESYSTEMS OF FLORIDA, INC.,
General Partner
By /s/ P. Eric Krauss
-----------------------------
Treasurer
AMERICAN CABLESYSTEMS NORTHEAST,
A LIMITED PARTNERSHIP
By AMERICAN CABLESYSTEMS NORTHEAST, INC.,
General Partner
By /s/ P. Eric Krauss
--------------------------------
Treasurer
CONTINENTAL CABLEVISION OF WILL COUNTY,
A LIMITED PARTNERSHIP
By CONTINENTAL CABLEVISION OF WILL
COUNTY, INC., General Partner
By /s/ P. Eric Krauss
--------------------------------
Treasurer
CONTINENTAL CABLEVISION OF NORTHERN
COOK COUNTY, A LIMITED PARTNERSHIP
By CONTINENTAL CABLEVISION OF NORTHERN
COOK COUNTY, INC., General Partner
By /s/ P. Eric Krauss
--------------------------------
Treasurer
-100-
<PAGE>
MANAGING AGENTS:
THE FIRST NATIONAL BANK THE BANK OF NEW YORK
OF BOSTON
By /s/ By Kalpana Raina
---------------------- --------------------
Title: Director Title: Vice President
AGENTS:
CANADIAN IMPERIAL BANK MELLON BANK, N.A
OF COMMERCE
By Reid J. Murray By /s/
----------------------- --------------------
Title: Managing Director Title: Vice President
NATIONSBANK OF TEXAS, N.A. THE TORONTO-DOMINION BANK
By /s/ By Frederick B. Hawley
----------------------- -----------------------
Title: Senior Vice President Title: Mgr. Credit Admin.
CO-AGENTS:
THE BANK OF NOVA SCOTIA THE BANK OF TOKYO
TRUST COMPANY
By /s/ By /s/
-------------------- --------------------
Title: Relationship Mgr. Title: Vice President
CHEMICAL BANK, N.A. CITIBANK, N.A.
By /s/ By /s/
-------------------- --------------------
Title: Vice President Title: Vice President
THE FIRST NATIONAL BANK THE FUJI BANK, LIMITED
OF CHICAGO
By /s/ By /s/
-------------------- --------------------
Title: Asst. Vice President Title:
INDUSTRIAL BANK OF JAPAN THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED,
NEW YORK BRANCH
By /s/ By /s/
-------------------- --------------------
Title: Title: Deputy Genl. Mgr.
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<PAGE>
MORGAN GUARANTY TRUST COMPANY ROYAL BANK OF CANADA
By /s/ By John P. Page
-------------------- -------------------
Title: Title: Senior Manager
SHAWMUT BANK OF SOCIETE GENERALE
CONNECTICUT, N.A.
By /s/ By /s/
-------------------- --------------------
Title: Director Title: Vice President
THE SUMITOMO BANK, LIMITED, UNION BANK
CHICAGO BRANCH
By Takaya Iida By Christine P. Ball
------------------- --------------------
Title: Joint Genl. Mgr. Title: Asst. Vice President
OTHER LENDERS: BANK OF HAWAII
THE BANK OF CALIFORNIA, N.A.
By /s/ By /s/
-------------------- --------------------
Title: Vice President Title: Asst. Vice President
BANK OF IRELAND, GRAND BANK OF MONTREAL
CAYMAN BRANCH
By /s/ By Yvonne Bos
-------------------- --------------------
Title: Asst. Vice President Title: Managing Director
BANQUE NATIONALE DE PARIS BANQUE PARIBAS
By C. Morio By /s/
-------------------- --------------------
Title: Sr. Vice President Title: Vice President
By Janice Ho By Philippe Vuarchez
-------------------- --------------------
Title: Vice President Title: Vice President
COMPAGNIE FINANCIERE DE CIC CORESTATES BANK, N.A.
ET DE L'UNION EUROPEENNE
By Marcus Edward By /s/
-------------------- --------------------
Title: Vice President Title: Vice President
By Sean Mounier
--------------------
Title: Vice President
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<PAGE>
CREDIT LYONNAIS CAYMAN CRESTAR BANK
ISLAND BRANCH
By Bruce M. Yeager By /s/
-------------------- -------------------
Title: Title: Vice President
THE DAI-ICHI KANGYO BANK, THE DAIWA BANK, LIMITED
LIMITED, NEW YORK BRANCH
By /s/ By /s/
-------------------- --------------------
Title: Asst. Vice President Title: Vice President
By /s/
--------------------
Title:
DRESDNER BANK AG NEW YORK FIRST BANK NATIONAL
AND GRAND CAYMAN BRANCHES ASSOCIATION
By Charles H. Hill By /s/
-------------------- --------------------
Title: Vice President Title: Asst. Vice President
By R. Matthew Scherer
--------------------
Title: Vice President
FIRST FIDELITY BANK, N.A. THE FIRST NATIONAL BANK
OF MARYLAND
By /s/ By /s/
-------------------- --------------------
Title: Asst. Vice President Title: Vice President
FUYO GENERAL LEASE KLEINWORT BENSON LIMITED
(U.S.A.), INC.
By /s/ By /s/
-------------------- --------------------
Title: Exec. Vice President Title: Director
THE MITSUBISHI TRUST AND THE NIPPON CREDIT BANK, LTD.
BANKING CORPORATION
By /s/ By /s/
------------------ --------------------
Title: Sr. Vice President Title: Vice President
THE SANWA BANK, LIMITED THE SUMITOMO TRUST &
BANKING CO., LTD.,
NEW YORK BRANCH
By /s/ By Suraj P. Bhatia
-------------------- --------------------
Title: Vice President Title: Sr. Vice President
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<PAGE>
SWISS BANK CORPORATION, THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By Jane A. Majeski By Masaharu Muto
-------------------- --------------------
Title: Director Title: Deputy Genl. Manager
By Donald H. Lucardi
--------------------
Title: Director
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<PAGE>
CONTINENTAL CABLEVISION, INC.
EXHIBITS
--------
1 - Effective Rates
2.1.1 - Note
2.2.1 - Money Market Loan Bid
2.2.2 - Invitation to Bid on Money Market Loan
2.2.3A - Money Market Loan Bid
2.2.3B - List of Money Market Loan Bids
2.2.4A - List of Acceptances and Non-Acceptances of
Money Market Loan Bids
2.2.4B - Acceptance of Money Market Loan Bids
2.2.4C - Non-Acceptance of Money Market Loan Bids
2.2.4D - Notice of Money Market Loan
5.2.1 - Officer's Certificate
7.7 - Indebtedness
8.1 - Company and its Restricted Subsidiaries
12.1 - Lenders and Revolving Percentage Interests
13.1.1 - Assignment and Acceptance
<PAGE>
EXHIBIT 1
---------
EFFECTIVE RATES
<TABLE>
<CAPTION>
Ratio of Consolidated Total Interest Rate on Portions of Interest Rate on Portions of
Debt to Four Times Consolidated Revolving Loan Subject to Revolving Loan Not Subject to
Operating Income Eurodollar Pricing Option Eurodollar Pricing Option
- --------------------------------- ---------------------------- -----------------------------
<S> <C> <C>
Greater than or equal to 6.75 Eurodollar Rate plus 1 3/4% Base Rate plus 1/2%
to 1 ---- ----
Greater than or equal to 6.50 Eurodollar Rate plus 1 5/8% Base Rate plus 3/8%
to 1 but less than 6.75 to 1 ---- ----
Greater than or equal to 6.00 Eurodollar Rate plus 1 1/2% Base Rate plus 1/4%
to 1 but less than 6.50 to 1 ---- ----
Greater than or equal to 5.50 Eurodollar Rate plus 1 3/8% Base Rate plus 1/8%
to 1 but less than 6.00 to 1 ---- ----
Greater than or equal to 5.00 Eurodollar Rate plus 1 1/8% Base Rate
to 1 but less than 5.50 to 1 ----
Greater than or equal to 4.50 Eurodollar Rate plus 7/8% Base Rate
to 1 but less than 5.00 to 1 ----
Less than 4.50 to 1 Eurodollar Rate plus 5/8% Base Rate
----
</TABLE>
<PAGE>
EXHIBIT 2.1.1
-------------
REVOLVING LOAN NOTE
No. ___ _______________, 199_
$_______________ Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned CONTINENTAL CABLEVISION, INC., a
Delaware corporation, hereby promises to pay to ____________________ (the
"Holder") or order, on October 10, 2003, ___________________________________
DOLLARS ($_______________) or, if less, the aggregate unpaid Revolving Loan made
to the Company by the Holder, with daily interest from the date hereof, computed
as provided in the Credit Agreement referred to below, on the principal amount
of such Revolving Loan from time to time unpaid at a rate per annum on each
portion of the principal amount which shall at all times equal the Effective
Rate (as defined in the Credit Agreement) applicable to such portion in
accordance with the Credit Agreement. Interest shall be payable on the dates
specified in the Credit Agreement, except that all accrued interest shall be
paid at the stated or accelerated maturity hereof or upon the prepayment in full
hereof.
Payments hereunder shall be made to The First National Bank of Boston, as
administrative agent for the payee hereof, at 100 Federal Street, Boston,
Massachusetts 02110.
This Note is one of several Notes evidencing Revolving Loans under and is
entitled to the benefits and subject to the provisions of the Amended and
Restated Credit Agreement dated as of October 1, 1994, as from time to time in
effect (the "Credit Agreement"), among the undersigned, certain of its
subsidiaries, and certain lenders for which The First National Bank of Boston is
acting as administrative agent. The principal of this Note may be due and
payable in whole or in part prior to the maturity date stated above and is
subject to mandatory prepayment in the amounts and under the circumstances set
forth in the Credit Agreement, and may be prepaid in whole or from time to time
in part, all as set forth in the Credit Agreement. Amounts so prepaid may be
reborrowed by the Company in accordance with and subject to the terms of the
Credit Agreement. This Note may not be assigned or otherwise transferred except
in accordance with the Credit Agreement.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the entire principal amount of this Note
may become or be declared due and payable in the manner and with the effect
provided in the Credit Agreement.
<PAGE>
This Note shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of The Commonwealth of Massachusetts.
The undersigned maker and all guarantors and endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note, except as specifically otherwise provided in the Credit Agreement, and
assent to extensions of time of payment or forbearance or other indulgence
without notice.
CONTINENTAL CABLEVISION, INC.
By__________________________
Title:
-2-
<PAGE>
EXHIBIT 2.2.1
-------------
MONEY MARKET LOAN BID REQUEST
Date:
To: The First National Bank of Boston, as Administrative Agent under the
Credit Agreement (as defined below)
Re: Amended and Restated Credit Agreement dated as of October 1, 1994, as
from time to time in effect (the "Credit Agreement"), among Continental
Cablevision, Inc., its subsidiaries from time to time party thereto and
certain Lenders for which The First National Bank of Boston is acting as
---------
Administrative Agent.
------------------------------------------------------------------------
The undersigned hereby gives notice pursuant to Section 2.2.1 of the Credit
Agreement that the undersigned requests bids from the Lenders listed on
Exhibit A hereto with respect to the following respective Money Market
Loan(s):
Money Market Loan Closing
Date/1/ (Date of Borrowing): ____________________
<TABLE>
<CAPTION>
Principal Amount(s)/2/ Money Market Loan
of Requested Interest Payment Money Market Loan
Money Market Loan(s) Dates (if any) Maturity Date(s)
- -------------------- ----------------- -----------------
<S> <C> <C>
</TABLE>
Such Money Market Loan bids should offer a Money Market Rate.
Terms defined in the Credit Agreement and not otherwise defined herein are
used herein with the meanings so defined.
Very truly yours,
CONTINENTAL CABLEVISION, INC.
By__________________________
Title:
___________________
/1/ Must be the Banking Day following the applicable Request Date.
/2/ Principal amount must be a minimum of $10,000,000, and if larger, in
integral multiples of $1,000,000.
-1-
<PAGE>
Exhibit A
---------
Lenders Requested to Submit Bids
--------------------------------
<PAGE>
EXHIBIT 2.2.2
-------------
INVITATION TO BID ON MONEY MARKET LOAN
Date:
To: Lenders Participating in the Money Market Loan Bid Auction under the
Continental Cablevision Credit Agreement
Re: Invitation to Bid on Money Market Loan
--------------------------------------
Pursuant to Section 2.2.2 of the Amended and Restated Credit Agreement dated
as of October 1, 1994, as from time to time in effect (the "Credit
Agreement"), among Continental Cablevision, Inc. (the "Company"), its
subsidiaries from time to time party thereto and certain Lenders for which
The First National Bank of Boston is acting as Administrative Agent, we are
pleased on behalf of the Company to invite you to submit bids with respect
to the following Money Market Loan(s):
Money Market Loan Closing
Date (Date of borrowing): ____________________
<TABLE>
<CAPTION>
Principal Amount(s) Money Market Loan
of Requested Interest Payment Money Market Loan
Money Market Loan(s) Dates (if any) Maturity Date(s)
- -------------------- ----------------- -----------------
<S> <C> <C>
</TABLE>
Such Money Market Loan bids should offer a Money Market Rate.
Please respond to this invitation by no later than 9:00 a.m. (Boston time) on
the Money Market Loan Closing Date.
Terms defined in the Credit Agreement and not otherwise defined herein are
used herein with the meanings so defined.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By__________________________
Title:
<PAGE>
EXHIBIT 2.2.3A
--------------
MONEY MARKET LOAN BID
Date:
The First National Bank Of Boston,
as Administrative Agent under
the Credit Agreement (as defined below)
100 Federal Street
Boston, Massachusetts 02110
Attention: Media and Communications Department
Re: Continental Cablevision, Inc.
-----------------------------
In response to your invitation on behalf of the Company dated
____________________, the undersigned (the "Bidding Lender") hereby submits
the following Money Market Loan bid(s) with respect to the following Money
Market Loan(s):
1. Bidding Lender: ____________________
2. Person to contact at Bidding Lender: ____________________
3. Money Market Loan Closing
Date (Date of borrowing): ____________________
4. The undersigned hereby offers to make to the Company, on the Money
Market Loan Closing Date specified above, the following Money Market
Loan(s):
<TABLE>
<CAPTION>
Principal Amount(s)/1/ Money Market Loan Money Market
of Offered Interest Payment Loan Maturity Money Market
Money Market Loan(s) Dates (if any) Date(s) Rate(s)/2/
- ------------------------ ------------------ ---------------- ------------
<S> <C> <C> <C>
</TABLE>
The undersigned understands and agrees that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the
Amended and Restated Credit Agreement dated as of October 1, 1994, as from
time to time in effect (the "Credit Agreement"), among the Company, its
subsidiaries from time to time party thereto and certain Lenders for which
The
_____________________
/1/ Principal amount bids may not exceed principal amount requested. Bids
must be for a minimum of $1,000,000, and if larger, in integral multiples of
$1,000,000.
/2/ Specify rate of interest per annum (each rounded to the nearest 1/100%).
<PAGE>
First National Bank of Boston is acting as Administrative Agent, irrevocably
obligates the undersigned to make the Money Market Loan(s) for which any
offer(s) are accepted in whole or in part by the Company.
Terms defined in the Credit Agreement and not otherwise defined herein are
used herein with the meanings so defined.
Very truly yours,
[NAME OF LENDER]
By__________________________
Title:
-2-
<PAGE>
EXHIBIT 2.2.3B
--------------
LIST OF MONEY MARKET LOAN BIDS
Date:
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Treasurer's Office
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of
October 1, 1994, as from time to time in effect (the "Credit Agreement"),
among Continental Cablevision, Inc. (the "Company"), its subsidiaries from
time to time party thereto and certain Lenders for which The First National
Bank of Boston is acting as Administrative Agent. Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings
so defined.
Notice is hereby given that pursuant to Section 2.2.3 of the Credit
Agreement, the following Lenders have offered to make to the Company, on
____________________, the following Money Market Loan(s) in the amount(s) and
at the rate(s) specified below:
<TABLE>
<CAPTION>
Principal Money Market Money Market
Amount(s) of Loan Interest Loan Money
Offered Money Payment Dates Maturity Market
Lender(s) Market Loan(s) (if any) Date(s) Rate(s)
- -------- --------------- ------------- ------------ -------
<S> <C> <C> <C> <C>
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By____________________________
Title:
<PAGE>
EXHIBIT 2.2.4A
--------------
LIST OF ACCEPTANCES AND NON-ACCEPTANCES
OF MONEY MARKET LOAN BIDS
The First National Bank of Boston,
as Administrative Agent under
the Credit Agreement (as defined below)
100 Federal Street
Boston, Massachusetts 02110
Attention: Media and Communications Department
Ladies and Gentlemen:
Reference is made to (a) the Amended and Restated Credit Agreement dated as
of October 1, 1994, as from time to time in effect (the "Credit Agreement"),
among Continental Cablevision, Inc. (the "Company"), its subsidiaries from time
to time party thereto and certain Lenders for which you are acting as
Administrative Agent and (b) the bid notices (the "Bid Notices") received from
you on [insert applicable Money Market Loan Closing Date]. Terms defined in the
Credit Agreement and not otherwise defined herein are used herein with the
meanings so defined.
[Pursuant to Section 2.2.4 of the Credit Agreement, the Company hereby
accepts the offer(s) of the Lender(s) specified below to make the following
Money Market Loans:
Lender(s): ____________________
Money Market Loan
Closing Date: ____________________
Principal amount(s)
of offered Money
Market Loan(s): $____________________
Money Market Rate(s): ____________________%
Money Market Loan
Maturity Date(s): ____________________
Money Market Loan
Interest Payment
Dates (if any): ____________________]
[repeat for each accepted bid]
<PAGE>
[Except as provided above,] all offers to make Money Market Loans described
in the Bid Notices are hereby rejected.
Very truly yours,
CONTINENTAL CABLEVISION, INC.
By__________________________
Title:
-2-
<PAGE>
EXHIBIT 2.2.4B
--------------
ACCEPTANCE OF MONEY MARKET LOAN BIDS
Date:
To: Lenders Participating in the Money Market Loan Bid Auction under the
Continental Cablevision Credit Agreement
Reference is made to the Amended and Restated Credit Agreement dated as of
October 1, 1994, as from time to time in effect (the "Credit Agreement"),
among Continental Cablevision, Inc. (the "Company"), its subsidiaries from
time to time party thereto and certain Lenders for which The First National
Bank of Boston is acting as Administrative Agent.
Pursuant to Section 2.2.4 of the Credit Agreement, notification has been
received from the Company that it has accepted the following bids:
<TABLE>
<CAPTION>
Principal Money Market Money Market
Amount(s) of Loan Interest Loan Money
Offered Money Payment Dates Maturity Market
Lender(s) Market Loan(s) (if any) Date(s) Rate(s)
- -------- -------------- ------------- ------------ -------
<S> <C> <C> <C> <C>
</TABLE>
If your quote has been accepted, funds should be transferred to The First
National Bank of Boston, ABA-011-000-390, Attention: Commercial Loan
Services, 05-02-00-B, 50 Morrissey Boulevard, Dorchester, MA 02125, and
should be immediately available as of 2:30 p.m. (Boston time) on
_________________.
Following are the Money Market Loan bids which were submitted by the Lenders
in today's auction:
<TABLE>
<CAPTION>
Principal Money Market Money Market
Amount(s) of Loan Interest Loan Money
Offered Money Payment Dates Maturity Market
Lender(s) Market Loan(s) (if any) Date(s) Rate(s)
- --------- ------------- ------------- ------------- -------
<S> <C> <C> <C> <C>
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By__________________________
Title:
<PAGE>
EXHIBIT 2.2.4C
--------------
NON-ACCEPTANCE OF MONEY MARKET LOAN BIDS
Date:
To: Lenders Participating in the Money Market Loan Bid Auction under the
Continental Cablevision Credit Agreement
Reference is made to the Amended and Restated Credit Agreement dated as of
October 1, 1994, as from time to time in effect (the "Credit Agreement"),
among Continental Cablevision, Inc. (the "Company"), its subsidiaries from
time to time party thereto and certain Lenders for which The First National
Bank of Boston is acting as Administrative Agent.
Pursuant to Section 2.2.4 of the Credit Agreement, notification has been
received from the Company that it has not accepted any of the following bids:
---
<TABLE>
<CAPTION>
Principal Money Market Money Market
Amount(s) of Loan Interest Loan Money
Offered Money Payment Dates Maturity Market
Lender(s) Market Loan(s) (if any) Date(s) Rate(s)
- --------- -------------- ------------- ------------ -------
<S> <C> <C> <C> <C>
</TABLE>
Following are the Money Market Loan bids which were submitted by the Lenders in
today's auction:
<TABLE>
<CAPTION>
Principal Money Market Money Market
Amount(s) of Loan Interest Loan Money
Offered Money Payment Dates Maturity Market
Lender(s) Market Loan(s) (if any) Date(s) Rate(s)
- --------- -------------- ------------- ------------ -------
<S> <C> <C> <C> <C>
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By__________________________
Title:
-1-
<PAGE>
EXHIBIT 2.2.4D
--------------
NOTICE OF MONEY MARKET LOAN
Date:
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Treasurer
[Each Lender]
[Address]
Attention:
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of
October 1, 1994, as from time to time in effect (the "Credit Agreement"), among
Continental Cablevision, Inc., a Delaware corporation, its subsidiaries from
time to time party thereto and certain Lenders for which the undersigned is
acting as Administrative Agent. Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so defined.
Pursuant to Section 2.2.4 of the Credit Agreement, the undersigned hereby
notifies you that the following Money Market Loan(s) became effective on the
date hereof:
<TABLE>
<CAPTION>
Principal Amount of Money Market Loan
Money Market Loan(s) Maturity Date(s)
- -------------------- -----------------
<S> <C>
</TABLE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By__________________________
Title:
<PAGE>
EXHIBIT 5.2.1
-------------
OFFICER'S CERTIFICATE
The First National Bank of Boston,
as Administrative Agent under
the Credit Agreement (as defined below)
100 Federal Street
Boston, Massachusetts 02110
Attention: Media and Communications Department
Dear Administrative Agent:
Pursuant to Section 5.2.1 of the Amended and Restated Credit Agreement
dated as of October 1, 1994, as from time to time in effect (the "Credit
Agreement"), among Continental Cablevision, Inc. (the "Company"), its
subsidiaries from time to time party thereto, you and the other Lenders party
thereto, the Company has requested that a loan be made to it on the date hereof
in the principal amount of $____________________ in accordance with the [insert
Revolving Loan facility, Money Market Loan facility, or Swingline Loan facility]
under the Credit Agreement.
The Company represents and warrants as follows:
(a) The representations and warranties contained in Sections 6.3 and 8 of
the Credit Agreement are true and correct on and as of the date hereof with the
same force and effect as though made on and as of such date.
(b) No Default under the Credit Agreement has occurred or shall exist
after giving effect to the loan requested hereby.
(c) Between June 30, 1994 and the date hereof, neither the business,
operations, assets nor the condition, financial or otherwise, of the Company and
its Restricted Subsidiaries on a consolidated basis has been adversely affected
in any material manner as a result of any event or development.
(d) Except as set forth in the certificate, if any, attached hereto, there
has been no change in (i) the charters or by-laws of the Company [and its
Restricted Subsidiaries] heretofore certified to you, or (ii) the incumbency of
the officers of the Company [and its Restricted Subsidiaries] whose signatures
have been heretofore certified to you.
(e) After giving effect to the loan requested hereby, the principal amount
of the Revolving Loan shall not exceed an amount
<PAGE>
equal to (i) the Maximum Amount of Credit minus (ii) the Swingline Loan minus
----- -----
(iii) the Money Market Loans.
(f) The proceeds of the loan requested hereby will be dedicated to the
following application in accordance with the designation previously made under
Section 2.6 of the Credit Agreement:
Terms defined in the Credit Agreement and not otherwise defined are used
herein with the meanings so defined.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
____ day of _______________, 199_.
CONTINENTAL CABLEVISION, INC.
By__________________________
Title:
-2-
<PAGE>
EXHIBIT 7.7
-----------
INDEBTEDNESS
[To Be Provided by the Company]
<PAGE>
EXHIBIT 8.1
-----------
THE COMPANY AND ITS RESTRICTED SUBSIDIARIES
[To Be Provided by the Company]
-1-
<PAGE>
EXHIBIT 12.1
------------
LENDERS AND THEIR RESPECTIVE REVOLVING PERCENTAGE INTERESTS
The respective percentage interests of the Lenders shall be calculated based
on their respective maximum principal amounts of the Revolving Loan as set
forth below:
<TABLE>
<CAPTION>
Revolving
Percentage Interest
-------------------
MANAGING AGENTS:
- ---------------
<S> <C>
THE FIRST NATIONAL BANK OF BOSTON $ 100,000,000.00/1/
100 Federal Street, 8th Floor
Boston, Massachusetts 02110
Attention: Media & Communications
- ---------
Department
THE BANK OF NEW YORK $ 125,000,000.00
One Wall Street, 16th Floor
New York, New York 10286
Attention: Communications Division
- ---------
<CAPTION>
AGENTS:
- -------
<S> <C>
CANADIAN IMPERIAL BANK OF COMMERCE $ 100,000,000.00
425 Lexington Avenue, 6th Floor
New York, New York 10017
Attention: Communications Division
- ---------
MELLON BANK, N.A. $ 100,000,000.00
One Mellon Bank Center, Room 4440
Pittsburgh, Pennsylvania 15258
Attention: Media Group
- ---------
NATIONSBANK OF TEXAS, N.A. $ 100,000,000.00
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Communications Division
- ---------
THE TORONTO-DOMINION BANK $ 100,000,000.00
31 West 52nd Street
New York, New York 10019
<CAPTION>
CO-AGENTS:
- ---------
<S> <C>
THE BANK OF NOVA SCOTIA $ 65,000,000.00
One Liberty Plaza, 26th Floor
165 Broadway
New York, New York 10006
Attention: Media and Communications
THE BANK OF TOKYO TRUST COMPANY $ 32,500,000.00
1251 Avenue of the Americas
New York, New York 10116
CHEMICAL BANK, N.A. $ 65,000,000.00
270 Park Avenue, 9th Floor
New York, New York 10172
CITIBANK, N.A. $ 65,000,000.00
399 Park Avenue
New York, New York 10043
<CAPTION>
Revolving
Percentage Interest
-------------------
<S> <C>
THE FIRST NATIONAL BANK OF CHICAGO $ 65,000,000.00
One First National Plaza
Mail Suite 0629
Chicago, Illinois 60670
Attention: Communication Companies Division
- ---------
</TABLE>
_______________________________
/1/ The Voting Percentage Interest of The First National Bank of Boston equals
the sum of (a) their Revolving Percentage Interest and (b) their Swingline
Commitment of $25,000,000.
<PAGE>
THE FUJI BANK, LIMITED $ 65,000,000.00
New York Branch
Two World Trade Center, 79th Floor
New York, New York 10048
INDUSTRIAL BANK OF JAPAN $ 65,000,000.00
245 Park Avenue, 23rd Floor
New York, New York 10167-0037
THE LONG-TERM CREDIT BANK OF JAPAN, $ 65,000,000.00
LIMITED, NEW YORK BRANCH
165 Broadway, 49th Floor
New York, New York 10006
MORGAN GUARANTY TRUST COMPANY $ 65,000,000.00
OF NEW YORK
60 Wall Street
New York, New York 10260-0060
ROYAL BANK OF CANADA $ 65,000,000.00
One Financial Square, 23rd Floor
New York, New York 10005-3531
SHAWMUT BANK CONNECTICUT, N.A. $ 65,000,000.00
Specialized Lending, MSN 397
777 Main Street
Hartford, Connecticut 06115
SOCIETE GENERALE $ 65,000,000.00
1221 Avenue of the Americas
New York, New York 10020
THE SUMITOMO BANK, LIMITED, $ 65,000,000.00
CHICAGO BRANCH
Sears Tower, Suite 4800
233 South Wacker Drive
Chicago, Illinois 60606-6448
UNION BANK $ 32,500,000.00
445 South Figueroa Street
Los Angeles, California 90071
Attention: Communications/Media Group
- ---------
[CAPTION]
OTHER LENDERS:
- -------------
[S] [C]
THE BANK OF CALIFORNIA, N.A. $ 20,000,000.00
400 California Street
San Francisco, California 94104
BANK OF HAWAII $ 37,500,000.00
Bancorp Tower, 20th Floor
130 Merchant Street
Honolulu, Hawaii 96813
BANK OF IRELAND, GRAND CAYMAN BRANCH $ 15,000,000.00
640 Fifth Avenue
New York, New York 10019
BANK OF MONTREAL $ 25,000,000.00
430 Park Avenue, 16th Floor
New York, New York 10022
Attention: Communication/Media Group
- ---------
BANQUE NATIONALE DE PARIS $ 40,000,000.00
725 South Figueroa, Suite 2090
Los Angeles, California 90017
[CAPTION]
Revolving
Percentage Interest
-------------------
[S] [C]
BANQUE PARIBAS $ 25,000,000.00
787 7th Avenue, 32nd Floor
New York, New York 10019
COMPAGNIE FINANCIERE DE CIC ET $ 50,000,000.00
DE L'UNION EUROPEENNE
520 Madison Avenue, 37th Floor
New York, New York 10022
CORESTATES BANK, N.A. $ 25,000,000.00
1500 Market Street
West Tower, 18th Floor
Philadelphia, Pennsylvania 19101-7618
CREDIT LYONNAIS CAYMAN ISLAND BRANCH $ 50,000,000.00
-2-
<PAGE>
1301 Avenue of the Americas
New York, New York 10019
CRESTAR BANK $ 25,000,000.00
919 East Main Street
Richmond, Virginia 23261-6665
THE DAI-ICHI KANGYO BANK, LIMITED, $ 25,000,000.00
NEW YORK BRANCH
Corporate Finance Department
One World Trade Center, Suite 4911
New York, New York 10048
THE DAIWA BANK, LIMITED $ 25,000,000.00
One Post Office Square, Suite 3820
Boston, Massachusetts 02109
DRESDNER BANK AG NEW YORK AND $ 30,000,000.00
GRAND CAYMAN BRANCHES
75 Wall Street
New York, New York 10005-2889
FIRST BANK NATIONAL ASSOCIATION $ 25,000,000.00
First Bank Place
Banking Group
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
FIRST FIDELITY BANK, N.A. $ 25,000,000.00
123 South Broad Street
Philadelphia, Pennsylvania 19109
THE FIRST NATIONAL BANK OF MARYLAND $ 25,000,000.00
25 South Charles Street
18th Floor (101-511)
Baltimore, Maryland 21201
FUYO GENERAL LEASE (U.S.A.), INC. $ 10,000,000.00
Two World Trade Center, Suite 8260
New York, New York 10048
KLEINWORT BENSON LIMITED $ 10,000,000.00
20 Fenchurch Street
London EC3P 3DB England
THE MITSUBISHI TRUST AND $ 30,000,000.00
BANKING CORPORATION
520 Madison Avenue, 26th Floor
New York, New York 10022
THE NIPPON CREDIT BANK, LTD. $ 50,000,000.00
245 Park Avenue
New York, New York 10167
THE SANWA BANK, LIMITED $ 50,000,000.00
55 East 52nd Street
Park Avenue Plaza
New York, New York 10055
[CAPTION]
Revolving
Percentage Interest
-------------------
[S] [C]
THE SUMITOMO TRUST & BANKING CO., LTD., $ 37,500,000.00
NEW YORK BRANCH
527 Madison Avenue, 6th Floor
New York, New York 10022
SWISS BANK CORPORATION, NEW YORK BRANCH $ 25,000,000.00
222 Broadway, 4th Floor
New York, New York 10038
THE TOKAI BANK, LIMITED $ 25,000,000.00
55 East 52nd Street
New York, New York 10055
_________________
Total: $2,175,000,000.00
-3-
<PAGE>
EXHIBIT 13.1.1
--------------
ASSIGNMENT AND ACCEPTANCE
[Assignor's Letterhead]
[Date]
[Name and Address of Assignee]
Re: Continental Cablevision, Inc.
----------------------------
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as of
October 1, 1994, as in effect from time to time (the "Credit Agreement"), among
Continental Cablevision, Inc., a Delaware corporation (the "Company"), its
subsidiaries from time to time party thereto and certain lenders (the
"Lenders"), including The First National Bank of Boston as administrative agent
for the Lenders (the "Administrative Agent"). Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
For valuable consideration, the receipt of which is hereby acknowledged,
the undersigned (the "Assignor") hereby agrees with you (the "Assignee") as
follows:
1. Assignment and Assumption. Pursuant to Section 13.1 of the Credit
-------------------------
Agreement, as of ________________ (the "Assignment Date"), the Assignor hereby
assigns to the Assignee the following:
$__________ of the Assignor's $__________ current Revolving Percentage
Interest, including $__________ of the Assignor's $__________ Revolving
Loan Account currently outstanding.
The foregoing assignment is made together with the concomitant proportionate
amounts of the Assignor's other rights and obligations as a Lender under the
Credit Agreement and the other Lender Agreements, and the Assignee hereby
assumes such rights and obligations completely. As of the Assignment Date, the
Assignor shall have the interests in the Credit Obligations and under the Credit
Agreement as set forth on Schedule A hereto.
2. Representations and Warranties of the Assignor. The Assignor hereby
----------------------------------------------
represents and warrants that:
2.1. The Assignor owns that portion of the rights and obligations
under the Credit Agreement assigned hereunder legally and beneficially, free and
clear of any adverse claim.
<PAGE>
2.2. The Assignee shall receive from the Assignor good and marketable
title to those rights and obligations under the Credit Agreement assigned
hereunder free and clear of any adverse claim except as expressly otherwise set
forth herein.
Except as to the representations and warranties set forth in this Section 2, the
foregoing assignment is made without any representation or warranty by or
recourse of any kind to the Assignor.
3. Representations and Warranties of the Assignee. The Assignee hereby
----------------------------------------------
represents and warrants that it is a commercial bank or financial institution.
4. Party to the Credit Agreement, etc. Upon the execution and delivery
-----------------------------------
of this Agreement by the parties hereto (including, without limitation,
the Company and Administrative Agent), the Assignee shall become party to the
Credit Agreement as a signatory thereto. Notwithstanding the five Banking Day
execution and delivery requirement set forth in Section 13.1.4 of the Credit
Agreement, the parties hereto (including, without limitation, the Company and
Administrative Agent) agree that as of the Assignment Date, the Assignee shall
have all the rights and obligations of a Lender under the Credit Agreement and
the other Lender Agreements, including without limitation, as set forth on
Schedule B (including interest accrued thereon from and after the Assignment
Date). As of the Assignment Date, the Assignor shall be released from its
obligations under the Credit Agreement to the extent corresponding to the
assignment hereunder (other than its obligations under Section 7.2.11), and no
further consent or action by any party shall be required. Pursuant to Section
12.7 of the Credit Agreement, the Administrative Agent and the Company by their
execution hereof waive compliance with the five Banking Day execution and
delivery requirement described above.
5. Notices. All notices and other communications required to be given or
-------
made to the Assignee under this Agreement or the Credit Agreement shall be given
or made at the address of the Assignee set forth on the first page hereof or at
such other address as the Assignee shall have specified to the Assignor, the
Administrative Agent and the Company in writing.
6. Expenses. The Assignee shall pay its own expenses but not the expenses
--------
of the Assignor in connection with the preparation and execution of this
Agreement and the consummation of the transactions contemplated hereby. The
Assignee shall be responsible for paying to the Administrative Agent the fee
called for pursuant to Section 13.1.1 of the Credit Agreement.
-2-
<PAGE>
7. Further Assurances. The parties hereto hereby agree to execute and
------------------
deliver such other instruments and documents and to take such other actions as
any party hereto may reasonably request in connection with the transactions
contemplated by this Agreement.
8. General. This Agreement and the Credit Agreement constitute the entire
-------
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior and current understandings and agreements,
whether written or oral. The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter, limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, which
together shall constitute one instrument, and shall bind and inure to the
benefit of the parties and their respective successors and assigns, including as
such successors and assigns all holders of any Credit Obligation. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE
CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
-3-
<PAGE>
If the foregoing corresponds with your understanding of our agreement,
please sign this letter and the accompanying copies thereof in the appropriate
space below and return copies to the undersigned, the Company and the
Administrative Agent, whereupon this letter shall become a binding agreement
between you and the undersigned.
[ASSIGNOR]
By_________________________
Title:
The foregoing is
hereby accepted:
[ASSIGNEE]
By___________________________
Title:
The foregoing is
hereby approved:
CONTINENTAL CABLEVISION, INC.
By___________________________
Title: Treasurer
THE FIRST NATIONAL BANK
OF BOSTON, as Administrative Agent
By___________________________
Title:
-4-
<PAGE>
Schedule A
----------
Assignor's Revolving Percentage Interest in the Revolving Loan under the Credit
Agreement on and after the Assignment Date after giving effect to the other
assignments being made on the Assignment Date.
Revolving Percentage Interest $___________
Assignor's Revolving Loan Account as of the Assignment Date after giving effect
to the other assignments being made on the Assignment Date.
Revolving Loan Account $____________
-5-
<PAGE>
Assignee's Revolving Percentage Interest in the Revolving Loan under the Credit
Agreement on and after the Assignment Date after giving effect to the other
assignments being made on the Assignment Date.
Revolving Percentage Interest $__________
Assignee's Revolving Loan Account as of the Assignment Date after giving effect
to the other assignments being made on the Assignment Date.
Revolving Loan Account $__________
<PAGE>
Execution Counterpart
---------------------
CONTINENTAL CABLEVISION, INC.
1994 RESTATEMENT AND ASSIGNMENT AGREEMENT
This Agreement, dated as of October 1, 1994, is among Continental
Cablevision, Inc., a Delaware corporation, its Subsidiaries party hereto, the
Lenders party hereto, The First National Bank of Boston, both in its capacity as
a Lender and in its capacity as Administrative Agent and as a Managing Agent for
itself and the other Lenders, and The Bank of New York, both in its capacity as
a Lender and in its capacity as a Managing Agent for itself and the other
Lenders. The parties agree as follows:
1. Prior Credit Agreement; Definitions, etc.
----------------------------------------
1.1. Prior Credit Agreement. This Agreement amends and restates the
----------------------
Credit Agreement dated as of May 1, 1989, as amended and in effect on the date
hereof prior to giving effect to this Agreement (the "Prior Credit Agreement"),
among the Company, certain of its Subsidiaries, The First National Bank of
Boston, acting as agent (the "Administrative Agent") and a group of lenders
specified on the signature pages hereto as "Prior Lenders" (together with the
Administrative Agent, the "Prior Lenders"). The lenders specified on the
signature pages hereto as "New Lenders" will constitute the initial lenders
under the Prior Credit Agreement as amended and restated hereby (the "Restated
Credit Agreement") and, together with the Administrative Agent, are referred to
as the "New Lenders". Certain of the New Lenders also constitute Prior Lenders.
1.2. Definitions. Terms defined in the Restated Credit Agreement and not
-----------
otherwise defined herein are used herein with the meanings so defined. Except
as the context otherwise explicitly requires, (a) the capitalized term "Section"
refers to sections of this Agreement, (b) the capitalized term "Exhibit" refers
to exhibits to this Agreement, (c) references to a particular Section include
all subsections thereof and (d) the term "including" shall be construed as
"including without limitation".
2. Amendment and Restatement. Effective on the date, which is presently
-------------------------
expected to be October 17, 1994, on which all of the conditions set forth in
Section 9 are satisfied (the "Restatement
<PAGE>
Date"), which conditions must be satisfied no later than December 31, 1994, the
Prior Credit Agreement is amended and restated to read in its entirety as set
forth for separate execution in Exhibit 2.
3. Assignment and Assumption, etc.
------------------------------
3.1. Assignment and Assumption. In consideration of the agreements,
-------------------------
conditions, representations and warranties contained herein, effective upon the
Restatement Date:
(a) each of the Prior Lenders sells, transfers and assigns forever to
the New Lenders without recourse to the Prior Lenders (except to the extent
specifically provided in Section 6) all of its rights and obligations under
the Prior Credit Agreement and the other Lender Agreements (other than this
Agreement), in each case as in effect as of the Restatement Date, and
(b) each of the New Lenders accepts such rights and assumes such
obligations set forth in clause (a) above on the terms and conditions
contained herein and in the Restated Credit Agreement.
