<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1995
REGISTRATION NO. 33-57471
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3 TO
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
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger of Providence Journal Company with and into
Continental Cablevision, Inc. pursuant to the Agreement and Plan of Merger
described in the accompanying Joint Proxy Statement-Prospectus have been
satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS OF SECURITIES NUMBER TO BE PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 Par Value per
share................. 30,725,207 $19.40 $59,677,000 $20,579
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</TABLE>
(1) Estimated solely for purpose of calculating the registration fee.
(2) The registration fee, which was paid by the Registrant on January 27,
1995, 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, registered pursuant hereto, computed as
of September 30, 1994. As a result of the election of the Registrant not
to issue Series B Cumulative Redeemable Preferred Stock and a change in
the amount of equity consideration being paid pursuant to the Amended and
Restated Agreement and Plan of Merger described in the Proxy Statement--
Prospectus, the number of shares of the Registrant's Class A Common Stock
to be registered pursuant hereto has increased from 28,260,309 shares to
30,725,207 shares. However, because the registration fee is based on a
fixed dollar amount pursuant to Rule 457(f)(2), the registration fee
originally paid by the Registrant is not affected by this increase in the
number of registered shares of Registrant's Class A Common Stock.
----------------
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 THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
CONTINENTAL CABLEVISION, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN THE JOINT PROXY STATEMENT-PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
CAPTION IN JOINT PROXY STATEMENT-
ITEMS IN FORM S-4 PROSPECTUS
----------------- ---------------------------------
<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; Risk Factors
Item 4. Terms of the Transaction..................... Summary; Background of 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..................................... The Merger; 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 Capital Stock;
Continental Shares
Eligible for Future Sale;
Description of Continental
Indebtedness; Legislation
and Regulation
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; Risk Factors;
Background of the
Transactions; Pre-Merger
Transactions; The Merger;
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.
August , 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 September , 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 Agreement and Plan of Merger (the "Merger Agreement"), providing for
(i) the merger of Providence Journal Company ("Providence Journal"), which,
following an internal corporate restructuring, will own only Providence
Journal's cable television businesses, with and into Continental (the "Merger")
and (ii) prior to the Merger, the purchase by Continental of all of the cable
television businesses of King Broadcasting Company, which is currently 50%
owned by Providence Journal, for a purchase price of $405,000,000.
As a result of the Merger, all outstanding shares of common stock of
Providence Journal will be converted into shares of Continental Class A Common
Stock. Assuming that no adjustments have been made to the amount of
consideration to be paid to the stockholders of Providence Journal, as
described below, and after giving effect to the stock dividend specified in the
accompanying Joint Proxy Statement-Prospectus (which will have the effect of
causing each outstanding share of Continental Class A Common Stock and
Continental Class B Common Stock to become 25 shares of such class of stock),
Continental would issue to Providence Journal stockholders an aggregate of
30,725,207 shares of Continental Class A Common Stock representing an aggregate
estimated value of $596,069,000, or $19.40 per share. The value of $19.40 per
share of Continental Class A Common Stock was arrived at by Continental and
Providence Journal as a result of arm's length negotiations between the parties
and does not necessarily reflect the price at which such shares will trade
following the consummation of the Merger.
The shares of Continental Class A Common Stock to be issued in the Merger
will be reduced if certain cable subsidiaries of Providence Journal, in which
there are currently minority interests outstanding, are not wholly owned at the
time of the Merger. If none of these minority interests were purchased by the
time of the Merger, the maximum number of shares of Continental Class A Common
Stock that Continental would be required to issue would be 27,946,340.
As a result of the Merger and assuming that no reductions are made due to
minority interests remaining outstanding, the Providence Journal stockholders
would receive shares of Continental Class A Common Stock, representing in the
aggregate approximately 17.3% 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 approximately 2.2% of the voting power of
Continental.
The Merger is subject to, among other things, the approvals of various
governmental entities and other third parties, including the Federal
Communications Commission, and will not be consummated until those approvals
have been obtained. In addition, the stockholders of Providence Journal must
approve the Merger and related transactions. As a result, it is expected that
the Merger will be completed during the fourth quarter of 1995.
Your Board of Directors has carefully considered the terms of the proposed
Merger and believes that the Merger and related transactions are in the best
interests of and fair to Continental and its stockholders. The Board has
unanimously approved the Merger and the related transactions and recommends
that stockholders vote FOR that proposal.
<PAGE>
In order to permit Continental to issue shares of Continental Class A Common
Stock to the Providence Journal 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 two Class C Directors of
Continental to serve a three-year term and to ratify the appointment by the
Board of Directors of Deloitte & Touche LLP as Continental's independent
auditors for the current fiscal year ending December 31, 1995.
The accompanying Joint Proxy Statement-Prospectus sets forth the respective
voting rights of holders of shares of Continental stock with respect to these
matters. We hope you will be able to attend the meeting. However, even if you
anticipate attending in person, we urge you to complete, sign, date and return
the enclosed proxy card promptly to ensure that your shares will be represented
at the Continental Special Meeting. If you do attend, you will, of course, be
entitled to vote in person.
Thank you, and I look forward to seeing you at the meeting.
Sincerely,
[Signature]
Amos B. Hostetter, Jr.
Chairman of the Board and Chief
Executive Officer
<PAGE>
CONTINENTAL CABLEVISION, INC.
NOTICE OF SPECIAL MEETING
IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 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 September , 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 Agreement and Plan of Merger,
dated as of November 18, 1994, as amended and restated as of August 1, 1995
(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 (i) the merger (the "Merger") of Providence
Journal, which at the time of the Merger will hold only Providence
Journal's cable television businesses and assets, with and into Continental
and (ii) prior to the Merger, the purchase by Continental for $405,000,000
of all of the cable television businesses owned by KBC (the "King Cable
Purchase"), 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 the total number of authorized
shares of capital stock of Continental from 17,700,000 to 825,000,000,
including an increase in (a) the number of authorized shares of Common
Stock, $.01 par value per share ("Continental Common Stock"), from
15,000,000 to 625,000,000, of which 425,000,000 will be shares of Class A
Common Stock with one vote per share ("Continental Class A Common Stock")
and 200,000,000 will be shares of Class B Common Stock with ten votes per
share ("Continental Class B Common Stock"), and (b) the number of
authorized shares of Preferred Stock, $.01 par value per share
("Continental Preferred Stock"), from 2,700,000 to 200,000,000, of which
1,142,858 are currently designated Series A Convertible Preferred Stock
("Continental Series A Preferred Stock").
(3) The election of two Class C Directors of Continental to serve a
three-year term.
(4) The ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP as Continental's independent auditors for the current
fiscal year ending December 31, 1995.
(5) Such other business as may properly come before the Continental
Special Meeting or any adjournments or postponements thereof.
The proposals described in items (1) and (2) above are hereinafter
collectively referred to as the "Continental Proposals".
The Continental Board of Directors has fixed the close of business on August
15, 1995 as the record date for the determination of stockholders entitled to
notice of and to vote at the Continental Special Meeting and any adjournments
or postponements thereof. Only stockholders of record at the close of business
on such date are entitled to notice of and to vote at such meeting. A list of
Continental stockholders entitled to vote at the Continental Special Meeting or
any adjournments or postponements thereof will be available for examination for
any purpose germane to the Continental Special Meeting, during ordinary
business hours, at the principal executive offices of Continental located at
The Pilot House, Lewis Wharf, Boston, Massachusetts 02110, for 10 days prior to
the Continental Special Meeting.
<PAGE>
Shares of the Continental Class A Common Stock, Continental Class B Common
Stock and Continental Series A Preferred Stock are the only securities of
Continental whose holders are entitled to vote upon the Continental Proposals
and the other proposals to be presented at the Continental Special Meeting.
Each proposal shall be voted upon separately by the Continental stockholders
entitled to vote at the Continental Special Meeting; however, failure of the
stockholders to approve either of the Continental Proposals will result in the
abandonment by Continental of the Merger.
Continental stockholders entitled to vote at the Continental Special Meeting
have a right to dissent to the Merger and, if the Merger is consummated, to
obtain payment for their shares of Continental stock by complying with the
provisions of Section 262 of the Delaware General Corporation Law ("Section
262"). A copy of Section 262 is attached as Annex III to the accompanying Joint
Proxy Statement-Prospectus.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Continental Special
Meeting, is requested to sign, date and return the enclosed Proxy without delay
in the enclosed postage-paid return envelope. You may revoke your Proxy at any
time prior to its exercise. Any stockholder present at the Continental Special
Meeting or at any adjournments or postponements thereof may revoke his or her
Proxy and vote personally on each matter brought before the Continental Special
Meeting.
By Order of the Board of Directors,
[Signature]
Robert B. Luick, Secretary
August , 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
August , 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 September , 1995 at 10:00 a.m. at the
offices of Providence Journal, 75 Fountain Street, Providence, Rhode Island.
At the Providence Journal Special Meeting, stockholders will be asked (i) to
approve the transfer of all the businesses of Providence Journal other than its
cable television operations to a new corporation ("New Providence Journal") and
the distribution to the stockholders of Providence Journal of all of the
outstanding shares of New Providence Journal (the "PJC Spin-Off"); (ii) to
approve and adopt an amendment to the Charter of Providence Journal required to
facilitate the PJC Spin-Off; (iii) to approve and adopt an Agreement and Plan
of Merger (the "Merger Agreement"), which provides for the merger (the
"Merger") of Providence Journal, which will hold only the cable television
businesses of Providence Journal after the PJC Spin-Off, with and into
Continental Cablevision, Inc. ("Continental") and, prior to the Merger, the
purchase by Continental of all of the cable television businesses of King
Broadcasting Company, which is currently 50% owned by Providence Journal; and
(iv) to approve the Providence Journal Cable Division Sale Bonus Plan, which
provides incentives to a group of executives of Providence Journal's cable
television division in order to maximize the operating performance of the cable
business pending completion of the Merger, with bonuses payable only if the
Merger is consummated (the maximum amount of the bonuses payable pursuant to
the Providence Journal Cable Division Sale Bonus Plan is $5,200,000).
As a result of the Merger, all outstanding shares of common stock of
Providence Journal will be converted into shares of Continental's Class A
Common Stock. In order to protect the tax-free nature of the PJC Spin-Off and
the Merger, the shares of New Providence Journal Common Stock received in the
PJC Spin-Off and the shares of Continental Class A Common Stock received in the
Merger may not be transferred by Providence Journal stockholders for a period
of one year following the effective date of the Merger, except in certain
limited circumstances. Assuming no adjustments are made in the amount of
consideration provided in the Merger Agreement, as described below, 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 30,725,207 shares of Continental Class A Common
Stock, representing an aggregate estimated value of $596,069,000, or $19.40 per
share. Based on the foregoing, the Merger would result in the stockholders of
Providence Journal receiving approximately 362.80 shares of Continental Class A
Common Stock per share of Providence Journal common stock that was outstanding
on August 1, 1995; this represents an estimated value of $7,038.33 per
Providence Journal share. The value of $19.40 per share of Continental Class A
Common Stock was arrived at by Continental and Providence Journal as a result
of arm's length negotiations between the parties and does not necessarily
reflect the price at which such shares will trade following the consummation of
the Merger.
The shares of Continental Class A Common Stock to be issued in the Merger
will be reduced if certain cable subsidiaries of Providence Journal, in which
there are currently minority interests outstanding, are not wholly owned at the
time of the Merger. If none of these minority interests were purchased by the
time of the Merger, the maximum reduction in the consideration to be paid in
Continental Class A Common Stock would be $53,910,000, and the Merger would
result in the stockholders of Providence Journal receiving approximately 329.99
shares of Continental Class A Common Stock, representing an estimated value of
$6,401.80, per share of Providence Journal common stock that was outstanding on
August 1, 1995.
As a result of the Merger and assuming that no reductions are made due to
minority interests remaining outstanding, the Providence Journal stockholders
would receive shares of Continental Class A Common Stock, representing
approximately 17.3% 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 approximately 2.2% of the voting power of
Continental.
<PAGE>
As a result of the PJC Spin-Off, New Providence Journal will own all the
businesses and assets of Providence Journal unrelated to its cable television
business. Each stockholder of Providence Journal at the time the PJC Spin-Off
is carried out will receive, through a distribution by Providence Journal, one
share of Class A Common Stock of New Providence Journal for each share of
Providence Journal Class A Common Stock held and one share of Class B Common
Stock of New Providence Journal for each share of Providence Journal Class B
Common Stock held.
The Merger is 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 Merger to be completed until the fourth
quarter of 1995.
Your Board of Directors has carefully considered the terms of the proposed
Merger with Continental and believes that the PJC Spin-Off and the Merger,
including the transactions contemplated thereby, are in the best interests of
and fair to Providence Journal and its stockholders. The Board has unanimously
approved the PJC Spin-Off, the related Charter amendment, the Merger 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 and
Chief Executive Officer
<PAGE>
PROVIDENCE JOURNAL COMPANY
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 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 September , 1995 at 10:00 a.m. local
time at the offices of Providence Journal, 75 Fountain Street, Providence,
Rhode Island, for the purpose of considering and voting upon the following
matters:
(1) A proposal to approve (i) the contribution (the "Contribution") by
Providence Journal of all of its businesses and assets unrelated to its
cable television businesses to The Providence Journal Company ("New
Providence Journal"), its newly created wholly owned subsidiary, in
exchange for which New Providence Journal will assume all liabilities
related to such businesses and assets and issue to Providence Journal a
number of shares of New Providence Journal's Class A common stock ("New
Providence Journal Class A Common Stock") and New Providence Journal's
Class B common stock ("New Providence Journal Class B Common Stock") equal
to the number of outstanding shares of Providence Journal's Class A common
stock ("Providence Journal Class A Common Stock") and Providence Journal's
Class B common stock ("Providence Journal Class B Common Stock"),
respectively, and (ii) the distribution (the "Distribution") of one share
of New Providence Journal Class A Common Stock to the holder of each share
of Providence Journal Class A Common Stock and one share of New Providence
Journal Class B Common Stock to the holder of each share of Providence
Journal Class B Common Stock, each as outstanding immediately prior to the
Distribution. The Contribution and the Distribution discussed above are
hereinafter referred to collectively as the "PJC Spin-Off."
(2) A proposal to approve and adopt an amendment to the Charter of
Providence Journal (the "Providence Journal Charter Amendment") required in
connection with the PJC Spin-Off to permit Providence Journal to distribute
one share of New Providence Journal Class A Common Stock to the holder of
each share of Providence Journal Class A Common Stock and one share of New
Providence Journal Class B Common Stock to the holder of each share of
Providence Journal Class B Common Stock.
(3) A proposal to approve and adopt the Agreement and Plan of Merger
dated as of November 18, 1994, as amended and restated as of August 1, 1995
(the "Merger Agreement"), by and among Continental Cablevision, Inc.
("Continental"), Providence Journal, King Holding Corp., King Broadcasting
Company ("KBC") and New Providence Journal, and each of the transactions
contemplated thereby, including (i) the merger (the "Merger") of Providence
Journal, which at the time of the Merger will hold only Providence
Journal's cable television businesses and assets, with and into Continental
and (ii) prior to the Merger, the purchase by Continental for $405,000,000
of all of the cable television businesses owned by KBC (the "King Cable
Purchase"), 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.
(4) 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.
(5) Such other business as may properly come before the Providence
Journal Special Meeting or any adjournments or postponements thereof.
The proposals described in items (1), (2) and (3) above are hereinafter
collectively referred to as the "Providence Journal Proposals".
Each proposal shall be voted upon separately by the Providence Journal
stockholders entitled to vote at the Providence Journal Special Meeting;
however, failure of the stockholders to approve any of the
<PAGE>
Providence Journal Proposals will result in the abandonment by Providence
Journal of the PJC Spin-Off, the Merger and the related transactions.
Stockholders should be aware that, in the event that the PJC Spin-Off and the
Merger are approved, the following actions, among others, will take place in
connection with the consummation thereof:
(i) Providence Journal will incur indebtedness in the amount of
approximately $410,000,000, which will be an obligation of Continental
after the Merger. This indebtedness, together with $405,000,000 to be
provided by Continental for the King Cable Purchase and the other
indebtedness described in (ii) below, will be used to consummate the buyout
of the 50% owners of KHC, to purchase interests in certain cable
subsidiaries not presently wholly owned by Providence Journal, to pay
transaction costs associated with the Merger, to repay all existing
indebtedness, to pay taxes due as a result of the King Cable Purchase and
to pay certain deferred compensation.
(ii) New Providence Journal will also incur indebtedness required to meet
the foregoing obligations, among others, in the amount of approximately
$275,000,000. This indebtedness will remain an obligation of New Providence
Journal after the Merger.
The Providence Journal Board of Directors has fixed the close of business on
August 25, 1995 as the record date for the determination of stockholders
entitled to notice of and to vote at the Providence Journal Special Meeting and
any adjournments or postponements thereof. Only stockholders of record at the
close of business on such date are entitled to notice of and to vote at the
Providence Journal Special Meeting. A list of Providence Journal stockholders
entitled to vote at the Providence Journal Special Meeting will be available
for examination for any purpose germane to the Providence Journal Special
Meeting, during ordinary business hours, at the principal executive offices of
Providence Journal, 75 Fountain Street, Providence, Rhode Island 02902, for 10
days prior to the Providence Journal Special Meeting.
The holders of shares of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock are entitled to vote upon the matters
to come before the Providence Journal Special Meeting, including the Providence
Journal Proposals. The required votes on the matters to come before the
Providence Journal Special Meeting are detailed in the accompanying Joint Proxy
Statement-Prospectus.
Providence Journal stockholders entitled to vote at the Providence Journal
Special Meeting have a right to dissent to the Merger and, if the Merger is
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
August , 1995
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
AND ADOPT THE PJC SPIN-OFF, FOR THE PROPOSAL TO APPROVE AND ADOPT THE
PROVIDENCE JOURNAL CHARTER AMENDMENT, FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND FOR THE PROPOSAL TO APPROVE AND ADOPT THE PROVIDENCE
JOURNAL CABLE DIVISION SALE BONUS PLAN.
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST , 1995 PRELIMINARY COPIES
CONTINENTAL CABLEVISION, INC.
AND
PROVIDENCE JOURNAL COMPANY
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD SEPTEMBER , 1995
------------
CONTINENTAL CABLEVISION, INC.
PROSPECTUS
30,725,207 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
------------
THE PROVIDENCE JOURNAL COMPANY
PROSPECTUS
38,825 SHARES OF CLASS A COMMON STOCK, $1.00 PAR VALUE PER SHARE
46,825 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 September , 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 August , 1995.
(continued on next page)
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT-
PROSPECTUS. THE PROPOSED 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, AND SHOULD CAREFULLY CONSIDER THE "RISK FACTORS"
SET FORTH HEREIN BEGINNING ON PAGE 23.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVEDBY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACYOF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TOTHE CONTRARY IS A CRIMINAL OFFENSE.
------------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS AUGUST , 1995
<PAGE>
This Joint Proxy Statement-Prospectus relates to the Agreement and Plan of
Merger, dated as of November 18, 1994, as amended and restated as of August 1,
1995 (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 and a
subsidiary of Providence Journal ("KHC"), and King Broadcasting Company, a
Washington corporation and a wholly owned subsidiary of KHC ("KBC"), and
certain related transactions. A copy of the Merger Agreement is attached hereto
as Annex I. Pursuant to the Merger Agreement, Providence Journal, which,
following an internal corporate restructuring, will hold only Providence
Journal's cable television businesses and assets, will merge with and into
Continental, and Continental will be the surviving corporation.
At the Special Meeting in Lieu of the Annual Meeting of Stockholders of
Continental (the "Continental Special Meeting"), Continental stockholders will
be asked to consider and vote upon the following proposals:
(1) A proposal to approve and adopt the Merger Agreement.
(2) A proposal to approve and adopt an amendment to the Restated
Certificate of Incorporation of Continental (the "Continental
Recapitalization Amendment") to increase the total number of authorized
shares of capital stock of Continental from 17,700,000 to 825,000,000,
including an increase in (a) the number of authorized shares of Common
Stock, $.01 par value per share ("Continental Common Stock"), from
15,000,000 to 625,000,000, of which 425,000,000 will be shares of Class A
Common Stock with one vote per share ("Continental Class A Common Stock")
and 200,000,000 will be shares of Class B Common Stock with ten votes per
share ("Continental Class B Common Stock") and (b) the number of authorized
shares of 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").
(3) The election of two Class C Directors 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.
The proposals described in items (1) and (2) above are hereinafter
collectively referred to as the "Continental Proposals".
Each of the proposals described in items (1) through (4) above will be voted
upon separately by the holders of Continental Class A Common Stock, Continental
Class B Common Stock and Continental Series A Preferred Stock (collectively,
the "Continental Voting Stock"); however, failure of either the Merger
Agreement or the Continental Recapitalization Amendment to be approved by the
Continental stockholders will result in the abandonment by Continental of the
Merger (even if the Merger is separately approved). The proposal relating to
the approval and adoption of the Merger Agreement and each of the transactions
contemplated thereby must be approved by a majority of the votes entitled to be
cast by holders of the Continental Voting Stock, voting as a single class. The
proposal relating to the approval and adoption of the Continental
Recapitalization Amendment must be approved by 66 2/3% of the votes entitled to
be cast by the holders of the Continental Voting Stock, voting as a single
class, and separately by a majority of the votes entitled to be cast by holders
of the Continental Series A Preferred Stock. (See "Description of Continental
Capital Stock".) All of the holders of the Continental Series A Preferred Stock
have executed irrevocable proxies in connection with such separate class vote
on the Continental Recapitalization Amendment; however, such irrevocable
proxies are not sufficient to adopt the vote required to be taken by all
holders of the Continental Voting Stock, voting as a single class.
At the Special Meeting of Stockholders of Providence Journal (the "Providence
Journal Special Meeting"), Providence Journal stockholders will be asked to
consider and vote upon the following proposals:
(1) A proposal to approve the contribution by Providence Journal of all
of its businesses and assets unrelated to its cable television businesses
(the "PJC Non-Cable Business") to New Providence Journal,
ii
<PAGE>
its newly created wholly owned subsidiary (the "Contribution"). In exchange
for such Contribution, New Providence Journal will assume all liabilities
related to such businesses and assets and issue to Providence Journal a
number of shares of New Providence Journal Class A Common Stock, $1.00 par
value per share ("New Providence Journal Class A Common Stock"), and New
Providence Journal Class B Common Stock, $1.00 par value per share ("New
Providence Journal Class B Common Stock"; and, together with New Providence
Journal Class A Common Stock, the "New Providence Journal Common Stock"),
equal to the number of shares of Providence Journal Class A Common Stock,
$2.50 par value per share ("Providence Journal Class A Common Stock") and
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"), respectively, outstanding immediately prior to the Contribution.
Providence Journal will then distribute the shares of New Providence
Journal Common Stock, one share of New Providence Journal Class A Common
Stock to the holder of each share of Providence Journal Class A Common
Stock and one share of New Providence Journal Class B Common Stock to the
holder of each share of Providence Journal Class B Common Stock, each as
outstanding immediately prior to such distribution (the "Distribution").
The Contribution and the Distribution collectively constitute the "PJC
Spin-Off".
(2) A proposal to approve and adopt an amendment to the Charter (the
"Providence Journal Charter") of Providence Journal (the "Providence
Journal Charter Amendment") required in connection with the PJC Spin-Off to
permit Providence Journal to distribute one share of New Providence Journal
Class A Common Stock to the holder of each share of Providence Journal
Class A Common Stock and one share of New Providence Journal Class B Common
Stock to the holder of each share of Providence Journal Class B Common
Stock.
(3) A proposal to approve and adopt the Merger Agreement and each of the
transactions contemplated thereby, including (i) the merger (the "Merger")
of Providence Journal, which at the time of the Merger will hold only the
former Providence Journal businesses and assets related to cable television
(the "Providence Journal Cable Business") with and into Continental, and
(ii) prior to the Merger, the purchase by Continental of all of the cable
television businesses and assets of KBC (the "King Cable Business") for a
cash purchase price of $405,000,000 (the "King Cable Purchase"). The
Providence Journal Cable Business and the King Cable Business are
hereinafter collectively referred to as the "PJC Cable Business".
(4) A proposal to approve and adopt the Providence Journal Cable Division
Sale Bonus Plan (the "Cable Division Sale Bonus Plan"), which provides
incentives in the form of bonuses to certain executives of Providence
Journal's cable television division upon and subject to the consummation of
the Merger.
The proposals described in items (1), (2) and (3) above are hereinafter
collectively referred to as the "Providence Journal Proposals".
Each of the proposals described in items (1) through (4) will be voted upon
separately by the Providence Journal stockholders entitled to vote at the
Providence Journal Special Meeting; however, failure of the Providence Journal
stockholders to approve any of the Providence Journal Proposals will result in
the abandonment by Providence Journal of the PJC Spin-Off, the Merger and the
related transactions. The affirmative vote of a majority of the votes of
holders of the outstanding shares of Providence Journal Common Stock, voting
together as a single class, is required to approve the Merger and the PJC Spin-
Off. 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 Providence Journal Charter Amendment. No vote of the
stockholders of Providence Journal is required to approve and adopt the Cable
Division Sale Bonus Plan; however, Providence Journal is seeking the approval
of 75% of such votes because failure to obtain such 75% approval could result
in some or all of the payments under the Cable Division Sale Bonus Plan being
non-deductible for federal income tax purposes to Providence Journal and in the
imposition of an excise tax on the recipients of such payments.
iii
<PAGE>
As described under "Rights of Dissenting Stockholders--Providence Journal",
holders of Providence Journal Common Stock who exercise and perfect dissenters'
rights under the Rhode Island Business Corporations Act ("Rhode Island Law" or
"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
Continental Class A Common Stock or New Providence Journal Common Stock as a
result of the Merger or the PJC Spin-Off, as the case may be. (See "Rights of
Dissenting Stockholders--Providence Journal".)
Assuming no adjustments are made as described herein, the value ascribed
under the terms of the Merger Agreement to the 30,725,207 shares of Continental
Class A Common Stock to be issued to the Providence Journal stockholders (the
"Continental Merger Stock") is $596,069,000 (or $19.40 per share), or an
aggregate estimated value of $7,038.33 per share of Providence Journal Common
Stock that was outstanding on August 1, 1995. The Continental Merger Stock
valuation was arrived at by Continental and Providence Journal as a result of
arm's length negotiations between the parties and does not necessarily reflect
the price at which such shares will trade following the completion of the
Merger. (See "Risk Factors--Risk Factors Related to the Continental Merger
Stock--No Public Market; Possible Volatility of Stock Price".)
Assuming that the Merger, the King Cable Purchase 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 approximately 17.3% 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 approximately 2.2% 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
PJC Spin-Off. (See "The Merger--Ownership of Continental Stock after the
Merger" and "Ownership of New Providence Journal after the PJC Spin-Off and the
Merger".)
In order to protect the tax-free nature of the PJC Spin-Off and the Merger,
the Continental Merger Stock received in the Merger and the shares of New
Providence Journal Class A Common Stock and New Providence Journal Class B
Common Stock received in the PJC Spin-Off may not be transferred by Providence
Journal stockholders for a period of one year following the effective time of
the Merger (the "Effective Time"). (See "The Merger--General Provisions--
Restrictions on Transfer of Continental Merger Stock" and "Restrictions on
Transfer of New Providence Journal Common Stock".)
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 to be issued
in connection with the Merger. At the Effective Time, the shares of Continental
Class A Common Stock issued in connection with the Merger will not be listed on
the Nasdaq National Market ("NASDAQ") or on a national securities exchange.
Continental has agreed to list the Continental Merger Stock on NASDAQ or a
national securities exchange by no later than the date that the restrictions on
transfer of the Continental Merger Stock have expired, which is one year after
the Effective Time.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of New
Providence Journal with respect to the New Providence Journal Class A Common
Stock and the New Providence Journal Class B Common Stock to be issued in
connection with the PJC Spin-Off in accordance with the terms of 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 PJC Spin-
Off will not be listed on NASDAQ or on any securities exchange.
All information contained in this Joint Proxy Statement-Prospectus relating
to Continental and its subsidiaries has been supplied by Continental, and all
information contained in this Joint Proxy Statement-
iv
<PAGE>
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 August , 1995.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT-PROSPECTUS
OTHER THAN THOSE CONTAINED HEREIN, IN CONNECTION WITH THE SOLICITATION OF
PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY CONTINENTAL OR PROVIDENCE JOURNAL (OR ITS SUCCESSORS). THIS JOINT
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CONTINENTAL, PROVIDENCE JOURNAL OR NEW
PROVIDENCE JOURNAL SINCE THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS.
----------------
Until the date that is 25 days after the Effective Time all dealers effecting
transactions in the Continental Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a copy of this
Joint Proxy Statement-Prospectus.
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 1
INFORMATION INCORPORATED BY REFERENCE...................................... 1
SUMMARY.................................................................... 2
The Companies............................................................ 2
The Special Meetings..................................................... 3
Security Ownership of Management......................................... 4
The Continental Recapitalization Amendment and the Continental Stock
Split................................................................... 4
The Pre-Merger Transactions.............................................. 5
Ownership of New Providence Journal after the PJC Spin-Off and the
Merger.................................................................. 6
The Merger............................................................... 7
Restrictions on Transfer of the Continental Merger Stock and New
Providence Journal Common Stock......................................... 8
Payment for Shares....................................................... 8
Working Capital and Capital Expenditure Adjustments...................... 8
Ownership of Continental Stock after the Merger.......................... 9
Recommendation of the Boards of Directors................................ 9
Opinion of Financial Advisor............................................. 10
Effective Time of Merger................................................. 10
Conditions to the Merger................................................. 10
NASDAQ Listing........................................................... 10
Acquisition Proposals.................................................... 11
Registration Rights...................................................... 11
Undertakings Regarding Public Offering................................... 11
Termination Fees and Expenses; Indemnification........................... 12
Corporate Governance..................................................... 12
Interests of Certain Persons............................................. 12
Certain Federal Income Tax Considerations................................ 13
Accounting Treatment..................................................... 13
Rights of Dissenting Stockholders........................................ 13
Voting Agreement......................................................... 14
Noncompetition Agreement................................................. 14
Comparison of Rights of Stockholders..................................... 14
Market Prices and Dividend Data.......................................... 15
Cable Division Sale Bonus Plan........................................... 15
Providence Journal Summary Consolidated Financial Data................... 16
New Providence Journal Summary Pro Forma Financial Data.................. 17
Providence Journal Cable Summary Combined Financial Data................. 18
Continental Summary Consolidated Historical Information.................. 20
Continental Summary Pro Forma Financial Data............................. 22
RISK FACTORS............................................................... 23
Risk Factors Related to the Continental Merger Stock..................... 23
Risk Factors Associated with the PJC Spin-Off and the Merger............. 27
Risk Factors Related to the New Providence Journal Common Stock.......... 27
Interests of Certain Persons in the Transactions......................... 30
BACKGROUND OF THE TRANSACTIONS............................................. 32
Continental's Reasons for the Merger; Recommendation of Continental Board
of Directors............................................................ 32
Providence Journal's Reasons for the PJC Spin-Off and the Merger ........ 32
Recommendation of Providence Journal Board of Directors.................. 36
Opinion of Financial Advisor to Providence Journal....................... 38
Other Information Provided............................................... 43
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
THE SPECIAL MEETINGS....................................................... 44
Matters to Be Discussed at the Special Meetings.......................... 44
Record Dates; Stock Entitled to Vote; Quorum............................. 45
Required Votes........................................................... 45
Solicitation and Voting of Proxies....................................... 46
Ownership of Continental Securities...................................... 47
Ownership of Providence Journal Securities............................... 50
PRE-MERGER TRANSACTIONS.................................................... 53
New Indebtedness......................................................... 53
King Cable Purchase...................................................... 53
Kelso Buyout............................................................. 53
PJC Spin-Off............................................................. 53
Certain Intercompany Transactions........................................ 55
THE MERGER................................................................. 55
General Provisions....................................................... 55
Conditions Precedent..................................................... 59
Certain Covenants........................................................ 62
Representations and Warranties........................................... 67
Indemnification.......................................................... 68
Tax Matters.............................................................. 69
Certain Employee Matters................................................. 69
Termination.............................................................. 71
Regulatory and Other Third Party Approvals............................... 72
Amendment; Waiver........................................................ 72
Ancillary Agreements..................................................... 73
Ownership of Continental Stock after the Merger.......................... 74
Ownership of New Providence Journal Stock after the PJC Spin-Off and the
Merger.................................................................. 74
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................. 74
Federal Income Tax Consequences of Certain Transactions.................. 74
Backup Withholding....................................................... 76
PROPOSAL TO APPROVE AND ADOPT THE CONTINENTAL RECAPITALIZATION AMENDMENT,
ELECTION OF CONTINENTAL DIRECTORS AND RATIFICATION OF APPOINTMENT OF
ACCOUNTANTS............................................................... 77
PROPOSAL TO APPROVE AND ADOPT THE PROVIDENCE JOURNAL CHARTER AMENDMENT AND
THE CABLE DIVISION SALE BONUS PLAN........................................ 78
Providence Journal Charter Amendment..................................... 78
Administration........................................................... 78
Review and Authorization................................................. 78
Eligibility to Receive Awards............................................ 78
Bonus Pool............................................................... 79
Conditions............................................................... 79
General Restrictions..................................................... 79
Amendment................................................................ 79
DESCRIPTION OF PROVIDENCE JOURNAL PUBLISHING BUSINESS...................... 80
General.................................................................. 80
Circulation and Pricing.................................................. 80
Advertising.............................................................. 81
Production and Raw Materials............................................. 81
Other Publishing Activities.............................................. 82
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Acquisitions............................................................. 82
Competition.............................................................. 83
Employees................................................................ 83
Properties............................................................... 84
DESCRIPTION OF PROVIDENCE JOURNAL BROADCAST TELEVISION BUSINESS............ 84
General.................................................................. 84
Industry Background...................................................... 84
The Stations............................................................. 86
Competition in the Television Industry................................... 90
Programming Investments.................................................. 91
Local Marketing Agreements............................................... 92
Operating Strategy....................................................... 92
Acquisition Strategy..................................................... 93
Licensing and Regulation................................................. 94
Employees................................................................ 98
Properties............................................................... 98
DESCRIPTION OF PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL............... 99
Other Investments and Assets............................................. 99
Legal Proceedings........................................................ 99
Capitalization of Providence Journal and Pro Forma Capitalization of New
Providence Journal...................................................... 100
Selected Consolidated Financial Data of Providence Journal............... 101
Management's Discussion and Analysis of Financial Condition and Results
of Operation of Providence Journal...................................... 101
Pro Forma Condensed Financial Statements................................. 112
Pro Forma Condensed Balance Sheet........................................ 113
Pro Forma Condensed Statements of Operations............................. 114
Market Price of New Providence Journal Common Stock and Dividend Policy
of New Providence Journal............................................... 115
Executive Officers and Directors of Providence Journal and New Providence
Journal................................................................. 116
Compensation of New Providence Journal Directors......................... 119
Executive Compensation................................................... 120
Stock Incentive Plans of Providence Journal Assumed by New Providence
Journal................................................................. 125
Compensation Committee Report on Executive Compensation.................. 129
Stockholder Return Performance Graph..................................... 131
Certain Relationships and Related Transactions........................... 132
Ownership of Providence Journal Capital Stock and New Providence Journal
Capital Stock........................................................... 132
DESCRIPTION OF NEW PROVIDENCE JOURNAL COMMON STOCK......................... 133
New Providence Journal Common Stock...................................... 133
Certain Provisions in the New Providence Journal Certificate............. 134
NPJ Rights Agreement..................................................... 135
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND NEW PROVI-
DENCE JOURNAL............................................................. 137
DESCRIPTION OF PROVIDENCE JOURNAL CABLE TELEVISION BUSINESS................ 138
Business................................................................. 138
Cable Television Business................................................ 138
Development of Providence Journal Cable.................................. 139
Providence Journal Cable's Systems....................................... 141
Technological Developments............................................... 142
Franchises............................................................... 142
</TABLE>
viii
<PAGE>
<TABLE>
<S> <C>
Programming.............................................................. 143
Competition.............................................................. 143
Properties............................................................... 145
Employees................................................................ 146
Legal Proceedings........................................................ 146
Selected Combined Financial Data of Providence Journal Cable............. 147
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Providence Journal Cable............................... 149
DESCRIPTION OF CONTINENTAL................................................. 155
Business................................................................. 155
Domestic Cable Television Business....................................... 155
Domestic Operating Strategy.............................................. 156
Regulatory Response...................................................... 160
Development of Continental and its Business.............................. 162
Domestic Continental Systems............................................. 164
Domestic Acquisitions and Investments.................................... 167
International Operations................................................. 169
Strategic Investments.................................................... 172
Competition.............................................................. 176
Properties............................................................... 178
Employees................................................................ 178
Legal Proceedings........................................................ 178
Capitalization........................................................... 179
Selected Consolidated Financial Information of Continental............... 180
Management's Discussion and Analysis of Financial Condition and Results
of Operations of Continental............................................ 182
Pro Forma Condensed Financial Statements................................. 193
Pro Forma Condensed Balance Sheet........................................ 194
Pro Forma Condensed Statements of Operations............................. 197
Market Price of Continental Common Stock and Dividend Policy of
Continental............................................................. 200
Directors, Executive Officers and Other Officers of Continental.......... 200
Executive Compensation................................................... 204
Compensation of Directors................................................ 207
Certain Transactions..................................................... 207
Beneficial Ownership of Continental Capital Stock After the Merger....... 208
DESCRIPTION OF CONTINENTAL CAPITAL STOCK................................... 212
Continental Common Stock................................................. 212
Unissued Continental Preferred Stock..................................... 214
Continental Series A Preferred Stock..................................... 214
DGCL and Certain Provisions of the Continental Restated Certificate and
the Continental
By-Laws................................................................. 217
Transfer Agent........................................................... 219
CONTINENTAL SHARES ELIGIBLE FOR FUTURE SALE................................ 219
General.................................................................. 219
Rule 144 and 145 Restrictions............................................ 220
Rule 701................................................................. 221
Outstanding Registration Rights.......................................... 221
DESCRIPTION OF CONTINENTAL INDEBTEDNESS.................................... 222
</TABLE>
ix
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PROVIDENCE JOURNAL AND
CONTINENTAL............................................................. 226
Rights To Purchase Or Redeem Shares.................................... 227
Required Vote for Certain Business Combinations........................ 227
Charter Amendments..................................................... 228
By-Law Amendments...................................................... 228
Voting Rights.......................................................... 229
Rights Agreement....................................................... 229
Preemptive Rights...................................................... 229
Transferability of Shares.............................................. 229
Special Meetings....................................................... 230
Corporate Action Without A Meeting..................................... 230
Dividends.............................................................. 231
Liquidation............................................................ 231
Appraisal or Dissenters' Rights........................................ 231
Provisions Relating To Directors And Officers.......................... 232
Stockholder Nominations and Rights of Preferred Stockholders to Elect
Directors............................................................. 232
Removal................................................................ 233
Derivative Suits....................................................... 233
Conflict of Interest Transactions...................................... 233
State Anti-Takeover Statutes........................................... 234
LEGISLATION AND REGULATION............................................... 234
Cable Communications Policy Act of 1984................................ 235
Cable Television Consumer Protection and Competition Act of 1992....... 235
Federal Regulation..................................................... 236
Copyright Regulation................................................... 244
State and Local Regulations............................................ 244
Regulation of Telecommunications Activities............................ 245
RIGHTS OF DISSENTING STOCKHOLDERS........................................ 246
Continental............................................................ 246
Providence Journal..................................................... 248
PAYMENTS AND DISTRIBUTIONS TO STOCKHOLDERS............................... 251
LEGAL MATTERS............................................................ 252
EXPERTS.................................................................. 252
INDEX TO FINANCIAL STATEMENTS............................................ F-1
ANNEXES:
Annex I-- Amended and Restated Agreement and Plan of Merger............ I-1
Annex II-- Opinion of Financial Advisor to Providence Journal.......... II-1
Annex III-- Section 262 of the Delaware General Corporation Law........ III-1
Annex IV-- Sections 7-1.1-73 and 7-1.1-74 of the Rhode Island Business
Corporations Act...................................................... IV-1
Annex V-- Providence Journal Cable Division Sale Bonus Plan............ V-1
</TABLE>
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DEFINITION CROSS REFERENCE SHEET
SET FORTH BELOW IS A LIST OF CERTAIN DEFINED TERMS USED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS AND THE PAGE ON WHICH SUCH TERM IS DEFINED:
<TABLE>
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------------ ----
<S> <C>
12 7/8% Debt.............................................................. 193
1984 Cable Act............................................................ 142
1992 Cable Act............................................................ 33
1994 Credit Facility...................................................... 186
1995 Credit Facility...................................................... 186
401K Plan................................................................. 70
ABC....................................................................... 29
Accreted Value............................................................ 215
AHN....................................................................... 99
Aliens.................................................................... 95
Allowed Transferee........................................................ 216
ASCAP..................................................................... 244
Assumed Awards............................................................ 30
Assumed Options........................................................... 30
ATV....................................................................... 96
Audit Bureau.............................................................. 80
BBT....................................................................... 155
Bear Stearns.............................................................. 10
BED Partnerships.......................................................... 190
Bell Atlantic............................................................. 33
BMI....................................................................... 244
Borrowers................................................................. 225
Boston Ventures Investors................................................. 201
Break-Up Fee.............................................................. 12
BV Co. III................................................................ 50
BV Co. IV................................................................. 50
Cable Division Sale Bonus Plan............................................ (iii)
Cable Employees........................................................... 69
CableLabs................................................................. 173
Cable LP.................................................................. 146
Cable Partners............................................................ 173
Callable Notes and Debentures............................................. 224
Capital Cities............................................................ 167
Capital Expenditure Adjustment............................................ 9
Caps...................................................................... 187
CBS....................................................................... 29
Class B Holder............................................................ 213
Class A Right............................................................. 135
Class B Right............................................................. 135
Closing................................................................... 60
Closing Date.............................................................. 27
CNN....................................................................... 138
Code...................................................................... 4
Co-Investment Agreement................................................... 50
Colony.................................................................... 18
Colony Cablevision........................................................ 18
</TABLE>
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------------ ----
<S> <C>
Combined Company.......................................................... 40
Combined Operating Income................................................. 226
Combined Total Debt....................................................... 226
Comcast................................................................... 41
Commission................................................................ 1
Communications Act........................................................ 29
Comparable Cable Companies................................................ 41
Consolidated Operating Income............................................. 223
Consolidated Total Debt................................................... 223
ContCable................................................................. 50
Continental............................................................... (i)
Continental By-Laws....................................................... 8
Continental Class A Common Stock.......................................... (ii)
Continental Class B Common Stock.......................................... (ii)
Continental Common Stock.................................................. (ii)
Continental Merger Stock.................................................. (iv)
Continental Named Executive Officers...................................... 204
Continental Preferred Stock............................................... (ii)
Continental Preferred Stock Investors..................................... 201
Continental Proposals..................................................... (ii)
Continental Proposed Transaction.......................................... 40
Continental Recapitalization Amendment.................................... (ii)
Continental Record Date................................................... 3
Continental Redeemable Common Stock....................................... 190
Continental Registration Statement........................................ 26
Continental Restated Certificate.......................................... 15
Continental Retirement Plan............................................... 206
Continental Rightsholders................................................. 221
Continental Series A Preferred Stock...................................... (ii)
Continental Special Meeting............................................... (ii)
Continental Stock Split................................................... 4
Continental Voting Stock.................................................. (ii)
Contribution.............................................................. (iii)
Contribution and Assumption Agreement..................................... 6
Copley/Colony............................................................. 7
Corporate Advisors........................................................ 49
Corporate Offshore Partners............................................... 50
Corporate Partners........................................................ 50
Cox....................................................................... 41
CPS....................................................................... 156
Credit Agreement Lenders.................................................. 222
CTAM...................................................................... 158
CTPAA..................................................................... 159
C-SPAN.................................................................... 138
DBS....................................................................... 2
Delaware Court............................................................ 246
</TABLE>
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<TABLE>
<CAPTION>
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------------ ----
<S> <C>
DGCL or Delaware Law...................................................... 13
DMA....................................................................... 85
Digital Cable Radio....................................................... 176
Directors Upon Default.................................................... 215
Distribution.............................................................. (iii)
Distribution Date......................................................... 135
Dynamic................................................................... 146
Dynamic Partnership....................................................... 7
E!........................................................................ 162
EEO....................................................................... 242
Effective Time............................................................ (iv)
ERISA..................................................................... 50
ERISA Affiliates.......................................................... 70
ESPN...................................................................... 138
Eurodollar................................................................ 223
Exchange Act.............................................................. 1
Exchange Agent............................................................ 251
Expiration Date........................................................... 135
FASB...................................................................... 109
FCC....................................................................... 23
Fintelco.................................................................. 170
Floating Rate Debentures.................................................. 224
Fox....................................................................... 29
FPGT...................................................................... 50
GAAP...................................................................... 19
GMIMC..................................................................... 50
Going Forward Rules....................................................... 162
Goldman Sachs............................................................. 32
HBO....................................................................... 138
Hearst.................................................................... 167
Homes..................................................................... 2
Hospital Trust............................................................ 52
HSN....................................................................... 160
IUP....................................................................... 120
IXC....................................................................... 173
Joint Proxy Statement-Prospectus.......................................... (i)
Journal................................................................... 80
Journal 401(k) Plan....................................................... 124
KBC....................................................................... (ii)
Kelso Buyout.............................................................. 5
Kelso Partnerships........................................................ 5
KHC....................................................................... (ii)
King Cable Business....................................................... (iii)
King Cable Purchase....................................................... (iii)
King Videocable........................................................... 18
Lazard.................................................................... 32
LEC....................................................................... 172
Linkatel.................................................................. 30
LMA'S..................................................................... 92
Losses and Expenses....................................................... 61
Lowell Sun Companies...................................................... 82
</TABLE>
<TABLE>
<CAPTION>
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------------ ----
<S> <C>
Management Group.......................................................... 224
Mandatory Tender Offer.................................................... 190
Maximum Amount............................................................ 7
Maximum Severance......................................................... 124
Merger.................................................................... (iii)
Merger Agreement.......................................................... (ii)
MMDS...................................................................... 24
MTA....................................................................... 173
MTV....................................................................... 138
NAB....................................................................... 85
NASDAQ.................................................................... (iv)
NBC....................................................................... 29
NCC....................................................................... 159
N-COM..................................................................... 164
NCTA...................................................................... 201
NEA....................................................................... 159
New Borrowing Group....................................................... 225
New Cable Indebtedness.................................................... 5
New Providence Journal.................................................... (ii)
New Providence Journal By-Laws............................................ 15
New Providence Journal Certificate........................................ 15
New Providence Journal Class A Common Stock............................... (iii)
New Providence Journal Class B Common Stock............................... (iii)
New Providence Journal Common Stock....................................... (iii)
Nine...................................................................... 171
Non-Callable Notes and Debentures......................................... 224
Noncompetition Agreement.................................................. 14
North Central Cable....................................................... 185
Notes and Debentures...................................................... 229
NPJ Indebtedness.......................................................... 5
NPJ Permitted Transferees................................................. 134
NPJ Rights Agreement...................................................... 15
NPJ Transfer Restrictions................................................. 8
NPT....................................................................... 156
Offering.................................................................. 11
Opinion................................................................... 10
Optus..................................................................... 171
Original Cable Indebtedness............................................... 40
Original Continental Merger Stock......................................... 39
Original Merger........................................................... 10
Original Merger Agreement................................................. 39
Original Providence Journal Transactions.................................. 10
Palmer.................................................................... 74
Palmer Systems............................................................ 74
Palm Springs System....................................................... 12
PCS....................................................................... 173
Permitted Class B Transferee.............................................. 213
Permitted Transfer........................................................ 57
Permitted Transferee...................................................... 57
</TABLE>
xii
<PAGE>
<TABLE>
<CAPTION>
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------------ ----
<S> <C>
PJC Broadcasting Business................................................. 2
PJC Cable Business........................................................ (iii)
PJC Cable Subsidiaries.................................................... (iv)
PJC Non-Cable Business.................................................... (ii)
PJC Outstanding Shares.................................................... 7
PJC Publishing Business................................................... 2
PJC Spin-Off.............................................................. (iii)
PPVN...................................................................... 175
Precedent CATV Transactions............................................... 41
Preferred Stock Purchase Agreement........................................ 214
PrimeStar................................................................. 174
Providence Journal........................................................ (i)
Providence Journal Business Combination................................... 227
Providence Journal ByLaws................................................. 14
Providence Journal Cable.................................................. 18
Providence Journal Cable Business......................................... (iii)
Providence Journal Charter................................................ (iii)
Providence Journal Charter Amendment...................................... (iii)
Providence Journal Class A Common Stock................................... (iii)
Providence Journal Class B Common Stock................................... (iii)
Providence Journal Common Stock........................................... (iii)
Providence Journal Named Executive
Officers................................................................. 120
Providence Journal Nominees............................................... 12
Providence Journal Option Plans........................................... 30
Providence Journal Pension Plan........................................... 123
Providence Journal Proposals.............................................. (iii)
Providence Journal Record Date............................................ 3
Providence Journal Retirement Plans....................................... 30
Providence Journal Special Meeting........................................ (ii)
Providence Journal Stock Incentive Plans.................................. 30
Providence Journal Transactions........................................... 10
Prudential Notes.......................................................... 187
PSN....................................................................... 91
PTAR...................................................................... 95
QVC....................................................................... 160
RBOC...................................................................... 172
Registrable Shares........................................................ 221
Registration Agreements................................................... 221
Registration Effective Date............................................... 26
Registration Rights Holders............................................... 11
Requested Rulings......................................................... 74
Restricted Business....................................................... 14
Restricted Group.......................................................... 222
Restricted Holder......................................................... 57
Restricted Subsidiaries................................................... 222
RFP....................................................................... 173
RIBCA or Rhode Island Law................................................. (iv)
Rights.................................................................... 135
Rights Agreement.......................................................... 15
RSPA III.................................................................. 206
</TABLE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ ----
<S> <C>
RSPA Offer................................................................. 206
SBA........................................................................ 50
SCV........................................................................ 170
Section 16(b) Period....................................................... 126
Section 74................................................................. 13
Section 262................................................................ 13
Securities Act............................................................. 1
Selling Stockholders....................................................... 190
Series A Certificate of Designation........................................ 214
Series A Redemption Price.................................................. 215
SERP....................................................................... 206
Seven...................................................................... 171
Service.................................................................... 10
SFAS 109................................................................... 25
SFAS 114................................................................... 110
SFAS 115................................................................... 110
SFAS 121................................................................... 110
SMATV...................................................................... 144
Social Contract............................................................ 23
Special Meetings........................................................... (i)
StarSight.................................................................. 99
Stations................................................................... 84
Stock Acquisition Date..................................................... 135
Stock For Loan Exchange.................................................... 206
Stock Liquidation Agreement................................................ 189
Stock Units................................................................ 120
Subject Stockholders....................................................... 190
Summary Compensation Table................................................. 204
Superior Proposal.......................................................... 67
Swaps...................................................................... 187
TCG........................................................................ 172
TCI........................................................................ 33
Termination Date........................................................... 71
The Sunshine Network....................................................... 175
Transfer................................................................... 57
Transfer Restrictions...................................................... 8
Trust...................................................................... 14
Turner..................................................................... 162
TVFN....................................................................... 30
UHF........................................................................ 84
Unrestricted Subsidiaries.................................................. 222
USA........................................................................ 138
VCC........................................................................ 170
VCR........................................................................ 29
Vencap..................................................................... 50
VHF........................................................................ 84
Voting Agreement........................................................... 14
Westerly................................................................... 55
Working Capital............................................................ 8
Zing....................................................................... 176
</TABLE>
xiii
<PAGE>
AVAILABLE INFORMATION
Continental has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Continental Class
A Common Stock 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 New Providence Journal
Class A Common Stock and New Providence Journal Class B Common Stock,
respectively.