Notwithstanding anything to the contrary herein, the New Lenders shall not
assume any obligation under any Lender Agreement to be performed by the Prior
Lenders prior to the Restatement Date and the Prior Lenders shall retain their
rights under the Lender Agreements to the extent set forth in Section 5. The
Company and its Subsidiaries party hereto specifically consent to the foregoing
assignment and assumption.
3.2. Replacement of Prior Lenders, etc. Upon the Restatement Date:
---------------------------------
(a) the New Lenders shall have all of the rights and obligations of a
Lender with a Revolving Percentage Interest as set forth in section 12.1 of
the Restated Credit Agreement and the other Lender Agreements (other than
this Agreement) and the obligations of the Company and the Guarantors to
the New Lenders under the Restated Credit Agreement, including sections 2
and 3 thereof, shall begin to accrue, and
(b) each of the Prior Lenders shall be released from its obligations
under the Prior Credit Agreement (including any obligation to extend
credit) and such other Lender Agreements to a corresponding extent (other
than its obligations under section 7.2.9 of the Prior Credit Agreement),
and no further consent or action by any party shall be required.
-2-
<PAGE>
3.3. Certain Calculations. Amounts in respect of interest, fees and other
--------------------
amounts payable to or for the account of the Prior Lenders and the New Lenders
shall be calculated (a) in accordance with the provisions of the Prior Credit
Agreement with respect to any period (or portion of any period) ending prior to
the Restatement Date and (b) in accordance with the Restated Credit Agreement as
in effect on the Restatement Date and from time to time thereafter with respect
to any period (or portion of any period) commencing on or after the Restatement
Date.
4. Payments.
--------
4.1. Payoff Amounts. No later than 1:00 p.m. (Boston time) on the
--------------
Restatement Date the Company shall pay to the Administrative Agent at the Boston
Office in immediately available United States Funds the amount set forth in
Exhibit 4 (the "Payoff Amount"). The Administrative Agent shall, promptly upon
the receipt of the Payoff Amount, pay the Payoff Amount to the Prior Lenders in
accordance with their respective percentage interests under the Prior Credit
Agreement.
4.2. Pricing Option Breakage Costs. On the Restatement Date, all Pricing
-----------------------------
Options (as defined in the Prior Credit Agreement) shall be terminated. The
Company shall pay to those Prior Lenders which do not also constitute New
Lenders the amounts required by section 3.4.3 of the Prior Credit Agreement
(except to the extent separately agreed between the Company and each such Prior
Lender). The Company shall pay to those Prior Lenders which also constitute New
Lenders breakage costs calculated in accordance with section 3.3.2 of the
Restated Credit Agreement (as if such Pricing Options had been outstanding, then
terminated, under the Restated Credit Agreement).
5. Survival of Indemnities. Notwithstanding the other provisions of this
-----------------------
Agreement, the transfers and assignments made pursuant hereto and any future
amendment of the Restated Credit Agreement or any other Lender Agreement, the
indemnification provisions, guarantee reinstatement provisions and other
provisions of the Prior Credit Agreement and the other Lender Agreements
assigned hereby which expressly survive the termination of the Prior Credit
Agreement or such other Lender Agreement, each as in effect immediately prior to
the execution hereof, shall continue to inure to the benefit of the
Administrative Agent and the other Prior Lenders with respect to any events
which happened or actions taken or omitted to be taken on or prior to the
Restatement Date, without derogating from any rights of the New Lenders against
the Company or the Guarantors, with respect to any events which happened or
actions taken or omitted to be taken on or prior to the Restatement Date that
the
-3-
<PAGE>
New Lenders may have acquired in their capacity as Lenders from and after the
Restatement Date pursuant to the transfers and assignments provided in this
Agreement.
6. Representations and Warranties by Prior Lenders. The transfers and
-----------------------------------------------
assignments made by each Prior Lender pursuant to Section 3 or pursuant to any
instrument or document executed pursuant to this Agreement are made specifically
without representation, warranty or recourse by, to or against such Prior Lender
of any type whatsoever, including representations and warranties as to the
existence, adequacy, nature, value or collectability of any Credit Obligations
or rights or obligations of the Company or any of the Guarantors or the
creditworthiness or financial condition of the Company or any of the Guarantors,
except for the following limited several (and not joint or joint and several)
representations and warranties to the New Lenders by the Administrative Agent
and each other Prior Lender, as indicated below, which representations and
warranties such Prior Lender makes as to itself only, and not as to any other
Person:
6.1. Payoff Amount. As of 1:00 p.m. (Boston time) on the Restatement Date
-------------
(which is expected to be October 17, 1994), the Administrative Agent represents
and warrants that the accrued and unpaid Credit Obligations (other than the
Agent's fees and expenses) is expected to be the amount set forth in Exhibit 4
(as adjusted on a per diem basis from time to time for changes in the
Restatement Date), as well as any Pricing Option breakage payments under Section
4.2.
6.2. Ownership of Interest. Such Prior Lender is the legal and beneficial
---------------------
owner of the right, title and interest acquired by it under the Prior Credit
Agreement and the other Lender Agreements and being assigned by it hereunder,
and such right, title and interest is free and clear of any lien created by it
or other adverse claim (as defined in section 8-301 of the Massachusetts Uniform
Commercial Code) against it and known to it.
7. Representations and Warranties by New Lenders. Each New Lender represents
---------------------------------------------
and warrants to the Prior Lenders as follows, which representations and
warranties such New Lender makes on a several (and not joint or joint and
several) basis and as to itself only, and not as to any other Person: Such New
Lender has made its own independent decision and credit evaluation of the
Company and its Subsidiaries without any reliance upon the Administrative Agent
or any of the other Prior Lenders. Except for the representations and warranties
expressly set forth in Section 6, such New Lender is not relying upon any
representation or warranty of the Administrative Agent or any of the other Prior
Lenders, express or implied, including any representation or
-4-
<PAGE>
warranty of the Administrative Agent or any of the other Prior Lenders relating
to (a) the execution, legality, validity, enforceability, genuineness,
effectiveness, value, sufficiency, collectability, interest rate, repayment
schedule or accrual status of the Credit Obligations, the Credit Agreement or
any other Lender Agreement or any other document referred to herein or therein
or delivered pursuant hereto or thereto or in connection herewith or therewith,
or any potential refinancing or restructuring of the Lender Agreements or other
potential extension of credit to the Company or any of its Subsidiaries, (b) any
representation or warranty contained in the Prior Credit Agreement or any other
Lender Agreement or any other document referred to herein or therein or
delivered pursuant hereto or thereto or in connection herewith or therewith or
(c) the financial or other condition or creditworthiness of, or compliance with
the Prior Credit Agreement or any other Lender Agreement by, the Company, any of
the Guarantors or any other Person. Such New Lender (if it is not a Prior
Lender) has delivered to the Company and the Administrative Agent the documents
required by section 14 of the Restated Credit Agreement.
8. Representations and Warranties by the Company and the Guarantors. Each of
----------------------------------------------------------------
the Company and the Guarantors jointly and severally represents and warrants to
the Prior Lenders and the New Lenders as follows: No claim, defense,
counterclaim or set-off has been asserted by or, to the knowledge of the Company
or the Guarantors, is or will be available to the Company or any of the
Guarantors against the Administrative Agent or the other Prior Lenders arising
from or relating to the Lender Agreements.
9. Conditions. The effectiveness of the amendment, restatement and assignment
----------
of the Prior Credit Agreement provided for in Section 2, the special consents in
Section 11 and the New Lenders' obligations to make any extensions of credit
pursuant to the Restated Credit Agreement shall be subject to the satisfaction,
on or before the Restatement Date, of the following conditions:
9.1. Payments to Prior Lenders. Contemporaneously with the effectiveness
-------------------------
of the amendment and restatement of the Prior Credit Agreement provided for in
Section 2 and the borrowing by the Company of funds on the Initial Closing Date
thereunder, the Company shall have paid all amounts to the Administrative Agent
for the accounts of the Prior Lenders as required by Section 4.
9.2. Conditions Under Restated Credit Agreement. The conditions specified
------------------------------------------
in section 5 of the Restated Credit Agreement shall have been satisfied.
-5-
<PAGE>
9.3. Representations and Warranties. The respective several
------------------------------
representations and warranties of the Prior Lenders in Section 6, of the New
Lenders in Section 7 and of the Company and the Guarantors in Section 8 shall be
true and correct on and as of the Restatement Date as though originally made on
and as of the Restatement Date.
10. Further Assurances. After the Restatement Date, the Prior Lenders shall,
------------------
at the expense of the Company, execute and deliver such other documents and
instruments and take such other action as may reasonably be requested by the
Administrative Agent or the Company to evidence the assignment contemplated by
Section 3.
11. Special Consents. Effective on the Restatement Date:
----------------
11.1. Amended Note Agreement. Each of the New Lenders consents to the
----------------------
Amended Note Agreement.
11.2. Release of Collateral and Termination of Pledge Agreement. Each of
---------------------------------------------------------
the Prior Lenders and the New Lenders (each in its capacity as a lender and in
its capacity, if any, as an interest rate swap arrangement investor and as a
letter of credit issuer under the Pledge Agreement) consents to the release of
collateral and termination of the Pledge Agreement referred to in section 5.1.4
of the Restated Credit Agreement.
11.3. 1992 Credit Agreement Pricing Option Breakage. On the Restatement
---------------------------------------------
Date, the 1992 Credit Agreement and all Pricing Options (as defined in the 1992
Credit Agreement) thereunder shall be terminated, and each of the New Lenders
which was a lender under the 1992 Credit Agreement consents that the Company may
calculate the breakage costs for purposes of section 3.4.3 of the 1992 Credit
Agreement in accordance with section 3.3.2 of the Restated Credit Agreement (as
if such Pricing Options had been outstanding, then terminated, under the
Restated Credit Agreement).
12. General. This Agreement and the Restated Credit Agreement are Lender
-------
Agreements, and each of the Lender Agreements modified as contemplated hereby is
confirmed as being in full force and effect. This Agreement, the Restated
Credit Agreement and the other Lender Agreements referred to herein or therein
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and current understandings and
agreements, whether written or oral. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
term or provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter, limit or
-6-
<PAGE>
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, which together shall constitute one instrument, and
shall bind and inure to the benefit of the parties and their respective
successors and assigns, including as such successors and assigns all holders of
any Credit Obligation. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts.
-7-
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By /s/ P. Eric Krauss
--------------------------
Treasurer
AMERICAN CABLESYSTEMS CORPORATION
AMERICAN CABLESYSTEMS NORTHEAST, INC.
AMERICAN CABLESYSTEMS OF CALIFORNIA, INC.
AMERICAN CABLESYSTEMS OF FLORIDA, INC.
AMERICAN CABLESYSTEMS OF NEW YORK, INC.
CONTINENTAL CABLEVISION FLORIDA LIMITED, INC.
CONTINENTAL CABLEVISION NORTHEAST
LIMITED, INC.
CONTINENTAL CABLEVISION NORTHERN COOK
COUNTY LIMITED, INC.
CONTINENTAL CABLEVISION OF CALIFORNIA, INC.
CONTINENTAL CABLEVISION OF COOK COUNTY, INC.
CONTINENTAL CABLEVISION OF ILLINOIS, INC.
CONTINENTAL CABLEVISION OF JACKSONVILLE, INC.
CONTINENTAL CABLEVISION OF MANCHESTER, INC.
CONTINENTAL CABLEVISION OF
MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF MICHIGAN, INC.
CONTINENTAL CABLEVISION OF NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF NORTHERN COOK
COUNTY, INC.
CONTINENTAL CABLEVISION OF OHIO, INC.
CONTINENTAL CABLEVISION OF ST. LOUIS
COUNTY, INC.
CONTINENTAL CABLEVISION OF ST. PAUL, INC.
CONTINENTAL CABLEVISION OF SIERRA
VALLEYS, INC.
CONTINENTAL CABLEVISION OF SOUTHERN
MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF VIRGINIA, INC.
CONTINENTAL CABLEVISION OF WESTERN
NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF WILL COUNTY, INC.
CONTINENTAL CABLEVISION SERVICES, INC.
CONTINENTAL CABLEVISION WILL COUNTY
LIMITED, INC.
FRESNO CABLE TV LIMITED
-8-
<PAGE>
NOR CAL CABLEVISION, INC.
POMPANO TELECABLE CORPORATION
SAN JOAQUIN TV SERVICES, INC.
TELCAB COMMUNICATIONS, INC.
By /s/ P. Eric Krauss
-----------------------------
As Treasurer of each of the
foregoing corporations
AMERICAN CABLESYSTEMS OF FLORIDA,
A LIMITED PARTNERSHIP
By AMERICAN CABLESYSTEMS OF FLORIDA, INC.,
General Partner
By /s/ P. Eric Krauss
-----------------------------
Treasurer
AMERICAN CABLESYSTEMS NORTHEAST,
A LIMITED PARTNERSHIP
By AMERICAN CABLESYSTEMS NORTHEAST, INC.,
General Partner
By /s/ P. Eric Krauss
-----------------------------
Treasurer
CONTINENTAL CABLEVISION OF WILL COUNTY,
A LIMITED PARTNERSHIP
By CONTINENTAL CABLEVISION OF WILL
COUNTY, INC., General Partner
By /s/ P. Eric Krauss
-----------------------------
Treasurer
CONTINENTAL CABLEVISION OF NORTHERN
COOK COUNTY, A LIMITED PARTNERSHIP
By CONTINENTAL CABLEVISION OF NORTHERN
COOK COUNTY, INC., General Partner
By /s/ P. Eric Krauss
-----------------------------
Treasurer
-9-
<PAGE>
PRIOR LENDERS WHICH ARE ALSO NEW LENDERS:
THE FIRST NATIONAL BANK THE BANK OF NEW YORK
OF BOSTON
By /s/ By Kalpana Raina
-------------------------- -------------------------
Title: Director Title: Vice President
CANADIAN IMPERIAL BANK MELLON BANK, N.A.
OF COMMERCE
By Reid J. Murray By /s/
-------------------------- -------------------------
Title: Managing Director Title: Vice President
NATIONSBANK OF TEXAS, N.A. THE TORONTO-DOMINION BANK
By /s/ By Frederick B. Hawley
------------------------- -------------------------
Title: Sr. Vice President Title: Mgr. Credit Admin.
THE BANK OF NOVA SCOTIA CHEMICAL BANK, N.A.
By /s/ By /s/
------------------------- -------------------------
Title: Relationship Manager Title: Vice President
CITIBANK, N.A. THE FIRST NATIONAL BANK
OF CHICAGO
By /s/ By /s/
-------------------------- -------------------------
Title: Vice President Title: Asst. Vice President
THE FUJI BANK, LIMITED INDUSTRIAL BANK OF JAPAN
By /s/ By /s/
------------------------- -------------------------
Title: Title:
THE LONG-TERM CREDIT BANK MORGAN GUARANTY TRUST
OF JAPAN, LIMITED, COMPANY OF NEW YORK
NEW YORK BRANCH
By /s/ By Deborah A. Brodheim
-------------------------- -------------------------
Title: Deputy Genl. Manager Title: Vice President
ROYAL BANK OF CANADA SHAWMUT BANK
CONNECTICUT, N.A.
By John P. Page By /s/
-------------------------- -------------------------
Title: Senior Manager Title: Director
-10-
<PAGE>
SOCIETE GENERALE THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By /s/ By Takaya Iida
-------------------------- -------------------------
Title: Vice President Title: Joint Genl. Manager
UNION BANK THE BANK OF CALIFORNIA, N.A.
By Christine P. Ball By /s/
-------------------------- -------------------------
Title: Asst. Vice President Title: Vice President
BANK OF HAWAII BANK OF IRELAND, GRAND
CAYMAN BRANCH
By /s/ By /s/
-------------------------- -------------------------
Title: Asst. Vice President Title: Asst. Vice President
BANQUE NATIONALE DE PARIS BANQUE PARIBAS
By C. Morio By /s/
-------------------------- -------------------------
Title: Sr. Vice President Title: Vice President
By Janice Ho By Phillipe Vuarchez
-------------------------- -------------------------
Title: Vice President Title: Vice President
COMPAGNIE FINANCIERE DE CIC CREDIT LYONNAIS CAYMAN
ET DE L'UNION EUROPEENNE ISLAND BRANCH
By Marcus Edward By Bruce M. Yeager
------------------------- -------------------------
Title: Vice President Title:
By Sean Mounier
--------------------------
Title: Vice President
CRESTAR BANK FIRST BANK NATIONAL
ASSOCIATION
By /s/ By /s/
-------------------------- -------------------------
Title: Vice President Title: Asst. Vice President
FIRST FIDELTY BANK, N.A. THE FIRST NATIONAL BANK
OF MARYLAND
By /s/ By /s/
-------------------------- -------------------------
Title: Sr. Vice President Title: Vice President
-11-
<PAGE>
FUYO GENERAL LEASE KLEINWORT BENSON LIMITED
(U.S.A.), INC.
By /s/ By /s/
-------------------------- -------------------------
Title: Exec. Vice President Title: Director
THE MITSUBISHI TRUST AND SWISS BANK CORPORATION,
BANKING CORPORATION NEW YORK BRANCH
By /s/ By Jane A. Majeski
------------------------- -------------------------
Title: Director Title: Director
By Donald H. Luchardi
-------------------------
Title: Director
-12-
<PAGE>
PRIOR LENDERS WHICH ARE NOT NEW LENDERS:
ATHENA LOAN INVESTORS, L.P. BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ By /s/
-------------------------- -------------------------
Title: President Title: Vice President
BARCLAYS BANK PLC BANK OF AMERICA ILLINOIS
By /s/ By /s/
-------------------------- -------------------------
Title: Associate Title: Vice President
MARYLAND NATIONAL BANK NATIONAL WESTMINSTER BANK USA
By /s/ By /s/
-------------------------- ----------------------------
Title: Title: Asst. Vice President
PNC BANK, N.A. VAN KAMPEN MERRITT
PRIME RATE INCOME TRUST
By /s/ By Jeffrey W. Maillet
-------------------------- Title: Vice President
Title: Vice President
WELLS FARGO BANK, N.A.
By /s/
--------------------------
Title: Asst. Vice President
-13-
<PAGE>
NEW LENDERS WHICH ARE NOT PRIOR LENDERS:
THE BANK OF TOKYO, BANK OF MONTREAL
TRUST COMPANY
By /s/ By Yvonne Bos
-------------------------- -------------------------
Title: Vice President Title: Managing Director
CORESTATES BANK, N.A. THE DAI-ICHI KANGYO BANK,
LIMITED, NEW YORK BRANCH
By /s/ By /s/
-------------------------- -------------------------
Title: Vice President Title: Asst. Vice President
THE DAIWA BANK, LIMITED DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ By R. Matthew Sherer
-------------------------- -------------------------
Title: Vice President Title: Vice President
THE NIPPON CREDIT BANK, LTD. THE SANWA BANK, LIMITED
By /s/ By /s/
-------------------------- -------------------------
Title: Vice President Title: Vice President
THE SUMITOMO TRUST & THE TOKAI BANK, LIMITED
BANKING CO., LTD.,
NEW YORK BRANCH
By Suraj P. Bhatia By Masaharu Muto
-------------------------- -------------------------
Title: Sr. Vice President Title: Deputy Genl.
Manager
-14-
<PAGE>
EXHIBIT 2
---------
AMENDED AND RESTATED CREDIT AGREEMENT
(seperately furnished)
<PAGE>
EXHIBIT 4
---------
PAYOFF AMOUNT
<TABLE>
<CAPTION>
<S> <C>
Principal $710,449,728.99
Interest $ 7,065,490.92
Agent Fee $ 9,722.22
Pricing Option Breakage Costs $ 1,988.57
--------------
Total $717,526,930.70
==============
</TABLE>
<PAGE>
EXHIBIT 4.5
CONTINENTAL CABLEVISION, INC.
10.12% SENIOR NOTE DUE JULY 1, 1999
No. 3 October 17, 1994
$150,000,000
FOR VALUE RECEIVED, the undersigned, CONTINENTAL CABLEVISION, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, or registered assigns, the principal sum of ONE HUNDRED
FIFTY MILLION DOLLARS on July 1, 1999, with interest (computed on the basis of a
360-day year--30-day month) on the unpaid balance thereof at a rate equal to
10.12% per annum. Interest shall be payable semiannually from the date hereof,
on the first day of January and July in each year, commencing January 1, 1995,
until the principal hereof shall have become due and payable. Interest on any
overdue payment (including any overdue prepayment) of principal, any overdue
payment of premium and, to the extent permitted by applicable law, any overdue
payment of interest, shall be payable semiannually as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 12.12% or (ii) the sum of 2% plus the
rate of interest publicly announced by Morgan Guaranty Trust Company of New York
from time to time in New York City as its Prime Rate.
Payments of principal, premium, if any, and interest are to be made at the
main office of Morgan Guaranty Trust Company of New York in New York City or at
such other place as the holder hereof shall designate to the Company in writing,
in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to an Amended and Restated Note Agreement, dated as of October
17, 1994 (herein called the "Agreement"), between the Company and the purchasers
of the Notes and is entitled to the benefits thereof. This Note has been issued
in exchange for the Company's senior promissory note in the original principal
amount of $200,000,000 dated February 15, 1991 and numbered as "No. 2" (the
"1991 Note") (which 1991 Note was issued in exchange for the Company's senior
promissory note dated September 20, 1989 and numbered as "No. 1") and this Note
shall carry the rights to unpaid interest and interest to accrue which were
carried by the 1991 Note, so that neither gain nor loss of interest shall result
from such exchange. As provided in the Agreement, this Note is subject to
prepayment, in whole or from time to time in part, in certain cases without
premium and in other cases with a premium as specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's
<PAGE>
attorney duly authorized in writing, a new Note for a like principal amount will
be issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
The Company agrees to make prepayments of principal on the dates and in the
amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner and with the effect provided in the Agreement.
This Note is intended to be performed in the Commonwealth of Massachusetts
and shall be construed and enforced in accordance with the law of such state.
CONTINENTAL CABLEVISION, INC.
By: /s/ P. Eric Krauss
--------------------------------
Name: P. Eric Krauss
Title: Treasurer
FOR VALUE RECEIVED, the undersigned, jointly and severally, hereby
unconditionally guarantee the payment of principal of and premium, if any, and
interest on, the above Note when due under the terms thereof or of the Amended
and Restated Note Agreement dated as of October 17, 1994, referred to therein,
and hereby waive (i) notice of acceptance hereof and of any defaults of the
Company in the making of any such payment and (ii) any presentment, demand,
protest or notice of any kind. Each of the undersigned hereby agrees that said
Agreement and said Note may be modified, amended and supplemented in any manner,
including the renewal or extension of any kind of said Note, without its
consent, and that no such modification, amendment, supplement, renewal or
extension and no invalidity of the Agreement or of said Note shall release,
affect or impair the liability of the undersigned hereunder.
AMERICAN CABLESYSTEMS CORPORATION
AMERICAN CABLESYSTEMS NORTHEAST, INC.
AMERICAN CABLESYSTEMS OF CALIFORNIA, INC.
AMERICAN CABLESYSTEMS OF FLORIDA, INC.
AMERICAN CABLESYSTEMS OF NEW YORK, INC.
CONTINENTAL CABLEVISION FLORIDA LIMITED, INC.
CONTINENTAL CABLEVISION NORTHEAST LIMITED, INC.
CONTINENTAL CABLEVISION NORTHERN COOK COUNTY LIMITED, INC.
CONTINENTAL CABLEVISION OF CALIFORNIA, INC.
2
<PAGE>
CONTINENTAL CABLEVISION OF COOK COUNTY, INC.
CONTINENTAL CABLEVISION OF ILLINOIS, INC.
CONTINENTAL CABLEVISION OF JACKSONVILLE, INC.
CONTINENTAL CABLEVISION OF MANCHESTER, INC.
CONTINENTAL CABLEVISION OF MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF MICHIGAN, INC.
CONTINENTAL CABLEVISION OF NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF NORTHERN COOK COUNTY, INC.
CONTINENTAL CABLEVISION OF OHIO, INC.
CONTINENTAL CABLEVISION OF ST. LOUIS COUNTY, INC.
CONTINENTAL CABLEVISION OF ST. PAUL, INC.
CONTINENTAL CABLEVISION OF SIERRA VALLEYS, INC.
CONTINENTAL CABLEVISION OF SOUTHERN MASSACHUSETTS, INC.
CONTINENTAL CABLEVISION OF VIRGINIA, INC.
CONTINENTAL CABLEVISION OF WESTERN NEW ENGLAND, INC.
CONTINENTAL CABLEVISION OF WILL COUNTY, INC.
CONTINENTAL CABLEVISION SERVICES, INC.
CONTINENTAL CABLEVISION WILL COUNTY LIMITED, INC.
FRESNO CABLE TV LIMITED
NOR CAL CABLEVISION, INC.
POMPANO TELECABLE CORPORATION
SAN JOAQUIN TV SERVICES, INC.
TELCAB COMMUNICATIONS, INC.
By: /s/ P. Eric Krauss
---------------------------------
As Treasurer of each of the
Guarantors listed above
AMERICAN CABLESYSTEMS OF FLORIDA, A LIMITED PARTNERSHIP
by its sole General Partner,
American Cablesystems of Florida, Inc.
By:/s/ P. Eric Krauss
---------------------------------
Treasurer
3
<PAGE>
AMERICAN CABLESYSTEMS NORTHEAST, A LIMITED PARTNERSHIP
by its sole General Partner,
American Cablesystems Northeast, Inc.
By:/s/ P. Eric Krauss
---------------------------------
Treasurer
CONTINENTAL CABLEVISION OF WILL COUNTY, A LIMITED
PARTNERSHIP, by its sole General Partner,
Continental Cablevision of Will County, Inc.
By:/s/ P. Eric Krauss
---------------------------------
Treasurer
CONTINENTAL CABLEVISION OF NORTHERN COOK COUNTY,
A LIMITED PARTNERSHIP, by its sole General Partner,
Continental Cablevision of Northern Cook County, Inc.
By:/s/ P. Eric Krauss
---------------------------------
Treasurer
4
<PAGE>
================================================================================
CONTINENTAL CABLEVISION, INC.
$150,000,000
10.12% SENIOR NOTES DUE JULY 1, 1999
---------------------------
AMENDED AND RESTATED NOTE AGREEMENT
---------------------------
Dated as of October 17, 1994
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. AUTHORIZATION OF ISSUE OF NOTES IN SUBSTITUTION FOR
1989 NOTES. 1
2. EXCHANGE OF NOTES...................................... 2
3. CONDITIONS OF CLOSING.................................. 2
4. PREPAYMENTS............................................ 4
5. AFFIRMATIVE AND INCORPORATED COVENANTS................. 7
6. NEGATIVE COVENANTS..................................... 10
7. EVENTS OF DEFAULT...................................... 19
8. REPRESENTATIONS, COVENANTS AND WARRANTIES.............. 21
9. REPRESENTATIONS OF THE PURCHASER....................... 25
10. DEFINITIONS............................................ 26
11. MISCELLANEOUS.......................................... 35
PURCHASER SCHEDULE
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT C -- FORM OF GUARANTY
EXHIBIT D -- DESCRIPTION OF INDEBTEDNESS
EXHIBIT E -- DESCRIPTION OF SUBSIDIARIES AND LIST OF RESTRICTED SUBSIDIARIES
</TABLE>
(i)
<PAGE>
CONTINENTAL CABLEVISION, INC.
The Pilot House
Lewis Wharf
Boston, MA 02110
Amended and Restated
As of October 17, 1994
To the Purchaser Identified on the
Purchaser Schedule Attached Hereto
Gentlemen:
The undersigned, CONTINENTAL CABLEVISION, INC. (herein called the
"Company") and you have heretofore entered into a Note Purchase Agreement dated
as of September 20, 1989, as amended (the "1989 Note Purchase Agreement"),
pursuant to which, among other things, (a) the Company authorized the issue of
its senior promissory notes in the aggregate initial principal amount of
$200,000,000, dated the date of issue thereof, maturing July 1, 1999, bearing
interest on the unpaid balance thereof from the date thereof until the principal
thereof shall have become due and payable and on overdue principal, premium and
interest at the rates specified therein (together with each promissory note
delivered in substitution or exchange therefor, herein called the "1989 Notes"),
and (b) the Company sold to you and, subject to the terms and conditions therein
set forth, you purchased from the Company the aggregate principal amount of the
1989 Notes set forth opposite your name in the Purchaser Schedule attached to
the 1989 Note Purchase Agreement at 100% of such aggregate principal amount.
The principal amount of the 1989 Notes outstanding as of the date hereof is
$150,000,000. The Company desires to amend and restate the 1989 Note Purchase
Agreement, among other things, (i) to release security pledged as collateral for
the 1989 Notes, (ii) to amend certain covenants, (iii) to reflect certain
provisions of the Company's Amended and Restated Credit Agreement dated as of
October 1, 1994, and (iv) to issue new promissory notes in substitution for the
1989 Notes. The Company and the Purchasers therefore hereby amend and restate
the 1989 Note Purchase Agreement in its entirety as follows:
1. AUTHORIZATION OF ISSUE OF NOTES IN SUBSTITUTION FOR 1989 NOTES.
--------------------------------------------------------------
In substitution for the 1989 Notes, the Company will authorize the issue of its
senior promissory notes (herein called the "Notes") in the aggregate principal
amount of $150,000,000, to be dated the date of issue thereof, to mature July 1,
1999, to bear interest on the unpaid principal balance thereof from the date
thereof until the principal thereof shall have become due and payable and on
overdue principal, premium and interest at the rates specified therein, and to
be substantially in the form of Exhibit A attached hereto. The term "Notes" as
------- -
used herein shall include each Note delivered pursuant to any provision of this
Agreement and each Note delivered in substitution or exchange for any such Note
pursuant to any such provision.
<PAGE>
2. EXCHANGE OF NOTES. In exchange for the 1989 Notes, the Company
-----------------
will deliver to you, at the offices of Goodwin, Procter & Hoar at Exchange
Place, Boston, Massachusetts, one or more Notes registered in your name,
evidencing the aggregate principal amount of Notes to be purchased by you and in
the denomination or denominations specified with respect to you in the Purchaser
Schedule attached hereto, against payment of the purchase price thereof by
surrender of an equal or greater stated aggregate principal amount of 1989 Notes
on the date of closing, which shall be October 17, 1994 or any other date upon
which the Company and you may mutually agree (herein called the "closing" or the
"date of closing").
3. CONDITIONS OF CLOSING. Your obligation to execute and deliver
---------------------
this Amended and Restated Note Agreement and to tender the 1989 Notes in
exchange for the Notes is subject to the satisfaction, on or before the date of
closing, of the following conditions:
3A. Opinion of Purchasers' Special Counsel. You shall have
--------------------------------------
received from Goodwin, Procter & Hoar, who are acting as special counsel for you
in connection with this transaction, a favorable opinion satisfactory to you as
to: (i) the due organization, existence and good standing of the Company and
certain Guarantors and the existence and good standing of all other Guarantors;
(ii) the due authorization by all requisite corporate action, execution and
delivery and the validity, legally binding character and enforceability of this
Agreement and the Notes; (iii) the absence of any requirement to register the
Notes under the Securities Act; and (iv) such other matters incident to the
matters herein contemplated as you may reasonably request, including the form of
all papers and the validity of all proceedings. In rendering such opinion, such
counsel may rely, as to the matters specified in clause (i) above, upon the
opinion referred to in paragraph 3B. Such opinion shall also state that, based
upon such investigation and inquiry as is deemed relevant and appropriate by
such counsel, the opinion referred to in paragraph 3B is satisfactory in form
and scope to such counsel and, while such investigation and inquiry into the
matters covered by such opinion (other than the matters specified in clauses
(ii) and (iii) above) were not sufficient to enable such counsel independently
to render such opinion, nothing has come to the attention of such counsel which
has caused it to question the legal conclusions expressed in the opinion
referred to in paragraph 3B and such counsel believe that you are justified in
relying on such opinion.
3B. Opinion of Company's Counsel. You shall have received from
----------------------------
Sullivan & Worcester, counsel for the Company and the Guarantors, a favorable
opinion satisfactory to you and substantially in the form of Exhibit B attached
------- -
hereto.
3C. Representations and Warranties; No Default. The
------------------------------------------
representations and warranties contained in paragraph 8 shall be true on and as
of the date of closing, except to the extent of changes caused by the
transactions herein contemplated; there shall exist on the date of closing no
Event of Default or Default; and the Company shall have delivered to you an
Officer's Certificate, dated the date of closing, to both such effects.
2
<PAGE>
3D. Guaranties. You shall have received the Guaranty of the
----------
Guarantors in the form of Exhibit C hereto.
------- -
3E. Release of Pledged Collateral. You (and all other parties
-----------------------------
to the Pledge Agreement) shall have released the Company and its Subsidiaries
from their obligations under the Pledge Agreement dated as of July 3, 1989, as
amended (the "Pledge Agreement") between the Company, certain of its
Subsidiaries, The First National Bank of Boston, as Collateral Agent, you and
others, and in connection therewith, the Pledge Agreement shall have been
terminated and all pledged collateral thereunder shall have been released. In
this regard, you hereby consent to the release of all collateral held pursuant
to, and to the termination of, the Pledge Agreement.
3F. Purchase Permitted By Applicable Laws. The execution and
-------------------------------------
delivery of this Amended and Restated Note Purchase Agreement and the surrender
of the 1989 Notes in exchange for the Notes on the date of closing on the terms
and conditions herein provided shall not violate any applicable law or
governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the Federal
Reserve System) and shall not subject you to any tax (other than any tax based
on your net income), penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and you shall have
received such certificates or other evidence as you may request to establish
compliance with this condition.
3G. Proceedings. All corporate and other proceedings taken or
-----------
to be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to you,
and you shall have received all such counterpart originals or certified or other
copies of such documents as you may reasonably request.
3H. Compliance With Outstanding Indebtedness. The holders of
----------------------------------------
any Indebtedness of the Company or any of the Guarantors containing restrictions
on the right of the Company or any of the Guarantors to enter into this
Agreement or the Guaranty shall have, in each such case, either consented in
writing to, or agreed in writing to amend the related agreements so as to
permit, the transactions contemplated by this Agreement and the Guaranty; and
the Company and the Guarantors shall have delivered to you an Officer's
Certificate to such effect together with such additional evidence as you may
reasonably require showing that such transactions will not contravene any other
agreements under which Indebtedness of the Company or of any Guarantor is
outstanding.
3I. Restated Credit Agreement. The Company shall have entered
-------------------------
into and delivered to you a copy of the Restated Credit Agreement the terms of
which shall be substantially the same as set forth in the term sheet previously
furnished to you and shall be otherwise reasonably satisfactory to you and the
Restated Credit Agreement shall be in full force and effect.
3
<PAGE>
3J. Exchange of 1989 Notes. You shall have received the Notes
----------------------
issued by the Company in exchange for the 1989 Notes.
3K. Payment of Fees. You shall have received payment for
---------------
certain closing fees as previously agreed among you and the Company, and your
counsel, Goodwin, Procter & Hoar, shall have received payment for its reasonable
fees and disbursements for services rendered to you in connection herewith.
3L. Guarantors' Contribution Agreement. The Company shall have
----------------------------------
delivered to you a copy of the guarantors' contribution agreement (the
"Guarantors' Contribution Agreement") among the Guarantors pursuant to which the
Guarantors shall have agreed to make contributions among themselves as a result
of payments by the Guarantors under their respective guaranties of the Company's
obligations hereunder and under the Notes, and such Guarantors' Contribution
Agreement shall be in full force and effect.
4. PREPAYMENTS. The Notes shall be subject to prepayment with
-----------
respect to the required prepayments specified in paragraph 4A and also under the
circumstances set forth in paragraphs 4B, 4C and 4D.
4A. Required Prepayments. Until the Notes shall be paid in
--------------------
full, the Company shall apply to the prepayment of the Notes, without premium,
the sums specified below on January 1 and July 1 in each of the years 1995 to
1999, inclusive, and such principal amounts of the Notes, together with interest
thereon to the prepayment dates, shall become due on such prepayment dates:
<TABLE>
<CAPTION>
Prepayment Date Prepayment Amount
--------------- -----------------
<S> <C>
January 1, 1995 $11,750,000
July 1, 1995 $12,500,000
January 1, 1996 $13,250,000
July 1, 1996 $14,000,000
January 1, 1997 $14,750,000
July 1, 1997 $15,500,000
January 1, 1998 $16,250,000
July 1, 1998 $17,000,000
January 1, 1999 $17,500,000
July 1, 1999 $17,500,000
</TABLE>
Any prepayment made by the Company pursuant to any other provision of this
paragraph 4 shall not reduce or otherwise affect its obligation to make any
prepayment required by this paragraph 4A. Any remaining principal amount of the
Notes, together with interest accrued thereon, shall become due on the maturity
date of the Notes.
4
<PAGE>
4B. Mandatory Prepayments Without Yield-Maintenance Premium.
-------------------------------------------------------
4B(1). In the event that (i) any order, judgment or decree
(the "Order") is entered in any proceedings against the Company or any
Restricted Subsidiary decreeing a split-up of the Company or such
Restricted Subsidiary which requires the divestiture of Substantial Assets
or the divestiture of stock of a Restricted Subsidiary whose assets
represent Substantial Assets, (ii) such Order remains unstayed and in
effect for more than 60 days, and (iii) either (a) within 30 days of the
Order, the Company has not requested the Non-Excluded Holders to waive the
mandatory prepayment requirement of this paragraph 4B(1), which request
shall be accompanied by the Company's proposed business plan to deal with
such split-up or divestiture including pro forma forecasts and other
--- -----
information requested by any Significant Holder (the "Waiver Request"), or
(b) the Company has delivered a Waiver Request to the Non-Excluded Holders
within 30 days of the Order and the Non-Excluded Holders have not waived
the mandatory prepayment requirement of this paragraph 4B(1), exercising
their judgment in good faith, within 30 days of the date of the Waiver
Request, then the Company shall prepay the Notes in whole at 100% of the
principal amount so prepaid plus interest thereon to the prepayment date.
If the Company has delivered the Waiver Request within 30 days of the
Order, then the prepayment date shall be the date 120 days after the date
of the Waiver Request. If the Company has not delivered the Waiver Request
within 30 days of the Order, then the prepayment date shall be the date 60
days after the date of the Order.
4B(2). In the event that (i) the Company is unable to give
the holders of the Notes (x) the certificate described in clause (1) of
paragraph 6K(1) in connection with a redemption of Subordinated Securities
described in paragraph 6K(1), or (y) the certificate described in clause
(a) of paragraph 6K(2) in connection with a cash redemption of 1992
Preferred Stock described in paragraph 6K(2), (ii) the Lenders shall have
consented to such redemption of Subordinated Securities or 1992 Preferred
Stock, as the case may be, (iii) the Non-Excluded Holders shall not have
consented to such redemption of Subordinated Securities or 1992 Preferred
Stock, as the case may be, and (iv) the Company nonetheless desires to
consummate such redemption of Subordinated Securities or 1992 Preferred
Stock, as the case may be, then the Company shall prepay the Notes in whole
at 100% of the principal amount so prepaid plus interest thereon to the
prepayment date, unless, not less than two Business Days prior to the
prepayment date the Non-Excluded Holders shall have delivered to the
Company a waiver of the requirement of such prepayment hereunder. The
prepayment date shall be the date one Business Day before the applicable
Put Option Redemption Date, Control Redemption Date, Preferred Event
Redemption Date or the date of a cash redemption of 1992 Preferred Stock in
connection with a 1992 Preferred Stock Redemption Event (in each case as
defined in paragraph 6K(1)), as the case may be.
4C. Optional Prepayment Without Yield-Maintenance Premium. In the
-----------------------------------------------------
event that (i) the Company shall have requested that section 7.13.2 of the
Restated Credit
5
<PAGE>
Agreement (and/or any related definitions, if appropriate) be amended; (ii) the
Company shall have, by notice (the "Amendment Request") given to each holder of
the Notes, requested that paragraph 6B of this Agreement (and/or any related
definitions, if appropriate) be amended in a manner that is substantially
similar to the requested amendment to the Restated Credit Agreement; (iii)
within 90 days of receipt of the Amendment Request, the Restated Credit
Agreement shall have been amended as requested by the Company; and (iv) within
90 days of receipt of the Amendment Request the Non-Excluded Holders shall not
have consented to the amendment of paragraph 6B requested by the Company, then,
so long as no Event of Default exists as a result of the Company's breach of its
covenant set forth in paragraph 6A, the Company may prepay the Notes in whole,
at the option of the Company, at 100% of the principal amount so prepaid plus
interest thereon to the prepayment date; provided that the prepayment date shall
not be later than 60 days after the date that the Non-Excluded Holders shall
have notified the Company that they do not consent to the amendment to paragraph
6B and that the Company shall give the holder of each Note irrevocable notice of
such prepayment not later than 35 days after the date that the Non-Excluded
Holders shall have notified the Company that they do not consent to the
amendment to paragraph 6B.
Notwithstanding anything to the contrary in paragraph 7A, if the Company
gives an Amendment Request not later than 15 days after the Company first knows
or reasonably should have known that it is not in compliance with the agreement
set forth in paragraph 6B, the Required Holders shall not, as a result of any
such failure to comply with such provision, declare the Notes to be due and
payable at any time prior to the 60th day after the date of the Amendment
Request.
4D. Optional Prepayment With Yield-Maintenance Premium. The Notes
--------------------------------------------------
shall be subject to prepayment, in whole at any time or from time to time in
part (in multiples of $100,000), at the option of the Company, at 100% of the
principal amount so prepaid plus interest thereon to the prepayment date and the
Yield-Maintenance Premium, if any, with respect to the principal amount of each
Note prepaid.
4E. Notice of Optional Prepayment. The Company shall give the holder
-----------------------------
of each Note irrevocable written notice of any prepayment pursuant to paragraph
4D not less than 30 days prior to the prepayment date, specifying such
prepayment date and the principal amount of the Notes, and of the Notes held by
such holder, to be prepaid on such date and stating that such prepayment is to
be made pursuant to paragraph 4D. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the premium, if
any, herein provided, shall become due and payable on such prepayment date.
4F. Partial Payments Pro Rata. Upon any partial prepayment of the
-------------------------
Notes, the principal amount so prepaid shall be allocated to all Notes at the
time outstanding (including, for the purpose of this paragraph 4F only, all
Notes acquired by the Company or
6
<PAGE>
any of its Subsidiaries or Affiliates other than by prepayment in accordance
with the terms of this Agreement) in proportion to the respective outstanding
principal amounts thereof.
4G. Retirement of Notes. The Company shall not, and shall not permit
-------------------
any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or
in part prior to their stated final maturity (other than by prepayment pursuant
to paragraphs 4B, 4C or 4D or upon acceleration of such final maturity pursuant
to paragraph 7A), or purchase or otherwise acquire, directly or indirectly,
Notes held by any holder unless the Company or such Subsidiary or Affiliate
shall have offered to prepay or otherwise retire or purchase or otherwise
acquire, as the case may be, the same proportion of the aggregate principal
amount of Notes held by each other holder of Notes at the time outstanding upon
the same terms and conditions. Notwithstanding the preceding sentence, the
Company shall be entitled to purchase any Notes that it may elect to purchase in
accordance with the procedures described in the definition of "Excluded Notes"
in paragraph 10B. Any Notes so prepaid or otherwise retired or purchased or
otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall
not be deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4F.
5. AFFIRMATIVE COVENANTS.
---------------------
5A. Financial Statements. The Company covenants that it will deliver
--------------------
to each Significant Holder:
(i) Within 60 days after the end of each of the first three quarters
of each fiscal year, a copy of the balance sheet of the Company and its
Subsidiaries as of the end of such quarter and the statements of income and
cash flows of the Company and its Subsidiaries for the portion of the
fiscal year then ended, all in reasonable detail, which statements shall be
consolidated and by group (including the Company and its Restricted
Subsidiaries as such a group), may have been prepared without audit and
shall be certified by a Financial Officer of the Company as presenting
fairly the financial condition and results of operations of the Company and
its Subsidiaries in accordance with generally accepted accounting
principles consistently followed, subject to normal year-end audit
adjustments, it being understood, however, that such financial statements
may not contain all of the explanatory footnotes which accompany the
audited year-end financial statements;
(ii) Within 90 days after the end of each fiscal year, a copy of the
balance sheet and supplemental schedules of the Company and its
Subsidiaries as at the end of such year and the statements of income and
cash flows and supplemental schedules of the Company and its Subsidiaries
for such year, all in reasonable detail, which statements shall be
consolidated and by group (including the Company and its Restricted
Subsidiaries as such a group), shall include explanatory notes thereto and
shall be accompanied by a certificate or report of Deloitte & Touche (or
other independent public accountants of recognized standing selected by the
Company and satisfactory to the Required Holders) to the effect that such
statements present fairly
7
<PAGE>
in all material respects the financial condition and results of operations
of the Company and its Subsidiaries in accordance with generally accepted
accounting principles, applied on a basis consistent with that of prior
years;
(iii) Copies of any request for waiver of the funding standards or
extension of the amortization periods required by sections 303 and 304 of
ERISA (or any successor statute), and the rules and regulations thereunder
or section 412 of the Internal Revenue Code of 1986, as amended (or any
successor statute), and the rules and regulations thereunder (collectively
and as from time to time in effect, the "Code") promptly after any such
request is submitted by any of them to the Department of Labor or the
Internal Revenue Service, as the case may be; promptly after a reportable
event as defined by section 4043 of ERISA occurs as to which the Pension
Benefit Guaranty Corporation (or any successor entity) (the "PBGC") has not
waived the 30-day reporting requirements under its rules and regulations
thereunder, or the Company or any of its Restricted Subsidiaries receives
notice that the PBGC or any Person which is a member of the controlled
group or under common control with the Company (within the meaning of
sections 414(b) or 414(c) of the Code or section 4001(b)(1) of ERISA) (a
"Control Group Person") has instituted or intends to institute proceedings
to terminate any pension plan subject to Title IV of ERISA established or
maintained, or to which contributions are made, by the Company or any of
its Restricted Subsidiaries or any Control Group Person (a "Plan"), or
prior to the Plan administrator's terminating a Plan pursuant to section
4041 of ERISA, a copy of any notice of such reportable event which is
required to be filed with the PBGC, or any notice delivered by the PBGC
evidencing its institution of such proceedings or its intent to institute
such proceedings, or any notice to the PBGC that a Plan is to be
terminated, as the case may be; and as soon as available and in any event
within nine months after the end of each fiscal year, a calculation of the
current value of the benefits guaranteed under Title IV of ERISA of each
Plan and of the current value of each such Plan's assets allocable to such
benefits as at the end of such fiscal year (or as at the end of the most
recently completed Plan year if it is not concurrent with such fiscal
year);
(iv) Promptly upon their becoming available, copies of all financial
statements sent by the Company or any of its Subsidiaries to shareholders
(other than the Company or any of its Subsidiaries) or to the Lenders and
all reports, notices and proxy statements sent by the Company to its
shareholders or to the Lenders, provided that no such information need be
delivered pursuant to this clause (iv) to the extent that it has been
delivered pursuant to clauses (i), (ii) or (iii) above; and all regular and
periodic reports (without exhibits) and effective registration statements
(without exhibits) filed by the Company with any securities exchange or
with the Securities and Exchange Commission or its successor, and all press
releases and other statements made available generally by the Company to
the public concerning material developments in the business of the Company
and its Subsidiaries;
8
<PAGE>
(v) Immediately upon becoming aware that the holder of any evidence
of Indebtedness or other security of the Company or any of its Restricted
Subsidiaries has given notice or taken any other action with respect to a
claimed default, a written notice specifying the notice given or action
taken by such holder and the nature of the claimed default and what action
the Company has taken, is taking or proposes to take with respect thereto;
(vi) Promptly upon any of the Company's Financial Officers obtaining
knowledge thereof, notice of (A) the receipt by the Company or any of its
Restricted Subsidiaries of notice from any federal, state or local
governmental authority of the institution of proceedings to revoke,
terminate or suspend any cable television franchise now or hereafter held
by the Company or any of its Restricted Subsidiaries, and (B) any
abandonment or expiration of a cable television franchise now or hereafter
held by the Company or any of its Restricted Subsidiaries;
(vii) Promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary; provided, however, that with
respect to Unrestricted Subsidiaries, no such report need be delivered
unless such report (1) identifies a material adverse change in an
Unrestricted Subsidiary's financial condition, business or assets or (2)
identifies significant inadequacies in or recommends significant changes
with respect to an Unrestricted Subsidiary's financial controls;
(viii) Within 60 days after the end of the first three fiscal
quarters of each fiscal year and within 90 days after the end of each
fiscal year, a schedule of intercompany Indebtedness among the Company and
its Restricted Subsidiaries;
(ix) Within 60 days after the end of the first three fiscal quarters
of each fiscal year and within 90 days after the end of each fiscal year, a
statement of the Company as to the amount of any cash payment made by the
Company or any Restricted Subsidiary during the immediately preceding
fiscal quarter in respect of any amount for which the Company has
established regulatory reserves; and
(x) With reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate (1) demonstrating (with computations in reasonable detail)
compliance by the Company and its Subsidiaries with the provisions of paragraphs
6A, 6B, 6C(3), 6C(4), 6F(2), 6F(6), 6F(7) and 6G(1) and (2) stating that there
exists no Event of Default or Default, or, if any Event of Default or Default
exists, specifying the nature and period of existence thereof and what action
the Company proposes to take with respect thereto. Together with each delivery
of financial statements required by clause (ii) above, the Company will deliver
to each Significant Holder
9
<PAGE>
a certificate of such accountants stating that, in making the audit necessary to
the certification of such financial statements, they have obtained no knowledge
of any Event of Default or Default, or, if they have obtained knowledge of any
Event of Default or Default, specifying the nature and period of existence
thereof. Such accountants, however, shall not be liable to anyone by reason of
their failure to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards. The Company also covenants that forthwith
upon a Financial Officer of the Company obtaining knowledge of an Event of
Default or Default, it will deliver to each Significant Holder an Officer's
Certificate specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto.
5B. Inspection of Property. The Company covenants that it will
----------------------
permit any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine the corporate books and financial
records of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of any of such
corporations with a Financial Officer of the Company and its independent public
accountants, all at such reasonable times and as often as such Significant
Holder may reasonably request.
5C. Covenant to Secure Note Equally. The Company covenants that, if
-------------------------------
it or any Restricted Subsidiary shall create or assume any Lien upon any of its
property or assets, whether now owned or hereafter acquired, other than
Permitted Liens (unless prior written consent to the creation or assumption
thereof shall have been obtained pursuant to paragraph 11C), it will make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured so
long as any such other Indebtedness shall be so secured.
5D. [Intentionally Omitted]
5E. [Intentionally Omitted]
5F. Further Guarantees. The Company shall from time to time cause
------------------
any of the Company's present or future wholly-owned Restricted Subsidiaries
(within thirty (30) days after any such future wholly-owned Restricted
Subsidiary becomes a wholly-owned Restricted Subsidiary) that are not Guarantors
to guarantee the payment and performance of the obligations of the Company under
this Agreement (the "Obligations") on the terms set forth in Exhibit C hereto.
------- -
6. NEGATIVE COVENANTS.
------------------
6A. Ratio of Consolidated Total Debt to Consolidated Operating
----------------------------------------------------------
Income. The Company covenants that on the last day of each fiscal quarter of
the Company, commencing with the fiscal quarter ending September 30, 1994,
Consolidated Total Debt
10
<PAGE>
outstanding at such date less contingent obligations in respect of letters of
credit shall not exceed 775% of four (4) times Consolidated Operating Income for
such fiscal quarter.
6B. Ratio of Consolidated Operating Cash Flow to Pro Forma Interest
---------------------------------------------------------------
Payments. The Company covenants that on the last day of each fiscal quarter of
- --------
the Company, commencing with the fiscal quarter ending September 30, 1994, four
times Consolidated Operating Cash Flow for such fiscal quarter shall exceed 115%
of Pro Forma Interest Payments for the four consecutive fiscal quarters of the
Company commencing immediately after such date.
6C. Sales of Assets; etc. Neither the Company nor any of its
--------------------
Restricted Subsidiaries will sell any of its assets (including Investments in
Subsidiaries), and no Restricted Subsidiary will issue any shares of its capital
stock, or rights or options to acquire such stock, to any Person other than the
Company or any other Restricted Subsidiary, except the following:
6C(1). Normal retirements and replacements of property and
equipment in the ordinary course of business.
6C(2). Sales of Investments in Unrestricted Subsidiaries
(including, without limitation, the Investment Subsidiaries).
6C(3). Sales of properties or assets (including Investments in
Restricted Subsidiaries) by the Company or any of its Restricted
Subsidiaries for a cash consideration representing the fair value thereof
at the time of such sale (as determined in good faith by the board of
directors of the Company or the executive committee thereof in the case of
any transaction involving consideration exceeding $50,000,000); provided,
--------
however, that immediately after giving effect to any such sale
-------
(i) no Default shall exist;
(ii) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (iv) below, for
all assets sold pursuant to this paragraph 6C(3) by the Company and
its Restricted Subsidiaries during the immediately preceding twelve-
month period up to and including the date of such sale (other than
sales that were or would otherwise have been permitted by the other
provisions of this paragraph 6C), together with all Restricted
Subsidiaries released during such period in accordance with paragraph
6D and Operating Asset exchange shortfalls during such period deemed
asset sales pursuant to paragraph 6C(4), shall not exceed 15% of
Consolidated Operating Income;
(iii) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (v) below and
netted
11
<PAGE>
against certain amounts in the event of a Qualifying Reinvestment as
provided in such clause (v), for all assets sold pursuant to this
paragraph 6C(3) by the Company and its Restricted Subsidiaries during
the period commencing on the later of June 30, 1994 and the date which
is five years prior to the date of such sale and ending on the date of
such sale (other than sales that were or would otherwise have been
permitted by the other provisions of this paragraph 6C), together with
all Restricted Subsidiaries released during such period in accordance
with paragraph 6D and Operating Asset exchange shortfalls during such
period deemed asset sales pursuant to paragraph 6C(4), shall not
exceed 30% of Consolidated Operating Income;
(iv) For purposes of calculating the foregoing clause (ii)
and clause (b) of paragraph 6C(4), the percentage accounted for by
each asset so sold or Restricted Subsidiary so released is that
percentage of Consolidated Operating Income in the most recently
completed period of four fiscal quarters for which financial
statements have been (or are required to have been) furnished in
accordance with paragraph 5A(i) or 5A(ii) preceding such sale or
release which was contributed by such asset or released Restricted
Subsidiary; and
(v) For purposes of calculating the foregoing clause (iii):
(a) for each group of Operating Assets acquired in a
Qualifying Reinvestment, the percentage of Consolidated
Operating Income contributed by such Operating Assets shall
be determined by measuring (1) the Consolidated Operating
Income of such Operating Assets (on a pro forma basis to
reflect such acquisition) during the most recently completed
period of four fiscal quarters for which financial statements
have been (or are required to have been) furnished in
accordance with paragraph 5A(i) or 5A(ii) prior to the
acquisition of such Operating Assets (2) against the
Consolidated Operating Income of the Company and its
Restricted Subsidiaries during such period; and
(b) the aggregate percentage of Consolidated Operating
Income for all assets so sold or Restricted Subsidiaries so
released equals (x) the sum of the historical percentages
calculated in accordance with the foregoing clause (iv) in
respect of assets sold or Restricted Subsidiaries released
during the applicable five-year (or shorter) period, minus
-----
(y) the sum of the historical percentages calculated in
accordance with the foregoing clause (a) in respect of
Operating Assets acquired in a Qualifying Reinvestment during
such five-year (or shorter) period.
6C(4). Exchanges of Operating Assets of the Company or any of its
Restricted Subsidiaries for Operating Assets of another Person; provided,
--------
however, that immediately after giving effect to any such exchange,
-------
12
<PAGE>
(a) no Default shall exist; and
(b) the sum of the respective contributions to Consolidated
Operating Income, calculated in accordance with clause (iv) of
paragraph 6C(3), for all Operating Assets so exchanged by the
Company and its Restricted Subsidiaries during the immediately
preceding twelve-month period up to and including the date of such
exchange (other than transactions that were or would otherwise
have been permitted by the other provisions of this paragraph 6C),
shall not exceed 15% of Consolidated Operating Income.
In the event that any Operating Assets acquired by the Company and its
Restricted Subsidiaries in any such exchange contribute less Consolidated
Operating Income (on a pro forma basis) than the Operating Assets
transferred by the Company and its Restricted Subsidiaries in such exchange
(in each case calculated in accordance with clause (iv) of paragraph
6C(3)), the amount of such shortfall in Consolidated Operating Income shall
be considered an asset sale under paragraph 6C(3). In connection with an
exchange of Operating Assets permitted by this paragraph 6C(4), the Company
and its Restricted Subsidiaries, on the one hand, and the other Person
party to such exchange, on the other hand, may receive or give cash and
other consideration to the extent necessary to reflect differences in the
values of the Operating Assets being exchanged.
6C(5). So long as immediately after giving effect thereto there
shall exist no Default, transfers of assets by a Restricted Subsidiary to
any other Restricted Subsidiary.
6D. Release of Restricted Subsidiaries. The Company may by ten
----------------------------------
Business Days prior written notice to each Significant Holder designate any
Restricted Subsidiary to be released as a Guarantor (if applicable) and as a
Restricted Subsidiary; provided, however, that (i) such Restricted Subsidiary
-------- -------
shall have been released as a "Guarantor" (if applicable) and as a "Restricted
Subsidiary" (as such terms are defined in the Restated Credit Agreement), in
accordance with the provisions of the Restated Credit Agreement, (ii) following
the designation of a Restricted Subsidiary to be an Unrestricted Subsidiary, not
later than the next date on which the Company is obligated to deliver financial
statements pursuant to paragraph 5A(i) or (ii), the Company shall deliver to
each holder of the Notes an Officer's Certificate stating that on a pro forma
basis, after giving effect to the release of such Restricted Subsidiary, the
Company will be in compliance with the provisions of paragraphs 6A and 6B for
the next four fiscal quarters of the Company and (iii) immediately after giving
effect to any such release, no Default shall exist. If the stock, partnership
interest or other beneficial interest of a Guarantor is sold or exchanged in
accordance with paragraph 6C so that it is no longer a Subsidiary of the
Company, or if a Guarantor is released as a Restricted Subsidiary in accordance
with this paragraph 6D, such Guarantor shall be automatically released from any
further obligations under the Guaranty without the necessity of any further
action on the part of the Company, such Guarantor or the holders of the Notes.
13
<PAGE>
6E. Mergers. Neither the Company nor any of its Restricted
-------
Subsidiaries will enter into any merger or consolidation, except the following:
6E(1). Any Restricted Subsidiary may consolidate with or merge
into the Company or any other Restricted Subsidiary if the Company or such
other Restricted Subsidiary, as the case may be, shall be the surviving
corporation.
6E(2). Any corporation or partnership other than the Company or a
Restricted Subsidiary may merge into the Company or a Restricted Subsidiary
or any Restricted Subsidiary may consolidate with or merge into any other
corporation or partnership, if (i) (A) the Company or a Restricted
Subsidiary, as the case may be, shall be the surviving corporation or
partnership or (B) the surviving corporation or partnership is designated
as a Restricted Subsidiary and becomes a party to the Guaranty and (ii)
prior to such merger or consolidation, such other corporation or
partnership had conducted its business so as to derive its revenues from
the cable television business and/or telecommunications business and
related activities and (iii) immediately after giving effect to such
merger, no Default shall exist.
6E(3). Any Restricted Subsidiary may consolidate with or merge
into any other Person in connection with the sale of the assets of such
Restricted Subsidiary to the extent permitted by paragraph 6C.
6F. Indebtedness. No Restricted Subsidiary will create, incur,
------------
suffer or permit to exist, or assume or guarantee, either directly or
indirectly, or otherwise become liable with respect to, any Indebtedness, except
the following:
6F(1). The Credit Obligations (as such term is defined in the
Restated Credit Agreement).
6F(2). Unsecured Indebtedness for the deferred purchase price of
property in aggregate principal amount not exceeding $50,000,000 at any one
time outstanding and Indebtedness secured by purchase money security
interests of the type specified in clause (e) of the definition of
Permitted Liens.
6F(3). Indebtedness of a Restricted Subsidiary to the Company or
another Restricted Subsidiary.
6F(4). Indebtedness of the Restricted Subsidiaries as of the
Amendment Date described in Part C of Exhibit D.
------- -
6F(5). Indebtedness of a Restricted Subsidiary under the Guaranty.
6F(6). Guaranties of Indebtedness of other Persons in an aggregate
principal amount not to exceed $200,000,000 at any time outstanding.
14
<PAGE>
6F(7). Letters of credit issued on behalf of the Restricted
Subsidiaries in an aggregate amount not to exceed $50,000,000 at any time
outstanding.
6G. Restricted Payments and Payments in Respect of Subordinated Debt.
----------------------------------------------------------------
6G(1). Neither the Company nor any of its Restricted Subsidiaries
will (1) pay any dividend on, or make any distribution in respect of, any
shares of any class of the Company's capital stock (except dividends or
distributions payable in shares of its capital stock not constituting
Indebtedness), or (2) purchase, redeem or otherwise acquire for value any
shares of any class of the Company's capital stock (or any rights,
warrants, or options to purchase any class of the Company's capital stock,
except if such rights, warrants or options are held by an employee of the
Company and such purchase, redemption or acquisition occurs in connection
with the termination of such employee's employment by the Company) (any
payment under (1) or (2) above being herein called a "Restricted Payment"):
(i) if a Default shall have occurred and be continuing at the time
of such proposed Restricted Payment or shall occur as a consequence
thereof; or
(ii) if the aggregate of all Restricted Payments made from June
30, 1994 through and including the date on which such Restricted
Payment is made, would exceed the sum of (a) $500,000,000, plus (b) the
----
excess, if any, of (x) Consolidated Operating Income from June 30,
1994 through the Company's fiscal quarter most recently ended for
which financial statements have been (or are required to have been)
furnished in accordance with paragraph 5A(i) or 5A(ii), taken as a
single accounting period, over (y) 120% of Consolidated Interest
Expense for such period, taken as a single accounting period, plus (c)
----
the aggregate net proceeds received by the Company since June 30, 1994
from the issuance or sale of any capital stock not constituting
Indebtedness of the Company;
provided, however, that until the Company has received cash or Operating
-------- -------
Assets having an aggregate value (after deducting underwriting discounts,
if any, and other expenses of the Company specifically related to such
sale) of at least $100,000,000 from the sale of capital stock after June
30, 1994, the Company shall not pay cash dividends on its capital stock
outstanding as of the Amendment Date.
6G(2). So long as immediately after giving effect thereto no Event
of Default exists, the Company and its Restricted Subsidiaries may make
payments of principal of and premium, if any, and interest on, and may
redeem, defease or otherwise acquire for value, Subordinated Debt
(including, without limitation, the Subordinated Securities).
15
<PAGE>
6H. Liens. Neither the Company nor any Restricted Subsidiary will
-----
mortgage, pledge or otherwise encumber any of its property whether now
owned or hereafter acquired, or permit any Lien to exist thereon, except
Permitted Liens.
6I. Investments. Neither the Company nor any of its Restricted
-----------
Subsidiaries shall have outstanding or acquire or commit itself to acquire
or hold any Investment except the following:
(1) Investments in (i) negotiable certificates of deposit, time
deposits, short-term obligations and bankers' acceptances issued
by any Lender or any United States bank or trust company in each
case having capital and surplus and undivided profits aggregating
at least $100,000,000 and rated Prime-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Corporation; (ii)
short-term obligations issued by corporations rated Prime-1 by
Moody's Investors Service, Inc. or A-1 by Standard & Poor's
Corporation; (iii) any direct obligation of the United States of
America or any agency or instrumentality thereof (a) which has a
remaining maturity at the time of purchase not more than two
years or (b) which is subject to a repurchase agreement with one
of the Lenders, banks or trust companies referred to in clause
(i) hereof exercisable within two years from the time of
purchase; and (iv) repurchase agreements with any of the banks or
trust companies referred to in clause (i) hereof; or
(2) Investments in Restricted Subsidiaries or in the Company; or
(3) Investments evidenced by deposits with and advances to suppliers
of goods and services in the ordinary course of business; or
(4) Investments in any Person who is an employee of the Company or
any of its Restricted Subsidiaries (other than an employee who is
an Affiliate); provided, however, that the aggregate outstanding
-----------------
amount of such Investments shall not at any time exceed
$1,000,000; or
(5) Investments in Affiliates (other than the Company and its
Restricted Subsidiaries), including the acquisition of ownership
interests in Affiliates; provided, however, that, immediately
-------- -------
after any such Investment is made no Default exists; and
provided, further, that any transfer of assets (other than cash)
-------- -------
shall be permitted under this paragraph only to the extent
permitted by the provisions of paragraph 6C.
6J. Transactions with Affiliates. Neither the Company nor any of its
----------------------------
Restricted Subsidiaries shall effect any transaction with any Affiliate
(other than the Company and its Restricted Subsidiaries) on a basis less
favorable to the Company or
16
<PAGE>
its Restricted Subsidiary in question than would be the case if such
transaction had been effected with a Person that was not an Affiliate; provided,
however, that the foregoing prohibition shall not extend to the following:
(1) contracts of employment and compensation for services rendered
which have been duly authorized by a disinterested majority of
the Company's board of directors or of the compensation committee
thereof;
(2) any transactions otherwise permitted by paragraphs 6F and 6I of
this Agreement;
(3) the provision of goods and services to any Unrestricted
Subsidiary if such goods and services are billed to such
Unrestricted Subsidiary on the basis of the provider's cost
therefor;
(4) any guarantee of the obligations of any Affiliate so long as such
obligations contain terms which, in all material respects, are no
less favorable to such Affiliate than those terms which could, at
the time, be obtained in comparable transactions;
(5) the provision of management services to Affiliates; or
(6) any other transaction with an Affiliate of the Company (other
than a Person owning beneficially or of record 5% or more of the
Company's common stock) or any Restricted Subsidiary, if such
transaction (a) is not otherwise prohibited by any other
provision of this Agreement and (b) a disinterested majority of
the Company's board of directors shall have determined that such
transaction is in the best interests of the Company or such
Restricted Subsidiary, such determination to be evidenced by a
resolution of the Company's board of directors (copies of which,
certified by the Secretary or an Assistant Secretary of the
Company, shall be delivered promptly to each holder of the Notes
at the time outstanding).
6K(1). Notice of Certain Redemptions of Subordinated Securities.
--------------------------------------------------------
Prior to making any payments of principal, premium (if any) and interest on
any of the Subordinated Securities in connection with (i) Put Option
Redemption Dates (as defined in the Indentures), (ii) Control Redemption
Dates (as defined in the 1989 Indentures), or (iii) Preferred Event
Redemption Dates (as defined in the 1992 Indentures), the Company shall
give notice to each holder of the Notes of each proposed payment, together
with the certificate referred to below, no later than the date specified in
the applicable paragraph below:
(a) 20 days prior to the date that the Company shall give notice of a
proposed Put Option Stock Repurchase or Put Option Borrowing
(each
17
<PAGE>
as defined in the Indentures) or request the trustee under
the Indentures to give such a notice;
(b) the later of (a) 20 days prior to the occurrence of any
transaction which would constitute a Change of Control Event (as
defined in the 1989 Indentures) or (b) one day after the first
date that the Company knows or reasonably should have known of
any such transaction or proposed transaction; or
(c) five Banking Days (as defined in the Restated Credit Agreement)
prior to an irrevocable election by the Company to make a
Preferred Stock Redemption Payment (as defined in the 1992
Indentures).
Together with the delivery of notice required by this paragraph 6K(1), the
Company shall give each holder of the Notes a certificate executed by a
Financial Officer either (1)(i) stating that no Default exists and that
either (x) the Company has adequate available funds on hand which are
dedicated to pay the Redemption Amount or (y) assuming that the Company
were to incur additional Indebtedness in an amount equal to the portion of
the Redemption Amount which will be financed through additional
Indebtedness to be incurred by the Company and its Restricted Subsidiaries,
no Default would exist after giving effect to the incurrence of such
additional Indebtedness, and (ii) including calculations demonstrating
compliance with paragraph 6A on a pro forma basis after giving effect to
the redemption of Subordinated Debt in a principal amount equal to the
Redemption Amount and, if applicable, the incurrence of such additional
Indebtedness, or (2) setting forth the nature of the present Default or the
Default anticipated upon payment of the Redemption Amount.
6K(2). Notice of Certain Cash Redemptions of 1992 Preferred Stock.
----------------------------------------------------------
Prior to making any cash redemption of the 1992 Preferred Stock in
connection with a 1992 Preferred Stock Redemption Event, the Company shall
give notice to each holder of the Notes thereof no later than five Banking
Days (as defined in the Restated Credit Agreement), prior to the Company's
irrevocable election to make such a cash redemption. Together with the
delivery of such notice, the Company shall give each holder of the Notes a
certificate executed by a Financial Officer either (a)(i) stating that no
Default exists and that either (X) the Company has adequate available funds
on hand which are dedicated to satisfy such cash redemption or (Y) assuming
that the Company were to incur additional Indebtedness in an amount equal
to the portion of such cash redemption which will be financed through
additional Indebtedness to be incurred by the Company and its Restricted
Subsidiaries, no Default would exist after giving effect to the incurrence
of such additional Indebtedness, and (ii) including calculations
demonstrating compliance with paragraph 6A on a pro forma basis after
giving effect to such cash redemption and, if applicable, the incurrence of
such additional Indebtedness, or (b) setting forth the nature of the
present Default or the Default anticipated upon payment of such cash
redemption.
18
<PAGE>
7. EVENTS OF DEFAULT.
-----------------
7A. Acceleration. If any of the following events shall occur for any
------------
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of or
premium on any Note when the same shall become due, either by the terms
thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than 5 days after the date due; or
(iii) the Company or any Restricted Subsidiary defaults in any
payment of principal of or interest on any Indebtedness in an aggregate
outstanding principal amount exceeding $25,000,000 beyond any period of
grace provided with respect thereto, or the Company or any Restricted
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such Indebtedness is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause, or to permit the holder or holders of such Indebtedness (or a
trustee on behalf of such holder or holders) to cause, such Indebtedness to
become due prior to any stated maturity; or
(iv) any representation or warranty made by the Company herein or in
any writing furnished in connection with or pursuant to this Agreement
shall be false in any material respect on the date as of which made; or
(v) the Company fails to perform or observe any agreement contained
in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement,
term or condition contained herein and such failure shall not be remedied
within 15 days after the earlier of (a) notice thereof from the Required
Holders to the Company, or (b) any of the Company's officers or directors
obtains knowledge of any such failure; or
(vii) the Company or any Restricted Subsidiary makes an assignment
for the benefit of creditors or is generally not paying its debts as such
debts become due; or
(viii) any decree or order for relief in respect of the Company or
any Restricted Subsidiary is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (herein
called the "Bankruptcy Law"), of any jurisdiction; or
19
<PAGE>
(ix) the Company or any Restricted Subsidiary petitions or applies to
any tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of the
Company or any Restricted Subsidiary, or of any substantial part of the
assets of the Company or any Restricted Subsidiary, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Restricted Subsidiary) relating to the Company or any
Restricted Subsidiary under the Bankruptcy Law of any other jurisdiction;
or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Restricted Subsidiary
and the Company or such Restricted Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein, or an order,
judgment or decree is entered appointing any such trustee, receiver,
custodian, liquidator or similar official, or approving the petition in any
such proceedings, and such order, judgment or decree remains unstayed and
in effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) a final judgment in an amount in excess of $1,000,000 is
rendered against the Company or any Restricted Subsidiary and, within 60
days after entry thereof, such judgment is not discharged or execution
thereof stayed pending appeal, or within 60 days after the expiration of
any such stay, such judgment is not discharged; or
(xiii) the Company shall (a) fail to deliver to the holders of the
Notes each notice required by paragraph 6K(1) or 6K(2) and the certificate
described in clause (1) of paragraph 6K(1) or clause (a) of paragraph
6K(2), as the case may be, within the specified period in connection with
the applicable redemption, or (b) deliver to the holders of the Notes the
certificate described in clause (2) of paragraph 6K(1) or clause (b) of
paragraph 6K(2);
then (a) if such event is an Event of Default specified in clause (viii), (ix)
or (x) of this paragraph 7A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, and (b) if
such event is any other Event of Default, the Required Holder(s) may (except as
provided in paragraph 4C) at its or their option, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall thereupon be
and become, immediately due and payable together with interest accrued thereon
and (in any case referred to in clauses (x), (y) and (z) below) together with
the Yield-Maintenance Premium, if any, with respect to each Note, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company, provided that the Yield-Maintenance Premium, if
any, with respect to each Note shall be due and payable upon such
20
<PAGE>
declaration only if (x) such event is an Event of Default specified in any of
clauses (i) to (vi), inclusive, of this paragraph 7A, (y) the Required Holder(s)
shall have given to the Company, at least 10 Business Days before such
declaration, written notice stating its or their intention so to declare the
Notes to be immediately due and payable and identifying one or more such Events
of Default whose occurrence on or before the date of such notice permits such
declaration and (z) one or more of the Events of Default so identified shall be
continuing at the time of such declaration.
7B. Other Remedies. If any Event of Default or Default shall occur
--------------
and be continuing, the holder of any Note may proceed to protect and enforce its
rights under this Agreement and such Note by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of any Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
-----------------------------------------
covenants and warrants:
8A. Organization, Qualification and Standing. The Company is a
----------------------------------------
corporation duly organized and existing in good standing under the laws of the
State of Delaware, each Subsidiary is duly organized and existing in good
standing under the laws of the jurisdiction in which it is organized, and the
Company has and each Restricted Subsidiary has the corporate or partnership, as
the case may be, power to own its respective property and to carry on its
respective business as now being conducted. The Company and each Restricted
Subsidiary is in good standing as a foreign corporation or partnership, as the
case may be, in all places where the failure to be so qualified is likely to
result in any material adverse effect on the business or assets or on the
condition, financial or otherwise, of the Company and its Restricted
Subsidiaries taken as a whole. The Company and its Subsidiaries own the
outstanding capital stock, equity, partnership interest or other beneficial
interest of each Subsidiary shown as owned by them respectively, in Exhibit E,
------- -
in each case free of any mortgage, pledge, lien, charge, encumbrance or option,
except as set forth therein, and all of such stock, equity, partnership interest
or other beneficial interest is validly issued and outstanding, fully paid and
nonassessable except as set forth in Exhibit E. There are no outstanding
------- -
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition by third parties from any of the Company's Subsidiaries of any
shares of its capital stock, equity, partnership interest or other beneficial
interest.
8B. Financial Statements. The Company has furnished you with the
--------------------
following financial statements, identified by a Financial Officer of the
Company: (i) a consolidated balance sheet of the Company and its Subsidiaries
as at December 31 in each of the years 1992 to 1993, inclusive, and a
consolidated statement of income and statement of
21
<PAGE>
changes in financial position of the Company and its Subsidiaries for each such
year all certified by Deloitte & Touche; and (ii) a consolidated balance sheet
of the Company and its Subsidiaries as at June 30 in each of the years 1994 and
1993 and a consolidated statement of income and statement of cash flows for the
six-month period ended on each such date, prepared by the Company. Such
financial statements (including any related schedules and/or notes) are true and
correct in all material respects (subject, as to interim statements, to changes
resulting from audits and year-end adjustments), have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved and show all liabilities, direct and contingent,
of the Company and its Subsidiaries required to be shown in accordance with such
principles. The balance sheets fairly present the condition of the Company and
its Subsidiaries as at the dates thereof, and the statements of cash flows
fairly present the results of the operations of the Company and its Subsidiaries
for the periods indicated. There has been no material adverse change in the
business, condition or operations (financial or otherwise, including revocation,
amendment or termination, whether actual or threatened, of franchises or
licenses material to the Company's or a Restricted Subsidiary's business or
operations) of the Company and its Subsidiaries taken as a whole since June 30,
1994.
8C. Actions Pending. There is no action, suit, investigation or
---------------
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Restricted Subsidiaries, or any properties or rights of
the Company or any of its Restricted Subsidiaries, by or before any court,
arbitrator or administrative or governmental body which might result in any
material adverse change in the business, condition or operations of the Company
and its Restricted Subsidiaries taken as a whole or which seeks to enjoin the
consummation of any of the transactions contemplated by this Agreement. No
judgment, decree or order of any court, arbitrator or administrative or
governmental body has been issued against the Company or any of its Subsidiaries
which has, or might result in a material adverse change in the business,
condition or operations of the Company and its Restricted Subsidiaries taken as
a whole.
8D. Outstanding Indebtedness. All Indebtedness of the Company and
------------------------
its Restricted Subsidiaries is described in Exhibit D. There exists no default
------- -
under the provisions of any instrument evidencing such Indebtedness or of any
agreement relating thereto.
8E. Title to Properties. The Company and each of its Restricted
-------------------
Subsidiaries has good and indefeasible title to its respective real properties
(other than properties which it leases) and good title to all of its other
respective properties and assets, including the properties and assets reflected
in the balance sheet as at December 31, 1993 referred to in paragraph 8B (other
than properties and assets disposed of in the ordinary course of business),
subject to no Lien of any kind except Permitted Liens and Liens under the Pledge
Agreement which, as described in paragraph 3E, will be released on the Amendment
Date. All leases necessary in any material respect for the conduct of the
respective businesses of the Company and its Restricted Subsidiaries are valid
and subsisting and are in full force and effect.
22
<PAGE>
8F. Taxes. The Company and each of its Restricted Subsidiaries has
-----
filed all Federal, state and other income tax returns which, to the best
knowledge of the Financial Officers of the Company, are required to be filed,
and each has paid all taxes as shown on such returns and on all assessments
received by it to the extent that such taxes have become due, except such taxes
as are being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally accepted
accounting principles.
8G. Authorization, Conflicting Agreements and Other Matters. The
-------------------------------------------------------
execution, delivery and performance (i) by the Company of this Agreement and the
Notes, and (ii) by each Guarantor of the Guaranty have been duly authorized by
all necessary corporate action on the part of the Company and each Guarantor.
Neither the Company nor any of its Restricted Subsidiaries is a party to any
contract or agreement or subject to any charter or other corporate restriction
which materially and adversely affects its business, property or assets, or
financial condition. Neither the execution nor delivery of this Agreement, the
Guaranty or the Notes, nor the offering, issuance and sale of the Notes, nor
fulfillment of nor compliance with the terms and provisions hereof, of the
Guaranty and of the Notes will conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result in
any violation of, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Restricted Subsidiaries
pursuant to, the charter, by-laws or partnership agreement, as the case may be,
of the Company or any of its Restricted Subsidiaries, any award of any
arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any of its Restricted Subsidiaries is subject. Neither the
Company nor any of its Restricted Subsidiaries is a party to, or otherwise
subject to any provision contained in, any instrument evidencing Indebtedness of
the Company or such Restricted Subsidiary, any agreement relating thereto or any
other contract or agreement (including its charter or partnership agreement, as
the case may be) which limits the amount of, or otherwise imposes restrictions
on the incurring of, Indebtedness of the Company of the type to be evidenced by
the Notes except as set forth in the agreements listed in Exhibit D attached
------- -
hereto. Neither the Company nor any Restricted Subsidiary is in default under
any provision of its charter, by-laws or partnership agreement, as the case may
be, any agreement (including leases) to which it is a party or by which it is
bound or any law or order, regulation, ruling or requirement of any court or
public body or authority so as to affect adversely in any material manner the
business, assets or condition, financial or otherwise, of the Company and its
Restricted Subsidiaries on a consolidated basis. Each of this Agreement, the
Notes and the Guaranty is the valid and binding obligation of the Company and
each Guarantor that is a signatory thereto and is enforceable against each such
Person in accordance with its terms.