Such registration statements and exhibits thereto can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
by mail from the public reference branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
Neither Continental nor Providence Journal is currently required to file any
reports with the Commission under the Exchange Act, and accordingly, no
information relating to Continental or Providence Journal is incorporated
herein by reference.
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SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement-Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Joint Proxy Statement-Prospectus and its Annexes, all
of which should be reviewed carefully.
THE COMPANIES
CONTINENTAL. Continental is currently the fifth largest cable television
system operator in the United States. Continental's five management regions
operate cable television systems in 16 states, principally in suburban areas
and mid-sized cities. As of June 30, 1995, Continental's systems and those of
its domestic affiliates passed approximately 5,437,000 occupied dwelling units
("Homes") and provided cable service to approximately 3,133,000 basic
subscribers. Giving effect to the Merger and other pending acquisitions
described herein, Continental anticipates that it will become the third largest
cable television system operator in the United States, passing approximately
7,116,000 Homes and serving approximately 4,117,000 basic subscribers in 20
states. Continental also participates in cable television and
telecommunications ventures outside of the United States. Continental has
acquired, subject to receipt of regulatory approvals, an approximate 50%
interest in the largest cable television system operator in Argentina, which
currently serves over 600,000 subscribers; has a 25% equity interest in a joint
venture that is constructing a cable television system to serve Singapore's
approximately 820,000 households; and has formed a joint venture in Australia,
in which Continental currently holds a 46.5% equity interest, and which is
constructing a network to provide cable television, local telephone and a
variety of advanced broadband interactive services to business and residential
customers. Continental continues to pursue other international cable television
and telecommunications investments. Continental recently signed a memorandum of
understanding relating to the provision of cable television, telephony,
multimedia and interactive services in Japan. In addition, Continental has made
investments in the telecommunications and technology industries, including
companies offering competitive access telephony and direct broadcast satellite
("DBS") service in the United States 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 that are among the fifty largest domestic
television markets (the "PJC Broadcasting Business"). As of June 30, 1995,
Providence Journal's owned or partially owned cable television operations
included systems passing approximately 1,262,000 Homes and serving
approximately 773,000 basic subscribers in nine states, making Providence
Journal the 15th largest cable system operator in the United States. Providence
Journal was a 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 Providence Journal Proposals are approved
by the required vote of stockholders of Providence Journal and
2
<PAGE>
the other conditions in the Merger Agreement are satisfied or waived,
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 those relating to the Providence Journal 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
September , 1995, beginning at local time. The purpose of the Continental
Special Meeting is to consider and vote upon the Continental Proposals and
certain other proposals. (See "The Special Meetings--Matters to Be Discussed at
the Special Meetings--Continental".)
The record date for the Continental Special Meeting is August 15, 1995 (the
"Continental Record Date"). Accordingly, holders of record of Continental
Voting Stock as of the Continental Record Date will be entitled to notice of,
and to vote at, the Continental Special Meeting.
The presence in person or by proxy of shares representing a majority of votes
entitled to be cast by holders of the Continental Voting Stock as of the
Continental Record Date is required to constitute a quorum for the transaction
of business at the Continental Special Meeting.
The Merger Agreement and each of the transactions contemplated thereby,
including the Merger, must be approved by a majority of the votes entitled to
be cast by the holders of the Continental Voting Stock, voting as a single
class. The Continental Recapitalization Amendment must be approved by 66 2/3%
of the votes entitled to be cast by the holders of Continental Voting Stock,
voting as a single class, and separately by a majority of the votes entitled to
be cast by the holders of the Continental Series A Preferred Stock. All of the
holders of the Continental Series A Preferred Stock have executed irrevocable
proxies in connection with such separate class vote on the Continental
Recapitalization Amendment; however, such irrevocable proxies are not
sufficient to adopt the vote required to be taken by all holders of the
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 September , 1995, beginning at 10:00 a.m.
local time. The purpose of the Providence Journal Special Meeting is to
consider and vote upon the Providence Journal Proposals and the approval and
adoption of the Cable Division Sale Bonus Plan. (See "The Special Meetings--
Matters to Be Discussed at the Special Meetings--Providence Journal".)
The record date for the Providence Journal Special Meeting is August 25, 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.
3
<PAGE>
The Merger Agreement and each of the transactions contemplated thereby,
including the Merger, and the PJC Spin-Off 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 Providence Journal Charter Amendment must
be approved by a majority of the votes entitled to be cast by the holders of
both Providence Journal Class A Common Stock and Providence Journal Class B
Common Stock, with each class voting separately. Although stockholder approval
of the Cable Division Sale Bonus Plan is not required in order to implement the
plan, Providence Journal is seeking approval of 75% of the votes entitled to be
cast, which is the vote required by the Internal Revenue Code of 1986, as
amended (the "Code"), to render some or all of the payments under the Cable
Division Sale Bonus Plan deductible to Providence Journal for federal income
tax purposes and to avoid the imposition of a federal 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 August 1,
1995, Directors and executive officers of Continental and their respective
affiliates may be deemed to be the beneficial owners of 91,373,425 shares of
the outstanding Continental Common Stock (treating the Continental Series A
Preferred Stock as if it were converted into Continental Class B Common Stock),
which constitute in the aggregate approximately 65.61% 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".) All of the Directors of
Continental have waived their appraisal rights with respect to shares of
Continental Voting Stock that they own.
PROVIDENCE JOURNAL. As of August 1, 1995, Directors and executive officers of
Providence Journal and their affiliates may be deemed to be the beneficial
owners of 6,610 shares of the outstanding Providence Journal Class A Common
Stock and 6,704 shares of the outstanding Providence Journal Class B Common
Stock, which constitute in the aggregate approximately 14.8% of the total votes
entitled to be cast by the holders of Providence Journal Common Stock at the
Providence Journal Special Meeting. It is anticipated that each of such
Directors, executive officers and their affiliates will vote their shares in
favor of the Providence Journal Proposals and the Cable Division Sale Bonus
Plan. (See "The Special Meetings--Ownership of Providence Journal Securities"
and "The Merger--Ancillary Agreements--Voting Agreement".)
THE CONTINENTAL RECAPITALIZATION AMENDMENT AND THE CONTINENTAL STOCK SPLIT
The Continental Recapitalization Amendment provides for an increase in the
number of authorized shares of capital stock of Continental from 17,700,000 to
825,000,000, including an increase in (i) the number of authorized shares of
Continental Common Stock from 15,000,000 to 625,000,000, of which 425,000,000
will be shares of Continental Class A Common Stock (with one vote per share)
and 200,000,000 will be shares of Continental Class B Common Stock (with ten
votes per share), and (ii) the number of authorized shares of Continental
Preferred Stock from 2,700,000 to 200,000,000, of which 1,142,858 are currently
designated Continental Series A Preferred Stock. 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
4
<PAGE>
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 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 PJC Spin-Off, Providence Journal or one or
more of the PJC Cable Subsidiaries will incur indebtedness in a principal
amount of $410,000,000 (the "New Cable Indebtedness"). Immediately prior to the
Contribution, Providence Journal will draw down the $410,000,000 of New Cable
Indebtedness which, together with $405,000,000 to be provided by Continental
for the King Cable Purchase, will be used (i) to consummate the Kelso Buyout
(as defined below), (ii) to purchase minority interests in certain PJC Cable
Subsidiaries not presently wholly owned by Providence Journal and pay costs
associated with the Merger and certain deferred compensation, which together
total approximately $122,000,000, (iii) to pay approximately $120,000,000 in
taxes due as a result of the King Cable Purchase, and (iv) to repay all
existing indebtedness of Providence Journal, KBC and the PJC Cable
Subsidiaries. (See "Description of Continental Indebtedness--1995 Credit
Facility" for a description of a credit facility to be extended to subsidiaries
of Continental, which will be used, in part, to provide the $410,000,000 of New
Cable Indebtedness to be incurred by Providence Journal and the $405,000,000
for the King Cable Purchase.) Additional indebtedness required to meet the
foregoing obligations, among others, will be incurred by New Providence Journal
in a principal amount of approximately $275,000,000 (the "NPJ Indebtedness").
Following the Merger, New Providence Journal will have no obligations or
liabilities with respect to the New Cable Indebtedness, and Continental will
have no obligations or liabilities with respect to the NPJ Indebtedness. (See
"Pre-Merger Transactions--New Indebtedness".)
KING CABLE PURCHASE. Immediately prior to the Kelso Buyout and the PJC Spin-
Off, pursuant to the terms of the Merger Agreement, Continental will purchase
from KBC the King Cable Business, which constitutes all of KBC's cable
television businesses, for a cash purchase price of $405,000,000. In connection
with and as part of the King Cable Purchase, New Providence Journal will assume
and agree to hold Continental harmless from all liabilities of KBC (including,
without limitation, federal and state income taxes payable as a result of the
King Cable Purchase). (See "The Merger".)
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, or hold a warrant providing the Kelso
Partnerships with a right to acquire, 50% of the capital stock of KHC, which in
turn owns and controls 100% of the capital stock of KBC. Providence Journal
will use a portion of the proceeds of the New Cable Indebtedness, together with
a portion of the proceeds from the NPJ Indebtedness, to acquire all shares of
capital stock of KHC and all warrants providing the Kelso Partnerships with a
right to acquire shares of capital stock of KHC owned or held by the Kelso
Partnerships for a purchase price of $265,000,000, including $5,000,000 in
transaction fees (the "Kelso Buyout"). Following the Kelso Buyout, KHC will be
a wholly owned subsidiary of Providence Journal. (See "Pre-Merger
Transactions--Kelso Buyout".)
The purchase price of the Kelso Partnerships' interest in KHC represents a
combined purchase price for both KHC's cable television and broadcast
television businesses, net of consolidated debt, expenses related to the Kelso
Buyout and a pro rata share of transaction costs for the Merger and the related
transactions. The
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<PAGE>
portion of the Kelso Buyout purchase price represented by the King Cable
Business is equal to the pro rata portion of the aggregate purchase price
Continental agreed to pay for the PJC Cable Business as a whole (including the
King Cable Business) attributable to such assets. The purchase price of the
Kelso Partnerships' interest in KHC also includes a negotiated value for the
KHC broadcast television business based on a multiple of cash flow appropriate
to that industry in the opinion of Providence Journal management.
PJC SPIN-OFF. Prior to the Merger, Providence Journal will contribute all of
the PJC Non-Cable Business (including, without limitation, all of the
outstanding capital stock of KHC) to New Providence Journal, its wholly owned
subsidiary, and New Providence Journal will assume all of the liabilities
related thereto. In exchange for such contribution, New Providence Journal will
issue to Providence Journal 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 Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock, respectively.
Providence Journal will distribute one share of New Providence Journal Class
A Common Stock to the holder of each share of Providence Journal Class A Common
Stock and one share of New Providence Journal Class B Common Stock to the
holder of each share of Providence Journal 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 PJC Spin-Off 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 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 C 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 Providence Journal (and
Continental following the Merger) harmless from all liabilities of Providence
Journal (including, without limitation, substantially all tax liabilities which
arise in connection with the King Cable Purchase) other than the New Cable
Indebtedness and liabilities associated with the PJC Cable Business and
Providence Journal's obligations under the Contribution and Assumption
Agreement. Providence Journal 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 on the basis of 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 PJC Spin-Off 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 number (and of the same
class) as shares of Providence Journal Common Stock that such holders owned
immediately prior to the PJC Spin-Off. (See "Rights of
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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 Continental Recapitalization
Amendment and the Merger, the requisite adoption and approval by Providence
Journal stockholders of the PJC Spin-Off, the Merger and the Providence Journal
Charter Amendment, and the satisfaction or waiver of certain other conditions
at the Effective Time, Providence Journal (which, at the time of the Merger,
will own only the Providence Journal Cable Business) will be merged with and
into Continental, the separate existence of Providence Journal will cease, and
Continental will continue as the surviving corporation. As a result of the
Merger and the King Cable Purchase, Continental will acquire the PJC Cable
Business and will assume the New Cable Indebtedness and substantially all of
the liabilities of Providence Journal relating to the PJC Cable Business.
In the Merger, shares of Providence Journal Common Stock outstanding
immediately prior to the Merger shall be converted into shares of Continental
Class A Common Stock. Giving effect to the Continental Stock Split, the number
of shares of Continental Class A Common Stock to be issued in exchange for each
share of Providence Journal Common Stock will be determined by the following
formula:
<TABLE>
<S> <C> <C>
Class A Common Stock Formula: Maximum Amount
---------------------------------------
$19.40 x PJC Outstanding Shares
"Maximum Amount"............... means $596,069,000, 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
Providence Journal does not, directly or
indirectly, wholly own such PJC Cable Subsidiary
at the Effective Time.
Subsidiary Reduction
---------- ---------
Copley/Colony, Inc. $42,610,000
Dynamic Cablevision of Florida, Ltd. $11,300,000
"PJC Outstanding Shares"....... means the shares of Providence Journal Common
Stock outstanding immediately prior to the
Merger (other than shares owned directly or
indirectly by Providence Journal as treasury
stock, by New Providence Journal or by any of
their respective subsidiaries).
</TABLE>
As of the date of this Joint Proxy Statement-Prospectus, Providence Journal
owns, directly or indirectly, 50% of Copley/Colony, Inc., ("Copley/Colony") and
89.8% of Dynamic Cablevision of Florida, Ltd. (the "Dynamic Partnership").
Providence Journal anticipates that as of the Effective Time it will have
purchased the third-party interest in Copley/Colony at which time it will be
wholly owned by Providence Journal, although there can be no assurances in this
regard. Providence Journal has signed a purchase agreement for the 50% interest
in Copley/Colony and closed the purchase in escrow, pending receipt of
franchise authority approvals for the transfer. The limited partner in the
Dynamic Partnership and Providence Journal are currently in litigation
concerning the transactions contemplated by the Merger Agreement. Depending on
the outcome of this litigation, the amount of the New Cable Indebtedness may be
reduced. (See "Description of Providence Journal Cable Television Business--
Legal Proceedings".) The value derived from the Continental Merger Stock to be
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<PAGE>
received by the Providence Journal stockholders is the same as the values
assigned to the minority interests in the PJC Cable Subsidiaries discussed
above, based on a multiple of cash flow analysis. No affiliates of Providence
Journal or Continental owned or own minority interests in the above-discussed
PJC Cable Subsidiaries.
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 Providence Journal 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 Merger Stock, to which such holder would otherwise be entitled
(after taking into account all shares of Continental Merger 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 30,725,207 shares of Continental Class A
Common 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.
RESTRICTIONS ON TRANSFER OF CONTINENTAL MERGER STOCK AND NEW PROVIDENCE JOURNAL
COMMON STOCK
In order to protect the tax-free nature of the PJC Spin-Off and the Merger,
for a period of one year following the Effective Time, the Continental Merger
Stock will be subject to restrictions on transfer (the "Transfer Restrictions")
set forth in the Continental Amended and Restated By-Laws (the "Continental By-
Laws"), which will prohibit all transfers, sales, assignments or other
dispositions of Continental Merger Stock by the former Providence Journal
stockholders except for transfers not for value, including but not limited to,
gifts, bequests, transfers pursuant to the terms of a trust or the laws of
descent and distribution, or transfers by operation of law upon bankruptcy,
liquidation, or dissolution of a stockholder, to certain "permitted
transferees" (defined in the Continental By-Laws). For a full description of
the Transfer Restrictions, see "The Merger--General Provisions--Restrictions on
Transfer of Continental Merger Stock". The shares of New Providence Journal
Common Stock received in the PJC Spin-Off will be subject to transfer
restrictions that are identical to the Transfer Restrictions (the "NPJ Transfer
Restrictions"). (See "The Merger--General Provisions--Restrictions on Transfer
of New Providence Journal Common Stock".)
PAYMENT FOR SHARES
For a description of the method of delivery of Continental Merger Stock and
shares of New Providence Journal Common Stock to be issued in the PJC Spin-Off,
see "Payments and Distributions to Stockholders". STOCKHOLDERS SHOULD NOT SEND
IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
WORKING CAPITAL AND CAPITAL EXPENDITURE ADJUSTMENTS
Immediately prior to the Effective Time and after giving effect to the PJC
Spin-Off, Providence Journal will deliver to Continental a schedule setting
forth Providence Journal'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
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<PAGE>
schedule determines that Working Capital is greater than zero, Continental
shall pay the excess to New Providence Journal in immediately available funds;
if the schedule determines that Working Capital is less than zero, New
Providence Journal shall pay the difference to Continental in immediately
available funds. Within 90 days after the Effective Time, Continental shall
deliver to New Providence Journal its determination of the Working Capital as
of the Effective Time and after giving effect to the PJC Spin-Off. Within 10
days thereafter (or within 10 days of the resolution of any dispute regarding
such determination, which dispute, if not resolved by Continental and New
Providence Journal, will be resolved by an independent certified public
accounting firm mutually acceptable to Continental and New Providence Journal,
the decision of which shall be final and binding on Continental and New
Providence Journal), Continental shall pay to New Providence Journal, or New
Providence Journal shall pay to Continental, as the case may be, in immediately
available funds, any additional payment to which such party would have been
entitled at the Effective Time based on the final determination of Working
Capital. Based upon the financial statements of Providence Journal's cable
division as of June 30, 1995, the Working Capital deficit is estimated to be
approximately $16,000,000 as of such date. There can, however, be no assurances
that the actual Working Capital adjustment will equal or approximate this
amount. In addition to the Working Capital adjustment, the Merger Agreement
requires that Providence Journal and the PJC Cable Subsidiaries expend a stated
amount per month on capital improvements to the cable systems of Providence
Journal and the PJC Cable Subsidiaries. Failure to meet such capital
expenditure requirements will result in an adjustment at Closing in the amount
of any shortfall in capital expenditures (the "Capital Expenditure
Adjustment"), which will be paid by Providence Journal to Continental.
Providence Journal currently estimates that the Capital Expenditure Adjustment
will be approximately $12,000,000. There can, however, be no assurances that
the actual Capital Expenditure Adjustment will equal or approximate this
amount.
OWNERSHIP OF CONTINENTAL STOCK AFTER THE MERGER
Assuming that the Merger was consummated on the date hereof (and assuming
there are no adjustments to the Maximum Amount), holders of shares of
Providence Journal Common Stock would own Continental Class A Common Stock,
representing approximately 17.3% 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 approximately 2.2% 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 and each of the transactions
contemplated thereby relating to Continental, including the Merger, and (ii)
the Continental Recapitalization Amendment, and believes that such actions are
in the best interests of and fair to Continental and its stockholders.
Accordingly, the Continental Board of Directors recommends that Continental
stockholders vote FOR each of the proposals, including the Continental
Proposals. (See "Background of the Transactions--Continental's Reasons for the
Merger; Recommendation of Continental Board of Directors".)
PROVIDENCE JOURNAL. The Board of Directors of Providence Journal, by
unanimous vote, has approved and adopted, and believes that such actions are in
the best interests of and fair to Providence Journal and its stockholders, (i)
the PJC Spin-Off, (ii) the Merger Agreement and each of the transactions
contemplated thereby relating to Providence Journal, including the Merger and
the King Cable Purchase, (iii) the Providence Journal Charter Amendment and
(iv) the Cable Division Sale Bonus Plan. Accordingly, the Providence Journal
Board of Directors recommends that Providence Journal stockholders vote FOR
each of the proposals, including the Providence Journal Proposals. (See
"Background of the Transactions--Providence Journal's Reasons for the PJC Spin-
Off and the Merger" and "Recommendation of Providence Journal Board of
Directors".)
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<PAGE>
OPINION OF FINANCIAL ADVISOR
Bear, Stearns & Co. Inc. ("Bear Stearns") has delivered to the Board of
Directors of Providence Journal its written opinion, dated , 1995 (the
"Opinion"), to the effect that, based upon and subject to the various
considerations set forth in the Opinion, as of such date, the King Cable
Purchase, the Kelso Buyout, the PJC Spin-Off, the Merger and certain related
transactions (collectively, the "Providence Journal Transactions") in the
aggregate are fair, from a financial point of view, to the stockholders of
Providence Journal. Bear Stearns previously had 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 Kelso
Buyout, the PJC Spin-Off, the merger of Providence Journal with Continental
(the "Original Merger") and certain related transactions contemplated at that
time (collectively, the "Original Providence Journal Transactions") in the
aggregate were fair, from a financial point of view, to the stockholders of
Providence Journal. Providence Journal paid a fee of $400,000 to Bear Stearns
for rendering its opinion in connection with the Providence Journal
Transactions, which will be credited against the transaction fee payable upon
the consummation of the Merger. The full text of Bear Stearns' Opinion dated
1995, which sets forth assumptions made, matters considered and attendant
limitations, is attached hereto as Annex II to this Joint Proxy Statement-
Prospectus and is incorporated herein by reference. Providence Journal
stockholders are urged to, and should, read such opinion carefully in its
entirety. (See "Background of 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 Rhode Island in accordance with
applicable law, or at such later date as the certificate of merger and articles
of merger may specify. It is anticipated that, if approved by the stockholders
of both Continental and Providence Journal, the Merger will become effective in
the fourth quarter of 1995; however, as the Merger and the related transactions
are conditioned upon regulatory approvals and third party consents, no
assurances can be given as to when the consummation of the Merger will actually
occur.
CONDITIONS TO THE MERGER
Consummation of the Merger and each of the transactions contemplated thereby
is conditioned on, among other things, (i) approval of the Continental
Proposals by the holders of Continental Voting Stock and the Providence Journal
Proposals by the holders of Providence Journal Common Stock, (ii) the
incurrence of the New Cable Indebtedness and the NPJ Indebtedness and the
consummation of the King Cable Purchase, the Kelso Buyout and the PJC Spin-Off,
(iii) the consents and/or waivers from the relevant governmental entities under
certain cable television franchises issued to Providence Journal and its
subsidiaries, (iv) no injunction or order of any governmental authority
remaining in effect which prohibits or makes illegal any of the transactions
contemplated by the Merger Agreement or which could have a material adverse
effect on the PJC Cable Business or Continental, (v) Providence Journal's
receipt from the Internal Revenue Service (the "Service") of a private letter
ruling and from its legal counsel of an opinion as to certain tax matters, and
(vi) the performance by each party to the Merger Agreement of its respective
obligations thereunder. (See "The Merger--Conditions Precedent".)
NASDAQ LISTING
CONTINENTAL. The Continental Merger Stock will not be listed on NASDAQ or any
securities exchange as of the Effective Time. However, Continental has agreed
to list the Continental Merger Stock on NASDAQ or a national securities
exchange on or prior to the first anniversary of the Effective Time.
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.
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ACQUISITION PROPOSALS
The Merger Agreement prohibits Providence Journal, its subsidiaries and their
respective officers, Directors, representatives and agents from, directly or
indirectly, knowingly encouraging, soliciting, initiating or participating in
any way in discussions or negotiations with, or knowingly providing any
confidential information to, any person (other than Continental or any
affiliate or associate of Continental and their respective Directors, officers,
employees, representatives and agents) concerning any merger, consolidation,
share exchange or similar transaction involving Providence Journal or any of
the PJC Cable Subsidiaries or certain purchases of any portion of the operating
assets of, or any equity interests in, the PJC Cable Subsidiaries. However,
Providence Journal's Board of Directors may (i) take and disclose to Providence
Journal's stockholders a position with respect to a tender offer for Providence
Journal Common Stock by a third party pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, (ii) make such disclosure to Providence
Journal's stockholders as, in the judgment of Providence Journal's Board of
Directors with the written advice of outside counsel, may be required under
applicable law, (iii) respond to any unsolicited proposal or inquiry by
advising the person making such proposal or inquiry of the terms of the
provision summarized in this paragraph, and (iv) participate in discussions or
negotiations resulting from an unsolicited proposal if Providence Journal's
Board of Directors determines, with the written advice of outside counsel, that
it is required to do so in the exercise of its fiduciary duties. Providence
Journal has agreed to notify Continental promptly if any such proposal or
inquiry is received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, Providence Journal
and to furnish Continental with a copy of any proposal that Providence
Journal's Board of Directors has determined is a "Superior Proposal" (as
defined below under the caption "The Merger--Certain Covenants--Acquisition
Proposals").
REGISTRATION RIGHTS
Continental and New Providence Journal have agreed that, on or prior to the
consummation of the Merger, they will enter into a registration rights
agreement relating to the Continental Class A Common Stock to be issued
pursuant to the Merger, in the form attached as Exhibit D to the Merger
Agreement. Such agreement will provide that (subject to the Transfer
Restrictions), commencing at the time the obligation of Continental to conduct
an Offering (as described in "Undertakings Regarding Public Offering" below)
has been satisfied or terminated, the Providence Journal stockholders receiving
Continental Merger Stock will be entitled to two demand registrations and
unlimited (subject to certain exceptions) "piggyback" registrations with
respect to primary public issuances by Continental of Continental Class A
Common Stock; provided, however, that such registration rights will not be
available to any former Providence Journal stockholder (collectively, the
"Registration Rights Holders") to the extent that shares of Continental Class A
Common Stock are then freely transferable by the Registration Rights Holder
requesting a registration in the manner contemplated by such request without
violation of the registration requirements of the Securities Act. Registration
Rights Holders will not be entitled to assign their rights under such
registration rights agreement.
UNDERTAKINGS REGARDING PUBLIC OFFERING
Continental has agreed in the Merger Agreement that it will use its best
efforts to consummate a registered public offering of shares of Continental
Class A Common Stock (which, at Continental's option, may be a primary offering
and/or a secondary offering) on or 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 aggregate consideration
of at least $1,000,000,000. The Merger Agreement provides, however, that
Continental's obligation, if any, to consummate the Offering may be extended if
Continental's investment banker advises Continental in writing that because of
market conditions it is not advisable for Continental to conduct the Offering
at that time, in
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<PAGE>
which case Continental's obligation to use its best efforts to conduct the
Offering shall be extended until such time as Continental's investment banker
advises it in writing that market conditions no longer render it inadvisable to
conduct the Offering.
TERMINATION FEES AND EXPENSES; INDEMNIFICATION
The Merger Agreement may be terminated at any time prior to the Effective
Time by mutual written consent of Continental, Providence Journal and New
Providence Journal, or by either Continental or Providence Journal individually
under certain specified circumstances. If the Merger Agreement is terminated
under certain circumstances described under the caption "The Merger--
Termination--Termination Fees and Expenses; Option to Purchase Palm Springs
System", Providence Journal may be required to pay to Continental a termination
fee of $42,000,000 (the "Break-Up Fee") plus up to an additional $10,000,000 to
reimburse Continental for reasonable fees and expenses it has incurred in
connection with the Merger Agreement and each of the transactions contemplated
thereby. If the Merger Agreement is terminated under other circumstances,
either Continental or Providence Journal may be required to pay to the other an
amount of up to $10,000,000 as compensation for reasonable fees and expenses it
has incurred in connection with the Merger Agreement and each of the
transactions contemplated thereby. In addition, if the Merger Agreement is
terminated under circumstances in which Continental is entitled to the Break-Up
Fee, Providence Journal has granted to Continental the option to purchase the
cable television systems operated by Providence Journal and its subsidiaries in
Palm Springs, California and the surrounding communities (the "Palm Springs
System") at a purchase price of $68,500,000. (See "The Merger--Termination".)
The Merger Agreement provides for contractual indemnification by each of the
parties for various breaches of representations and warranties, misleading
statements or omissions, third party claims and stockholder suits. (See "The
Merger--Indemnification".)
CORPORATE GOVERNANCE
CONTINENTAL. All of the officers and Directors of Continental immediately
prior to the Effective Time will continue as officers and Directors after the
Effective Time. (See "Description of Continental--Directors, Executive Officers
and Other Officers of Continental".) Pursuant to the Merger Agreement, until
the Effective Time, Providence Journal will have the right to appoint two
persons who will be permitted to attend meetings of the Board of Directors of
Continental (the "Providence Journal Nominees"). The Merger Agreement further
provides that if, at any such meeting, (i) any resolution is approved by the
Continental Board of Directors by only one vote or, with respect to any
resolution pertaining to certain matters, two members of Continental's Board of
Directors vote against such resolution, and (ii) the Providence Journal
Nominees indicate that they would have voted against such resolution had they
been Directors of Continental, Continental has agreed to act upon such
resolution as though it had not been approved by the Continental Board of
Directors. At the Effective Time, the Providence Journal Nominees shall be
appointed to serve as Class C Directors for a three-year term. Following the
expiration of their term, the Continental Board of Directors has agreed to
exercise all authority under Delaware Law to nominate two persons designated by
New Providence Journal for one additional three-year term. (See "The Merger--
Certain Covenants--Certain Rights with Respect to Continental's Board of
Directors".)
NEW PROVIDENCE JOURNAL. All of the officers and Directors of Providence
Journal prior to the Merger are expected to serve as officers and Directors of
New Providence Journal immediately after the Effective Time. (See "Description
of Providence Journal and New Providence Journal--Executive Officers and
Directors of Providence Journal and New Providence Journal".)
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Board of Directors of Providence
Journal with respect to the Providence Journal Proposals and the Cable Division
Sale Bonus Plan, stockholders of Providence Journal
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should be aware that certain members of Providence Journal management and its
Board of Directors have certain interests in the PJC Spin-Off and the Merger
that may present them with actual or potential conflicts of interest in
connection with the PJC Spin-Off and the Merger. As of the Effective Time, New
Providence Journal will assume the following stock incentive plans of
Providence Journal: (i) the 1994 Employee Stock Option Plan; (ii) the 1994 Non-
Employee Director Stock Option Plan; and (iii) the Restricted Stock Unit Plan.
Prior to the Effective Time, New Providence Journal will also assume the
following tax-qualified retirement plans maintained by Providence Journal: (i)
the Providence Journal Pension Plan; (ii) the Journal Guild 401(k) Plan; and
(iii) the Journal 401(k) Plan. In addition, the Cable Division Sale Bonus Plan,
designed to retain certain of Providence Journal's cable executives and provide
them with incentives to maximize the operating performance of the PJC Cable
Business pending consummation of the Merger, provides for bonuses which are
payable only if the Merger is consummated. As of August 1, 1995, the total pool
in which the 14 participants in the Cable Division Sale Bonus Plan are eligible
to share is an amount equal to $5.2 million, contingent upon the achievement of
the plan objectives. While not contingent upon the Merger, the Providence
Journal Incentive Stock Unit Plan will be terminated and liquidated upon the
next independent appraisal of Providence Journal Class A Common Stock, which is
anticipated to be prior to the consummation of the PJC Spin-Off and the Merger.
(See "Risk Factors--Interests of Certain Persons in the Transactions" and
"Description of Providence Journal and New Providence Journal--Executive
Compensation--Providence Journal Incentive Stock Unit Plan".)
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
CONSUMMATION OF THE PJC SPIN-OFF AND THE MERGER IS CONDITIONED ON THE RECEIPT
OF A FAVORABLE PRIVATE LETTER RULING FROM THE SERVICE THAT THE PJC SPIN-OFF
WILL QUALIFY AS A TAX-FREE REORGANIZATION UNDER THE CODE, AND UPON RECEIPT OF
AN OPINION OF EDWARDS & ANGELL, COUNSEL TO PROVIDENCE JOURNAL, THAT THE MERGER
WILL QUALIFY AS A TAX-FREE REORGANIZATION UNDER THE CODE. (SEE "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS".)
ACCOUNTING TREATMENT
The Merger and the King Cable Purchase 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 General Corporation Law ("Delaware Law" or
"DGCL"), 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".) All of the Directors of Continental
have waived their appraisal rights with respect to shares of Continental Voting
Stock that they own.
PROVIDENCE JOURNAL. Pursuant to Rhode Island Law, any holder of Providence
Journal Common Stock (i) who files a written objection to the Merger prior to
or at the Providence Journal Special Meeting; (ii) who, within ten 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 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
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Dissenting Stockholders--Providence Journal" for a description of such rights,
including a summary of the steps which must be taken to comply withSection 74.)
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 0.30% of the voting power of the outstanding Providence Journal
Common Stock), and Amos B. Hostetter, Jr. and Timothy P. Neher, as the trustees
of the Amos B. Hostetter, Jr. 1989 Trust (the "Trust") entitled to exercise
voting power with respect to an aggregate of 42,843,550 shares of Continental
Class B Common Stock (approximately 30.90% of the voting power (treating the
Continental Series A Preferred Stock as if it were converted into Continental
Class B Common Stock) of the Continental Voting Stock), entered into an
agreement (the "Voting Agreement") pursuant to which such stockholders agreed,
among other things, to vote all of their shares in the following manner. Such
Directors and executive officers of Providence Journal holding Providence
Journal Common Stock have agreed to vote (i) in favor of each of the Providence
Journal Proposals, (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between Providence Journal or any
of the PJC Cable Subsidiaries and any person other than Continental, or any
other action which would result in the breach of any covenant, representation
or warranty in the Merger Agreement, or cause any conditions to the obligations
of Providence Journal under the Merger Agreement not to be fulfilled and
(iii) in favor of any other matter relating to the consummation of the
transactions contemplated by the Merger Agreement. The Trust agreed to vote (x)
in favor of each of the Continental Proposals, (y) against any action that
would result in a breach of any covenant, representation or warranty under the
Merger Agreement, or that would result in any of the conditions to the
obligations of Continental under the Merger Agreement not being fulfilled and
(z) in favor of any other matter relating to the consummation of the
transactions contemplated by the Merger Agreement. Execution of the Voting
Agreement was a condition to Continental and Providence Journal entering into
the Merger Agreement, and no compensation was paid to any person in
consideration for entering into such agreement. (See "The Merger--Ancillary
Agreements--Voting Agreement".)
NONCOMPETITION AGREEMENT
As a condition to the Merger, New Providence Journal must enter into an
agreement (the "Noncompetition Agreement") pursuant to which New Providence
Journal shall agree that, for a period of three years after the Effective Time,
neither it nor any of its subsidiaries will (or will attempt to), on its own
behalf or in the service or on behalf of others, (i) solicit for employment,
interfere with or entice away any of the Directors, officers, employees or
agents of Continental or any person who at any time on or after January 1, 1994
was an officer or employee of Providence Journal or the PJC Cable Subsidiaries
and who is employed by Continental following the Effective Time, (ii) subject
to certain exceptions, engage in any manner in the operation (in specified
geographical areas) of cable television systems providing the services provided
by Providence Journal and the PJC Cable Subsidiaries (the "Restricted
Business") at the Effective Time other than the business of developing or
creating programming 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, the Providence Journal Charter and Providence
Journal's By-Laws (the "Providence Journal By-Laws") and the Rights Agreement
between Providence Journal and The First National Bank of Boston, as Rights
14
<PAGE>
Agent (the "Rights Agreement"). 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 By-Laws, the New
Providence Journal Certificate of Incorporation (the "New Providence Journal
Certificate"), the New Providence Journal By-Laws (the "New Providence Journal
By-Laws") and the New Providence Journal Rights Agreement between New
Providence Journal and the First National Bank of Boston, as Rights Agent,
dated as of February 1, 1995 (the "NPJ Rights Agreement"). (See "Description of
New Providence Journal Common Stock--NPJ Rights Agreement", "Comparison of
Rights of Stockholders of Providence Journal and New Providence Journal" and
"Comparison of Rights of Stockholders of Providence Journal and Continental".)
MARKET PRICES AND DIVIDEND DATA
CONTINENTAL. No established public trading market exists for the Continental
Class A Common Stock or Continental Class B Common Stock, and accordingly, no
high and low bid information or quotations are available with respect to the
Continental Common Stock. Continental has not paid cash dividends on the
Continental Common Stock and has no present intention of so doing after the
Merger. The payment of future dividends, if any, will be determined by the
Continental Board of Directors in light of conditions then existing, including
earnings, financial condition and requirements, restrictions in financing
agreements, business conditions and other factors. Certain agreements, pursuant
to which Continental has borrowed funds, contain provisions that limit the
amount of cash dividends and stock repurchases that Continental may make. (See
"Description of Continental Indebtedness".)
NEW PROVIDENCE JOURNAL. No established public trading market exists for the
Providence Journal Common Stock, and accordingly no high and low bid
information or quotations are available with respect to the Providence Journal
Common Stock.
The quarterly cash dividend per share paid on all Providence Journal Class A
Common Stock and Providence Journal Class B Common Stock in 1992, 1993 and 1994
was $23.65, $26.00 and $28.60, respectively. Following completion of the PJC
Spin-Off and the Merger, New Providence Journal expects to pay quarterly
dividends on the New Providence Journal Common Stock at a rate, that is
generally consistent with the rate currently paid with respect to the
Providence Journal Common Stock. 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.
CABLE DIVISION SALE BONUS PLAN
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Cable Division Sale Bonus Plan. The Cable
Division Sale Bonus Plan is designed to retain certain of Providence Journal's
cable executives and to provide incentives to such executives to maximize
operating performance of the PJC Cable Business pending completion of the
Merger with bonuses payable only if the Merger is consummated. No beneficiary
of such plan is an officer of Providence Journal. New Providence Journal will
be responsible for all payments required to be made under the Cable Division
Sale Bonus Plan. The amount of the bonuses payable pursuant to the Cable
Division Sale Bonus Plan is $5,200,000, an amount that may be reduced by up to
20%, based upon a graduated scale, if the 1995 cash flow objective is not met.
15
<PAGE>
PROVIDENCE JOURNAL SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data provided below is derived from, and
should be read in conjunction with, the Consolidated Financial Statements of
Providence Journal Company and Subsidiaries for the years ended December 31,
1992 through December 31, 1994 and the six months ended June 30, 1994 and 1995
contained elsewhere herein. The unaudited summary consolidated financial data
for the six months ended June 30, 1994 and 1995 reflect 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 "Description of Providence Journal--Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Providence Journal--Discontinued Operations".)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ----------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $169,840 $167,008 $173,579 $180,473 $192,291 $ 92,730 $95,816
Operating Loss......... (16,437) (31,793) (9,773) (15,859) (10,696) (1,827) (4,865)
Other Income (Expense),
net................... (4,789) 28,862 27,654 (5,534) (9,357) (1,814) 1,512
Income (Loss) from
Continuing Operations
Before Income Taxes... (21,226) (2,931) 17,881 (21,393) (20,053) (3,641) (3,353)
Income (Loss) from
Continuing Operations. (12,923) (6,547) 6,044 (15,628) (22,420) (3,015) (1,682)
Income (Loss) Per
Common Share from
Continuing Operations. (129.02) (74.56) 70.26 (183.21) (264.13) (35.44) (19.86)
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------ --------------
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets(1)........ $784,063 $594,098 $793,433 $775,685 $724,713 $761,281
Net Assets of
Discontinued Cable
Operations............ 51,577 54,184 393,342 396,260 364,010 404,861
Long-term Debt......... 28,568 28,608 253,106 276,601 247,173 296,895
Stockholders' Equity... 460,321 399,938 391,967 359,575 285,887 278,364
</TABLE>
--------
(1) Includes amounts for discontinued operations.
16
<PAGE>
NEW PROVIDENCE JOURNAL SUMMARY PRO FORMA FINANCIAL DATA
The following information has been derived from the pro forma condensed
consolidated balance sheet and statement of operations of Providence Journal
and KHC, after giving effect to the PJC Spin-Off, the Merger and the
transactions contemplated thereby. The pro forma results are not necessarily
indicative of the results of operations that would have actually been obtained
had the transactions been consummated as of the dates indicated in the pro
forma balance sheet and statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- ----------------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $309,350 $153,180
Operating Income (Loss)................ 10,465 5,352
Other Expense, Net..................... (26,901) (13,338)
Loss from Continuing Operations before
Income Taxes.......................... (16,436) (7,986)
Loss from Continuing Operations........ (20,496) (6,703)
Loss Per Share from Continuing
Operations............................ (241.46) (79.15)
<CAPTION>
AS OF
JUNE 30, 1995
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets........................... $686,062
Long-term Debt......................... 283,933
Stockholders' Equity................... 229,484
</TABLE>
17
<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's cable division ("Providence
Journal Cable"), which consists of Colony Communications, Inc. ("Colony") (a
wholly owned subsidiary of Providence Journal), the Colony Cablevision division
("Colony Cablevision") (a division of Providence Journal), Copley/Colony (a 50%
owned joint venture of Colony), and King Videocable Company ("King Videocable")
(a 50% owned joint venture of Providence Journal that through its parent, KBC,
owns all of the King Cable Business). The combined statement of operations data
for the years ended December 31, 1992, 1993 and 1994 and the combined balance
sheet data as of December 31, 1992, 1993 and 1994 have been derived from the
audited combined financial statements of Providence Journal Cable contained
elsewhere herein. The combined statement of operations data for the six months
ended June 30, 1994 and 1995 and the combined balance sheet data as of June 30,
1995 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 six months ended June 30, 1995 are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1995.
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
OPERATIONS DATA:
Revenues............... $199,684 $281,593 $284,993 $141,704 $145,380
Operating, Selling,
General and
Administrative
Expenses.............. 121,703 167,483 173,020 86,178 89,047
Depreciation and
Amortization.......... 58,750 99,554 85,783 45,610 42,314
Allocation of Corporate
Overhead(1)........... 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- --------
Operating Income....... 12,718 4,905 15,156 6,213 10,201
Allocated Interest
Expense from Parent
Companies(2).......... (16,516) (39,938) (41,318) (20,035) (20,880)
Other, Net............. 591 (1,841) 555 1,121 1,545
-------- -------- -------- -------- --------
Income (loss) before
Income Taxes and
Cumulative Effect of
Change in Accounting
Principle............. (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for Income
Taxes................. 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- --------
Income (loss) before
Change in Accounting
Principle............. (3,901) (25,655) (17,425) (8,707) (6,513)
Cumulative Effect of
Change in Accounting
Principle............. 4,831 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before
Minority Interests.... $ 930 $(25,655) $(17,425) $ (8,707) $ (6,513)
======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------- --------------
1992 1993 1994 1995
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
COMBINED BALANCE SHEET
DATA:
Total Assets........... $867,150 $813,306 $777,102 $818,633
Total Debt(3).......... 611,885 593,073 574,821 611,567
Group Equity........... 89,334 70,403 57,142 52,915
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(4).............. $77,981 $114,110 $111,973 $ 55,526 $ 56,333
EBITDA as a % of
Revenues.............. 39.1% 40.5% 39.3% 39.2% 38.7%
Net Cash Provided by
Operating Activities.. 53,753 69,940 68,288 34,508 40,707
Capital Expenditures... 27,391 49,094 47,766 23,142 25,631
</TABLE>
18
<PAGE>
SUBSCRIBER DATA FOR PROVIDENCE JOURNAL CABLE SYSTEMS(5)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------- --------------
1992 1993 1994 1995
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Homes Passed by Cable(6).. 1,202,000 1,224,000 1,253,000 1,262,000
Number of Basic
Subscribers(7)........... 722,000 738,000 771,000 773,000
Basic Penetration(8)...... 60.0% 60.3% 61.5% 61.3%
Number of Premium
Subscriptions(9)......... 440,000 467,000 510,000 512,000
Premium Penetration(10)... 61.0% 63.3% 66.2% 66.2%
Monthly Revenue per
Average
Basic Subscriber(11)..... $30.78 $30.63 $29.44 $29.50
</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 combination of the stated basic
service, the stated second tier of cable programming service and the
stated a la carte service. 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. Due to the
seasonality inherent in certain of Providence Journal's cable systems in
Florida, the number of basic subscribers may fluctuate over the course of
the year.
(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 six month period ended
June 30, 1995.
19
<PAGE>
CONTINENTAL SUMMARY CONSOLIDATED HISTORICAL INFORMATION
The summary consolidated historical financial information provided below is
derived from, and should be read in conjunction with, the Consolidated
Financial Statements of Continental for the years ended December 31, 1992
through December 31, 1994 and the six months ended June 30, 1994 and 1995. The
unaudited summary historical financial information for the six months ended
June 30, 1994 and 1995 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 six months ended June 30, 1994
and 1995 are not necessarily indicative for the results that may be expected
for any other interim period or the year as a whole.
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 1,113,475 $ 1,177,163 $ 1,197,977 $589,390 $650,048
Operating, Selling,
General and
Administrative
Expenses.............. 625,145 649,571 672,884 327,401 375,178
Depreciation and
Amortization.......... 272,851 279,009 283,183 135,523 148,412
Non-Cash Stock
Compensation(1)....... 9,683 11,004 11,316 5,675 5,905
Operating Income....... 205,796 237,579 230,594 120,791 120,553
Interest Expense (Net). 296,031 282,252 315,541 147,910 166,314
Loss before
Extraordinary Item and
Cumulative Effect of
Accounting Change..... (102,960) (25,774) (68,576) (23,621) (33,067)
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends(2).......... -- -- -- -- --
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------------------- -----------
1992 1993 1994 1995
----------- ----------- ----------- ------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................... $ 27,352 $ 122,640 $ 11,564 $ 15,342
Total Assets........... 2,003,196 2,091,853 2,483,639 2,693,894
Total Debt............. 3,011,669 3,177,178 3,449,907 3,728,101
Redeemable Common
Stock................. 223,716 213,548 232,399 242,721
Stockholders' Equity
(Deficiency).......... (1,486,231) (1,667,088) (1,688,334) (1,725,035)
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3).............. $ 488,330 $ 527,592 $ 525,093 $261,989 $274,870
EBITDA as a % of
Revenues.............. 43.9% 44.8% 43.8% 44.5% 42.3%
Total Debt less Cash to
EBITDA(3)............. 6.11 5.79 6.55 6.11 6.75
EBITDA to Total
Interest Expense...... 1.65 1.87 1.66 1.77 1.65
Net Cash Provided from
Operating Activities.. $ 215,045 $ 250,504 $ 236,304 $123,568 $ 77,526
Capital Expenditures... 145,189 185,691 300,511 109,984 231,021
</TABLE>
20
<PAGE>
SUBSCRIBER DATA FOR DOMESTIC CABLE SYSTEMS (4)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------------------- --------------
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Homes Passed by
Cable(5).............. 4,761,000 4,880,000 4,981,000 5,192,000 5,372,000 5,437,000
Number of Basic
Subscribers(6)........ 2,690,000 2,784,000 2,856,000 2,895,000 3,081,000 3,133,000
Basic Penetration(7)... 56.5% 57.0% 57.3% 55.8% 57.4% 57.6%
Number of Premium
Subscriptions(8)...... 2,702,000 2,603,000 2,545,000 2,454,000 2,635,000 2,666,000
Premium Penetration(9). 100.4% 93.5% 89.1% 84.8% 85.5% 85.1%
Monthly Revenue per
Average Basic
Subscriber(10)........ $31.29 $32.98 $34.46 $35.76 $35.29 $35.65
</TABLE>
--------
(1) This is the difference between the consideration paid by employees for
shares of Continental Common Stock under Continental's Restricted Stock
Purchase Program and the fair market value of such shares at the date of
issuance (as determined by Continental's Board of Directors), amortized
over such shares' vesting schedule. (See Note 11 to Continental's
Consolidated Financial Statements.)
(2) For purposes of this computation, earnings are defined to be income (loss)
from continuing operations before income taxes, minority interests and
fixed charges (excluding capitalized interest). Fixed charges are the sum
of (i) interest costs, (ii) interest component of rent expense and (iii)
amortization of deferred financing costs. The actual ratios of earnings to
combined fixed charges and preferred dividends are less than 1 to 1 for
each of the years presented. The actual deficiency of earnings to combined
fixed charges and preferred dividends was $107,425,000, $53,729,000 and
$120,899,000 respectively, for the years ended December 31, 1992, 1993 and
1994 and $42,705,000 and $41,812,000, respectively, for the six months
ended June 30, 1994 and 1995.
(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 six months ended June 30, 1994
and 1995, 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 basic broadcast tier rate. In reporting
subscriber and other data for systems not controlled or managed by
Continental, only that portion of data corresponding to Continental's
percentage ownership is included.
(7) Basic subscribers as a percentage of Homes passed by cable. Continental's
basic penetration for the years ended December 31, 1993 and 1994 and the
six months ended June 30, 1995, 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 such period presented and the six month period ended
June 30, 1995.
21
<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 June 30, 1995 and gives effect to the Merger and certain related
transactions, including the assumption of the $410,000,000 in New Cable
Indebtedness, the incurrence of $405,000,000 of new indebtedness to fund the
King Cable Purchase and various other acquisitions of cable television systems
completed and pending, in each instance as though each of such events had
occurred as of June 30, 1995. The following unaudited Summary Pro Forma
Statement of Operations Data for the year ended December 31, 1994 and the six
months ended June 30, 1995 gives effect to each of the foregoing as though each
of such events had occurred at January 1, 1994 and January 1, 1995,
respectively. The pro forma results are not necessarily indicative of the
combined results of future operations and do not reflect any synergies and
other cost reductions that may result from the Merger.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $1,586,829 $840,220
Operating Income................................ 280,828 145,156
Interest Expense................................ 391,246 211,058
Loss before Extraordinary Item.................. (84,151) (44,225)
<CAPTION>
AT JUNE 30,
1995
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total Assets.................................... $ 4,891,213
Total Debt...................................... 4,921,251
Stockholders' Equity (Deficiency)............... (1,128,966)
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(1)....................................... $675,908 $347,516
EBITDA to Total Interest Expense................ 1.73 1.65
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 pro forma six months ended June 30, 1995, 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 ratio of earnings
to combined fixed charges and preferred dividends is less than 1 to 1 for
each period presented. The pro forma deficiency of earnings to combined
fixed charges and preferred dividends would have been $143,712,000 and
$58,524,000 for the year ended December 31, 1994 and the six months ended
June 30, 1995, respectively. Such pro forma ratios reflect the consummation
of the Merger.
22
<PAGE>
RISK FACTORS
RISK FACTORS RELATED TO THE CONTINENTAL MERGER STOCK
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; RESTRICTIONS ON
TRANSFER. The value ascribed under the terms of the Merger Agreement to the
Continental Merger Stock is $19.40 per share. The Continental Merger Stock
valuation was arrived at by Continental and Providence Journal as a result of
arm's length negotiations between the parties and does not necessarily reflect
the price at which a similar number of such shares would be sold to a third
party in a private transaction or the price at which such shares would trade
following the consummation of the Merger.
In order to protect the tax-free nature of the PJC Spin-Off and the Merger,
for a period of one year following the Effective Time, former Providence
Journal stockholders will not be able to transfer their Continental Merger
Stock except for transfers not for value to certain permitted transferees. (For
a full description of the Transfer Restrictions, see "The Merger--General
Provisions--Restrictions on Transfer of Continental Merger Stock".) As a
result, the Continental Merger Stock will be an illiquid security in the hands
of the former Providence Journal stockholders for at least one year following
the Merger.
Although Continental has agreed that by no later than one year from the
Effective Time the Continental Class A Common Stock will be listed on NASDAQ or
a national securities exchange, there can be no assurance that a significant
public market for the Continental Class A Common Stock will develop or be
sustained or that, if such market develops, the market price for the
Continental Class A Common 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. (See "The Merger--Certain Covenants--
Registration Rights" and "Undertakings Regarding Public Offering".)
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. (See "Description of Continental Indebtedness" for a discussion of such
restrictions.)
REGULATION AND COMPETITION IN THE CABLE TELEVISION INDUSTRY. The cable
television industry is subject to extensive regulation on the federal, state
and local levels. Many aspects of such regulations are currently the subject of
judicial proceedings and administrative or legislative proposals. The 1992
Cable Act has significantly expanded the scope of cable television regulation.