8H. Offering of Notes. Neither the Company nor any agent acting on
-----------------
its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the Notes or
any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than institutional investors, and
neither the Company nor any agent acting on its behalf has taken
23
<PAGE>
or will take any action which would subject the issuance or sale of the Notes to
the provisions of section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.
8I. Regulation G, etc. Neither the Company nor any Restricted
-----------------
Subsidiary owns or has any present intention of acquiring any "margin stock" as
defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin stock"). The proceeds of sale of
the 1989 Notes were applied only to lawful corporate purposes of the Company.
The Company will not receive any cash proceeds in connection with the exchange
of the 1989 Notes for the Notes. None of the proceeds of the 1989 Notes were
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation G. Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Notes to violate Regulation G, Regulation T or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, as amended, in each case as in effect now or as the same may
hereafter be in effect. Neither the Company nor any Restricted Subsidiary shall
acquire any margin stock.
8J. ERISA. No accumulated funding deficiency (as defined in section
-----
302 of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any plan (other than a multiemployer plan). No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company to
be incurred with respect to any plan (other than a multiemployer plan) by the
Company or any of its Restricted Subsidiaries which is or would be materially
adverse to the Company and its Restricted Subsidiaries taken as a whole.
Neither the Company nor any of its Restricted Subsidiaries has maintained,
contributed to or participated in any multiemployer plan since 1980 nor has
incurred or presently expects to incur any withdrawal liability under Title IV
of ERISA with respect to any multiemployer plan which is or would be materially
adverse to the Company and its Restricted Subsidiaries taken as a whole. The
execution and delivery of this Agreement and the issuance and sale of the Notes
will not involve any transaction which is subject to the prohibitions of section
406 of ERISA or in connection with which a tax could be imposed pursuant to
section 4975 of the Code. The representation by the Company in the next
preceding sentence is made in reliance upon and subject to the accuracy of your
representation in paragraph 9 as to the source of the funds to be used to pay
the purchase price of the Notes to be purchased by you. For the purpose of this
paragraph 8J, the term "Code" shall mean the Internal Revenue Code of 1986, as
amended; the term "plan" shall mean an "employee pension benefit plan" (as
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or by any trade
or business, whether or not incorporated, which, together with the Company, is
under common control, as described in section 414(b) or (c) of the Code; and
24
<PAGE>
the term "multiemployer plan" shall mean any plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
8K. Governmental Consent. Neither the nature of the Company or of
--------------------
any Restricted Subsidiary, nor any of their respective businesses or properties,
nor any relationship between the Company or any Restricted Subsidiary and any
other Person is, nor any circumstance in connection with the offering, issuance,
sale or delivery of the Notes was such as to require any authorization, consent,
approval, exemption or other action by or notice to or filing with any court or
administrative or governmental body (other than routine filings after the date
of closing with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement or
the Guaranty, the offering, issuance, sale or delivery of the Notes or
fulfillment of or compliance with the terms and provisions hereof or of the
Notes or the Guaranty.
8L. Disclosure. Neither this Agreement nor any other document,
----------
certificate or statement furnished to you by or on behalf of the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company or any of
its Restricted Subsidiaries which materially adversely affects or in the future
may (so far as the Company can now foresee) materially adversely affect the
business, property or assets, or financial condition of the Company or any of
its Restricted Subsidiaries and which has not been set forth in this Agreement
or in the other documents, certificates and statements furnished to you by or on
behalf of the Company prior to the date hereof in connection with the
transactions contemplated hereby.
8M. Restated Credit Agreement. The Company has delivered to you
-------------------------
prior to the date hereof a true, correct and complete copy of the Restated
Credit Agreement, including all amendments and waivers of any provision thereof.
Contemporaneously with the satisfaction of the conditions set forth in paragraph
3, the Company will satisfy the conditions to making initial loans under the
Restated Credit Agreement as set forth in Section 5.1 thereof (other than the
condition set forth in Section 5.1.2). The Company hereby restates and confirms
to you as of the date hereof its representations and warranties set forth in
Section 8 of the Restated Credit Agreement.
9. REPRESENTATIONS OF THE PURCHASER. You represent, and in making the
--------------------------------
exchange of the Notes for the 1989 Notes to you it is specifically understood
and agreed, that you are not acquiring the Notes to be purchased by you
hereunder with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act, provided that the disposition of your
property shall at all times be and remain within your control. You also
represent that no part of the funds used by you to pay the purchase price of the
1989 Notes constituted assets allocated to any separate account maintained by
you. For the purpose of this paragraph 9, the term "separate account" shall
have the meaning specified in section 3 of ERISA.
25
<PAGE>
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
-----------
paragraphs 1 and 2 shall have the respective meanings specified therein, and the
following terms shall have the meanings specified with respect thereto below:
10A. Yield-Maintenance Terms.
-----------------------
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
------------
on which commercial banks in New York City are required or authorized to be
closed.
"Called Principal" shall mean, with respect to any Note, the principal of
----------------
such Note that is to be prepaid pursuant to paragraph 4D (any partial prepayment
being applied in satisfaction of required payments of principal in inverse order
of their scheduled due dates) or is declared to be immediately due and payable
pursuant to paragraph 7A, as the context requires.
"Discounted Value" shall mean, with respect to the Called Principal of any
----------------
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a semiannual
basis) equal to the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to the Called Principal of
------------------
any Note, the yield to maturity implied by the sum of (A) (i) the yields
reported, as of 10:00 A.M. (New York City time) on the Business Day next
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or such other display
as may replace Page 678 on the Telerate Service) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
Business Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date and (B) in the event that the Settlement Date is on
or before September 20, 1994, 0.25%. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between reported yields.
"Remaining Average Life" shall mean, with respect to the Called Principal
----------------------
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between
26
<PAGE>
the Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
----------------------------
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of any
---------------
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4D or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"Yield-Maintenance Premium" shall mean, with respect to any Note, a premium
-------------------------
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Yield-Maintenance Premium shall in no event be less
than zero.
10B. Other Terms.
-----------
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"Amendment Date" shall mean the date on which this Amended and Restated
--------------
Note Agreement dated as of October 17, 1994 between the Company and the
Noteholder becomes effective.
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
--------------
paragraph 7A.
"Capitalized Lease" shall mean any lease which is or should be capitalized
-----------------
on the balance sheet of the lessee in accordance with generally accepted
accounting principles and Statement Nos. 13 and 98 of the Financial Accounting
Standards Board.
"Consolidated Interest Expense" means, for any period, the aggregate amount
-----------------------------
of interest (including cash payments in the nature of interest under Capitalized
Leases, interest rate protection agreements and Redeemable Preferred Stock)
required to be accrued or paid in cash by the Company and its Restricted
Subsidiaries on all Indebtedness, including all Indebtedness evidenced by the
Notes, whether such interest was or is to be reflected as an item of expense or
capitalized.
"Consolidated Operating Cash Flow" means, for any period, the total of (a)
--------------------------------
Consolidated Operating Income minus (b) taxes based upon or measured by net
-----
income
27
<PAGE>
that are actually paid in cash during such period in respect of the
continuing, ordinary operations of the Company and its Restricted Subsidiaries
(but not in any event including cash taxes paid in respect of extraordinary
gains).
"Consolidated Operating Income" means, for any period, the operating income
-----------------------------
(or loss) before depreciation, amortization, non-cash regulatory reserves and
non-operating expenses such as non-cash restricted stock purchase program
expenses, other non-cash expenses, interest and income taxes, but including all
operating income (or loss) on account of management fees, of the Company and its
Restricted Subsidiaries for such period, determined in accordance with generally
accepted accounting principles on a consolidated basis, after eliminating all
intercompany items, excluding any extraordinary or nonrecurring items and the
write-up of any asset.
For purposes of calculating Consolidated Operating Income, income (or loss)
of the Company's Unrestricted Subsidiaries will be reflected in Consolidated
Operating Income only to the extent that the Company and its Restricted
Subsidiaries actually receive dividends or similar payments from the Company's
Unrestricted Subsidiaries.
For purposes of calculating Consolidated Operating Income, operating income
(or loss) of the Company and its Restricted Subsidiaries for the most recently
completed fiscal periods shall include the operating income (or loss) of any
Restricted Subsidiary designated or acquired after the commencement of such
fiscal periods (including Operating Assets acquired by the Company or a
Restricted Subsidiary). If Consolidated Operating Income includes the operating
income (or loss) of any Restricted Subsidiary or Operating Assets for any fiscal
period prior to its acquisition by the Company or a Restricted Subsidiary and
if, in the opinion of the Company, the actual financial statements of such newly
acquired Restricted Subsidiary or Operating Assets for such period are
unavailable or inaccurate, then (a) such operating income (or loss) may be
determined from pro forma financial statements of such newly acquired Restricted
Subsidiary or Operating Assets for such period in a form approved in writing by
the Required Holders, and (b) the Company shall furnish the Significant Holders
with each quarterly calculation under paragraph 5A(i) or 5A(ii) such financial
information relating to such Restricted Subsidiary or Operating Assets for such
prior period as any Significant Holder may reasonably request.
"Consolidated Total Debt" means, at any date as of which the amount thereof
-----------------------
shall be determined, the total of (a) all Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis, including all guarantees by the
Company or any of its Restricted Subsidiaries in respect of Indebtedness of
others, minus (b) cash and Investments permitted by clause (1) of paragraph 6I
-----
of this Agreement then owned by the Company and its Restricted Subsidiaries.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
------
amended.
28
<PAGE>
"Event of Default" shall mean any of the events specified in paragraph 7A,
----------------
provided that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of any
further condition, event or act, and "Default" shall mean any of such events,
whether or not any such requirement has been satisfied.
"Excluded Notes" shall mean any outstanding Notes transferred to any Person
--------------
other than a direct or indirect subsidiary or affiliate of The Prudential
Insurance Company of America, unless prior to the transfer of such Note the
following shall have occurred:
(1) The holder of such Note shall have given written notice (the
"Offer Notice") to the Company that it has received a bona fide offer to
purchase such Note, which notice shall state the purchase price and other
material terms of such offer.
(2) The Company has either (a) by written notice (the "Acceptance
Notice") given to the holder of the Note no later than 10 days after the Offer
Notice, elected to purchase the Note from the holder at the price and on the
other terms specified in such Offer Notice, and the Company has purchased the
Note on such terms within 5 days after the Acceptance Notice; or (b) the Company
has not delivered an Acceptance Notice within 10 days of the Offer Notice and
the holder of the Note has then sold the Note at a price not less than the price
and on substantially the terms specified in the Offer Notice.
"Financial Officer" of the Company (or other specified Person) shall mean
-----------------
its chairman of the board of directors, vice chairman of the board of directors,
chief executive officer, chief operating officer, president, chief financial
officer, treasurer, assistant treasurer or any of its vice presidents whose
primary responsibility is for its financial affairs.
"Guarantors" shall mean each Restricted Subsidiary which is or subsequent
----------
to the date hereof becomes a party to the Guaranty; provided, however, that in
no event will the term Guarantor include any Restricted Subsidiary which has
been released as a Guarantor in accordance with paragraph 6D.
"Guaranty" shall mean the Guaranty of the Guarantors of even date herewith
--------
in the form of Exhibit C hereto as supplemented and amended from time to time.
------- -
"Indebtedness" shall mean all obligations, contingent or otherwise, which
------------
in accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities in respect of borrowed money,
notes or similar instruments, Capitalized Leases, the deferred purchase price of
property or Redeemable Preferred Stock, and all guarantees, endorsements and
other contingent obligations in respect of Indebtedness of others.
"Indentures" shall mean (a) the 1989 Indentures and (b) the 1992
----------
Indentures.
29
<PAGE>
"Investment" shall mean (i) any share of capital stock, evidence of
----------
Indebtedness or other security issued by any other Person, (ii) any loan,
advance, extension of credit to, or contribution to the capital of, any other
Person, (iii) the acquisition of the stock or assets of a business or (iv) any
other investment; provided, however, that the term "Investment" shall not
-------- -------
include (a) fixed assets or inventory acquired in the ordinary course of
business and payable in accordance with customary trade terms, (b) advances to
employees for travel expenses, drawing accounts and similar expenditures, (c)
stock or other securities acquired in connection with the satisfaction or
enforcement of Indebtedness or claims due or owing to the Company or any of its
Subsidiaries or as security for any such Indebtedness or claim, (d) any
investment or purchase made through the issuance of common stock of the payor,
or (e) demand deposits in banks or trust companies. The amount of an Investment
outstanding at any time shall be determined in accordance with generally
accepted accounting principles; provided, however, that no Investment shall be
-------- -------
increased as a result of an increase in the undistributed retained earnings of
the Person in whom an Investment was made or decreased as a result of an equity
in the losses of any such Person.
"Investment Subsidiaries" shall mean Continental Cablevision Asset
-----------------------
Management Corporation, a Massachusetts corporation, and such other Unrestricted
Subsidiaries that the Company hereafter from time to time designates to each
Significant Holder as Investment Subsidiaries.
"Lender" shall mean each of the Persons listed in Exhibit 12.1 to the
------
Restated Credit Agreement and any other bank or institution which becomes party
to the Restated Credit Agreement as a lender, and their respective successors.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
"1992 Credit Agreement" shall have the meaning specified in paragraph 3J.
---------------------
"1989 Indentures" shall mean the Indentures between the Company and The
---------------
Connecticut National Bank, as successor trustee, dated as of November 1, 1989,
relating to the 1989 Subordinated Debentures.
"1992 Indentures" shall mean the Indentures between the Company and Morgan
---------------
Guaranty Trust Company of New York, relating to the 1992 Senior Subordinated
Securities.
"1992 Preferred Stock" shall mean the Series A Participating Convertible
--------------------
Preferred Stock, $.01 par value per share, of the Company in the form that it
exists on the Amendment Date.
30
<PAGE>
"1992 Senior Subordinated Securities" shall mean the Company's Senior
-----------------------------------
Subordinated Notes, due 2002, and/or Senior Subordinated Debentures, due 2007,
issued in the aggregate principal amount of $400,000,000, in accordance with the
1992 Indentures.
"1989 Subordinated Debentures" shall mean the Company's Senior Subordinated
----------------------------
Debentures and Senior Subordinated Floating Rate Debentures, each due 2004,
issued in the aggregate principal amounts of $350,000,000 and $100,000,000
respectively, in accordance with the 1989 Indentures.
"Non-Excluded Holders" shall mean the holder or holders of at least 66-2/3%
--------------------
of the aggregate principal amount of the Notes from time to time outstanding,
excluding the principal amount of any Excluded Notes.
"Officer's Certificate" shall mean a certificate signed in the name of the
---------------------
Company or any Guarantor by a Financial Officer of such Person.
"Operating Assets" means (a) a group of tangible and intangible assets used
----------------
by a Person to provide cable television or telecommunications services or to
conduct any related activities, or (b) all of the outstanding capital stock of,
or other equity interests in, a Person engaged in the provision of cable
television or telecommunications services or conducting any related activities;
provided, however, that the assets, capital stock or other equity interests of a
- -------- -------
Person acquired by the Company or a Restricted Subsidiary shall constitute
Operating Assets only to the extent such assets are held by, or such Person is
designated as, a Restricted Subsidiary after consummation of such acquisition.
"Permitted Liens" shall mean:
---------------
(a) Liens for taxes, assessments or governmental charges or claims the
payment of which is being contested in good faith by appropriate proceedings and
with respect to which the Company shall have created adequate reserves on its
books.
(b) Liens of mechanics, carriers, warehousemen or materialmen arising
in the ordinary course of business in respect of obligations which are not
overdue or which are being contested in good faith.
(c) Liens, other than Liens created by section 4068 of ERISA,
resulting from deposits or pledges made in the ordinary course of business to
secure payment of workers' compensation, unemployment insurance, old age pension
or other social security, or in connection with or to secure the performance of
bids, tenders or contracts made in the ordinary course of business, or to secure
statutory obligations or surety, performance or appeal bonds.
(d) Liens in respect of judgments or awards the payment of which is
being contested in good faith by appropriate proceedings and with respect to
which the Company shall have created adequate reserves on its books.
31
<PAGE>
(e) Purchase money security interests (including mortgages, any
conditional sale or other title retention agreement and any Capitalized Lease);
provided, however, that the principal amount of Indebtedness secured by each
- -------- -------
such security interest in each such item (or group of items) of property shall
not exceed the cost of the item (or group of items) subject thereto and each
such security interest shall attach only to the particular item (or group of
items) so acquired and any additional or accessions thereto.
(f) Encumbrances in respect of easements, rights of way, zoning
restrictions, restrictions on the use of real property and minor defects and
irregularities in the title thereto, landlord's or lessor's liens under leases
to which the Company or any of its Restricted Subsidiaries is a party and other
similar encumbrances, none of which in the reasonable opinion of the Company
interferes with the use of the property by the Company or such Restricted
Subsidiary in the ordinary conduct of its business.
(g) Liens of utilities and other Persons pursuant to pole agreements,
and restrictions on the transfer of rights under Franchises or pole agreements,
and any encumbrances created in favor of franchising authorities and subscribers
by provisions of Franchises on cable television plant and equipment located in
the areas covered thereby. For the purposes of this clause (g), the term
"Franchises" shall have the meaning ascribed to it in the Restated Credit
Agreement.
(h) Pledges of Investments in Unrestricted Subsidiaries securing
contractual obligations, including, without limitation, Indebtedness, of such
Unrestricted Subsidiaries.
(i) Leases or subleases granted to others in the ordinary course of
business and not materially interfering with the ordinary conduct of the
business of the Company and its Restricted Subsidiaries, taken as a whole.
"Person" shall mean a corporation, association, partnership, joint venture,
------
company, trust, organization, business, individual or government or any
governmental agency or political subdivision thereof.
"Pro Forma Interest Payments" shall mean, for any period, the sum of (a)
---------------------------
the aggregate amount of interest (including payments in the nature of interest
under Capitalized Leases and interest rate protection agreements) required to be
accrued or paid in cash by the Company and its Restricted Subsidiaries during
the period in question on all Indebtedness, including all Indebtedness evidenced
by the Notes, whether such interest was or is to be reflected as an item of
expense or capitalized, and (b) the aggregate amount of dividends on capital
stock of the Company required to be paid in cash by the Company during the
period in question. For purposes of computing projected interest for any period
under the preceding sentence, (i) the amount of Indebtedness or capital stock
outstanding on the first day of such period shall be assumed to remain
outstanding during the entire period except to the extent that such Indebtedness
or capital stock is subject to a mandatory prepayment of principal or a
mandatory redemption of capital stock, as the case may be, during such period,
(ii) if the Company and the Restricted Subsidiaries have committed to incur
additional Indebtedness or
32
<PAGE>
issue additional capital stock during such period, interest or cash dividends on
such additional Indebtedness or capital stock, as the case may be, shall be
taken into account from and after the date on which such Person is committed to
incur it, (iii) where interest varies with or depends on a floating rate, the
rate in effect on the first day of such period will be assumed to be in effect
and remain constant during the entire period for which interest is being
computed, (iv) where interest is fixed for a portion of such period, the
floating rate that would otherwise have been applicable on the first day of such
period will be assumed to be in effect and remain constant during the balance of
such period after the fixed rate terminates, and (v) where interest is subject
to an interest rate exchange agreement, the effective interest cost to the
Company and its Restricted Subsidiaries shall be deemed to be the interest rate.
"Qualifying Reinvestment" means, with respect to any sale, disposition or
-----------------------
exchange of assets permitted by paragraph 6C(3) or 6C(4), the acquisition by the
Company or a Restricted Subsidiary of Operating Assets which satisfies one of
the following conditions: (a) such acquisition occurs within 90 days prior to
such asset sale, disposition or exchange or (b)(i) within 180 days after such
asset sale, disposition or exchange the Company or a Restricted Subsidiary has
executed and delivered a binding agreement pursuant to which the Company or a
Restricted Subsidiary is committed to acquire Operating Assets and (ii) within
180 days after the execution and delivery of such agreement, the Company or a
Restricted Subsidiary actually acquires such Operating Assets.
"Redeemable Preferred Stock" means preferred stock with redemption
--------------------------
obligations that (a) are either (i) fixed or (ii) at the option of the holder,
and (b) may be satisfied only by the payment of cash, Indebtedness or property
other than capital stock of the issuer (unless such capital stock constitutes
Redeemable Preferred Stock). By way of illustration, the 1992 Preferred Stock
does not constitute Redeemable Preferred Stock.
"Redemption Amount" shall mean (i) in the case of one of the events
-----------------
described in subparagraph (a) of paragraph 6K(1), the aggregate redemption price
(as determined in accordance with the Indentures) of all of the then outstanding
Subordinated Securities, (ii) in the case of one of the events described in
subparagraph (b) of paragraph 6K(1), the aggregate redemption price (as
determined in accordance with the 1989 Indentures) of all the then outstanding
1989 Subordinated Debentures, or (iii) in the case of one of the events
described in subparagraph (c) of paragraph 6K(1), the aggregate redemption price
(as determined in accordance with the 1992 Indentures) of the maximum aggregate
principal amount of 1992 Senior Subordinated Securities which the Company might
be required to redeem subsequent to the delivery of the irrevocable election
described in subparagraph (c) of paragraph 6K(1).
"Required Holder(s)" shall mean the holder or holders of at least 66-2/3%
------------------
of the aggregate principal amount of the Notes from time to time outstanding.
"Restated Credit Agreement" shall mean the Amended and Restated Credit
-------------------------
Agreement among the Company, certain of its Subsidiaries, The First National
Bank of Boston, both in its capacity as Administrative Agent and Managing Agent
and as lender, and the other
33
<PAGE>
lenders party thereto dated as of October 1, 1994, and as further amended or
restated from time to time.
"Restricted Subsidiary" shall mean (i) any Subsidiary designated as a
---------------------
Restricted Subsidiary in Exhibit E as in effect on the Amendment Date, and (ii)
------- -
any Subsidiary hereafter designated by a Financial Officer of the Company
certifying that such Subsidiary is a Person (a) 80% of (I) the voting stock or
(II) the equity, partnership or other beneficial interests of which is owned by
the Company or its Restricted Subsidiaries, (b) which is organized under the
laws of the United States of America or any state thereof or the District of
Columbia and has substantially all of its properties and assets located within
the United States of America, (c) which conducts its business so as to derive
its revenue from the cable television or telecommunications business and related
activities, and (d) immediately after such Person becomes a Restricted
Subsidiary, no Default exists; provided, however, that in no event shall the
-------- -------
term "Restricted Subsidiary" include a Subsidiary released in accordance with
paragraph 6D. No Restricted Subsidiary may subsequently become an Unrestricted
Subsidiary, except in accordance with paragraph 6D.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Significant Holder" shall mean (i) you, so long as you shall hold any
------------------
Note, or (ii) any other holder of at least 10% of the aggregate principal amount
of the Notes from time to time outstanding, provided that such holder either is
a registered holder of such amount of Notes according to the register of Notes
maintained by the Company pursuant to paragraph 11D or is the holder of such
amount of Notes pursuant to a transfer of Notes, which Notes have been duly
submitted to the Company for registration of transfer pursuant to paragraph 11D.
"Subordinated Debentures" or "Subordinated Securities" shall mean (i) the
----------------------- -----------------------
1989 Subordinated Debentures and (ii) the 1992 Senior Subordinated Securities.
"Subordinated Debt" or "subordinated debt" shall mean (i) the Subordinated
----------------- ------------ ----
Securities and (ii) Indebtedness (including redeemable preferred stock that
constitutes Indebtedness) subordinated to the obligations of the Company and the
Guarantors hereunder and under the Notes on terms and conditions approved in
writing by the Required Holders (except that such approval shall not be required
if such Indebtedness is subordinated to the Notes and to the Credit Obligations
(as defined in the Restated Credit Agreement) on identical terms and either (a)
has subordination terms approved under Section 7.7.7 of the Restated Credit
Agreement or (b) is Indebtedness as to which the Managing Agents under the
Restated Credit Agreement have made the reasonable determination described in
Section 7.7.9(c) of the Restated Credit Agreement).
"Subsidiary" shall mean any Person of which the Company (or other specified
----------
parent) now or hereafter shall at the time own directly or indirectly through a
Subsidiary at least a majority of (i) the outstanding voting stock or (ii) the
equity, partnership or other beneficial interest.
34
<PAGE>
"Substantial Assets" shall mean assets of the Company or its Subsidiaries
------------------
(i) which in the aggregate represent 20% or more of the consolidated assets of
the Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or (ii) which in the aggregate shall have
contributed 20% or more of the Consolidated Operating Income of the Company and
its Subsidiaries for any of the three fiscal years then most recently ended.
"Transferee" shall mean any direct or indirect transferee of all or any
----------
part of any Note purchased by you under this Agreement.
"Unrestricted Subsidiary" shall mean any Subsidiary of the Company (or
-----------------------
other designated Person) other than a Restricted Subsidiary.
11. MISCELLANEOUS.
-------------
11A. Note Payments. The Company agrees that, so long as you shall
-------------
hold any Note, it will make payments of principal thereof and premium, if any,
and interest thereon, which comply with the terms of this Agreement, by wire
transfer of immediately available funds for credit to your account or accounts
as specified in the Purchaser Schedule attached hereto, or such other account or
accounts in the United States as you may designate in writing, notwithstanding
any contrary provision herein or in any Note with respect to the place of
payment. You agree that, before disposing of any Note, you will make a notation
thereon (or on a schedule attached thereto) of all principal payments previously
made thereon and of the date to which interest thereon has been paid. The
Company agrees to afford the benefits of this paragraph 11A to any Transferee
which shall have made the same agreement as you have made in this paragraph 11A.
Any payment on account of principal of or premium, if any, or interest on any
Note which is due on a date which is a Saturday, a Sunday or a bank holiday in
New York, New York shall be paid on the next succeeding day which is not a
Saturday, a Sunday or a bank holiday in New York, New York, and the amount of
interest included in any such payment shall be computed to the date on which
such payment is actually made.
11B. Expenses. The Company agrees, whether or not the transactions
--------
contemplated hereby shall be consummated, to pay, and save you and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the reasonable fees and expenses
of any special counsel engaged by you or any Transferee in connection with this
Agreement, the transactions contemplated hereby and any subsequent proposed
modification of, or proposed consent under, this Agreement, whether or not such
proposed modification shall be effected or proposed consent granted, and (ii)
the costs and expenses, including reasonable attorneys' fees, incurred by you or
any Transferee in enforcing any rights under this Agreement, the Guaranty or the
Notes or in responding to any subpoena or other legal process issued in
connection with this Agreement, the Guaranty or the transactions contemplated
hereby or by reason of your or any Transferee's having acquired any Note,
including without limitation costs and expenses incurred in any
35
<PAGE>
bankruptcy case. The obligations of the Company under this paragraph 11B shall
survive the transfer of any Note or portion thereof or interest therein by you
or any Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and the
---------------------
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) except
that (i) any provision of paragraph 6 may be amended, and the Company may take
any action therein prohibited, if the Company shall obtain the written consent
to such amendment or action of the Non-Excluded Holders and (ii) without the
written consent of the holder or holders of all Notes at the time outstanding,
no amendment to this Agreement shall change the maturity of any Note, or change
the principal of, or the rate or time of payment of interest or any premium
payable with respect to any Note, or affect the time, amount or allocation of
any required prepayments, or reduce the proportion of the principal amount of
the Notes required with respect to any consent. Each holder of any Note at the
time or thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As used herein
and in the Notes, the term "this Agreement" and references thereto shall mean
this Agreement as it may from time to time be amended or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes.
--------------------------------------------------------------
The Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to reflect any principal amount
not evenly divisible by $100,000. The Company shall keep at its principal
office a register in which the Company shall provide for the registration of
Notes and of transfers of Notes. Upon surrender for registration of transfer of
any Note at the principal office of the Company, the Company shall, at its
expense, execute and deliver one or more new Notes of like tenor and of a like
aggregate principal amount, registered in the name of such transferee or
transferees. At the option of the holder of any Note, such Note may be
exchanged for other Notes of like tenor and of any authorized denominations, of
a like aggregate principal amount, upon surrender of the Note to be exchanged at
the principal office of the Company. Whenever any Notes are so surrendered for
exchange, the Company shall, at its expense, execute and deliver the Notes which
the holder making the exchange is entitled to receive. Every Note surrendered
for registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the holder of
such Note or such holder's attorney duly authorized in writing. Any Note or
Notes issued in exchange for any Note or upon transfer thereof shall carry the
rights to unpaid interest and interest to accrue which were carried by the Note
so exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the holder of any Note of the loss, theft, destruction or mutilation of such
Note and, in the case of any such loss, theft or destruction, upon receipt of
such holder's unsecured indemnity agreement,
36
<PAGE>
or in the case of any such mutilation upon surrender and cancellation of such
Note, the Company will make and deliver a new Note, of like tenor, in lieu of
the lost, stolen, destroyed or mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to due presentment
-------------------------------------
for registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and premium, if any, and interest on such Note
and for all other purposes whatsoever, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
Subject to the preceding sentence, the holder of any Note may from time to time
grant participations in all or any part of such Note to any Person on such terms
and conditions as may be determined by such holder in its sole and absolute
discretion.
11F. Survival of Representations and Warranties; Entire Agreement.
------------------------------------------------------------
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by you of any Note or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any Transferee, regardless of any investigation made at any time
by or on behalf of you or any Transferee. Subject to the preceding sentence,
this Agreement and the Notes embody the entire agreement and understanding
between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof, including the 1989 Note
Agreement.
11G. Successors and Assigns. All covenants and other agreements in
----------------------
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
11H. Disclosure to Other Persons. The Company acknowledges that the
---------------------------
holder of any Note may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Note, (iii) any Person to which such holder offers to sell such Note or any part
thereof, (iv) any Person to which such holder sells or offers to sell a
participation in all or any part of such Note, (v) any federal or state
regulatory authority having jurisdiction over such holder, (vi) the National
Association of Insurance Commissioners or any similar organization or (vii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (a) in compliance with any law, rule, regulation or order applicable
to such holder, (b) in response to any subpoena or other legal process, (c) in
connection with any litigation to which such holder is a party or (d) in order
to protect such holder's investment in such Note; provided, in the case of
Persons described in clauses (iii) or (iv), that prior to disclosing any such
information, the holder of a Note
37
<PAGE>
shall first have obtained the written agreement of such Person to maintain the
confidentiality of such information on terms generally comparable to this
paragraph 11H.
11I. Notices. All written communications provided for hereunder shall
-------
be sent by first class mail or nationwide overnight delivery service (with
charges prepaid) and (i) if to you, addressed to you at the address specified
for such communications in the Purchaser Schedule attached hereto, or at such
other address as you shall have specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to such other holder at such address as
such other holder shall have specified to the Company in writing or, if any such
other holder shall not have so specified an address to the Company, then
addressed to such other holder in care of the last holder of such Note which
shall have so specified an address to the Company, and (iii) if to the Company,
addressed to it at The Pilot House, Lewis Wharf, Boston, Massachusetts 02110,
Attention: Treasurer, or at such other address as the Company shall have
specified to the holder of each Note in writing; provided, however, that any
such communication to the Company may also, at the option of the holder of any
Note, be delivered by any other means either to the Company at its address
specified above or to any officer of the Company.
11J. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11K. Satisfaction Requirement. If any agreement, certificate or other
------------------------
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to you or to the Required Holders, the determination
of such satisfaction shall be made by you or the Required Holders, as the case
may be, in the sole and exclusive judgment (exercised in good faith) of the
Person or Persons making such determination.
11L. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the law of
the Commonwealth of Massachusetts.
11M. Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
38
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between you and
the Company.
Very truly yours,
CONTINENTAL CABLEVISION, INC.
By: /s/ P. Eric Krauss
--------------------------------
Name: P. Eric Krauss
Title: Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: PruCapital Management, Inc.,
Agent
By: /s/
------------------------------
Title:
39
<PAGE>
EXHIBIT 10.13
CONTINENTAL CABLEVISION, INC.
-----------------------------
MANAGEMENT INCENTIVE PLAN
-------------------------
1991
----
<PAGE>
ARTICLE I
---------
PURPOSE
-------
1.1 Effective January 1, 1991, in order to provide incentive and other benefits
for selected managers, Continental Cablevision, Inc. hereby adopts the
Continental Cablevision, Inc. Management Incentive Plan.
1.2 The Plan is established to:
(a) recognize those managers:
(1.) who are making significant contributions to their regions or
systems in terms of their managerial, operational service and
financial responsibilities.
(2.) who are consistently outstanding performers.
(b) attract managerial talent outside of the organization who will have an
immediate, positive impact through the discharge of their duties.
(c) recognize those managers who are deemed promotable to greater
responsibilities and thus greater contributions to the future growth
of the company.
(d) retain key managers who are critical to the success of the operation
of the company.
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
Where the following words and phrases appear in the Plan, they shall have the
respective meanings set forth below, unless the context clearly indicates to the
contrary.
2.1 Account or Investment Accrual Account: An account maintained on the books
-------------------------------------
of the Plan for each Participant, for the purpose of recording Investment
Accruals made on his behalf and interest or appreciation credited to such
Investment Accruals in accordance with Article IV of the Plan, and the
payments made to him in accordance with Section 5.1 of the Plan.
2.2 Beneficiary: The person or persons designated by the Participant under
-----------
Section 3.3 to receive benefits in the event of the Participant's death.
If the Beneficiary the Participant has designated predeceases him, the
benefits payable under the plan shall be paid directly to the Participant's
estate.
2.3 Company: Continental Cablevision, Inc., a Delaware Corporation, and/or its
-------
subsidiary corporations and divisions.
-2-
<PAGE>
2.4 Committee: The Plan Committee appointed by the Company to administer the
---------
Plan. The Committee shall consist of at least three members, none of whom
shall be a Participant in the Plan, and shall act on the majority vote of
its members.
2.5 Date of Participation: The first day of the calendar month following the
---------------------
acceptance of a Participant by the Committee pursuant to Section 3.1; or
some other date as specified by the Sponsor and agreed to by the Committee.
For any Plan Year in which a Participant's eligibility continues as
provided in Section 3.4, his Date of Participation shall be the first day
of such Plan Year.
2.6 Disability: The inability of the Participant to perform the normal duties
----------
of his own position with the Company for a period of at least six (6)
months with the likelihood that such disability will be total and permanent
as determined by the Committee.
2.7 Eligible Compensation: Basic salary or wages paid to an employee for
---------------------
services during the period beginning on his Date of Participation and
ending on the last day of the Plan Year, excluding bonus, overtime and
other remuneration or contributions of the Company under this or any other
employee benefit plan, and other compensation in any form paid to an
employee for services.
-3-
<PAGE>
2.8 Effective Date: January 1, 1991.
--------------
2.9 Emergency Distribution: As defined in Article VI of the Plan.
----------------------
2.10 Investment Accrual: A bookkeeping entry to be made for a Plan Year for
------------------
each Participant in accordance with Section 4.1 of the Plan.
2.11 Manager: An employee of the Company employed in a supervisory position or
-------
its equivalent.
2.12 Participant: A Manager who has been accepted for Participation in this
-----------
Plan by the Committee.
2.13 Plan: The Continental Cablevision, Inc. Management Incentive Plan as set
----
forth herein and as may be amended from time to time.
2.14 Plan Year: The twelve-month period beginning on January 1 and ending on
---------
December 31.
2.15 Retirement: The termination of employment of a Participant who has
----------
attained his sixty-fifth (65th) birthday.
-4-
<PAGE>
2.16 Sponsor: An officer of the Company who submits to the Plan Committee a
-------
Manager for consideration for participation.
2.17 Vesting Date: With respect to an Investment Accrual for any Plan Year, the
------------
last day of the fourth Plan Year following the Plan Year in which the
Investment Accrual was made; for example, the Vesting Date for the
Investment Accrual made December 31, 1991, will be December 31, 1995.
2.18 Construction: Where used herein, the masculine gender shall be deemed to
------------
include the feminine gender.
-5-
<PAGE>
ARTICLE III
-----------
PARTICIPATION
-------------
3.1 During the course of the Plan Year, a Sponsor may submit the names of
Managers to the Committee for admission to the Plan, using the form
prescribed by the Committee. Nominations must be received by the Committee
by November 15th and May 15th, to be considered for January 1 and July 1
entries into the plan.
3.2 The Committee will meet at least twice a year, in January and July, and
will review the recommendations made by Sponsors. The Committee will
notify each Sponsor in writing of its acceptance or rejection of his
recommendations. If a Manager is accepted for participation in the Plan,
he will become a Participant on the first day of the calendar month
following his acceptance for participation by the Committee, or such other
date as may be specified as the Date of Participation by the Sponsor and
agreed to by the Committee.
3.3 The Sponsor will notify in writing each Manager who has been accepted for
participation in the Plan of his status as a Participant. Such
notification shall include the following:
(a) Notification of acceptance as a Participant in the Plan and the Date
of Participation;
-6-
<PAGE>
(b) Election form to direct initial choice of Investment Accrual;
(c) Designation of Beneficiary form;
(d) A copy of the Plan;
(e) A form to be signed by the Manager acknowledging that he has received
a copy of the Plan and that he understands the Plan.
3.4 By November 15th of each Plan Year, each Sponsor will submit a list of
names of those Participants whom he believes should continue as
Participants in the forthcoming Plan Year. The Committee will review each
list and notify the Sponsor in writing of its decisions.
3.5 Each Sponsor will notify each Participant whom he recommended of his
continued participation in the Plan, or of his suspension of participation
in the Plan. Each year all participants will complete and return to the
Committee an election form:
(a) To direct the choice of the sub-account (under Section
4.2) for the Investment Accrual made for the current Plan Year.
(b) To change the choice of the sub-account for Investment Accrual(s) made
for past years, effective as of the beginning of the current Plan
Year.
3.6 A Participant may designate a Beneficiary to receive the benefits described
in Section 5.2 in the event of his death, and may change his Beneficiary at
any time, by completing a form provided by the Committee. A Participant
may, at his
-7-
<PAGE>
election, designate among the alternatives set forth on such form the
manner in which benefits are to be paid to his Beneficiary.
3.7 Participation in the Plan does not give a Participant any rights of
continued employment, nor shall it affect or restrict the right of the
Company to terminate such employment at any time.
-8-
<PAGE>
ARTICLE IV
----------
INVESTMENT ACCRUAL
------------------
4.1 On the last day of each Plan Year, the Committee shall credit to the
Investment Accrual Account of each Participant who is employed by the
Company on that date and whose participation has been continued for that
Plan Year an amount equal to ten percent (10%) of his Eligible
Compensation. The first Investment Accrual will be made for the Plan Year
ending December 31, 1991 and the last Investment Accrual will be made for
the Plan Year ending December 31, 1995.
4.2 Each Participant's Investment Accrual Account will have two sub-accounts as
follows:
(a) Fixed Account: accrual to be held and credited with the average of the
-------------
six month certificate of deposit rates for accounts of over $100,000
as offered by the First National Bank of Boston;
(b) Stock Account: accrual to be held in equivalents of Company common
-------------
stock and credited with the appreciation or depreciation in the value
of such stock.
4.3 Each Plan Year's Investment Accrual for a Participant will be credited to
his Fixed Account or his Stock Account as he has selected pursuant to
Section 3.3 or 3.5, and will be credited with interest or appreciation in
value, whichever
-9-
<PAGE>
is appropriate, for each Plan Year following the date on which the
Investment Accrual is so credited.
4.4 Pursuant to Section 3.5(c) of the Plan, a Participant may change any Plan
Year's Investment Accrual held in his Investment Accrual Account from one
sub-account to the other for purposes of future credits of interest or
appreciation in value. Such change will be based on the value of the Fixed
or Stock portion of the account as of the last day of the Plan Year, and
the value as determined as of that date will then be allocated to the Fixed
or Stock account as the Participant has elected.