The Federal Communications Commission ("FCC") was required to complete a number
of rule-making proceedings under the 1992 Cable Act, the majority of which,
including certain of those related to rate regulation, have been completed. 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, limit a cable operator'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. In order to resolve a variety of
significant regulatory issues and obtain more certainty in the regulatory
environment, Continental recently adopted a Social Contract with the FCC (the
"Social Contract"). The Social Contract extends through the year 2000 and
settles Continental's current rate cases. As part of the
23
<PAGE>
resolution of these cases, Continental has agreed to (i) invest at least $1.35
billion in domestic system upgrades from 1995 through 2000 to expand channel
capacity and improve system reliability and picture quality and (ii) make in-
kind refunds to affected subscribers totaling approximately $9.5 million. (See
"Description of Continental--Regulatory Response" for a more detailed
description of the Social Contract.)
Various cable operators have initiated litigation challenging certain aspects
of the 1992 Cable Act. The constitutionality of the basic scheme of rate
regulation under the 1992 Cable Act has been upheld by a federal district
court, and the FCC's rate regulation rules were upheld by a federal appeals
court in June 1995. The outcome of the remainder of this litigation cannot be
predicted. 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", and "Description of Continental--Competition" and
"Legislation and Regulation".)
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 June 30, 1995, Continental's
aggregate debt was $3,728,101,000. After giving effect to the Merger and
certain other acquisitions described herein, as of June 30, 1995, Continental's
aggregate debt on a pro forma basis would have been $4,921,251,000. 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--Liquidity and 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 $1,725,035,000 as of June 30, 1995. Continental
reported net losses from continuing operations, before extraordinary items and
the cumulative effect of the change in accounting for income taxes, of
$25,774,000 and $68,576,000 for the years ended December 31, 1993 and 1994,
respectively, and $33,067,000 for the six months ended June 30, 1995. After
giving effect to the Merger and certain other acquisitions described herein,
Continental would have reported losses from continuing operations before
extraordinary item of
24
<PAGE>
$84,151,000 and $44,225,000 for the year ended December 31, 1994 and the six
months ended June 30, 1995, 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", "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 requirements, stock repurchase obligations
and acquisition, investment and capital expenditure requirements. Continental
believes that cash generated from operating activities, together with
borrowings from existing and future credit facilities and proceeds from future
equity issuances, will be sufficient to meet its future debt service
requirements and stock repurchase obligations, and to make anticipated
acquisitions, investments and capital expenditures. However, there can be no
assurances in this regard. Continental anticipates that it will offer shares of
its capital stock in a private or public offering in the future. (See "The
Merger--Certain Covenants--Undertakings Regarding Public Offering".) There can
be no assurances in this regard or that any such future equity issuance would
be at a price per share equal to or greater than the price per share ascribed
to the Continental Class A Common Stock under the terms of the Merger
Agreement. Furthermore, there can be no assurances that the terms available for
any future debt financing would be favorable to Continental. (See "Description
of Continental--Management's Discussion and Analysis of Financial Condition and
Results of Operations of Continental--Liquidity and Capital Resources".)
POTENTIAL FOR EARLY REDEMPTION OF CERTAIN SECURITIES. Continental is required
to repurchase in late 1998 or early 1999 a maximum of 16,684,150 shares of the
Continental Common Stock from certain stockholders at a purchase price
determined in accordance with a formula based upon the then current fair market
value of the Continental Common Stock. (See "Description of Continental--
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Continental--Liquidity and Capital Resources--Recent Stock
Repurchases and 1998-1999 Share Repurchase Program".) In the event Continental
is unable to repurchase such shares, it is obligated at the request of certain
of such stockholders to use its best efforts (subject to compliance with
applicable laws and regulations) to cause the sale of all or substantially all
of the assets of Continental and, following the consummation of such sale, to
liquidate Continental. In addition, 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; provided, however, there can be
no assurance that any such liquidation proceeds would remain following payments
to holders of indebtedness and Continental Preferred Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Upon the consummation of the Merger, giving
effect to the Continental Recapitalization Amendment and the Continental Stock
Split, there will be 39,411,107 shares of Continental Class A Common Stock,
109,196,050 shares of Continental Class B Common Stock and 1,142,858 shares of
Continental Series A Preferred Stock outstanding. Of such shares, the
30,725,207 shares of Continental Class A Common Stock to be issued to
Providence Journal stockholders pursuant to the Merger, will be freely
tradeable after the expiration of the Transfer Restrictions, 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
currently outstanding are "restricted securities" as they have not been
registered under the Securities Act.
25
<PAGE>
Only the Continental Class A Common 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
approximately 143,397,450 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"), approximately 44,746,525 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, approximately 94,499,900 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 Common 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 prevailing from time to time. Sales of
substantial numbers of shares of Continental Class A Common Stock in the public
market could adversely affect the market price of the Continental Class A
Common Stock.
VOTING CONTROL OF CONTINENTAL; DILUTION. The Continental Class A Common Stock
entitles its holders to one vote per share on all matters submitted generally
to a vote of Continental's stockholders, while the Continental Class B Common
Stock entitles its holders to 10 votes per share. Accordingly, the holders of
the Continental Class B Common Stock, including the holders of the Continental
Series A Preferred Stock, which vote as if they had converted into Continental
Class B Common Stock, will have sufficient voting power to determine the
outcome of most matters submitted to the stockholders for approval. After
giving effect to the Continental Stock Split, the holders of Continental Series
A Preferred Stock will vote as if they had converted each of their shares into
25 shares of Continental Class B Common Stock (i.e., 250 votes per share of
Continental Series A Preferred Stock). If the holders of the Continental Series
A Preferred Stock transfer their shares to persons other than certain permitted
transferees, the new holders will vote as if each of their shares of
Continental Series A Preferred Stock had been converted into 25 shares of
Continental Class A Common Stock (i.e., 25 votes per share of Continental
Series A Preferred Stock). (See "Description of Continental Capital Stock".)
Assuming that the Merger and the related transactions were consummated as of
the date hereof and all PJC Cable Subsidiaries were wholly owned by Providence
Journal, the holders of Providence Journal Common Stock would own shares,
representing approximately 17.3% of the Continental Common Stock (treating the
Continental Series A Preferred Stock as if it were converted into Continental
Class B Common Stock) and approximately 2.2% of the voting power of
Continental. As a result of the Merger, the existing holders of Continental
Common Stock and Continental Series A Preferred Stock will incur dilution in
their ownership of Continental and in their voting power. However, management
of Continental believes that this dilution in equity ownership is offset by the
benefits of expanded operating scale and system clusters and the resultant
efficiencies generating therefrom. Nevertheless, there can be no assurances in
this regard.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF CONTINENTAL'S RESTATED
CERTIFICATE AND BY-LAWS. Certain provisions of the Continental Restated
Certificate and the Continental By-Laws could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding capital stock of Continental and could
make it more difficult to consummate certain types of transactions involving an
actual or potential change in control of Continental, such as a merger, tender
offer or proxy contest. (See "Description of Continental Capital Stock--DGCL
and Certain Provisions of the Continental Restated Certificate and the
Continental By-Laws".) The most significant of these is the disparate voting
rights of the Continental Class B Common Stock and the Continental Series A
Preferred
26
<PAGE>
Stock described above. The Continental Restated Certificate also provides for
three classes of Directors to be elected on a staggered basis--one class each
year--which enables existing management to exercise significant control over
Continental's affairs. Certain institutional investors have the right, under
certain circumstances, to designate nominees to stand for election to
Continental's Board of Directors. (See "Description of Continental--Directors,
Executive Officers and Other Officers of Continental".) 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.
RELIANCE ON KEY PERSONNEL. Continental's success is partially dependent upon
the continued availability of the services of certain key individuals,
including Amos B. Hostetter, Jr., Chairman of the Board of Directors and Chief
Executive Officer of Continental. Continental does not have employment
contracts with, nor does it maintain key man insurance on, any of its executive
officers.
RISKS ASSOCIATED WITH INTERNATIONAL INVESTMENTS. Continental has made
investments in foreign cable companies and intends to continue to consider
investments in companies located outside the United States. (See "Description
of Continental--International Operations".) Such investments are subject to
risks and uncertainties relating to the indigenous political, social and
economic structures of those countries. Risks specifically related to
investments in foreign companies may include risks of fluctuations in currency
valuation, expropriation, confiscatory taxation and nationalization, increased
regulation and approval requirements and governmental policies limiting returns
to foreign investors.
RISK FACTORS ASSOCIATED WITH THE PJC SPIN-OFF AND THE MERGER
Consummation of the PJC Spin-Off, the Merger and related transactions is
conditioned upon the receipt of a favorable ruling from the Service and an
opinion of counsel to Providence Journal as to certain of the federal income
tax consequences of the transactions. (See "Certain Federal Income Tax
Considerations".)
RISK FACTORS 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 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".)
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE NEW PROVIDENCE JOURNAL
CERTIFICATE AND BY-LAWS AND THE NPJ RIGHTS AGREEMENT. Certain provisions of the
New Providence Journal Certificate and the New Providence Journal By-Laws could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding capital stock of New Providence Journal. These
provisions include the disparate voting rights of New Providence Journal Class
A Common Stock and New Providence Journal Class B Common Stock, and the
division of the New Providence Journal Board of Directors into three classes to
be elected on a staggered basis, one class each year. In addition, the NPJ
Rights Agreement provides stockholders of New Providence Journal with certain
rights which would substantially increase the cost of acquiring New Providence
Journal in a transaction not approved by the New Providence Journal Board of
Directors. (See "Description of New Providence Journal Common Stock".)
INDEMNIFICATION FOR TAX LIABILITIES AND TAX MATTERS. The Merger Agreement
provides that New Providence Journal will retain responsibility for all federal
and state income tax liabilities of Providence Journal and its subsidiaries for
periods ending on or before the closing of the transactions contemplated by the
Merger Agreement ( the "Closing Date"), including income tax liabilities
resulting from any failure of the PJC Spin-Off and the Merger to qualify as
tax-free reorganizations under the Code, unless such failure to qualify is the
result of certain actions by Continental. New Providence Journal will indemnify
Continental for all such tax liabilities including, without limitation,
approximately $120 million in tax liabilities due as a result of the King Cable
Purchase. (See "Certain Federal Income Tax Considerations".)
27
<PAGE>
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 are outside of New
Providence Journal's control.
RELIANCE ON KEY PERSONNEL. New Providence Journal's success will be partially
dependent upon the continued availability of the services of certain key
individuals, including Stephen Hamblett, Chairman of the Board and Chief
Executive Officer of Providence Journal. Providence Journal does not have
employment contracts with, nor does it maintain key man insurance on any of its
executive officers.
SUBSTANTIAL LEVERAGE. After completion of the PJC Spin-Off and the Merger,
New Providence Journal will have consolidated indebtedness of approximately
$285,000,000, an amount that represents a significant portion of New Providence
Journal's overall borrowing capacity. The degree to which New Providence
Journal is leveraged could have important consequences to holders of the New
Providence Journal Common Stock including, but not limited to, the following:
(i) New Providence Journal's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a significant portion of New
Providence Journal's cash flow from operations will be dedicated to the payment
of the principal of, and interest on, its debt; (iii) the agreements governing
New Providence Journal's long-term debt may contain certain restrictive
financial and operating covenants that could limit New Providence Journal's
ability to compete and 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 seek 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 PRIOR OR EXPECTED PUBLIC MARKET FOR COMMON STOCK. Prior to the
consummation of the Merger, there has been no public market for the New
Providence Journal Common Stock. In order to protect the tax-free nature of the
Merger, for a period of one year following the Effective Time, former
Providence Journal stockholders will not be able to transfer the shares of New
Providence Journal Common Stock received in the PJC Spin-Off, except for
transfers not for value to certain permitted transferees. (For a full
description of the NPJ Transfer Restrictions, see "The Merger--General
Provisions--Restrictions on Transfer of Continental Merger Stock" and
"Restrictions on Transfer of 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 expiration of the NPJ Transfer
Restrictions. If any market develops, prices for the New Providence Journal
Common Stock will be determined in the marketplace and may be influenced by
many factors, including the operating performance of New Providence Journal,
the depth and liquidity of the market for the New Providence Journal Common
Stock, investor perception of New Providence Journal and general economic and
market conditions.
DECLINING NEWSPAPER CIRCULATION. Providence Journal's principal newspaper,
The Providence Journal-Bulletin, has experienced declining circulation since
1990. Providence Journal believes that this decline is attributable to a number
of factors, including growing reliance upon television and other electronic
media for news and other current information and an influx of non-English
speaking residents into the newspaper's geographic market. There can be no
assurance that this decline in circulation will not continue at the same or at
an accelerated pace in the future. If this decline continues, the operations
and financial condition of New Providence Journal could be materially adversely
affected.
28
<PAGE>
INCREASING NEWSPRINT COSTS. Newsprint costs have historically accounted for
between 16% and 24% of the total operating expenses of Providence Journal's
newspapers. Newsprint prices move in cycles associated with the capacity of
paper mills and newspaper industry demand. Currently newsprint prices are
increasing significantly, and industry analysts expect this trend to continue
at least through 1995. There can be no assurance as to when or at what level
such increases will cease. If such increases continue for a substantial period
of time at sufficiently high levels, the operations and financial condition of
New Providence Journal could be materially adversely affected.
NETWORK AFFILIATION; RELIANCE ON NETWORK PROGRAMMING. Four of Providence
Journal's nine owned or partially owned television stations are currently
affiliated with the National Broadcasting Company Incorporated ("NBC")
television network, three are affiliated with the Fox Broadcasting Company
("Fox"), one is affiliated with the American Broadcasting Company ("ABC")
television network and one is affiliated with the CBS, Inc. ("CBS") television
network. Providence Journal's television viewership levels are materially
dependent upon programming provided by these major networks. There can be no
assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Each of Providence Journal's stations is a
party to an affiliation agreement with one of the networks giving the station
the right to rebroadcast programs transmitted by the network. Under the
affiliation agreements, the networks possess, in the event of a material breach
by the station and in certain other similar circumstances, the right to
terminate the agreement on prior written notice. Although New Providence
Journal expects that it will be able to renew its network affiliation
agreements, no assurance can be given that such renewals will be obtained. The
non-renewal or termination of one or more of the network affiliation agreements
could have a material adverse effect on New Providence Journal's operations.
COMPETITION IN THE TELEVISION INDUSTRY; IMPROVEMENTS AND INNOVATIONS IN
TECHNOLOGY. The television broadcasting industry has become increasingly
competitive in recent years with the growth of cable television, new broadcast
networks, satellite dishes, MMDS, pay-per-view programs and the proliferation
of video cassette recorders ("VCRs") and VCR movie rentals. These changes have
fractionalized television viewing audiences, and this trend is likely to
continue in the future. In addition, technological developments such as DBS,
"high definition" and "interactive" television may impose additional costs and
competitive pressures on New Providence Journal. In addition to competing with
other media outlets for audience share, Providence Journal's stations also
compete for advertising revenues, which will comprise the primary source of
revenues for New Providence Journal. Providence Journal's stations compete for
such advertising revenues with other television stations in their respective
markets, as well as with other advertising media, such as newspapers, radio
stations, magazines, outdoor advertising, transit advertising, yellow page
directories, direct 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's 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,
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regulations and policies regarding a wide variety of matters which could,
directly or indirectly, affect the operations and ownership of New Providence
Journal's broadcast properties. New Providence Journal is unable to predict the
impact which any such laws or regulations may have on its operations.
RISKS ASSOCIATED WITH NEW BUSINESSES. Providence Journal has invested amounts
which are significant in the aggregate in various start-up businesses,
including Television Food Network, G.P. (a cable television network ("TVFN"))
and Linkatel Pacific, L.P. (an alternate access telephone company
("Linkatel")), and intends to make more of such investments in the future. The
prospects of such businesses, which will be held by New Providence Journal,
must be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in an emerging and evolving
industry characterized by new market entrants, intense competition and new and
rapidly evolving technology.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
TREATMENT OF CERTAIN EMPLOYEE STOCK OPTION AND INCENTIVE COMPENSATION
ARRANGEMENTS. 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 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
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, respectively.
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 as a result of the assumption thereof by New Providence Journal.
TREATMENT OF OUTSTANDING RESTRICTED STOCK. In connection with 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,
respectively. The vesting schedule of Assumed Awards will not be affected by
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 Retirement Plan;
(ii) the Journal Guild 401(k) Plan, a qualified profit-sharing plan providing
supplementary pension benefits for members of the Providence Journal Newspaper
Guild; and (iii) the Journal 401(k) Plan (collectively, the "Providence Journal
Retirement Plans"). The foregoing plans cover the
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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 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 eligibility,
benefits and vesting under the Providence Journal Retirement Plans when assumed
by New Providence Journal.
PROVIDENCE JOURNAL INCENTIVE STOCK UNIT PLAN. While not contingent upon the
PJC Spin-Off or the Merger, the Providence Journal Incentive Stock Unit Plan
will be terminated and liquidated upon the next independent appraisal of
Providence Journal Class A Common Stock, which is anticipated to be prior to
the consummation of the Merger. (See "Description of Providence Journal and New
Providence Journal--Executive Compensation--Providence Journal Incentive Stock
Unit Plan".)
TREATMENT OF PROVIDENCE JOURNAL CABLE DIVISION EMPLOYEES. The Cable Division
Sale Bonus Plan is designed to retain certain of Providence Journal's cable
executives and to provide incentives to such executives to maximize the
operating performance of the cable business pending completion of the Merger
with bonuses payable only if the Merger is consummated. Those eligible to
receive awards under the Cable Division Sale Bonus Plan are certain key
officers of the PJC Cable Business. Subject to certain conditions, the
participants are eligible to receive a share of a bonus pool in the following
amount: (i) $2.1 million if the 1994 cash flow objective of $123.6 million for
the PJC Cable Business is achieved, and (ii) 50% of any 1994 cash flow in
excess of the 1994 cash flow objective. As of the date hereof, eligible
employees would receive $5.2 million, subject to downward adjustment by a
maximum of 20%, based upon a graduated scale, if the 1995 cash flow objective
of $123.6 million is not met (pro rated for the portion of 1995 which has
elapsed at the time of the Closing of the Merger). Any significant unforeseen
changes that might positively or negatively affect the cash flow of the PJC
Cable Business, such as new statutes or regulations, will be excluded from the
performance measurement. Bonus payments will be pro-rated for actual
performance with respect to the 1995 objective. The Cable Division Sale Bonus
Plan supersedes any other award that the participant may be eligible for
pursuant to any other long-term incentive plan of Providence Journal or the PJC
Cable Business. New Providence Journal shall be responsible for all payments
made under the Cable Division Sale Bonus Plan.
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BACKGROUND OF THE TRANSACTIONS
CONTINENTAL'S REASONS FOR THE MERGER; RECOMMENDATION OF CONTINENTAL BOARD OF
DIRECTORS
At the meeting of the Board of Directors of Continental held on November 17,
1994, the Continental Board received a presentation by members of Continental
management and its legal advisors regarding, and reviewed the terms of, the
Merger Agreement and the transactions contemplated thereby. By unanimous vote
of Directors, the Continental Board determined that the Merger is fair to, and
in the best interests of, Continental and its stockholders, approved the Merger
and the Continental Recapitalization Amendment, and resolved to recommend that
stockholders of Continental vote FOR approval and adoption of the Merger
Agreement and each of the transactions contemplated thereby and FOR approval
and adoption of the Continental Recapitalization Amendment.
In reaching its determination, the members of the Continental Board
considered the following factors: (i) the Continental Board's familiarity with
and review of Continental's business, operations, financial condition, earnings
and prospects; (ii) the business, operations, financial condition and earnings
of the PJC Cable Business; (iii) the enhanced prospects and opportunities for
growth that the Merger makes possible, including increases in Continental's
operating scale, system clustering, and operating income; (iv) the anticipated
cost savings and efficiencies arising from the Merger; and (v) the terms of the
Merger Agreement.
Continental was assisted in its deliberations and negotiations with respect
to the Merger and the related transactions by its investment advisor, Lazard
Freres & Co. LLC ("Lazard"). Lazard advised Continental as to valuation matters
concerning both the PJC Cable Business and the Continental Merger Stock. In
considering the value of $19.40 per share ascribed to the Continental Merger
Stock, members of the Continental Board considered that the Continental Class A
Common Stock had most recently sold in privately negotiated transactions,
including issuances by Continental, at $19.40 per share, giving effect to the
Continental Stock Split.
In reaching its determination, the Continental Board of Directors did not
find it practicable to quantify any specific factor such as anticipated cost
savings and efficiencies or assign relative weights to the specific factors
considered in making its determination. Instead, the Continental Board
considered these factors as a whole in reaching its determination that the
Merger is fair to, and in the best interests of, Continental and its
stockholders.
On August 3, 1995, the Executive Committee of the Board of Directors of
Continental approved certain amendments to the Merger Agreement resulting from
the notification by the Service that a tax ruling that would have rendered the
transactions completely tax-free to Providence Journal would not be issued.
(See "Providence Journal's Reasons for the PJC Spin-Off and the Merger".) Such
amendments are immaterial to Continental and its stockholders and do not affect
the Board's determination that the Merger is fair to, and in the best interests
of, Continental and its stockholders.
THE BOARD OF DIRECTORS OF CONTINENTAL UNANIMOUSLY RECOMMENDS THAT CONTINENTAL
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND FOR
APPROVAL AND ADOPTION OF THE CONTINENTAL RECAPITALIZATION AMENDMENT.
PROVIDENCE JOURNAL'S REASONS FOR THE PJC SPIN-OFF AND THE MERGER
BACKGROUND. Commencing in July 1991, Providence Journal undertook a
comprehensive strategic planning process that focused on its corporate
structure and the proper positioning of its business units. Goldman, Sachs &
Co. ("Goldman Sachs") was retained to assist management and the Board of
Directors in this process. By August 1993, the Board of Directors of Providence
Journal had determined that the creation of a stand-alone company to house the
PJC Cable Business, which would probably be widely owned following an initial
public offering, was in the best long-term strategic interest of Providence
Journal. This approach was deemed advisable for a number of business, financial
and operating reasons, including the following:
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. The PJC Cable Business would require expansion on a relatively near-term
basis and would have enhanced operating flexibility.
. Both debt and equity capital would be more easily raised at the lowest
possible cost in a stand-alone cable television company.
. Taking the cable television company public would open up the cable
television company to the public capital markets.
. A separate cable television company would be more likely to attract
strategic investors and would be in a better position to merge with other
companies whose operations are compatible.
. Even if the cable television company were to go public, the newspaper
business could remain in private hands and maintain its traditional
independence.
. A public cable television company would provide a marketable security for
approximately 60% of the value of Providence Journal.
An important ingredient in the anticipated success of the separate cable
television company was an enhanced ability to attract a strategic investor,
particularly a telecommunications company, which would provide capital and
expertise in telephony, digital switching and the handling of a continuous
stream of rapidly-occurring electronic transactions. In this connection,
Providence Journal retained Bear Stearns to concentrate its efforts on finding
such a strategic investor for the new cable television company.
In the fall of 1993, the proposed merger of Bell Atlantic Corporation ("Bell
Atlantic") and Tele-Communications, Inc. ("TCI"), as well as a number of other
announced cable television industry transactions, confirmed Providence
Journal's view that a repositioning of the PJC Cable Business was necessary in
order to remain competitive. The cable television industry was undergoing
significant change due to factors such as technological advances and increased
consumer demand for services. The deployment of fiber-optic cable, advances in
the digitization of information and the expected deployment of new
technologies, such as "on-demand" programming, video games, home shopping and
interactive programming, as well as the opening of telecommunications services
to competition from the cable television industry, required new technical
expertise and substantial capital to build or upgrade physical plant. At the
same time, the adoption of the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") and the regulations subsequently
promulgated thereunder, adversely affected the financial characteristics of the
industry. In response to these factors, Providence Journal's objective was to
position the new cable television company to develop the necessary resources to
grow in the rapidly evolving cable television industry environment.
The effort to find an appropriate partner for the stand-alone cable
television company continued throughout late 1993 and the first several months
of 1994. The break-up of the Bell Atlantic/TCI deal and the promulgation of
increasingly stringent rate regulation by the FCC in early 1994, however,
resulted in a dampening of interest by telecommunications companies in cable
television investments. In addition, the relatively small size of the PJC Cable
Business made it difficult to arrange a suitable transaction with a large
telecommunications company. In an effort to address this problem, Providence
Journal embarked on a series of negotiations with other medium-sized cable
television companies with a view to forming joint ventures controlling enough
cable television subscribers to meet the operating scale requirements of the
telecommunications companies. These negotiations ultimately were not
successful, as the mutual valuations of the respective cable television
companies involved proved problematic.
THE MERGER. In June 1994, the management of Providence Journal decided that
any effort to effect an initial public offering of the cable television company
was not appropriate, and it was decided that a combination of the PJC Cable
Business with a strategic partner should be pursued. Apart from the relatively
adverse public market conditions that existed at the time, the concept of an
initial public offering by a separate company holding the PJC Cable Business
was not pursued because management determined that the PJC Cable Business
standing alone, whether privately or publicly owned, was not large enough to
develop and
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grow successfully in the newly emerging environment surrounding the cable
television industry. Instead, by June 1994, a combination with a larger cable
television operator had emerged as the best strategic course of action. With
the approval of the Board of Directors, Bear Stearns was retained as financial
advisor, and a detailed Confidential Information Memorandum with respect to the
PJC Cable Business was prepared by Bear Stearns and Providence Journal's
management in June and July, 1994. This Confidential Information Memorandum
included a description of various aspects of the PJC Cable Business including
operating strategy, systems and technology, sales and marketing, facilities,
management, financial statements, franchise information and clustering data. At
the same time, Bear Stearns and Providence Journal initiated discussions with
the Kelso Partnerships regarding the purchase by Providence Journal of their
interest in KHC. Providence Journal wanted to acquire 100% ownership of KHC in
order to include the cable television properties owned by KHC within the PJC
Cable Business for combination with potential merger partners. The Confidential
Information Memorandum was distributed in August 1994 to interested parties. In
September 1994, business, financial and legal due diligence was conducted by
potential merger partners and a letter was distributed by Bear Stearns setting
forth the procedures and timetable for submission by potential merger partners
of written indications of interest. Written indications of interest were
received from three cable television companies on October 3, 1994, one of which
was Continental.
With the assistance of Bear Stearns, Providence Journal conducted a detailed
review of the advantages and disadvantages of each of the three proposals. A
special meeting of Providence Journal's Board of Directors was held on Friday,
October 7, 1994, attended by a substantial majority of the Board, senior
executive officers of Providence Journal, representatives of Bear Stearns and
outside counsel for Providence Journal. At the meeting, Providence Journal's
management and Bear Stearns' representatives compared the indications of
interest from the standpoint of their nominal value, likelihood of closing,
certainty that the indicated nominal value would be the actual value received
by stockholders, long-term prospects of the potential merger partner and
relative marketability of the stock of the potential merger partner. One
indication of interest was judged to be inadequate on price and was not
discussed in detail. After review of all facets of the remaining two
indications of interest, the Board of Directors authorized management to
continue its discussions and to select one of the potential merger partners to
negotiate with on an exclusive basis over the weekend. Management determined
that the Continental proposal, which included the highest price, best met the
criteria Providence Journal sought to fulfill: nominal value and certainty that
such nominal value would represent actual value to be received, likelihood of
closing, long-term strength and prospects of the merger partner and
marketability of the securities to be received. Management thereafter
negotiated with Continental throughout the weekend and obtained an increase in
Continental's original indication of interest from $1.37 billion to $1.4
billion. Thereafter, the parties reached agreement on a letter of intent, which
was signed on October 12, 1994. From that point onward, until the failure to
obtain the tax ruling on the Original Providence Journal Transactions, as
discussed below, there was no further negotiation of the overall price to be
paid by Continental. Based on the estimated trading price of Continental Common
Stock at $19.40 per share and the various factors noted below under
"Recommendation of Providence Journal Board of Directors," Providence Journal's
management determined that the transaction should be pursued as agreed on
October 12th. A special meeting of the Board of Directors was held on October
12th at which all Directors were present along with the senior executive
officers of Providence Journal, the head of the PJC Cable Business and his
financial team and representatives of Bear Stearns. Bear Stearns presented a
detailed summary of the proposed transaction and presented various valuation
and financial analyses, as detailed under "Opinion of Financial Advisor to
Providence Journal" below. The Board of Directors then approved in principle
the proposed transaction and, pursuant to the letter of intent, authorized
management to negotiate with Continental exclusively for a thirty-day period on
a definitive merger agreement.
As a result of the parallel discussions conducted with the Kelso Partnerships
commencing in the summer of 1994, on October 25, 1994, Providence Journal
entered into a letter of intent with the Kelso Partnerships to purchase their
interest in KHC for $265 million, including $5 million in transaction fees,
contingent upon closing the proposed transaction with Continental, and this
letter of intent was approved by the Board of Directors at a meeting on October
26, 1994.
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The purchase price of the Kelso Partnerships' interest in KHC represented a
combined purchase price for both KHC's cable television and broadcast
television businesses, net of consolidated debt, expenses related to the Kelso
Buyout and a pro rata share of transaction costs for the Merger and the related
transactions. The portion of the Kelso Buyout purchase price represented by the
King Cable Business was set at an amount equal to the pro rata portion of the
aggregate purchase price Continental agreed to pay for the PJC Cable Business
as a whole (including the King Cable Business) attributable to such assets. The
purchase price of the Kelso Partnerships' interest in KHC also included a
negotiated value for the KHC broadcast television business based on a multiple
of cash flow appropriate to that industry in the opinion of Providence Journal
management. Since both Providence Journal and the Kelso Partnerships had been
closely associated with KHC's cable television and broadcasting businesses for
several years, a relatively simple stock purchase agreement was executed by the
parties on January 18, 1995 after certain regulatory issues with respect to a
transaction not involving Providence Journal had been addressed by the Kelso
Partnerships.
On October 20, 1994 the legal advisors and certain members of management, not
including senior management, of Continental and Providence Journal met in
Providence, Rhode Island to negotiate the more technical aspects of the
proposed merger agreement. Among the matters addressed were the scope of the
representations and warranties, covenants, closing conditions and other terms
and conditions which are customary in such agreements. In addition, a number of
substantive business issues were identified for resolution by senior
management.
On October 26, 1994 the senior management of each company, including Amos B.
Hostetter, Jr., Chairman and Chief Executive Officer of Continental, and
Stephen Hamblett and Trygve Myhren, Chairman and Chief Executive Officer and
President and Chief Operating Officer, respectively, of Providence Journal, met
in Boston, Massachusetts, accompanied by their internal and external financial
and legal advisors. At this meeting, Continental and Providence Journal
discussed a number of issues, including the techniques for structuring the
transaction on a tax-free basis, the rights of the parties to terminate a
merger agreement once executed, the terms of the break-up fee and related
provisions that would be applicable in certain circumstances in the event that
a definitive merger agreement were signed but no merger were consummated,
representation of Providence Journal's stockholders on the Board of Directors
of Continental, ways of ensuring that Continental's stock would provide
Providence Journal's shareholders with a liquid investment, the terms of a
noncompetition agreement applicable to New Providence Journal and the sharing
of certain costs related to the transaction.
On November 9, 1994 the same individuals again met in Boston to continue
their discussions on the above issues. They also devoted substantial attention
to the SEC filings which would be required in order to consummate the
transaction, as well as certain requirements applicable to Providence Journal
concerning the working capital and capital expenditures of the PJC Cable
Business.
By mid-November, negotiation of a merger agreement with Continental was
nearly complete. On November 15, 1994, at a special meeting of the Board of
Directors attended by all members of the Board, Bear Stearns again presented to
the Board of Directors a thorough review of the business and financial aspects
of the proposed transaction with Continental and analysis of the fairness of
the transaction from a financial point of view, as detailed under "Opinion of
Financial Advisor to Providence Journal" below. Bear Stearns gave its oral
opinion (which was subsequently confirmed in writing) that the Original
Providence Journal Transactions in the aggregate were fair, from a financial
point of view, to the stockholders of Providence Journal. Pursuant to the
Board's authorization, Providence Journal entered into a definitive merger
agreement with Continental on November 18, 1994.
REORGANIZATION. Both Continental and Providence Journal desired to
restructure ownership of Providence Journal so that all of the cable television
properties owned by Providence Journal, including the King Cable Business,
would be included in the Merger. Providence Journal and Continental, working
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together with their legal advisors, determined that a complex internal
corporate restructuring, as well as the Kelso Buyout and the incurrence of $755
million in indebtedness, had to be effectuated to accomplish this objective in
a completely tax-free manner.
This restructuring, which was provided for in the Original Providence Journal
Transactions, contemplated the liquidation of KHC into KBC and then the
liquidation of Providence Journal into KBC, such that KBC would remain as the
entity owning all of the PJC Cable Business and would be merged into
Continental. A ruling request was submitted to the Service on January 25, 1995
with respect to this restructuring and was pursued in numerous meetings and
telephone conversations between the legal advisors for Providence Journal and
Continental and the Service until July, 1995 when the Service notified
Providence Journal that the ruling would not be issued. The Service explained
that a Treasury Department study group had initiated review of a broad area of
tax law, which included transactions such as Providence Journal's proposed
restructuring, and that a moratorium had been imposed upon any further Service
rulings in that area until the study group had completed its work.
As a result, the more complex aspects of the Original Providence Journal
Transactions were discarded and replaced with the reorganization now
contemplated, which is limited to the PJC Spin-Off. The Merger and the related
transactions will now be partly taxable, because a tax of approximately $120
million will result from the sale of the King Cable Business to Continental. A
ruling request will be submitted to the Service with respect to the PJC Spin-
Off, receipt of which is a condition to the consummation of the PJC Spin-Off,
the Merger and the related transactions. It is anticipated that this ruling
will be issued, and, if so, the PJC Spin-Off would be tax-free. (See "Certain
Federal Income Tax Considerations" for a description of the requested rulings
and the nature of such rulings.)
In order to address the issues relating to the refusal of the Service to
issue the ruling originally requested and the resulting tax burden,
representatives of Providence Journal and Continental met on July 24, 1995. In
this meeting, Providence Journal and Continental agreed that the amount of
Continental Class A Common Stock to be received by Providence Journal
stockholders would be reduced from $645,000,000, as had been previously agreed,
to $595,000,000 and that Continental would assume New Cable Indebtedness in an
amount of $410,000,000 and pay $405,000,000 to acquire the King Cable Business,
which in the aggregate equaled $815 million, rather than the previously agreed
$755,000,000. In addition, at this meeting, Continental agreed to increase the
amount of Continental Class A Common Stock by $1,069,000 in exchange for
certain additional assets to be acquired by Continental in the Merger. As a
result, the aggregate consideration offered by Continental in connection with
the Merger and the related transactions equals an estimated $1,411,069,000.
RECOMMENDATION OF PROVIDENCE JOURNAL BOARD OF DIRECTORS
At the meeting of the Board of Directors of Providence Journal held on
November 15, 1994, by unanimous vote of Directors, the Providence Journal Board
determined that the Original Merger is fair to, and in the best interests of,
Providence Journal and its stockholders, approved the Original Merger and
resolved to recommend that stockholders of Providence Journal vote FOR approval
and adoption of the Original Merger Agreement and each of the transactions
contemplated thereby.
In reaching its determination, the Providence Journal Board considered the
following factors:
. THE PROVIDENCE JOURNAL BOARD'S FAMILIARITY WITH AND REVIEW OF PROVIDENCE
JOURNAL'S BUSINESS, OPERATIONS, FINANCIAL CONDITION, EARNINGS AND
PROSPECTS. The Providence Journal Board considered the growing capital
requirements of continued participation in the cable television business
in relation to the financial condition and current and probable future
earnings of its various businesses. The Providence Journal Board also
took account of the long-standing conservatism of Providence Journal's
stockholders with regard to the incurrence of large amounts of debt and
their reluctance to support the issuance of shares of capital stock to
the public. In light of these factors, the Providence Journal Board
determined that its cable operations could best be developed by a large
cable television company with greater access to capital.
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. 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 ORIGINAL MERGER MADE
POSSIBLE. In choosing Continental as its merger partner, the Providence
Journal Board considered and viewed favorably the excellent quality and
reputation of Continental's management, the strategic opportunities
resulting from the close clustering of Providence Journal's and
Continental's cable television systems, Continental's solid growth over
an extended period of time, the potential of Continental's developing
foreign operations and Continental's size and related access to capital.
The Providence Journal Board also determined that the PJC Cable
Business, after combining with Continental's cable operations, would be
in a better position to attract strategic telecommunications partners.
In addition, the Providence Journal Board noted the opportunities for
increased profitability of the PJC Cable Business resulting from larger
programming discounts and management staffing efficiencies obtained
through the Original Merger.
. THE VALUE OF THE CONTINENTAL SECURITIES THAT WERE TO BE RECEIVED BY THE
STOCKHOLDERS OF PROVIDENCE JOURNAL IN THE ORIGINAL MERGER. An integral
part of the determination by the Board of Directors that the Original
Merger was in the best interests of, and fair to, Providence Journal's
stockholders was a determination of the value of Continental's shares.
During calendar years 1993 and 1994, all of the limited trading in
shares of Continental Common Stock in which Continental participated as
a buyer or seller was at $19.40 per share, the nominal value offered by
Continental and on which negotiations were based. This was an important
factor considered by the Board in making its determination. Also, as
detailed under "Providence Journal's Reasons for the PJC Spin-Off and
the Merger" above and under "Opinion of Financial Advisor to Providence
Journal" below, the Providence Journal Board received detailed
presentations at several special Board meetings with respect to the
value of the Continental Merger Stock to be received by the stockholders
of Providence Journal. Bear Stearns concluded that the Original
Providence Journal Transactions in the aggregate were fair, from a
financial point of view, to the stockholders of Providence Journal.
During these presentations, members of the Providence Journal Board
posed various questions to the Bear Stearns representatives, and the
ensuing responses and discussions enhanced the Board's understanding of
the Original Merger and related transactions. These presentations were
of critical importance in assisting the Providence Journal Board to
assess such value, since the valuation of the securities of Continental
and Providence Journal, both of which are privately held, required
specialized financial expertise. The Board of Directors was also
provided with certain estimated financial results for Continental
prepared by Continental's management, described under "Opinion of
Financial Advisor to Providence Journal", below.
. OTHER POSSIBLE TRANSACTIONS AVAILABLE TO PROVIDENCE JOURNAL. As
discussed above under "Providence Journal's Reasons for the PJC Spin-Off
and the Merger", the Providence Journal Board carefully reviewed
proposals submitted by three potential merger partners. The Providence
Journal Board concluded that the Continental proposal offered the
highest price and was superior to the second highest proposal with
respect to the likelihood of closing and the long-term prospects of the
potential merger partner.
. THE TERMS OF THE ORIGINAL MERGER. The Providence Journal Board reviewed
with its counsel and with Bear Stearns the provisions of the agreement
setting forth the terms of the Original Merger and determined that its
terms permitted Providence Journal to achieve the tax-free disposition
of the PJC Cable Business for marketable securities in a manner that is
fair to Providence Journal.
The Providence Journal Board of Directors has again reviewed all of the
factors considered with respect to the Original Providence Journal Transactions
and has considered carefully the Opinion rendered by Bear Stearns, as well as
Bear Stearns' presentation to the Board of Directors on November 15, 1994
regarding the Original Providence Journal Transactions, as described below. The
Providence Journal Board has concluded that its favorable recommendation of the
Original Providence Journal Transactions also applies to the Providence Journal
Transactions.
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
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weights to the specific factors considered in making its determinations.
Consequently, the Providence Journal Board did not quantify the assumptions and
results of its analyses in reaching its determination that the Original Merger
was, and the Merger is, fair to, and in the best interests of, Providence
Journal and its stockholders. However, as a general matter, the Providence
Journal Board believed that all of the factors set forth above supported its
determinations.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL UNANIMOUSLY RECOMMENDS THAT
PROVIDENCE JOURNAL STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
PJC SPIN-OFF, FOR THE PROPOSAL TO APPROVE AND ADOPT THE PROVIDENCE JOURNAL
CHARTER AMENDMENT, FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT
AND FOR THE PROPOSAL TO APPROVE AND ADOPT THE CABLE DIVISION SALE BONUS PLAN.
OPINION OF FINANCIAL ADVISOR TO PROVIDENCE JOURNAL
Providence Journal selected Bear Stearns as its financial advisor in
connection with the Providence Journal Transactions and asked Bear Stearns to
render its opinion in connection with the Providence Journal Transactions based
on Bear Stearns' qualifications, expertise and reputation in providing advice
to companies in the media and communications industries as well as its
familiarity with Providence Journal. Bear Stearns is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities and in rendering opinions in connection with
mergers and acquisitions and other purposes.
Bear Stearns has delivered to the Board of Directors of Providence Journal
its Opinion to the effect that, based upon and subject to the various
considerations set forth in such Opinion, as of , 1995, the Providence
Journal Transactions in the aggregate were fair, from a financial point of
view, to the stockholders of Providence Journal. Bear Stearns previously had
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 Original 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, is attached as Annex II 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 Merger Agreement
(including the terms of the Continental Merger Stock), the Contribution and
Assumption Agreement, the Registration Rights Agreement, the stock purchase
agreement with the Kelso Partnerships, the letters of intent or stock purchase
agreements with the holders of the minority interests in the PJC Cable
Subsidiaries, and the related schedules to such agreements; (iii) reviewed
certain audited and unaudited financial statements of Providence Journal,
Colony, Copley/Colony, Colony Cablevision and KHC and certain pro forma
financial information for the PJC Cable Business and New Providence Journal;
(iv) reviewed certain operating and financial information of Providence
Journal, the PJC Cable Business and KHC, including projections for the PJC
Cable Business and KBC, provided to Bear Stearns by the managements of
Providence Journal, the PJC Cable Business and KBC; (v) reviewed Continental's
audited financial statements for the years ended December 31, 1991 through 1994
and its unaudited financial statements for the six months ended June 30, 1995;
(vi) reviewed certain estimated year end financial results for fiscal years
1994 and 1995 for Continental (excluding the effects of the Merger and other
pending acquisitions upon such estimated financial results) provided to Bear
Stearns by Continental's management, and, based on such estimated financial
results and discussions with Continental's management, extrapolated financial
results beyond 1995, which were reviewed by Continental's management; (vii) met
with certain
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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 trading volume of Continental's privately-held common
stock issued or traded in negotiated transactions, as furnished to Bear Stearns
by Continental; (ix) reviewed publicly available financial data and stock
market performance of publicly traded companies engaged in businesses that Bear
Stearns deemed generally comparable to the PJC Cable Business, Continental and
KBC, respectively; (x) reviewed the financial terms of recent acquisitions of
companies Bear Stearns deemed generally comparable to the PJC Cable Business
and KBC; and (xi) conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
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 or estimated 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 or estimates of the PJC Cable Business, KBC and
Continental that were furnished to Bear Stearns, Bear Stearns assumed that such
financial projections or estimates, as the case may be, had been reasonably
prepared by Providence Journal, the PJC Cable Business and Continental,
respectively, on bases reflecting the best currently available estimates and
good faith judgments of the future competitive, operating and regulatory
environments and related financial performance. Bear Stearns also relied,
without independent verification, upon the assessment of the senior managements
of Providence Journal, the PJC Cable Business and Continental regarding the
impact on the PJC Cable Business and Continental, respectively, of recent
actions taken by the FCC and the amount and timing of potential synergies
and/or cost savings to Continental realizable as a result of the Merger. Bear
Stearns, with Providence Journal's approval, assumed that the PJC Spin-Off and
the Merger will qualify as tax-free reorganizations as contemplated by the
Merger Agreement. Bear Stearns also assumed the incurrence of taxes by
Providence Journal in connection with the sale of the King Cable Business to
Continental. 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.
In connection with its Opinion, Bear Stearns confirmed the appropriateness of
its reliance on the financial and valuation analyses used to render its opinion
dated November 15, 1994 by performing procedures to update certain of such
financial and valuation analyses. In addition, Bear Stearns reviewed the
assumptions on which such analyses were based and considered the revised terms
of the Providence Journal Transactions. Under the terms of the original merger
agreement dated November 18, 1994 (the "Original Merger Agreement"),
Continental was to issue to the stockholders of Providence Journal, at
Continental's option, either (i) 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
(ii) 33,247,422 shares of Continental Class A Common Stock having a nominal
value of $645,000,000 (such stock consideration is referred to in the following
analyses as the "Original Continental Merger Stock"), and, under
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either option, assume $755,000,000 of indebtedness (the "Original Cable
Indebtedness"). In addition, the Original Providence Journal Transactions
contemplated an internal corporate restructuring which would have, among other
things, transferred the King Cable Business as part of the PJC Cable Business
to Continental through the merger of a subsidiary of Providence Journal with
and into Continental. Under the Merger Agreement, Continental will not have the
option to issue any Continental Series B Preferred Stock and will issue to
stockholders of Providence Journal 30,725,207 shares of Continental Class A
Common Stock having a nominal value of $596,069,000, purchase the King Cable
Business from KBC for $405,000,000 and assume $410,000,000 of New Cable
Indebtedness. Bear Stearns also considered the taxes that will be incurred by
Providence Journal in connection with the sale of the King Cable Business to
Continental.
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 as of such date.
Bear Stearns analyzed the Original Merger based on the consideration to be
received by Providence Journal stockholders (taking into account both the
Original Continental Merger Stock and the Original 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 Original Providence Journal Transactions.
VALUATION OF CONTINENTAL PROPOSAL. The transactions contemplated by the
Original Merger Agreement included, among other things, (i) the merger of a
subsidiary of Providence Journal, which would have owned all the PJC Cable
Business, with and into Continental in a tax-free reorganization, (ii)
Continental's assumption of the Original Cable Indebtedness, and (iii) the
issuance of the Original Continental Merger Stock. in exchange for all of the
outstanding shares of Providence Journal 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 Original 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 Original 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 Original Continental Merger
Stock on a fully distributed public market trading basis as Continental did not
have any publicly traded equity securities. In performing its valuation
analyses, Bear Stearns estimated the public market value of the Combined
Company's core domestic cable television systems (including both Continental's
existing systems as well as the PJC Cable Business) using a range of enterprise
value to EBITDA multiples of 9.0x to 9.5x based on estimated EBITDA for 1994,
as adjusted for certain expected effects of the Merger, and estimated the value
of Continental's programming investments, international investments, other
telecommunications assets and other assets using a variety of methodologies,
including multiples of EBITDA and subscribers, other publicly available
independent valuations and/or discounted cash flow analyses, as deemed
appropriate by Bear Stearns. As a result of these analyses, Bear Stearns
estimated that the Continental Class A Common Stock had a fully distributed
public market trading value which ranged from $16.50 to $19.40 per share and
the Continental Series B Preferred Stock had a fully distributed public market
trading value of $19.40 per share. Bear Stearns noted that this analysis was
specific to a given point in time and expressed no opinion as to the price or
range of prices at which the shares of Original Continental Merger Stock would
trade subsequent to the consummation of the Merger. Based on Bear Stearns'
estimated public market valuation of the Original Continental Merger Stock
(i.e., the Continental Class A Common Stock and Continental Series B Preferred
Stock), and taking into account the Original Cable Indebtedness to be assumed
by the Combined Company in the Merger and the cash payment expected to be made
by New Providence Journal to Continental to account for the negative Working
Capital of the PJC Cable Business, Bear Stearns estimated that the enterprise
value of the PJC Cable Business under the Continental Proposed Transaction
ranged from $1,306 million to $1,388 million (or $1,291 million to $1,388
million if no shares of Continental Series B Preferred
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Stock were issued). Bear Stearns estimated that the aggregate market value, on
a fully distributed public market trading basis, of the Continental Series B
Preferred Stock to be received by Providence Journal stockholders, if issued,
was approximately $97 million, or $1,142 per share of Providence Journal Common
Stock. Bear Stearns estimated that the aggregate market value, on a fully
distributed public market trading basis, of the Continental Class A Common
Stock to be received by Providence Journal stockholders ranged from $466
million to $548 million (or $548 million to $645 million if no shares of
Continental Series B Preferred Stock were issued), or $5,503 to $6,474 (or
$6,474 to $7,616 if no shares of Continental Series B Preferred Stock were
issued) per share of Providence Journal Common Stock. Bear Stearns noted that
due to the relatively fixed nature of the valuation of the Continental Series B
Preferred Stock versus the wider range of valuation of the Continental Class A
Common Stock, the valuation of the Continental Proposed Transaction varied
based on the form of consideration (i.e., depending on whether or not any
shares of Continental Series B Preferred Stock were issued).
ANALYSIS OF SELECTED PRECEDENT CABLE TELEVISION TRANSACTIONS. Bear Stearns
reviewed and analyzed the publicly available financial terms of five selected
recent merger and acquisition transactions in the cable television industry
which, in Bear Stearns' judgment, were reasonably comparable to the Original
Merger, and compared the financial terms of such transactions to those of the
Original Merger for purposes of this analysis. The five transactions that were
then pending were (i) the acquisition of the cable television assets of The
Times Mirror Company by Cox Cable Communications, Inc. ("Cox"); (ii) the
acquisition of domestic cable television assets of Maclean Hunter Limited from
Rogers Communications by Comcast Corporation ("Comcast"); (iii) the acquisition
of the Wisconsin and Alabama cable television assets of the Crown Media
subsidiary of Hallmark Cards, Inc. by Marcus Cable Co.; (iv) the acquisition of
Wometco Cable (excluding Georgia Cable) by US WEST Inc.; and (v) the
acquisition of TeleCable Corporation by TCI (collectively, the "Precedent CATV
Transactions"). Bear Stearns reviewed the prices to be paid in the Precedent
CATV Transactions and analyzed various operating and financial information and
implied valuation multiples and ratios. Bear Stearns noted that none of the
Precedent CATV Transactions was identical to the Original 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 9.1x to 12.1x with a harmonic mean (the reciprocal of the
arithmetic mean of reciprocals) of 11.0x, as compared to a range of imputed
enterprise value to EBITDA multiples for the PJC Cable Business of 12.1x to
13.0x based on Bear Stearns' estimate of the enterprise value of the PJC Cable
Business under the Continental Proposed Transaction, as described above, and
estimated EBITDA for 1994 for the PJC Cable Business. Bear Stearns noted that
the Continental Proposed Transaction was valued at a more favorable EBITDA
multiple range when compared to the Precedent CATV Transactions' valuation
parameters, and this was one of the primary factors in assessing the fairness,
from a financial point of view, of the Original Providence Journal
Transactions.
ANALYSIS OF SELECTED PUBLICLY TRADED CABLE TELEVISION COMPANIES. Bear Stearns
compared certain operating and financial information for each of the PJC Cable
Business and Continental to certain publicly available operating, financial,
trading and valuation information of seven selected cable television companies,
which, in Bear Stearns' judgment, were comparable to the PJC Cable Business and
Continental for purposes of this analysis. These companies included Adelphia
Communications Corporation, Cablevision Systems Corporation, Century
Communications Corporation, Comcast, Falcon Cable Systems Company, TCA Cable
TV, Inc., and TCI (collectively, the "Comparable Cable Companies"). Bear
Stearns' analysis of the Comparable Cable Companies indicated that (i) the
Comparable Cable Companies were trading in a range of adjusted enterprise value
(enterprise value less the value of non-consolidated cable investments and non-
cable assets) to EBITDA multiples for 1994, as estimated from publicly
available information, of 8.1x to 9.8x with a harmonic mean of 8.6x and (ii)
certain of the Comparable Cable Companies, which, in Bear Stearns'
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judgment, were more comparable to the PJC Cable Business and Continental based
on size, asset quality and markets served (i.e., Comcast and TCI), were trading
in a range of adjusted enterprise value to EBITDA multiples for 1994, as
estimated from publicly available information, of 9.1x to 9.8x with a harmonic
mean of 9.4x. This compared to a range of imputed enterprise value to EBITDA
multiples for the PJC Cable Business of 12.1x to 13.0x based on Bear Stearns'
estimate of the enterprise value of the PJC Cable Business under the
Continental Proposed Transaction, as described above, and estimated EBITDA for
1994 for the PJC Cable Business. Bear Stearns noted that the Continental
Proposed Transaction was valued at a significant premium, in terms of its
imputed EBITDA multiple range, when compared to the Comparable Cable Companies'
trading parameters, and this was one of the primary factors in assessing the
fairness, from a financial point of view, of the Original Providence Journal
Transactions. Bear Stearns further stated that the Comparable Cable Companies'
trading parameters (particularly those of Comcast and TCI) provided an
important benchmark for estimating the public market value of the Original
Continental Merger Stock on a fully distributed basis.
DISCOUNTED CASH FLOW CALCULATIONS. Bear Stearns performed theoretical
discounted cash flow calculations based on the projections provided by the
management of the PJC Cable Business. In performing the discounted cash flow
calculations, Bear Stearns utilized discount rates reflecting the estimated
weighted average cost of capital of the PJC Cable Business (ranging from 10% to
12%) and blended terminal value multiples of EBITDA ranging from 10.2x to
11.7x. Based on these calculations, Bear Stearns derived a theoretical
enterprise value for the PJC Cable Business ranging from $1,000 million to
$1,200 million, as compared to Bear Stearns' estimate of the enterprise value
of the PJC Cable Business under the Continental Proposed Transaction of $1,291
million to $1,388 million. Bear Stearns noted that the aforementioned
discounted cash flow calculations were highly dependent on the projections
provided by the management of the PJC Cable Business and the assumptions made
with regard to terminal value and may be less relevant than other valuation
analyses for purposes of valuing the PJC Cable Business.
RELATIVE CONTRIBUTION ANALYSIS. Bear Stearns reviewed and analyzed the
relative contributions of each of the PJC Cable Business and Continental to the
Combined Company based on certain historical and projected operating and
financial information (based on projections for the PJC Cable Business and
estimated year end financial results for fiscal years 1994 and 1995 for
Continental prepared by their respective managements) including, among other
things, revenue, EBITDA and basic subscribers. Such analysis did not take into
account any potential synergies and/or cost savings that might be realized as a
result of the Merger. Such analysis indicated that the PJC Cable Business would
contribute approximately 19.1%, 17.0% and 21.4% to the Combined Company's
revenue, EBITDA and basic subscribers, respectively, for 1994 on a pro forma
basis. Bear Stearns noted that the PJC Cable Business's percentage of the
Combined Company's estimated enterprise value (i.e., 18.9%) and the fully
diluted percentage of the Combined Company's equity securities to be owned by
Providence Journal stockholders after the Merger (i.e., 18.9%) compared
reasonably and is in line with the aforementioned contribution percentages.
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
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indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. The foregoing summary does not
purport to be a complete description of the analysis performed by Bear Stearns.
As described above, Bear Stearns' opinion and presentation to the Board of
Directors of Providence Journal was one of many factors taken into
consideration by the Board of Directors of Providence Journal in making its
determination to approve the Merger Agreement.
Pursuant to a letter agreement, dated May 20, 1993, and a subsequent
amendment to such letter, dated August 2, 1994, Providence Journal agreed to
pay Bear Stearns (i) an initial cash fee of $100,000; (ii) a quarterly retainer
fee of $75,000; (iii) a fee of $400,000 for rendering its opinion in connection
with the Providence Journal Transactions; and (iv) a transaction fee of
approximately $7,000,000, payable upon the consummation of the Merger, which
will be reduced by the fees paid to date. Providence Journal also has agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel, and to indemnify Bear Stearns and
certain related persons against certain liabilities in connection with the
engagement of Bear Stearns, including certain liabilities under the federal
securities laws.
OTHER INFORMATION PROVIDED
Continental provided to Providence Journal and Bear Stearns certain estimated
year end financial results for fiscal years 1994 and 1995 for Continental
(excluding the effects of the Merger and other pending acquisitions upon such
estimated financial results). Continental's management believes that estimated
year end financial results for fiscal year 1994 were in line with the actual
operating results for such year, and for fiscal year 1995 are in line with
recent historical operating results. No assurances can be made that the
estimated results for fiscal year 1995 will actually be realized. (See
"Recommendation of Providence Journal Board of Directors" and "Opinion of
Financial Advisor to Providence Journal".)
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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 Providence Journal
with and into Continental; (ii) the approval and adoption of the Continental
Recapitalization Amendment to increase the number of authorized shares of
capital stock of Continental from 17,700,000 to 825,000,000, including an
increase in the number of authorized shares of Continental Common Stock from
15,000,000 to 625,000,000, of which 425,000,000 will be shares of Continental
Class A Common Stock (with one vote per share) and 200,000,000 will be shares
of Continental Class B Common Stock (with ten votes per share), and an increase
in the number of authorized shares of Continental Preferred Stock from
2,700,000 to 200,000,000, of which 1,142,858 are currently designated
Continental Series A Preferred Stock; (iii) the election of two Class C
Directors to serve a three-year term; and (iv) the ratification of the
appointment by the Board of Directors of Deloitte & Touche LLP as Continental's
independent public accountants for the current fiscal year ending December 31,
1995. The holders of the Continental Series A Preferred Stock currently vote as
if they had converted their shares into Continental Class B Common Stock
(currently, ten votes per share; after giving effect to the Continental
Recapitalization Amendment and the Continental Stock Split, 250 votes per
share). Such stockholders will also consider and vote upon such other matters
as may properly be brought before the Continental Special Meeting.
THE BOARD OF DIRECTORS OF CONTINENTAL HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE CONTINENTAL RECAPITALIZATION AMENDMENT AND RECOMMENDS A VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, FOR APPROVAL AND ADOPTION OF
THE CONTINENTAL RECAPITALIZATION AMENDMENT AND FOR APPROVAL AND ADOPTION OF
EACH OF THE OTHER PROPOSALS BEING SUBMITTED AT THE CONTINENTAL SPECIAL MEETING.
PROVIDENCE JOURNAL. At the Providence Journal Special Meeting or any
adjournments or postponements thereof, holders of Providence Journal Common
Stock will be asked to approve and adopt the following proposals: (i) the PJC
Spin-Off, (ii) the Merger Agreement, (iii) the Providence Journal Charter
Amendment and (iv) the Cable Division Sale Bonus Plan. Such stockholders will
also consider and vote upon such other matters as may properly be brought
before the Providence Journal Special Meeting.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL HAS UNANIMOUSLY APPROVED THE PJC
SPIN-OFF, THE PROVIDENCE JOURNAL CHARTER AMENDMENT, THE MERGER AGREEMENT AND
THE CABLE DIVISION SALE BONUS PLAN AND RECOMMENDS THAT PROVIDENCE JOURNAL
STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE PJC SPIN-OFF, FOR
THE PROPOSAL TO APPROVE THE PROVIDENCE JOURNAL CHARTER AMENDMENT, FOR THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND FOR THE PROPOSAL TO
APPROVE AND ADOPT THE CABLE DIVISION SALE BONUS PLAN.
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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 August 15, 1995. Only holders of record
of shares of Continental Voting Stock at the close of business on the
Continental Record Date will be entitled to notice of, and to vote at, the
Continental Special Meeting or any adjournments or postponements thereof. As of
the Continental Record Date (adjusting for the Continental Stock Split), there
were 8,685,900 shares of Continental Class A Common Stock, 109,196,050 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 423 holders of
record.
The presence in person or by proxy of shares representing a majority of votes
(693,180,451 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 August 25,
1995. Only holders of record of shares of Providence Journal Common Stock at
the close of business on the Providence Journal Record Date will be entitled to
notice of, and to vote at, the Providence Journal Special Meeting or any
adjournments or postponements thereof. As of the Providence Journal Record
Date, there were 37,864 shares of Providence Journal Class A Common Stock (with
one vote per share) and 46,825 shares of Providence Journal Class B Common
Stock (with four votes per share) outstanding, entitled to vote and held by
approximately 470 holders of record.
The presence in person or by proxy of shares representing a majority of votes
(112,583 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 (693,180,451
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, the Continental Restated Certificate and the Continental By-Laws. The
affirmative vote or action by written consent of 66 2/3% of the votes
(924,240,591 votes, adjusting for the Continental Stock Split) of holders of
the outstanding shares of the Continental Voting Stock, voting together as a
class, and a separate vote or action by written consent of a majority of the
votes (142,857,251 votes, adjusting for the Continental Stock Split) of holders
of the outstanding shares of the Continental Series A Preferred Stock are the
only votes of Continental stockholders required to approve the Continental
Recapitalization Amendment. All of the holders of the Continental Series A
Preferred Stock have executed irrevocable proxies in connection with such
separate class vote on the Continental Recapitalization Amendment; however,
such irrevocable proxies are not sufficient to adopt the vote required to be
taken by all holders of the Continental Voting Stock, voting as a single class.
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.
45
<PAGE>
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 Providence Journal Charter Amendment. The
affirmative vote of a majority of the votes of holders of the outstanding
shares of the Providence Journal Common Stock, voting together as a single
class, is required to approve the Merger and the PJC Spin-Off. No vote of the
stockholders of Providence Journal is required to approve and adopt the Cable
Division Sale Bonus Plan; however, Providence Journal is seeking the approval
of 75% of such votes because failure to obtain such 75% approval could result
in some or all of the payments under the Cable Division Sale Bonus Plan being
non-deductible for federal income tax purposes to Providence Journal and in the
imposition of an excise tax on the recipients of such payments. Abstentions and
broker non-votes are both counted as shares represented in person or by proxy
and entitled to vote for purposes of a quorum. While abstentions are counted in
the universe of shares represented in person or by proxy and entitled to vote
on the Providence Journal Proposals and the other proposals, broker non-votes
are not so counted.
Each proposal shall be voted upon separately by the Providence Journal
stockholders entitled to vote at the Providence Journal Special Meeting;
however, failure of the Providence Journal stockholders to approve any of the
Providence Journal Proposals will result in the abandonment by Providence
Journal of the PJC Spin-Off, the Merger and the related transactions.
SOLICITATION AND VOTING OF PROXIES
CONTINENTAL. Stockholders of record on the Continental Record Date are
entitled to cast their votes, in person or by properly executed proxy, at the
Continental Special Meeting. All shares represented at the Continental Special
Meeting by properly executed proxies received prior to or at the Continental
Special Meeting and not properly revoked will be voted at the Continental
Special Meeting in accordance with the instructions indicated in such proxies.
If no instructions are indicated, such proxies will be voted FOR approval of
the Continental Proposals and the other proposals. The Board of Directors of
Continental does not know of any matters, other than the matters described in
the Continental Notice of Special Meeting attached to this Joint Proxy
Statement-Prospectus, that will come before the Continental Special Meeting.
If a quorum is not present at the time the Continental Special Meeting is
convened, or if for any other reason Continental believes that additional time
should be allowed for the solicitation of proxies or for the satisfaction of
conditions to the Merger or the transactions contemplated thereby, Continental
may adjourn the Continental Special Meeting with a vote of the holders of a
majority of the voting power represented by the Continental Voting Stock
present at such meeting. If Continental proposes to adjourn the Continental
Special Meeting, the persons named in the enclosed proxy card will vote all
shares for which they have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted in the following manner. Proxies may
be revoked by (i) filing with the Secretary of Continental, at or before the
Continental Special Meeting, a written notice of revocation bearing a date
later than the date of the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Continental
at or before the Continental Special Meeting or (iii) attending the Continental
Special Meeting and voting in person (although attendance at the Continental
Special Meeting will not in and of itself constitute revocation of a proxy).
Any written notice revoking a proxy should be sent to Continental Cablevision,
Inc., The Pilot House, Lewis Wharf, Boston, Massachusetts 02110, Attention: P.
Eric Krauss, Vice President and Treasurer.
Proxies are being solicited by and on behalf of the Continental Board of
Directors. All expenses of this solicitation, including the cost of preparing
and mailing this Joint Proxy Statement-Prospectus (except for printing costs,
which will be shared with Providence Journal), will be borne by Continental. In
addition to solicitation by use of the mails, proxies may be solicited by
Directors, officers and employees of Continental in person or by telephone,
telegram or other means of communication. Such Directors, officers and
employees
46
<PAGE>
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of Continental Voting Stock held of record by
such persons, and Continental may reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
PROVIDENCE JOURNAL. Stockholders of record on the Providence Journal Record
Date are entitled to cast their votes, in person or by properly executed proxy,
at the Providence Journal Special Meeting. All shares represented at the
Providence Journal Special Meeting by properly executed proxies received prior
to or at the Providence Journal Special Meeting and not properly revoked will
be voted at the Providence Journal Special Meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted FOR approval of the Providence Journal Proposals and FOR
approval of the Cable Division Sale Bonus Plan. The Board of Directors of
Providence Journal does not know of any matters, other than the matters
described in the Providence Journal Notice of Special Meeting attached to this
Joint Proxy Statement-Prospectus, that will come before the Providence Journal
Special Meeting.
If a quorum is not present at the time the Providence Journal Special Meeting
is convened, or if for any other reason Providence Journal believes that
additional time should be allowed for the solicitation of proxies or for the
satisfaction of conditions to the Merger or the transactions contemplated
thereby, Providence Journal may adjourn the Providence Journal Special Meeting
with a vote of the holders of a majority of the voting power represented by the
Providence Journal Common Stock present at such meeting. If Providence Journal
proposes to adjourn the Providence Journal Special Meeting, the persons named
in the enclosed proxy card will vote all shares for which they have voting
authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted in the following manner. Proxies may
be revoked by (i) filing with the Secretary of Providence Journal, at or before
the Providence Journal Special Meeting, a written notice of revocation bearing
a date later than the date of the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Providence
Journal at or before the Providence Journal Special Meeting or (iii) attending
the Providence Journal Special Meeting and voting in person (although
attendance at the Providence Journal Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy should
be sent to Providence Journal Company, 75 Fountain Street, Providence, Rhode
Island 02902, Attention: Harry Dyson, Secretary.
Proxies are being solicited by and on behalf of the Providence Journal Board
of Directors. All expenses of this solicitation, including the cost of
preparing and mailing this Joint Proxy Statement-Prospectus (except for
printing costs, which will be shared with Continental), will be borne by
Providence Journal. In addition to solicitation by use of the mails, proxies
may be solicited by Directors, officers and employees of Providence Journal in
person or by telephone, telegram or other means of communication. Such
Directors, officers and employees will not be additionally compensated but may
by reimbursed for out-of-pocket expenses in connection with such solicitation.
Arrangements will be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of Providence
Journal Common Stock held of record by such persons, and Providence Journal may
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
OWNERSHIP OF CONTINENTAL SECURITIES
The following table provides information as of August 1, 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
47
<PAGE>
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 August 1, 1995 through the
exercise of an option, conversion feature or similar right. Except as noted
below, each holder has sole voting and investment power with respect to all
shares of Continental Common Stock or Continental Series A Preferred Stock
listed as owned by such person or entity.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PERCENTAGE OF SHARES OF PERCENTAGE
SHARES OF OUTSTANDING CONTINENTAL OF OUTSTANDING
CONTINENTAL SHARES OF PREFERRED SHARES OF
COMMON STOCK(1) CONTINENTAL STOCK(2) CONTINENTAL AGGREGATE
BENEFICIALLY COMMON BENEFICIALLY PREFERRED VOTING
NAME OWNED STOCK OWNED STOCK POWER
---- --------------- ------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Amos B. Hostetter, Jr.(3). 45,272,425 38.40% -- -- 32.66%
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% 20.61
Robert B. Luick(7)........ 229,575 * -- -- *
Henry F. McCance(8)....... 258,125 * -- -- *
Lester Pollack(6)......... 28,571,450 19.51 1,142,858 100.00 20.61
Vincent J. Ryan(9)........ 5,719,825 4.85 -- -- 4.13
William T. Schleyer....... 766,200 * -- -- *
Jeffrey T. Delorme........ 391,525 * -- -- *
Nancy Hawthorne........... 209,325 * -- -- *
Directors and Executive
Officers as a Group
(13 persons)(6).......... 91,373,425 62.39 1,142,858 100.00 65.61
H. Irving Grousbeck(10)... 10,033,000 8.51 -- -- 7.24
Boston Ventures Company
Limited
Partnership III
Boston Ventures Limited
Partnership III(11)..... 3,034,525 2.57 -- -- 2.19
Boston Ventures Limited
Partnership IIIA(11).... 799,825 * -- -- *
Boston Ventures Company
Limited
Partnership IV
Boston Ventures Limited
Partnership IV(11)...... 2,381,725 2.02 -- -- 1.42
Boston Ventures Limited
Partnership IVA(11)..... 1,298,000 1.10 -- -- *
---------- ----- -----
Total as a group....... 7,514,075 6.37 -- -- 5.12
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)................ 18,223,825 13.39 728,953 63.78 13.15
Mellon Bank, N.A., as
Trustee for
First Plaza Group
Trust(12)(13).......... 4,285,725 3.51 171,429 15.00 3.09
The State Board of
Administration of
Florida(12)............. 1,902,100 1.59 76,084 6.66 1.37
Vencap Holdings (1992)
Pte Ltd(12)............. 1,785,700 1.49 71,428 6.25 1.29
Corporate Offshore
Partners, L.P.(12)...... 1,302,675 1.09 52,107 4.56 *
ContCable Co-Investors,
L.P.(12)................ 1,071,425 * 42,857 3.75 *
---------- ----- --------- ------ -----
Total as a group....... 28,571,450 19.51%(14) 1,142,858 100.00% 20.61%
</TABLE>
--------
*Less than 1% of class.
48
<PAGE>
(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 August 1,
1995 (before giving effect to the Continental Recapitalization Amendment
and the Continental Stock Split) can be obtained by dividing the number
of shares of Continental Common Stock listed in the table as being owned
by such person by 25. The Continental Stock Split will not affect the
percentage of outstanding shares of Continental Common Stock, the voting
power or the number or percentage of outstanding shares of Continental
Series A Preferred Stock. The Continental Common Stock includes
Continental Class A Common Stock, which has one vote per share, and
Continental Class B Common Stock, which has ten votes per share. As the
number of shares of Continental Class A Common Stock represents 7.37% of
the Continental Common Stock and less than 1% of the voting power of the
Continental Common Stock, the Continental Class A Common Stock has not
been shown as a separate class of stock, but rather Continental Common
Stock has been treated as one class. Every greater than 5% beneficial
owner of Continental Class B Common Stock would be a greater than 5%
beneficial owner of Continental Class A Common Stock.
(2) Under the rules for determining beneficial ownership promulgated by the
Commission, each holder of Continental Series A Preferred Stock is deemed
to own currently that number of shares of Continental Common Stock into
which the Continental Series A Preferred Stock is convertible. The
Continental Series A Preferred Stock is presently convertible into
Continental Common Stock on a one-for-one basis and will be convertible
into Continental Common Stock on a 25-for-one basis following the
Continental Stock Split. The table therefore shows the number of shares
of Continental Series A Preferred Stock owned by each holder in the
column for the Continental Series A Preferred Stock and includes that
number of shares in the column for Continental Common Stock into which
the Continental Series A Preferred Stock would be convertible after
giving effect to the Continental Recapitalization Amendment and the
Continental Stock Split.
(3) Mr. Hostetter has shared voting and investment power as to 42,843,550
shares of Continental Common Stock held by the Trust of which Messrs.
Hostetter and Neher are the sole trustees. Mr. Hostetter has shared
voting and investment power as to a further 446,400 shares of Continental
Common Stock; as to 223,200 of such shares, he disclaims beneficial
ownership. Additionally, Mr. Hostetter disclaims beneficial ownership of
550,000 shares of Continental Common Stock with respect to which his wife
acts as a trustee with Mr. Neher and 38,950 shares of Continental Common
Stock held by him as custodian for four minor children. The shares listed
in the table as being beneficially owned by Mr. Hostetter include those
as to which Mr. Hostetter has shared voting and/or investment power and
those as to which Mr. Hostetter disclaims beneficial ownership. Mr.
Hostetter's address is The Pilot House, Lewis Wharf, Boston,
Massachusetts 02110.
(4) Mr. Neher has shared voting and investment power as to 550,000 shares of
Continental Common Stock with respect to which he acts as a trustee with
Mrs. Hostetter, and as to 42,843,550 shares of Continental Common Stock
with respect to which he acts as a trustee with Mr. Hostetter. Mr. Neher
disclaims beneficial ownership as to such shares, and the table does not
indicate such shares as being beneficially owned by Mr. Neher. (See
footnote (3) above.) Additionally, Mr. Neher disclaims beneficial
ownership as to 165,000 shares with respect to which he acts as trustee
and 55,000 shares held by his wife as custodian for their children, which
are included in the table as being beneficially owned by Mr. Neher.
(5) All the shares listed in the table as beneficially owned by Mr. Coppedge
are held by the four limited partnerships described in footnote (11)
below. Mr. Coppedge, a partner of each of the general partners of the
limited partnerships and a Director of Boston Ventures Management, Inc.,
which manages the investments of the four limited partnerships, has
shared voting and investment power as to these shares. Mr. Coppedge is
entitled to beneficial ownership of an indeterminate number of these
shares and disclaims beneficial ownership as to the balance. Mr.
Coppedge's address is c/o Boston Ventures Management, Inc., 21 Custom
House Street, Boston, Massachusetts 02110.
(6) All shares listed in the table as being beneficially owned by Mr. Pollack
and Mr. Kagan are beneficially owned by Corporate Advisors, L.P.
("Corporate Advisors"). (See footnote (12) below.) Mr. Pollack may be
deemed to have shared voting and investment power over such shares as the
Chairman and Treasurer and as a Director of LFCP Corp., and Mr. Kagan may
be deemed to have shared voting and investment power over such shares as
the President of LFCP Corp. LFCP Corp. is the sole general partner of
Corporate Advisors and a wholly owned subsidiary of Lazard. Mr. Pollack
and Mr. Kagan are both Managing Directors of Lazard. Mr. Pollack's and
Mr. Kagan's address is c/o Corporate Advisors, L.P., One Rockefeller
Plaza, New York, New York 10020. Mr. Pollack and Mr. Kagan disclaim
beneficial ownership of all such shares.
(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,800 shares owned by Mr. Luick's daughter and 37,500 shares
with respect to which she acts as trustee for Mr. Luick's grandchildren.
Mr. Luick disclaims beneficial ownership of these shares.
(8) The shares listed in the table as being beneficially owned by Mr. McCance
include 225,000 shares held by Greylock Limited Partnership, of which Mr.
McCance is a general partner. Mr. McCance has shared voting and
investment power as to these shares, is entitled to beneficial ownership
of an indeterminate number of these shares and disclaims beneficial
ownership as to the balance. Of the remaining shares, Mr. McCance
disclaims beneficial ownership as to 12,500 shares with respect to which
his wife acts as trustee for his daughter and 12,500 shares held by his
daughter.
(9) Mr. Ryan holds 136,250 shares of Continental Common Stock. The remaining
shares of Continental Common Stock listed in the table as being
beneficially owned by Mr. Ryan are held by Schooner Capital Corporation
(and its subsidiaries), over which Mr. Ryan has shared voting and
investment power as the Chairman and principal stockholder.
(10) All of these shares are subject to the Stock Liquidation Agreement
pursuant to which Mr. Grousbeck must sell such shares to Continental in
either 1998 or 1999. (See "Description of Continental--Management's
Discussion and Analysis of Financial
49
<PAGE>
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) Mellon Bank, N.A. acts as the trustee for FPGT, a trust under and for the
benefit of certain employee benefit plans of General Motors Corporation
and its subsidiaries. The shares listed in the table may be deemed to be
beneficially owned by General Motors Investment Management Corporation
("GMIMC"), a wholly owned subsidiary of General Motors Corporation.
GMIMC's principal business is providing investment advice and investment
management services with respect to the assets of certain employee
benefit plans of General Motors Corporation and its subsidiaries and with
respect to the assets of certain direct and indirect subsidiaries of
General Motors Corporation and associated entities. GMIMC is serving as
FPGT's investment manager with respect to these shares, and, in that
capacity, it has the sole power to direct Mellon Bank, N.A. as to the
voting and disposition of these shares. Because of its limited role as
trustee, Mellon Bank, N.A. disclaims beneficial ownership of these
shares. Pursuant to the Co-Investment Agreement, FPGT is obligated,
subject to its fiduciary duties under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (i) to transfer shares held
by it only in a transaction in which the other parties to the Co-
Investment Agreement participate on a pro rata basis and (ii) to exercise
all voting and other rights with respect to such shares in the same
manner as is done by Corporate Advisors on behalf of Corporate Partners
and Corporate Offshore Partners.
(14) The percentage ownership for the group assumes the conversion of shares
of Continental Series A Preferred Stock into Continental Common Stock by
all members of the group. The percentage ownership for each individual
member of the group assumes conversion by only that stockholder.
OWNERSHIP OF PROVIDENCE JOURNAL SECURITIES
The following table sets forth information as of August 1, 1995 with respect
to the shares of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock beneficially owned by (i) each person known by
Providence Journal to own beneficially more than 5% of either class of
Providence Journal Common Stock; (ii) each Director of Providence Journal;
(iii) each executive officer required to be identified in the Summary
Compensation Table of Providence Journal and (iv) all Directors and executive
officers of Providence Journal as a group. The number of shares beneficially
owned by each Director or executive officer is determined according to rules
of the Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power. As a consequence, several persons may
be deemed to be the "beneficial owners" of the same shares. Except as noted
below, each holder has sole voting and investment power with respect to shares
of Providence Journal Class A Common Stock and/or Providence Journal Class B
Common Stock listed as owned by such person or entity. When a person is a "co-
trustee" or one of a number of Directors of a corporation that owns shares of
Providence Journal Common Stock 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.
50
<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>
Rhode Island Hospital
Trust National
Bank(1)............... 9,392 24.8% 12,886 27.5% 27.1%
One Hospital Trust
Tower
Providence, RI 02903
Fiduciary Trust Company
International (2)..... 2,494 6.6% 3,124 6.7% 6.7%
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% 5.1%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
Murray S. Danforth, III
(4)................... 2,428 6.4% 2,308 4.9% 5.2%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
Esther E. M. Mauran
(5)................... 2,660 7.0% 2,402 5.1% 5.4%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
Frank Mauran (6)....... 4,414 11.7% 4,700 10.0% 10.3%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
Pauline C. Metcalf (7). 3,020 8.0% 2,839 6.0% 6.4%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
Jane P. Watkins (8).... 2,353 6.2% 2,476 5.3% 5.4%
c/o Manasett
Corporation
127 Dorrance Street
Providence, RI 02903
<CAPTION>
NAME OF DIRECTOR/
EXECUTIVE OFFICER (9)
---------------------
<S> <C> <C> <C> <C> <C>
Stephen Hamblett....... 156 0.4% 148 0.3% 0.3%
Trygve E. Myhren....... 3 0% -- -- 0%
F. Remington Ballou.... 24 0.1% 24 0.1% 0.1%
Henry P. Becton........ 1 0% -- -- 0%
Fanchon M. Burnham
(10).................. 358 0.9% 376 0.8% 0.8%
Peter B. Freeman....... 300 0.8% 400 0.9% 0.8%
Benjamin P. Harris,
III................... 30 0.1% 48 0.1% 0.1%
John W. Rosenblum...... 1 0% -- -- 0%
Henry D. Sharpe, Jr.
(11).................. 4 0% -- -- 0%
W. Nicholas Thorndike
(12).................. 5,016 13.2% 5,400 11.5% 11.8%
John W. Wall........... 38 0.1% 72 0.2% 0.1%
Patrick R. Wilmerding.. 550 1.5% 300 0.6% 0.8%
James F. Stack......... 2 0% -- -- 0%
John A. Bowers......... 1 0% -- -- --
Jack C. Clifford....... -- -- -- -- --
Directors and Executive
Officers as a Group
(21 Persons).......... 6,610 17.5% 6,704 14.3% 14.8%
</TABLE>
51
<PAGE>
--------
(1) Rhode Island Hospital Trust National Bank ("Hospital Trust"), as a
fiduciary, possesses shared or sole voting and investment power under a
number of wills, trusts and agency arrangements. A substantial majority
of the shares so held are reflected elsewhere in this table, and include
some of the shares reported as beneficially owned by Helen D. Buchanan,
Frank Mauran, 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 power.
(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, the husband of Esther E. M. Mauran, owns 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 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 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 Unit Plan and rights to acquire
shares under Providence Journal's Restricted Stock Unit Plan.
(10) Fanchon M. Burnham owns 109 shares of Providence Journal Class A Common
Stock and 147 shares of Providence Journal Class B Common Stock. She
serves as a co-trustee of trusts for her brother, which hold 211 shares
of Providence Journal Class A Common Stock and 189 shares of Providence
Journal Class B Common Stock. In addition, Mrs. Burnham's children own a
total of 38 shares of Providence Journal Class A Common Stock and 40
shares of Providence Journal Class B Common Stock.
(11) In addition to the shares shown in the table, the shares indicated as
beneficially owned by Fiduciary Trust Company International are held by
trusts for the benefit of Mr. Sharpe and members of his family.
(12) W. Nicholas Thorndike owns 134 shares of Providence Journal Class A
Common Stock and 108 shares of Providence Journal Class B Common Stock.
He holds 29 shares of Providence Journal Class A Common Stock and 44
shares of Providence Journal Class B Common Stock as sole custodian for a
member of another family. He is a co-trustee of several trusts for the
benefit of members of another family holding 2,482 shares of Providence
Journal Class A Common Stock and 3,156 shares of Providence Journal Class
B Common Stock. Mr. Thorndike is one of the Directors of Southland
Communications, Inc., which owns the shares indicated in the foregoing
table.
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PRE-MERGER TRANSACTIONS
Prior to and as a condition to the Merger, certain transactions must be
consummated.
NEW INDEBTEDNESS
Prior to the PJC Spin-Off, Providence Journal or one or more of the PJC Cable
Subsidiaries will incur the New Cable Indebtedness in a minimum principal
amount of $410 million. (See "Description of Continental Indebtedness--1995
Credit Facility" for a description of a credit facility to be extended to
subsidiaries of Continental, which will be used, in part, to provide the $410
million of New Cable Indebtedness to be incurred by Providence Journal and the
$405 million for the King Cable Purchase.) Providence Journal anticipates that
the proceeds of the New Cable Indebtedness, together with the $405 million to
be provided by Continental for the King Cable Purchase, will be used as
follows: approximately $301 million will be applied to discharge all existing
indebtedness of Providence Journal, approximately $282 million will be applied
to discharge all existing indebtedness of KBC, approximately $265 million
(including $5 million in transaction fees) will be used to consummate the Kelso
Buyout, approximately $120 million will be used to pay taxes resulting from the
King Cable Purchase, and approximately $122 million will be used to purchase
minority interests in certain PJC Cable Subsidiaries not presently wholly owned
by Providence Journal and to pay costs associated with the Merger and certain
deferred compensation. (See "The Merger--General Provisions--Share Exchange".)
In addition, New Providence Journal will incur the NPJ Indebtedness in the
amount of approximately $275 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.
KING CABLE PURCHASE
Immediately prior to the Kelso Buyout and the PJC Spin-Off, pursuant to the
terms of the Merger Agreement, Continental will purchase from KBC the King
Cable Business for a cash purchase price of $405 million. In connection with
and as part of the King Cable Purchase, New Providence Journal will assume and
agree to hold Continental harmless from all liabilities of KBC (including,
without limitation, federal and state income taxes payable as a result of the
King Cable Purchase). (See "The PJC Spin-Off" for a description of the
liabilities to be assumed by New Providence Journal in connection with the King
Cable Purchase.)
KELSO BUYOUT
The Kelso Partnerships presently own, or hold a warrant providing the Kelso
Partnerships with a right to acquire, 50% of the capital stock of KHC, which in
turn owns and controls 100% of the capital stock of KBC. Providence Journal
will use $265 million ($260 million of which is for the purchase price and $5
million of which is to cover transaction fees) of the proceeds of the New Cable
Indebtedness and the NPJ Indebtedness to consummate the Kelso Buyout. Following
the Kelso Buyout, KHC will be a wholly owned subsidiary of Providence Journal.
The purchase price of the Kelso Partnerships' interest in KHC represents a
combined purchase price for both KHC's cable television and broadcast
television businesses, net of consolidated debt, expenses related to the Kelso
Buyout and a pro rata share of transaction costs for the Merger and the related
transactions. The portion of the Kelso Buyout purchase price represented by the
King Cable Business is equal to the pro rata portion of the aggregate purchase
price Continental agreed to pay for the PJC Cable Business as a whole
(including the King Cable Business) attributable to such assets. The purchase
price of the Kelso Partnerships' interest in KHC also includes a negotiated
value for the KHC broadcast television business based on a multiple of cash
flow appropriate to that industry in the opinion of Providence Journal
management.
PJC SPIN-OFF
New Providence Journal, which currently is a wholly owned subsidiary of
Providence Journal, was recently organized for purposes of the transactions
contemplated by the Merger Agreement. Before the PJC
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Spin-Off, New Providence Journal will own no assets and will not conduct any
business activities other than in connection with the transactions contemplated
by the Merger Agreement. Immediately after the King Cable Purchase and the
Kelso Buyout and prior to the Merger (pursuant to the Contribution), Providence
Journal will transfer to New Providence Journal as a capital contribution all
of Providence Journal's right, title and interest in the PJC Non-Cable Business
and all other assets of Providence Journal, but excluding (i) the Providence
Journal Cable Business, (ii) sufficient cash to pay Providence Journal's
expenses relating to the transactions contemplated by the Merger Agreement and
(iii) Providence Journal's rights under the Contribution and Assumption
Agreement. In exchange, New Providence Journal will issue to Providence Journal
(a) a number of shares of New Providence Journal Class A Common Stock equal to
the number of shares of Providence Journal 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 Providence Journal Class B Common Stock
then outstanding.
New Providence Journal will assume and hold Providence Journal and its
subsidiaries (and Continental following the Merger), officers and Directors
harmless from all debts, liabilities and all other obligations of Providence
Journal, excluding the New Cable Indebtedness, substantially all of the
liabilities associated with the PJC Cable Business and Providence Journal's
obligations 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 on the basis of a sale on a private
market, going concern basis, free and clear of all liabilities) of less than:
(x) for the period to and including the first anniversary of the Effective
Time, $200,000,000, (y) for the period from the first anniversary of the
Effective Time to and including the second anniversary of the Effective Time,
$150,000,000 and (z) for the period from the second anniversary of the
Effective Time to and including the fourth anniversary of the Effective Time,
$50,000,000, provided, however, that New Providence Journal may proceed with
any transaction that would otherwise be prohibited by the foregoing if it
provides security to Continental in form and amount reasonably acceptable to
Continental.
As part of the Contribution, Providence Journal will agree to hold New
Providence Journal and its subsidiaries, officers and Directors harmless from
substantially all debts, liabilities or obligations of Providence Journal, 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 (including,
without limitation, substantially all tax liabilities which arise in connection
with the King Cable Purchase), 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 and the liabilities under the Cable Division Sale
Bonus Plan. (See "The Merger--Certain Employee Matters".)
Immediately after the Contribution, Providence Journal will distribute one
share of New Providence Journal Class A Common Stock to the holder of each
share of Providence Journal Class A Common Stock and one share of New
Providence Journal Class B Common Stock to the holder of each share of
Providence Journal 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 PJC Spin-Off will own the same number and class
of shares in New Providence Journal as such holder owned in Providence Journal.
The Contribution, the Distribution and the assumption of liabilities by New
Providence Journal and Providence Journal in connection with the Contribution
collectively constitute the PJC Spin-Off. The terms of the PJC
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Spin-Off are set forth in the Merger Agreement and, in addition, are to be
governed by the Contribution and Assumption Agreement, a copy of which is
attached as Exhibit C 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 and Distributions to Stockholders".
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) the assets of Colony
Cablevision shall be contributed to Colony, a wholly owned subsidiary of
Providence Journal, and (ii) Westerly Cable Television, Inc., a wholly owned
subsidiary of Colony ("Westerly"), shall be merged with and into Colony. In the
second alternative, (i) the assets of Colony Cablevision will be retained by
Providence Journal, (ii) Westerly shall be merged with and into Colony, and
(iii) either the cable assets of Westerly shall be distributed to Providence
Journal, or Colony will be merged with and into Providence Journal. Each of
these intercompany transactions is intended to be tax-free to Providence
Journal and its stockholders, and consummation of one of these alternatives is
necessary for the PJC Spin-Off to be tax-free. (See "Certain Federal Income Tax
Considerations" for a description of the ruling requested from the Service
relating to the first alternative.) Neither of these internal intercompany
transactions will adversely affect Providence Journal or its stockholders.
THE MERGER
The following description of certain provisions of the Merger Agreement and
the exhibits and schedules thereto is only a summary and does not purport to be
complete. This description is qualified in its entirety by reference to the
complete text of the Merger Agreement, a conformed copy of which is attached
hereto as Annex I and incorporated herein by reference.
GENERAL PROVISIONS
SHARE EXCHANGE. The Merger Agreement provides that, subject to the requisite
adoption and approval by Continental's stockholders of the Merger and the
Continental Recapitalization Amendment,the requisite adoption and approval by
Providence Journal's stockholders of the PJC Spin-Off, the Providence Journal
Charter Amendment, the Merger and the King Cable Purchase and the satisfaction
or waiver of certain other conditions, at the Effective Time, Providence
Journal (which, at the time of the Merger, will own only the Providence Journal
Cable Business) will be merged with and into Continental, the separate
existence of Providence Journal will cease, and Continental will continue as
the surviving corporation. As a result of the Merger and the King Cable
Purchase, Continental will acquire the PJC Cable Business and will assume the
New Cable Indebtedness and substantially all of the liabilities of Providence
Journal relating to the PJC Cable Business, and shares of Providence Journal
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 Providence Journal issued and
outstanding immediately prior to the Merger and owned directly or
indirectly by Providence Journal 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
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<PAGE>
(iii) Each share of Providence Journal 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 determined in accordance with the following formula:
<TABLE>
<S> <C>
Class A Common Stock
Formula: Maximum Amount
------------------------------------
$19.40 x PJC Outstanding Shares
"Maximum Amount"........ means $596,069,000, 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
Providence Journal does not, directly or
indirectly, wholly own such PJC Cable Subsidiary
at the Effective Time:
<CAPTION>
SUBSIDIARY REDUCTION
---------- -----------
<S> <C> <C>
Copley/Colony, Inc. $42,610,000
Dynamic Partnership $11,300,000
"PJC Outstanding means the shares of Providence Journal Common
Shares"................ Stock outstanding immediately prior to the Merger
(other than shares owned directly or indirectly by
Providence Journal as treasury stock, by New
Providence Journal or by any of their respective
subsidiaries).
</TABLE>
As of the date of this Joint Proxy Statement-Prospectus, Providence Journal
owns, directly or indirectly, 50% of Copley/Colony and 89.8% of the Dynamic
Partnership. Providence Journal anticipates that, as of the Effective Time, it
will have purchased the third-party interest in Copley/Colony at which time it
will be wholly owned by Providence Journal, although there can be no
assurances in this regard. Providence Journal has signed a purchase agreement
for the 50% interest in Copley/Colony and closed the purchase in escrow,
pending receipt of franchise authority approvals for the transfer. The limited
partner in the Dynamic Partnership and Providence Journal are currently in
litigation concerning the transactions contemplated by the Merger Agreement.
Depending on the outcome of this litigation, the amount of the New Cable
Indebtedness may be reduced. (See "Description of Providence Journal Cable
Television Business--Legal Proceedings".) The value derived from the
Continental Merger Stock to be received by the Providence Journal stockholders
is the same as the values assigned to the minority interests in the PJC Cable
Subsidiaries discussed above, based on a multiple of cash flow analysis. No
affiliates of Providence Journal or Continental owned or own minority
interests in the above-discussed PJC Cable Subsidiaries.
The holder of any shares of Providence Journal Common Stock outstanding
immediately prior to the Merger that has validly exercised such holder's
dissenters' rights under applicable Rhode Island Law shall not be entitled to
receive, in respect of the shares of Providence Journal Common Stock as to
which such holder has validly exercised dissenters' rights, shares of
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 the
New Providence Journal Common Stock such holder would have been entitled to
had such holder not exercised dissenters' rights. Providence Journal,
Continental and New Providence Journal have reached certain agreements
relating to any such exercise of dissenters' rights, including Continental's
agreement, as the surviving corporation of the Merger, to pay any amount
payable to any such stockholder who becomes entitled under 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
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all such payments. After New Providence Journal has so reimbursed Continental,
any Continental Merger Stock that would have been issued to the stockholder
receiving payment from Continental shall be issued to New Providence Journal.
(See "Rights of Dissenting Stockholders--Providence Journal" for further
information concerning Providence Journal's stockholders' rights to dissent,
including a discussion of the mechanics of perfecting such rights.)
The Merger Agreement provides that no fractional shares of Continental Merger
Stock will be issued in connection with the Merger. In lieu of any such
fractional interests, each holder of Providence Journal 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 Merger Stock, to which such holder would otherwise be entitled
(after taking into account all shares of Continental Merger 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 30,725,207 shares of Continental Class A
Common 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 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.
RESTRICTIONS ON TRANSFER OF CONTINENTAL MERGER STOCK. As more fully described
below, in order to protect the tax-free nature of the PJC Spin-Off and the
Merger, the Continental Merger Stock, until the first anniversary of the
Effective Time, will be subject to the Transfer Restrictions, which will
prohibit all "Transfers" (defined below) of Continental Merger Stock by former
Providence Journal stockholders receiving such Continental Merger Stock in the
Merger, except for "Permitted Transfers" to "Permitted Transferees" (both of
which terms are defined below) of the economic owner of such shares of
Continental Merger Stock (each a "Restricted Holder"). Any purported transfer
of the economic, record or beneficial ownership of shares of Continental Merger
Stock not permitted by the Continental By-Laws will be void and have no legal
effect. The following description of the Transfer Restrictions 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 Article XIII of the
Continental By-Laws (in which the Transfer Restrictions are set forth), a copy
of which is attached as Exhibit A to the Merger Agreement attached hereto as
Annex I and incorporated herein by reference.
A "Transfer" includes, but is not limited to, any indirect or direct
transfer, offer to sell, sale, assignment, grant of an option to acquire,
pledge, or other disposition.
A "Permitted Transfer" is a transfer not for any value or consideration,
including but not limited to, a transfer by gift, bequest, pursuant to the
terms of a trust or the laws of descent and distribution, or by operation of
law.
A "Permitted Transferee" of a Restricted Holder who is an individual is
generally defined in the By-Laws as:
(i) such Restricted Holder's spouse or former spouse, any lineal
descendant of a grandparent of such Restricted Holder or a grandparent of
the spouse or former spouse of such Restricted Holder, including in both
cases, adopted children, and any spouse or former spouse of such lineal
descendants (said descendants and their spouses and former spouses,
together with the spouse and former spouses of such Restricted Holder and
the children of such spouse or former spouse being referred to as such
Restricted Holder's "family members");
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<PAGE>
(ii) a voting trust where the minimum number of the trustees whose
approval is necessary to direct the voting or disposition of shares of
capital stock held by such entity consists of such Restricted Holder, his
family members, or executive officers of Continental or its wholly owned
subsidiaries;
(iii) a trust (other than a voting trust) solely for the benefit of such
Restricted Holder, his family members or the corporations or partnerships
described below;
(iv) a partnership or corporation, a majority of the beneficial ownership
of which, is held by such Restricted Holder or one or more of his Permitted
Transferees;
(v) the estate of such deceased, bankrupt or insolvent Restricted Holder;
and
(vi) a corporation, trust, partnership or financial institution which
shall hold any shares of Continental Merger Stock in a custodial or nominee
arrangement.
Shares of Continental Merger Stock transferred after the Effective Time to a
partnership or corporation by a Restricted Holder may be transferred to the
person who transferred such shares to such partnership or corporation or to
Permitted Transferees of such transferor. Shares of Continental Merger Stock
transferred after the Effective Time to a voting trust or any other trust other
than an irrevocable trust may be transferred to the person who transferred
shares to such trust and such Restricted Holder's Permitted Transferees. Shares
of the Continental Merger Stock transferred after the Effective Time to an
irrevocable trust (other than a voting trust) may be transferred to the
beneficiaries of the principal of such trust.
Shares of Continental Merger Stock owned by a corporation or a limited
liability company as a Restricted Holder may be transferred only to any person
with economic ownership of any of the outstanding shares of such corporation or
limited liability company entitled to vote generally for the election of
directors of such corporation or limited liability company or any entity which
is more than 90% owned by such corporation or limited liability company. Shares
of Continental Merger Stock owned by a partnership as a Restricted Holder may
be transferred only to the partners of such partnership at the Effective Time
and Permitted Transferees of such partners. Shares of Continental Merger Stock
owned by a revocable trust as a Restricted Holder may be transferred to the
settlor of such trust, the Permitted Transferees of such settlor, the
beneficiaries of such trust at the Effective Time and the Permitted Transferees
of such beneficiaries. Shares of Continental Merger Stock owned by an
irrevocable trust (other than a voting trust) as a Restricted Holder may be
transferred to the beneficiaries of the principal of such trust. In the case of
an entity holding shares of Continental Merger Stock as a nominee, the shares
may be transferred to the Permitted Transferees of the beneficial owner of such
shares.
It will be permissible to pledge shares of Continental Merger Stock to secure
loans that are recourse to the Restricted Holder, provided that such shares are
not transferred into or registered in the name of the pledgee and that upon
foreclosure of the pledge, the pledgee may transfer the shares of Continental
Merger Stock only to a Permitted Transferee of the pledgor.
The Transfer Restrictions, by their own terms, automatically expire on the
first anniversary of the Effective Time. Each certificate representing shares
of Continental Merger Stock must bear a legend indicating that the shares
represented by such certificates are subject to the Transfer Restrictions.
RESTRICTIONS ON TRANSFER OF NEW PROVIDENCE JOURNAL COMMON STOCK. The shares
of New Providence Journal Common Stock received by Providence Journal
stockholders pursuant to the PJC Spin-Off, until the first anniversary of the
Effective Time, will be subject to the NPJ Transfer Restrictions that are
identical to those imposed on the Continental Merger Stock described above. A
copy of Section 11.03(b) of the New Providence Journal By-Laws (in which the
NPJ Transfer Restrictions are set forth) is attached as Exhibit B to the Merger
Agreement attached hereto as Annex I and is incorporated herein by reference.
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<PAGE>
For a description of the method of delivery of Continental Merger Stock and
shares of New Providence Journal Common Stock to be issued in the PJC Spin-Off,
see "Payments and Distributions to Stockholders". PROVIDENCE JOURNAL
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL.
WORKING CAPITAL AND CAPITAL EXPENDITURE ADJUSTMENTS. Immediately prior to the
Effective Time and after giving effect to the PJC Spin-Off, Providence Journal
will deliver to Continental a schedule setting forth Providence Journal's best
estimate of the Working Capital of the PJC Cable Subsidiaries as of the
Effective Time. If such schedule indicates that such Working Capital is greater
than zero, Continental shall pay the excess to New Providence Journal in
immediately available funds; if the schedule indicates that such Working
Capital is less than zero, New Providence Journal shall pay the difference to
Continental in immediately available funds. Within 90 days after the Effective
Time, Continental shall deliver to New Providence Journal its determination of
the Working Capital as of the Effective Time and after giving effect to the PJC
Spin-Off. Within 10 days thereafter (or within 10 days of the resolution of any
dispute regarding such determination, which dispute, if not resolved by
Continental and New Providence Journal, will be resolved by an independent
certified public accounting firm mutually acceptable to Continental and New
Providence Journal, the decision of which shall be final and binding on
Continental and New Providence Journal), Continental shall pay to New
Providence Journal, or New Providence Journal shall pay to Continental, as the
case may be, in immediately available funds, any additional payment to which
such party would have been entitled at the Effective Time based on the final
determination of Working Capital. Based upon the financial statements of
Providence Journal Cable as of June 30, 1995, the Working Capital deficit is
estimated to be approximately $16,000,000 as of such date. There can be no
assurances that the actual Working Capital adjustment will equal or approximate
this amount. In addition to the Working Capital adjustment, the Merger
Agreement requires that Providence Journal and the PJC Cable Subsidiaries
expend a stated amount per month on capital improvements to the cable systems
of Providence Journal and the PJC Cable Subsidiaries. Failure to meet such
capital expenditure requirements will result in a Capital Expenditure
Adjustment at Closing, which will be paid by Providence Journal to Continental.
Providence Journal currently estimates that the Capital Expenditure Adjustment
will be approximately $12,000,000. There can, however, be no assurances that
the actual Capital Expenditure Adjustment will equal or approximate this
amount.
CERTIFICATE OF INCORPORATION AND BY-LAWS; DIRECTORS. The Merger Agreement
provides that the Continental Restated Certificate and the Continental By-Laws,
each as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and By-Laws of the surviving corporation. In
addition, the Directors of Continental immediately prior to the Effective Time
and Messrs. Stephen Hamblett and Trygve Myhren (or such replacement nominees
reasonably acceptable to Continental that Providence Journal may designate)
will be the Directors of the surviving corporation and the officers of
Continental immediately prior to the Effective Time will be the officers of the
surviving corporation. From and after the 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 Rhode Island
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 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;
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<PAGE>
(ii) the Continental Proposals shall have been approved and adopted by
the stockholders of Continental;
(iii) the New Cable Indebtedness shall have been incurred; the NPJ
Indebtedness shall have been incurred in a minimum amount of $250,000,000;
the PJC Spin-Off and the King Cable Purchase shall have been consummated in
accordance with the terms of the Merger Agreement, and the Kelso Buyout
shall have been consummated in accordance with the terms of the agreement
between Providence Journal and the Kelso Partnerships;
(iv) all notices to, or permits, consents, waivers, approvals,
authorizations and orders of, third parties that are material to the
conduct of the business of the surviving corporation and its subsidiaries
after the Effective Time and governmental authorizations and approvals
required with respect to the transactions contemplated by the Merger
Agreement shall have been filed or obtained and be in full force and
effect; provided, however, that this condition shall not apply with respect
to any authorization, consent, waiver, order or approval necessary for the
transfer of control of any cable television franchise if the condition
described in subparagraph (vi) set forth below under the caption
"Conditions to Obligations of Continental" shall have been satisfied or
waived by Continental;
(v) no federal, state or foreign governmental authority or other agency
or commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent)
that remains in effect and has the effect of making the transactions
contemplated by the Merger Agreement illegal or otherwise prohibiting such
transactions or questions the validity or the legality of the transactions
contemplated by the Merger Agreement and could reasonably be expected to
materially and adversely affect the value of the PJC Cable Business or
Continental taken as a whole;
(vi) the Continental Registration Statement and New Providence Journal's
Registration Statement (of which this Joint Proxy Statement-Prospectus
forms a part) shall have been declared effective under the Securities Act,
and no stop orders with respect thereto shall have been issued;
(vii) Providence Journal shall have received (a) from the Service a
private letter ruling that the 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 AND
KBC. The obligations of Providence Journal, New Providence Journal 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; and
(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.