4.5 Investment Accruals will be held in the Participant's Investment Accrual
Account and credited with interest or appreciation as of the last day of
each Plan Year for Investment Accruals held in Participant's Stock Account,
the value of appreciation credited will be calculated as set forth in
subparagraph (a) or (b) hereof, whichever is applicable. For purposes of
subparagraphs (a) and (b) hereof, the term "Required Volume of Shares"
shall mean a number of shares of the Company's common stock equal to one-
fourth of one percent (.25%) of all shares of the Company's common stock
then outstanding.
(a) If the Company's common stock is publicly traded-on the last day
of the Plan Year, then the value of appreciation credited shall
be calculated on the basis of the average of the closing prices,
as
-10-
<PAGE>
reported in the quotation of over-the-counter stocks published
by the National Association of Securities Dealers, for the period
ending on December 31 and consisting of so many days as shall be
necessary to include transactions involving the Required Volume
of Shares, but in no case fewer than seven (7) business days.
(b) If the Company's common stock is not publicly traded on the last
day of the Plan Year, or if the total number of shares traded in
the public market during the Plan Year is less than the Required
Volume of Shares, then the value of appreciation credit shall be
calculated on the basis of the average of the prices per share
known by the Company to have been paid in bona fide trades
involving, in the aggregate, the Required Volume of Shares,
beginning with the trade occurring nearest to December 31 and
proceeding backward in order of time for as many days as is
necessary to include trades involving the Required Volume of
Shares, by dividing (i) the total dollar amount paid in all
included trades by (ii) the total number of shares purchased in
all included trades.
-11-
<PAGE>
ARTICLE V
---------
PAYMENT OF BENEFITS
-------------------
5.1 As to each Investment Accrual credited to his Account, cash payments of
benefits to a Participant during his employment will be made:
(a) Provided that he is then employed by the Company, as of the second
anniversary of the date on which an Investment Accrual was made to his
Account, in an amount equal to 50% of the Investment Accrual, adjusted
to reflect interest, dividends, earnings, gains or losses then
credited to it; and
(b) Provided that he is then employed by the Company, on the Vesting Date
for each Investment Accrual, in an amount equal to the value of that
Investment Accrual, adjusted to reflect interest, dividends, earnings,
gains or losses then credited to it, to the extent that such value has
not been distributed pursuant to paragraph (a).
A cash payment pursuant to this Section 5.1 will be made no later than the
January 31 next following the date as of which its amount is determined.
5.2 A Participant (or, in the case of a Participant's death, his Beneficiary)
who terminates his employment with the Company because of his death,
disability or retirement shall be entitled to receive, at the time and in
the manner specified in Section 5.3, the sum of:
(a) The value of his Investment Accrual Account as of the first day of the
month following his termination of employment (or, if later, the date
on which the
-12-
<PAGE>
Committee determines that he has suffered a Disability
within the meaning of Section 2.5); and
(b) An amount equal to the interest, dividends, earnings, gains, or losses
that would have been credited to his Account if the current Plan year
had ended on the date of his termination of employment; and
(c) An amount equal to the Investment Accrual that would have been
credited to his Investment Accrual Account if the current Plan Year
had ended on the date of his termination of employment.
5.3 Payment of benefits determined under Section 5.2 shall be made in cash in
one or more installments, as the Committee in its sole discretion shall
determine, and shall commence within sixty (60) days after the
Participant's termination of employment (or, if later, the date on which
the Committee determines that he has suffered a Disability within the
meaning of Section 2.5).
5.4 A Participant shall forfeit his entire Investment Accrual Account if either
of the following circumstances occurs:
(a) He is discharged from the Company because of his act or acts which
result(s) in injury to the Company's business reputation or financial
well-being; or
(b) He engages, without the consent of the Company, during his employment
with the Company or at any time during the three (3) month period
following his voluntary or involuntary termination of employment with
the Company, in employment or business activity in the cable
television field (whether or not for compensation and whether as an
employee, officer, director, agent, consultant, proprietor, partner,
principal stockholder or otherwise) other than as required in the
performance of his duties and responsibilities to the Company, within
fifty (50) radius miles of any market in which (i) the Company at the
time of his termination of employment has committed its efforts toward
applying
-13-
<PAGE>
for, securing, exercising or renewing an operating franchise,
or (ii) the Company is at such time conducting business operations.
Amounts so forfeited by terminated Participants shall not becredited to
other Participants.
5.5 A Participant whose employment with the Company is terminated other than
for reasons of death, disability or retirement, and under circumstances
other than those specified in Section 5.4, and whose Investment Accrual
Account includes one or more Investment Accruals for which an account has
been credited for at least 24 full months, shall receive a benefit with
respect to each such Investment Accrual, the amount of which shall be the
product of:
(a) The amount of such Investment Accrual, together with any interest,
dividends, earnings, gains, or losses credited to it as of the last
day of the Plan Year next preceding the Plan Year in which the
Participant's employment terminates; and
(b) A fraction, the numerator of which is the number of whole calendar
months in the period beginning on the date such Investment Accrual was
credited to the Participant's Account and ending on the date of his
termination of employment, and the denominator of which is forty-eight
(48).
Each benefit so determined shall be payable in cash within sixty (60) days
of the date on which the Committee shall determine that he is entitled to
benefits in accordance with this Section 5.5.
-14-
<PAGE>
ARTICLE VI
----------
EMERGENCY DISTRIBUTIONS
-----------------------
6.1 In the event of serious financial hardship, a Participant who is employed
by the Company may apply in writing to the Committee for an Emergency
Distribution, specifying the nature and extent of the financial hardship.
6.2 Emergency Distributions shall be permitted only in situations of serious
financial hardship, including (but not limited to) extraordinary medical
expenses or funeral expenses of a member of the Participant's immediate
family, impending personal bankruptcy of the Participant, expenses in
connection with the Participant's transfer to a new job location, property
losses due to a natural disaster, or other bona fide financial emergency
arising for reasons beyond the control of the Participant.
6.3 The amount of any Emergency Distribution shall be determined by the
Committee in its sole discretion, and shall not exceed the amount to which
the Participant would be entitled under Section 5.5 of the Plan if his
employment had terminated on the date of the Emergency Distribution. The
value of the Participant's Investment Accrual Account shall be decreased by
the amount of an Emergency Distribution made
-15-
<PAGE>
to him, beginning as though the earliest-credited Investment Accrual in his
Account had been distributed to him, and working forward in order of time.
-16-
<PAGE>
ARTICLE VII
-----------
GENERAL MATTERS
---------------
7.1 Benefits under the Plan will be paid by the Company from its general
assets. No funds or assets will be segregated or physically set aside, and
no trust or escrow of any kind will be created, with respect to the Plan by
the Company.
7.2 Except as set forth in Section 3.6, benefits payable under the Plan will
not be subject to assignment, transfer, sale, pledge, encumbrance,
alienation or charge by a Participant or Beneficiary.
7.3 The authority for the administration and interpretation of the Plan will be
vested in the Plan Committee. The Plan Committee may appoint an officer of
the Company to attend to the regular administrative details of the Plan.
7.4 The Plan may be amended or terminated at any time by the Company. However,
no amendment or termination of the Plan may have a material adverse effect
upon any Participant's rights under the Plan unless he or she consents to
such amendment or termination in writing.
-17-
<PAGE>
7.5 The Plan will not affect a Participant's right to participate in any other
employee benefit plan or program sponsored by the Company, if the
Participant is otherwise eligible to participate.
7.6 This Plan shall be binding on any successor company or companies in the
event of the sale of the Company. In the event of the sale of a division
or subsidiary of the Company, the Plan shall be binding on the purchasing
company. The term "sale" as used in the two immediately preceding
sentences shall include a sale of assets which is in effect a sale of a
division or subsidiary of the Company, or of the Company itself.
7.7 The interpretation of this Plan document by the Committee shall be made
under the laws of the Commonwealth of Massachusetts.
-18-
<PAGE>
EXHIBIT 10.14
AGREEMENT
---------
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 described
on Schedule A attached hereto (the "Systems"), and Seller wishes to sell to
-------
Buyer and Buyer wishes to buy from Seller control of the Systems on the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, Buyer has requested that the purchase of the Systems by it 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 herein, all of
which shall occur simultaneously.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
<PAGE>
-2-
ARTICLE 1
GLOSSARY OF DEFINED TERMS
-------------------------
1.1 Definitions. As used herein, the following terms shall have the
-----------
following meanings (terms defined in the singular to have the same meanings when
used in the plural and vice versa):
---- -----
"Accounts Receivable" shall mean all amounts owed as of the Closing Date
-------------------
from subscribers to the Systems for services rendered to such subscribers
through the Closing Date but shall not include any portion of a subscriber
account which is in dispute as of the Closing Date.
"Annualized Per Subscriber Reduction" shall mean the amount of any
-----------------------------------
reduction calculated on an annual basis which is required to be made, as a
result of a Rate Regulatory Reduction Order, to the aggregate rates charged to a
Basic Subscriber at the Systems for broadcast basic cable television service and
expanded basic cable television service from the aggregate rates charged for
such services by Seller as of October 31, 1994.
"Approved Additional Capital Expenditures" shall mean any and all
----------------------------------------
expenditures in respect of any one or more of the Systems, other than Ordinary
Course Capital Expenditures, made or committed to be made by the Seller during
the period from the date of this Agreement through the Closing Date in respect
of capital assets or which, under generally accepted accounting principles,
would be classified as capital expenditures; provided, however, than an
-------- -------
expenditure in respect of any of the Systems shall not be treated as an Approved
Additional Capital Expenditure for the purposes of this Agreement unless the
Buyer shall have approved in writing, at any time prior to the Closing
<PAGE>
-3-
Date, the acquisition of the capital assets or the general capital program in
respect of which such capital expenditures were incurred.
"Assets" means the assets, rights and properties of Seller to be
------
contributed to the Company pursuant to Section 2.1 hereof.
"Basic Number" shall mean the number of Basic Subscribers on the
------------
Calculation Date.
"Basic Subscribers" shall mean, as at any date of determination thereof,
-----------------
the sum of (a) the total number of households (exclusive of "additional
outlets," as such term is commonly understood in the cable television industry,
and also exclusive of customers billed on a bulk-billing or commercial-account
basis) subscribing on such date to the Systems and paying the standard monthly
service fees and charges (whether for "broadcast basic" or "expanded basic
service") imposed by the Seller (excluding regularly offered discounts, such as
senior citizen's discounts and the like), provided that such term shall not
include any household whose account constitutes a "Delinquent Account," or which
has not paid at least one payment as billed, as of such date of determination,
plus (b) the total number of Equivalent Subscribers of the Systems on such date.
- ----
"Billing Period" shall mean the period from the first day of a month
--------------
through and including the last day of such month.
"Business Day" shall mean any day, excluding Saturday and Sunday and
------------
excluding any other day which in the State of New York, the State of Michigan or
The Commonwealth of Massachusetts is a legal holiday or a day on which banking
institutions are authorized by law to close.
<PAGE>
-4-
"Cable Act of 1992" shall mean the Cable Television Consumer Protection and
-----------------
Competition Act of 1992.
"Calculation Date" shall mean the last Business Day of the Billing Period
----------------
immediately preceding the Closing Date.
"Cleanup" shall mean all actions taken or to be taken pursuant to the
-------
requirements of applicable Environmental Laws to: (a) clean up, remove, treat or
remediate Hazardous Materials in the environment; (b) prevent the Release of
Hazardous Materials so that they do not migrate, endanger or threaten to
endanger public health or welfare or the environment; (c) perform pre-remedial
studies and investigations and post-remedial monitoring and care; or (d) respond
to any government requests for information or documents in any way relating to
cleanup, removal, treatment or remediation or potential cleanup, removal,
treatment or remediation of Hazardous Materials in the environment.
"COBRA" shall mean the Consolidated Omnibus Reconciliation Act of 1985, as
-----
amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Communications Act" shall mean the Communications Act of 1934, as amended,
------------------
the Cable Communications Policy Act of 1984, and the Cable Act of 1992.
"Condition" shall mean, with respect to the Seller, the business,
---------
operations, assets, condition (financial or otherwise) or results of operations
of the Systems taken together as a whole.
<PAGE>
-5-
"Continuing Employees of Seller" shall mean those employees of Seller who
------------------------------
are (i) offered employment with the Company or the Buyer from and after the
Closing Date and (ii) actually enter the employ of the Company or the Buyer from
and after the Closing Date.
"Delinquent Account" shall mean, as of any date of determination thereof,
------------------
an account which has failed to pay an amount billed for cable service within 45
days of the first day of the period covered by such bill or, with respect to the
accounts on Schedule 1.1, the time periods specified therein. For example, if
the Seller sent a bill to a subscriber on August 25, 1994 for cable service
provided during the month of September 1994, such subscriber will become a
"Delinquent Account" on the next succeeding Calculation Date following the
expiration of the month of September 1994, if such amount so billed is not paid
in full on or prior to such next succeeding Calculation Date. An account will
not be deemed a Delinquent Account merely due to (i) accrued and unpaid
interest, (ii) late charges, (iii) service charges, (iv) amounts which are in
dispute or (v) because of an unpaid balance from a prior month if at least 75%
of the amount due in respect of such month has been paid in full, provided,
--------
however, that not more than 500 accounts to which this sentence applies may be
- -------
included in the calculation, at any Calculation Date, of Basic Subscribers or
Equivalent Subscribers.
"Environmental Laws" shall mean any federal, state and local laws which are
------------------
applicable to the Systems concerning (a) Releases (as defined in Section 5.1(n))
into any part of the environment,
<PAGE>
-6-
or (b) protection of natural resources, the environment and public and employee
health and safety, as such laws have been and may be amended or supplemented
through the Closing Date, and the regulations promulgated pursuant thereto.
"Equivalent Subscribers" shall mean, as at any date of determination
----------------------
thereof and as to any System, the total number of equivalent households served
by such System on a bulk-billing or commercial account basis, which shall be
deemed to be equal to the quotient obtained by dividing (a) the total fees and
charges for "broadcast" and/or "expanded" basic service billed by the Seller
during the month ended on (or most recently ended prior to) such date on a bulk-
billing or commercial account basis in respect of such System, by (b) the
weighted average standard monthly charge for "broadcast" and/or "expanded" basic
service that Basic Subscribers to such System of the type described in clause
(a) of the definition of such term in this Section 1.1 were billed during the
Billing Period ended on the last day of the last month prior to the Closing
Date. In calculating Equivalent Subscribers no sums shall be included with
respect to any account which constitutes a "Delinquent Account" as of the date
of determination or as to which at least one payment, as billed, has not been
made.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
the same may be amended from time to time, and the regulations promulgated
thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business which is
---------------
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code)
<PAGE>
-7-
as Seller or is under common control (within the meaning of Section 414(c) of
the Code) with Seller.
"Excluded Assets" shall mean the assets described in Section 2.2 hereof.
---------------
"FCC" shall mean the Federal Communications Commission.
---
"FCC Licenses" shall mean all licenses, permits, and authorizations issued
------------
by the FCC to Seller and used or useful in the operation of any System.
"Financial Statements" shall mean Seller's audited consolidated financial
--------------------
statements for the year ended December 31, 1993, the audited financial
statements with respect to the Systems for the year ended December 31, 1993 and
the unaudited financial statements with respect to the Systems for the fiscal
quarters ended March 31, 1994 and June 30, 1994.
"Final Order" shall mean an order of a governmental authority (i) as to
-----------
which the time for filing a request for administrative or judicial relief, or
for instituting administrative review sua sponte, shall have expired without any
--- ------
such filing having been made or notice of such review having been issued; or
(ii) in the event of such filing, or review sua sponte as to which such filing
--- ------
or review shall have been denied, dismissed, withdrawn or abandoned and the time
for seeking further relief or for instituting further administrative review sua
---
sponte with respect thereto shall have expired without any request for such
- ------
further relief having been filed or notice of such review having been issued.
"First Refusal Areas" shall mean those areas where a party which has
-------------------
entered into an MDU Agreement with Seller may have a
<PAGE>
-8-
right of first refusal to purchase the portion of the Systems which is covered
by such MDU Agreement.
"First Refusal Systems" shall mean those communities listed on Schedule A
---------------------
attached hereto where a Franchise may provide a Franchising Authority with a
right of first refusal to purchase the portion of the Systems covered thereby as
a consequence of the transactions contemplated by this Agreement.
"Franchises" shall mean the ordinances, resolutions, certificates of
----------
approval and other governmental approvals issued by any Franchising Authority
authorizing Seller to construct and operate any System.
"Franchising Authority" shall mean any state, municipal, county or
---------------------
governmental agency, commission, officer or authority with jurisdiction in
respect of the Franchises and the Systems.
"Hart-Scott Act" shall mean the Hart-Scott Rodino Antitrust Improvements
--------------
Act of 1976, as amended.
"Hazardous Material" shall mean any matter containing substances: (A) which
------------------
are prohibited or regulated pursuant to any Environmental Law; or (B) which are
petroleum products or by-products, asbestos-containing material, urea
formaldehyde foam insulation, polychlorinated biphenyls, radioactive materials
or radon gas.
"Leases" shall mean all leases and subleases, licenses, easements, grants,
------
pole attachment and conduit or trench agreements and other attachment rights and
similar instruments under which Seller has the right to use real or personal
property or rights of way.
<PAGE>
-9-
"Limited Partners" shall mean the holders of limited partnership interests
----------------
in Seller.
"Losses or Expenses" shall mean any and all liabilities, obligations,
------------------
losses, damages, deficiencies, demands, claims, penalties, assessments,
judgments, actions, proceedings and suits of whatever kind and nature and all
reasonable costs and expenses relating thereto (including reasonable attorneys'
fees). In calculating any Loss or Expense there shall be deducted therefrom any
insurance recovery in respect thereof received by the party seeking
indemnification.
"Managing General Partner" shall mean Columbia International, Inc., a
------------------------
Delaware corporation.
"Material Adverse Effect" shall mean any matter which could reasonably be
-----------------------
expected to materially and adversely affect the Condition of the Systems, taken
together as a whole.
"MDU Agreements" shall mean all agreements between the Seller and any
--------------
Person providing for licenses, easements and right-of-entry agreements with
respect to apartment buildings, condominium complexes, cooperatives, hotels,
motels, office buildings, trailer parks, or other multiple unit buildings for
the purpose of providing such bulk-billing units with cable television
programming through the Systems.
"Ordinary Course Capital Expenditures" shall mean any and all expenditures
------------------------------------
made in connection with the acquisition of a capital asset or expenditures
which, under generally accepted accounting principles, would be classified as
capital expenditures, and which are necessary for the operation of the Systems
in the ordinary course of business as previously
<PAGE>
-10-
conducted by the Seller at the Systems, and as set forth for the remainder of
fiscal 1994 and all of fiscal 1995 in Schedule 1.2.
"Partnership Agreement," shall mean the Amended and Restated Agreement of
---------------------
Limited Partnership of Columbia Associates, L.P., dated as of June 2, 1992, by
and among the Managing General Partner, Liberty of Greenwich, Inc., a Colorado
corporation as General Partner, and the parties listed on Schedule A attached
thereto as the Limited Partners.
"Permitted Liens" shall mean: (i) liens, claims or encumbrances imposed by
---------------
law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or
liens arising out of judgments or awards against Seller with respect to which
Seller at the time shall currently be prosecuting an appeal or proceedings for
review or the time for doing so has not yet expired; (ii) liens for taxes not
yet subject to penalties for nonpayment and liens for taxes the payment of which
is being contested in good faith or the time for doing so has not yet expired
and for which adequate reserves have been provided; (iii) survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
rights of way, highway and railroad crossings, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real properties, or other defects in title, which do not in the
aggregate materially detract from the value of said properties or materially
impair their use in the operation of any System; (iv) liens incidental to the
operation of the Systems or to the ownership of Seller's property which were not
incurred in connection with indebtedness of Seller, which liens do not in the
<PAGE>
-11-
aggregate materially detract from the value of said properties or materially
impair their use in the operation of the Systems; (v) rights of the franchisors
under the Franchises to the extent the same are set forth in the Franchises; and
(vi) security interests in the Assets held by the Seller's bank lenders which
shall be released on the Closing Date.
"Person" shall mean a corporation, association, joint venture, partnership,
------
trust, business, individual, government or political subdivision thereof, or
governmental agency or authority.
"Plan" shall mean an employee benefit or other plan established or
----
maintained by Seller and which is covered by Title IV of ERISA.
"Pole Rental Leases" shall mean permits and Leases under which Seller has
------------------
the right to use municipal or utility company, telephone or other poles,
conduits or trenches for the purpose of supporting or housing cables comprising
an element of a System.
"Rate Regulatory Matters" shall mean any matter or any effect on the
-----------------------
Seller, the Company or any System, or the past, current or prospective business
or operations thereof, arising out of or related to the Cable Act of 1992, any
regulations heretofore or hereafter adopted thereunder, or any other federal,
state or local law or regulation dealing with, limiting or affecting the rates
which can be charged by cable television systems to their subscribers (whether
for programming, equipment, installation, service or otherwise).
"Rate Regulatory Reduction Event" shall mean any federal, state or local
-------------------------------
governmental or regulatory action relating to Rate
<PAGE>
-12-
Regulatory Matters which leads to a reasonable likelihood that a Final Order
will be issued which will effectuate a reduction in the aggregate rates charged
to Basic Subscribers for broadcast basic cable television service and expanded
basic cable television service from the aggregate rates charged by Seller for
such services as of October 31, 1994.
"Rate Regulatory Reduction Order" shall mean a Final Order issued by a
-------------------------------
federal, state or local governmental or regulatory authority relating to Rate
Regulatory Matters which effectuates a reduction in the aggregate rates charged
to Basic Subscribers for broadcast basic cable television service and expanded
basic cable television service from the aggregate rates charged by Seller for
such services as of October 31, 1994.
"Release" shall mean any spill, emission, leaking, pumping, injection,
-------
discharge, disposal, pouring, emptying, escaping, dumping or migration of a
Hazardous Material into the environment (including the abandonment or discarding
of barrels, containers and other closed receptacles containing any Hazardous
Material).
"Required Consents" shall mean the Required Franchise Consents, the
-----------------
Required MDU Agreement Consents, the Required FCC Consents, the Required Pole
Rental Consents, the Required Retransmission Consent Agreement Consents and the
Required Other Consents that must be obtained in order for the condition set
forth in Section 7.1(d) to be satisfied.
"Retransmission Consent Agreements" shall mean the agreements or consents
---------------------------------
executed or delivered as contemplated pursuant to Section 6 of the Cable Act of
1992 permitting the
<PAGE>
-13-
retransmission of signals of certain broadcasting stations over the Systems.
"System" shall mean any cable television system described on Schedule A
------
attached hereto, and any subsequent extensions thereof and additions thereto.
1.2 Additional Definitions. The following terms defined elsewhere in
----------------------
this Agreement shall have the respective meanings therein defined:
<TABLE>
<CAPTION>
Term Definition
---- ----------
<S> <C>
Adjustment Notice Section 3.3(c)
Agreement Introduction
Applicable Subscriber Number Section 3.3(a)
Buyer Introduction
CCO Section 2.2(f)
CCW Section 2.2(e)
CLI Section 5.1(m)(vii)
Closing Section 4.1
Closing Date Section 4.1
Closing Escrow Agent Section 3.2(b)
Closing Escrow Agreement Section 3.2(b)
Closing Escrow Amount Section 3.2(b)
Contract Escrow Agent Section 3.2(a)
Contract Escrow Agreement Section 3.2(a)
Contract Escrow Amount Section 3.2(a)
Designated Accountant Section 3.3(c)
Disclosure Schedule Section 5.1
Employee Plans Section 5.1(i)
Exceptions Section 5.1(b)
Material Agreements Section 5.1(d)
Minimum Subscriber Number Section 3.3(a)
Other Material Agreements Section 5.1(d)
Purchase Price Section 3.1
Renewal Franchise Section 5.1(m)(i)
Required Consents Section 5.1(d)
Required FCC Consents Section 5.1(d)
Required Franchise Consents Section 5.1(d)
Required MDU Agreement Consents Section 5.1(d)
Required Other Consents Section 5.1(d)
Required Pole Rental Consents Section 5.1(d)
Required Retransmission Consent
Agreement Consents Section 5.1(d)
Response Notice Section 3.3(c)
Seller Introduction
Willamette Section 2.2(f)
</TABLE>
<PAGE>
-14-
ARTICLE 2
CONTRIBUTION OF ASSETS OF THE SYSTEMS;
--------------------------------------
ISSUANCE AND SALE OF THE SHARES
-------------------------------
2.1 Contribution of Assets.
----------------------
At the Closing, Seller shall contribute, assign, convey, bargain, grant and
deliver to the Company, and the Company shall acquire from Seller, all on the
terms and conditions hereinafter set forth, all of Seller's assets, rights and
properties used or useful in the operation of the Systems (but excluding those
assets described in Section 2.2 hereof), all as the same exist on the Closing
Date, free and clear of all liens, claims and encumbrances, other than Permitted
Liens, including, without limitation:
(a) All property (real and personal), plant, equipment, improvements,
leasehold interests and other operating and related facilities of Seller used or
held for use in connection with the Systems, including all motor vehicles,
tools, test equipment, underground pipes and conduits, all cables, strand, and
wires, all subscriber house drops, all poles, amplifiers, receptacles and
outlets, all cable hardware, the real property upon which any of Seller's towers
or headends used in connection with the Systems are constructed, and all towers,
tower facilities, headends, antennas, land, buildings and satellite earth
receiving stations used or maintained by Seller in connection with the Systems
and Seller's right, title and interest in and to the operating and other
facilities used or held for use at the Systems in connection with the
origination, broadcasting and reception of television signals and the
transmission thereof.
<PAGE>
-15-
(b) All inventories (including, without being limited to,
inventories of materials, spare parts and other supplies) used or maintained
by Seller in connection with the Systems, as well as all office supplies used
or maintained by Seller directly in connection with the Systems, and on hand
at the Closing.
(c) The Franchises, MDU Agreements, FCC Licenses, Leases, Pole Rental
Leases, Retransmission Consent Agreements, Other Material Agreements and all
programming agreements and other agreements (except to the extent that the
Disclosure Schedules indicate that Buyer has elected not to assume such
programming and other agreements), consents, permits, licenses and instruments
which relate to the operation by Seller of the Systems.
(d) All drawings, blueprints, plans and processes, including System
maps, developed or acquired by Seller and used or held for use in connection
with the Systems.
(e) Seller's files of correspondence, lists and records concerning
past, present and prospective customers of the Systems and television stations
whose transmissions are or may be carried by the Systems, and with all
federal, state or local regulatory agencies, relating to the Systems. All of
the foregoing files, lists and records reasonably required by Seller for the
preparation of tax returns and the like shall, on reasonable notice, be made
available to Seller, during normal business hours, for examination and
duplication (at Seller's expense) after the Closing at Buyer's East Lansing,
Michigan office for a period of three years. At least 60 days prior to
destroying any of said files, lists and records, the Company or Buyer shall
give notice of its intention to do so to Seller's counsel named in Section
11.3 hereof. If Seller's counsel shall notify the Company or
<PAGE>
-16-
Buyer that Seller wishes to retain any of the files, lists or records which
the Company and Buyer intends to destroy, the Company or Buyer shall (at
Seller's expense) deliver such files, lists or records to a location designated
by Seller's counsel in said notification.
2.2 Excluded Assets.
---------------
Anything in the foregoing to the contrary notwithstanding, there shall be
excluded from the Assets:
(a) all of Seller's cash, cash equivalents and marketable securities
on hand as of the Closing Date and all other cash in any of Seller's bank
accounts, and, except to the extent an adjustment is made with respect thereto
in favor of Seller pursuant to Section 3.3(b) hereof, any and all insurance
policies, bonds, letters of credit or other similar items, and any cash
surrender value in regard thereto and, except to the extent provided in
Article 9, any claims receivable under any insurance policies;
(b) Delinquent Accounts;
(c) all books, records and documents relating to Seller's partnership
operations or operations not specifically referred to in Sections 2.1(c), 2.1(d)
or 2.1(e), including, without limitation, financial records, records as to
partnership interests and similar items;
(d) all claims, rights and interests of Seller for any period prior
to the close of business on the Closing Date, including claims receivable for
refunds under pole attachment
<PAGE>
-17-
agreements and from the FCC, and all claims in respect of tax refunds;
(e) Seller's partnership interest in Columbia Cable of Washington
("CCW") and all of the assets of the cable television systems owned by CCW;
---
(f) Seller's partnership interest in Columbia Cable of Oregon
("CCO") and the assets of CCO, including the outstanding capital stock of
---
Willamette Cable TV, Inc. ("Willamette"), and all of the assets of the cable
----------
television systems owned by Willamette and/or CCO; and
(g) All assets of any cable television systems owned by Seller other
than the Systems.
2.3 Issuance of Shares and Assumption of Liabilities. In consideration
------------------------------------------------
of the contribution to it of the Assets pursuant to Section 2.1 above, on the
Closing Date the Company shall (a) issue the Shares to the Seller, which Shares
shall be duly issued, fully paid and nonassessable and consist of all of the
outstanding shares of capital stock of the Company, and (b) assume all of the
liabilities of Seller described in Section 3.4.
2.4 Purchase of Shares. At the Closing, the Seller shall sell to the
------------------
Buyer, and the Buyer shall purchase (pursuant to the terms of Article 3 hereof),
the Shares.
ARTICLE 3
PURCHASE PRICE AND ADJUSTMENTS
------------------------------
3.1 Purchase Price and Allocation.
-----------------------------
The purchase price for the Shares under this Agreement (the "Purchase
--------
Price"), payable as hereinafter provided, shall be
<PAGE>
-18-
$155,000,000, subject to adjustment as hereinafter provided. In connection
with the contribution of the Assets to the Company, the aggregate fair market
value of the Assets, which the parties agree is equal to the Purchase Price
(plus or minus the adjustments provided for pursuant to Section 3.3 hereof),
shall, if the parties are so able to agree, be allocated among the assets
described in Section 2.1 as agreed to by the parties in writing within 60 days
after the Closing Date. Notwithstanding such allocation, the transactions
set forth herein are indivisible.
3.2 Payment of Purchase Price.
-------------------------
(a) Upon the execution and delivery of this Agreement, Buyer shall
deliver the sum of $7,500,000 (the "Contract Escrow Amount") to Citibank, N.A.
----------------------
(the "Contract Escrow Agent"), to be held in escrow by the Contract Escrow Agent
----------------------
pursuant to an escrow agreement (the "Contract Escrow Agreement") of even date
-------------------------
herewith, a copy of which is annexed hereto as Schedule 3.2(a). At the Closing,
the Buyer shall instruct the Contract Escrow Agent to pay over to Seller the
Contract Escrow Amount, and any interest and profits accrued thereon to Buyer,
as provided in the Contract Escrow Agreement.
(b) At the Closing, Buyer shall deliver the sum of $7,500,000, plus
any additional amounts required pursuant to Section 3.3(a) arising out of a
dispute over Seller's calculation of the Basic Number or less any additional
amounts required as a result of a reduction to the Purchase Price pursuant to
Sections 3.3(d) and (e) (collectively, the "Closing Escrow Amount") to
---------------------
Citibank, N.A. or any other financial institution mutually
<PAGE>
-19-
satisfactory to Seller and Buyer (the "Closing Escrow Agent") to be held in
--------------------
escrow by the Closing Escrow Agent pursuant to an escrow agreement (the
"Closing Escrow Agreement") substantially in the form of Schedule 3.2(b) hereto.
------------------------
(c) At the Closing, the Purchase Price, as adjusted pursuant to
Section 3.3 hereof, less (i) the Contract Escrow Amount, to the extent such is
paid over to Seller by the Contract Escrow Agent pursuant to the Contract
Escrow Agreement and (ii) the Closing Escrow Amount delivered to the Closing
Escrow Agent, shall be paid by Buyer to Seller by wire transfer of immediately
available funds to such account(s) at such bank(s) as Seller shall designate
by notice to Buyer given at least three days prior to the Closing Date.
3.3 Adjustments to Purchase Price.
-----------------------------
(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. 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 May
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 January through April or the months of October
through December. 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
<PAGE>
-20-
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) relating to no more than 1,000 Basic Subscribers.
If, after the date of execution and delivery of this Agreement, but prior to a
scheduled Closing Date, a casualty or unforeseen event beyond Seller's control
occurs which reduces the Basic Number to less than the Minimum Subscriber Number
on such scheduled Closing Date (based on the Seller's or Buyer's good faith
estimate of the Basic Number), then Seller may, by notice to Buyer setting forth
in reasonable detail the nature of the casualty or unforeseen event which has
caused the Basic Number to fall below the Minimum Subscriber Number, postpone
the Closing until the last Business Day of the second calendar month following
such scheduled Closing Date, but in no event shall the Closing Date be later
than December 31, 1995. At least fifteen days prior to the Closing, Seller
shall deliver to Buyer Seller's good faith estimate of the Basic Number. Buyer
and its representatives shall be entitled to review all books, records and other
documents used in the preparation of such estimate. Buyer shall, during the
fifteen-day period preceding the Closing Date, advise Seller of whether (i)
Buyer elects to terminate this Agreement because the Basic Number as calculated
by Seller is less than the Minimum Subscriber Number, or (ii) Buyer believes the
estimate to be accurate or, if it does not
<PAGE>
-21-
believe it to be accurate, shall provide Seller with the information and
calculations upon which its belief is based, including an estimate by Buyer of
the Basic Number. At the Closing, Seller shall deliver to Buyer a certificate
of the Managing General Partner, dated the Closing Date, setting forth Seller's
calculation of the Basic Number. If Buyer in good faith believes the
calculation is incorrect, then, at the Closing, Buyer shall pay to Seller the
Purchase Price, with adjustment pursuant to this Section 3.3(a) resulting from
Seller's calculation of the Basic Number only to the extent such is not
disputed by Buyer, and any further amounts to which Seller believes it is
entitled pursuant to this Section 3.3(a) but which are disputed by Buyer based
on Buyer's good faith estimate of the Basic Number shall instead be deposited
with the Closing Escrow Agent as part of the Closing Escrow Amount and shall
be treated as Unresolved Claims, under and as defined in the Closing Escrow
Agreement.
(b) All prepaid assets and other items of apportionment or
allocation, and all items of revenue or receivables relating to the Assets and
the Systems, including, without limitation, Accounts Receivable (other than
Delinquent Accounts) and other subscriber revenue or receivables, advertising
revenue or receivables (computed net of a reserve for bad debts calculated in
accordance with generally accepted accounting principles), payments and
deposits under the Franchises, the Leases, the Pole Rental Leases, copyright
fees, taxes, power and utility fees and deposits, liabilities in respect of
subscriber prepayments and deposits, and obligations for accrued salaries,
<PAGE>
-22-
wages, vacation, sick leave, severance, bonuses, other employment benefits and
related payroll items attributable to Continuing Employees of Seller, shall be
prorated as of the Closing, and the amounts thereof allocable or attributable
to periods ending on or prior to the Closing Date shall be for the account of
Seller and amounts thereof allocable or attributable to periods after the
Closing Date shall be for the account of the Company and the Buyer. It is
expressly agreed that any amounts actually expended by the Seller in respect
of Approved Additional Capital Expenditures shall be deemed expenses incurred
solely for the benefit of the Buyer and shall result in an upward adjustment
to the Purchase Price in favor of Seller equal to the amount thereof and all
liabilities or amounts payable in respect of Approved Additional Capital
Expenditures as of the Closing Date shall be assumed by Buyer and the Company
and there shall be no downward adjustment to the Purchase Price in respect
thereof. A preliminary list of all adjustments pursuant to this Section
3.3(b) shall be prepared by Seller and delivered to Buyer at least five days
prior to the Closing. Buyer and its representatives will be entitled to
review such list and shall have full access to all books, records and other
documents used in the preparation thereof. A final list of all such
adjustments, as of the Closing, shall be prepared jointly by Buyer and Seller
within 30 days after the Closing Date. An initial adjustment and payment of
the net amount of the adjustment to which Seller or Buyer may be entitled
under this Section 3.3(b) (to the extent not in dispute) shall be made at the
Closing, and a final adjustment and payment of the net amount
<PAGE>
-23-
thereof (to the extent not in dispute) shall be made on the 30th day
following the Closing (it being understood that all such payments to be made by
or for the account of the Seller shall be made out of the Closing Escrow Amount
pursuant to the Closing Escrow Agreement). If there is a dispute between Seller
and Buyer with respect to items included on either list (whether at the Closing
or on the 30th day following the Closing), the Buyer shall cause to be deposited
with the Closing Escrow Agent an additional amount equal to the amount in
dispute but not in excess of $1,500,000 which will be held under the Closing
Escrow Agreement until the dispute is resolved as provided in Section 3.3(c)
below.
(c) If there is a dispute between Seller and Buyer with respect to
the Basic Number or any items on the lists of adjustments prepared pursuant to
Section 3.3(b), such dispute shall be resolved as expeditiously as possible by
the accounting firm of KMPG Peat Marwick (the "Designated Accountant") through
---------------------
its New York City office or any other office experienced in cable television
related matters, or another firm of certified public accountants mutually
acceptable to the parties. If the Designated Accountant is unable or
unwilling to resolve such dispute and the parties are unable to agree upon
another firm of certified public accountants, then either party may demand
that the dispute be settled by notice to the other (the "Adjustment Notice")
-----------------
setting forth the name of the firm of certified public accountants designated
by the party giving the Adjustment Notice. The other party shall designate a
second firm of public accountants by notice ("Response Notice") given within
---------------
ten days
<PAGE>
-24-
of the giving of the Adjustment Notice. The two firms designated by the
parties shall select a third firm of certified public accountants to resolve
the dispute, provided, however, that if the firms are unable to agree upon a
third firm, within ten days after the giving of the Response Notice, then the
third firm of certified public accountants shall be a firm of certified public
accountants designated by the American Arbitration Association at the request
of either party. The decision of the Designated Accountant (or such other
firm of certified public accountants designated to resolve the dispute in
accordance herewith) shall be final and binding upon Seller and Buyer and
judgment thereon may be entered in any court of competent jurisdiction. Upon
resolution of such dispute, appropriate payment shall be made in accordance
with such resolution out of the Closing Escrow Amount pursuant to the Closing
Escrow Agreement. The parties shall be responsible for their respective
expenses in connection with such resolution, except the fees of the Designated
Accountant (or any other firm of certified public accountants designated to
resolve the dispute in accordance herewith) shall be divided equally between
Seller and Buyer.
(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 Closing Date as a result thereof and (b)
<PAGE>
-25-
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 73,000 if the Calculation
Date occurs at any time during the months of May through September
or the lesser of the Basic Number or 75,000 if the Calculation
Date occurs at any time during the months of January through April
or the months of October through December;
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 before May 1, 1995, 76,000 Basic
Subscribers;
ii) if the Closing occurs after April 30, 1995, but before
October 1, 1995, 74,000 Basic Subscribers; and
<PAGE>
-26-
iii) if the Closing occurs after September 30, 1995 but before
or on December 31, 1995, 78,000 Basic Subscribers.
e) Notwithstanding any provisions to the contrary contained
herein, Seller and Buyer agree that the maximum reduction to the
Purchase Price pursuant to Section 3.3(d) hereof as a result of a
Rate Regulatory Reduction Order shall be $7,500,000 and that any
such reduction to the Purchase Price will lead to an equivalent
reduction in the Closing Escrow Amount provided by Buyer to the
Closing Escrow Agent pursuant to Section 3.2(b) hereof.
3.4 Assumption of Liabilities.
-------------------------
On the Closing Date, the Company shall assume and pay, perform and
discharge and indemnify and hold harmless Seller from and against the following
liabilities, obligations and commitments of Seller, whether contingent or
otherwise, asserted or unasserted, mature or unmatured:
(a) All obligations of Seller relating to the operation of the Systems
which arise on or after the Closing Date under the Franchises, MDU Agreements,
FCC Licenses, Leases, Pole Rental Leases, Retransmission Consent Agreements,
Other Material Agreements, programming agreements and other agreements (except
with respect to such agreements, which as specified on the Disclosure Schedules,
Buyer will not be assuming) consents, permits, licenses and other instruments in
existence on the Closing Date and entered into in the ordinary course of
business
<PAGE>
-27-
and in accordance with Section 6.1(b) hereof, in each case to the
extent included in the Assets.