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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, and KBC from their obligations
under the Merger Agreement (a) if (i) the aggregate amount of all damages,
liabilities, obligations, losses, deficiencies, demands, claims, penalties,
assessments, judgments, actions, proceedings and suits of whatever kind and
nature (including reasonable attorneys' fees and expenses, "Losses and
Expenses") that could reasonably be expected to arise as a result of the
failure of such representations and warranties to be true and correct as of the
Closing Date would not exceed $10 million or (ii) in the event such Losses and
Expenses exceed $10 million but are less than $100 million, Continental
indemnifies New Providence Journal against all such Losses and Expenses in
excess of $10 million on terms and conditions reasonably satisfactory to New
Providence Journal, and (b) if such failure relates to any subsidiary or any
system acquired by Continental after November 18, 1994, unless such failure,
individually or in the aggregate, would have a material adverse effect on
Continental and its subsidiaries taken as a whole.
CONDITIONS TO OBLIGATIONS OF CONTINENTAL. The obligations of Continental to
effect the transactions contemplated by the Merger Agreement are subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(i) the representations and warranties of Providence Journal and New
Providence Journal contained in the Merger Agreement or in any other
document delivered pursuant thereto shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and at the Closing, New Providence
Journal shall have delivered to Continental a certificate to that effect;
(ii) each of the obligations of Providence Journal, New Providence
Journal, KHC and KBC to be performed on or before the Closing Date pursuant
to the terms of the Merger Agreement shall have been duly performed in all
material respects on or before the Closing Date, and at the Closing, New
Providence Journal shall have delivered to Continental a certificate to
that effect;
(iii) Immediately prior to the Effective Time, Providence Journal shall
have no assets except (a) all of the capital stock of the PJC Cable
Subsidiaries (other than the capital stock of the subsidiaries that
comprise the King Cable Business, which shall have been sold to Continental
as part of the King Cable Purchase), (b) the contractual rights created
under the Contribution and Assumption Agreement, (c) cash sufficient to pay
Providence Journal's, expenses related to the transactions contemplated by
the Merger Agreement, (d) the assets of Colony Cablevision and Westerly or
Colony to the extent that the second alternative under "Pre-Merger
Transactions--Certain Intercompany Transactions" is consummated, and (e)
other immaterial assets related to the PJC Cable Business;
(iv) Immediately prior to the Effective Time, Providence Journal shall
have no liabilities except (a) liabilities associated with the operations
of the PJC Cable Subsidiaries or the cable operations of Providence
Journal, (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) Providence Journal and New Providence Journal shall have entered
into the Noncompetition Agreement with Continental;
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(viii) 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) Continental shall not be required to assume or otherwise be liable
for any obligation or duty of Providence Journal under the Rights Agreement
and the holders of the rights thereunder shall not have any rights to
acquire any shares of Continental Merger Stock pursuant thereto. The Rights
Agreement is identical in substance to the NPJ Rights Agreement. For a
description of the NPJ Rights Agreement, see "Description of New Providence
Journal Common Stock--NPJ Rights Agreement".
Notwithstanding the foregoing, any failure of any representation or warranty
of Providence Journal or New Providence Journal to be true and correct as of
the Closing Date (other than a representation or warranty as to capitalization)
will not excuse Continental from its obligations under the Merger Agreement if
(i) the aggregate amount of all Losses and Expenses that could reasonably be
expected to arise as a result of the failure of such representations and
warranties to be true and correct would not exceed $5 million or (ii) in the
event such Losses and Expenses exceed $5 million but are less than $50 million,
New Providence Journal indemnifies Continental against all such Losses and
Expenses in excess of $5 million on terms and conditions reasonably
satisfactory to Continental.
CERTAIN COVENANTS
INTERIM OPERATIONS OF PROVIDENCE JOURNAL. Pursuant to the Merger Agreement,
Providence Journal has agreed, among other things, that from November 18, 1994
to the Effective Time (except as contemplated by the Merger Agreement and
except for Providence Journal's operation of Colony Cablevision, which is
governed by the provisions relating to the operation of the PJC Cable
Subsidiaries described below) Providence Journal will not, without the prior
written consent of Continental:
(i) amend the Providence Journal Charter, the Providence Journal By-Laws
or the Rights Agreement (other than as contemplated by the Merger
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 for 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;
(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
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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 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 in respect of the assets or the
liabilities retained by Providence Journal or affecting the rights or
obligations of Providence Journal from and after the Effective Time; or
(viii) take or agree to take any of the foregoing actions or any actions
that would (a) make any representation or warranty of Providence Journal or
New Providence Journal contained in the Merger Agreement untrue or
incorrect as of the date made or as of the Closing Date, (b) result in any
of the conditions to Closing in the Merger Agreement not being satisfied or
(c) be inconsistent with the terms of the Merger Agreement or the
transactions contemplated thereby.
In addition, Providence Journal has agreed in the Merger Agreement that it
will use its best efforts to cause all of the PJC Cable Subsidiaries to be
wholly owned by Providence Journal and its subsidiaries as of the Closing Date.
INTERIM OPERATIONS OF PJC CABLE SUBSIDIARIES. Pursuant to the Merger
Agreement, Providence Journal has agreed that, except as contemplated by the
Merger Agreement, from November 18, 1994 to the Effective Time, it will conduct
its operation of Colony Cablevision 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,
dissolution, 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 November 18, 1994;
(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;
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(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 November 18, 1994,
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 November 18, 1994, make any cost-of-service
or hardship election under the rules and regulations adopted under the 1992
Cable Act or (c) amend any franchise or agree to make any payments or
commitments, including commitments to make future capital improvements or
provide future services, in connection with obtaining any authorization,
consent, order or approval or any governmental authority necessary for the
transfer of control of any franchise;
(ix) (a) grant any material increases in the compensation of any of its
Directors, officers or key employees, except in the ordinary course of
business consistent with past practice, (b) pay or agree to pay any
pension, retirement allowance or other material employee benefit not
required or contemplated by any of the benefit, severance, pension or
employment plans in existence on November 18, 1994, agreements or
arrangements as in effect on November 18, 1994 to any such Director,
officer or key employee, whether past or present, (c) enter into any new or
materially amend any employment agreement in existence on November 18, 1994
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 severance agreement with any such Director, officer or
key employee in existence on November 18, 1994 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 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; 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
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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 November 18, 1994 to the Effective Time,
Continental has agreed to conduct its operations according to its ordinary and
usual course of business and consistent with past practices, keep available the
services of its current officers and employees and preserve its relationships
with customers, franchising authorities, suppliers and others having business
dealings with it with the objective that the goodwill and on-going business of
Continental shall not be impaired in any material respect at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
contemplated by the Merger Agreement, Continental has agreed it will not,
without the prior written consent of Providence Journal:
(i) amend the Continental Restated Certificate or the Continental By-
Laws;
(ii) declare, set aside or pay any dividend or other distribution (except
(a) in the form of shares of capital stock of Continental or (b) any
dividend required to be paid by the terms of any preferred stock of
Continental which was not outstanding on November 18, 1994) in respect of
its capital stock, or redeem or otherwise acquire any of its equity
securities other than (I) repurchases of up to 16,684,150 shares of
Continental Common Stock which are subject to Continental's 1998-1999 Share
Repurchase Program or (II) other repurchases of shares of Continental
capital stock for an aggregate amount not to exceed $50,000,000; or
(iii) take or agree to take any of the foregoing actions or any actions
that would (a) except as otherwise permitted under the Merger Agreement,
make any representation or warranty of Continental contained in the Merger
Agreement untrue or incorrect as of the date when made or as of the Closing
Date, (b) result in any of the conditions to Closing in the Merger
Agreement not being satisfied or (c) be inconsistent with the terms of the
Merger Agreement or the transactions contemplated thereby.
CERTAIN RIGHTS WITH RESPECT TO CONTINENTAL'S BOARD OF DIRECTORS. The Merger
Agreement provides that at the Effective Time, Continental's Board of Directors
will be expanded by two persons and the Providence Journal Nominees will be
designated as Directors of Continental with a term of approximately three
years. Providence Journal has designated Stephen Hamblett and Trygve Myhren as
the Providence Journal Nominees; however, the Merger Agreement permits
Providence Journal to change the Providence Journal Nominees from time to time
prior to the Merger. 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
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subsidiaries of assets having a fair market value of more than $500,000,000
that, in the reasonable judgment of the Providence Journal Nominees and
Providence Journal's investment banker, is reasonably likely to cause the per
share value of the Continental Class A Common Stock to be less than $485.00
(or, after giving effect to the Continental Stock Split, $19.40).
COMMISSION FILINGS. The Merger Agreement provides that Providence Journal,
New Providence Journal and Continental shall promptly prepare and file any
filings required to be filed by each under the Securities Act, the Exchange
Act or any other federal or state laws relating to the transactions
contemplated by the Merger Agreement and will use their best efforts to
respond to any comments of the Commission or any other appropriate government
official with respect thereto. In addition, Providence Journal, New Providence
Journal and Continental have agreed to cooperate with each other and provide
to each other all information necessary in order to prepare such filings,
including this Joint Proxy Statement-Prospectus, Continental's and New
Providence Journal's Registration Statements, as to which this Joint Proxy
Statement-Prospectus forms a part, and any other registration statement of
Continental under the Securities Act and the Exchange Act in connection with
any other registered public offering by Continental.
REGISTRATION RIGHTS. Continental and New Providence Journal have agreed
that, on or prior to the consummation of the Merger, they will enter into a
registration rights agreement relating to the Continental Class A Common Stock
to be issued pursuant to the Merger, the form of which is attached as Exhibit
D to the Merger Agreement. Such agreement will provide that (subject to the
Transfer Restrictions), commencing at the time the obligation of Continental
to conduct an Offering under the Merger Agreement has been satisfied or
terminated, the Providence Journal stockholders receiving Continental Merger
Stock will be entitled to two demand registrations and unlimited (subject to
certain exceptions) "piggyback" registrations with respect to primary public
issuances by Continental of Continental Class A Common Stock; provided,
however, that such registration rights will not be available to any
Registration Rights Holder to the extent that shares of Continental Class A
Common Stock are then freely transferable by the Registration Rights Holder
requesting a registration in the manner contemplated by such request without
violation of the registration requirements of the Securities Act. Registration
Rights Holders will not be entitled to assign their rights under such
registration rights agreement. (See "Continental Shares Eligible for Future
Sale".)
UNDERTAKINGS REGARDING PUBLIC OFFERING. Continental has agreed in the Merger
Agreement that, except as described in the immediately following sentence, it
will use its best efforts to consummate an Offering of shares of Continental
Class A Common Stock (which, at Continental's option, may be a primary
offering and/or a secondary offering) prior to the first anniversary of the
Effective Time for aggregate consideration (before underwriting discounts) of
not less than $150,000,000. Continental will not be required to consummate the
Offering if it has issued, on or before the first anniversary of the Effective
Time, shares of its capital stock for aggregate consideration of at least
$1,000,000,000. The Merger Agreement provides, however, that Continental's
obligation, if any, to consummate the Offering may be extended if
Continental's investment banker advises Continental in writing 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.
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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 King Cable Purchase, the PJC Spin-Off and the Merger) are not
events that would (a) permit the Rights Holders to exercise the rights to
acquire shares of Providence Journal Common Stock or (b) require Providence
Journal to exchange any or all of the outstanding rights for shares of
Providence Journal Common Stock; (ii) certain sections of the Rights Agreement
will not apply to the Merger or the transactions contemplated thereby and (iii)
effective upon the Merger, the Rights Agreement will be terminated and will
have no further force and effect. Providence Journal has further agreed not to
take any action resulting in the application of the provisions of the Rights
Agreement to the Merger and the transactions contemplated thereby. (See
"Description of New Providence Journal Common Stock--NPJ Rights Agreement" for
a description of the NPJ Rights Agreement, which is identical in substance to
the Rights Agreement.)
ACQUISITION PROPOSALS. The Merger Agreement prohibits Providence Journal, its
subsidiaries and their respective officers, Directors, representatives and
agents from, directly or indirectly, knowingly encouraging, soliciting,
initiating or participating in any way in discussions or negotiations with, or
knowingly providing any confidential information to, any person (other than
Continental or any affiliate or associate of Continental and their respective
Directors, officers, employees, representatives and agents) concerning any
merger, consolidation, share exchange or similar transaction involving
Providence Journal or any of the PJC Cable Subsidiaries or any purchase (other
than in the ordinary course of business) of any portion of the operating assets
of, or any equity interests in, the PJC Cable Subsidiaries. However, Providence
Journal's Board of Directors may (i) take and disclose to Providence Journal's
stockholders a position with respect to a tender offer for Providence Journal
Common Stock by a third party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act, (ii) make such disclosure to Providence Journal's
stockholders as, in the judgment of Providence Journal's Board of Directors
with the written advice of outside counsel, may be required under applicable
law, (iii) respond to any unsolicited proposal or inquiry by advising the
person making such proposal or inquiry of the terms of the provision summarized
in this paragraph, and (iv) participate in discussions or negotiations
resulting from an unsolicited proposal if Providence Journal's Board of
Directors determines, with the written advice of outside counsel, that it is
required to do so in the exercise of its fiduciary duties.
Providence Journal has agreed to notify Continental promptly if any such
proposal or inquiry is received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated with,
Providence Journal and to furnish Continental with a copy of any proposal that
Providence Journal's Board of Directors has determined is a "Superior Proposal"
(as defined below). Providence Journal's Board of Directors may respond to any
Superior Proposal and may provide information to, and negotiate with, any
person in connection therewith if Providence Journal's Board of Directors
determines, with the advice of outside counsel, that it is required to do so in
the exercise of its fiduciary duties. A "Superior Proposal" is defined in the
Merger Agreement to mean a bona fide, written, unsolicited proposal relating to
a possible transaction described in the preceding paragraph by any person other
than Continental that, in the reasonable good faith judgment of Providence
Journal's Board of Directors, with the advice of outside financial advisers, is
reasonably likely to be consummated and is financially more favorable to the
stockholders of Providence Journal than the terms of the transactions
contemplated by the Merger Agreement.
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 and certain tax
representations shall survive indefinitely.
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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, the King Cable
Purchase and the Merger; the capital structure of Providence Journal, New
Providence Journal, KHC and KBC; the accuracy of information, including
financial statements, contained in the Merger Agreement; the absence of certain
material changes or undisclosed liabilities; compliance with applicable laws,
franchises and material agreements; taxes; litigation; employee benefits; labor
matters; title to properties; and brokers and finders.
The representations of Continental are made with respect to itself and its
subsidiaries and relate generally to: due organization, qualification and
authority; absence of violations of, among other things, their respective
charter documents, by-laws, certain contracts and law; required consents and
approvals of governmental authorities; approval by the Board of Directors of
Continental of the Merger Agreement and the transactions contemplated thereby;
the capital structure of Continental; the accuracy of information, including
financial statements, contained in the Merger Agreement; the absence of certain
material changes or undisclosed liabilities; compliance with applicable laws,
franchises and material agreements; taxes; litigation; title to properties;
employee benefits; labor matters; and brokers and finders.
INDEMNIFICATION
Pursuant to the Merger Agreement:
(a) Continental will indemnify, defend and hold harmless New Providence
Journal, each of its subsidiaries, and their respective successors-in-
interest, and each of their respective past and present officers and
Directors against Losses and Expenses to the extent they are based upon
or arise out of any untrue or inaccurate representation made by
Continental in the Merger Agreement relating to its capitalization, or
any untrue or allegedly untrue statement of material fact contained, or
any omission or alleged omission to state a material fact required to
be stated, or necessary to make any such statements, in the light in
which they were made, not misleading, in any document filed with the
Commission in connection with the Merger Agreement or any of the
transactions contemplated thereby, provided that Continental was
responsible for such statement or omission;
(b) Providence Journal (and from and after the Effective Time, New
Providence Journal) will indemnify, defend and hold harmless
Continental, each of its subsidiaries, and their respective successors-
in-interest, and each of their respective past and present officers and
Directors against Losses or Expenses to the extent they (i) arise out
of or relate to any of the assets received or liabilities assumed by
New Providence Journal in connection with the PJC Spin-Off or the
operations of any of the PJC Non-Cable Businesses contributed to New
Providence Journal pursuant to the PJC Spin-Off, (ii) are based upon
any untrue or inaccurate representation made by Providence Journal and
New Providence Journal in the Merger Agreement relating to certain tax
representations, 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 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
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Continental, provided that New Providence Journal or Providence Journal
was responsible for such statement or omission;
(c) Providence Journal 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 Providence Journal 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 (and, when New Providence Journal is the indemnifying
party, holders of Providence Journal's, KBC's and KHC's debt and 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 any holder of any of the equity securities of
the PJC Cable Subsidiaries, 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.
(f) New Providence Journal has agreed to indemnify and hold harmless
Continental against any and all Losses and Expenses to the extent they
are based upon certain litigation pertaining to the Dynamic
Partnership. (See "Description of Providence Journal Cable Television
Business--Legal Proceedings").
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 King Cable Purchase and the failure of various components of
the PJC Spin-Off and the Merger to qualify as tax-free reorganizations under
the Code, unless such failure to qualify is the result of certain actions by
Continental. Continental will be responsible for all federal and state income
tax liabilities of Continental and its subsidiaries for periods ending both
before and after the Closing Date. (See "Certain Federal Income Tax
Considerations".)
CERTAIN EMPLOYEE MATTERS
Providence Journal or New Providence Journal, as applicable, has agreed to
continue coverage of employees thereof under existing group health plans
through the Effective Time and to reimburse covered employees thereof for
eligible health care expenses and services incurred through the Effective Time
in accordance with the terms of any such plan.
As a result of the transactions contemplated by the Merger Agreement, as of
the Effective Time, Continental will become the employer of all employees of
the PJC Cable Subsidiaries as of the Effective Time (other than any corporate,
regional or divisional employee that Continental has informed Providence
Journal 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
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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
(including, without limitation, the Cable Division Sales Bonus Plan),
arrangements providing for termination allowance, severance, and similar
benefits, equity compensation plans, deferred compensation plans, and
compensation policies and practices maintained by Providence Journal or any of
its ERISA Affiliates covering employees of Providence Journal and their
beneficiaries as of the Effective Time. In addition, New Providence Journal
shall assume and be solely responsible for:
(i) payment of all retiree medical benefits to Cable Employees who, as of
the Effective Time, are receiving or who are entitled to receive
retiree medical or life insurance benefits;
(ii) the provision of benefits required under the provisions of COBRA to any
Cable Employees or other qualified beneficiaries, within the meaning of
Section 4980B(g) of the Code, with respect to whom a qualifying event
within the meaning of Section 4980B(f)(3) of such Code has occurred
prior to the Effective Time;
(iii) payment of all long-term disability income benefits to all Cable
Employees who, as of the Effective Time, are receiving long-term
disability benefits or are disabled as of the Effective Time and as a
result of such disability become eligible for long-term disability
income benefits as determined in accordance with long-term disability
coverage provisions that on or prior to the Effective Time are
applicable to the Cable Employees; and
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(iv) the provision and payment of the following benefits for any Cable
Employee who is on a leave of absence or short-term disability leave
as of the Effective Time until such Cable Employee returns to active
employment from such leave: (A) medical and dental benefits for the
period after the Effective Time until such benefits are no longer
required to be made available under COBRA; (B) life and accidental
death benefits for a period of not more than six months following the
Effective Time; and (C) short and long-term disability benefits for a
period of not more than three months following the Effective Time;
provided, that Continental shall from time to time, within 30 days of
receipt by Continental of invoices and other documentation reasonably
satisfactory to Continental, reimburse New Providence Journal for the
reasonable, direct costs incurred in providing the benefits referred
to in this clause (iv).
Continental and New Providence Journal have agreed to cooperate, and to cause
their respective subsidiaries to cooperate, in a complete, diligent and timely
manner to provide each other with such compensation, service and other
pertinent census data as may be required by either of them for purposes of
calculating or effecting the distribution of benefits to which any Cable
Employee may be entitled under any employee benefit plan established,
maintained or contributed to by either of them.
TERMINATION
GENERAL. The Merger Agreement may be terminated and the transactions
contemplated thereby, including the Merger, abandoned at any time prior to the
Closing Date (i) by mutual written consent duly authorized by the Boards of
Directors of Providence Journal, New Providence Journal and Continental, (ii)
by either Continental or Providence Journal if the stockholders of Continental
fail to approve the Continental Proposals or if the stockholders of Providence
Journal fail to approve the Providence Journal Proposals, (iii) by either
Providence Journal or Continental, provided the terminating party has not
breached its obligations under the Merger Agreement, if the Merger is not
consummated by December 31, 1995 (the "Termination Date"), (iv) by Providence
Journal, provided it has not breached any of its obligations under the Merger
Agreement, if Continental fails to perform any covenant in the Merger Agreement
and fails to cure such failure within 20 business days after written notice by
Providence Journal of such failure, or if any condition to the obligations of
Providence Journal and New Providence Journal has not been satisfied prior to
the Termination Date, (v) by Continental, provided it has not breached any of
its obligations under the Merger Agreement, if (1) Providence Journal or New
Providence Journal fails to perform any covenant in the Merger Agreement and
fails to cure such failure within 20 business days after written notice by
Continental of such failure, (2) any condition to the obligations of
Continental has not been satisfied prior to the Termination Date, or (3) the
Providence Journal Board of Directors materially modifies or withdraws its
approval of the Providence Journal Proposals or its recommendation of the
Providence Journal Proposals to the stockholders of Providence Journal and (vi)
by Providence Journal, whether or not the conditions to its obligations under
the Merger Agreement have been satisfied, if its Board of Directors determines,
with the written advice of counsel provided to Continental, that it may be
required to do so in the exercise of its fiduciary duties.
If the Merger Agreement is terminated for any reason set forth above, the
Merger Agreement will become null and void and there will be no liability on
the part of any party thereto, or the Directors, officers or stockholders of
any such party, except that (a) the parties' indemnification obligations with
respect to misstatements or omissions in filings or in any other registration
filed with the Commission on behalf of Continental, (b) certain provisions with
respect to the reimbursement of expenses and (c) the payment by Providence
Journal of a termination fee and Continental's option to acquire the Palm
Springs System under certain circumstances, as described below, shall survive.
TERMINATION FEES AND EXPENSES; OPTION TO PURCHASE PALM SPRINGS SYSTEM. If the
Merger Agreement is terminated (a) by Continental after the Board of Directors
of Providence Journal has either materially modified or withdrawn its approval
and recommendation of the Providence Journal Proposals, (b) by Providence
Journal after its Board of Directors has determined with the written advice of
counsel, that it may be required to terminate the Merger Agreement in the
exercise of its fiduciary duties or (c) by
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Continental or Providence Journal if the Providence Journal Proposals are not
approved by the stockholders of Providence Journal after the Board of Directors
of Providence Journal has materially modified or withdrawn its approval and
recommendation of any of such transactions, then Providence Journal will pay to
Continental the Break-up Fee plus up to an additional $10,000,000 to reimburse
Continental for reasonable fees and expenses it has incurred in connection with
the Merger Agreement and each of the transactions contemplated thereby. In
addition, if the Merger Agreement is terminated by Continental (provided it has
not breached any of its obligations under the Merger Agreement) (i) if
Providence Journal or New Providence Journal fails to perform any of its
covenants thereunder and such failure remains uncured for 20 business days
after written notice thereof from Continental or (ii) as a result of the
failure of any condition to its obligations under the Merger Agreement (other
than as a result of the failure of a condition to all parties' obligations to
proceed with the Merger or (except in certain circumstances) the failure of the
condition requiring certain governmental consents to the transfer to
Continental of the franchises held by Providence Journal or its subsidiaries),
then Providence Journal will pay Continental an amount (not to exceed
$10,000,000) equal to the actual reasonable fees and expenses paid or payable
by or on behalf of Continental in connection with the Merger or any of the
transactions contemplated thereby.
If the Merger Agreement is terminated (a) by Providence Journal (provided it
has not breached any of its obligations under the Merger Agreement) (i) if
Continental fails to perform any of its covenants thereunder and such failure
remains uncured for 20 business days after written notice by Providence Journal
thereof or (ii) as a result of the failure of any condition to the obligations
of Providence Journal or New Providence Journal to be satisfied prior to the
Termination Date (other than as a result of the failure of a condition to all
parties' obligations to proceed with the Merger) or (b) by Continental as a
result of the refusal of one or more governmental authorities to consent to the
transfer of control of one or more franchises of Providence Journal or its
subsidiaries to Continental for reasons relating to the qualifications or
fitness of Continental, Continental will pay Providence Journal an amount (not
to exceed $10,000,000) equal to the actual reasonable fees and expenses paid or
payable by or on behalf of Providence Journal and New Providence Journal in
connection with the PJC Spin-Off, the Merger and the transactions contemplated
thereby.
In the event that Continental becomes entitled to the Break-Up Fee,
Providence Journal has granted to Continental or any nominee of Continental an
option to purchase all of the right, title and interest of Providence Journal
and its subsidiaries in and to the Palm Springs System, together with all
associated assets, free and clear of all liabilities and obligations of
Providence Journal and its subsidiaries. The purchase price payable by
Continental for the Palm Springs System shall be $68,500,000, and the option
must be exercised by Continental no later than 45 days following the date on
which Continental becomes entitled to a Break-Up Fee. In connection with any
such exercise, Providence Journal has agreed to (i) indemnify Continental or
its nominee for breaches of representations and warranties made by Providence
Journal pertaining to title to the Palm Springs System (which indemnification
obligation shall survive indefinitely) and (ii) use its best efforts to obtain
all authorizations, consents, orders, waivers or approvals necessary or
desirable for the transfer of the Palm Springs System to Continental or such
nominee and to make any filings required by any governmental authority or
applicable law.
REGULATORY AND OTHER THIRD PARTY APPROVALS
Consummation of the Merger requires (a) consents and/or waivers from the
relevant governmental authorities under certain franchises issued to Providence
Journal and its subsidiaries and (b) consent of the FCC to the transfer of
control of certain licenses issued by the FCC to Providence Journal or its
subsidiaries.
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
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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 Providence Journal and the PJC Cable Subsidiaries at
the Effective Time (provided, however, that New Providence Journal or any
subsidiary thereof may hold 5% or less of any class of securities registered
pursuant to the Exchange Act of any corporation which is engaged in the
Restricted Business, or passive investments in partnerships or joint ventures
representing 5% or less of any class of any equity interests therein), or (iii)
use or permit Providence Journal's or New Providence Journal's name to be used
in connection with any Restricted Business in such franchise areas.
VOTING AGREEMENT. In connection with the execution of the Merger Agreement,
Directors and executive officers of Providence Journal entitled to exercise
voting power with respect to an aggregate of 323 shares of Providence Journal
Common Stock (approximately 0.3% of the voting power of the outstanding
Providence Journal Common Stock), and Amos B. Hostetter, Jr. and Timothy P.
Neher, as the trustees of the Trust entitled to exercise voting power with
respect to an aggregate of 42,843,550 shares of Continental Class B Common
Stock (approximately 30.89% 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: Certain of the Directors and executive officers holding Providence
Journal Common Stock agreed to vote (i) in favor of each of the Providence
Journal Proposals, (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination between Providence Journal or any
of the PJC Cable Subsidiaries and any person other than Continental, or any
other action which would result in the breach of any covenant, representation
or warranty in the Merger Agreement, or cause any conditions to the obligations
of Providence Journal under the Merger Agreement not to be fulfilled and (iii)
in favor of any other matter relating to the consummation of the transactions
contemplated by the Merger Agreement. The Trust agreed to vote (x) in favor of
each of the Continental Proposals, (y) against any action that would result in
a breach of any covenant, representation or warranty under the Merger
Agreement, or that would result in any of the conditions to the obligations of
Continental under the Merger Agreement not being fulfilled and (z) in favor of
any other matter relating to the consummation of the transactions contemplated
by the Merger Agreement. In addition, such Providence Journal stockholders and
the Trust each agreed not to enter into any voting agreement or grant a proxy
or power of attorney that is inconsistent with the Voting Agreement, and each
such Providence Journal stockholder has agreed not to transfer ownership of any
of its Providence Journal Common Stock unless the transferee agrees in writing
to be bound by the terms and conditions of the Voting Agreement. The Trust
agreed not to transfer ownership of more than 10% of its Continental Class B
Common Stock unless the transferee agrees in writing to be bound by the terms
and conditions of the Voting Agreement. In addition, if, at any time prior to
the Effective 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.
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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.
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
Providence Journal Common Stock would own Continental Class A Common Stock,
representing approximately 17.3% of the outstanding Continental Common Stock
and approximately 2.2% 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 Merger, holders of shares of Providence Journal Common Stock
immediately prior to the Merger 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 held 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 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 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 in connection with the PJC Spin-Off and the receipt of an
opinion of Edwards & Angell, counsel to Providence Journal, as to the
qualification of the Merger as a tax-free reorganization under Section
368(a)(1)(A). Specifically, Providence Journal has requested rulings to the
following effect (and related rulings as to the tax basis of assets) from the
Service (the "Requested Rulings"):
(1) The transfer of Colony Cablevision, which represents the systems that
were acquired by Providence Journal in 1992 from Palmer Communications,
Inc. ("Palmer") serving the areas in and around Naples, Florida and
Palm Springs, California (the "Palmer Systems") to Colony will be a
transaction described in Code Section 351.
(2) The PJC Spin-Off will be a reorganization described in Code Sections
368(a)(1)(D) and 355.
(3) 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
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Providence Journal shares between the New Providence Journal shares
received and Providence Journal shares retained (which will then be
exchanged for Continental Merger Stock) in proportion to their relative
fair market values. The holding period for New Providence Journal 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.
(4) No gain or loss will be recognized by Providence Journal, Westerly, New
Providence Journal or Colony in the transactions described above or by
Westerly or Colony as a result of the liquidation of Westerly into
Colony.
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 (1) 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 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 Merger Stock.
(iii) A stockholder's tax basis for shares of Continental Merger Stock,
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 Continental Merger Stock,
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 PJC Spin-Off and the Merger will be tax-free.
If the Merger were not to qualify under Section 368(a)(1)(A) of the Code, or
if the PJC Spin-Off were not to qualify under Sections 368(a)(1)(D) and 355 of
the Code, Providence Journal would recognize gain equal to the excess of the
fair market value of the New Providence Journal Common Stock distributed to its
stockholders over Providence Journal'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 Providence
Journal. New Providence Journal has agreed to indemnify Continental for such
tax liability unless the failure of the PJC Spin-Off and the Merger to qualify
under those sections of the Code is
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the result of Continental's breach of the covenants referred to in the
preceding paragraph. In addition, if the PJC Spin-Off and the Merger fail to
qualify under those sections of the Code, each Providence Journal 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 Providence Journal 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 Providence Journal Common Stock surrendered.
The sale of the King Cable Business by KBC for $405 million will result in a
federal and state income tax liability of approximately $120 million for KBC
and the corporate affiliated group of which it is a member. New Providence
Journal has agreed to hold Continental harmless from this income tax liability.
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.
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<PAGE>
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 two
persons to serve a three-year term as Class C Directors in accordance with the
Continental Restated Certificate and the Continental By-Laws. It is proposed
that proxies for the Continental Special Meeting not limited to the contrary
will be voted to elect Amos B. Hostetter, Jr. and Lester Pollack as the Class C
Directors. Messrs. Hostetter and Pollack are presently Class C Directors. If
some unexpected occurrence should make necessary, in the judgment of the Board
of Directors, the substitution of some other person for any of the nominees, it
is the intention of the persons named in the proxy for the Continental Special
Meeting to vote for the election of such other person as may be designated by
the Board of Directors. Each of the Class C Directors elected at the
Continental Special Meeting shall serve until the 1998 Annual Meeting and until
his successor is elected and qualified.
Finally, at the Continental Special Meeting, the Continental stockholders
will be asked to ratify the selection by the Board of Directors of Deloitte &
Touche LLP as Continental's independent auditors for the current fiscal year
ending December 31, 1995. The firm has been the accountants for Continental
since 1974. Although Continental is not required to submit the ratification and
approval of the selection of its accountants to a vote of stockholders, the
Board of Directors believes it is a sound policy and in the best interests of
the stockholders to do so.
The 1996 Annual Meeting of Continental is expected to be held on or about May
16, 1996. Stockholder proposals must be received by Continental on or before
January 17, 1996 to be considered for inclusion in the proxy statement and
presented at the 1996 Annual Meeting of Continental.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE
CONTINENTAL RECAPITALIZATION AMENDMENT, THE ELECTION OF DIRECTORS AND THE
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS.
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<PAGE>
PROPOSAL TO APPROVE AND ADOPT
THE PROVIDENCE JOURNAL CHARTER AMENDMENT AND
THE CABLE DIVISION SALE BONUS PLAN
PROVIDENCE JOURNAL CHARTER AMENDMENT
The Board of Directors of Providence Journal has approved and is submitting
to the stockholders for their approval, the Providence Journal Charter
Amendment. The Providence Journal Charter Amendment permits Providence Journal
to distribute one share of New Providence Journal Class A Common Stock to the
holder of each share of Providence Journal Class A Common Stock and one share
of New Providence Journal Class B Common Stock to the holder of each share of
Providence Journal Class B Common Stock. The Providence Journal Charter
Amendment is required in connection with the PJC Spin-Off. This description is
qualified in its entirety by reference to the complete text of the Providence
Journal Charter Amendment, a copy of which is attached as Exhibit G to the
Merger Agreement attached hereto as Annex I and incorporated herein by
reference.
The Board of Directors of Providence Journal is submitting to the
stockholders for their approval, the Cable Division Sale Bonus Plan. The Cable
Division Sale Bonus Plan was designed to retain certain of Providence Journal's
cable executives and to provide incentives to such executives to maintain the
operating performance of the PJC Cable Business pending completion of the
Merger with bonuses payable only if the Merger is consummated. No beneficiary
of the Cable Division Sale Bonus Plan is an officer of Providence Journal. The
text of the Cable Division Sale Bonus Plan is annexed hereto as Annex V, and
the following summary is qualified in its entirety by the actual provisions of
the Cable Division Sale Bonus Plan. New Providence Journal will be responsible
for all payments required to be made under the Cable Division Sale Bonus Plan.
ADMINISTRATION
The Cable Division Sale Bonus Plan will be administered by the Vice President
of Human Resources of Providence Journal, who shall not be a participant in
such plan. The administrator shall have authority to interpret the provisions
of the Cable Division Sale Bonus Plan and to decide all questions of fact
arising in its application, to provide all necessary information to the
Executive Committee of the Board of Directors of Providence Journal, and to
communicate to plan participants concerning the administration of the Cable
Division Sale Bonus Plan. The administrator, with the concurrence of the Chief
Executive Officer, shall make recommendations for awards under the Cable
Division Sale Bonus Plan to the Executive Committee of the Providence Journal
Board.
REVIEW AND AUTHORIZATION
All recommendations for awards to be made by the administrator pursuant to
the provisions of the Cable Division Sale Bonus Plan are subject to review and
approval by the Executive Committee of the Providence Journal Board.
ELIGIBILITY TO RECEIVE AWARDS
Participants in the Cable Division Sale Bonus Plan shall be limited to those
officers and other key executive employees of the PJC Cable Business who
continue to be employed by the PJC Cable Business through the Merger and are in
positions in which their decisions, actions and counsel significantly affect
the operation of the PJC Cable Business. Subject to achieving certain
objectives and meeting certain conditions, participants will share in a "bonus
pool" based upon a weighing of salary and years of service. As of August 1,
1995, 14 persons were eligible to receive awards under the Cable Division Sale
Bonus Plan.
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<PAGE>
BONUS POOL
Subject to certain conditions described below, the participants are eligible
to receive a share of a bonus pool in the following amount: (i) $2.1 million if
the 1994 cash flow objective of $123.6 million for the PJC Cable Business is
achieved, and (ii) 50% of any 1994 cash flow in excess of the 1994 cash flow
objective. The amount of the bonus pool is currently $5,200,000. The bonus pool
may be reduced by a maximum of 20%, based upon a graduated scale, if the 1995
cash flow objective of $123.6 million is not met (pro rated for the portion of
1995 which has elapsed at the time of the Closing).
CONDITIONS
Any bonus awards earned out of the bonus pool will be distributed to the
participants only upon satisfaction of the following additional conditions:
(i) The closing of a sale, merger or other disposition of the PJC Cable
Business; and
(ii) The participant remaining in the employment of the PJC Cable
Business through the date of the closing of such sale, merger or other
disposition.
GENERAL RESTRICTIONS
(a) Individuals receiving awards pursuant to the Cable Division Sale Bonus
Plan may not receive any other awards pursuant to any other long-term incentive
plan of Providence Journal or the PJC Cable Business.
(b) Significant unforeseen changes, such as new statutes or regulations that
positively or negatively affect the cash flow of the PJC Cable Business, will
be excluded from the performance measurements used in determining achievement
of the 1995 objective.
(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 CHARTER AMENDMENT AND THE CABLE DIVISION SALE BONUS
PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY TO THE CONTRARY IN THEIR PROXIES.
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<PAGE>
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 PJC Spin-Off,
the Merger and the transactions contemplated thereby are consummated.
GENERAL
Providence Journal publishes (i) Monday through Saturday the Providence
Journal-Bulletin, and (ii) 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 Providence Journal is the oldest continuously published daily
newspaper in the United States. The largest newspaper in the Rhode Island and
Southeastern Massachusetts market, the Journal maintains its market position
through effective reporting, dedication to public service, quality printing and
efficient distribution. The Journal has received numerous awards over the years
for its coverage of both local and national issues, including a Pulitzer Prize
in 1994, its fourth.
On June 5, 1995, Providence Journal consolidated the morning Providence
Journal and The Evening Bulletin as the Providence Journal-Bulletin, a morning
newspaper. Initially, a substantial portion of the anticipated $6 million in
savings from this consolidation will be reinvested to improve local news
coverage. Management believes that circulation will drop temporarily but
recover once readers become aware of the expanded local news, although there
can be no assurances in this regard.
CIRCULATION AND PRICING
The following table shows the average net paid daily, Saturday and Sunday
circulation of the Journal for the twelve-month periods ended March 31 in each
of the years 1990 through 1994, as reported by the Audit Bureau of Circulation
(the "Audit Bureau"), an independent agency that audits the circulation of most
U.S. newspapers and magazines on an annual basis. The figures for the twelve-
month period ended March 31, 1995 are unaudited figures internally generated by
the Journal.
<TABLE>
<CAPTION>
AVERAGE NET PAID CIRCULATION
------------------------------
DAILY SATURDAY SUNDAY
--------- --------------------
<S> <C> <C> <C>
1990.................. 203,600 189,600 264,700
1991.................. 202,200 188,900 265,000
1992.................. 197,100 186,400 268,100
1993.................. 192,500 182,700 269,100
1994.................. 188,200 179,600 268,800
1995.................. 184,700 177,000 266,400
</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 "Risk Factors--Risk Factors Related to
New Providence Journal Common Stock".)
The suggested newsstand price of the Journal is $.50 on Monday through
Saturday and $1.75 on Sunday. The suggested rate charged to subscribers for
home delivery of the daily and Sunday newspapers is $3.60 per week.
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ADVERTISING
Approximately three-quarters of the revenue of the Journal is derived from
the sale of advertising (historically between 70% and 80% of the Journal's
revenues).
The following table sets forth the Journal's advertising linage for fiscal
years 1990 through 1994.
<TABLE>
<CAPTION>
RETAIL CLASSIFIED NATIONAL
----------------- --------------- --------------
WEEKDAY SUNDAY WEEKDAY SUNDAY WEEKDAY SUNDAY TOTAL
--------- ------- ------- ------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1990................ 1,200,900 389,300 463,900 233,600 50,300 38,100 2,376,100
1991................ 997,400 296,000 403,300 173,500 41,300 34,100 1,945,600
1992................ 1,082,100 364,500 366,700 168,500 34,200 31,000 2,047,000
1993................ 1,113,700 381,100 371,600 168,900 37,000 32,600 2,104,900
1994................ 1,069,500 331,100 310,000 209,800 47,600 31,800 1,999,800
</TABLE>
Historically, retail advertising has accounted for approximately 60%,
classified advertising approximately 30%, and national advertising
approximately 10% 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 approximately 20% of the total Journal advertising revenue in
calendar year 1994.
The Journal increased advertising rates for most major categories of retail
and classified advertising by at least 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, which consist primarily of newsprint costs, have
historically accounted for between 16% to 24% of the Journal's total operating
expenses. In 1994, the Journal used approximately 34,000 metric tons of
newsprint. Management reduced the number of newsprint suppliers to five from
eight in 1992 and has entered into contracts with these suppliers resulting in
favorable pricing and continuity of supply. The Journal currently receives
discounts of up to 10% off list price for newsprint supplies. Additional cost
savings have been achieved by the implementation of quality controls,
reductions in inventory and the positioning of Providence Journal as a just-in-
time inventory customer.
Newsprint expenses are considered variable to the extent that usage varies
depending on advertising linage. Newsprint prices move in cycles associated
with the capacity of paper mills and newspaper demand. When national
advertising linage levels declined beginning in 1988, suppliers began offering
substantial discounts of between 10% and 18% from list price, which grew over
time to 40% discounts. Newsprint prices are now once again increasing
significantly because of increased demand and constricted supply. Industry
analysts expect newsprint pricing increases to continue through 1996. (See
"Risk Factors--Risk Factors Relating to the New Providence Journal Common
Stock".)
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<PAGE>
OTHER PUBLISHING ACTIVITIES
TOWN CRIER. In 1993, Providence Journal launched the Town Crier, a weekly
newspaper referred to in the industry as a "shopper," containing coupons and
advertisements directed at consumers, in two suburban communities adjacent to
Providence, Rhode Island. In connection with this project, Providence Journal
entered into a multi-year management contract with Shopper Enterprises, Inc.,
a firm based in Minnesota which specializes in operating shoppers, to develop,
operate and manage the Town Crier and other shoppers for Providence Journal in
and near the Rhode Island market.
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. Providence Journal's management has
notified the Lowell Sun Companies that it will not 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 began operations in the second quarter of 1995.
The Journal has also developed a number of fax-on-demand services providing
material ranging from old Journal newspaper articles to current information on
sports, weather and other subjects of general interest. The Journal has also
developed and expanded Journal Line, a voice information service, the New
England Wire Service, which electronically provides editorial content to area
newspapers, and Journal Telemarketing, a telemarketing sales division
providing services to a range of customers.
ACQUISITIONS
The PJC Publishing Business plans to pursue attractive acquisition
opportunities as they become available. In addition to expansion into
electronic publishing, referred to above, the PJC Publishing Business is
interested in, and actively reviews, potential acquisitions of daily and
weekly newspapers and shoppers.
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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 1994 and the percentage such Rhode Island
circulation represents of each newspaper's total circulation. The table is
derived from information supplied by the Audit Bureau except for the entries
relating to the Kent County Daily Times which are unaudited and derived from
sources other than the Audit Bureau.
<TABLE>
<CAPTION>
RHODE ISLAND NEWSPAPERS
1994 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 ............ 172,500 92% 242,500 90%
Providence, RI
The Times............... 20,700 92% N/A
Pawtucket, RI
Woonsocket Call......... 20,000 78% 19,800 78%
Woonsocket, RI
Daily News.............. 15,000 99% 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>
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
As of June 30, 1995, the PJC Publishing Business employs 859 persons on a
full time basis and 653 on a part-time and/or temporary basis, the equivalent
of 1,269 full time persons. Approximately 40% of such employees are represented
by labor unions under collective bargaining agreements. A new collective
bargaining agreement with one of these unions, the Providence Newspaper Guild,
was recently executed after protracted negotiations. This agreement is
effective retroactively to January 1, 1994 and will expire on December 31,
1996. The Newspaper Printing Pressman's Union is in the fourth year of a ten-
year contract. The Communications Workers of America, Local 33, is in the ninth
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.
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<PAGE>
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
Reorganization, the Merger and the transactions contemplated thereby are
consummated.
GENERAL
Providence Journal owns or partially owns and operates nine network-
affiliated television stations (the "Stations") in geographically diverse
markets, including five in the fifty largest domestic television markets, as
measured by the number of television households. On a pro forma basis, for the
year ended December 31, 1994, Providence Journal had net revenues from its
broadcast operations of $171 million. Providence Journal has been involved in
the PJC Broadcasting Business since 1978 when it acquired an independent
station in Philadelphia, Pennsylvania.
INDUSTRY BACKGROUND
There are a limited number of channels available for broadcasting in any one
geographic area, and the license to operate a television station is granted by
the FCC. Television stations can be distinguished by the frequency over which
they broadcast. Television stations that broadcast over the very high frequency
("VHF") band (channels 2-13) of the radio spectrum generally have some
competitive advantage over television stations that broadcast over the ultra-
high frequency ("UHF") band (channels above 13) of the spectrum because VHF
stations usually have better signal coverage and lower transmission costs.
However, the improvement of UHF transmitters and receivers, the complete
elimination from the marketplace of VHF-only receivers and the expansion of
cable television systems have reduced the VHF signal advantage.
Television station revenues are primarily derived from local, regional and
national advertising and, to a lesser extent, from network compensation and
revenues from studio rental and commercial production activities. Advertising
rates are set based upon a variety of factors, including a program's popularity
among the demographic groups that an advertiser wishes to attract, the number
of advertisers competing for the available time, the size and demographic make-
up of the market served by the station and the availability of alternative
advertising media in the market area. Because broadcast television stations
rely on advertising
84
<PAGE>
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 204
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. The National Association of Broadcasters (the "NAB"),
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"). The
NAB 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 the NAB.
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 affiliation agreement with ABC for
five of its stations, including two of its UHF stations in markets that were
lost by ABC to Fox. Meredith Corp. switched two of its stations, one an
independent and one an NBC affiliate, to CBS as part of CBS's effort to replace
lost markets. In July 1994, CBS entered into ten-year affiliation agreements
with three stations owned by Westinghouse Electric Corp.'s Group W broadcasting
unit in the cities of Boston, Philadelphia and Baltimore, replacing two NBC
affiliates and one ABC affiliate, respectively, in those markets. These
developments are part of a continuing trend of affiliation realignments
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<PAGE>
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 the Stations) for seven years. This realignment 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 the NAB 1994 "Television Market Analysis"
and the NAB 1995 "Market By Market Review". The Stations are listed in order of
their 1993 market revenues.
<TABLE>
<CAPTION>
NUMBER OF 1993
COMMERCIAL TV STATION MARKET
CHANNEL/ DMA STATIONS IN RANK IN STATION REVENUE(5)
STATION/MARKET AREA AFFILIATION FREQUENCY RANK(1) MARKET(2) MARKET(3) SHARE(4) (IN THOUSANDS)
------------------- ----------- --------- ------- ------------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
KING*................... NBC 5/VHF 12 10 1 23 $213,831
Seattle, WA
KGW*.................... NBC 8/VHF 25 8 3 24 117,020
Portland, OR
WCNC.................... NBC 36/UHF 28 7 4 13 92,267
Charlotte, NC
WHAS.................... ABC 11/VHF 50 5 1 29 66,829
Louisville, KY
KHNL*................... Fox 13/VHF 69 9 3 16 56,912
Honolulu, HI
KASA.................... Fox 2/VHF 49 10 4 15 56,246
Albuquerque, NM
KMSB.................... Fox 11/VHF 81 6 3 15 39,975
Tucson, AZ
KREM*................... CBS 2/VHF 75 4 1 29 36,930
Spokane, WA
KTVB*................... NBC 7/VHF 125 5 1 39 $ 19,762
Boise, ID
</TABLE>
--------
* These Stations are 50% owned by the Kelso Partnerships, the interest of
which 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 the NAB.
(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 6:00
a.m.-2:00 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 the NAB.
KING-SEATTLE, WA. KING operates in the Seattle/Tacoma market, the twelfth
largest television market in the United States, with approximately 1.48 million
television households and a population of approximately
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3.8 million. In 1993, the Seattle/Tacoma market totaled approximately $32
billion in retail sales. There are ten licensed commercial television stations
in Seattle/Tacoma (six VHF stations and four UHF stations) and two public
stations. All four network affiliates are VHF (including KING), 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 923,000
television households and a population of approximately 2.4 million. In 1993,
the Portland market totaled approximately $21 billion in retail sales. There
are eight licensed commercial television stations in the Portland market (four
VHF stations and four 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 three 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. The Station's tradition of community service has resulted in the
receipt of numerous awards. In 1994, KGW won five regional Associated Press
awards, including being named as having the Best News Program in the Portland
area.
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 789,000
television households and a population of approximately 2.1 million. In 1993,
the Charlotte market totaled approximately $16 billion in retail sales. There
are seven licensed commercial television stations in Charlotte (two VHF and
five UHF stations) and one public station. Two network affiliates are VHF
stations, two network affiliates are UHF stations (including WCNC), and three
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 540,000
television households and a population of approximately 1.4 million. In 1993,
the Louisville market totaled approximately $11 billion in retail sales. There
are seven licensed commercial television stations in Louisville (two VHF and
five UHF stations) and one public station. Two network stations are VHF
(including WHAS), three network stations are UHF and the two independent
stations are UHF. WHAS has been an ABC affiliate since 1990, and its current
affiliation agreement expires in September 1995.
WHAS is a market leader in community service as well as in news ratings and
programming success. The WHAS Crusade for Children, the Station's fund-raiser
for agencies which help special needs children, raised a record $3.7 million in
1994. The Station's news department won nearly every first place Associated
Press award in 1994, including Best Overall News Operation for the third year
in a row.
The Louisville economy continues its rapid growth, rising steadily since
1991. 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 384,000 television
households and a population of approximately 1.2 million. In 1993, the Honolulu
market totaled approximately $13.2 billion in retail sales. There are nine
licensed commercial television stations in Honolulu (five VHF stations and four
UHF stations) and one public station. All four network stations are VHF. One
independent station is VHF (KFVE) and four independent stations are UHF. KHNL
has been a Fox affiliate since 1987 but expects to become an NBC affiliate in
1995, and its affiliation agreement with NBC will expire in 2002.
KHNL began to carry local news in April 1995 and 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.
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 550,000 television households and a population of 1.5 million. In
1993, the Albuquerque/Santa Fe market totaled approximately $11.7 billion in
retail sales. There are nine licensed commercial television stations in
Albuquerque/Santa Fe (five VHF stations and four UHF stations) and three public
stations. All four network affiliates are VHF stations (including KASA), one
independent is a VHF station and four independents are UHF stations. KASA has
been a Fox affiliate since 1986, and its current affiliation agreement expires
in 1998.
KASA is the Fox affiliate for New Mexico and Southern Colorado. KASA provides
entertainment, sports and information programming for the greater Albuquerque
television market.
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. Tourism is also important to the economy, particularly in
Santa Fe.
KMSB-TUCSON, AZ. KMSB operates in the Tucson market, the eighty-first largest
television market in the United States, with approximately 333,000 television
households and a population of approximately 860,000. In 1993, the Tucson
market totaled approximately $7 billion in retail sales. There are six licensed
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commercial television stations in Tucson (four VHF stations and two UHF
stations) and two public stations. All four network affiliates are VHF stations
(including KMSB), and two independent stations are UHF stations. KMSB has been
a Fox affiliate since 1986, and its current affiliation agreement expires in
1998.
KMSB is the FOX affiliate with programming targeted toward adults 18-49 and
children/teens. The Station's sports commitment includes the NFC Conference of
the NFL, Arizona Cardinals pre-season, and selected NHL games. The Station's
community commitment includes the GoalGetters program which rewards student
performance with free product or prize-drawings supplied by advertisers and a
Let's Make a Difference campaign which encourages volunteerism. The Station was
honored for producing and airing a telethon which raised 650,000 hours in
pledges from companies and individuals for volunteer activities which 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 357,000
television households and a population of approximately 925,000. In 1993, the
Spokane market totaled approximately $7 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 Northwest. KREM is
Spokane's news leader and presents the market's only noon newscast.
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
Northwest 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
176,000 television households and a population of 475,000. In 1993, the Boise
market totaled approximately $3.6 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 nearly double those of its nearest competitor as reported by the NAB.
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
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people. The city also has many other supporting and related businesses. The
Boise economy is dependent on agriculture, mining, timber products, services,
government, and corporate headquarters of various companies.