(b) All other obligations and liabilities of Seller relating to or
arising out of the ownership or operation of the Systems, except in the case of
such obligations and liabilities which relate to the period prior to the Closing
Date only to the extent such obligations and liabilities are specifically
referred to or described in the Disclosure Schedule as being assumed by the
Company pursuant to this Section 3.4(b).
(c) The obligation of the Seller and its assigns to provide cable
television services, including the obligation to provide free or reduced price
services to those persons identified on Schedule 3.4(c) attached hereto;
provided, however, that Buyer shall be obliged to provide free cable service to
- -------- -------
employees of Seller identified on such schedule only to the extent that any such
employee becomes and remains an employee of the Company or Buyer, and for so
long as it remains the Company's or Buyer's general policy to provide free
service to its employees.
(d) All obligations arising out of subscriber prepayments and
converter deposits and all other accrued and unpaid expenses that result in a
negative adjustment to the Purchase Price as provided in Section 3.3(b) hereof
but only to the extent of such adjustment.
(e) All liabilities and obligations in respect of sales, use, real
estate transfer and similar taxes relating to the transactions contemplated
hereunder (which shall be promptly paid by the Company or the Buyer).
<PAGE>
-28-
It is expressly understood and agreed by the parties that nothing in this
Agreement provides that either the Company or the Buyer is assuming any
liability of the Seller which is not specifically assumed by the Company and the
Buyer pursuant to this Section 3.4, including, without limiting the generality
of the foregoing, any obligation
(a) accruing on or after the Closing Date under any leases, contracts or other
agreements of Seller existing on the Closing Date which are of a nature
required to be listed on the Disclosure Schedule but are not so listed or
which are not assigned to and assumed by Buyer;
(b) with respect to federal income or excess profits taxes or state or local
income, sales, use, excise or franchise taxes, together with any interest
and penalties thereon arising out of or attributable to the conduct of
Seller's operation of the Systems prior to the Closing Date;
(c) with respect to any litigation or other legal proceeding (which is not
disclosed on or referred to in the Disclosure Schedules as being assumed
by the Company or Buyer) except for those which pertain to Rate Regulatory
Matters;
(d) with respect to wages, salaries, bonuses or overtime, sick, vacation or
holiday pay or other employee benefits or other employee benefit plans
arising out of or attributable to the conduct of Seller's operation of the
Systems prior to the Closing Date (except to the extent adjusted for
pursuant to Section 3.3(b) hereof in respect of Continuing Employees of
Seller who are retained by the Company and Buyer, in which
<PAGE>
-29-
case such obligations will be assumed by the Company and the Buyer to the extent
of such adjustment);
(e) with respect to federal income or capital gains taxes or state or local
income or franchise taxes arising by virtue of the transactions
contemplated by this Agreement; or
(f) any tort, crime or workmen's compensation claim or any other claim based
on any acts, omissions or facts occurring prior to the Closing Date which
is not disclosed on the Disclosure Schedules.
It is also expressly understood and agreed that, from and after the Closing
Date, Buyer will guarantee the full and prompt payment and performance of all
liabilities and obligations assumed by the Company under this Agreement, and pay
or perform such liabilities and obligations to the extent the Company shall fail
to do so.
ARTICLE 4
CLOSING TRANSACTIONS
--------------------
4.1 Closing Date.
------------
The closing of the transactions provided for herein (the "Closing") shall
-------
take place at the offices of Seller's counsel, Rubin Baum Levin Constant &
Friedman ("RBLCF"), at 10:00 A.M. local time on the last Business Day of the
month in which the parties hereto have satisfied or waived all of the conditions
set forth in Section 7.3 (such date and time being hereinafter called the
"Closing Date"), provided that, at the time notice of the satisfaction of such
- -------------
conditions is sent to Buyer as provided below, Seller believes that the
conditions in Section 7.1 will be
<PAGE>
-30-
satisfied as of the Closing Date. 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 January 31, 1995 or later than October
31, 1995 (except as provided in Section 3.3(a)). By mutual agreement, the
parties may set a place, time or date for the Closing other than as provided
herein; in addition, the parties agree that if, upon the written advice of RBLCF
furnished to Buyer, it may be desirable or advantageous to the Seller or its
partners (for tax reasons relating to the sale or disposition by Seller of
certain of its assets other than the Assets) to postpone the Closing beyond the
day which would otherwise be designated as the Closing Date pursuant to the
first sentence of this Section 4.1, then the Closing may be postponed from time
to time to a date specified by Seller which shall be the earliest practicable
date thereafter, but not later than October 31, 1995 (except as provided in
Section 3.3(a) hereof). The Closing shall be effective as of the close of
business on the Closing Date.
If by October 31, 1995 (subject to Section 3.3(a)) the conditions referred
to in Section 7.3 have not been fulfilled (or waived by Buyer and Seller), then
either Buyer or Seller may terminate this Agreement by notice to the other,
provided that at the time such notice is given, such conditions have still not
been fulfilled and the party giving such notice is not in default of its
obligations hereunder which default is the basis of the failure of the condition
to be fulfilled. If by January 31, 1995, the conditions set forth in Section
7.1(g) shall not have
<PAGE>
-31-
been satisfied, Buyer may terminate this Agreement by notice to the Seller.
4.2 Closing Documents.
-----------------
(a) At the Closing, Seller will deliver to the Company such deeds,
bills of sale, endorsements, assignments, evidence of UCC termination statements
and other good and sufficient instruments of conveyance, transfer and consent,
all in form and substance reasonably satisfactory to Buyer's counsel, as shall
be effective to vest in the Company title to the Assets, free and clear of all
liens, claims and encumbrances other than Permitted Liens, and the Company shall
deliver to the Seller a certificate or certificates for the Shares, registered
in the name of the Seller.
In addition, at the Closing, Seller will deliver the following documents to
the Buyer:
(1) The certificates representing the Shares issued by the Company
to the Seller, with duly executed stock powers attached, together with such
documentation as shall be necessary to instruct the Company to cancel such
certificates and to issue new certificates for the Shares to be issued by the
Company to the Buyer.
(2) A certificate, dated the Closing Date, of the Managing General
Partner (executed by its president or any vice president) to the effect that (i)
the representations and warranties of Seller contained in this Agreement were
true and correct in all material respects when made and continue to be true and
correct in all material respects, and (ii) all agreements, covenants and
conditions required by this Agreement
<PAGE>
-32-
to be performed or complied with by Seller and the Managing General Partner
prior to or at the Closing have been performed or complied with in all material
respects.
(3) An opinion, dated the Closing Date and addressed to Buyer,
from Rubin Baum Levin Constant & Friedman, counsel to Seller, substantially in
the form of Schedule 4.2(a) (3) attached hereto.
(4) An opinion, dated the Closing Date and addressed to Buyer,
from Cole, Raywid & Braverman, communications counsel to Seller, substantially
in the form of Schedule 4.2(a)(4) attached hereto.
(5) Copies of the instruments, authorizations, approvals, consents
and orders of third parties referred to in Section 7.1(d) hereof.
(6) The certificate of the Managing General Partner (executed by
its president or any vice president) called for in Section 3.3(a) hereof
containing a calculation of the Basic Number and Seller's calculation of the
estimated net amount of the adjustments pursuant to Section 3.3(b).
(7) A counterpart of the Closing Escrow Agreement, duly executed
on behalf of the Seller.
(8) An instrument, duly executed by the Managing General Partner
and the Seller, to the effect that the existing management agreement between the
Managing General Partner and the Seller has been terminated without liability to
the Company or the Buyer, effective as of the close of business on the Closing
Date, insofar as such agreement relates to the management of the Systems or
otherwise deleting the Systems therefrom.
<PAGE>
-33-
(9) Resignations of all of the officers and directors of the
Company.
(b) At the Closing, Buyer will make the payments to the Seller and the
Closing Escrow Agent required hereunder and will deliver the following documents
to Seller:
(1) A certificate, dated the Closing Date, of Buyer (executed by
its president or any vice president) to the effect that (i) the representations
and warranties of Buyer contained in this Agreement were true and correct in all
material respects when made and continue to be true and correct in all material
respects and (ii) all agreements, covenants and conditions required by this
Agreement to be performed or complied with by Buyer prior to or at the Closing
have been performed or complied with in all material respects.
(2) An opinion, dated the Closing Date and addressed to Seller,
from Sullivan & Worcester, counsel to Buyer, substantially in the form of
Schedule 4.2(b)(2) attached hereto.
(3) The Company shall have delivered to Seller on the Closing Date
an assumption instrument executed by the Company, in form and substance
reasonably satisfactory to counsel to Seller, of the liabilities, obligations
and commitments of Seller set forth in Section 3.4 hereof.
(4) If the Buyer shall dispute Seller's calculation of the Basic
Number, then a certificate of the Buyer's President or any Executive or Senior
Vice President setting forth the nature and extent of such dispute and Buyer's
calculation of the Basic Number, and if Buyer shall dispute Seller's calculation
of the estimated net amount of the
<PAGE>
-34-
adjustments pursuant to Section 3.3(b), a certificate of Buyer's President or
any Executive or Senior Vice President setting forth the nature and extent of
such dispute and Buyer's calculation of the estimated net amount of such
adjustments.
(5) A counterpart of the Closing Escrow Agreement, duly executed
on behalf of the Buyer.
4.3 Further Assurances. From time to time, at Buyer's request and expense,
------------------
and without further consideration, Seller will duly execute, acknowledge,
deliver and perform all such further acts, deeds, assignments, transfers and
conveyances as may be reasonably required to convey to and vest in the Company
all of Seller's right, title and interest in and to the Assets and to perfect
Buyer's right, title and interest in and to the Shares, and will take such other
action and execute such other instruments as Buyer may reasonably request to
more effectively carry out the intent of this Agreement and to put the Buyer and
the Company in actual possession and control of the Assets and the Systems.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Seller's Representations and Warranties.
---------------------------------------
To induce Buyer to enter into this Agreement, Seller hereby represents and
warrants that, except as otherwise set forth on the disclosure schedule attached
hereto as Schedule 5.1 (the "Disclosure Schedule"), the following statements are
-------------------
true and correct as of the date hereof and will be true and correct on the
Closing Date in all material respects:
<PAGE>
-35-
(a) Organization and Qualification. The Seller is a limited
------------------------------
partnership duly organized and existing under the laws of the State of Delaware.
Each of the Managing General Partner and the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Seller, the Managing General Partner and the Company has
all requisite power and authority to own or lease its properties and to conduct
its business in the manner and in the places where such properties are owned or
leased and such business is conducted by it. The copies of the corporate charter
and the bylaws of the Managing General Partner and the Company heretofore
delivered to Buyer, are complete and correct copies thereof as amended to the
date of this Agreement. Each of the Seller, the Managing General Partner and the
Company is duly and validly qualified to conduct business as a foreign
corporation or partnership, as the case may be, in and is in good standing in,
each state wherein the character of the properties owned or the nature of the
activities conducted by such entity, respectively, make its qualification as a
foreign corporation or partnership, as the case may be, necessary; except where
the failure to so qualify would not have a Material Adverse Effect.
(b) Authority of Seller. The Seller has delivered to Buyer a true and
-------------------
complete copy of the Partnership Agreement as in effect on the date of execution
and delivery of this Agreement. This Agreement has been duly executed and
delivered by Seller and, subject to obtaining the approval of the Limited
Partners of the Seller referred to in Section 7.3(c) below, which Seller will
use its best efforts to obtain by January 31, 1995, will be the
<PAGE>
-36-
legal, valid and binding obligation of Seller, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws from
time to time in effect affecting creditors' rights generally or by principles
governing the availability of equitable remedies (collectively, the
"Exceptions"). Neither the execution and delivery of this Agreement by Seller,
----------
nor the performance by Seller of its obligations hereunder, does or will (i)
conflict with or result in a breach of (or, except as set forth on the
Disclosure Schedule, give rise to any right of termination or acceleration of)
any material lease, contract or other agreement or instrument by which the
Seller is an obligor or guarantor or to which any material asset of the Seller
is subject, (ii) result in the creation or imposition of any lien, claim or
encumbrance upon or interest in the Assets or upon the Shares, (iii) violate any
judgment or order of any court or governmental authority to which the Seller is
subject, or (iv) conflict with or result in a breach of the organizational
documents of Seller or the Company.
(c) Financial Condition. (i) Buyer has received true and complete
-------------------
copies of the Financial Statements. Such Financial Statements, including the
related notes, if any, have been (and the financial statements to be delivered
pursuant to Section 6.1(a), when delivered, will have been) prepared in
accordance with generally accepted accounting principles consistently applied
(except that unaudited statements may omit footnotes) and such Financial
Statements fairly present (and the financial statements to be delivered pursuant
to Section 6.1(a) hereof when
<PAGE>
-37-
delivered, will fairly present), in all material respects, the financial
position and results of operations of the Seller or the Systems (as the case may
be) as of the dates and for the periods covered thereby subject, in the case of
interim quarterly financial statements, only to customary year-end audit
adjustments.
(d) Consents. The Disclosure Schedule sets forth a true and complete
--------
list of the Franchises, the MDU Agreements, the Pole Rental Leases, the FCC
Licenses and the Retransmission Consent Agreements (and specifies, in respect of
the Franchises and the MDU Agreements, the respective areas covered thereby and
the expiration dates thereof) (the "Material Agreements"), and all other
-------------------
material agreements to which Seller is a party and which are material to the
ownership or operation of the Systems or the Assets (the "Other Material
--------------
Agreements"), and indicates any such agreements which are material to the
- ----------
operation of any System and which are not to be assigned to or assumed by the
Company hereunder. Also set forth on the Disclosure Schedule is a list of the
consents and approvals which the parties have agreed are required to be obtained
in connection with the transactions contemplated hereunder (i) under the
Franchises (the "Required Franchise Consents"), (ii) under the MDU Agreements
---------------------------
(the "Required MDU Agreement Consents"), (iii) under the FCC Licenses (the
-------------------------------
"Required FCC Consents"), (iv) under the Pole Rental Leases (the "Required Pole
--------------------- -------------
Rental Consents"), (v) under the Retransmission Consent Agreements (the
- ---------------
"Required Retransmission Consent Agreement Consents"), or (vi) under the Other
--------------------------------------------------
Material Agreements (the "Required Other Consents"). The
-----------------------
<PAGE>
-38-
consents and approvals referred to in subsections (i) through (vi)
of the preceding sentence are collectively referred to herein as the
"Required Consents".
-----------------
(e) Agreements. The Seller has delivered to Buyer a true and complete
----------
copy of each Material Agreement and Other Material Agreement which includes any
agreement which relates to any System and which involves unpaid aggregate
payment obligations (including contingent payment obligations) which are to be
assumed by the Company of more than $50,000 and which will be in effect as of
the Closing Date. All such agreements are listed on the Disclosure Schedule. The
Seller (and, as of the date hereof and to the knowledge of the Seller, each
other party to the agreements referred to in this Section 5.1(e)) are not in
default under any of the agreements listed on such Disclosure Schedule. All of
such agreements are valid, subsisting, in full force and effect and binding upon
the Seller except for such agreements where the failure to be valid, subsisting,
in full force and effect or binding does not have a Material Adverse Effect.
(f) Assets.
------
(i) The Disclosure Schedule contains a description of all real
property constituting a part of the Assets and all other rights in
real property set forth in a writing in Seller's possession which are
owned or leased by the Seller and constitute a part of the Assets. All
leases of real and personal property constituting a part of the Assets
are valid, subsisting, enforceable (subject to the Exceptions), and
binding upon the Seller and, to the knowledge of the Seller, upon the
other parties thereto in accordance with their terms (except for such
instances which do not have a Material Adverse Effect), and neither
the Seller nor, to the knowledge of the
<PAGE>
-39-
Seller as of the date hereof, any other party thereto is in default
thereunder in any material respect, which default could have a
Material Adverse Effect. As of the Closing Date the Seller has, and
upon the Closing the Company will have, good title in and to the
Assets, free and clear of all liens and encumbrances except for
Permitted Liens.
(ii) The Assets (a) meet, in all material respects, the
requirements, standards, rules and regulations of the Franchises and
the Franchising Authorities, (b) comply, in all material respects,
with applicable ordinances and regulations and building, zoning, and
other laws (except for such noncompliance as does not have a Material
Adverse Effect), and (c) are in good working condition, ordinary wear
and tear excepted and are suitable for use in the operation of the
Systems as heretofore operated.
(g) Absence of Certain Changes. From June 30, 1994 to the date hereof,
except as set forth on the Disclosure Schedule or on the Financial
Statements, the Seller has not:
(i) mortgaged, pledged or subjected to any material lien or
encumbrance any of the Assets, tangible or intangible, other than
Permitted Liens;
(ii) had any material difficulties relating to any System with
unions or any other material labor difficulties or work stoppages;
<PAGE>
-40-
(iii) suffered any material extraordinary losses relating to any
System or waived any rights of material value relating to any System;
(iv) entered into any material transaction relating to any System
not in the ordinary course of business;
(v) had any change in its Assets which is material to the
Condition of any System, or any change in the nature of its business
of any System or manner of conducting business relating to any System
(changes in personnel shall not be considered changes in the manner of
conducting business for purposes of this subparagraph), which have had
or may reasonably be expected to have a Material Adverse Effect;
(vi) engaged in any marketing practices with respect to any System
substantially different than those described on the Disclosure
Schedules; or
(vii) increased any compensation arrangements with any System
employee except salary increases and changes in bonus or commission
arrangements of no more than 10% in the aggregate or severance or
bonus arrangements to be paid by the Seller which are not to be
assumed by the Company at the Closing.
(h) Litigation, Etc. Except as set forth on the Disclosure Schedule:
---------------
(i) Other than with respect to Rate Regulatory Matters, no action,
litigation, arbitration or other proceeding (and, to the knowledge of
the Seller, no
<PAGE>
-41-
governmental investigation) is pending by or against or, to the
knowledge of the Seller, threatened against the Seller or any System
which could reasonably be expected to have a Material Adverse Effect;
and
(ii) The Seller is not subject or party to any judgment or order
of or stipulation with any court or other governmental authority, nor
is it now or has it been in violation of any provision of any law,
license, permit, approval or authorization (including applicable wage
and hour, equal employment, safety and other provisions of law
relating to its employees), which violation has had or could
reasonably be expected to have a Material Adverse Effect.
(i) Employees and Employee Benefit Plans. (i) The Disclosure Schedule
------------------------------------
lists all employees of the Systems whose annual total compensation exceeded
$75,000 for the fiscal year ended December 31, 1993, and their compensation for
such fiscal year, and all pension, retirement, profit-sharing, option,
variation, severance, bonus, medical, insurance and other benefit or incentive
plans covering the employees of the Systems (collectively, the "Employee
--------
Plans"). True and complete copies of all Employee Plans have been delivered to
- -----
Buyer. Each Employee Plan which is intended to be qualified under Section 401(a)
of the Code, and each related trust intended to be exempt from taxation under
Section 501(a) of the Code has received a favorable determination letter from
the Internal Revenue Service.
(ii) With respect to each Employee Plan:
<PAGE>
-42-
(a) the Seller is in compliance in all material respects with
any and all statutes, orders and governmental rules and
regulations currently in effect including the Code and ERISA,
applicable to each such Plan, and all returns and reports
applicable to each such Plan have been timely filed.
(b) the Seller has made all contributions to each such Plan
required by the terms of such Plan.
(c) no such Plan is subject to Part 3 of Subtitle B of Title I
of ERISA, Section 412 of the Code or Title IV of ERISA.
(d) the Seller has not engaged in any "prohibited transaction"
as defined in Section 406 of ERISA which would subject the Seller
to either a civil penalty assessed pursuant to Section 501 of
ERISA or a tax imposed by Section 4975 of the Code and which would
have a Material Adverse Effect.
(iii) To Seller's knowledge, no ERISA Affiliate has at any time
maintained a plan subject to Title IV of ERISA. To Seller's knowledge,
no ERISA Affiliate has engaged in any prohibited transaction as
defined in Section 406 of ERISA or Section 4975 of the Code which
could have a Material Adverse Effect. To Seller's knowledge, no ERISA
Affiliate has outstanding any violation of COBRA which could have a
Material Adverse Effect.
<PAGE>
-43-
(iv) No litigation pending or, to the knowledge of Seller,
threatened, exists with respect to any terminated employee benefit
plan.
(v) The Seller knows of no efforts to attempt to organize any of
the employees of the Systems, and no strike or material labor dispute
involving any System has occurred in the last three years nor, to the
knowledge of the Seller, is any threatened. None of the employees of
the Systems is represented by any labor union nor are there any
collective bargaining agreements otherwise in effect with respect to
such employees.
(j) Insurance. The Disclosure Schedule lists all insurance policies
---------
maintained by the Seller and relating to the Systems, all of which policies are
in full force and effect. The Seller is in compliance in all material respects
with all requirements of insurance carriers applicable to its business
activities relating to the Systems, except for such noncompliance as would not
reasonably be expected to have a Material Adverse Effect.
(k) Taxes. All federal, state, county and local tax returns, reports
-----
and declarations of estimated tax or estimated tax deposit forms required to be
filed by the Seller have been duly filed. Except for assessments challenged in
good faith as set forth on the Disclosure Schedule, the Seller has paid all
material taxes which have become due pursuant to such returns or pursuant to any
material assessment received by or on behalf of them, and has paid all
installments of estimated taxes computed by Seller as due. All material taxes,
levies and other
<PAGE>
-44-
assessments which the Seller is required by law to withhold or to collect have
been duly withheld and collected, and have been paid over to the proper
governmental authorities or are held by the Seller for such payment.
(l) Broker, Finders, Etc. Other than Waller Capital Corporation, the
fee of which will be paid by Seller, the Seller has not employed, and is not
subject to any claim of, any broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission from Buyer or the Company upon consummation of
the transactions contemplated hereunder.
(k) Operation of the Systems.
------------------------
(i) Each Franchise, and the MDU Agreements covering an aggregate
of not less than 90% of the Basic Subscribers covered by MDU
Agreements (the "Material MDU Agreements"), are the validly existing,
-----------------------
legally enforceable obligation of Seller (subject to the Exceptions)
and, to the best of Seller's knowledge, the other parties thereto. The
Seller is validly and lawfully operating the Systems under each
Franchise and the Material MDU Agreements, taken together as a whole,
in all material respects. The Seller has duly complied in all material
respects with all of the terms and conditions of each Franchise and
the Material MDU Agreements, taken together as a whole, and has not
done or performed nor failed to do or perform any act which would
invalidate its rights under any Franchise or the Material MDU
Agreements, taken together as a whole, or
<PAGE>
-45-
its rights to a renewal of any Franchise or the Material MDU
Agreements, taken together as a whole. Seller has no knowledge of any
breach by the other parties to any Franchise or the Material MDU
Agreements, taken together as a whole. No Franchising Authority has
advised Seller in writing, or otherwise formally notified Seller in
accordance with the terms of the applicable Franchise, of its
intention to deny renewal of an existing Franchise. Seller has 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 (the
"Renewal Franchises"). Such notices of renewal have been filed
------------------
pursuant to the formal renewal procedures established by Section
626(a) of the Communications Act. The Disclosure Schedule sets forth a
list of all complaints filed pursuant to the Communications Act and
received by the Seller designated as "valid", and further sets forth
those Franchises that have been certified or, to the Seller's
knowledge, filed for certification under the Communications Act with
respect to rate regulation and enforcement of FCC customer service
standards. The Seller has paid all required franchise fees being
charged in respect to the Systems and such current franchise fees are
set forth on the Disclosure Schedule.
<PAGE>
-46-
(ii) The Seller has not 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 the
Systems which are not fully reflected in the Franchises or the MDU
Agreements. The Seller has not entered into any written agreements
with community groups or similar third parties restricting or limiting
the types of programming that may be shown on the Systems. Seller has
delivered to Buyer true, complete and correct copies of all material
correspondence in Seller's possession with any Franchising Authority
regarding customer service with respect to the Systems.
(iii) The construction, maintenance and operation of the Systems
have been and are being conducted in compliance, in all material
respects, with all provisions of applicable 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, 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 jurisdictions 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, except for such
<PAGE>
-47-
noncompliance as, either individually or in the aggregate, does not
have a Material Adverse Effect. Without limiting the generality of the
foregoing, the aerial plant of the Systems, including trunk and
distribution cables, is connected in accordance with the terms of the
Franchises and industry standards and is at the approved height
therefor; all underground cable used by the Systems has been buried in
accordance with the terms of the Franchises and industry standards,
except for such noncompliance as, either individually or in the
aggregate, does not have a Material Adverse Effect.
(iv) The Seller has delivered to Buyer copies of all of its
existing design maps for the Systems.
(v) Each Person 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 Seller a valid, binding and
enforceable (subject to the Exceptions) agreement, each of which is in
full force and effect except in those cases where the failure to be
valid, binding, enforceable or in full force and effect does not have
a Material Adverse Effect. Other than as set forth on the Disclosure
Schedules, the Seller has not received any written notice that the
<PAGE>
-48-
Seller is violating any rights of any person or entity regarding any
easements related to the Systems.
(vi) The Disclosure Schedule sets forth all of the signals carried
by the Systems. The Seller has necessary authorizations from the FCC
and broadcast stations to carry and to continue to carry and use in
the conduct of the business of the Systems all of the signals now
being carried. The Seller is 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. With respect to the must carry and
retransmission consent provisions of the Communications Act and the
rules and regulations of the FCC, the Seller (in operating the
Systems) has (a) duly and timely notified "local commercial television
stations" of inadequate signal strength or increased copyright
liability, if applicable, (b) duly and timely notified non-commercial
educational stations of the location of the Systems' principal
headends, (c) duly and timely notified subscribers of changes in the
channel alignment of the Systems, (d) duly and timely notified "local
commercial and noncommercial television stations" of the broadcast
signals carried on the Systems and their channel positions, (e)
maintained the requisite public file identifying broadcast signal
carriage, (f) carried the broadcast signals after June
<PAGE>
-49-
1, 1993 on the Systems for "local commercial television stations" that
elected must carry status and, if required, up to two "qualified low
power stations", and (g) 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 election. 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. Seller has furnished or made available to Buyer
true, correct and complete copies of all notices and inquiries
provided to the Systems relating to syndicated exclusivity and network
nonduplication for all periods prior to the Closing Date.
(vii) The Seller has filed all reports, notifications and other
documents required to be filed with respect to the Systems with the
FCC. Without limiting the generality of the foregoing, (a) the Seller
has submitted to the FCC all 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
<PAGE>
-50-
usage notices related to the Systems that are required under the rules
and regulations of the FCC, (b) the operation of the Systems has been
and is in compliance with the Communications Act and the rules and
regulations of the FCC and the Seller has not received any notice from
the FCC of any violation of said Act, rules, or regulations, (c) the
Seller has timely provided all subscriber notices required by the
rules and regulations of the FCC, (d) the Seller is, and since 1986
has been, certified as in compliance with the FCC's equal employment
opportunity rules, (e) the Systems are in compliance with the FCC's
technical standards, (f) the Seller and the Systems are in compliance,
as required, with the FCC's consumer electronics equipment
compatibility rules including all subscriber notice requirements
thereunder, (g) to the extent required by the rules and regulations of
the FCC, the Seller 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 (h) the Seller has maintained
appropriate log books and other recordkeeping that accurately and
completely reflect in
<PAGE>
-51-
all material respects all results required to be shown thereon. The
Seller has made available to Buyer true, correct and complete copies
of all reports and filings with respect to the Systems for the one
year period preceding the date of this Agreement made or filed by the
Seller pursuant to FCC rules and regulations, and will make available
to Buyer all other past reports and filings with respect to the
Systems made or filed by the Seller pursuant to FCC rules and
regulations.
(viii) The Seller's operation of the Systems is in compliance with
the Copyright Act of 1976, as amended, and with all applicable rules
and regulations of the United States Copyright Office. The Seller has
filed all reports, notices and statements of account and has made all
other requisite filings and payments with the United States Copyright
Office. The Seller 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 Seller 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 Seller has furnished or made
available to Buyer true, correct and complete copies of all filings
with the United States Copyright Office
<PAGE>
-52-
with respect to the Systems that have been made in the three year
period preceding the date of this Agreement. 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.
(ix) The Systems have been constructed and equipped to deliver
down stream and are capable of delivering not less than 550 Mhz to all
customers in accordance, in all material respects, with the
specifications established by the FCC. Not less than 42,000 SA 8580
converters are being used in the Systems and constitute a portion of
the Assets, and not less than 40 miles of the Systems' plant has been
rebuilt with a fiber backbone.
(x) Except as set forth on the Disclosure Schedules, no written
complaints or demands have been received from any Franchising
Authority, subscriber or other interested party challenging the rates
charged by Seller to Basic Subscribers at the Systems for cable
television service. Seller has delivered to Buyer or made available
for Buyer's inspection, true, correct, and complete specimen copies of
(i) all FCC Forms 393 filed with Franchising Authorities and/or the
FCC and will deliver as soon as available all FCC Forms 1200, 1205,
1210, 1215 and 1220s that are prepared with respect to the Systems,
(ii) all material
<PAGE>
-53-
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 the Seller with
respect to the Systems.
(xi) The Seller has received no requests for carriage of
commercial leased access programming on the Systems which are
currently pending. The Systems do not carry promotional cablecasts of
premium channels that include programming rated X, NC-17, or R.
(xii) The Disclosure Schedule 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. Seller has delivered to Buyer 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, the Disclosure Schedule lists the signal and the
reason for non-carriage.
(xiii) As of the Closing Date, the Seller will have maintained a
controlling ownership in each System in its entirety for at least 36
consecutive months
<PAGE>
-54-
following the initial construction or acquisition of each such System
by the Seller, and 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.
(xiv) The number of Basic Subscribers as of September 23, 1994,
was not less than 71,000.
(n) Compliance with Environmental Matters. Except as set forth on the
-------------------------------------
Disclosure Schedule:
(i) The operations and activities of the Seller with respect to
the Systems comply and have complied in all material respects with all
applicable Environmental Laws and all rules and regulations
promulgated thereunder.
(ii) The Seller has delivered or made available to Buyer true and
complete copies of all environmental site assessments, reports and
studies in the Seller's possession made in the last five years
relating to the real property constituting a part of the Assets (the
"Real Property").
-------------
(iii) The Real Property has not been used by the Seller, or, to
the knowledge of the Seller, any other Person for the manufacture,
refining, treatment, storage or disposal of any Hazardous Materials.
(iv) No Release or Cleanup has occurred at the Real Property
which, to the knowledge of the Seller, is reasonably likely to result
in the assertion or creation of
<PAGE>
-55-
a material lien on the Real Property by any governmental body or
agency with respect thereto.
(v) The Seller has not received any notice or order from any
governmental agency or private or public entity advising it that it is
responsible for or potentially responsible for Cleanup of any
Hazardous Material or any other waste or substance on any Real
Property, nor does the Seller have a basis for believing that there is
a reasonable likelihood of any such notice or order. The Disclosure
Schedule lists each such notice or order which the Seller has
received. The Seller has not entered into any agreements concerning
any such Cleanup.
(vi) To the knowledge of the Seller, the Real Property does not
contain any: (a) underground storage tanks; (b) underground injection
wells; (c) septic tanks in which any Hazardous Materials in material
quantities have been disposed; (d) asbestos; or (e) equipment using
PCBs.
(o) Material Information. Financial Statements and the
representations and warranties made by Seller in this Agreement (including the
Disclosure Schedule), when read in conjunction with each other, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein or therein not misleading.
5.2 Buyer's Representations and Warranties.
--------------------------------------
To induce Seller to enter into this Agreement, Buyer hereby represents and
warrants to Seller that the following statements are true and correct as of the
date hereof and will be true and correct on the Closing Date in all material
respects:
<PAGE>
-56-
(a) Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Maryland. Buyer has all requisite power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and such business is conducted by it.
(b) Authority of Buyer. Subject to obtaining the Required Consents
------------------
and the expiration or termination of all applicable waiting periods under the
Hart-Scott Act, the making and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and do not and will not in any material
respect violate any material provision of law, rules, regulations, decrees or
orders (including, without limitation, any FCC rule or regulation with respect
to cross-ownership of media properties); or conflict with or result in a
material breach of, or constitute a material default under, any indenture or
other agreement or instrument by which Buyer or any of its properties may be
bound or affected; or result in, or require, the creation or imposition of any
lien upon or with respect to any properties of Buyer; or require the consent or
approval of any third party.
(c) Enforceability. This Agreement constitutes the legal, valid and
--------------
binding obligation of Buyer enforceable in accordance with its terms, subject to
the Exceptions.
(d) Brokers, Finders, etc. Neither Buyer nor anyone on its behalf has
---------------------
retained any broker, finder or agent or agreed
<PAGE>
-57-
to pay any brokerage fee, finder's fee or commission with respect to the
transactions contemplated by this Agreement.
(e) Financing. Buyer has sufficient cash on hand and availability
---------
under its existing loan facilities to pay the Purchase Price hereunder. Buyer
expressly acknowledges and agrees that if it is unable to consummate the
transactions contemplated hereunder because it does not have sufficient funds to
do so (whether pursuant to the above referenced loan facilities or otherwise)
Seller shall be entitled to terminate this Agreement and cause the Contract
Escrow Agent to pay to Seller the entire balance of the Contract Escrow Amount,
all as provided in the Contract Escrow Agreement.
(f) Litigation, etc. No action, litigation, arbitration or other
---------------
proceeding (and, to the knowledge of the Buyer, no governmental investigation)
is pending by or against or, to the knowledge of the Buyer, threatened against
the Buyer which has a Material Adverse Effect on the ability of Buyer to
consummate the transactions contemplated hereunder. The Buyer is not subject or
party to any judgment or order of or stipulation with any court or other
governmental authority, nor is it now or has it been in violation of any
provision of any law, license, permit, approval or authorization, which
violation has a material adverse effect on the ability of the Buyer to
consummate the transactions contemplated hereunder.
(g) Material Information. The representations and warranties made by
--------------------
Buyer in this Agreement do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein not
misleading.
<PAGE>
-58-
ARTICLE 6
ACTIVITIES PRIOR TO CLOSING
---------------------------
6.1 Seller's Covenants . Seller covenants and agrees that from and after
-------------------
the execution and delivery of this Agreement to and including the Closing Date:
(a) Buyer Access; Financial Statements. Seller will give to Buyer and
----------------------------------
its representatives reasonable access (during normal business hours and on
reasonable advance notice) to all of its properties, books, contracts, documents
and records pertaining to the Assets and the Systems. Without limitation, Seller
will furnish to Buyer, as soon as practicable after such are available, copies
of any quarterly or year-end financial statements relating to the Systems (but
no later than 45 days after the end of each fiscal quarter in the case of
quarterly statements and 90 days after the end of the fiscal year in the case of
year-end statements).
(b) Operation of the Systems. Seller shall operate the Systems only
------------------------
in the ordinary course of business as previously conducted, in all material
respects, and in accordance with the terms of the Franchises and the FCC
Licenses and in material compliance with all applicable laws, rules and
regulations, subject to the restrictions contained in this Agreement. It is
expressly agreed that operation of the Systems in the ordinary course shall
include the marketing programs described on Schedule 6.1(b) attached hereto,
which may be implemented by Seller in its sole discretion. In addition,
notwithstanding anything contained in this Agreement to the contrary, the Seller
shall not be obligated to make any expenditures or incur any liability in
<PAGE>
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respect of a capital asset which would, under generally accepted accounting
principles, be classified as a capital expenditure except for Ordinary Course
Capital Expenditures which are consistent with the operation of the Systems in
the normal and ordinary course of business and which the Seller shall make or
incur in material accordance with the provisions of Schedule 1.2 subject to
unforeseen events beyond Seller's control. In addition, it is also expressly
agreed that Seller shall be free to sell and convey any or all of the First
Refusal Systems or First Refusal Areas to the respective granting authority,
municipality or third party in connection with the exercise thereof of rights
granted in any Franchise or MDU Agreement with respect thereto and any First
Refusal System or First Refusal Area so conveyed or transferred shall no longer
be deemed a "System" or part of a "System" hereunder and shall be deemed deleted
from Schedule A hereto, and any consent required under any Material Agreement
----------
conveyed or transferred as part of, or any FCC consent no longer necessary as a
consequence of, the transfer of, such First Refusal System or First Refusal Area
shall no longer be deemed a Required Consent hereunder.
(c) Interference with Agreement. Seller shall not take any action
---------------------------
which would in any manner materially interfere with the carrying out of the
transactions contemplated by this Agreement.
(d) Employees. Without Buyer's prior written consent, no increase
shall be made in the compensation, bonuses or commissions payable or to become
payable by it to any of its officers, employees or agents who render services in
connection
<PAGE>
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with the Systems except in accordance with existing employment agreements,
except for increases of no more than 10% in the aggregate compensation payable
to any employee or officer, and except for any bonus or severance or other
compensation which is to be paid by Seller. Except as set forth in the
Disclosure Schedule, no arrangement shall be made for any new profit sharing,
pension or retirement plan relating to employees or agents who render services
in connection with the Systems, and no material change shall be effected in
management, personnel policies or employee benefits.
(e) Preservation of Business. Except as otherwise requested by Buyer,
------------------------
Seller will use reasonable efforts to preserve and maintain intact the business
and properties of the Systems, to keep available to Buyer the services of its
present employees rendering services in connection with the Systems (except for
those employees that are also shareholders of the Managing General Partner or
are listed in the Disclosure Schedule), to preserve for Buyer the goodwill of
the suppliers (including programming suppliers), advertisers, subscribers, and
others having business relations with the Systems, and to generally maintain the
reputation of the Systems. In particular, representatives of Buyer and Seller
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; Seller shall
cause the Systems to take all reasonable steps requested by Buyer to bring its
operation of the Systems into line with those of Buyer's affiliates in the State
of
<PAGE>
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Michigan with regard to such long-term competitive positioning, provided that
Seller shall not be required to incur any costs, liabilities or obligations or
to make any expenditures as a result of such requests except (a) special
expenditures with the written approval and at the sole cost and expense of Buyer
and (b) Ordinary Course Capital Expenditures required to be made under Section
6.1(b). In order to facilitate the transition, Seller agrees that, as soon as
Buyer has obtained Required Franchise Consents or Renewal Franchises with
respect to Franchises covering at least 50,000 Basic Subscribers, Buyer may, but
is not obligated to, assign its management personnel at its cost to work in the
Systems, subject to Seller's general authority and supervision.
(f) Required Consents; Renewal Franchises. Seller will use its best
-------------------------------------
efforts to obtain the Required Consents prior to the Closing. In addition,
Seller shall use its best efforts to obtain, prior to the Closing, a renewal or
extension with respect to the Franchises noted on the Disclosure Schedule which
either have expired or are scheduled to expire prior to December 31, 1995, to
satisfy the conditions of Section 7.1(d). Seller shall not accept any such
Renewal Franchise, which shall impose obligations not contained in the expired
or expiring Franchise which would have to be performed by Buyer following the
Closing Date and which are materially more burdensome than the obligations set
forth in the existing Franchise, unless Buyer shall consent to such obligations,
which consent shall not be unreasonably withheld, or unless such obligations are
otherwise imposed by law, including obligations arising under the
<PAGE>
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Communications Act and the rules and regulations promulgated thereunder.
(g) Insurance. The Seller will, to the extent it is able to do so
---------
without any material increase in premiums, (i) maintain the insurance policies
listed on the Disclosure Schedule, or insurance policies providing substantially
equivalent coverage, in full force and effect through the Closing insofar as
such relate to the Systems, (ii) use the proceeds of any claims for loss with
respect to the Systems under such policies, to repair, replace, or restore to
their former condition any Assets which may be damaged by fire or other
casualty, all as soon as reasonably practicable and (iii) comply in all material
respects with all material requirements of its insurance carriers insofar as
such relate to the Systems. The Seller will promptly notify the Company and the
Buyer of any insurance policies which the Seller chooses not to maintain as a
result of a material increase in premiums.