COMPETITION IN THE TELEVISION INDUSTRY
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency. The broadcasting industry is continually faced with technological
change and innovation, the possible rise in popularity of competing
entertainment and communications media, and governmental restrictions or
actions of federal regulatory bodies, including the FCC and the Federal Trade
Commission, any of which could have a material effect on the PJC Broadcasting
Business.
AUDIENCE. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the daily
programming on the Stations is supplied by the network with which each Station
is affiliated. In those time periods, the Stations are totally dependent upon
the performance of the network programs in attracting viewers. There can be no
assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Non-network time periods are programmed by the
Station with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased for
cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership. Each
of Warner Brothers and Paramount has launched a new television network.
Providence Journal is unable to predict the effect, if any, that either network
will have on the future operating results of the PJC Broadcasting Business.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular the growth
of cable television, has significantly altered competition for audience in the
television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by serving
as a distribution system for non-broadcast programming originated on the cable
system. Through the 1970s, television broadcasting enjoyed virtual dominance in
viewership and television advertising revenues because network-affiliated
stations competed only with each other in most local markets. Although cable
television systems were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal reception,
significant increases in cable television penetration occurred throughout the
1970s and 1980s in areas that did not have signal reception problems. As the
technology of satellite program delivery to cable systems advanced in the late
1970s, development of programming for cable television accelerated
dramatically, resulting in the emergence 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
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signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized "niche"
programming. This ability to reach very narrowly defined audiences is expected
to alter the competitive dynamics for advertising expenditures. Providence
Journal is unable to predict the effect that these or other technological
changes will have on the broadcast television industry or the future results of
Providence Journal's operations.
PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Stations compete against in-market broadcast station
competitors for exclusive access to off-network reruns (such as Roseanne) and
first-run product (such as Oprah) in their respective markets. Cable systems
generally do not compete with local stations for programming, although various
cable networks from time to time have acquired programs that might have
otherwise been purchased by local television stations. Competition for
exclusive news stories and features is also endemic to the television industry.
ADVERTISING. Advertising rates are based upon the size of the market in which
the Station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the Station, the
availability of alternative advertising media in the market area, aggressive
and knowledgeable sales forces, and development of projects, features and
programs that tie advertiser messages to programming. In addition to competing
with other media outlets for audience share, the Stations also compete for
advertising revenues, which comprise their primary source of revenues. The
Stations compete for such advertising revenues with other television stations
in their respective markets, as well as with other advertising media, such as
newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets. The Stations are located in 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 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 Television Corporation and River
City Broadcasting, L.P. 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 June 30, 1995,
Providence Journal's total commitment, consisting of amounts paid to date and
current obligations, with respect to PSN, was approximately $1.4 million. While
the amount of its investments in programming joint ventures has not been
significant to date, Providence
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Journal anticipates that its overall commitment to the production of television
programming will increase in the future.
Although Providence Journal's partners in PSN include experienced and
successful television program producers, Providence Journal has little
experience in selecting, developing, producing or investing in television
programs outside of local news and purchasing established syndicated
programming. The competition to produce successful television programming is
fierce, and many competitors in this area have substantially greater experience
and financial, creative and marketing resources than Providence Journal. Often
television programs created do not survive the pilot and testing phases and,
even among those that do, many do not attract sufficient audience share to be
successfully syndicated. There is no assurance that Providence Journal's
investment in PSN or future programming joint ventures will be profitable or
will result in lower overall programming costs. To the extent Providence
Journal commits broadcasting resources to air programming produced by such
joint ventures, Providence Journal may attract a 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 to KFVE. KFVE 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. 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
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advertisers through targeted marketing techniques and carefully tailored
programming. Providence Journal works closely with advertisers to develop
campaigns that match specifically targeted audience segments with the
advertisers' overall marketing strategies. With this information, Providence
Journal regularly refines its programming mix among network, syndicated and
locally-produced shows in a focused effort to attract audiences with
demographic characteristics desirable to advertisers.
STRONG LOCAL PRESENCE. Each Station seeks to achieve a distinct local
identity principally through the quality of its local news programming (except
for its three Fox affiliates, which do not provide news programming) and by
targeting specific audience groups with special programs and marketing events.
Each Station's local news franchise is the foundation of Providence Journal's
strategy to strengthen audience loyalty and increase revenue and broadcast
operating income for each Station. Strong local news generates high viewership
and results in higher ratings both for programs preceding and following the
news. In addition to local news, each Station utilizes special programming and
marketing events, such as prime time programming of local interest or sponsored
community events, to strengthen community relations and increase advertising
revenues. Providence Journal places a special emphasis on developing and
training its local sales staff to promote involvement in community affairs and
stimulate growth of local advertising sales.
PROGRAMMING. Providence Journal continually reviews its existing programming
inventory and seeks to purchase the most profitable and cost-effective
syndicated programs available for each time period. In developing its selection
of syndicated programming, management balances the cost of available syndicated
programs, their potential to increase advertising revenue and the risk of
reduced popularity during the term of the program contract. Providence Journal
seeks to purchase only those programs with contractual periods that permit
programming flexibility and which complement a Station's overall programming
strategy and counter competitive programming. Programs that can perform
successfully in more than one time period are more attractive due to the long
lead time and multi-year commitments inherent in program purchasing.
COST CONTROLS. Each Station emphasizes strict control of its programming and
operating costs as an essential factor in increasing broadcast operating
income. Providence Journal relies primarily on its in-house capabilities and
seeks to minimize its use of outside firms and consultants. Providence
Journal's size benefits each Station in negotiating favorable terms with
programming suppliers and other vendors. In addition, each Station reduces its
corporate overhead costs by utilizing the group benefits provided by Providence
Journal for all of the Stations, such as insurance and other employee group
benefit plans. Through strategic planning and annual budget processes,
Providence Journal continually seeks to identify and implement cost saving
opportunities at each of the Stations. Providence Journal closely monitors the
expenses incurred by each of the Stations and continually reviews the
performance and productivity of station personnel. Providence Journal has been
successful in reducing its costs without sacrificing revenues through efficient
use of its available resources.
ACQUISITION STRATEGY
Providence Journal believes that its ability to manage costs effectively
while enhancing the quality demanded by station viewers gives Providence
Journal an important advantage in acquiring and operating new stations. In
assessing acquisitions, Providence Journal targets stations for which it has
identified line 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
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Stations, the substitution of stations in larger markets for Providence
Journal's smaller market Stations as a result of acquisitions and divestitures,
and additional acquisitions that may occur if the FCC expands the number of
stations that an operator may own. (See "Licensing and Regulation".) There can
be no assurances that further acquisitions will be consummated.
LICENSING AND REGULATION
The following is a brief discussion of certain provisions of the
Communications Act and of FCC regulations and policies that affect the PJC
Broadcasting Business. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC, on which this discussion
is based, for further information concerning the nature and extent of FCC
regulation of television broadcasting stations.
LICENSE RENEWAL, ASSIGNMENTS AND TRANSFERS. Television broadcasting licenses
are granted for a maximum of five years and are subject to renewal upon
application to the FCC. The FCC prohibits the assignment of a license or the
transfer of control of a broadcasting license without prior FCC approval. In
determining whether to grant or renew a broadcasting license, the FCC considers
a number of factors pertaining to the applicant, including compliance with
limitations on alien ownership, common ownership of broadcasting, cable and
newspaper properties, and compliance with character and technical standards.
During certain limited periods when a renewal application is pending, competing
applicants may file applications with the FCC for authorization to broadcast on
the television frequency being used by the renewal applicant. During the same
periods, petitions to deny license renewal may be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold evidentiary, trial-type hearings on
renewal applications if a competing application is filed against a renewal
application, or if a petition to deny renewal of such license raises a
"substantial and material question of fact" as to whether the grant of the
renewal application would be inconsistent with the public interest, convenience
and necessity.
MULTIPLE OWNERSHIP RULES AND CROSS OWNERSHIP RESTRICTIONS. On a national
level, the FCC rules generally prevent an entity or individual from having an
attributable interest in more than 12 regular television stations. On a local
level, the "duopoly" rules prohibit such interests in two or more television
stations with overlapping service areas. Additional cross-ownership
restrictions generally prohibit new television/radio, broadcast/daily newspaper
or television/cable combinations in the same market. The FCC generally applies
its ownership limits to "attributable" interests held by an individual,
corporation, partnership or other association. In the case of corporations
holding broadcast licenses, the interests of officers, directors and those who,
directly or indirectly, have the right to vote 5% or more of the corporation's
voting stock (or 10% or more of such stock in the case of insurance companies,
mutual funds, bank trust departments and certain other passive investors that
are holding stock for investment purposes only) are generally deemed to be
attributable, as are positions as an officer or director of a corporate parent
of a broadcast licensee.
Because of these multiple ownership rules and cross-ownership restrictions, a
purchaser of Providence Journal Common Stock who acquires an attributable
interest in Providence Journal may violate the FCC's rules if that purchaser
also has an attributable interest in other television or radio stations, or in
daily newspapers, depending on the number and location of those radio or
television stations or daily newspapers. 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.
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The FCC has initiated rule-making proceedings to consider proposals to relax
its television ownership restrictions, including ones that would permit the
ownership in some circumstances of two television stations with overlapping
services areas. The FCC may also consider in these proceedings whether to adopt
new restrictions on television LMAs. If the FCC were to decide that the
provider of services under an LMA should be treated as the owner of the station
and if it did not relax the duopoly rules, or if the FCC were to announce new
restrictions on LMAs, Providence Journal would be required to modify or
terminate its LMAs. Further, if the FCC were to find that one of Providence
Journal's LMA stations failed to maintain control over its operations, the
licensee of the LMA station and/or Providence Journal could be subject to
sanctions. Providence Journal is unable to predict the ultimate outcome of
possible changes to these FCC rules and the impact such changes may have on its
broadcasting operations.
ALIEN OWNERSHIP. Under the Communications Act, broadcast licenses may not be
granted to or held by any corporation having more than one-fifth of its capital
stock owned of record or voted by non-U.S. citizens (including a non-U.S.
corporation), foreign governments or their representatives (collectively,
"Aliens") or having an Alien as an officer or director. The Communications Act
also prohibits a corporation, without an FCC public interest finding, from
holding a broadcast license if that corporation is controlled, directly or
indirectly, by another corporation, any officer of which is an Alien, or more
than one-fourth of the directors of which are Alien, or more than one-fourth of
the capital stock of which is owned of record or voted by Aliens. The FCC has
issued interpretations of existing law under which these restrictions in
modified form apply to other forms of business organizations, including general
and limited partnerships. As a result of these provisions, Providence Journal,
which serves as a holding company for its various television station licensee
subsidiaries, cannot have more than 25% of its capital stock owned of record or
voted by Aliens, cannot have an officer who is an Alien and cannot have more
than one-fourth of the Providence Journal Board consisting of Aliens.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually relaxed or
eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. Broadcast station licensees continued, however,
to be required to present programming that is responsive to community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming may
be considered by the FCC when it evaluates license renewal applications,
although such complaints may be filed, and generally may be considered by the
FCC, at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, children's television
programming, political advertising, sponsorship identifications, contest and
lottery advertising, obscene and indecent broadcasts, and technical operations,
including limits on radio frequency radiation. In addition, broadcast licensees
must develop and implement affirmative action programs designed to promote
equal employment opportunities, and must submit reports to the FCC with respect
to these matters on an annual basis and in connection with a license renewal
application.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY. Effective January 1, 1990,
the FCC reimposed syndicated exclusivity rules and expanded the existing
network non-duplication rules. The syndicated exclusivity rules allow local
broadcast stations to require that cable operators black out certain
syndicated, non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called 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.
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In a Report and Order released on July 31, 1995, the FCC decided to repeal the
PTAR effective August 30, 1996. Petitions for Reconsideration and a court
appeal are still possible. Providence Journal cannot predict whether these
attempts will be successful or the effect any modification or elimination of
the PTAR would have on Providence Journal's programming or operations.
RESTRICTIONS ON BROADCAST ADVERTISING. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have examined legislative proposals to eliminate or
severely restrict the advertising of beer and wine. Providence Journal cannot
predict whether any or all of the present proposals will be enacted into law
and, if so, what the final form of such law might be. The elimination of all
beer and wine advertising would have an adverse effect on the Stations'
revenues and operating income as well as the revenues and operating income of
other stations that carry beer and wine advertising.
OTHER PROGRAMMING RESTRICTIONS. Bills which have been passed by the House and
Senate propose to regulate or limit television programming involving the
depiction of violence. Such proposals would regulate such programming by, for
example, restricting the hours within which it can be broadcast, penalizing
broadcasters for excessive broadcasting of violence, or requiring the insertion
of a "chip" in television receivers that would permit television viewers to
block the reception of any program containing a required code indicating
violent content. Providence Journal cannot predict whether any such legislation
will become law or whether the passage of such laws would have any significant
effect on the operations of the PJC Broadcasting Business.
CABLE "MUST-CARRY" OR "RETRANSMISSION CONSENT" RIGHTS. The 1992 Cable Act
requires television broadcasters to make an election to exercise either certain
"must-carry" or "retransmission consent" rights in connection with their
carriage by cable television systems in the station's local market. If a
broadcaster chooses to exercise its must-carry rights, it may demand carriage
on a specified channel on cable systems within its DMA. Must-carry rights are
not absolute, and their exercise is dependent on variables such as the number
of activated channels on and the location and size of the cable system and the
amount of duplicative programming on a broadcast station. Under certain
circumstances, a cable system may decline to carry a given station. If a
broadcaster chooses to exercise its retransmission consent rights, it may
prohibit cable systems from carrying its signal, or permit carriage under a
negotiated compensation arrangement.
On April 8, 1993, a three-judge panel of the United States District Court for
the District of Columbia upheld the constitutionality of the must-carry
provisions of the 1992 Cable Act. In 1994, the Supreme Court ruled that the
must-carry provisions were "content neutral" and thus not subject to strict
scrutiny and that Congress' stated interests in preserving the benefits of
free, over-the-air local broadcast television, promoting the widespread
dissemination of information from a multiplicity of sources and promoting fair
competition in the market for television programming all qualify as important
governmental interests. However, the Court remanded the case to a lower federal
court with instructions to hold further proceedings with respect to evidence
that lack of the must-carry requirements would harm local broadcasting. These
proceedings are now underway.
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
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operation. Stations would be required to phase in their ATV operations on the
second channel, with a three-year period to build necessary ATV facilities and
a consecutive three-year period in which to begin operations. Such stations
would be required to surrender their non-ATV channel 15 years after the
commencement of the first three-year period. Implementation of ATV will impose
additional costs on television stations providing the new service due to
increased equipment costs. Providence Journal estimates that the adoption of
ATV would require average capital expenditures of approximately $2 million per
Station to provide facilities necessary to broadcast an ATV signal. The
conversion of a Station's equipment enabling it to produce and transmit ATV
programming would be substantially more expensive. The introduction of this new
technology will require that consumers purchase new receivers (television sets)
for ATV signals or, if available by that time, adapters for their existing
receivers. While Providence Journal believes that the FCC will authorize ATV in
the United States, Providence Journal cannot predict when such authorization
might be given or the effect such authorization might have on the PJC
Broadcasting Business.
In addition, the FCC is conducting an inquiry to consider proposals to
increase broadcasters' obligations under its rules implementing the Children's
Television Act of 1990, which requires television stations to present
programming specifically directed to the "educational and informational" needs
of children. The FCC also is conducting a rule-making proceeding to consider
the adoption of more restrictive standards for the exposure of the public and
workers to potentially harmful radio frequency radiation emitted by broadcast
station transmitting facilities. Other matters that could affect the Stations
include technological innovations affecting the mass communications industry
such as technical allocation matters, including assignment by the FCC of
channels for additional broadcast stations, low-power television stations and
wireless cable systems and their relationship to and competition with full-
power television broadcasting service.
The FCC has initiated a Notice of Inquiry proceeding seeking comment on
whether the public interest would be served by establishing limits on the
amount of commercial matter broadcast by television stations. No prediction can
be made at this time as to whether the FCC will impose any commercial limits at
the conclusion of its deliberations. Providence Journal is unable to determine
what effect, if any, the imposition of limits on the commercial matter
broadcast by television stations would have on the operations of the PJC
Broadcasting Business.
Congress and the FCC also have under consideration, or may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of the PJC Broadcasting Business and the Stations, result in
the loss of audience share and advertising revenues of the Stations, and affect
Providence Journal's ability to acquire additional broadcast stations or
finance such acquisitions. Such matters include, for example, (i) changes to
the license renewal process; (ii) imposition of spectrum use or other
governmentally imposed fees upon a licensee; (iii) proposals to expand the
FCC's equal employment opportunity rules and other matters relating to minority
and female involvement in broadcasting; (iv) proposals to increase the
benchmarks or thresholds for attributing ownership interest in broadcast media;
(v) proposals to change rules or policies relating to political broadcasting;
(vi) technical and frequency allocation matters, including those relative to
the implementation of ATV; (vii) proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on broadcast stations;
(viii) changes in the FCC's cross-interest, multiple ownership, alien ownership
and cross-ownership policies; (ix) changes to broadcast technical requirements;
(x) proposals to allow telephone companies to deliver video programming to the
home; and (xi) proposals to limit the tax deductibility of advertising expenses
by advertisers.
Providence Journal cannot predict what other matters might be considered in
the future, nor can it judge in advance what impact, if any, the implementation
of any of these proposals or changes might have on the PJC Broadcasting
Business.
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
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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. Pending in Congress are H.R. 1555 and S. 652, which have been
passed by the House and Senate, respectively. These bills would enact
comprehensive changes in telecommunications policy. Providence Journal cannot
predict the ultimate outcome of legislation in this Session of Congress.
EMPLOYEES
As of June 30, 1995, the operations of the PJC Broadcasting Business had
approximately 966 full-time employees and 116 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 six 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
and the other conditions to the PJC Spin-Off and the Merger are satisfied or
waived, the PJC Non-Cable Business (including both the PJC Publishing Business
and the PJC Broadcasting Business) will be transferred to New Providence
Journal, and the shares of New Providence Journal will be transferred to the
present stockholders of Providence Journal in the PJC Spin-Off. The discussion
set forth below regarding Providence Journal also serves as a discussion of
New Providence Journal in the event the PJC Spin-Off, the Merger and the
transactions contemplated thereby are consummated.
OTHER INVESTMENTS AND ASSETS
THE FOOD CHANNEL. On August 16, 1993, Providence Journal, through various
subsidiaries, successfully organized TVFN. TVFN is a Delaware general
partnership consisting of eight cable television operators and programmers and
one broadcast television partner. As of June 30, 1995, Providence Journal had
a 20.4% interest in TVFN and is a general partner in the managing general
partner of TVFN. TVFN owns and operates The Food Channel, a 24-hour cable
programming channel devoted to food, its preparation and related topics. As of
June 30, 1995, The Food Channel was available to approximately 12.4 million
cable subscribers throughout the United States.
LINKATEL. Providence Journal, through a subsidiary, owns a 42% interest in
Linkatel, a California partnership formed in 1993 to build, own and operate a
fiber-optic telecommunications alternate access network in the Los Angeles
basin. The construction of the Linkatel network has commenced and the first
segment of this network is expected to be operational in the first half of
1995.
STARSIGHT. In 1993 Providence Journal purchased a 4.85% interest in
StarSight Telecast, Inc., ("StarSight") a company engaged in developing and
marketing an on-screen interactive television program guide designed to
facilitate the identification, selection and recording of television
programming. Jack C. Clifford, Vice President--Broadcasting and Cable
Television of Providence Journal, is a member of the Board of Directors of
StarSight. StarSight's shares are listed on NASDAQ.
VIDEO PROGRAMMING. Providence Journal is actively reviewing opportunities to
participate in the creation and development of new cable television
programming services. In general, New Providence Journal will seek to enter
into partnerships and other relationships with companies or individuals having
specialized expertise with regard to the content of the programming. On April
5, 1995, Providence Journal entered into an agreement to purchase an interest
of up to 37% in America's Health Network ("AHN"), a planned new cable
television programming service providing health information and products. In
connection with the transaction, warrants were issued to Providence Journal
which, if exercised, would increase Providence Journal's interests to
approximately 52%. Through June 30, 1995, Providence Journal has invested
approximately $4.3 million in AHN, representing an ownership interest of
approximately 46%.
PEAPOD. On July 27, 1995, Providence Journal purchased for approximately
$5.1 million a 17.1% interest in Peapod LP, which currently provides an
interactive computer online grocery ordering, shopping and delivery service in
Chicago and San Francisco.
BILTMORE HOTEL. Providence Journal has for some years owned the Omni
Biltmore Hotel and the adjoining Washington Street Garage, two operating
properties located in Providence, Rhode Island. On July 18, 1995, Providence
Journal sold the Omni Biltmore Hotel for approximately $7 million to the Grand
Heritage Hotels organization.
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.
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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 June 30, 1995 after
giving effect to the PJC Spin-Off, the Merger and the transactions contemplated
thereby described in the Notes to the Pro Forma Condensed Consolidated Balance
Sheet and Statement 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>
JUNE 30, 1995
---------------------------------
NEW PROVIDENCE
PROVIDENCE JOURNAL JOURNAL
HISTORICAL PRO FORMA
------------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Debt, including current installments......... $310,462 $285,000
Stockholders' Equity:
Providence Journal Common Stock:
Class A Common Stock, par value $2.50 per
share; authorized 600,000 shares; issued
38,505 shares............................. 96
Class B Common Stock, par value $2.50 per
share; authorized 300,000 shares; issued
47,145 shares............................. 118
Treasury Stock, at cost, 961 shares........ (7,448)
New Providence Journal Common Stock:
Pro Forma:
Class A Common Stock, par value $1.00 per
share; authorized 600,000 shares; issued
and outstanding 38,825 shares............. 38
Class B Common Stock, par value $1.00 per
share; authorized 300,000 shares; issued
and outstanding 46,825.................... 47
Additional Capital.......................... 1,225 7,354
Retained Earnings........................... 285,265 222,937
Unrealized Loss on Securities held for sale,
net........................................ (892) (892)
-------- --------
Total Stockholders' Equity............... 278,364 229,484
-------- --------
Total Capitalization................... $588,826 $514,484
======== ========
</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, 1990, 1991, 1992, 1993 and 1994 and the Balance Sheet
Data as of the same dates have been derived from the audited consolidated
financial statements of Providence Journal. The Statement of Operations for the
six months ended June 30, 1994 and 1995 and the balance sheet data as of June
30, 1995 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 six months ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------------------------------ -----------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $169,840 $167,008 $173,579 $180,473 $192,291 $92,730 $95,816
Operating Loss......... (16,437) (31,793) (9,773) (15,859) (10,696) (1,827) (4,865)
Interest, Fees and
Other Income.......... 11,900 38,964 46,751 4,832 5,223 2,825 2,928
Interest Expense....... (15,701) (10,102) (6,455) (2,578) (2,426) (1,366) (1,176)
Equity in Loss of
Affiliates............ (988) -- (12,642) (7,788) (12,154) (3,273) (240)
Income (Loss) from
Continuing Operations
before Income Taxes... (21,226) (2,931) 17,881 (21,393) (20,053) (3,641) (3,353)
Income (Loss) from
Continuing Operations. (12,923) (6,547) 6,044 (15,628) (22,420) (3,015) (1,682)
Income (Loss) Per
Common Share From
Continuing Operations. (129.02) (74.56) 70.26 (183.21) (264.13) (35.44) (19.86)
Cash Dividends Paid Per
Common Share.......... 39.00 86.00 94.60 104.00 114.40 52.00 57.20
<CAPTION>
DECEMBER 31
------------------------------------------------ JUNE 30,
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets........... $784,063 $594,098 $793,433 $775,685 $724,713 $761,281
Net Assets of
Discontinued Cable
Television Operations
included in Total
Assets................ 51,577 54,184 393,342 396,260 364,010 404,861
Long-term Debt......... 28,568 28,608 253,106 276,601 247,173 296,895
Stockholders' Equity... 460,321 399,938 391,967 359,575 285,887 278,364
</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 182,400 and 261,200,
respectively. The newspaper serves Rhode Island and Southeastern Massachusetts.
The PJC Broadcasting Business owns or partially owns the nine Stations, which
are in nine different markets. Four of the Stations are wholly owned, and five
are partially owned through the Providence Journal's 50% interest in KHC, which
owns KBC. (See "Description of Providence Journal Broadcast Television
Business--The Stations".)
In November 1994, Providence Journal announced a definitive agreement,
pursuant to which it agreed to consummate the Merger with Continental in a
transaction valued at approximately $1.4 billion. The
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Merger and the King Cable Purchase, which requires various regulatory
approvals, are expected to be completed in the fourth quarter of 1995.
Accordingly, the PJC Cable Business has been classified as a discontinued
operation for all periods presented.
In order to complete the Merger, Providence Journal will purchase the 50%
interest in KHC owned by the Kelso Partnerships for $265 million (including
transaction costs), thus resulting in KHC being wholly owned by Providence
Journal. (See "Pre-Merger Transactions--Kelso Buyout".) Following the PJC Spin-
Off, KHC's broadcast stations will be owned entirely by New Providence Journal.
The unaudited pro forma condensed consolidated statement of operations for New
Providence Journal contained herein has been prepared assuming these
transactions occurred on January 1, 1994 and, accordingly, reflect the combined
results of Providence Journal and KHC's broadcast stations for all pro forma
periods presented.
Other investments in affiliated companies include a 21% interest in TVFN,
which develops cable television programming related to food, its preparation
and related topics; a 42% interest in Linkatel, formed to pursue the
development of alternative access networks; and a 46% interest, as of June 30,
1995, in AHN, a development stage company, intending to develop a health-
related cable programming network. These and other smaller investments have
been accounted for using the equity method and, combined with Providence
Journal's 50% interest in KHC, represented a combined investment of $92.3
million as of June 30, 1995.
The following table summarizes the equity in income (loss) of affiliated
companies on a disaggregated basis:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ----------------
% % %
OWNERSHIP 1992 OWNERSHIP 1993 OWNERSHIP 1994 1994 1995
--------- -------- --------- ------- --------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KHC..................... 50 $(12,602) 50 $(7,245) 50 $ (8,326) $(1,630) $ 1,960
AHN..................... -- (515)
TVFN.................... 20 (1,391) 21 (3,848) (2,032) (2,024)
Linkatel................ 33 (128) 42 (509) (242) (386)
Other................... (40) 976 529 631 725
-------- ------- -------- ------- -------
Total................. $(12,642) $(7,788) $(12,154) $(3,273) $ (240)
======== ======= ======== ======= =======
</TABLE>
DISCONTINUED OPERATIONS. As noted above, the PJC Cable Business is expected
to be acquired by Continental. Income (loss) from the PJC Cable Business, along
with allocated interest expense and income taxes, but excluding equity in loss
of KHC's cable business, is therefore reported as a discontinued operation for
all periods presented. No corporate overhead has been allocated to discontinued
operations. Additionally, Providence Journal sold its remaining investments in
its cellular system and its paging subsidiary in April 1994 for $10.7 million,
recording a gain of $1.4 million net of taxes. Income (loss) from these
businesses is reported as a discontinued operation.
Operating results of these discontinued operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $112,334 $177,417 $177,953
Income (Loss) Before Income Taxes............... 5,824 (8,143) (1,452)
Income Taxes (Benefits)......................... 2,955 (1,087) 1,155
Income (Loss) from Discontinued Operations...... 2,869 (7,056) (2,607)
</TABLE>
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OTHER ASSETS. In September 1990, Providence Journal loaned the Lowell Sun
Companies approximately $26 million and agreed to provide a $6.5 million
revolving credit facility. The loan and revolving credit facility are available
through March 1996 and bear interest at a floating rate of prime plus 1.25%.
The loan is secured by all the assets of the Lowell Sun Companies and a pledge
of the Lowell Sun Companies' stock. Providence Journal does not manage the
Lowell Sun Companies. As additional consideration for making the loan, the
Lowell Sun Companies granted Providence Journal a warrant to acquire a 41.67%
interest in the Lowell Sun Companies. The warrant is exercisable through
September 1995. Providence Journal's management has notified the Lowell Sun
Companies that it will not exercise this warrant.
Providence Journal has, for some years owned the Omni Biltmore Hotel and the
adjoining Washington Street Garage, two operating properties located in
Providence, Rhode Island. The carrying amount of these properties totaled $17.2
million at December 31, 1994. On July 18, 1995, the Omni Biltmore Hotel was
sold to Grand Heritage Hotels for approximately $7 million.
CONSOLIDATED RESULTS OF OPERATIONS. The following table summarizes Providence
Journal's financial results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
---------------------------- ----------------
1992 1993 1994 1994 1995
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Publishing............... $120,516 $124,914 $127,893 $62,383 $62,687
Broadcast Television (1)
........................ 43,281 45,506 54,024 25,197 28,707
Other.................... 9,782 10,053 10,374 5,150 4,422
-------- -------- -------- ------- -------
173,579 180,473 192,291 92,730 95,816
-------- -------- -------- ------- -------
Operating Income (Loss):
Publishing............... 10,590 9,891 9,233 3,938 (1,715)
Broadcast Television (1)
........................ (5,276) (2,213) 5,576 1,338 4,937
Other.................... (646) (2,651) 881 486 (113)
Corporate................ (14,441) (20,886) (26,386) (7,589) (7,974)
-------- -------- -------- ------- -------
(9,773) (15,859) (10,696) (1,827) (4,865)
Other Income (Expense):
Interest, Fees and Other
Income.................. 46,751 4,832 5,223 2,825 2,928
Interest Expense......... (6,455) (2,578) (2,426) (1,366) (1,176)
Equity in Loss of
Affiliates.............. (12,642) (7,788) (12,154) (3,273) (240)
-------- -------- -------- ------- -------
27,654 (5,534) (9,357) (1,814) 1,512
Income (Loss) from
Continuing Operations
Before Income Taxes..... 17,881 (21,393) (20,053) (3,641) (3,353)
Income Taxes (Benefits).. 11,837 (5,765) 2,367 (626) (1,671)
-------- -------- -------- ------- -------
Income (Loss) from
Continuing Operations... 6,044 (15,628) (22,420) (3,015) (1,682)
Income (Loss) from
Discontinued Operations,
Net of Tax.............. 2,869 (7,056) (2,607) (1,934) --
Loss on disposal of
segments, net of tax.... -- -- (34,764) -- --
-------- -------- -------- ------- -------
Income (Loss) Before
Extraordinary Item and
Changes in Accounting
Methods................. 8,913 (22,684) (59,791) (4,949) (1,682)
Extraordinary Item, Net
of Tax ................. -- 1,551 -- -- --
Cumulative Effect of
Changes in Accounting
Methods, Net of Tax..... 1,257 -- -- -- --
-------- -------- -------- ------- -------
Net Income (Loss)........ $ 10,170 $(21,133) $(59,791) $(4,949) $(1,682)
======== ======== ======== ======= =======
</TABLE>
--------
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(1) Includes only those subsidiaries which are wholly owned.
The PJC Publishing Business and the PJC Broadcasting Business experience both
seasonal and cyclical fluctuations in their respective quarterly and annual
operating results. Net revenues are generally highest in the fourth quarter of
each year because of increased expenditures by advertisers in anticipation of
holiday retail spending. Expenses are generally spread evenly throughout the
year. On a year-to-year basis, political revenues are cyclical, with the
highest revenues generally occurring during major election years. In addition,
special events such as the summer or winter Olympics may benefit the PJC
Broadcasting Business through an increased amount of advertising during or
adjacent to such events at increased rates. The impact of such events will
depend on which network carries them and which of the Stations are affiliated
with that network. In general, the PJC Broadcasting Business benefits from
geographic diversity while the PJC Publishing Business is dependent upon the
Southeastern New England region.
First Six Months 1994 Compared with First Six Months 1995. Revenues increased
3.3% for the first six months of 1995, while operating loss increased 166.3% to
$(4.9) million. Significant improvements in the PJC Broadcasting Business were
more than offset by a decrease in operating profit for the PJC Publishing
Business. Corporate expenses were 5.1% higher for the first six months of 1995.
For the first six months, loss from continuing operations decreased from
$(3.0) million in 1994 to $(1.7) million in 1995, reflecting primarily an
improvement in the performance of KHC's broadcasting business. Providence
Journal's equity in income (loss) of this affiliate was $2.0 million equity
income in 1995 as compared to $(1.6) million equity loss in 1994, or a $3.6
million improvement. Accounting for KHC's discontinued cable operations in 1994
also impacted the equity in loss fluctuation of this affiliate since a
provision for KHC's loss in its cable operations during the phase out period
had been provided for in the fourth quarter of 1994 as a cost of business
disposal.
1994 Compared with 1993. Revenues increased 6.5% during 1994 showing modest
growth in the PJC Publishing Business and significant growth in the PJC
Broadcasting Business. Operating loss decreased 32.6% from $(15.9) million to
$(10.7) million. The PJC Broadcasting Business showed an operating profit of
$5.6 million in 1994, as compared with an operating loss of $(2.2) million in
1993, while the PJC Publishing Business showed a $0.7 million, or 6.7% decline
in operating profit during the comparable period.
Corporate overhead increased from $20.9 million to $26.4 million, primarily
because of increases associated with executive compensation programs. During
the fourth quarter of 1994, a charge to corporate overhead of $13 million for
executive compensation related stock and incentive unit plans was recorded.
Additional deferred compensation expense was accrued with respect to the
Incentive Stock Unit Plan for senior executives. The increased accrual resulted
from an increase in the amount reflected for the value of the Providence
Journal Class A Common Stock and the Providence Journal Class B Common Stock
from $8,700 per share (based on a November 1993 appraisal) to $12,000 per share
in November 1994 (an estimated value for accounting purposes without specific
appraisal support). (See "Executive Compensation--Providence Journal Incentive
Stock Unit Plan" and "--Aggregated SAR Exercises in Last Fiscal Year and Year-
End SAR Values" table, footnote (1)).
Other expense, net increased from $(5.5) million in 1993 to $(9.4) million in
1994, resulting primarily from a $(4.4) million increase in equity in loss of
affiliates. During 1994, equity in loss of affiliates of $(12.2) million
included $(4.4) million in losses from two development operations--TVFN and
Linkatel--as compared to $(1.5) million in losses from these affiliates in
1993. These start-up businesses are expected to be unprofitable for the
foreseeable future. (See the table under "General".)
Interest expense charged to continuing operations was $2.4 million, net of
allocation to discontinued operations of $20.7 in 1994. Interest allocated to
discontinued operations was limited to the associated interest on debt to be
repaid in connection with the Merger.
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Loss from continuing operations was $(22.4) million in 1994 compared to
$(15.6) million in 1993, reflecting the fluctuations discussed above and an
increase in income taxes of $8.1 million. During the fourth quarter of 1994,
Providence Journal agreed to a final settlement with the Service relating to
examinations of its income tax returns for the years 1984 through 1986. In
connection with this settlement, Providence Journal provided for an additional
income tax expense of $6 million, relating primarily to interest on settlements
and various contingencies on income tax exposures identified during on-going
examinations.
Income (loss) from discontinued operations consists primarily of the
operating results of the majority owned cable businesses, which are expected to
be acquired by Continental in the Merger. The decrease from a loss of $(7.1)
million in 1993 to $(2.6) million in 1994 reflects improved operating results,
mainly due to lower depreciation and amortization charged on recently acquired
cable television businesses. Loss on disposal of segments of $(34.8) million
net of tax includes severance, transaction costs and a provision for loss
during the phase-out period, including allocated interest.
1993 Compared with 1992. Revenues grew 4.0% between years showing modest
growth in both the PJC Publishing Business and the PJC Broadcasting Business.
Operating loss increased 62.2% from $(9.8) to $(15.9) million. The PJC
Broadcasting Business showed a substantial decrease in operating loss, from
$(5.3) million in 1992 to $(2.2) million in 1993, while the PJC Publishing
Business showed a $0.7 million or 6.6% decline in operating profit during the
comparable period. Also in 1992 and 1993, valuation adjustments based upon
appraised property values and discounted cash flow analyses were recorded
totaling $(.6) million and $(2.7) million respectively, which related to the
Omni Biltmore Hotel and adjoining Washington Street Garage.
Also contributing to the increase in operating loss was a $6.4 million or
44.6% increase in corporate overhead associated primarily with executive
compensation programs. During the fourth quarter of 1993, a charge to corporate
overhead of $4.8 million for executive compensation related stock and
retirement plans was recorded. Providence Journal established a Restricted
Stock Unit Plan for key executives in the fourth quarter of 1993. Also,
additional deferred compensation was accrued in connection with the Incentive
Stock Unit Plan for senior executives because the appraised value of Providence
Journal Class A Common Stock and Providence Journal Class B Common Stock
increased from $7,200 per share in November 1992 to $8,700 per share in
November 1993.
Interest, fees and other income decreased $41.9 million from 1992 to 1993. In
1992, Providence Journal earned $31.5 million in interest income on a six-year
term loan of $205.5 million advanced to Palmer. This note was settled in full
in connection with the acquisition of the Palmer Systems in December 1992.
(Operations from this acquisition have been classified as discontinued
operations in the accompanying financial statements from the date of purchase
forward.) In addition, other income decreased $5.8 million in 1993 as compared
to 1992 primarily as a result of decreased management and transaction fees paid
to Providence Journal by KHC.
Equity in loss of affiliates decreased from $(12.6) million in 1992 to $(7.8)
million in 1993, primarily reflecting the improvement in KHC's financial
results.
Interest expense charged to continuing operations decreased from $6.5 million
in 1992 to $2.6 million in 1993. Interest expense totaled $17.5 million and
$24.4 million for 1992 and 1993, respectively, of which $11 million and $21.8
million has been reclassified to discontinued operations in 1992 and 1993,
respectively. Interest expense has been allocated to discontinued operations
based upon amounts borrowed to fund the PJC Cable Subsidiaries' acquisitions.
Such debt is intended to be repaid as part of the transactions contemplated
herein.
Loss from continuing operations was $(15.6) million in 1993 as compared to
income of $6.0 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 66.2% in 1992 compared to a benefit rate of 26.9% in 1993.
Effective rates fluctuated from 34% primarily because of state income taxes and
equity in loss of KHC which is not deductible for tax purposes.
Income (loss) from discontinued operations decreased from income of $2.9
million in 1992 to a loss of $(7.1) million in 1993 because of the acquisition
of the Palmer Systems in December 1992.
In 1992, net income of $10.2 million includes the net cumulative effect of
changes in accounting for post-retirement benefits ($2.1 million charge) and
accounting for income taxes ($3.4 million benefit). Net loss in 1993 of $(21.1)
million includes the extraordinary gain of $1.6 million on early extinguishment
of debt.
ANALYSIS BY SEGMENT
Publishing Segment. The following table sets forth certain operating and
other data for the years ended December 31, 1992, 1993 and 1994 and for the six
months ended June 30, 1994 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
-------------------------- ---------------
1992 1993 1994 1994 1995
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT CIRCULATION)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising...................... $ 87,879 $ 93,149 $ 95,078 $46,367 $45,387
Circulation...................... 32,263 31,028 30,887 15,167 15,919
Other............................ 374 737 1,928 849 1,381
-------- -------- -------- ------- -------
120,516 124,914 127,893 62,383 62,687
Operating Expense.................. 99,539 103,597 107,462 52,771 58,892
Depreciation....................... 10,387 11,426 11,198 5,674 5,510
-------- -------- -------- ------- -------
Operating Income (loss)............ $ 10,590 $ 9,891 $ 9,233 $ 3,938 $(1,715)
======== ======== ======== ======= =======
Average Net Paid Circulation(1)
Daily............................ 197,100 192,500 188,200 184,700
Sunday........................... 268,100 269,100 268,800 266,400
</TABLE>
--------
(1) For the twelve-month periods ended March 31 in each of the years presented,
as reported by the Audit Bureau. (See "Description of Providence Journal
Publishing Business--Circulation and Pricing".)
The PJC Publishing Business publishes seven days a week: the Providence
Journal-Bulletin Monday through Saturday; and The Providence Sunday Journal on
Sunday. Prior to June 5, 1995, Providence Journal also published The Evening
Bulletin, an afternoon newspaper, Monday through Friday. Advertising revenue
represents 72% to 75% of total revenue for the PJC Publishing Business,
including retail and classified advertising. Advertising revenues have
increased a compound average growth rate of 4% annually over the last two
years, mostly due to price increases.
Average net paid daily circulation has declined 4.5% since 1992. This decline
has primarily been in The Evening Bulletin. Average net paid Sunday circulation
has remained relatively flat. The modest increases in advertising revenue and
declines in circulation revenue have, in part, been a function of the local
Rhode Island economy, particularly impacted in 1991 by the nationwide recession
and the Rhode Island credit union crises.
The PJC Publishing Business has taken steps to address the declining
readership of its newspapers by improving customer service and continued
improvement in content, especially local news coverage. New on-line services
and advertising media services are also continually being designed and
developed. During 1994, a development effort was started to offer a local on-
line news service in conjunction with Prodigy Services Company. The new service
began operations 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
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telemarketing. Revenue from these new development efforts has increased to $1.9
million for 1994 as compared to $.7 million in the prior year.
Operating expenses increased 3.7% in 1994 as compared with 1993, primarily as
a result of the development efforts discussed above. Operating expenses in 1993
compared to 1992 increased 4.1% and were impacted by a 10% increase in
newsprint and ink (which represents approximately 13% of total operating
expenses). Newsprint prices are expected to increase significantly in 1995. The
Journal implemented newsprint conservation programs to help offset price
increases.
Depreciation and amortization increased in 1993 compared with 1992,
reflecting a capital improvement program targeted toward cost reduction
improvements; e.g., energy efficiency, automation, additional press capacity.
Additionally, several of the Journal's operating facilities were renovated
during these years.
Publishing Outlook. Publishing results in 1995 are expected to be impacted by
two critical factors: the Rhode Island economy and the sharp increases in
newsprint prices anticipated throughout the industry. Newsprint expense, which
is the largest single expense item for the PJC Publishing Business, currently
represents approximately 13% of operating costs. The average newsprint price
per ton is expected to rise more than 27% in 1995.
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.
First Six Months 1994 compared with First Six Months 1995. Revenues for the
PJC Publishing Business remained relatively flat for the first six months of
1995 compared with 1994 while operating expenses increased from $52.8 million
to $58.9 million, or 11.6%. The primary reasons for the increase in operating
expenses were newsprint price increases, increased postage costs, labor
increases and one-time costs associated with the consolidation of the
Providence Journal morning paper and The Evening Bulletin which include
termination benefits associated with a recently announced early retirement
program discussed below. Flat revenues combined with increasing operating
expenses led to an operating loss of $(1.7) million in the first six months of
1995 as compared to profit of $3.9 million in the comparable prior period.
On March 22, 1995, Providence Journal announced that the morning Providence
Journal and The Evening Bulletin will be consolidated as the Providence
Journal-Bulletin, a morning newspaper. The consolidated newspaper first
appeared on June 5, 1995. Initially, a substantial portion of the anticipated
$6 million in savings from this consolidation will be reinvested to improve
local news coverage. Circulation is expected to drop temporarily but recover
once readers become aware of the expanded local news, although there can be no
assurances in this regard. Providence Journal has announced an early retirement
program associated with this newspaper consolidation which is expected to cost
the PJC Publishing Business $4.3 million to $6.7 million to implement. Such
costs will be accrued as early retirement offers are accepted by employees
(expected to be during the second and third quarters of 1995.) Approximately
$1.5 million in termination benefits was accrued in the first six months of
1995.
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.
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is
considered a good indicator in evaluating performance. It represents operating
income or loss plus depreciation and amortization. EBITDA should not be
considered by the reader as an alternative to operating or net income computed
in accordance with GAAP as an indicator of the PJC Broadcasting Business
performance or as an alternative to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity.
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The following table sets forth certain operating and other data for the years
ended December 31, 1992, 1993 and 1994 and for the six months ended June 30,
1994 and 1995. The actual results for all periods presented represent the
operating data for the four wholly owned Stations. Pro forma results for the
six months ended June 30, 1994 and 1995 and for the year ended December 31,
1994 also include the operating results of the five Stations jointly owned with
the Kelso Partnerships as if these Stations had been wholly owned and
consolidated as of January 1, 1994.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------
PRO FORMA PRO FORMA
1994 1995 1994 1995
------- ------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National Revenues..................... $11,396 $13,565 $39,676 $ 42,074
Local and Regional Revenues........... 15,222 17,195 44,231 51,779
Other Revenue......................... 2,419 2,403 6,189 5,571
Agency Commissions.................... (3,840) (4,456) (11,941) (13,353)
------- ------- ------- --------
Net Revenues.......................... 25,197 28,707 78,155 86,071
Operating and Administrative Expenses. 19,825 20,654 56,791 60,078
Depreciation and Amortization......... 4,034 3,116 10,102 9,033
------- ------- ------- --------
Total Operating Expenses.............. 23,859 23,770 66,893 69,111
------- ------- ------- --------
Operating Income (Loss)............... $ 1,338 $ 4,937 $11,262 $ 16,960
======= ======= ======= ========
OTHER DATA:
Earnings before Interest, Taxes,
Depreciation and Amortization........ $ 5,372 $ 8,053 $21,364 $ 25,993
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994
1992 1993 1994 PRO FORMA
------- ------- ------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National Revenues...................... $20,181 $19,475 $24,487 $ 88,691
Local and Regional Revenues............ 23,827 27,180 32,909 96,268
Other Revenue.......................... 5,588 5,510 4,924 12,538
Agency Commissions..................... (6,315) (6,659) (8,296) (26,414)
------- ------- ------- --------
Net Revenues........................... 43,281 45,506 54,024 171,083
Operating and Administrative Expenses.. 38,395 39,037 40,592 118,320
Depreciation and Amortization.......... 10,162 8,682 7,856 21,602
------- ------- ------- --------
Total Operating Expenses............... 48,557 47,719 48,448 139,922
------- ------- ------- --------
Operating Income (Loss)................ $(5,276) $(2,213) $ 5,576 $ 31,161
======= ======= ======= ========
OTHER DATA:
Earnings before Interest, Taxes,
Depreciation and Amortization......... $ 4,886 $ 6,469 $13,432 $ 52,763
======= ======= ======= ========
</TABLE>
First Six Months 1994 Compared with First Six Months 1995. Revenues for PJC
Broadcasting's wholly owned businesses increased 13.9% for the first six months
of 1995 compared with 1994. Likewise revenues for the PJC Broadcasting Business
on a pro forma basis increased 10.1%. The increase resulted from continuing
improvement in local and regional marketing conditions combined with expanded
sports coverage in certain markets. Operating and administrative expenses on a
pro forma basis increased 5.8% primarily as a result of program development and
promotional incentive programs. Operating income on a pro forma basis increased
$5.7 million to $17.0 million for the first six months of 1995.
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1994 Compared with 1993. General improvement in the local and national
economies and increased retail spending were the major factors in increasing
net revenues for 1994 compared with 1993. Actual net revenues were $54.0
million for 1994 as compared with actual net revenues of $45.5 million for
1993, an increase of $8.5 million or 18.7%. Also contributing to these
increases were changes in certain network affiliations, the impact for Fox
affiliates in gaining the rights to broadcast National Football League
coverage, advertising during the 1994 Winter Olympics coverage, increased
political advertising and a general strengthening of the commitment of the PJC
Broadcasting Business to purchase quality programming and follow an aggressive
marketing campaign.
Relatively flat actual operating and administrative expenses over these years
is attributed to the elimination of excess overhead, the effective
centralization of various functions and responsibilities and a general
reduction in the number of employees. These expenses were also affected by a
change in the approach to negotiating the purchase of programming rights. The
PJC Broadcasting Business is effectively using its position as a multiple
station broadcaster to control and/or reduce the costs of purchased
programming. Actual operating and administrative expenses were $40.6 million
for 1994, as compared to $39.0 million for 1993, an increase of 4.1%.
The decrease in depreciation and amortization reflects management's effort to
control capital spending.
The combined effect of these factors resulted in actual operating income of
$5.6 million for 1994, as compared to an operating loss of $2.2 million in
1993, an increase of $7.8 million.
1993 Compared with 1992. The increase in net revenue for this period was
5.1%. Local and regional revenues experienced an increase of 14.1%, while
national revenues decreased. These numbers were indicative of the entire
industry. A sagging national economy and decreased spending levels caused a
shift in advertising dollars from national campaigns, to local and regional
campaigns.
Management's commitment to control costs and rising overhead resulted in a
small increase in operating and administrative expenses. Depreciation and
amortization expense decreased 14.6% to $8.7 million from 1992 to 1993. This is
a direct reflection of management's effort to control capital expenditures.
Broadcast Television Outlook. Local network affiliated television stations
are expected to remain the dominant provider and distributor of local news and
entertainment programming. The launch during January 1995 of two new additional
national networks, Paramount and Warner Brothers, is evidence of the strength
and viability of broadcast television.
Competition for the attention of television is increasing. It is the strategy
of the PJC Broadcasting Business to protect and increase audience share and
revenue of each of its markets by maintaining a strong relationship with its
networks and producing local programs which create an identity to its viewers
and advertisers.
During 1995, the PJC Broadcasting Business will continue to take advantage of
news and local programming and other cost effective approaches available to
management. KHNL, the Station in Hawaii, will switch to NBC and launch local
news. This is expected to create new revenue sources for the Station and may
produce higher audience levels resulting in increased sales opportunities.
* * * *
INFLATION. Certain of Providence Journal's expenses, such as those for wages
and benefits increase with general inflation. However, Providence Journal does
not believe that its results of operations have been, or will be, adversely
affected by inflation, provided that it is able to increase its advertising
rates periodically.
RECENT ACCOUNTING PRONOUNCEMENTS. In May 1993, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for
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<PAGE>
Impairments of a Loan" ("SFAS 114"), which is effective for fiscal years
beginning after December 15, 1994. SFAS 114, as amended, addresses the
accounting for certain loans which may be deemed impaired. The effect of
implementing SFAS 114 will be immaterial to Providence Journal's financial
position and results of operations.
Effective January 1, 1994, Providence Journal was required to adopt Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). Under this standard, Providence
Journal's marketable equity securities are classified as "available for sale"
and unrealized gains, net of related tax effect, are recorded as a separate
component of stockholders' equity. At December 31, 1994, stockholders' equity
has been increased by $.1 million, net of taxes, resulting from the adoption of
this standard.
In March 1995, the FASB issued SFAS 121, which is effective for fiscal years
beginning after December 31, 1995 ("SFAS 121"). SFAS 121 addresses the
accounting for potential impairment of long-lived assets. The effect of
implementing SFAS 121 is expected to be immaterial to Providence Journal's
financial position and results of operations.
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 $43.2
million was available at June 30, 1995. This credit facility was amended in
1995 to require payment in full on June 30, 1996. Management expects to
discharge this indebtedness in conjunction with the Merger.
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. The amount of payment required to settle outstanding interest
rate swaps at June 30, 1995 approximated $4.7 million.
Cash Flow. During 1994, Providence Journal generated $24.9 million in cash
from continuing operations, compared with $23.4 million in 1993.
Cash used in investing activities of continuing operations during 1994
totaled $(5.0) million, as compared to $(15.8) million in 1993. The decrease
reflects lower capital expenditures and a decrease in investment securities
held for sale.
Cash used for financing activities of continuing operations was $(40.1)
million in 1994, as compared to cash provided of $.3 million in 1993. The cash
provided in 1993 included $30 million in proceeds from the revolving credit
facility which was used in part for early extinguishment of debt held by
discontinued cable businesses. Providence Journal paid dividends to
stockholders of $9.7 million and $8.9 million in 1994 and 1993, respectively.