(h) Books and Records. The Seller will maintain its books and records
-----------------
with respect to the Systems in all material respects in accordance with prior
practice.
(i) Compliance with Laws. Except with respect to Rate Regulatory
--------------------
Matters, the Seller will operate the Systems in all material respects in
accordance with the FCC Licenses and Franchises, and comply in all material
respects with all laws, rules and regulations applicable to it, including the
regulations of the FCC, the FAA, the Franchising Authorities and the United
States Copyright Office.
<PAGE>
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(j) Filings and Reports. The Seller will provide to Buyer, promptly
-------------------
after filing thereof, copies of all material reports to and other material
filings with the FCC and the Copyright Office relating to the Systems made after
the date hereof.
(k) Notices. The Seller will provide to Buyer, promptly upon receipt
-------
thereof, a copy of (i) any notice from the FCC or any Franchising Authority or
other governmental authority of the revocation, suspension, violation, or
material limitation of the rights under, or of any proceeding for the
revocation, suspension, or material limitation of the rights under (or that such
authority may in the future, as the result of failure to comply with laws or
regulations or for any other reason, revoke, suspend, or materially limit the
rights under) any FCC License, Franchise or the Material MDU Agreements and (ii)
all protests, complaints, challenges or other documents filed with the FCC by
third parties concerning any of the Systems which if adversely determined could,
either individually or in the aggregate, have a Material Adverse Effect, and,
promptly upon the filing or making thereof, copies of their responses to such
filings.
(l) Litigation or Other Action. The Seller will notify Buyer promptly
--------------------------
after learning of the institution or written threat of any action against the
Seller with respect to any System, or against any System, in any court, or any
action against the Seller relating to any System before the FCC or any
Franchising Authority, and notify Buyer promptly upon receipt of any
administrative or court order relating to any of the Assets, which is material
to the ownership or operation thereof.
<PAGE>
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(m) Franchise Amendments. Seller shall not amend or file proposals to
--------------------
amend in any material respect any Franchise, except as required by law or any
Franchise or in connection with obtaining Renewal Franchises as provided in
subsection (f) of this Section 6.1, or except as consented to by Buyer, which
consent shall not be unreasonably withheld.
(n) Other Transactions. Except with respect to Rate Regulatory
------------------
Matters, the Seller will not enter into any transaction or take any action which
individually or in the aggregate could have a Material Adverse Effect.
(o) Programming. The Seller will maintain without addition, deletion
-----------
or other material change the tiering format set forth on the Disclosure
Schedule, except as otherwise required by applicable law or the Franchises.
(p) Retransmission Consents. Subject to applicable law, Seller shall
-----------------------
not enter into any agreements or arrangements under which the Seller would agree
to compensate in any manner broadcasters for the right to carry on any of the
Systems local television signals which are otherwise available over-the-air to
consumers in the areas served by the Systems, other than (i) agreements or
arrangements which by their terms terminate on or prior to the Closing Date and
thereafter do not subject the Buyer or the Company to any obligation, or (ii)
agreements or arrangements to which Seller has requested Buyer's consent
(including agreements or arrangements which terminate on or prior to October 31,
1995), which consent shall not be unreasonably withheld.
<PAGE>
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(q) Environmental Reports. The Seller shall deliver to Buyer copies
of any future environmental site assessments, reports and studies prepared by or
on behalf of the Seller that pertain to the Real Property.
6.2 Hart-Scott Act.
--------------
As promptly as practicable, but in no event later than 30 days following
the execution and delivery of this Agreement, the parties shall file all
necessary premerger notification forms with the Federal Trade Commission and the
Department of Justice together with any necessary Exhibits thereto. Thereafter,
each party shall use its respective best efforts to cause the waiting period
under the Hart-Scott Act to expire as promptly as possible, including promptly
furnishing such additional materials or information as shall be requested in
connection therewith. The filing fees for such premerger notification forms
shall be paid one-half by Seller and one-half by Buyer.
6.3 Regulatory and Other Matters.
----------------------------
The parties shall cooperate in the timely and expeditious preparation and
prosecution of applications and requests for consent to federal, state or local
authorities (including, without limitation, the FCC) and other parties for the
obtaining, as of or prior to the Closing, of all of the Required Consents.
6.4 Buyer's Covenants.
-----------------
(a) Breach of Representations and Warranties. Promptly upon the
----------------------------------------
occurrence of any event which, to Buyer's knowledge, would constitute a breach,
or would have constituted a breach had such event occurred or been known to
Buyer prior to the date hereof, of any of the representations and warranties of
Buyer
<PAGE>
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contained in Section 5.2, Buyer shall give notice thereof to Seller and shall
use its reasonable best efforts to promptly remedy the same. Promptly upon
becoming aware of any matter which constitutes or could constitute a breach of
any representation or warranty made by Seller in this Agreement, Buyer shall
give written notice thereof to Seller such that Seller shall have a reasonable
opportunity to cure and correct the same prior to the Closing Date
(b) Consents and Renewals. Buyer shall cooperate with Seller in
---------------------
obtaining, and use its best efforts to help Seller obtain, all of the Required
Consents and the Renewal Franchises, which cooperation shall include the posting
(effective on the Closing Date) of performance bonds, letters of credit and the
like required by the Franchises, making (effective on the Closing Date) any
reasonable deposits required by the applicable governmental or third party,
meeting from time to time with and promptly furnishing information to
appropriate governmental and third parties and otherwise rendering such other
assistance as may be reasonable or appropriate in the circumstances.
(c) Consummation of Agreement. Buyer shall use its best efforts to
-------------------------
perform and satisfy all conditions precedent set forth in Sections 7.2 and 7.3
and all other conditions and obligations to be satisfied and performed by Buyer
hereunder.
(d) Notice of Proceedings. Buyer shall promptly notify Seller upon
---------------------
(i) becoming aware of any order or decree or any complaint praying for an order
or decree restraining or enjoining the consummation of this Agreement or the
transactions contemplated hereunder, or (ii) receiving any notice from any
<PAGE>
-67-
governmental department, court, agency or commission of its intention to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin consummation of this Agreement or such transactions, or to nullify or
render ineffective this Agreement or such transactions if consummated.
(e) No Conflicting Actions or Contracts; No Interference. Buyer will
----------------------------------------------------
not take any action or enter into any agreement which would prevent it from
consummating, or materially interfere with the consummation of, the transactions
contemplated hereby.
6.5 Confidentiality. Each party hereto will keep and hold as confidential
---------------
all information obtained from any other party hereto or any of its agents or
representatives with respect to such party or its business, operations,
liabilities or finances, and will not disclose any of such information to any
other person or entity except to the extent required by law. Should the
transactions contemplated herein not be consummated for any reason, each party
shall return to each other party all documents, work papers and other materials
obtained from such party (or derived from documents, work papers and other
materials obtained therefrom) or its agents or representatives, whether
hereunder or otherwise in connection with this transaction, together with all
copies thereof and extracts therefrom, and shall keep confidential all such
information and not disclose any such information to any other person or entity,
except as otherwise required by law.
6.6 Employee Matters. It is clearly understood by the parties hereto that,
----------------
except to the extent adjusted for pursuant
<PAGE>
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to Section 3.3 above, neither the Company nor Buyer has any obligation
whatsoever to or in connection with any employees of Seller, including but not
limited to any obligation to employ any of Seller's employees, and that Seller
shall be responsible for and shall cause to be discharged and satisfied in full
all amounts owed to any employee, including, without limitation, wages,
salaries,accrued vacation pay, any employment, incentive, compensation or bonus
agreements or other benefits, or payments on account of termination, except to
the extent such is adjusted for pursuant to Section 3.3 above.
ARTICLE 7
CONDITIONS PRECEDENT
--------------------
7.1 Conditions to Buyer's Obligations.
---------------------------------
The obligation of Buyer to perform, fulfill or carry out its agreements,
undertaking and obligations herein made or expressed to be performed, fulfilled
or carried out on or after the Closing Date is and shall be subject to
fulfillment of or compliance with, on the Closing Date, the following conditions
precedent, any of which may be waived by Buyer:
(a) Seller's representations and warranties contained in this
Agreement shall be deemed to have been made again at and as of the Closing Date
and shall then be true and correct in all material respects; Seller shall have
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing, and Seller shall have delivered to Buyer the certificate referred to in
Section 4.2(a)(2) hereof.
<PAGE>
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(b) No party hereto shall be under an injunction or other legal
restriction, which, in the opinion of counsel for Buyer, makes unlawful the
closing of the transactions contemplated hereby, there shall not be instituted
or threatened any litigation or proceeding which either separately or in the
aggregate would reasonably be expected to have a Material Adverse Effect, and
there shall not have been suffered any casualty or loss, whether or not covered
by insurance, which either alone or in the aggregate has had or is reasonably
likely to have a Material Adverse Effect.
(c) Buyer shall have received the opinions of Seller's counsel
referred to in Section 4.2(a)(3) and 4.2(a)(4) hereof.
(d) Seller shall have delivered to Buyer copies of the Required
Consents (any consent obtained or granted, the terms of which require any
payment by Buyer or require that Buyer grant any concession that would
materially adversely affect the ownership and operation by Buyer of the
properties or assets covered by the consent, will be treated as a consent not
obtained), and copies of Renewal Franchises; provided that the term of each such
Renewal Franchise shall be of at least five years' duration from the date of
grant of any extension or renewal with respect to such Renewal Franchise and the
average franchise term of all such Renewal Franchises based upon the average
weighted number of Basic Subscribers served by such Renewal Franchises on the
Calculation Date shall be at least 7 years from the date of grant of any
extension or renewal with respect to such Renewal Franchises.
<PAGE>
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(e) The Seller shall have delivered to Buyer an executed counterpart
of the Closing Escrow Agreement.
(f) The Seller, Robert Rosencrans and Ron Harmon shall each have
delivered to Buyer an executed Non-Competition Agreement in the form attached
hereto as Schedule 7.1(f).
(g) The consummation of the transactions contemplated pursuant to
this Agreement by Seller shall have been approved by the Limited Partners of the
Seller in accordance with the terms of the Partnership Agreement.
7.2 Conditions to Seller's Obligations. The obligation of Seller to
----------------------------------
perform, fulfill or carry out its agreements, undertakings and obligations
herein made or expressed to be performed, fulfilled or carried out on or after
the Closing Date is and shall be subject to fulfillment of or compliance with,
on the Closing Date, the following conditions precedent, any of which may be
waived by Seller:
(a) Buyer's representations and warranties contained in this
Agreement shall be deemed to have been made again at and as of the time of the
Closing and shall then be true and correct in all material respects; Buyer shall
have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing, and Buyer shall have delivered the
certificate referred to in Section 4.2(b)(1) hereto.
(b) No party hereto shall be under an injunction or other legal
restriction, which, in the opinion of counsel for Seller, makes unlawful the
closing of the transactions
<PAGE>
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contemplated hereby, there shall not be instituted or threatened any litigation
or proceeding which either separately or in the aggregate would reasonably be
expected to have a Material Adverse Effect, and there shall not have been
suffered any casualty or loss, whether or not covered by insurance, which either
alone or in the aggregate has had a Material Adverse Effect.
(c) Seller shall have received the opinion of Buyer's counsel
referred to in Section 4.2(b)(2) hereof.
(d) The condition set forth in Section 7.1(d) above shall have been
satisfied.
7.3 Mutual Conditions.
-----------------
The obligations of Buyer and Seller to perform, fulfill or carry out their
respective agreements, undertakings and obligations herein made or expressed to
be performed, fulfilled or carried out on or after the Closing Date is and shall
be subject to fulfillment of or compliance with the following conditions
precedent on or before the Closing Date, any of which may be waived by Buyer
(with respect to its obligations) or by Seller (with respect to its
obligations):
(a) All necessary pre-merger notification filings required under the
Hart-Scott Act shall 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.
(b) The Required Consents shall have been obtained, and each of such
Required Consents which is a Required FCC Consent shall have become a Final
Order and any condition to the effectiveness of any Required Consent which is
specified therein
<PAGE>
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to be satisfied on or prior to the Closing Date shall have been satisfied.
(c) The consummation of the transactions contemplated pursuant to
this Agreement by Seller shall have been approved by the limited partners of the
Seller in accordance with the terms of the Partnership Agreement.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Indemnification by Seller.
-------------------------
Subject to the limitations, conditions and provisions set forth in this
Article 8, Seller agrees to indemnify and hold harmless Buyer and the Company
(collectively, the "Buyer Group") from and against and in respect of any Losses
-----------
or Expenses incurred by the Buyer Group as a result of:
(a) Any and all liabilities and obligations of, or claims asserted
against Seller, and any and all claims against any of the Assets or the Systems
(whether or not disclosed in this Agreement) asserted against the Buyer Group,
including any governmental agency, bureau, department or service, to the extent
such obligations, liabilities or claims arose out of acts or omissions occurring
prior to the Closing Date, except for those Losses, Expenses or other items for
which there has been an adjustment to the Purchase Price pursuant to Section 3.3
hereof and except for those obligations and liabilities which the Buyer Group
has agreed to assume pursuant to Section 3.4 hereof.
(b) Any untruthful or inaccurate representation or any breach of any
warranty or any failure to perform or comply with
<PAGE>
-73-
any agreement or covenant on the part of Seller under this Agreement or in any
other agreement, document or instrument delivered by Seller pursuant to this
Agreement.
(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 Section 3.3(b)
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 73,000 if the Calculation Date
occurs at any time during the months of May through September or the
lesser of the Basic Number or 75,000 if the Calculation Date occurs at
any time during the months of January through April or the months of
October through December;
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
<PAGE>
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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 before May 1, 1995, 76,000 Basic
Subscribers;
ii) if the Closing occurred after April 30, 1995, but before
October 1, 1995, 74,000 Basic Subscribers; and
iii) if the Closing occurred after September 30, 1995 but
before or on December 31, 1995, 78,000 Basic Subscribers.
8.2 Indemnification by the Company and the Buyer.
--------------------------------------------
The Buyer Group jointly and severally agrees to indemnify and hold Seller
harmless from and against and in respect of any Losses or Expenses incurred by
Seller as a result of:
(a) Any and all liabilities, obligations or claims asserted against
the Seller by any third party, including any governmental agency, bureau,
department or service, relating to the Systems or relating to or arising out of
the ownership and/or operation of the Assets, to the extent such obligations,
liabilities or claims arise out of acts or omissions occurring from and after
the Closing Date and are based upon or arise out of (i) the Buyer Group's
ownership or operation of the Assets or the Systems or (ii) those obligations
and liabilities which the Buyer Group has agreed to assume pursuant to Section
3.4 hereof.
<PAGE>
-75-
(b) Any untruthful or inaccurate representation or any breach of any
warranty or any failure to perform or comply with any agreement or covenant on
the part of Buyer or the Company under this Agreement, or in any other
agreement, document or instrument delivered by Buyer or the Company pursuant to
this Agreement.
8.3 Defense of Claims.
-----------------
The Buyer Group on the one hand, and Seller, on the other, shall each give
prompt notice to the other of any claim (including claims by the Buyer Group
arising from a Rate Regulatory Reduction Event or Rate Regulatory Reduction
Order) against the party giving notice which might give rise to a claim by it
against the other party based upon any indemnity contained herein. The notice
shall set forth in reasonable detail the nature and basis of the claim and the
actual or estimated amount thereof. In the event any action, suit or proceeding
(including a Rate Regulatory Reduction Event) is brought against the Buyer Group
or Seller, or Buyer Group or Seller is a party thereto, with respect to which
the other party hereto may have liability under any indemnity contained herein,
the indemnifying party shall have the right, at its sole cost and expense, to
defend such action in the name and on behalf of the indemnified party and in
connection with any such action, suit or proceeding the parties hereto agree to
render to each other such assistance as may reasonably be required in order to
insure the proper and adequate defense of any such action, suit or proceeding.
The indemnified party shall have the right to participate, at its own expense
and with counsel of its choosing, in the defense of any
<PAGE>
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claim against which it is indemnified hereunder and it shall be kept fully
informed with respect thereto. The party seeking indemnification hereunder shall
not make any settlement of any claim (including, without limitation, any claim
arising from a Rate Regulatory Reduction Event) which might give rise to
liability of the other party under any indemnity contained herein without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. In particular, Buyer hereby agrees to vigorously contest
any Rate Regulatory Reduction Event which could lead to a Rate Regulatory
Reduction Order, to meet with Seller in order to advise Seller as to what
actions Buyer plans to take to dispute or contest any such Rate Regulatory
Reduction Event and to keep Seller fully informed at all times with respect
thereto.
8.4 Limitation of Liability.
-----------------------
Notwithstanding any provision of this Agreement to the contrary or any
right or remedy Buyer or the Company may otherwise have or possess at law or in
equity, the Buyer Group hereby agrees that its right to make any claims or
obtain any recourse or redress against Seller (and any affiliates of Seller
referred to below) is and shall be subject to all of the following limitations:
(a) The Buyer Group shall be entitled to indemnity from Seller only
for those claims made under Section 8.1 as to which Buyer or the Company has
given Seller written notice thereof within twelve months after the Closing Date
hereunder. Any written notice delivered by Buyer or the Company to Seller
pursuant to this Section 8.4(a) shall set forth with reasonable
<PAGE>
-77-
specificity the basis of the claim for indemnity and a reasonable estimate of
the amount thereof. Notwithstanding the survival provisions set forth above, it
is understood and agreed by the parties that (x) Seller shall not have any
liability to the Buyer Group with respect to any matter for which Seller has
indemnified the Buyer Group hereunder until the aggregate amount of all such
indemnification obligations exceeds $500,000, and then the Seller shall only be
liable for the excess, and (y) the Closing Escrow Amount, together with accrued
interest thereon (but exclusive of any amounts against which the Buyer or the
Company has made claims pursuant to this Article 8) shall be released to the
Seller on the date which is twelve months after the Closing Date.
(b) The Seller shall be entitled to indemnity from the Buyer Group
only for those claims made under Section 8.2 as to which Seller has given the
Buyer Group written notice thereof within two years after the Closing Date
hereunder; provided, however, that any covenant, agreement or obligation to be
performed after the Closing Date shall survive until such covenant, agreement or
obligation has been fully performed. Any written notice delivered by the Seller
to the Buyer Group under this Section 8.4(b) shall set forth with reasonable
specificity the basis of the claim for indemnity and a reasonable estimate of
the amount thereof.
(c) It is understood and agreed by the parties hereto that, other
than as expressly provided for in this Article 8, from and after the Closing
Date no party hereto shall have any obligation or liability to any other party,
including any obligation or liability for Losses and Expenses subject to
<PAGE>
-78-
indemnification under this Article 8, and each party hereby waives and releases
(on behalf of itself and each of its successors, assigns, partners, shareholders
and affiliates), and shall have no recourse or claim against, any other party or
any of their respective partners, officers, directors, employees, agents,
affiliates and such partners' and affiliates' respective officers, directors,
shareholders, partners, employees, agents or affiliates, for any matter,
including as a result of Losses or Expenses subject to indemnification under
this Article 8, it being understood that the remedies provided for in this
Article 8 shall be the sole and exclusive remedy for any such claims, whether
framed in contract, tort or otherwise; provided, however, that nothing in this
-------- -------
Section 8.4(c) shall be construed to affect or increase the Buyer Group's
assumption of liabilities under Section 3.4.
(d) In no event shall the right to indemnity of the Buyer Group from
Seller arising hereunder exceed the amount then remaining in the Closing Escrow
Fund, and such Closing Escrow Fund shall be the sole source of indemnification
under this Article 8 from Seller to the Buyer Group.
ARTICLE 9
CASUALTY OR LOSS
----------------
In the event that there shall have been suffered between the date hereof
and the Closing Date any casualty or loss relating to the Assets but which has
not, as of the time of Closing, rendered Seller's representations and warranties
untrue and incorrect in any material respect (as provided in Section 7.1(a)),
then at the
<PAGE>
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Closing, in addition to all other closing transactions, all insurance proceeds
and claims to insurance proceeds or other rights of Seller against third parties
arising from such casualty or loss shall (to the extent assignable under
applicable state law and the applicable insurance policy) be separately assigned
by Seller to the Company. To the extent not assignable, such claims may be
pursued by the Company, at its cost and expense and for its own account and
benefit, in the name of Seller.
ARTICLE 10
MANAGING GENERAL PARTNER WAIVER
-------------------------------
By its execution hereof, the Managing General Partner does hereby waive any
right of first refusal or purchase it may have pursuant to Subsection 19.2 of
the Partnership Agreement in respect of the purchase of the Systems by the
Company pursuant to this Agreement, as originally executed. Such waiver shall
not apply to any amendment to this Agreement which reduces or effects a
reduction in the Purchase Price or in the time or manner of payment thereof;
provided, however, that the Managing General Partner specifically acknowledges
- -------- -------
that certain provisions of this Agreement as executed may reduce or effect a
reduction in the Purchase Price, and agrees that such provisions shall not cause
the waiver provided in this Article 10 to be ineffective.
<PAGE>
-80-
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Expenses.
--------
Except as otherwise provided herein, Buyer and Seller shall each pay their
own expenses in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
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 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, and (b) at or after the Closing, the Seller may
assign its remaining rights and obligations hereunder to or for the benefit of a
liquidating trust established in connection with 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.
11.3 Notices.
-------
All notices, claims and other communications provided for herein shall be
in writing and shall be deemed to have been duly given if personally delivered,
sent by facsimile transmission, mailed, registered or certified mail, return
receipt requested, postage prepaid or by reputable overnight delivery service
(a) if
<PAGE>
-81-
to Seller, to it care of Columbia International, Inc., 9 Greenwich Office
Park, Greenwich, Connecticut 06830, Attention: Mr. Robert Rosencrans, President,
telephone number (203) 661-1509, telecopier number (203) 661-7651, with a copy
(which shall not constitute notice) to Rubin Baum Levin Constant & Friedman, 30
Rockefeller Plaza, New York, New York 10112, Attention: Paul A. Gajer, Esq.,
telephone number (212) 698-7700, telecopier number (212) 698-7825, (b) if to
Buyer or to the Company, to it care of Continental Cablevision, Inc., the Pilot
House, Lewis Wharf, Boston, Massachusetts 02110, Attention: Timothy P. Neher,
Vice Chairman, telephone number (617) 742-9500, telecopier number (617) 742-
0530, with a copy (which shall not constitute notice) to Sullivan & Worcester,
One Post Office Square, Boston Massachusetts 02109, Attention: W. Lee H. Dunham,
Esq., telephone number (617) 338-2800, telecopier number (617) 338-2880; or (c)
as to any party, at such other address or telecopier number as shall be
designated by such party in a notice to the other parties hereto by a notice
given in accordance with the provisions of this Section 11.3. All notices and
other communications hereunder shall be deemed to have been duly given when
transmitted by telecopier, in each case addressed as aforesaid or personally
delivered or, in the case of a mailed notice, when actually received by the
intended recipient.
11.4 Entire Agreement.
----------------
This Agreement, together with the Schedules attached hereto, contains the
entire understanding between the parties hereto concerning the subject matter
hereof and supersedes any and all prior representations, warranties,
undertakings, covenants and
<PAGE>
-82-
agreements between the parties, including, without limitation, that certain
offer letter from Buyer to Seller dated August 17, 1994. Without limiting the
generality of the foregoing it is expressly understood and agreed that Seller
makes no representation or warranty with respect to (and, as between Seller, the
Company and Buyer, there has been no action taken in reliance upon) the accuracy
or completeness of that certain Confidential Memorandum with respect to the
Systems prepared by Waller Capital Corporation. This Agreement may not be
changed, modified, altered or terminated except by an agreement in writing
executed by the parties hereto. Any waiver by any party of any of its rights
under this Agreement or of any breach of this Agreement shall not constitute a
waiver of any other rights or of any other future breach.
11.5 Remedies Cumulative.
-------------------
Except as provided by Article 8, each and all of the rights and remedies in
this Agreement provided, and each and all of the rights and remedies allowed at
law and in equity in like case, shall be cumulative, and the exercise of one
right or remedy shall not be exclusive of the right to exercise or resort to any
and all other rights or remedies provided in this Agreement or at law or in
equity.
11.6 No Third Party Beneficiaries.
----------------------------
This Agreement shall inure to the benefit of Buyer, the Company and Seller
only. Notwithstanding any provision herein to the contrary, Buyer, the Company
and Seller agree that nothing in this Agreement will be construed as giving any
person, firm, corporation or other entity, other than the parties hereto and
<PAGE>
-83-
their successors and permitted assigns, any right, remedy or claim under or with
respect to this Agreement.
11.7 Captions; References to Buyer.
-----------------------------
Captions and descriptive headings are for convenience of reference only and
shall not control or affect the meaning or construction of any provisions of
this Agreement. References herein to the Buyer shall be deemed to mean and
include a reference to the Company when the context so requires.
11.8 Counterparts.
------------
This Agreement may be executed in any number of separate counterpart
copies, each of which shall be deemed an original but which together shall
constitute a single instrument.
11.9 Choice of Law.
-------------
This Agreement 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 duly executed this Agreement on
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.
<PAGE>
-84-
By: /s/ Robert M. 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
ACCEPTED AND AGREED
SOLELY WITH RESPECT TO
THE PROVISIONS OF
ARTICLE 10 HEREOF:
COLUMBIA INTERNATIONAL, INC.
By: /s/ Robert M. Rosencrans
----------------------------
Name: Robert M. Rosencrans
Title: President
For good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, Continental Cablevision, Inc., a Delaware corporation,
which indirectly owns all of the issued and outstanding capital stock of the
Buyer, hereby guarantees the Buyer's and the Company's full and prompt payment
and the performance of all of Buyer's and the Company's obligations and
liabilities under this Agreement and the agreements, instruments and documents
executed by the Buyer and the Company in connection herewith and hereby agrees
to pay or perform such liabilities and obligations to the extent the Company and
the Buyer fail to do so.
CONTINENTAL CABLEVISION, INC.
By: /s/ Jeffrey T. DeLorme
----------------------------
Name: Jeffrey T. DeLorme
Title: Executive Vice President
<PAGE>
-85-
All schedules have been omitted from this filing but shall be made
available, upon request by the Commission. The contents of the omitted
schedules are briefly described in the body of the Purchase and Sale Agreement.
<PAGE>
EXHIBIT 10.15
CONTINENTAL CABLEVISION, INC.
-----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1995)
<PAGE>
CONTINENTAL CABLEVISION, INC.
-----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1995)
Table of Contents
-----------------
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<C> <S> <C>
I Establishment and Purpose
-------------------------
1.1 Establishment of Plan 1
1.2 Purpose 1
II Definitions
-----------
2.1 Definitions 2
2.2 Gender and Number 2
III Eligibility and Participation
-----------------------------
3.1 Eligibility 3
3.2 Date of Participation 3
IV Supplemental Retirement Benefits
--------------------------------
4.1 Supplemental Retirement 4
Benefits
4.2 Commencement of Benefits 4
4.3 Preretirement Death 5
Benefit
4.4 Form of Payment 5
V Rights of Participants
----------------------
5.1 Vesting 6
5.2 Contractual Obligation 6
5.3 Unsecured Interest 6
5.4 Employment 6
VI Administration
--------------
6.1 Administration 7
6.2 Finality of Determination 7
6.3 Expenses 7
VII Claims Procedure
----------------
7.1 Claims Procedure 8
VIII Amendment and Termination
-------------------------
8.1 Amendment and Termination 10
</TABLE>
-i-
<PAGE>
CONTINENTAL CABLEVISION, INC.
-----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1995)
Table of Contents
-----------------
(Continued)
<TABLE>
<CAPTION>
Article Section Page
- ------- ------- ----
<C> <S> <C>
IX Miscellaneous
-------------
9.1 Nontransferability 11
9.2 Tax Withholding 11
9.3 Indemnification 11
9.4 Release By Participants and
Beneficiaries 11
9.5 Incompetents 12
9.6 Notices 12
9.7 Applicable Law 13
</TABLE>
-ii-
<PAGE>
CONTINENTAL CABLEVISION INC.
----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective January 1, 1995)
Article I. Establishment and Purpose
-------------------------------------
1.1 Establishment of Plan. Continental Cablevision, Inc. hereby establishes
---------------------
an unfunded supplemental executive retirement plan for the benefit of certain
eligible employees, known as the Continental Cablevision, Inc. Supplemental
Executive Retirement Plan (the "Plan"). The Plan is effective as of January 1,
1995 and is applicable only to persons who, an or after January 1, 1995, are in
the active employ of Continental Cablevision, Inc. (the "Company").
1.2 Purpose. The purpose of this Plan is to provide a select group of
-------
Employees with retirement benefits lost due to restrictions on the Continental
Cablevision, Inc. Retirement Plan imposed by sections 401(a)(17) and 415 or the
Internal Revenue Code of 1986. These restrictions primarily impact higher paid
Employees. The intent is to provide these individuals with retirement benefits
similar to those other employees can receive under the Retirement Plan.
The Company intends that for purposes of Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), the Plan shall constitute an unfunded
arrangement maintained for the purpose of providing deferred compensation for a
select group of management and highly compensated employees. If the Committee
determines that any Participant, with respect to any period, is not a member of
such a select group for purposes of ERISA, the Committee may, after notice to
such person, terminate such person's participation in the Plan, and cause such
person's benefits to be paid to the Participant as soon as practicable or to be
transferred to a trust for the Participant's sole benefit, which trust is not
subject to Title I of ERISA.
-1-
<PAGE>
Article II. Definitions
------------------------
2.1 Definitions. Capitalized terms used in this Plan and not defined
-----------
herein shall have the same meaning as set forth in the Retirement Plan.
Whenever used herein, the following terms shall have the meaning set forth
below:
(a) Board means the Board of Directors the Company.
-----
(b) Code means the Internal Revenue Code of 1986, as amended from
----
time to time.
(c) Committee means a committee consisting of two or more
individuals (who may, but need not be, officers or directors of
the Company) who are appointed by the Board to administer this
Plan.
(d) Company means Continental Cablevision, Inc. and any successor to
-------
all or a major portion of its property or business.
(e) ERISA means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
(f) Participant means an Employee who has satisfied the requirements
-----------
of sections 3.1 and 3.2 of the Plan.
(g) Retirement Plan means the Continental Cablevision, Inc.
---------------
Retirement Plan, as in effect on January 1, 1995, and as
subsequently amended and any successor or replacement plan for
such plan.
(h) Supplemental Retirement Benefits means the retirement benefits
--------------------------------
provided under section 4.1 of the Plan.
(i) Termination of Employment means the Retirement, resignation,
-----------
death, or other voluntary or involuntary termination of a
Participant's employment relationship with the Company.
2.2 Gender and Number. Except where otherwise indicated by the
-----------------
context, any masculine terminology used herein shall also include the feminine
gender, and the definition of any term herein in the singular shall also include
the plural.
-2-
<PAGE>
Article III. Eligibility and Participation
-------------------------------------------
3.1 Eligibility. Any key management or highly compensated Employee
-----------
who is a participant in the Retirement Plan and whose retirement benefits under
the Retirement Plan are limited by the benefit limitation set forth in Code
section 415 or by the compensation limitation set forth in Code section
401(a)(17) shall be eligible to receive the Supplemental Retirement Benefits
described in section 4.1 of this Plan.
3.2 Date of Participation. Each Employee who is eligible to become a
---------------------
participant under section 3.1 shall become a Participant on the later of (1)
January 1, 1995, or
(2) the first day of the first Plan Year coincident with or next following the
date the Employee is first eligible.
-3-
<PAGE>
Article IV. Supplemental Retirement Benefits
---------------------------------------------
4.1 Supplemental Retirement Benefits. The Company will pay or cause to be
--------------------------------
paid to each Participant who is entitled to receive benefits under the
Retirement Plan a monthly retirement benefit, calculated as of the later of the
Participant's Termination of Employment or the first date payments of retirement
benefits could commence under the Retirement Plan, equal to the difference (if
any) between (a) and (b) where--
(a) is the monthly retirement benefit that would be payable as a life
annuity from the Retirement Plan if (i) the limitations imposed by
Code section 415 are not imposed and (ii) Compensation and Average
Annual Compensation are determined without regard to the limitations
under Code section 401(a)(17), and
(b) is the monthly retirement benefit payable as a life annuity from the
Retirement Plan.
4.2 Commencement of Benefits. A Participant's benefit under this Article
------------------------
IV shall commence upon the later of--
(a) the Participant's Termination of Employment, or
(b) the first date payment of retirement benefits could commence under the
Retirement Plan.
-4-
<PAGE>
4.3 Preretirement Death Benefit. If a married Participant dies after
---------------------------
completion of five years of Vesting Service and prior to such Participant's
annuity starting date under the Retirement Plan, then the Participant's
surviving spouse shall be eligible to receive a death benefit from this Plan.
The monthly benefit shall be 50 percent of the amount the Participant would have
been entitled to receive had the Participant terminated employment on the day
before the Participant's death with a Joint and Survivor Annuity form of payment
in effect. Payment of the Preretirement Death Benefit under this section 4.3
shall commence as of the later of--
(a) the Participant's death, or
(b) the first date upon which the surviving spouse could receive a
Qualified Preretirement Survivor Annuity under the Retirement Plan.
4.4 Form of Payment. Benefit payments shall be paid in the normal form
---------------
described in section 8.2(a) or (b) of the Retirement Plan, as applicable;
provided, however, that the Board in its sole discretion may direct that payment
be made in any actuarially equivalent optional form of payment available under
section 8.3 of the Retirement Plan. If a benefit under this Plan is to be paid
as a Joint and Survivor Annuity or in an optional form, the amounts in section
4.1, as applicable, will be adjusted as appropriate by the Board. Actuarial
equivalence shall be determined on the basis of the assumptions, factors, and
interest rate set forth in the Retirement Plan.
-5-
<PAGE>
Article V. Rights of Participants
----------------------------------
5.1 Vesting. A Participant shall have a nonforfeitable right to
-------
Supplemental Retirement Benefits payable pursuant to Article IV upon completion
of five years of Vesting Service or upon earlier Termination of Employment due
to death or Retirement.
5.2 Contractual Obligation. It is intended that the Company is under a
----------------------
contractual obligation to make Supplemental Retirement Benefits under Article IV
when due. Payment of Supplemental Retirement Benefits under this Plan shall be
made out of the Company's general assets.
5.3 Unsecured Interest. No Participant or beneficiary shall have any
------------------
interest whatsoever in any specific asset of the Company. To the extent that
any person acquires a right to receive payments under this Plan, such right
shall be no greater than the right of any unsecured general creditor of the
Company.
5.4 Employment. Nothing in this Plan shall interfere with or limit in any
----------
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
-6-
<PAGE>
Article VI. Administration
---------------------------
6.1 Administration. The Plan shall be administered by the Committee. The
--------------
Committee may from time to time establish rules for the administration of this
Plan that are not inconsistent with the provisions of this Plan.
6.2 Finality of Determination. The determination of the Committee as to
-------------------------
any disputed questions arising under this Plan, including questions of
construction and interpretation, shall be final, binding, and conclusive upon
all persons.
6.3 Expenses. The cost of payment from this Plan and the expenses of
--------
administering the Plan shall be borne by the Company.
-7-
<PAGE>
Article VII. Claims Procedure
------------------------------
7.1 Claims Procedure.
----------------
(a) Submission of Claims. Claims for benefits under the Plan shall be
--------------------
submitted in writing to the Committee or to an individual designated
by the Committee for this purpose.
(b) Denial of Claim. If any claim for benefits is wholly or partially
---------------
denied, the claimant shall be given written notice within 90 days
following the date on which the claim is filed, which notice shall set
forth--
(1) the specific reason or reasons for the denial;
(2) specific references to pertinent Plan provisions on which the
denial is based;
(3) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(4) an explanation of the Plan's claim review procedure.
If special circumstances require an extension of time for processing
the claim, written notice of an extension shall be furnished to the
claimant prior to the end of the initial period of 90 days following
the date on which the claim is filed. Such an extension may not
exceed a period of 90 days beyond the end of said initial period.
If the claim has not been granted, and if written notice of the denial
of the claim is not furnished within 90 days following the
date on which the claim is received by the Committee, the
claim shall be deemed denied for the purpose of proceeding
to the claim review procedure.
-8-
<PAGE>
(c) Claim Review Procedure. The claimant or the claimant's authorized
----------------------
representative shall have 60 days after receipt of written
notification of denial of a claim to request a review of the denial by
making written request to the Committee, and may review pertinent
documents and submit issues and comments in writing within such 60-day
period.
Not later than 60 days after receipt of the request for review, the
Committee shall render and furnish to the claimant a written decision
which shall include specific reasons for the decision, and shall make
specific references to pertinent Plan provisions on which it is based.
If special circumstances require an extension of time for processing,
the decision shall be rendered as soon as possible, but not later than
120 days after receipt of the request for review, provided that
written notice and explanation of the delay are given to the claimant
prior to commencement of the extension. Such decision by the
Committee shall not be subject to further review. If a decision on
review is not furnished to a claimant within the specified time
period, the claim shall be deemed to have been denied on review.
-9-
<PAGE>
Article VIII. Amendment and Termination
----------------------------------------
8.1 Amendment and Termination. The Company expects the Plan to be
-------------------------
permanent but since future conditions affecting the Company cannot be
anticipated or foreseen, the Company necessarily must and does hereby reserve
the right to amend, modify, or terminate the Plan at any time by action of the
Board. Any such amendment, modification, or termination shall not reduce or
diminish any person's right to receive any benefit accrued hereunder prior to
the date of such amendment, modification, or termination. Notice of such
amendment or termination shall be given in writing to each Participant and
beneficiary of a deceased Participant having an interest in the Plan.
-10-
<PAGE>
Article IX. Miscellaneous
--------------------------
9.1 Nontransferability. In no event shall the Company make any payment
------------------
under this Plan to any assignee or creditor of a Participant or a beneficiary.
Prior to the time of payment hereunder, a Participant or a beneficiary shall
have no rights by way of anticipation or otherwise to dispose of any interest
under this Plan nor shall such rights be assigned or transferred by operation of
law.
9.2 Tax Withholding. The Company shall have the right to deduct from all
---------------
payments made from the Plan any federal, state, and local taxes required by law
to be withheld with respect to such payments.
9.3 Indemnification. To the extent permitted by law, each member of the
---------------
Committee and all agents and representatives of the Committee shall be
indemnified by the Company against any claims, and the expenses of defending
against such claims, resulting from any action or conduct relating to the
administration of the Plan except claims arising from gross negligence, willful
neglect, or willful misconduct.
9.4 Release by Participants and Beneficiaries. Except to the extent that
------------------------------------------
it relieves the Company or the Committee from responsibility or liability for
any responsibility, obligation, or duty owing to the Plan or to any Participant
or beneficiary, any payment made in accordance with the provisions of the Plan
to any person entitled to benefits under this Plan shall to the extent thereof
be in full satisfaction of all claims against the Company and the Committee,
either of which may require as a condition precedent to such payment that the
recipient execute a receipt and release therefor in such form as shall be
determined by the Company of the Committee, as the case may be.
-11-
<PAGE>
9.5 Incompetents. In the event that any benefits become payable to a
-------------
person under legal disability or to a person not judicially declared incompetent
but whom the Committee or its delegate considers unable properly to administer
the benefits by reason of physical or mental disability, then the benefits shall
be paid out in such of the following ways as the Committee or its delegate deems
best:
(a) directly to such person;
(b) to the legally appointed guardian or conservator of such person; or
(c) to a relative or friend for the care and support of such person;
and the Committee and the Company shall incur no liability therefor.
9.6 Notices. Any notice under the Plan will be deemed to have been
-------
properly delivered if it is in writing and is delivered in hand or sent by
registered mail, postage prepaid, to the party addressed as follows, unless
another address has been substituted by notice so given:
To a Participant: To the Participant's address as set forth in the payroll
records of the Company.
To the Committee: Care of the Company, at its address as shown directly
below.
To the Company: Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, MA 02110
Attention: Mr. Michael Ritter
-12-
<PAGE>
9.7 Applicable Law. This Plan shall be governed and construed in
--------------
accordance with the laws of the State of Delaware.
* * * * * * * * * *
IN WITNESS WHEREOF, CONTINENTAL CABLEVISION, INC. has caused this
instrument to be executed, effective January 25, 1995, on this 1st day of
January, 1995.
CONTINENTAL CABLEVISION, INC.
By:/s/ Timothy P. Neher
----------------------------
ATTEST:
By: /s/ P. Eric Krauss
-----------------------
-13-
<PAGE>
EXHIBIT 10.17
Document A
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
Agreement made as of this January __, 1995, by and between Continental
Cablevision, Inc., a Delaware corporation ("CCI") and NAME (the "Employee")
WITNESSETH THAT:
WHEREAS, CCI desires to provide significant incentives to selected key
employees of CCI or its Subsidiaries to remain as employees and to devote their
best efforts to achieving improvements in the equity value of CCI; and
WHEREAS, the Board of Directors of CCI by their vote have authorized the
issue and sale of shares of its authorized but unissued Class B Common Stock,
$.01 par value per share, to such selected key employees pursuant to the
Continental Cablevision, Inc. 1995 Restricted Stock Purchase Program (the
"Restricted Stock Purchase Program"); and
WHEREAS, the Employee has been selected as a Key Employee to participate in
the Restricted Stock Purchase Program;
NOW THEREFORE, the Employee and CCI, in consideration of these premises and
other good and valuable consideration, do hereby mutually agree as follow:
1. Definitions. As used in this Agreement:
-----------
1.1 "Permitted Transferee" shall mean the Employee's spouse, child or
children, or a trustee of a trust for the benefit of the Employee or such
spouse, child or children.
1.2 "Repurchase Event" shall mean the following: (a) any action of the
Employee (or of a Permitted Transferee) to
<PAGE>
sell, pledge, or transfer (or purport to sell, pledge or transfer) any shares of
Unvested Subject Stock other than to a Permitted Transferee, or (b) any
violation by the Employee of the covenant contained in Section 6 hereof, or (c)
any termination for any reason of the employment of the Employee by CCI and its
Subsidiaries.
1.3 "Subject Stock" shall mean all of the shares of Class B Common Stock
of CCI sold by CCI to the Employee subject to the terms and conditions of this
Agreement; and any and all shares of stock or other securities or property of
CCI or any other corporation or entity issued upon conversion of, with respect
to, or in substitution for the Subject Stock as the result of any stock
dividend, stock split, recapitalization, liquidation, merger, consolidation or
reorganization, but not including dividends paid in cash upon the Subject Stock;
and any certificate representing an interest in a voting trust holding the
Subject Stock.
1.4 "Subsidiary" or "Subsidiaries" shall mean any corporation or other
entity in which, at the time in question, CCI owns (directly, or indirectly
through other corporations or entities) a majority of the voting shares or
ownership interests.
1.5 "Unvested Subject Stock" shall mean, as of any date, a number of
shares of Subject Stock equal to (a) the total number of shares of Subject Stock
multiplied by (b) the
-2-
<PAGE>
percentage which is set forth opposite such date in the chart in Section 5.1
hereof.
1.6 "Vested Subject Stock" shall mean shares of Subject Stock to which
the repurchase rights of CCI described in section 5.1 hereof have ceased to
apply.
2. Sale of Subject Stock. Subject to the terms, conditions and
---------------------
restrictions of this Agreement, CCI hereby sells to the Employee SHARES shares
of authorized but unissued Class B Common Stock of CCI, having a par value of
one cent ($.01) per share, for a purchase price payable in cash of one cent
($.01) per share, receipt of which payment in full is hereby acknowledged by
CCI.
3. Voting Rights. The employee will be accorded all voting rights of full
-------------
common stock ownership with respect to the Subject Stock.
4. Restrictions on Transfer. The Employee hereby agrees that the Subject
------------------------
Stock shall be transferable only in accordance with the following terms and
conditions:
4.1 The Employee hereby represents and warrants to CCI that he is
acquiring the Subject Stock for investment and not with a view to effecting any
resale or distribution thereof, and that he will not in any event sell, pledge
or otherwise transfer or encumber the Subject Stock or any portion thereof
(whether voluntarily, by operation of law, by bequest or otherwise) unless and
until CCI receives an opinion from legal counsel in form and substance
reasonably satisfactory to it that the proposed
-3-
<PAGE>
transfer of Subject Stock would not violate the provisions of any applicable
federal or state securities law or any provisions of this Agreement.
4.2 The Employee hereby agrees that he will not make or purport to make,
except to CCI or to a Permitted Transferee, any sale, pledge, or transfer
(whether voluntarily, by operation of law, by bequest or otherwise) of Unvested
Subject Stock; and he further agrees that in the case of a sale, pledge, or
transfer to a Permitted Transferee, (i) the repurchase rights of CCI described
in Section 5 hereof shall continue to apply to the transferred Unvested Subject
Stock to the same extent that they would have applied had the Employee not
transferred the Unvested Subject Stock and (ii) the Employee shall deliver to
CCI a document in form and substance satisfactory to CCI executed by the
Permitted Transferee agreeing to be bound by the provisions of this Agreement.
4.3 Anything contained in this Agreement to the contrary
notwithstanding, no restriction or prohibition shall apply to a pledge of
Subject Stock to Continental Cablevision Investments, Inc. to secure a
Promissory Note of the Employee .
4.4 In order to make these restrictions effective, each stock
certificate or other document representing or evidencing the Subject Stock shall
have written or endorsed thereon the following legend:
-4-
<PAGE>
"The stock or securities represented or evidenced hereby are subject to
the terms and conditions of a certain Restricted Stock Purchase
Agreement between Continental Cablevision, Inc. and the person to whom
this stock or securities were issued, and may not be transferred in
absence of compliance with said terms and conditions."
4.5 CCI shall not record on its books any transfer of ownership of
Subject Stock which violates the restrictions set forth in this Agreement.
5. Repurchase Rights. The Subject Stock shall be subject to repurchase by
-----------------
CCI under the following terms and conditions:
5.1 Upon the occurrence of a Repurchase Event, CCI may, by delivery of
written notice to the Employee within thirty (30) days after CCI becomes aware
of such Repurchase Event, repurchase for a price of one cent ($.01) per share
the following percentage of the Subject Stock:
<TABLE>
<CAPTION>
Percentage of Shares
of Subject Stock
Subject to Repurchase
Date of Repurchase Event ("Unvested Subject Stock")
- ------------------------ --------------------------
<S> <C>
Prior to 6/29/95 100.00
Between 6/30/95 - 12/30/95 95.00
Between 12/31/95 - 6/29/96 90.00
Between 6/30/96 - 12/30/96 85.00
Between 12/31/96 - 6/29/97 77.50
Between 6/30/97 - 12/30/97 70.00
Between 12/31/97 - 6/29/98 60.00
Between 6/30/98 - 12/30/98 50.00
Between 12/31/98 - 6/29/99 40.00
Between 6/30/99 - 12/30/99 30.00
Between 12/31/99 - 6/29/00 22.50
Between 6/30/00 - 12/30/00 15.00
Between 12/31/00 - 6/29/01 10.00
Between 6/30/01 - 12/30/01 5.00
Between 12/31/01 - 6/29/02 3.00
Between 6/30/02 - 12/30/02 2.00
12/31/02 and thereafter ZERO
</TABLE>
-5-
<PAGE>
5.2 Upon this receipt of written notice from CCI of its intent to
repurchase any of the Unvested Subject Stock pursuant to this Section 5, the
Employee (or his personal representative) may, if he has filed a valid and
binding election with respect to the Subject Stock under Section 83(b) of the
Internal Revenue Code (an "83(b) Election"), elect to tender all of the Subject
Stock for sale to CCI, and CCI shall be obliged to repurchase such Subject
Stock; in that event, the total price for the Subject Stock shall be an amount
equal to the sum of the portions of the Employee's federal, state and local
income taxes incurred solely as a result of his purchase of the Subject Stock
and his filing of an 83(b) Election, such sum to be determined by computing the
total amount of the Employee's actual federal, state and local income tax
liability for 1995 and subtracting therefrom the amount of such liability had he
not purchased the Subject Stock and filed the 83(b) Election.
5.3 The closing of any repurchase of Subject Stock by CCI pursuant to
this Section 5 or Section 6 shall (unless otherwise mutually agreed) be held at
the office of the Secretary of CCI on the 35th business day after the delivery
of any repurchase notice by the Company pursuant to Section 5.1 or Section 6.2
(b), at which time the holder of the Subject Stock being repurchased shall
deliver to the Secretary the stock certificates or documents representing said
Subject Stock, duly endorsed or accompanied by such duly executed stock
assignments as are required to effect the transfer of ownership thereof to
-6-
<PAGE>
CCI, against receipt by the holder of full payment of the purchase price
therefor.
5.4 If with respect to any particular Repurchase Event CCI does not
exercise its repurchase rights in accordance with Section 5.1, the Unvested
Subject Stock shall thereafter be free of any repurchase right arising from that
particular Repurchase Event under Section 5.
6. Covenant Against Competitive Activity. The Employee
-------------------------------------
understands that the business in which CCI and its Subsidiaries are engaged is
the acquisition of existing telecommunications systems and the obtaining of
franchises (or the renewal of existing franchises) for the construction and
operation of telecommunications systems to provide voice, data and video
services in communities throughout the United States of America and in certain
foreign countries and the investment in and participation in the operation of
other telecommunications and cable programming ventures. In consideration of
the issue and sale of the Subject Stock to the Employee pursuant to Section 2
hereof, the Employee expressly agrees that during his employment by CCI or its
Subsidiary, and for a further period of one year following termination of any
such employment (unless termination occurs after December 31, 2002, in which
case CCI hereby expressly agrees that said restriction shall cease), the
Employee (alone or with others) will not without the written consent of CCI
engage in any activity in the telecommunications business (which shall include,
but not be limited to, the provision of
-7-
<PAGE>
video, voice and data services), directly or indirectly (whether as an employee,
officer, Director, agent, consultant, proprietor, partner, principal stockholder
or otherwise) other than as required for the performance of his employment by
CCI or by a Subsidiary.
6.1 In order to avoid questions as to the application of this covenant,
so long as it is in effect the Employee shall give written notice to CCI in
advance of any activity in the telecommunications business in which the
Employee, alone or with others, directly or indirectly, proposes to engage,
describing the activity in reasonable detail. If CCI shall not within five (5)
business days after its receipt of such notice respond in writing to the
Employee, objecting to such activity as being in violation of this Agreement,
such activity shall thereafter be free from the restrictions imposed by this
Section 6.
6.2 In the event that the Employee violates the provisions
of this Section 6, the Employee and CCI hereby agree that:
(a) If the Employee is then employed by CCI or its Subsidiary, he shall
be immediately discharged, and said discharge shall be deemed to
occur for due and sufficient cause.
(b) In addition to its rights under Section 5 hereof, CCI
shall have the right, by giving written notice to the Employee,
to repurchase all of the Vested Subject Stock then owned or held
by him or by
-8-
<PAGE>
Permitted Transferees, for an amount equal to the fair market value
of such Vested Subject Stock on the date of repurchase. In the event
that the said holders and CCI do not agree as to said fair market
value, the question shall be referred to an arbitrator selected
under the rules of the American Arbitration Association then in
effect, whose determination shall be final and binding upon CCI and
said holder or holders.
(c) The damages suffered by CCI on account of said violation shall
specifically include, among other elements, all gains realized by
the Employee or Permitted Transferees from any sale or sales of
the Subject Stock, including those arising pursuant to 6.2(b)
above.
(d) The remedy of recovery of damages at law would be
inadequate, and therefore that the provisions of this Section 6
shall be specifically enforced and any violation thereof shall be
specifically enjoined.
(e) Each of the remedies of CCI as hereinabove provided
shall be deemed nonexclusive, and all such remedies and all
others arising at law or in equity shall be deemed cumulative.
7. No Obligation for CCI to Continue Employment. Nothing in this Agreement
--------------------------------------------
shall be construed as imposing any obligation
-9-
<PAGE>
upon CCI or any Subsidiary to retain the Employee in its employ or to offer
future employment to the Employee.
8. CCI Rights. If a corporation other than CCI is the employer
----------
of the Employee, the Employee recognizes the underlying interests of CCI in such
transaction, and in each instance where this Agreement refers to the Subsidiary,
CCI shall be deemed to stand in the place and stead of the Subsidiary in the
event that the Subsidiary shall fail for any reason to exercise its rights under
this Agreement.
9. Representation, Warranties and Acknowledgments of the Employee.
--------------------------------------------------------------
9.1 The Employee hereby represents and warrants to CCI that he has read
and fully understands the provisions of this Agreement and is not in default of
the provisions set forth in Sections 4 or 6 hereof.
9.2 The Employee hereby acknowledges receipt of the current financial
statements of CCI and other information as to its business, and agrees that
either by virtue of his employment position or in response to his request he has
been furnished all information relating to CCI's business and financial position
as he deems necessary to make the investment decision to purchase the Subject
Stock, subject to the restrictions and provisions of this Agreement.
-10-
<PAGE>
10. General Provisions.
------------------
10.1 This Agreement:
(a) contains the full and complete understanding and agreement of the
parties hereto as to the entire subject matter hereof and may not be
modified or amended, nor may any provision hereof be waived, except
by a further written agreement duly signed by each of the parties;
(b) shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators,
representatives, successors and assigns; provided, however, that (i)
with respect to the Employee, this Agreement and the Employee's
rights hereunder, are deemed to be personal in nature and may not be
assigned or transferred except by will or by the laws of descent and
distribution or with the express written consent of CCI, and (ii) if
CCI is merged or consolidated into, or sells or transfers
substantially all of its assets and business to, a successor
corporation, said successor shall specifically agree to assume the
obligations as well as the rights and benefits of CCI under this
Agreement; and
-11-
<PAGE>
(c) shall be deemed to be an agreement made in Massachusetts and to be
construed in accordance with its laws.
10.2 All representations, warranties and acknowledgments made in this
Agreement shall survive the delivery of the Subject Stock pursuant hereto.
11. Notices. Any notice of CCI or the Employee to each other in
-------
connection with this Agreement shall be deemed to have been properly delivered
if it is in writing and is sent by registered mail, post paid, to the subject
party addressed as follows, unless another address be substituted by notice so
given.
To CCI:
-------
Continental Cablevision, Inc.
The Pilot House Lewis Wharf
Boston, Massachusetts 02110
Attention: Human Resources
Department
To the Employee:
----------------
CONTINENTAL CABLEVISION
The Pilot House Lewis Wharf
Boston, Massachusetts 02110
Attention: Human Resources
Department
IN WITNESS WHEREOF, CCI, by its officer hereunto duly authorized, and the
Employee have duly executed and delivered this Agreement in duplicate
counterpart copies as of the date first hereinabove written.
-12-
<PAGE>
CONTINENTAL CABLEVISION, INC.
BY ___________________________
THE EMPLOYEE:
______________________________
-13-
<PAGE>
Document C
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED
-----------------------------------------
This election is made under Section 83(b) of the Internal Revenue Code
pursuant to Regulation 1.83-2(e). As prescribed in 1.83-2(e) of said Regulation,
the following information is furnished:
1. The name, address and taxpayer identification number of the
person who performed the services ("Taxpayer") are:
Name:
Address: ______________________________________________
______________________________________________
Taxpayer Identification No.: ___________________________
2. The property with respect to which the election is being made is
SHARES of the Class B Common Stock, one cent ($.01) per share par value, of
Continental Cablevision, Inc., a Delaware corporation ("CCI") organized on May
29, 1963, with a principal business office at the Pilot House, Lewis Wharf,
Boston, Massachusetts 02110.
3. This election is made for the calendar year 1995 with respect to the
property described in item 2 above, which was transferred to the Taxpayer on
January __, 1995.
-14-
<PAGE>
4. The property was transferred to the Taxpayer by:
Continental Cablevision, Inc.
-------------------------------------
Name of Corporation (the "Employer")
The Pilot House, Lewis Wharf
-------------------------------------
Boston, Massachusetts 02110
-------------------------------------
Address
Taxpayer Identification No.: 04-2370836
5. The property is subject to the restriction that, on the happening of
a Repurchase Event (as hereinafter defined), CCI may repurchase for the price of
$.01 per share that portion of the property indicated in the chart below.
"Repurchase Event" means any of the following: (a) termination for any reason of
the Taxpayer's employment by CCI or any subsidiary corporation controlled by
CCI, (b) any action of the Taxpayer to sell or otherwise transfer shares of
Unvested Subject Stock (other than to CCI, or to the Taxpayer's spouse or child,
or to a trust for the benefit of the Taxpayer's spouse or child), and (c) any
violation by the Taxpayer of a covenant against competitive activity.
-15-
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
of Subject Stock
Subject to Repurchase
Date of Repurchase Event ("Unvested Subject Stock")
- ------------------------ --------------------------
<S> <C>
Prior to 6/29/95 100.00
Between 6/30/95 - 12/30/95 95.00
Between 12/31/95 - 6/29/96 90.00
Between 6/30/96 - 12/30/96 85.00
Between 12/31/96 - 6/29/97 77.50
Between 6/30/97 - 12/30/97 70.00
Between 12/31/97 - 6/29/98 60.00
Between 6/30/98 - 12/30/98 50.00
Between 12/31/98 - 6/29/99 40.00
Between 6/30/99 - 12/30/99 30.00
Between 12/31/99 - 6/29/00 22.50
Between 6/30/00 - 12/30/00 15.00
Between 12/31/00 - 6/29/01 10.00
Between 6/30/01 - 12/30/01 5.00
Between 12/31/01 - 6/29/02 3.00
Between 6/30/02 - 12/30/02 2.00
12/31/02 and thereafter ZERO
</TABLE>
This restriction totally lapses on December 31, 2002.
6. The fair market value of the property at the time of transfer
(determined without regard to any restriction on the property) was not more than
[$485.00] per share.
7. The amount paid for the property was one cent ($.01) per share.
8. Copies of this election have been furnished to CCI [and the
employer].
Signed this _____________ day of _______________.
__________________________________
-16-
<PAGE>
Document D
TAX LIABILITY FINANCING AGREEMENT
---------------------------------
Agreement made this January __, 1995, by and between Continental
Cablevision Investments, Inc., a Delaware corporation ("Investments") and NAME
(the "Employee").
WITNESSETH THAT:
WHEREAS, Continental Cablevision, Inc. ("CCI"), has authorized a
restricted stock purchase program for the benefit of selected key employees of
CCI or of its subsidiaries (meaning any corporation or other entity controlled
by CCI directly or through another subsidiary of CCI), whereby the Employee (as
one of such selected key employees) will be permitted to purchase SHARES shares
of the Class B Common Stock of CCI from CCI at their one cent per share par
value, but subject to various restrictions and repurchase rights, all as set
forth in the Restricted Stock Purchase Agreement which the Employee has entered
into with CCI under this program (said shares are hereinafter referred to as the
"Subject Stock");
WHEREAS, CCI recognizes that the Employee may incur substantial
additional income tax liabilities on account of such favorable purchase of its
Class B Common Stock; and
WHEREAS, Investments is a subsidiary of CCI;
NOW THEREFORE, Investments and the Employee hereby mutually agree as
follows:
-17-
<PAGE>
1. Upon receipt of a true copy of the Employee's valid and binding election
with respect to the Subject Stock pursuant to Section 83(b) of the Internal
Revenue Code (an "83(b) Election"), Investments shall lend to the Employee any
amount which he shall from time to time request in writing, not to exceed an
amount equal to the sum of the portions of his federal, state and local income
tax liability for 1995 incurred solely as a result of his purchase of the
Subject Stock and his filing of an 83(b) Election with respect thereto, such sum
to be determined by computing the total amount of the Employees actual income
tax liability for 1995 and subtracting therefrom the amount of such liability
had he not purchased the Subject Stock and filed the 83(b) Election, subject to
the following terms and conditions:
1.1 The loan shall be evidenced by a Promissory Note or notes in the
form attached hereto, providing for repayment in full on or before December 31,
2002.
1.2 The loan shall be collaterally secured by a pledge to Investments of
all of the Subject Stock.
1.3 The loan shall be disbursed from time to time as required to meet
the Employee's income tax liabilities incurred solely as a result of his
purchase of the Subject Stock and his filing of an 83(b) Election with respect
thereto, including the amount required to satisfy his employer's tax withholding
obligations with respect to such liabilities.
2. The Employee hereby:
-18-
<PAGE>
(a) requests that Investments lend him immediately an amount equal to
[$97.00] per share of the Subject Stock (20% of [$485.00] per
share), to be disbursed to his employer to meet its federal income
tax withholding obligations arising in connection with the
Employee's purchase of the Subject Stock, and such further sums as
he may from time to time request pursuant to Section 1 hereof;
(b) affirms to Investments that he has submitted an 83(b) Election, a
true copy of which is attached hereto; and
(c) herewith delivers to Investments the stock certificate representing
the Subject Stock, together with a stock assignment duly endorsed in
blank.
3. This Agreement constitutes the entire understanding and agreement of
Investments and the Employee as to the subject matter hereof, and may not be
modified or amended except by a further written agreement duly signed by each of
the parties hereto.
-19-
<PAGE>
IN WITNESS WHEREOF, Investments, by its officer hereunto duly
authorized, and the Employee have made this Agreement as of the date first
hereinabove written.
CONTINENTAL CABLEVISION
INVESTMENTS, INC.
By____________________________
The Employee:
______________________________
Signature
______________________________
Address
-20-
<PAGE>
Document E - Federal
PROMISSORY NOTE
LOANAMT Boston, Massachusetts
January __, 1995
FOR VALUE RECEIVED, the undersigned maker hereof, ***** NAME ***** ,
does hereby promise to pay to the order of Continental Cablevision Investments,
Inc. (the "Payee") the sum of LOANWO on or before December 31, 2002. The entire
unpaid principal hereof shall immediately become due and payable, without
further demand or notice of any kind, in the event that (a) a default shall
exist in the payment of principal of this Note, (b) the maker hereof shall cease
for any reason to be employed by Continental Cablevision, Inc. ("CCI"), or any
Subsidiary (as defined in a certain Restricted Stock Purchase Agreement dated as
of January __, 1995), or (c) the maker sells or transfers, other than to a
"Permitted Transferee", any of the "Unvested Subject Stock" (as such terms are
defined in a certain Restricted Stock Purchase Agreement dated as of January __,
1995, by and between the maker and CCI). Payment hereof is secured by a pledge
of shares of Class B Common Stock of CCI purchased by the maker hereof pursuant
to said Agreement.
The maker hereof (including the personal representative of his estate)
shall have the right at any time prior to December 31, 2002, by notice to the
Payee, to prepay in full without penalty the unpaid principal amount hereof.
Witnessed by:
___________________________ ______________________________
Maker
-21-
<PAGE>
Document E - State
PROMISSORY NOTE
SLOANAMT Boston, Massachusetts
January __, 1995
FOR VALUE RECEIVED, the undersigned maker hereof, ***** NAME *****,
does hereby promise to pay to the order of Continental Cablevision Investments,
Inc. (the "Payee") the sum of SLOANWO on or before December 31, 2002. The entire
unpaid principal hereof shall immediately become due and payable, without
further demand or notice of any kind, in the event that (a) a default shall
exist in the payment of principal of this Note, (b) the maker hereof shall cease
for any reason to be employed by Continental Cablevision, Inc. ("CCI"), or any
Subsidiary (as defined in a certain Restricted Stock Purchase Agreement dated as
of January __, 1995), or (c) the maker sells or transfers, other than to a
"Permitted Transferee", any of the "Unvested Subject Stock" (as such terms are
defined in a certain Restricted Stock, Purchase Agreement dated as of January
__, 1995, by and between the maker and CCI). Payment hereof is secured by a
pledge of shares of Class B Common Stock of CCI purchased by the maker hereof
pursuant to said Agreement.
The maker hereof (including the personal representative of his estate)
shall have the right at any time prior to December 31, 2002, by notice to the
Payee, to prepay in full without penalty the unpaid principal amount hereof.
Witnessed by:
_____________________________ ______________________________
Maker
-22-
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1989 1990 1991 1992(1) 1993(1) 1993 1994
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss Before Cumulative
Effect of Change in
Accounting for Income
Taxes.................. $(174,637) $(195,451) $(161,642) $(102,960) $ (25,774) $ (20,375) $(40,592)
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- -- -- -- (184,996) (184,996) --
--------- --------- --------- --------- --------- --------- --------
Loss Before
Extraordinary Item..... (174,637) (195,451) (161,642) (102,960) (210,770) (205,371) (40,592)
Extraordinary Item...... (18,169) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------
Net Loss................ (192,806) (195,451) (161,642) (102,960) (210,770) (205,371) (40,592)
Preferred Stock
Preferences............ (55,496) (61,102) (5,771) (16,861) (34,115) (25,355) (27,325)
--------- --------- --------- --------- --------- --------- --------
Loss Applicable to
Common Shareholders.... $(248,302) $(256,553) $(167,413) $(119,821) $(244,885) $(230,726) $(67,917)
========= ========= ========= ========= ========= ========= ========
Loss Per Common Share
Before Cumulative
Effect of Change in
Accounting for Income
Taxes.................. $ (44.88) $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (10.04) $ (14.89)
Loss Per Common Share
from Cumulative Effect
of Change in Accounting
for Income Taxes....... -- -- -- -- (40.55) (40.62) --
Extraordinary Item Per
Common Share........... (3.54) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------
Loss Per Common Share... $ (48.42) $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (50.66) $ (14.89)
========= ========= ========= ========= ========= ========= ========
Weighted Average Number
of Shares Outstanding
During the Period...... 5,128 4,682 4,701 4,782 4,562 4,554 4,562
========= ========= ========= ========= ========= ========= ========
</TABLE>
- --------
(1) For purposes of calculating loss per common share for the year ended
December 31, 1992 and 1993 and the nine months ended September 30, 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>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1994
----------------- ------------------
<S> <C> <C>
Pro Forma:
Loss Before Cumulative Effect of Change
in Accounting
for Income Taxes....................... $ (38,832) $ (47,416)
Cumulative Effect of Change in
Accounting
for Income Taxes....................... (184,996) --
--------- ---------
Net Loss................................ (223,828) (47,416)
Preferred Stock Preferences............. (34,115) (27,325)
Preferred Dividends..................... (10,952) (8,214)
--------- ---------
Loss Applicable to Common Shareholders.. (268,895) (82,955)
========= =========
Loss Per Common Share Before Cumulative
Effect
of Change in Accounting for Income
Taxes.................................. (.59) (.58)
Loss Per Common Share from Cumulative
Effect
of Change in Accounting for Income
Taxes.................................. (1.30) --
--------- ---------
Loss Per Common Share................... (1.89) (.58)
========= =========
Weighted Average Number of Shares
Outstanding
During the Year........................ 142,315 142,319
</TABLE>
- --------
(1) For purposes of calculating loss per common share for the year ended
December 31, 1992 and 1993, 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of Earnings:
Income (Loss) from
Continuing Operations
Before Income Taxes
and Cumulative Effect
of Change in
Accounting for Income
Taxes................ $(178,621) $(193,969) $(159,781) $(101,306) $(33,695) $(20,375) $(40,592)
Add:
Interest Expense...... 268,089 312,422 323,123 289,479 276,698 201,936 223,580
Interest Portion of
Rent Expense......... 4,642 5,235 5,445 5,899 6,065 4,611 5,021
Amortization of
Capitalized Interest. 1,972 2,030 2,067 2,106 2,162 1,621 1,675
Amortization of
Deferred Financing
Costs................ 1,139 1,423 1,841 6,549 5,551 4,163 3,998
Equity in Net Loss of
Affiliates........... 10,941 24 3,380 9,402 12,827 7,812 14,413
--------- --------- --------- --------- -------- -------- --------
Earnings as Adjusted.. $ 108,162 $ 127,165 $ 176,075 $ 212,129 $269,608 $199,768 $208,095
========= ========= ========= ========= ======== ======== ========
Computation of Fixed
Charges:
Interest Expense....... $ 268,089 $ 312,422 $ 323,123 $ 289,479 $276,698 $201,936 $223,580
Interest Portion of
Rent Expense.......... 4,642 5,235 5,445 5,899 6,065 4,611 5,021
Capitalized Interest... 1,005 718 396 766 908 517 1,260
Amortization of
Deferred Financing
Costs................. 1,139 1,423 1,841 6,549 5,551 4,163 3,998
Preferred Dividends.... 55,496 61,102 5,771 16,861 34,115 25,355 27,325
--------- --------- --------- --------- -------- -------- --------
Fixed Charges.......... $ 330,371 $ 380,900 $ 336,576 $ 319,554 $323,337 $236,582 $261,184
========= ========= ========= ========= ======== ======== ========
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends............. .33 .34 .52 .66 .83 .84 .80
========= ========= ========= ========= ======== ======== ========
Deficiency in Earnings
Required to Cover
Combined Fixed
Charges............... $ 222,209 $ 253,735 $ 160,501 $ 107,425 $ 53,729 $ 36,814 $ 53,089
========= ========= ========= ========= ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TOCOMBINED FIXED CHARGES 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>
12/31/93 9/30/94
-------- --------
<S> <C> <C>
Pro Forma:
Computation of Earnings:
Income (Loss) from Continuing Operations
Before Income Taxes and Cumulative Effect of Change
in Accounting for Income Taxes...................... $(38,832) $(47,416)
Add:
Interest Expense..................................... 334,666 264,298
Interest Portion of Rent Expense..................... 7,742 6,279
Amortization of Capitalized Interest................. 2,355 1,820
Amortization of Deferred Financing Costs............. 5,551 3,998
Equity in Net Loss of Affiliates..................... 12,827 14,413
-------- --------
$324,309 $243,392
======== ========
Computation of Fixed Charges:
Interest Expense....................................... 334,666 264,298
Interest Portion of Rent Expense....................... 7,742 6,279
Capitalized Interest................................... 1,131 1,427
Amortization of Deferred Financing Costs............... 5,551 3,998
Preferred Stock Preferences............................ 36,814 53,089
Preferred Dividends.................................... 10,952 8,214
-------- --------
$396,856 $337,305
======== ========
Ratio of Earnings to Combined Fixed Charges.............. .82 .72
======== ========
Deficiency in Earnings Required to Cover Combined Fixed
Charges and Preferred Dividends......................... $ 72,547 $ 93,913
======== ========
</TABLE>
<PAGE>
EXHIBIT 21
CONTINENTAL CABLEVISION, INC.
("CCI")
Subsidiaries
------------
Jurisdiction
of
Name Organization
- ---- ------------
Alrif Co., Inc. Massachusetts
Alternet of Virginia Virginia
American Cablesystems
Corporation Delaware
American Cablesystems
Northeast, Inc. Massachusetts
American Cablesystems
Northeast, a Limited
Partnership Massachusetts
American Cablesystems of
California, Inc. California
American Cablesystems of
Florida, a Limited
Partnership Massachusetts
American Cablesystems of
Florida, Inc. Massachusetts
American Cablesystems of
New York, Inc. New York
American Cablesystems of
South Central Los Angeles,
Inc. Delaware
CCI Cable News, Inc. Massachusetts
CCMP, Inc. Massachusetts
Continental Cablevision Massachusetts
Asia Pacific, Inc.
Continental Cablevision
Asset Management
Corporation Massachusetts
<PAGE>
Jurisdiction
of
Name Organization
- ---- ------------
Continental Cablevision
Digital Radio, Inc. Massachusetts
Continental Cablevision
Florida Limited, Inc. Delaware
Continental Cablevision
Investments, Inc. Delaware
Continental Cablevision
Northeast Limited, Inc. Delaware
Continental Cablevision
Northern Cook County
Limited, Inc. Delaware
Continental Cablevision of Massachusetts
Australia, Inc.
Continental Cablevision of
Brockton, Inc. Delaware
Continental Cablevision of California
California, Inc.
Continental Cablevision of
Cook County, Inc. Delaware
Continental Cablevision of
Illinois, Inc. Delaware
Continental Cablevision of
Jacksonville, Inc.
Florida
Continental Cablevision of
Manchester, Inc. Maryland
Continental Cablevision of
Massachusetts, Inc. Massachusetts
Continental Cablevision of
Michigan, Inc. Michigan
-2-
<PAGE>
Jurisdiction
of
Name Organization
- ---- ------------
Continental Cablevision of
Minnesota, Inc. Minnesota
Continental Cablevision of
Needham, Inc. Delaware
Continental Cablevision of
New England, Inc. New Hampshire
Continental Cablevision of
Northern Cook County, Inc. Massachusetts
Continental Cablevision of
Northern Cook County, a
Limited Partnership Massachusetts
Continental Cablevision of
Ohio, Inc. Ohio
Continental Cablevision of
Richmond, Inc. Virginia
Continental Cablevision of
St. Louis County, Inc. Delaware
Continental Cablevision of
St. Paul, Inc. Minnesota
Continental Cablevision of
Sierra Valleys, Inc. California
Continental Cablevision of
Virginia, Inc. Virginia
Continental Cablevision of
Western New England, Inc. Delaware
Continental Cablevision of
Will County, Inc. Massachusetts
Continental Cablevision
of Will County, a Limited
Partnership Massachusetts
-3-
<PAGE>
Jurisdiction
of
Name Organization
- ---- ------------
Continental Cablevision
Satellite Company of
Northern California, Inc. California
Continental Cablevision
Services, Inc. New Hampshire
Continental Cablevision
Will County Limited,
Inc. Delaware
Continental Fiberphone, Inc. Massachusetts
Continental Fiber
Technologies, Inc. Florida
Continental Internet, Inc. Massachusetts
Continental Programming
Partners I, Inc. Massachusetts
Continental Satellite
Company, Inc. Massachusetts
Continental Satellite
Company of Chicago, Inc. Illinois
Continental Satellite
Company of Florida, Inc. Florida
Continental Satellite
Company of Illinois, Inc. Illinois
Continental Satellite
Company of Michigan, Inc. Michigan
Continental Satellite
Company of Minnesota, Inc. Minnesota
Continental Satellite
Company of New
England, Inc. New Hampshire
Continental Satellite
Company of Ohio, Inc. Ohio
-4-
<PAGE>
Jurisdiction
of
Name Organization
- ---- ------------
Continental Satellite
Company of Virginia, Inc. Virginia
Continental Cablevision
Singapore Pte Ltd. Singapore
Continental Telecommunications
Corp. Massachusetts
Continental Telecommunications
Corp. of Boston Massachusetts
Continental Telecommunications
Corp. of Chicago Illinois
Continental Telecommunications
Corp. of Los Angeles California
Continental Telecommunications
Corp. of Michigan Michigan
Continental Telecommunications
Corp. of Minnesota Minnesota
Continental Telecommunications
Corp. of New England Massachusetts
Continental Telecommuncations
Corp. of Ohio Ohio
Continental Telecommunications
Corp. of St. Louis County Illinois
Continental Telecommunications
Corp. of Virginia Virginia
Continental Teleport, Inc. Massachusetts
Continental Teleport Corp.
of Florida Florida
Continental Teleport
Partners, Inc. Massachusetts
Fresno Cable TV Limited California
-5-
<PAGE>
Jurisdiction
of
Name Organization
- ---- ------------
Greater Boston Cable Massachusetts
Advertising
Milton Cablesystems
Corporation Massachusetts
Minnesota Cable
Communications Holding
Company Inc. Delaware
Nor Cal Cablevision, Inc. California
Pompano Telecable
Corporation Florida
S.A. Ventures, Inc. Massachusetts
San Joaquin TV
Services, Inc. California
Telcab Communications, Inc. Nevada
Telefiber Networks
of Illinois, Inc. Illinois
-6-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Continental
Cablevision, Inc. and its subsidiaries on Form S-4 of our report dated February
10, 1994, (March 9, 1994 as to Note 5 and 15 to the Consolidated Financial
Statements) (which contains an explanatory paragraph regarding a change in
accounting for income taxes in 1993), 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 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
January 27, 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.
Arthur Andersen LLP
Stamford, Connecticut
January 26, 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 December 7, 1994 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
January 25, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
Continental Cablevision, Inc.:
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 the Registration
Statement (Form S-4 filed on January 27, 1995) and related Prospectus of
Continental Cablevision, Inc.
Ernst & Young LLP
Detroit, Michigan
January 24, 1995
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
Continental Cablevision, Inc.:
We consent to the inclusion of our report dated March 4, 1994, except for
note 11, which is as of June 21, 1994, with respect to the balance sheets of
Cablevision of Chicago as of December 31, 1993 and 1992 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 January 27, 1995.
KPMG Peat Marwick LLP
Jericho, New York
January 26, 1995
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Continental
Cablevision, Inc. on Form S-4 of our report dated March 29, 1994, except for
Notes 7 and 10, as to which the date is December 1, 1994, on the consolidated
financial statements of United Broadcasting Company, Inc. and Subsidiaries as
of and for the year ended December 31, 1993, (which expresses an unqualified
opinion and includes two explanatory paragraphs relating to corrections of the
previously issued financial statements) appearing in the Joint Proxy
Statement--Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Joint Proxy Statement--Prospectus.
Councilor, Buchanan & Mitchell, P.C.
Bethesda, Maryland
January 26, 1995
<PAGE>
EXHIBIT 23.8
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
701 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
One Financial Center Telephone:
Boston, Massachusetts 02111 202/434-7300
Telephone: 617/542-6000 Fax: 202/434-7400
Fax: 617/542-2241 Telex: 753689
Frank W. Lloyd Direct Dial
Number
(202) 434-7309
January 27, 1995
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Ladies and Gentlemen:
We have acted as special counsel for Continental Cablevision, Inc. (the
"Company") in connection with the registration on Form S-4 (Registration No.
) under the Securities Act of 1933, as amended, of the securities
identified therein (the "Registration Statement").
We hereby consent to the reference to our firm under the heading "Experts" in
the Joint Proxy Statement-Prospectus forming a part of the Registration
Statement, and to the filing of this letter with the Securities and Exchange
Commission as Exhibit 23.8 of the Registration Statement.
Sincerely,
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
/s/ Frank W. Lloyd
by __________________________________
D35055.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-START> JAN-01-1994 JAN-01-1993
<PERIOD-END> SEP-30-1994 DEC-31-1993
<CASH> 28,824 122,640
<SECURITIES> 144,558 58,676
<RECEIVABLES> 47,414 44,530
<ALLOWANCES> 9,758 9,435
<INVENTORY> 48,821 31,638
<CURRENT-ASSETS> 0 0
<PP&E> 1,273,748 1,211,507
<DEPRECIATION> 1,098,072 981,650
<TOTAL-ASSETS> 2,329,351 2,091,853
<CURRENT-LIABILITIES> 0 0
<BONDS> 3,310,520 3,177,178
<COMMON> 39 39
0 0
11 11
<OTHER-SE> (1,703,978) (1,643,561)
<TOTAL-LIABILITY-AND-EQUITY> 2,329,351 2,091,853
<SALES> 0 0
<TOTAL-REVENUES> 885,636 1,177,163
<CGS> 0 0
<TOTAL-COSTS> 300,077 382,195
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 223,580 276,698
<INCOME-PRETAX> (65,344) (33,695)
<INCOME-TAX> (24,752) (7,921)
<INCOME-CONTINUING> (40,592) (25,774)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (184,996)
<NET-INCOME> (40,592) (210,770)
<EPS-PRIMARY> (14.89) (53.68)
<EPS-DILUTED> 0.00 0.00
</TABLE>
<PAGE>
EXHIBIT 99
SCHEDULE VIII
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<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,
1991................... $8,545 $13,440 $(13,179) $ 19 $8,825
====== ======= ======== ==== ======
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
====== ======= ======== ==== ======
</TABLE>
- --------
(A) Amounts written off, net of recoveries.
(B) Other represents acquisitions in 1991.
See Notes to Consolidated Financial Statements.