Cash provided from financing activities during the first six months of 1995
included $53.5 million in proceeds from the revolving credit facility used
primarily for the purchase of all minority interests in Copley/Colony Inc., a
cable television business, for $47.8 million.
Future cash flow from operating activities of New Providence Journal is
expected to be sufficient to meet capital investment, debt repayment and
dividend requirements. However, future cash flow from operating activities is
not expected to be sufficient to repurchase outstanding stock at historical
levels without adversely affecting New Providence Journal's operations and
growth.
The Merger and Related Transactions. On November 18, 1994, Providence Journal
entered into an Agreement and Plan of Merger with Continental, whereby
Continental would acquire all of the PJC Cable Business in a tax-free merger.
This original agreement has been superseded by the Merger Agreement. As part of
the transaction contemplated by the Merger Agreement, Providence Journal will
contribute the PJC
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Non-Cable Business to NPJ by means of the PJC Spin-Off. Upon completion of the
PJC Spin-Off, stockholders of Providence Journal will also own the equivalent
number and class of New Providence Journal Common Stock. For a description of
the internal transactions that will occur before the Merger can be consummated,
see "Pre-Merger Transactions".
Prior to the PJC Spin-Off, Providence Journal or one or more of the PJC Cable
Subsidiaries will incur the New Cable Indebtedness in the principal amount of
$410 million. In addition, prior to the Merger, Continental will purchase all
of the cable television businesses owned by KBC for an aggregate cash purchase
price of $405 million. Providence Journal anticipates that the proceeds of the
New Cable Indebtedness, together with the $405 million to be provided by
Continental for the King Cable Purchase, will be used as follows: approximately
$301 million will be applied to discharge all existing indebtedness of
Providence Journal, approximately $282 million will be applied to discharge all
existing indebtedness of KBC, approximately $265 million (including $5 million
in transaction fees) will be used to consummate the Kelso Buyout, approximately
$120 million will be used to pay taxes associated with the King Cable Purchase
and approximately $122 million will be used to purchase the interest in certain
PJC Cable Subsidiaries not presently wholly owned by Providence Journal or KHC
and to pay expenses associated with the Merger and certain deferred
compensation arrangements. In addition, New Providence Journal will incur the
NPJ Indebtedness in the principal amount of approximately $275 million in order
to meet the foregoing obligations, among others. (See "The Merger--General
Provisions--Share Exchange".) New Providence Journal will have no obligations
or liabilities with respect to the New Cable Indebtedness.
Providence Journal will indemnify Continental from any and all liabilities
arising from the PJC Non-Cable Businesses (including, without limitation, the
NPJ Indebtedness), and will be responsible for all federal and state income tax
liabilities for periods ending on or before the Closing Date. Pursuant to such
indemnification, New Providence Journal has agreed that for a period of four
years subsequent to the Closing, it will not sell or otherwise dispose of
assets, nor will it pay dividends or make other distributions such that the
fair market value of New Providence Journal falls below specified levels.
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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 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 June 30,
1995.
The pro forma condensed consolidated balance sheet should be read in
conjunction with each of the historical consolidated financial statements and
the notes thereto of Providence Journal and KHC for the year ended December 31,
1994 included herein. The pro forma condensed consolidated balance sheet is not
necessarily indicative of the financial position of New Providence Journal that
would have actually been obtained had these transactions been consummated on
June 30, 1995.
The pro forma condensed consolidated statements of operations of New
Providence Journal have been derived from the historical consolidated
statements of operations of Providence Journal and KHC adjusted for interest
expense, which is expected to increase as a result of these transactions, the
consolidation of the continuing operations of KHC (including eliminating
entries), and the increase in amortization expense as a result of the
acquisition by Providence Journal of the 50% minority ownership in KHC. The pro
forma condensed consolidated statements of operations of New Providence Journal
have been prepared assuming that the transactions occurred on January 1, 1994.
On July 18, 1995, Providence Journal sold the Omni Biltmore Hotel for
approximately $7 million. This transaction has not been reflected in the Pro
Forma Condensed Consolidated Balance Sheet and Statements of Operations as it
is not material to the Pro Forma Condensed Financial Statements.
The pro forma condensed consolidated statement of operations should be read
in conjunction with each of the historical consolidated financial statements
and the notes thereto of Providence Journal and KHC for the year ended December
31, 1994 included herein. The pro forma condensed consolidated statement of
operations is not necessarily indicative of the financial results of New
Providence Journal that would have actually been obtained had the transactions
been consummated on January 1, 1994.
112
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
---------------------
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........... $ 298 $ 570 $ 685,100(1) $ 265,000(2) $ 868
405,000(1) 583,030(3)
120,000(5)
97,070(6)
25,000(7)
Accounts receivable,
net................... 23,098 25,401 48,499
Television program
rights................ 3,606 2,378 5,984
Deferred income taxes.. 20,526 20,526
Prepaid expenses and
other current assets.. 9,009 2,369 11,378
-------- -------- --------
Total Current Assets. 56,537 30,718 87,255
Investments in and
advances to affiliated
companies.............. 92,328 265,000(2) 343,788(4) 13,540
Notes receivable........ 18,078 18,078
Television program
rights, net............ 392 663 1,055
Property, plant and
equipment, at cost less
accumulated
depreciation........... 125,556 56,999 182,555
Intangible assets and
goodwill, net.......... 33,731 120,690 201,600(4) 356,021
Other assets............ 29,798 12,460 14,700(6) 27,558
Net assets of
discontinued cable
operations............. 404,861 250,443 62,000(6) 432,304(9) 0
120,000(6) 405,000(1)
-------- -------- --------
$761,281 $471,973 $686,062
======== ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses...... $ 98,269 $ 4,816 35,070(6) $ 37,015
31,000(7)
Current installments
of long-term debt..... 13,567 33,606 33,606(3) 1,067
12,500(3)
Current portion of
television program
rights payable........ 3,024 2,703 5,727
-------- -------- --------
Total Current Liabil-
ities............... 114,860 41,125 43,809
Long-term debt.......... 296,895 248,862 288,062(3) 685,100(1) 283,933
248,862(3)
410,000(9)
Television program
rights payable......... 1,345 1,210 2,555
Deferred income taxes... 11,279 17,202 33,600(4) 62,081
Other liabilities and
deferrals.............. 58,538 5,662 64,200
-------- -------- --------
Total Liabilities.... 482,917 314,061 456,578
-------- -------- --------
Continental Class A com-
mon stock 596,000(9) 596,000(10) 0
Stockholders' Equity:
Class A common stock... 96 58(10) 38
Class B common stock... 118 21 21(4) 47
71(10)
Additional paid-in
capital............... 1,225 210,314 210,314(4) 129(10) 7,354
6,000(7)
Retained earnings
(deficit)............. 285,265 (52,423) 52,423(4) 222,937
596,000(10) 573,696(9)
7,448(8)
14,700(6)
17,876(4)
Unrealized loss on
securities available
for resale............ (892) (892)
Treasury Stock......... (7,448) 7,448(8) 0
-------- -------- --------
Total Stockholders'
equity.............. 278,364 157,912 229,484
-------- -------- --------
Total Liabilities and
Stockholders' Equi-
ty.................. $761,281 $471,973 $686,062
======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements
113
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------
KING NEW
PROVIDENCE HOLDING PRO FORMA ADJUSTMENTS PROVIDENCE
JOURNAL CORP. --------------------- JOURNAL
HISTORICAL HISTORICAL DEBIT CREDIT PRO FORMA
---------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................ $192,291 $117,059 -- -- $309,350
Operating, selling,
general, and
administrative......... 182,279 78,537 -- 3,525(11) 257,291
Depreciation and
amortization........... 20,708 13,746 7,140(12) -- 41,594
-------- -------- --------
Operating income (loss). (10,696) 24,776 -- -- 10,465
Interest expense........ (2,426) (8,694) 13,675(13) -- (24,795)
Other income, net....... 5,223 24 3,525(11) -- 1,722
Equity in loss of
affiliates............. (10,962) -- -- 7,134(11) (3,828)
-------- -------- --------
Income (loss) from
continuing operations,
before income taxes.... (18,861) 16,106 -- -- (16,436)
Income taxes............ 2,367 8,843 -- 1,680(12) 4,060
-- 5,470(13)
-------- -------- --------
Income (loss) from
continuing operations.. $(21,228) $ 7,263 $(20,496)
======== ======== ========
Loss per share from
continuing operations.. $(250.09) -- -- $(241.46)
======== ========
Weighted Average shares
outstanding............ 84,882 84,882
======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------------------
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>
Revenues................ $95,816 $57,364 $153,180
Operating, selling,
general and
administrative......... 91,069 38,516 1,763(11) 127,822
Depreciation and
amortization........... 9,612 6,824 3,570(12) 20,006
------- ------- --------
Operating income (loss). (4,865) 12,024 5,352
Interest expense........ (1,176) (4,136) 7,086(13) (12,398)
Other income, net....... 2,928 95 1,763(11) 1,260
Equity in loss of
affiliates............. (240) 1,960(11) (2,200)
------- ------- --------
Income (loss) from
continuing operations,
before income taxes
(benefits)............. (3,353) 7,983 (7,986)
Income taxes (benefits). (1,671) 4,062 840(12) (1,283)
2,834(13)
------- ------- --------
Income (loss) from
continuing operations.. $(1,682) $ 3,921 $ (6,703)
======= ======= ========
Loss per share.......... $(19.86) $ (79.15)
======= ========
Weighted Average shares
outstanding............ 84,689 84,689
======= ========
</TABLE>
See accompanying notes to pro forma financial statements
114
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET AND STATEMENT OF OPERATIONS
(1) To record (i) the incurrence by Providence Journal prior to the Merger of
the New Cable Indebtedness and the NPJ Indebtedness in the amounts of $410
million and $275 million, respectively, and (ii) the receipt by Providence
Journal prior to the Merger of the purchase price for the King Cable
Purchase in the amount of $405,000,000.
(2) To record the purchase by Providence Journal of the minority 50% ownership
in KHC for $265 million (including $5 million in transaction fees).
(3) To record the repayment of outstanding borrowings of $300.6 million and
$282.5 million under the Providence Journal and KHC revolving credit and
term loan facilities, respectively.
(4) To record the consolidation of KHC into Providence Journal. Also, to record
the excess purchase price over book value of $168.0 million resulting from
the KHC purchase as intangible assets of the PJC Broadcasting Business and
to adjust goodwill and deferred taxes by $33.6 million for the tax effect
of the difference between the assigned values and the tax bases of the
assets and liabilities associated with the purchase of KBC as required by
FAS 109.
(5) To record the payment of taxes of approximately $120 million related to
the sale of KBC's cable systems to Continental.
(6) To record the purchase of minority interests and the payment of expenses
incurred in connection with the transactions, which are estimated at
approximately $97 million, including the Working Capital and Capital
Expenditures Adjustments of $28 million and legal, accounting, investment
banking and severance expenses of $35 million. Also to record the write-off
of unamortized deferred financing costs amounting to $14.7 million
associated with debt of Providence Journal and KHC to be repaid with the
proceeds of the New Cable Indebtedness and the NPJ Indebtedness.
(7) To record the payment of deferred compensation of $31 million.
(8) To retire treasury stock outstanding as of the Effective Time.
(9) To record the disposition of Providence Journal Cable comprised of (i)
approximately $596 million of Continental Class A Common Stock to be
received by Providence Journal stockholders, (ii) and the assumption of
$410 million of the New Cable Indebtedness by Continental. After giving
effect to the payment by Continental of the purchase price of $405 million
in connection with the King Cable Purchase, the excess of the purchase
price over the net assets of discontinued cable operations is estimated to
be $556 million.
(10) To reflect the deemed distribution of approximately $596 million of the
proceeds from the sale of Providence Journal Cable and the PJC Spin-Off.
Proceeds of $596 million are in the form of Continental Class A Common
Stock to be distributed by Continental directly to Providence Journal
stockholders in the Merger. 38,825 shares of New Providence Journal Class
A Common Stock and 46,825 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 intangibles
resulting from the purchase of KBC. Intangibles are being amortized over
an average life of 30 years.
(13) To increase interest expense as a result of additional indebtedness
incurred upon the purchase of the KHC 50% minority interest, 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 $285 million at the beginning of the period,
carrying an effective interest rate of 8.7%, which is the weighted
average effective interest rate of all outstanding debt of Providence
Journal for the year ended December 31, 1994.
MARKET PRICE OF NEW PROVIDENCE JOURNAL COMMON STOCK AND DIVIDEND POLICY OF NEW
PROVIDENCE JOURNAL
No established public trading market exists for the Providence Journal
Common Stock, and accordingly no high and low bid information or quotations
are available with respect to the Providence Journal Common Stock. As of July
15, 1995, there were approximately 428 holders of record of Providence Journal
Class A Common Stock and 261 holders of record of Providence Journal Class B
Common Stock. Since a number of holders own shares of both Providence Journal
Class A Common Stock and Providence Journal Class B Common Stock, the number
of Providence Journal stockholders is approximately 470.
Following completion of the PJC Spin-Off and the Merger, New Providence
Journal expects to pay quarterly dividends on the New Providence Journal
Common Stock at a rate that is generally consistent
115
<PAGE>
with the rate currently paid with respect to Providence Journal Common Stock.
New Providence Journal's dividend policy will be subject to the exercise by the
New Providence Journal Board of Directors of its fiduciary obligations and the
exercise of the Board's business judgment in connection with, among other
things, any and all requirements of Delaware Law or other applicable law, and
all covenants, restrictions or limitations in connection with any financing for
New Providence Journal, New Providence Journal's future earnings, capital
requirements, financial condition and other factors.
EXECUTIVE OFFICERS AND DIRECTORS OF PROVIDENCE JOURNAL AND NEW PROVIDENCE
JOURNAL
The executive officers and Directors of New Providence Journal immediately
following the PJC Spin-Off are expected to be identical to the executive
officers and Directors of Providence Journal prior to the PJC Spin-Off. It is
expected that, immediately prior to 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 PJC Spin-Off, Providence Journal, as sole stockholder of New Providence
Journal, will elect each of the Providence Journal Directors to serve as
Directors of New Providence Journal. The names of and positions held by each
Director and executive officer are listed below. There are no family
relationships among the following persons.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE POSITION WITH PROVIDENCE JOURNAL COMPANY AND
OFFICER NEW PROVIDENCE JOURNAL COMPANY
----------------------------- --------------------------------------------
<S> <C>
Stephen Hamblett(1).............. Chairman of the Board, Chief Executive
Officer, Publisher and Director
Trygve E. Myhren................. President, Chief Operating Officer and
Director
F. Remington Ballou.............. Director
Henry P. Becton, Jr.(2).......... Director
Fanchon M. Burnham(2)............ Director
Peter B. Freeman(2).............. Director
Benjamin P. Harris, III.......... Director
John W. Rosenblum(2)............. Director
Henry D. Sharpe, Jr.(1).......... Director
W. Nicholas Thorndike(1)......... Director
John W. Wall(1).................. Director
Patrick R. Wilmerding(1)......... Director
James F. Stack................... Vice President--Finance and Chief
Financial Officer
John A. Bowers................... Vice President--Human Resources
Jack C. Clifford................. Vice President--Broadcasting and Cable
Television
John L. Hammond.................. Vice President--Legal
Joanne L. Yestramski............. Vice President--Comptroller
Howard G. Sutton................. Vice President--General Manager
Joel N. Stark.................... Vice President--Publishing Development
and Marketing
James V. Wyman................... Vice President and Executive Editor
Harry Dyson...................... Treasurer and Secretary
</TABLE>
--------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
As in the case of Providence Journal, New Providence Journal will have three
classes of Directors, Class I, Class II and Class III, the terms of office of
which will expire, respectively, at the annual meetings of
116
<PAGE>
stockholders in 1998, 1997 and 1996. The term of the current Class I Directors,
Messrs. Hamblett, Wilmerding and Rosenblum and Ms. Burnham, will expire at the
1998 Annual Meeting of New Providence Journal. The term of current Class II
Directors, Messrs. Wall, Thorndike, Becton and Myhren, will expire at the 1997
Annual Meeting of New Providence Journal. The term of current Class III
Directors, Messrs. Sharpe, Freeman, Ballou and Harris, will expire at the 1996
Annual Meeting of New Providence Journal. Successors to any Directors whose
terms are expiring are elected to three-year terms and hold office until their
successors are elected and qualified. Executive officers of New Providence
Journal will be elected to serve until they resign or are removed or are
otherwise disqualified to serve.
The following is a description of the business experience during the past
five years of each Director and executive officer of Providence Journal and New
Providence Journal and includes, as to Directors, other directorships held in
companies required to file periodic reports with the Commission and registered
investment companies.
Stephen Hamblett, 60, is Chairman of the Board and Chief Executive Officer of
Providence Journal and Publisher of the Journal-Bulletin newspapers and has
been since 1987. Mr. Hamblett was first employed by Providence Journal in 1957
in its advertising department and has been continuously employed by Providence
Journal since that time, serving as Assistant Vice President for
Administration, Vice President Marketing, Vice President Marketing and
Corporate Development, Executive Vice President and President and Chief
Operating Officer before assuming his current positions. He has been a Director
of Providence Journal since 1985. Mr. Hamblett also serves on the Board of
Directors of the Associated Press and the Inter American Press Association.
Trygve E. Myhren, 58, has been President and Chief Operating Officer of
Providence Journal since 1990. From 1981 to 1988, Mr. Myhren was Chairman and
Chief Executive Officer of American Television and Communications Corporation.
Mr. Myhren was a member of the Board of Directors of the National Cable
Television Association from 1980 to 1991 and served as its Chairman in 1986 and
1987. Prior to joining Providence Journal, Mr. Myhren served as President and
Chief Executive Officer of Myhren Media and General Partner of Arizona &
Southwest Cable from 1989 to 1990. Mr. Myhren is currently a Director of
Advanced Marketing Services, Inc. Mr. Myhren has been a Director of Providence
Journal since 1994.
F. Remington Ballou, 66, is the President and Chief Executive Officer of B.
A. Ballou & Co., Inc. a jewelry manufacturing company and has been since 1965.
Mr. Ballou has served as a Director of Providence Journal since 1985. He is
also a Director of Keyport Life Insurance Co.
Henry P. Becton, Jr., 51, has been President and General Manager of WGBH
Education Foundation, the operator of public television and radio stations in
Massachusetts and producer of educational broadcast and non-broadcast
programming and software, since 1984. Mr. Becton has been a Director of
Providence Journal since 1992. He is also a Director of Becton Dickinson and
Company and is a trustee or Director of the following investment companies
managed by Scudder, Stevens & Clark: Scudder Cash Investment Trust; Scudder
California Tax Free Trust; Scudder Municipal Trust; Scudder State Tax Free
Trust; Scudder Investment Trust; and Scudder Portfolio 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, 63, has been a Director of Providence Journal since 1981.
During the past five years Mr. Freeman has been self-employed as a corporate
director and trustee, including serving as a Director of Blackstone Valley
Electric Company, AMICA Mutual Insurance Company and AMICA Life Insurance
Company, a trustee of Eastern Utilities Associates, as well as a trustee or
director of the following investment companies managed by Scudder, Stevens &
Clark: Scudder Fund, Inc.; Scudder Institutional Fund, Inc.; Scudder Cash
Investment Trust; Scudder California Tax Free Trust; Scudder Municipal Trust;
Scudder State
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<PAGE>
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. Mr. Harris is also a director of The Providence Mutual Fire Insurance
Company.
John W. Rosenblum, 51, became the Taylor Murphy Professor of Business
Administration at the Darden School of Business, University of Virginia, in
1993. From 1982 to 1993, Mr. Rosenblum was the Dean of the Darden School of
Business. Mr. Rosenblum serves on the Board of Directors of Cadmus
Communications Corp., Chesapeake Corporation, Comdial Corporation, Cone Mills
Corporation and T. Rowe Price Associates. He has been a Director of Providence
Journal since 1992.
Henry D. Sharpe, Jr., 72, has been a Director of Providence Journal since
1964. Mr. Sharpe is currently Chairman of Brown & Sharpe Manufacturing Company,
a position he has held since 1954. From 1951 to 1980 Mr. Sharpe was the Chief
Executive Officer of Brown & Sharpe Manufacturing Company.
W. Nicholas Thorndike, 62, 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, 52, has been a Director of Providence Journal since
1979. Mr. Wilmerding has been chairman of Private Signals, Inc., an
import/export company since 1994. Prior to that, he served as a Division
Executive with The First National Bank of Boston. Mr. Wilmerding is a Director
of the Indian Opportunities Fund.
James F. Stack, 56, has been Vice President--Finance and Chief Financial
Officer since July, 1991. From 1988 to 1991 Mr. Stack served as Vice President
of Finance and Chief Financial Officer of Meredith Corp. Prior to that, Mr.
Stack held a number of positions with General Electric Company over a 25 year
period including Vice President and General Manager of GE Capital Housing
Finance Department and Chief Financial Officer of GE Lighting Business Group.
John A. Bowers, 42, has been Vice President--Human Resources since November,
1990. Prior to that time, Mr. Bowers served in various Human Resources
positions with Providence Journal and its subsidiaries since 1980.
Jack C. Clifford, 61, has been Vice President--Broadcasting and Cable
Television since 1982.
John L. Hammond, 49, 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.
118
<PAGE>
Joanne L. Yestramski, 42, 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, 45, 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, a
position he has held since 1989.
Harry Dyson, 58, is currently Treasurer and Secretary, a position he has held
since 1986.
Committees of the Board of Directors of New Providence Journal. The standing
committees of the Board of Directors of New Providence Journal will be an
Executive Committee, an Audit Committee, an Executive Compensation Committee
and a Nominating Committee. The functions of each of these four committees are
described and the members of each are listed below.
The Executive Committee may exercise substantially all authority of the Board
of Directors with specific exceptions provided by law and the New Providence
Journal By-Laws. The members of the Executive Committee will be Henry D.
Sharpe, Jr., Chairman, Patrick R. Wilmerding, W. Nicholas Thorndike, John W.
Wall and Stephen Hamblett.
Each year the Audit Committee will review New Providence Journal's audit
plan, the scope of activities of the independent auditors and of internal
auditors, the results of the audit after completion, and the fees for services
performed during the year, and recommend to the Board of Directors the firm to
be appointed as independent auditors. During portions of some meetings this
Committee will meet with representatives of the independent auditors without
any officers or employees of New Providence Journal present. The members of the
Audit Committee will be Peter B. Freeman, Chairman, Fanchon M. Burnham, John W.
Rosenblum and Henry P. Becton, Jr.
The Executive Compensation Committee will administer New Providence Journal's
Incentive Compensation Plan, its Stock Option Plans and all its retirement and
benefit plans, will determine the compensation of key officers of New
Providence Journal, will authorize and approve bonus-incentive compensation
programs for executive personnel, and will oversee management succession and
promotions. The members of the Executive Compensation Committee will be John W.
Rosenblum, Chairman, F. Remington Ballou and W. Nicholas Thorndike.
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
119
<PAGE>
Compensation Committee and Nominating Committee of the New Providence Journal
Board of Directors will receive an annual retainer of $3,000, $2,500, $2,500
and $1,000, respectively. Directors who reside outside the Providence area will
be reimbursed for their travel expenses incurred in connection with attendance
at meetings of the New Providence Journal Board of Directors.
The Directors of Providence Journal are participants in the Providence
Journal Incentive Stock Unit Plan (the "IUP"). (See "Executive Compensation--
Providence Journal Incentive Stock Unit Plan.") At December 31, 1994, the
Directors held 658 units in the IUP ("Stock Units"). Upon the termination and
liquidation of the IUP, which is expected to occur prior to the consummation of
the Merger, the Directors will be paid in a combination of cash and stock, net
of tax obligations. Based upon a Stock Unit value of $11,489 per unit
(determined as described in footnote (1) to the table, Aggregate SAR Exercises
in last Fiscal Year and Year-End SAR Values included herein), the amount of the
total payout to Providence Journal Directors is estimated to be $3.8 million.
The IUP will not be assumed by New Providence Journal.
New Providence Journal will be assuming the 1994 Non-Employee Director Stock
Option Plan. Each Director received a stock option to purchase five shares of
Providence Journal Class A Common Stock on October 1, 1994, and will receive a
stock option to purchase five additional shares of New Providence Journal Class
A Common Stock on each subsequent October 1st. (See "Stock Incentive Plans of
Providence Journal Assumed by New Providence Journal".)
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended December 31, 1994,
1993 and 1992 information regarding compensation paid by Providence Journal to
the Chief Executive Officer and Providence Journal's other four most highly
compensated executive officers (the "Providence Journal Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ---------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1) STOCK AWARDS(2) COMPENSATION (3)
------------------ ---- -------- -------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Hamblett........ 1994 $600,000 $360,000 $ -- $ -- $ 702
Chairman, Chief 1993 600,000 360,000 -- 1,013,800 30,702
Executive Officer 1992 600,000 300,000 -- -- 702
and Publisher
Trygve E. Myhren........ 1994 500,000 300,000 -- -- $ 702
President and 1993 500,000 300,000 51,949 762,200 25,702
Chief Operating Officer 1992 500,000 200,000 55,180 -- 1,301
James F. Stack.......... 1994 275,000 165,000 -- -- $ 702
Vice President--Finance 1993 275,000 165,000 49,478 503,200 20,771
and Chief Financial 1992 270,000 132,500 -- -- --
Officer
Jack C. Clifford........ 1994 260,000 171,000 47,481 -- $544,702
Vice President-- 1993 260,000 156,000 -- 407,000 702
Broadcast and Cable 1992 240,000 120,000 -- -- 702
Television
John A. Bowers.......... 1994 180,000 108,000 52,544 -- $ 702
Vice President-- 1993 180,000 108,000 -- 273,800 9,702
Human Resources 1992 173,000 110,201 -- -- 702
</TABLE>
--------
(1) This column includes the aggregate incremental cost to Providence Journal
of providing various perquisites and personal benefits. Includes automobile
purchase allowances in 1994 for Mr. Clifford and
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Mr. Bowers of $21,702 and $31,540, respectively. During 1993 Mr. Myhren and
Mr. Stack were granted allowances to purchase vehicles including tax
reimbursement for $23,148 and $25,119, respectively. Includes relocation
expenses totaling $21,273 for Mr. Myhren in 1992.
(2) This column shows the market value of restricted stock unit awards made
pursuant to the Providence Journal Restricted Stock Unit Plan on the date
of grant, which was October 1, 1993, to senior officers of Providence
Journal including the executives listed on the table above. Restricted
stock shares will be completely vested at the end of a three year period.
The number of restricted stock holdings at the end of 1994 were for Mr.
Hamblett, 137 shares; Mr. Myhren, 103 shares; Mr. Stack, 68 shares; Mr.
Clifford, 55 shares; and Mr. Bowers, 37 shares. Dividends are added to the
awards as and when declared, but have not been accrued in the listed
valuation. For further information concerning the Restricted Stock Unit
Plan, see "Stock Incentive Plans of Providence Journal Assumed by New
Providence Journal-Restricted Stock Unit Plan".
(3) The amount shown for Mr. Clifford in 1994 includes a payout of $544,000
pursuant to a previous deferred bonus arrangement. The amounts shown for
1993 include Providence Journal Class A Common Stock granted in lieu of
salary increases in 1993 to Mr. Hamblett, Mr. Myhren, Mr. Stack and Mr.
Bowers in the amounts of $30,000, $25,000, $19,250 and $9,000,
respectively. The remaining amounts shown in the table are amounts
contributed under the Journal 401(k) Plan as described below under the
caption "Retirement Benefits".
The following table sets forth stock options granted October 1, 1994 to the
Providence Journal Named Executive Officers pursuant to the 1994 Employee Stock
Option Plan.
OPTION/SAR GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE($/SH)(1) DATE 5%($) 10%($)
---- ---------- ------------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stephen Hamblett........ 150 21.1% $7,700 9/30/04 $ 726,300 $ 1,840,800
Trygve E. Myhren........ 115 16.2% 7,700 9/30/04 556,830 1,411,280
James F. Stack.......... 65 9.1% 7,700 9/30/04 314,730 797,680
Jack C. Clifford........ 55 7.7% 7,700 9/30/04 266,310 674,960
John A. Bowers.......... 35 4.9% 7,700 9/30/04 169,470 429,520
</TABLE>
--------
(1) The per share option exercise price represents the fair market value of
Providence Journal Class A Common Stock at the date of grant. A May 1994
valuation by an independent appraisal firm was used as the principal basis
to determine the fair market value inasmuch as Providence Journal shares
are not traded on a public market. The options granted become exercisable
in four equal annual installments beginning one year after the grant date.
For further information concerning the 1994 Employee Stock Option Plan, see
"Stock Incentive Plans of Providence Journal Assumed by New Providence
Journal--1994 Stock Option Plans".
(2) The dollar amounts under these columns result from calculations at the 5%
and 10% assumed appreciation rate set by the Commission and, therefore, are
not intended to forecast possible future appreciation, if any, of the
Providence Journal Class A Common Stock price. At the 5% and 10% assumed
appreciation rate the price per share of Providence Journal Class A Common
Stock would be $12,542 and $19,972, respectively.
PROVIDENCE JOURNAL INCENTIVE STOCK UNIT PLAN. The following table relates to
the Providence Journal IUP, created in 1971. The IUP provides incentive
compensation to key officers and to all Directors of Providence Journal. The
purpose of the IUP is to attract and retain persons of outstanding competence
and
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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 Providence Journal Common Stock determined by
reference to the most recent price offered by Providence Journal to purchase
shares under its quarterly stock repurchase program, or, if no such program is
in effect, by reference to an appropriate measure of current value as
determined by the Executive Committee, historically, the appraised fair market
value as determined by an independent appraisal firm selected by the Board.
Employee grants under the IUP are subject to a five year vesting schedule at
the rate of 20% per calendar year of employment after the calendar year in
which the grant was made. Director grants vest immediately.
The measure of benefit payable to any grantee upon termination of grantee's
participation in the IUP is the vested portion of the excess, if any, of the
total fair market value of the Stock Units in such grantee's account on the
date of such termination over the fair market value on the date of grant.
Termination of participation in, and valuation under, the IUP occur upon
termination of grantee's employment or service as a director, total disability
or retirement. Amounts payable under the IUP may be made in installments over a
period not to exceed ten years or in one sum, as determined in the discretion
of the Executive Committee. Interest on the unpaid balance of installment
payouts shall be earned at a rate determined by the Executive Committee.
Any grantee who has attained the age of 55 may request liquidation of up to
20% of his or her vested Stock Units in any calendar year. Such special request
may be granted in the sole discretion of the Executive Committee. During 1994,
Mr. Hamblett was granted liquidations of vested Stock Units in the amount of
$3,957,894. In addition, any grantee may elect to convert his or her vested
Stock Units to fixed dollar deferred compensation beginning at age 55 of up to
10% per year or such other rate as the Executive Committee may approve.
The Executive Committee has determined that the IUP will be terminated and
liquidated upon the next independent appraisal of Providence Journal Class A
Common Stock, which is anticipated to be prior to the Effective Time. Such
liquidation will be paid in a combination of cash and stock net of tax
obligations. Based upon an estimated Stock Unit value of $11,489 per unit
(determined as described in the footnote to the table immediately below), the
estimated payout to employee grantees upon termination of the IUP would be
approximately $21.8 million. (See the Providence Journal Pro Forma Condensed
Balance Sheet, footnote (7), included herein.)
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AGGREGATED SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END SAR VALUES
<TABLE>
<CAPTION>
APPRECIATED VALUE OF
IUP
ACCUMULATED UNITS AT DECEMBER 31, 1994
NAME VESTED/NON-VESTED VESTED/NON-VESTED(1)
---- ----------------- --------------------
<S> <C> <C>
Stephen Hamblett........................ 1,417/55 $12,882,671/$753,348
Trygve E. Myhren........................ 625/173 3,775,991/1,213,803
Jack C. Clifford........................ 512/15 4,218,154/ 216,761
James F. Stack.......................... 181/124 939,736/ 704,979
John A. Bowers.......................... 110/76 428,376/ 333,531
</TABLE>
--------
(1) IUP values are based upon an estimated stock unit value of $11,489 per unit
as of December 31, 1994. Given the absence of a current independent
appraisal and the lack of an established trading market, the Executive
Committee established this estimated value by reference to the nominal
value attributed by Bear Stearns to the Continental Merger Stock and the
Providence Journal's estimate of the pro forma equity value of New
Providence Journal, both as determined in November 1994.
RETIREMENT BENEFITS. The following table illustrates the maximum annual
benefits payable as a single life annuity under the basic benefit formula in
the Providence Journal Pension Plan (see below) to an officer retiring at age
65 with the specified combination of final average salary and years of credited
service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
EARNINGS CREDITED
FOR RETIREMENT
BENEFITS YEARS OF SERVICE AT RETIREMENT
----------------- ------------------------------
10 15 20 25
------- --------------- --------------- -------
<S> <C> <C> <C> <C>
150,000....................... 28,177 42,265 53,353 70,442
200,000....................... 38,177 57,265 76,353 95,442
300,000....................... 58,177 87,265 116,353 145,442
400,000....................... 78,177 117,265 156,353 195,442
500,000....................... 98,177 147,265 196,353 245,442
600,000....................... 118,177 177,265 236,353 295,442
700,000....................... 138,177 207,265 276,353 345,442
800,000....................... 158,177 237,265 316,353 395,442
900,000....................... 178,177 267,265 356,353 445,442
1,000,000....................... 198,177 297,265 396,353 495,442
1,100,000....................... 218,177 327,265 436,353 545,442
1,200,000....................... 238,177 357,265 476,353 595,442
</TABLE>
Providence Journal maintains a retirement income plan (the "Providence
Journal Pension Plan") which is a funded, qualified, non-contributory, defined
benefit plan that covers all employees, including executive officers, of
Providence Journal and its subsidiaries. The Providence Journal Pension Plan
provides benefits based on the participant's highest average salary for the 60
consecutive months within the ten years last served with Providence Journal
prior to retirement and the participant's length of service. The amounts
payable under the Providence Journal Pension Plan are in addition to any Social
Security benefit to be received by a participant. The Providence Journal
Pension Plan benefit vests upon completion of five years of service with
Providence Journal.
As of December 31, 1994, the Providence Journal Named Executive Officers have
the following years of credited service with Providence Journal: Mr. Hamblett,
37 years; Mr. Myhren, 4 years; Mr. Stack, 3 years; Mr. Clifford, 16 years; and
Mr. Bowers, 15 years. However, for purposes of calculating their retirement
benefit
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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 Pension 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 Providence Journal Named
Executive Officers. The Excess Benefit Plan provides that each participant will
receive benefits thereunder equal to the difference between the amount such
participant is entitled to receive under the Providence Journal Pension Plan
and the amount he or she would have been entitled to receive without regard to
the maximum limitations imposed by the Code. Participants will be vested under
the Excess Benefit Plan according to 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
Providence Journal Named Executive Officers provides a three-year term of
employment with responsibilities, compensation and benefits at least
commensurate with those experienced by such officer during the prior six (6)
months. If terminated involuntarily, the individual is entitled to 299% of the
highest annual base salary and average bonus received during the prior three
years (the "Maximum Severance") as a lump sum severance payment. In the event
of a voluntary resignation, the agreement provides a severance benefit equal to
six months of base salary. Dismissal of the officer for cause results in no
severance payment to the individual. The PJC Spin-Off and the Merger do not
constitute a "change of control" for purposes of the Change of Control
Agreements.
On October 11, 1993, in a supplemental letter agreement, Providence Journal
agreed to pay the Maximum Severance in the event any of the Providence Journal
Named Executive Officers were to be involuntarily terminated as a result of a
corporate restructuring, such as the PJC Spin-Off and the Merger (or a lesser
severance for certain other executives), even if prior to a change of control.
However, the Maximum Severance (or such lesser severance) will not apply in the
case of any termination for cause, for unsatisfactory performance or as a
result of a reduction in staff for economic reasons. The Change of Control
Agreements specify that if Providence Journal seeks to retain the executive
subsequent to the restructuring,
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even with diminished responsibilities, and such executive declines, a severance
payment from Providence Journal to the executive would be discretionary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Providence
Journal has no compensation committee of its Board of Directors but its
Executive Committee performs the functions thereof. The members of the
Executive Committee during 1994 were Messrs. Hamblett, Sharpe, Thorndike, Wall
and Wilmerding. Mr. Hamblett is the Chairman of the Board and Chief Executive
Officer of Providence Journal.
STOCK INCENTIVE PLANS OF PROVIDENCE JOURNAL ASSUMED BY NEW PROVIDENCE JOURNAL
Providence Journal maintains the following Stock Incentive Plans, which, upon
approval of the Providence Journal Proposals by the stockholders of Providence
Journal, will be assumed by New Providence Journal: (i) the 1994 Employee Stock
Option Plan; (ii) the 1994 Non-Employee Director Stock Option Plan; and (iii)
the Restricted Stock Unit Plan. 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 September 1995. If such approval has not
occurred by September 28, 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 September 28, 1995, and assuming
stockholder approval of the PJC Spin-Off and the Merger at the Providence
Journal Special Meeting, the 1994 Employee Stock Option Plan shall remain in
effect until the earlier of five years from October 1, 1994 or termination of
the 1994 Employee Stock Option Plan by the Board of Directors of New Providence
Journal. If the Providence Journal Proposals are not approved, the 1994
Employee Stock Option Plan will remain in effect with Providence Journal.
The 1994 Employee Stock Option Plan is intended to provide long-term
incentive compensation and share ownership opportunities to selected key
employees, thereby allowing Providence Journal to attract and retain high
quality key employees. These incentives will contribute to the success of
Providence Journal by further aligning the participants' and stockholders'
interests.
Under the terms of the 1994 Employee Stock Option Plan, key employees
recommended by the Executive Committee of the Board (or by any other committee
appointed by the Board consisting of two or more non-employee Directors), are
eligible to receive grants of stock options. According to the provisions of the
1994 Employee Stock Option Plan, such committee has a wide degree of
flexibility in selecting the participants in the 1994 Employee Stock Option
Plan, determining the size of grants of options, establishing the terms and
conditions of such option grants, amending the terms and conditions of any
outstanding option brought about by any adjustments and reorganizations, as
discussed below (see "Adjustments and Reorganizations"), and otherwise making
such determinations and/or interpretations and establishing such procedures as
may be necessary or advisable for the administration of the 1994 Employee Stock
Option Plan.
Shares Subject to the 1994 Employee Stock Option Plan. The maximum number of
shares of Providence Journal Class A Common Stock that can be used for purposes
of the 1994 Employee Stock Option Plan is 3,750 shares. Of these, no more than
750 such shares may be issued to any one individual. Shares may be awarded from
authorized and unissued shares or from treasury shares, as determined by the
Executive Committee.
Stock Options. Stock options granted under the 1994 Employee Stock Option
Plan are Non-Qualified Stock Options that do not satisfy the criteria of
Section 422 of the Code. The exercise price of any stock option granted under
the 1994 Employee Stock Option Plan shall be the fair market value on the date
of the grant. Subject to the maximum number of shares issuable under the 1994
Employee Stock Option Plan, the Executive Committee shall have discretion in
determining the number of options and shares subject to such options.
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<PAGE>
The options shall vest and be exercisable at such times and according to such
terms and conditions as determined by the Executive Committee, and the
Executive Committee shall have the authority to accelerate the vesting of any
stock options as it deems appropriate for the 1994 Employee Stock Option Plan
or Providence Journal. The Executive Committee shall also set forth at the time
of grant the terms and conditions of the treatment of any outstanding stock
options in the event of a termination of employment.
All options granted become exercisable in four equal annual installments
beginning one year after the grant date. The option term is ten years.
Change of Control Benefits. Upon a "Change of Control" of Providence Journal
(defined in the 1994 Employee Stock Option Plan to include (i) a change of
control of Providence Journal of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or similar
schedule) of the Exchange Act; (ii) Providence Journal becoming a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which the then-current Directors constitute less
than a majority of the Board thereafter; (iii) a series of events over a period
of 24 consecutive months in which Directors at the beginning of that time do
not constitute at least a majority of the Board; or (iv) any person becomes
beneficial owner of securities of Providence Journal representing 20% or more
of the combined voting power of Providence Journal's then outstanding
securities, unless the Board has approved such acquisition, but not in excess
of 50% of the combined voting power) stock options granted under the 1994
Employee Stock Option Plan will become immediately vested and exercisable,
irrespective of the original vesting schedule or any attempt by the Executive
Committee to alter this right of immediate vesting. The PJC Spin-Off and the
Merger do not constitute a Change of Control for purposes of the 1994 Employee
Stock Option Plan. Upon consummation of the Merger, the 1994 Employee Stock
Option Plan will be assumed by New Providence Journal.
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 an option to acquire stock is generally not a taxable event for the
optionee. Upon exercise of the option, the optionee will generally recognize
ordinary income in an amount equal to the excess of the fair market value of
the stock acquired upon exercise (determined as of the date of exercise) over
the exercise price of such option, and Providence Journal will be entitled to a
deduction equal to such amount.
Special rules will apply, however, if, upon registration of New Providence
Journal's stock, the optionee is subject to Section 16 of the Exchange Act and
the option is exercised during the period within six months after the time the
option is granted (the "Section 16(b) Period"), when a sale of stock acquired
upon exercise of the option could subject such optionee to suit under Section
16. In such case, the optionee would not recognize ordinary income, and New
Providence Journal would not be entitled to a deduction until the expiration of
the Section 16(b) Period. Upon such expiration, the optionee would recognize
ordinary income, New Providence Journal would be entitled to a deduction, equal
to the excess of the fair market value of the
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stock (determined as of the expiration of the Section 16(b) Period) over the
option exercise price. Such an optionee may elect under Section 83(b) of the
Code to recognize ordinary income on the date of exercise, in which case New
Providence Journal would be entitled to a deduction at that time equal to the
amount of the ordinary income recognized.
Upon registration of New Providence Journal stock under Section 12 of the
Exchange Act, Section 162(m) of the Code limits to $1 million the deductibility
of compensation received in a year by New Providence Journal's chief executive
officer or by any one of the other four most highly compensated officers,
unless such compensation qualifies as "performance-based" or falls within other
exemptions under Section 162(m). Awards under the 1994 Employee Stock Option
Plan will be deemed to qualify as "performance-based compensation," in which
case New Providence Journal would be entitled to a deduction for compensation
paid in the same amount as income is realized by the employee without any
reduction under Section 162(m) of the Code.
Rule 16b-3. Upon registration of New Providence Journal stock under Section
12 of the Exchange Act, pursuant to Section 16(b) of the Exchange Act,
Directors, certain officers and 10% stockholders of New Providence Journal
would be generally liable to New Providence Journal for repayment of any
"short-swing" profits realized from any non-exempt purchase and sale of New
Providence Journal stock occurring within a six-month period. Rule 16b-3,
promulgated under the Exchange Act, provides an exemption from Section 16(b)
liability for certain transactions by an officer or director pursuant to an
employee benefit plan that complies with such Rule. Specifically, the grant of
an option under an employee benefit plan that complies with Rule 16b-3 will not
be deemed a purchase of a security and the actual or deemed sale of shares in
connection with certain option exercises will not be deemed a sale for Section
16(b) purposes. The 1994 Employee Stock Option Plan is designed to comply with
Rule 16b-3.
THE 1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The 1994 Non-Employee
Director Stock Option Plan was adopted by the Board of Directors of Providence
Journal effective on October 1, 1994 and is being submitted for approval by the
stockholders of Providence Journal at its Annual Meeting in June 1995. If such
approval has not occurred by August 31, 1995, the 1994 Non-Employee Director
Stock Option Plan shall be terminated, and any option grants previously made
shall be void. Assuming that such stockholder approval is obtained prior to
August 31, 1995, and assuming stockholder approval of the 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
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. If the
Providence Journal Proposals are not approved, then the 1994 Non-Employee
Director Stock Option Plan shall remain in effect with Providence Journal.
The 1994 Non-Employee Director Stock Option Plan is intended to provide long-
term incentive compensation and share ownership opportunities to non-employee
Directors, thereby helping Providence Journal to attract and retain high
quality directors. These incentives will contribute to the success of
Providence Journal by providing a greater identity of interest between the
Directors and stockholders.
Under the terms of the 1994 Non-Employee Director Stock Option Plan, the non-
employee Directors are eligible to receive grants of stock options. All ten
non-employee Directors participate in the plan automatically and will continue
to participate in the 1994 Non-Employee Director Stock Option Plan immediately
after October 1, 1994.
Shares Subject to the 1994 Non-Employee Director Stock Option Plan. The
maximum number of shares of Providence Journal Class A Common Stock that can be
used for purposes of the 1994 Non-Employee Director Stock Option Plan is 400
shares. Shares may be awarded from authorized and unissued shares or from
treasury shares, as determined by the Executive Committee.
Stock Options. Stock options granted under the 1994 Non-Employee Director
Stock Option Plan are non-qualified stock options that do not satisfy the
criteria of Section 422 of the Code. Each non-employee Director received a
stock option to purchase five shares of Providence Journal Class A Common Stock
on
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October 1, 1994 and will receive a stock option to purchase five additional
shares of New Providence Journal Class A Common Stock on each subsequent
October 1st each year the plan is in effect. The exercise price of any stock
option granted under the 1994 Non-Employee Director Stock Option Plan will be
100% of the fair market value on the date of grant. Each stock option shall
have a term of ten years and shall become initially exercisable on the first
anniversary of the grant date.
When a Director ceases to be a member of the Board, each option held by such
Director shall continue to be exercisable for a period of three years or the
end of the original term, whichever is first to occur.
Change of Control Benefits. Upon a "Change of Control" of Providence Journal
(defined in the 1994 Non-Employee Director Stock Option Plan to include (i) a
change of control of Providence Journal of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
similar schedule) of the Exchange Act; (ii) Providence Journal becoming a party
to a merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which the then-current Directors constitute less
than a majority of the Board thereafter; (iii) a series of events over a period
of 24 consecutive months in which Directors at the beginning of that time do
not constitute at least a majority of the Board; or (iv) any person becomes
beneficial owner of securities of Providence Journal representing 20% or more
of the combined voting power of Providence Journal's then outstanding
securities, unless the Board has approved such acquisition, but not in excess
of 50% of the combined voting power) stock options granted under the 1994 Non-
Employee Director Stock Option Plan will become immediately exercisable. The
PJC Spin-Off and the Merger do not constitute a Change of Control for purposes
of the 1994 Non-Employee Director Stock Option Plan. Upon consummation of the
Merger, the 1994 Non-Employee Director Stock Option Plan will be assumed by New
Providence Journal.
Adjustments and Reorganization. In the event of a merger, reorganization,
consolidation, recapitalization, share combination, stock dividend, stock
split, spin-off or other distribution (other than normal cash dividends) of
Providence Journal's assets to its stockholders, or other change in the
structure of Providence Journal affecting its shares, such appropriate
adjustments shall be made (i) in the aggregate number and class of shares which
may be issued under the 1994 Non-Employee Director Stock Option Plan, and (ii)
the number and class of and/or price of shares subject to outstanding options
granted under the 1994 Non-Employee Director Stock Option Plan, as deemed
appropriate by the Executive Committee in its discretion, to prevent the
dilution or enlargement of rights to any participant.
Tax Aspects. The tax consequences of options granted under the 1994 Non-
Employee Director Stock Option Plan are the same as those of options granted
under the 1994 Employee Stock Option Plan, as discussed above under the heading
"1994 Employee Stock Option Plan--Tax Aspects".
Rule 16b-3.The 1994 Non-Employee Director Stock Option Plan is designed to
comply with Rule 16b-3. (See "1994 Employee Stock Option Plan--Rule 16b-3".)
RESTRICTED STOCK UNIT PLAN. The Board of Directors of Providence Journal
approved awards under the Restricted Stock Unit Plan on October 1, 1993. The
purpose of the Restricted Stock Unit Plan is to provide a significant incentive
opportunity based on stockholder value to retain key management during the
reorganization of Providence Journal.
Administration. The Restricted Stock Unit Plan is administered by the
Executive Committee of the Board of Directors.
Shares. A maximum of 680 shares of Providence Journal Class A Common Stock
may be awarded under the Restricted Stock Unit Plan. Shares awarded under the
Restricted Stock Unit Plan may be either shares reacquired by Providence
Journal, including shares purchased in the open market, or authorized but
previously unissued shares. Shares forfeited by participants under the
Restricted Stock Unit Plan may be awarded to other participants under such
plan.
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Participation. Shares under the Restricted Stock Unit Plan may be awarded to
key employees, including officers of Providence Journal and its subsidiaries.
Restricted Stock Unit Awards. Grants under the Restricted Stock Unit Plan are
structured so that each award is equivalent to one share of Providence Journal
Class A Common Stock. Dividend equivalents accrue on the awards prior to payout
and are deemed to be reinvested in additional shares.
Vesting. Grants under the Restricted Stock Unit Plan, including additional
awards accrued as a result of dividends and the reinvestment of dividends will
be 100% vested at the end of three years, except in the case of certain
acceleration provisions. Upon vesting, the awards will be paid out, net of
withholding, in actual shares of New Providence Journal Class A Common Stock.
Acceleration of Vesting. Vesting of the awards under the Restricted Stock
Unit Plan will be accelerated in the event of death, total disability, or
retirement (with pro rata distribution) and upon termination of employment of
the participant when initiated by Providence Journal other than for cause.
Termination for any other reason will result in forfeiture of the unvested
grants.
Deferral of Payment. Participants will be offered the opportunity to defer
receipt of the payout of vested awards. Participants may elect this voluntary
deferral prior to the commencement of the third year of the vesting period.
Deferred amounts will be paid out in actual shares at the time of retirement,
termination of employment, or after a specific period of time, at the election
of the participant. During the deferral period, the grants under the Restricted
Stock Unit Plan free of restrictions will continue to accrue and reinvest
dividends.
Federal Income Tax Features. Under current law, no taxable income for federal
income tax purposes will be realized by participants who receive awards of
shares during the year in which they are awarded. At the time the shares are
vested and received by the participant free of restrictions, the participant is
subject to federal income tax for the fair market value of the stock at the
time of the vesting. The participant will receive a reduced number of shares to
account for the payment of his or her income tax obligation. Participants who
defer receipt of the awards under the Restricted Stock Unit Plan free of
restrictions will delay the recognition of the shares' value as ordinary income
until such time as the shares are received.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Providence Journal's compensation of senior executives is administered by the
five member Executive Committee of the Board of Directors. Four members of the
Executive Committee are non-employee Directors. The sole employee member, Mr.
Hamblett, makes recommendations to the Executive Committee but does not vote on
compensation matters. The Executive Committee, with the assistance of an
external compensation consultant, develops and adopts executive compensation
policy, as well as annual compensation for senior management, subject, in some
cases, to ratification by Providence Journal's Board of Directors.
Compensation policy is structured to attract, motivate and retain high
quality management talent. Principal components of executive compensation
include: base salary, annual performance-based bonus, and long-term incentive
compensation, which historically has been in the form of incentive stock units.
Compensation for the Chief Executive Officer, as well as other corporate
executive officers, is established annually by recommendation of the Executive
Committee to the Board of Directors. Base salary is established based upon
similar positions at other media companies of a comparable size. A
comprehensive media industry salary survey is utilized in addition to weighing
such factors as an individual's qualifications, experience, responsibilities,
and performance.
Incentive compensation focuses on both short and long-term performance:
a. The annual bonus plan is based upon Providence Journal's earnings
before interest, depreciation, and taxes (EBIT). In addition, the Executive
Committee has discretion to increase or decrease the bonus earned for EBIT
performance based upon accomplishment of individual non-financial
objectives.
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b. Long-term incentive opportunity has been provided by the Incentive
Stock Unit Plan. An explanation of the plan is provided as part of the
Incentive Stock Unit Plan table. This long-term plan is intended to
encourage ownership and have executives share stockholder interests in
Providence Journal's performance. The plan also promotes long-term
retention of participating executives.
In the past three years, several actions (described below) were taken by the
Executive Committee to increase the performance-based component of total
compensation for the CEO and top four corporate executives. Frederic W. Cook &
Company, Inc., an independent compensation consulting firm, was retained by the
Executive Committee to evaluate all aspects of executive compensation.
a. base salaries were not increased in 1993, 1994, and 1995.
b. shares of Providence Journal stock were awarded in lieu of base salary
increases in 1993 only.
c. since 1993, the annual bonus opportunity was increased from 50 percent to
60 percent of salary, to be earned based upon Providence Journal's actual EBIT
as compared to EBIT objectives.
d. in 1993, a restricted stock unit plan was implemented to further
stockholder interests and in a particular effort to retain management during
the reorganization of Providence Journal. At the end of three years,
compensation is paid in company stock, net of taxes.
e. in 1994, Providence Journal implemented non-qualified stock option plans
as a more relevant and competitive long-term incentive. The plans will replace
the IUP. These plans, the "Providence Journal 1994 Stock Option Plan" and the
"Providence Journal 1994 Non-Employee Director Stock Option Plan" will be
presented for stockholder approval at the 1995 Annual Meeting.
This report has been submitted by the members of the Executive Committee:
Henry D. Sharpe, Jr. (Chairman)
Stephen Hamblett
W. Nicholas Thorndike
John W. Wall
Patrick R. Wilmerding
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STOCKHOLDER RETURN PERFORMANCE GRAPH
The following line graph is a comparison based on an initial $100 investment
of the yearly percentage change in Providence Journal's cumulative total
stockholder return with the cumulative total return of the Standard & Poor's
500 Stock Index and the cumulative total return of a group of peer issuers.
Providence Journal Common Stock is not traded on a public exchange. Valuations
for this graph for the years 1989 through 1993 have been based upon an annual
fair market appraisal of an independent appraisal firm. The value for 1994 is
based upon an estimated stock price of $11,489 per share as of December 31,
1994. Given the absence of a current independent appraisal and the lack of an
established trading market, the Executive Committee established this estimated
value by reference to the nominal value attributed by Bear Stearns to the
Continental Merger Stock and Providence Journal's estimate of the pro forma
equity values of New Providence Journal both as determined in November 1994.
The peer group includes Meredith Corporation, Multimedia Corporation, The New
York Times Company, Times Mirror Company, Tribune Company and The Washington
Post Company.
For purposes of the graph, it was assumed that $100 was invested in Providence
Journal Common Stock, the S & P 500 Stock Index and the Peer Group which is
also weighted by market capitalization. Dividends are assumed to be reinvested.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Edwards & Angell, of which Mr. Harris is a partner,
regularly performs legal services for Providence Journal. Edwards & Angell has
acted as Providence Journal's principal counsel for over 60 years.
OWNERSHIP OF PROVIDENCE JOURNAL CAPITAL STOCK AND NEW PROVIDENCE JOURNAL
CAPITAL STOCK
Information relating to the ownership of Providence Journal Common Stock is
set forth in "The Special Meetings--Ownership of Providence Journal
Securities". Following the PJC Spin-Off and the Merger, holders of shares of
Providence Journal Common Stock immediately prior to the PJC Spin-Off who have
not exercised and perfected dissenters' rights under the RIBCA will own shares
of New Providence Journal Common Stock constituting 100% of the equity and
voting power of New Providence Journal, in the same proportion (and of the
same class and amount) as shares of Providence Journal Common Stock which had
been held as of such date.
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DESCRIPTION OF NEW PROVIDENCE JOURNAL COMMON STOCK
Immediately prior to the PJC Spin-Off, New Providence Journal will be
authorized to issue 226,825,000 shares of capital stock consisting of: (i)
180,000,000 shares of New Providence Journal Class A Common Stock, of which a
maximum of 38,825 shares will be issued pursuant to the PJC Spin-Off and
135,000,000 shares of which can be issued only upon the exercise of rights
issued pursuant to the NPJ Rights Agreement and (ii) 46,825,000 shares of New
Providence Journal Class B Common Stock, 46,825 of which will be issued
pursuant to the PJC Spin-Off and 35,118,750 of which can be issued only upon
the exercise of rights issued pursuant to the NPJ Rights Agreement.
NEW PROVIDENCE JOURNAL COMMON STOCK
GENERAL. The New Providence Journal Certificate is similar in most 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 material respects to the rights, privileges
and preferences of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock, respectively, except that in order to protect the
tax-free nature of the PJC Spin-Off and the Merger, for a period of one year
following the Effective Time the shares of New Providence Journal Class A
Common Stock and New Providence Journal Class B Common Stock will be subject to
the NPJ Transfer Restrictions. (For a description of the Transfer Restrictions,
see "The Merger--General Provisions--Restrictions on Transfer of Continental
Merger Stock," "Restrictions on Transfer of New Providence Journal Common
Stock"). In addition, the New Providence Journal Certificate and the New
Providence Journal By-Laws will not include preemptive rights and right of
first refusal provisions. (See "Comparison of Rights of Stockholders of
Providence Journal and Continental--Rights to Purchase or Redeem Shares,
"Preemptive Rights"). Also, in order to provide greater flexibility, New
Providence Journal will have significantly more authorized shares than
Providence Journal.
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. Subject to the NPJ Transfer Restrictions, New
Providence Journal Class A Common Stock is freely transferable. (For a
description of the NPJ Transfer Restrictions, see "The Merger--
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General Provisions--Restrictions on Transfer of Continental Merger Stock" and
"Restrictions on Transfer of New Providence Journal Common Stock".) 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 (collectively, "NPJ Permitted Transferees"). 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. Any purported transfer of New Providence Journal Class B Common Stock
other than to a NPJ Permitted Transferee shall be null and void and of no
effect and the purported transfer by a holder of New Providence Journal Class B
Common Stock, other than to a NPJ Permitted Transferee, will result in the
immediate and automatic conversion of such holder's shares of New Providence
Journal Class B Common Stock into shares of New Providence Journal Class A
Common Stock. In addition, the New Providence Journal Class B Common Stock is
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.
CERTAIN PROVISIONS IN THE NEW PROVIDENCE JOURNAL CERTIFICATE
The New Providence Journal Certificate and the New Providence Journal By-Laws
are similar in most respects to the Providence Journal Charter and the
Providence Journal By-Laws, except as noted above and except for requirements
under Delaware Law. Accordingly, the New Providence Journal Certificate and the
New Providence Journal By-Laws provide for indemnification of Directors and
officers to the fullest extent permitted by applicable law, and contain various
antitakeover provisions intended to (i) promote stability of New Providence
Journal's stockholder base and (ii) render more difficult certain unsolicited
or hostile attempts to take over New Providence Journal, which could disrupt
New Providence Journal, divert the attention of New Providence Journal's
Directors, officers and employees and adversely affect the independence and
integrity of New Providence Journal's media operations. A summary of the
principal antitakeover provisions is set forth below.
CLASSIFIED BOARD OF DIRECTORS, REMOVAL OF DIRECTORS AND RELATED
MATTERS. Pursuant to the New Providence Journal Certificate, the Board shall
consist of twelve members and will be divided into three classes, each class to
be equal in number. The terms of office of Directors will expire, respectively,
at the annual meetings of stockholders in 1996, 1997 and 1998. Successors to
any Directors whose terms are expiring are elected to three-year terms and hold
office until their successors are elected and qualified. The New Providence
Journal Certificate also provides that Directors of New Providence Journal may
be removed at any time, without cause, and only by an affirmative vote of the
holders of at least 80% of the combined voting power of the then outstanding
shares of stock of all classes entitled to vote generally in the election of
Directors cast at a meeting of stockholders called for the purpose of such
removal; provided, however, such 80% vote shall not be required for any such
removal recommended to the stockholders by the vote of not less than two-thirds
of the whole Board of Directors.
INCREASED STOCKHOLDER VOTE REQUIRED IN CERTAIN BUSINESS COMBINATIONS AND
OTHER TRANSACTIONS. The New Providence Journal Certificate provides that in
addition to any vote ordinarily required under Delaware Law, the affirmative
vote of (i) not less than two-thirds of the whole Board of Directors or (ii) if
subsection (i) above is not fully complied with, the holders of at least 80% of
the combined voting power of the then outstanding shares of stock of all
classes entitled to vote generally in the election of Directors would be
required to approve certain business combinations.
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
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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
Immediately after the PJC Spin-Off, New Providence Journal will become a
party to the NPJ Rights Agreement with The First National Bank of Boston, as
Rights Agent, pursuant to which the Board of Directors of New Providence
Journal will authorize 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 a
Distribution Date or the Expiration Date (both as hereinafter defined). The
Class A Rights and the Class B Rights (collectively, the "Rights") will be
transferrable only in connection with the transfer of the New Providence
Journal Common Stock.
As soon as practicable after a Distribution Date, the Rights Agent shall send
to the record holders of New Providence Journal Common Stock at the close of
business on the Distribution Date a Rights certificate. "Distribution Date"
means the earlier of (i) the tenth business day after the commencement of a
tender or exchange offer under the Exchange Act for a number of shares of the
New Providence Journal Common Stock having 15% or more of the voting power,
unless during such ten business day period the Board of Directors of New
Providence Journal declares that the tenth business day following such tender
or exchange offer shall not be a Distribution Date, or (ii) the tenth business
day after a Stock Acquisition Date. A "Stock Acquisition Date" means the first
date of public announcement (or determination by New Providence Journal,
whether or not announced publicly) by an acquiror (unless approved by the New
Providence Journal Board of Directors or having certain prior relationships
with New Providence Journal) that it has become the beneficial owner of 10% or
more of the voting power of New Providence Journal.
The Board of Directors of New Providence Journal may elect to redeem all but
not less than all of the then outstanding Rights at a redemption price of $.01
per Right, as such amount may be adjusted to reflect any combination or
subdivision of the outstanding New Providence Journal Common Stock or any
similar transaction, at any time up to and including the tenth business day
after a Stock Acquisition Date. Subject to certain conditions, the holder of
any Rights certificate may exercise the Rights evidenced thereby at any time
after the date on which New Providence Journal's right to redeem has expired
upon surrender of the Rights certificate to the Rights Agent, together with
payment of the purchase price, on or prior to August 31, 2005 (the "Expiration
Date"). The initial purchase price to a holder for a share of New Providence
Journal Class A Common Stock or New Providence Journal Class B Common Stock
pursuant to the exercise of either a Class A Right or Class B Right will be
fixed at a number which is approximately one half of the market value of the
New Providence Journal Common Stock, subject to adjustment from time to time as
provided in
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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.
In the event that on or after a Stock Acquisition Date:
(i) any company shall merge into New Providence Journal or any of its
subsidiaries or otherwise combine with New Providence Journal or any of its
subsidiaries and New Providence Journal or such subsidiary shall be the
continuing and surviving corporation of such merger or combination; or
(ii) any person shall sell or otherwise transfer assets to New Providence
Journal in exchange for 50% or more of the shares of any class of capital
stock of New Providence Journal or any of its subsidiaries, and any class
of New Providence Journal Common Stock shall remain outstanding and
unchanged; or
(iii) any person shall become the beneficial owner of a number of shares
of the outstanding New Providence Journal Common Stock having 15% or more
of the voting power of New Providence Journal;
and in certain other circumstances, the Board of Directors of New Providence
Journal shall order an exchange of New Providence Journal Common Stock for all
or part of the then outstanding and exercisable Rights at an exchange ratio of
three shares of New Providence Journal Class A Common Stock per Class A Right
and three shares of New Providence Journal Class B Common Stock per Class B
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction. Pursuant to the New Providence Journal Certificate,
approximately 75% of the shares of each of New Providence Journal Class A
Common Stock and New Providence Journal Class B Common Stock are reserved for
issuance under the NPJ Rights Agreement.
If at any time on or after a Stock Acquisition Date, New Providence Journal
merges into another company or another company merges into New Providence
Journal or if New Providence Journal shall sell or transfer assets or earning
power aggregating more than 50% of the assets or earning power of New
Providence Journal, each holder of a Right shall have the right to receive such
number of shares of common stock of the acquiring company as shall have a value
equal to twice the value of New Providence Journal Common Stock held by such
holder.
The acquiring company shall be liable for, and shall assume by virtue of the
merger, all obligations and duties of New Providence Journal pursuant to the
NPJ Rights Agreement. Under the NPJ Rights Agreement, the acquiring company
shall take the necessary steps to reserve sufficient authorized but unissued
capital stock to permit the exercise by New Providence Journal stockholders of
their rights under the NPJ Rights Agreement.
The Rights certificates can be transferred, split up, combined or exchanged;
however, no person holding Class B Rights may transfer such Rights except to a
NPJ Permitted Transferee. Any purported transfer of Class B Rights other than
to a NPJ 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 purported to be transferred by
such holder to Class A Rights.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF
PROVIDENCE JOURNAL AND NEW PROVIDENCE JOURNAL
If the PJC Spin-Off contemplated by the Merger Agreement 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 number and class of rights under the NPJ Rights
Agreement. The New Providence Journal Certificate will be similar in most
respects to the Providence Journal Charter. The rights, privileges and
preferences of New Providence Journal Class A Common Stock and New Providence
Journal Class B Common Stock specified in the New Providence Journal
Certificate will be identical in all material respects to the rights,
privileges and preferences of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock specified in the Providence Journal
Charter, respectively, except that for a period of one year following the
Effective Time the shares of New Providence Journal Class A Common Stock and
New Providence Journal Class B Common Stock will be subject to restrictions on
transfer identical to the NPJ Transfer Restrictions. (For a description of the
NPJ Transfer Restrictions, see "The Merger--General Provisions--Restrictions on
Transfer of Continental Merger Stock" and "Restrictions on Transfer of New
Providence Journal Common Stock".) In addition, the New Providence Journal
Certificate and the New Providence Journal By-Laws will not include preemptive
rights and right of first refusal provisions. (See "Comparison of Rights of
Stockholders of Providence Journal and Continental--Rights to Purchase or
Redeem Shares", "Preemptive Rights"). Also, in order to provide greater
flexibility, New Providence Journal will have significantly more authorized
shares than Providence Journal. 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 15th largest cable system operator in the United States. As of June 30,
1995, Providence Journal Cable owned and managed cable television systems
passing approximately 1,262,000 Homes and serving approximately 773,000 basic
subscribers/1/ in nine states.
Providence Journal Cable's goal is to acquire and retain customers that will
subscribe to a broad range of video services. This is achieved through the
formation of regional system clusters, development of technologically advanced
systems and a strong commitment to customer service and community relations.
CABLE TELEVISION BUSINESS
Cable television delivers a wide variety of channels of television
programming, primarily video entertainment and informational programming, to
subscribers who pay a monthly fee for the service they receive. Television and
radio signals are received off-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber-optic cable to
the subscribers' television sets. Cable television systems typically are
constructed and operated pursuant to non-exclusive franchises awarded by local
governmental authorities for specified periods of time.
Providence Journal Cable's systems offer subscribers choices of services, any
of which may include television signals available off-air in any locality,
television signals from distant cities (so-called "super stations"), non-
broadcast channels (such as Entertainment and Sports Programming Network
("ESPN"), Cable News Network ("CNN"), Cable Satellite Public Affairs Network
("C-SPAN"), The USA Network ("USA") and MTV: Music Television ("MTV")),
displays of information such as time, news, weather and stock market reports
and public, educational and governmental access channels. Providence Journal
Cable's systems also provide premium television services to their subscribers
for an extra monthly charge. These services (including Home Box Office ("HBO"),
Cinemax, Showtime, The Movie Channel, The Disney Channel and regional sports
channels) feature full-length motion pictures without commercial interruption,
sporting events, concerts and other entertainment programming. In addition,
many of Providence Journal Cable's systems offer digital audio services as a
separate premium service.
Providence Journal Cable, like other cable television operators, offers to
its subscribers multiple channels of television programming, consisting
primarily of video entertainment, sports and news, as well as informational
services, locally originated programming and digital audio programming.
Although services vary from system to system because of differences in channel
capacity and viewer interest, each of Providence Journal Cable's systems
typically offers a basic package, a second tier of cable programming services,
four a la carte services which are also offered in a grouping which Providence
Journal Cable considers a "new product tier" under recent FCC rulings, four to
six optional premium services, 30 channels of digital audio programming and two
to four pay-per-view channels. Subscribers are required by federal law to
purchase the basic service package in order to be able to purchase any other
services. (See "Legislation and Regulation--Federal Regulation".)
--------
/1/A "basic subscriber" means a person who subscribes, at a minimum, to
Providence Journal Cable's basic tier, which consists of broadcast
television signals available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are accounted
for on an "equivalent billing unit" basis, by dividing aggregate bulk-billed
service revenues by the combination of stated basic service, the stated
second tier of cable programming service and the stated a la carte service
rates. Bulk service revenues include charges for bulk basic programming and
bulk non-premium cable programming services. The number of residential
subscribers minus the number of courtesy accounts is added to the bulk
equivalent to determine the total subscriber number. The number shown
includes 100% of subscribers from certain systems that are currently
partially owned, but which are anticipated to be wholly owned at the
Effective Time.
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Providence Journal Cable offers basic services generally consisting of
television signals available locally off-air, some superstations and local
origination and public, educational and governmental access channels.
Advertiser-supported cable programming services are available typically on an
additional tier. In furtherance of Providence Journal Cable's strategy of
providing maximum choice to its subscribers, Providence Journal Cable offers a
variety of tiers and premium services. See "Legislation and Regulation" for a
description of recent legislation and pending regulation that limit Providence
Journal Cable's ability to price and tier its programming services.
Providence Journal Cable's revenues are derived principally from monthly
subscription fees. Rates charged to subscribers vary from market to market. At
June 30, 1995, Providence Journal Cable's monthly rates for basic cable service
averaged $10.64 company-wide with a low of $7.20 and a high of $19.46, second
tier cable programming service rates averaged $9.42 with a range of $5.24 to
$15.89, a la carte rates averaged $0.88 per channel with a low of $0.30 and a
high of $1.54, and premium service rates ranged from $6.95 to $12.55 per
service. Providence Journal Cable also offers combinations of selected services
at discounted prices. Providence Journal Cable generally charges monthly fees
for converters, program guides, and descrambling and remote control tuning
devices. Subscribers are free to terminate service at any time without
additional charge, but are charged a reconnection fee to resume service.
In addition to subscriber fees, Providence Journal Cable derives revenues
from the sale of advertising time on advertising-supported, satellite-delivered
networks such as ESPN, MTV and CNN, as well as on locally originated
programming. Providence Journal Cable's advertising revenues increased from
$8.6 million in 1989 to $17.4 million in 1994, representing a compound growth
rate of 15%. Providence Journal Cable's advertising revenues in the first half
of 1995 were $7.8 million, an increase of 2% over the first half of 1994.
Another source of revenues is the sale of pay-per-view movies and events to
Providence Journal Cable's basic subscribers in systems where such service is
offered. Revenues from pay-per-view movies and events increased 5.3% to $5.1
million during 1994. During the first half of 1995, pay-per-view movie and
event revenue was $3.1 million compared to $2.7 million in the first half of
1994, an increase of 14%. 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.
139
<PAGE>
The following table summarizes the growth of Providence Journal Cable since
December 31, 1992.
<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF JUNE 30
---------------------------------- -------------
1992 1993 1994 1995
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Homes Passed by Cable(1)..... 1,202,000 1,224,000 1,253,000 1,262,000
Number of Basic
Subscribers(2).............. 722,000 738,000 771,000 773,000
Basic penetration(3)......... 60.0% 60.3% 61.5% 61.3%
Number of Premium
Subscriptions(4)............ 440,000 467,000 510,000 512,000
Premium Penetration(5)....... 61.0% 63.3% 66.2% 66.2%
Monthly Revenue per Average
Basic Subscriber(6)......... $30.78 $30.63 $29.44 $29.50
</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 combination of stated basic service the
stated second tier of cable programming service and the stated a la carte
service rates. Bulk service revenues include charges for bulk basic
programming and bulk non-premium cable programming services. The number of
residential subscribers minus the number of courtesy accounts is added to
the bulk equivalent to determine the total subscriber number. The number
shown includes 100% of subscribers from certain systems that are currently
partially owned, but which are anticipated to be wholly owned at the
Effective Time. Due to the seasonality inherent in certain of Providence
Journal's cable systems in Florida, the number of basic subscribers may
fluctuate over the course of the year.
(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 six month period ended
June 30, 1995.
140
<PAGE>
PROVIDENCE JOURNAL CABLE'S SYSTEMS
The following table sets forth information relating to Providence Journal
Cable's systems as of June 30, 1995.
<TABLE>
<CAPTION>
COMBINED SUMMARY SUBSCRIBER DATA
NUMBER OF NUMBER OF
HOMES PASSED BASIC BASIC PREMIUM PREMIUM
BY CABLE SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION
------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
COLONY:
Southeastern, MA........ 99,347 65,194 65.6% 44,844 68.8%
Lowell, MA.............. 66,387 44,605 67.2% 36,449 81.7%
Pawtucket, RI........... 32,241 18,442 57.2% 14,644 79.4%
Westerly, RI............ 22,003 15,489 70.4% 9,718 62.7%
New York................ 71,390 58,801 82.4% 40,455 68.8%
Florida................. 145,254 79,838 55.0% 50,077 62.7%
Lakewood, CA............ 27,626 14,403 52.1% 12,051 83.7%
--------- ------- ----- ------- ------
TOTAL COLONY............ 464,248 296,772 63.9% 208,238 70.2%
--------- ------- ----- ------- ------
COLONY CABLEVISION:
Naples, FL.............. 175,777 106,260 60.5% 55,615 52.3%
Palm Desert, CA......... 107,103 66,384 62.0% 45,849 69.1%
--------- ------- ----- ------- ------
TOTAL COLONY CABLEVI-
SION................... 282,880 172,644 61.0% 101,464 58.8%
--------- ------- ----- ------- ------
COPLEY/COLONY(1):
Costa Mesa, CA.......... 40,296 21,827 54.2% 22,004 100.8%
Harbor, CA.............. 54,230 22,629 41.7% 25,408 112.3%
Cypress, CA............. 19,783 10,925 55.2% 10,727 98.2%
--------- ------- ----- ------- ------
TOTAL COPLEY/COLONY..... 114,309 55,381 48.4% 58,139 105.0%
--------- ------- ----- ------- ------
KING VIDEOCABLE(2):
Tujunga, CA............. 44,505 31,945 71.8% 17,384 54.4%
Santa Clarita, CA....... 32,960 28,214 85.6% 16,176 57.3%
Riverside, CA........... 36,917 24,072 65.2% 16,872 70.1%
Placerville, CA......... 27,054 18,385 68.0% 11,556 62.9%
Lodi, CA................ 26,823 14,286 53.3% 9,332 65.3%
San Andreas, CA......... 17,210 11,425 66.4% 4,329 37.9%
Mammoth Lakes, CA....... 8,552 7,334 85.8% 2,862 39.0%
Mt. Shasta, CA.......... 8,307 5,422 65.3% 2,851 52.6%
Menifee, CA............. 1,993 1,738 87.2% 1,074 61.8%
Ellensburg, WA.......... 9,300 5,760 61.9% 1,871 32.5%
Twin Falls, ID.......... 26,020 16,295 62.6% 8,615 52.9%
Brooklyn Park/St. Croix,
MN..................... 161,152 83,813 52.0% 51,389 61.3%
--------- ------- ----- ------- ------
TOTAL KING.............. 400,793 248,689 62.0% 144,311 58.0%
--------- ------- ----- ------- ------
TOTAL PROVIDENCE JOURNAL
CABLE.................. 1,262,230 773,486 61.3% 512,152 66.2%
========= ======= ===== ======= ======
</TABLE>
--------
(1) Providence Journal has signed a purchase agreement for the 50% interest in
Copley/Colony and closed the purchase in escrow, pending receipt of
franchise authority approvals for the transfer.
(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.
141
<PAGE>
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 systems 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
systems 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 systems have addressable capability.
KING VIDEOCABLE. King Videocable consists of twelve systems, representing
seventy-five franchise areas serving subscribers in Minnesota, Wisconsin,
California, Washington and Idaho. Approximately 81% of King Videocable's basic
subscribers are served by systems with at least 54-channel capacity.
Approximately 68% of the King Videocable systems have addressable capability.
TECHNOLOGICAL DEVELOPMENTS
Providence Journal Cable continues to upgrade the technical quality of its
cable plant and to increase channel capacity for the delivery of additional
programming and new services. Providence Journal Cable anticipates that system
upgrades will enable it to provide customers with greater programming
diversity, better picture quality and alternative communications delivery
systems made possible by the introduction of fiber-optic technology and by the
future application of digital compression.
The use of fiber-optic cable as a supplement to coaxial cable is playing a
major role in expanding channel capacity and improving the performance of cable
television systems. Fiber-optic cable is capable of carrying hundreds of video,
data and voice channels and, accordingly, its use is essential to the
enhancement of a cable television system's technical capabilities. Providence
Journal Cable's current policy to use fiber-optic technology in substantially
all rebuild projects is based upon the benefits that fiber-optic technology
provides over traditional coaxial cable distribution plant, the elimination of
headends, lower ongoing maintenance and utility costs and improved picture
quality and reliability.
As of December 31, 1994, approximately 51% of Providence Journal Cable's
subscribers were served by addressable converters. Addressable technology
enables the cable operator to activate from a central control point cable
television services to be delivered to each customer. As a result, Providence
Journal Cable can upgrade or downgrade services to a customer immediately,
without the delay or expense associated with dispatching a technician to the
home. Addressable technology also reduces premium service theft, is an
effective enforcement tool in collecting delinquent payments and allows
Providence Journal Cable to offer pay-per-view services. Approximately 74% of
Providence Journal Cable's subscribers are served by systems having at least
54-channel capacity.
FRANCHISES
Cable television systems are generally constructed and operated under non-
exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), as amended. (See "Legislation and Regulation--Cable Communications
Policy Act of 1984" and "Federal Regulation".)
142
<PAGE>
As of June 30, 1995, 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 up 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 206,026 basic subscribers (approximately
26.6% of basic subscribers of Providence Journal Cable as of June 30, 1995) 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
143
<PAGE>
operates. While Providence Journal Cable believes that the current level of
overbuilding is not material, Providence Journal Cable is currently unable to
predict the extent to which overbuilds may occur in Providence Journal Cable's
franchise areas and the impact, if any, such overbuilds may have on Providence
Journal Cable in the future.
Additional competition may come from satellite master antenna television
("SMATV") systems servicing condominiums, apartment complexes and certain other
private residential developments. The operators of these private systems often
enter into exclusive agreements with apartment building owners or homeowners'
associations that preclude operators of franchised cable television systems
from serving residents of such private complexes. The widespread availability
of reasonably priced earth stations enables private cable television systems to
offer both improved reception of local television stations and many of the same
satellite-delivered program services that are offered by franchised cable
television systems. FCC regulations permit SMATV operators to use point-to-
point microwave service to distribute video entertainment programming to their
SMATV systems. A private cable television system normally is free of the
regulatory burdens imposed on franchised cable television systems. Although a
number of states have enacted laws to afford operators of franchised systems
access to private complexes, the U.S. Supreme Court has held that cable
companies cannot have such access without compensating the property owner. The
access statutes of several states have been challenged successfully in the
courts, and others are currently being challenged, including statutes in states
in which Providence Journal Cable operates.
In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional competition to cable
television systems. These technologies include, among others, DBS services
which transmit signals by satellite to receiving facilities located on
customers' premises. Although satellite-delivered programming is currently
available to backyard earth stations, new, high-powered direct-to-home
satellites make possible the wide-scale delivery of programming to individuals
throughout the United States using roof-top or wall-mounted antennas. Companies
offering DBS services plan to use video compression technology to increase
satellite channel capacity and to provide a package of movies, broadcast
stations and other program services competitive with those of cable television
systems. Several companies are preparing to have DBS systems in place during
this decade, and two companies began offering high-powered DBS service in 1994
in competition with cable television operators. Several companies intend to
offer more than 100 channels of service over high-powered satellites using
video compression technology. DBS service providers may be able to offer new
and highly specialized services using a national base of subscribers. The
ability of DBS service providers to compete with the cable television industry
will depend on, among other factors, the availability of reception equipment at
reasonable prices. Although it is not possible at this time to predict the
likelihood of success of any DBS service ventures, initial sales of DBS
services indicate that DBS may offer substantial competition to cable
television operators in the future.
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. Recently, NYNEX Corp. and Bell Atlantic Corp., agreed to invest up to
$100,000,000 in CAI Wireless Systems Inc., a MMDS operator. In addition,
Pacific Telesis Group announced that it has acquired Cross Country Wireless
Inc., a MMDS operator. 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.
144
<PAGE>
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 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. The Supreme Court has agreed to hear arguments on this issue
during its 1995-1996 term. Separate bills to repeal the telco/cable cross-
ownership ban, subject to certain regulatory requirements, have been passed by
the United States House of Representatives and the United States Senate. Under
the terms of these bills, a telephone company could build and operate a cable
television system within its region or acquire an in-region cable operator,
under certain circumstances. These bills would also, inter alia, preempt state
and locally-imposed barriers to the provision of intrastate and interstate
telecommunications services by cable system operators in competition with local
telephone companies. Even in the absence of further changes in the cross-
ownership restrictions, the expansion of telephone companies' fiber-optic
systems may facilitate entry by other video service providers in competition
with cable systems. (See "Legislation and Regulation--Federal Regulation".)
PROPERTIES
A cable television system consists of four principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber-optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more 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.
145
<PAGE>
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 owns 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.
EMPLOYEES
At June 30, 1995, Providence Journal Cable had 1,262 full-time and 203 part-
time employees. Providence Journal Cable considers its relations with its
employees to be good. There is one collective bargaining agreement relating to
twelve employees in Twin Falls, Idaho.
LEGAL PROCEEDINGS
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Providence Journal, Colony and Dynamic Cablevision of
Florida, Inc. ("Dynamic") in the Circuit Court of the Eleventh Judicial Circuit
in and for Dade County, Florida. This case relates to the Dynamic Partnership,
in which Dynamic is the general partner with an 89.8% interest, and Cable LP is
the limited partner with a 10.2% interest. In this action, Cable LP claims that
Dynamic was obligated to offer to sell to Cable LP Dynamic's general
partnership interest before Providence Journal entered into the Merger
Agreement with Continental. Cable LP further claims that Dynamic's offer to
purchase Cable LP's limited partnership interest for $13.1 million triggered a
right of first refusal entitling Cable LP to purchase the general partnership
interest for $115 million. Cable LP seeks a declaration by the court that the
right of first refusal it is asserting applies and supplemental relief in the
form of an injunction barring consummation of the sale of the general partner's
interest in the Dynamic Partnership to Continental.
Providence Journal, Colony and Dynamic made a motion to strike allegations
against them of bad faith and breach of fiduciary duty, which motion was
granted by the court, and they filed an Answer to the Complaint and a
Counterclaim on March 16, 1995. In their counterclaim, Colony and Dynamic seek
a declaratory judgment that Cable LP unreasonably refused consent to the
transfer of the general partner's interest to Continental and that a purported
transfer of Cable LP's interest in the Dynamic Partnership to a partnership to
be managed by Adelphia Communications, Inc. violates Dynamic's right of first
refusal under the Dynamic Partnership Agreement. Discovery is well underway.
The case is scheduled to be tried in October.
In the event that, as a result of such litigation, Dynamic is required, prior
to the Merger, to sell its interest in the Dynamic Partnership to Cable LP or
to contribute such interest to New Providence Journal, the Merger Agreement
provides that the amount of New Cable Indebtedness will be reduced by (i) $115
million and (ii) (in the case of a required sale to Cable LP) the excess of (a)
the amount by which the consideration received by Dynamic for the sale of its
interest exceeds $115 million over (b) the incremental taxes payable as a
result of any such excess consideration.
In the event that, as a result of such litigation, Dynamic is required, after
the Merger, to sell its interest in the Dynamic Partnership to Cable LP, the
Merger Agreement provides that New Providence Journal will pay to Continental
simultaneously with the closing of such sale an amount equal to the sum of (i)
the amount (if any) by which the consideration received by Dynamic for the sale
of such interest is less than $115 million plus (ii) the taxes which would have
been payable assuming the purchase price for such interest equaled $115
million.
Providence Journal's management believes that the claims asserted by Cable LP
are without merit and intends to vigorously defend this matter.
Providence Journal Cable is a party to various other legal proceedings that
are ordinary and incidental to its business. Management does not believe that
any legal proceedings currently pending will have a material adverse effect on
the combined financial condition or results of operation of Providence Journal
Cable.
146
<PAGE>
SELECTED COMBINED FINANCIAL DATA OF PROVIDENCE JOURNAL CABLE
The following selected combined financial information for Providence
Journal's owned and partially owned cable businesses has been derived from the
combined financial statements of Providence Journal Cable which consists of
Colony (a wholly owned subsidiary of Providence Journal), Colony Cablevision
(a wholly owned division of Providence Journal since December 1992),
Copley/Colony (a 50% owned joint venture of Colony), and King Videocable (a
50% owned joint venture of Providence Journal since February 1992). The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Providence Journal Cable" and
the combined financial statements and notes thereto included elsewhere herein
for Providence Journal Cable. The combined statement of operations data for
the years ended December 31, 1992, 1993 and 1994 and the combined balance
sheet data as of December 31, 1992, 1993 and 1994 have been derived from the
audited combined financial statements of Providence Journal Cable. The
combined statement of operations data for the two years ended December 31,
1990 and 1991 and the combined balance sheet data as of December 31, 1990 and
1991 have been derived from the separate audited financial statements of
Colony and Copley/Colony. The combined statement of operations data for the
six months ended June 30, 1994 and 1995 and the combined balance sheet data as
of June 30, 1995 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 six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total Revenue........... $114,937 $118,791 $199,684 $281,593 $284,993 $141,704 $145,380
Operating expenses...... 50,049 48,554 76,523 105,037 114,868 56,528 59,941
Selling, general and
administrative
expenses............... 27,396 28,951 45,180 62,446 58,152 29,650 29,106
Depreciation and
amortization........... 23,179 24,640 58,750 99,554 85,783 45,610 42,314
Allocation of corporate
overhead (1)........... 5,947 7,751 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- -------- -------- --------
Operating income........ 8,366 8,895 12,718 4,905 15,156 6,213 10,201
Allocated interest
expense from parent
companies (2).......... -- -- (16,516) (39,938) (41,318) (20,035) (20,880)
Other, net.............. (1,139) 3,466 591 (1,841) 555 1,121 1,545
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 7,227 12,361 (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for income
taxes.................. 3,648 6,166 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
change in accounting
principle.............. 3,579 6,195 (3,901) (25,655) (17,425) (8,707) (6,513)
Cumulative effect of
change in accounting
principle.............. -- -- 4,831 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
minority interests..... $ 3,579 $ 6,195 $ 930 $(25,655) $(17,425) $ (8,707) $ (6,513)
======== ======== ======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------ AS OF JUNE 30,
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $140,747 $133,921 $867,150 $813,306 $777,102 $818,633
Long term debt.......... 22,500 17,500 15,000 -- -- --
Amounts due to parent
companies.............. 5,915 1,235 596,885 593,073 574,821 611,567
Group equity............ 45,662 51,929 89,334 70,403 57,142 52,915
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA (3).............. $ 37,492 $ 41,286 $ 77,981 $114,110 $111,973 $ 55,526 $ 56,333
EBITDA as a Percentage
of Revenue............. 32.6% 34.8% 39.1% 40.5% 39.3% 39.2% 38.7%
Net Cash Provided by
Operating Activities... 20,741 28,932 53,753 69,940 68,288 34,508 40,707
Capital Expenditures.... 22,605 18,722 27,391 49,094 47,766 23,142 25,631
</TABLE>
147
<PAGE>
--------
(1) Parent companies provided certain services to Providence Journal Cable,
including cash management, human resources, accounting, legal, tax and
other corporate services. Corporate overhead relating to these services
has been allocated to Providence Journal Cable. In the opinion of
management these charges have been made on a reasonable basis (individual
business revenue to total revenue), however, these charges are not
necessarily indicative of the level of expenses that might have been
incurred by Providence Journal Cable on a stand-alone basis.
(2) Represents allocation of interest expense on amounts due to parent
companies.
(3) Operating income plus depreciation, amortization and allocation of parent
company corporate overhead. Based on its experience in the cable
television industry, Providence Journal believes that EBITDA and related
measures of cash flow serve as important financial analysis tools for
measuring and comparing cable television companies in several areas, such
as liquidity, operating performance and leverage. EBITDA should not be
considered by the reader as an alternative to operating or net income
(computed in accordance with GAAP) as an indicator of Providence Journal
Cable's performance, or as an alternative to cash flows from operating
activities (computed in accordance with GAAP) as a measure of liquidity.
148
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PROVIDENCE JOURNAL CABLE
Four cable entities comprise all of the cable television systems of
Providence Journal Cable owned or partially owned by Providence Journal. These
entities are Colony (a wholly owned subsidiary of Providence Journal), Colony
Cablevision (a division of Providence Journal), Copley/Colony (a 50% owned
joint venture of Colony), and King Videocable (a 50% owned joint venture of
Providence Journal). The selected financial data contained in the text and
tables herein was prepared on a combined basis for Providence Journal Cable
with appropriate elimination of intercompany transactions, allocation of
corporate overhead and interest expense.
Although Providence Journal accounted for the operations of investments in
the 50% joint ventures under the equity method, the operations of such
ventures have been fully combined on the basis that they are managed, together
with all wholly owned and majority owned cable television businesses, by
Providence Journal and its subsidiaries.
Providence Journal Cable's revenue growth has been primarily achieved by
internal subscriber growth, acquisitions and increases in rates for services
provided. Recent significant acquisitions include the purchase of a 50%
ownership interest in King Videocable (as a part of Providence Journal's
investment in KHC on February 25, 1992) and the purchase of cable systems of
Colony Cablevision (formerly owned by Palmer) in November and December 1992.
These two acquisitions more than doubled the number of basic subscribers
serviced by Providence Journal Cable.
Federal laws reregulating the cable television industry were implemented by
the FCC effective September 1, 1993 and have limited Providence Journal
Cable's ability to increase rates for certain subscriber services and to
restructure its rates for certain services. The reregulation activities, which
are further discussed under "Recent Legislation" herein, were designed to
reduce subscriber rates and limit rate increases for certain cable services.
Substantially all of Providence Journal Cable's revenues are earned from
subscriber fees for basic cable programming and premium television services,
the rental of converters and remote control devices, and installation fees.
Additional revenues are generated by pay-per-view programming fees, the sale
of advertising, and payments received as a result of revenue sharing
agreements for products sold through home shopping networks.
RESULTS OF OPERATIONS. This discussion should be read in conjunction with
the accompanying audited financial statements and notes thereto. The results
of operations for Providence Journal Cable represent the combined operations
of all of the cable television systems owned or partially owned by Providence
Journal. These historical financial results do not necessarily reflect the
results of operations that would have existed had Providence Journal Cable
been an independent company.
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<PAGE>
The following table summarizes Providence Journal Cable's financial results:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Basic cable service.......... $141,262 $205,846 $202,654 $101,906 $104,429
Premium cable service........ 38,193 44,643 45,395 22,602 22,789
Advertising sales............ 9,946 14,042 17,410 7,649 7,815
Pay-per-view................. 3,727 4,887 5,145 2,687 3,052
Other........................ 6,556 12,175 14,389 6,860 7,295
-------- -------- -------- -------- --------
Total Revenues............. 199,684 281,593 284,993 141,704 145,380
Operating expenses........... 76,523 105,037 114,868 56,528 59,941
Selling, general and
administrative expenses..... 45,180 62,446 58,152 29,650 29,106
Depreciation and
amortization................ 58,750 99,554 85,783 45,610 42,314
Allocation of corporate
overhead.................... 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- --------
Operating income........... 12,718 4,905 15,156 6,213 10,201
Allocated interest expense
from parent companies....... (16,516) (39,938) (41,318) (20,035) (20,880)
Other, net................... 591 (1,841) 555 1,121 1,545
-------- -------- -------- -------- --------
Loss before income taxes and
cumulative effect of change
in accounting principle..... (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for income taxes... 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- --------
Loss before change in
accounting principle........ (3,901) (25,655) (17,425) (8,707) (6,513)
Cumulative effect of change
in accounting principle..... 4,831 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before minority
interests................... $ 930 $(25,655) $(17,425) $ (8,707) $ (6,513)
======== ======== ======== ======== ========
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUBSCRIBER INFORMATION:
Basic Subscribers............ 722,000 738,000 771,000 744,000 773,000
Premium Subscriptions........ 440,000 467,000 510,000 494,000 512,000
Premium Penetration.......... 61.0% 63.3% 66.2% 66.4% 66.2%
Monthly Revenue per Average
Basic Subscriber............ $ 30.78 $ 30.63 $ 29.44 $ 29.92 $ 29.50
Average Monthly Premium
Revenue per Subscription.... $ 8.80 $ 8.22 $ 7.70 $ 7.77 $ 7.36
</TABLE>
Six Months Ended June 30, 1995 Compared with Six Months Ended June 30,
1994. Revenues rose 2.6% in the first six months of 1995 compared with the same
period in 1994. Basic subscribers were up minimally in the first six months to
773,000 from the December 31, 1994 level. Due to the seasonality inherent in
certain of Providence Journal's cable systems in Florida, the number of basic
subscribers may fluctuate over the course of the year. Monthly revenue per
average basic subscriber was $29.50 in the first six months of 1995 compared
with $29.92 in the comparable period of 1994. Revenue per subscriber decreased
because of the FCC mandated rate reductions implemented on July 14, 1994 and
refund reserves accrued as a result of rate reviews by local and FCC
authorities. (See "Recent Legislation".)
Premium cable service revenue increased 1.0% while premium subscriptions
increased from 494,000 at June 30, 1994 to 512,000 as of June 30, 1995. The
512,000 premium subscriptions represent a minimal increase from the December
31, 1994 level, as new promotional programs attracted more subscribers. The
premium penetration remained flat at 66.2% during the six months ended June 30,
1995. Average monthly
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<PAGE>
premium revenue per subscription was $7.77 in last year's first six months
compared with $7.36 in 1995's first six months. This decline is due to
promotional programs used to attract new premium subscribers at discounted
rates.
First six months' operating, selling, general and administrative expenses in
1995, excluding depreciation and amortization and allocated corporate overhead,
rose 3.3%. The overall increase in expenses was primarily due to higher
programming costs and technical costs related to increased basic subscriber
levels. Depreciation and amortization expense decreased over the prior year's
six months, reflecting a lower asset base.
Operating loss before minority interests declined from $(8.7) million in the
first six months of 1994 to $(6.5) million in the comparable period of 1995
reflecting primarily the improved operating results.
1994 Compared with 1993. Revenues rose 1.2% compared with 1993, reflecting
higher basic subscriber levels. The highest growth in basic subscribers was in
Hialeah, Florida, Los Angeles, California and Minneapolis, Minnesota. Monthly
revenue per average basic subscriber was $29.44 in 1994 compared with $30.63 in
1993. Revenue per subscriber decreased because of the FCC mandated rate
reductions implemented on September 1, 1993, and again on July 14, 1994. (See
"Recent Legislation".)
Premium cable service revenue increased 1.7%. Premium subscriptions increased
from 467,000 at December 31, 1993 to 510,000 as of December 31, 1994. The 9.2%
increase is the result of new promotional programs. The premium penetration
percentage increased from 63.3% to 66.2% during the year ended December 31,
1994. Average monthly premium revenue per subscription was $8.22 in 1993
compared with $7.70 in 1994. This decline is due to promotional programs used
to attract new premium subscribers at discounted rates.
Operating, selling, general and administrative expenses in 1994, excluding
depreciation and amortization and allocated corporate overhead, rose 3.3%. 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 versus the
prior year reflecting this change in capitalization policy as well as full
amortization of certain intangible assets associated with the King Videocable
and Colony Cablevision acquisitions.
The increase in allocation of corporate overhead from $9.7 million to $11
million is primarily due to increased compensation costs associated with
executive compensation programs. Corporate overhead has been allocated on the
basis of revenue of Providence Journal Cable to total Providence Journal owned
and managed revenue; however, these charges are not necessarily indicative of
the level of expenses that might have been incurred by Providence Journal Cable
on a stand-alone basis.
Loss before minority interests declined from ($25.6) million to $(17.4)
million due primarily to lower depreciation and amortization expense.
1993 Compared with 1992. Revenues rose 41.0% over the prior year as a result
of full year impact of the acquisitions of Colony Cablevision and King
Videocable. Colony Cablevision added approximately 168,000 basic subscribers to
Providence Journal Cable and Providence Journal's purchase of the Palmer
Systems in December 1992 amounted to an approximate $56 million increase in
revenue from 1992 to 1993. Providence Journal's investment in King Videocable
added approximately 222,000 basic subscribers to Providence Journal Cable as of
February 25, 1992 amounting to an approximate $18 million increase in revenue
from 1992 to 1993. These acquisitions were accounted for as purchases and their
results of operations have been included in the combined financial statements
from the date of acquisition. As a result of these acquisitions, the number of
basic subscribers serviced by Providence Journal Cable more than doubled to
722,000 by the end of 1992. Through further internal growth, basic subscribers
grew by 2.2%, to 738,000 at the end of 1993.
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<PAGE>
Monthly revenue per average basic subscriber declined from $30.78 in 1992 to
$30.63 in 1993, reflecting the impact of FCC mandated rate reductions and lower
subscriber rates in acquired companies. Effective September 1, 1993, all of
Providence Journal Cable's systems had their rates set using a benchmark
approach which compares its rates to those which are in effect for cable
systems deemed by the FCC to be facing effective competition. The impact of
adjusting rates to the FCC benchmark was a $4.9 million reduction in Providence
Journal Cable's revenues for the four months ended December 31, 1993.
Premium subscriptions increased from 440,000 in 1992 to 467,000 in 1993, and
the premium penetration percentage increased from 61.0% to 63.3% over the same
period. Average monthly premium revenue per subscription decreased from $8.80
to $8.22 reflecting price discounting in promotional programs targeted to
increase premium subscriptions.
Operating and selling, general and administrative expenses in 1993 increased
by 37.6%, consistent with the 41.0% increase in revenue and reflecting the
full-year impact of Providence Journal's cable system acquisitions. The
increase in operating and selling, general and administrative expenses
associated with the King Videocable and Colony Cablevision acquisitions was
approximately $42 million from 1992 to 1993. Significantly higher depreciation
and amortization expense, which rose 69.5% in 1993, to $99.6 million, reflected
increased capital spending levels in 1992 and 1993, a full year of depreciation
and amortization from the acquisitions and accelerated depreciation of cable
home wiring. Due to provisions of the 1992 Cable Act that effectively
transferred to cable customers ownership of wiring and additional outlets
located in cable customer's homes, Providence Journal Cable reduced the
estimated useful lives of these related assets to reflect customer churn rates
and accelerated depreciation on older related assets, resulting in a $6.8
million increase in depreciation expense.
The increase in allocation of corporate overhead from $6.5 million to $9.7
million in 1993 is primarily due to increased corporate costs associated with
executive compensation programs.
Operating income decreased by 61.4% in 1993. Providence Journal Cable's
revenue growth and operating income are expected to continue to be adversely
affected in 1994 by the full year effect of the FCC's ongoing reregulation
activities.
The loss in 1993 before minority interest of ($25.7) million included
allocated intercompany interest expense of $40 million for the year. The
interest is primarily associated with the intercompany financing of the cable
system acquisitions in 1992. Advances due to parent companies was $593.1
million at December 31, 1993 with an average effective interest rate of 7.6%
for 1993.
1992 income before minority interest of $.9 million reflected a partial year
of intercompany financing charges associated with the King Videocable
acquisition as well as a $4.8 million cumulative benefit from the adoption of
the new accounting standard for income taxes.
LIQUIDITY AND CAPITAL RESOURCES. Providence Journal Cable's cash requirements
are funded primarily by its operating activities. Cash in excess of day-to-day
operating requirements is used to repay intercompany debt as part of shared
cash management systems with its parent companies. If funds are required,
Providence Journal Cable obtains them through advances from its parent
companies. Providence Journal Cable had advances due to parent companies of
$593.1 million and $574.8 million at December 31, 1993 and December 31, 1994,
respectively.
Net cash from operations in 1994 decreased $1.7 million from the prior year
resulting primarily from the impact of rate regulations.
Providence Journal Cable invests heavily in its cable plant, continually
replacing and modernizing its technology by rebuilding and upgrading its
systems, some with fiber-optic cable. Capital expenditures
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<PAGE>
increased 69.6% in 1993, continuing a substantial upward trend that began in
1992 and reflecting the expansion of the PJC Cable Business. Providence Journal
Cable spent $49.1 million and $47.8 million on capital expenditures in 1993 and
1994, respectively. Under the terms of the Merger Agreement, Providence Journal
Cable is obligated to spend $55.0 million in capital expenditures on an
annualized basis between December 1994 and the Closing of the Merger.
During 1992, Providence Journal Cable acquired cable television systems for
an aggregate purchase price of $678 million, all of which were financed through
advances from parent companies and other joint-venture financing.
The following table highlights certain items from the combined Statements of
Cash Flows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 JUNE 30
---------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities..... $ 53,753 $ 69,940 $ 68,288 $ 34,508 $40,707
Capital expenditures...... (27,391) (49,094) (47,766) (23,142) (25,631)
Principal payments on long
term debt................ (5,000) (15,000) -- -- --
</TABLE>
EBITDA. This presentation of EBITDA is part of the presentation of liquidity
and capital resources. EBITDA is defined herein as operating income plus
depreciation, amortization and allocation of corporate overhead. Based on its
experience in the cable television industry, Providence Journal Cable believes
that EBITDA and related measures of cash flow serve as important financial
analysis tools for measuring and comparing cable television companies in
several areas, such as liquidity, operating performance and leverage. EBITDA
should not be considered by the reader as an alternative to net income as an
indicator of Providence Journal Cable's performance or as an alternative to
cash flows as a measure of liquidity. EBITDA and the EBITDA Margin (EBITDA to
Revenues) for the last three years were as follows:
<TABLE>
<CAPTION>
%
EBITDA INCREASE EBITDA
(MILLIONS) (DECREASE) MARGIN
---------- ---------- ------
<S> <C> <C> <C>
1992.......................................... $ 78.0 88.9% 39.1%
1993.......................................... $114.1 46.3% 40.5%
1994.......................................... $112.0 (1.8%) 39.3%
Six months ended June 30, 1995................ $ 56.3 38.7%
</TABLE>
The substantial increases in EBITDA in 1992 and 1993 were due in part to
acquisitions of Colony Cablevision and King Videocable in 1992. The decrease in
EBITDA for 1994 reflects the impact of recent FCC regulations.
Effects of Inflation. The net effect of inflation on operations has not been
material in the last few years because of the relatively low rate of inflation
during this period and because of efforts of Providence Journal Cable to lessen
the effect of rising costs through a strategy of improving productivity,
particularly through the implementation of incentive bonus plans, controlling
costs and, where regulatory and competitive conditions permit, increasing
rates.
Recent Legislation. In October 1992, Congress enacted the 1992 Cable Act.
This legislation made significant changes to the legislative and regulatory
environment in which the cable industry operates, particularly in the areas of
rate regulation and the retransmission of broadcast television signals.
The FCC was directed to establish regulations to implement various provisions
of the 1992 Cable Act, including rate regulation. An FCC mandated basic and
cable programming service rate freeze became
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<PAGE>
effective in April 1993 and concluded May 15, 1994. The April 1993 rate
regulations also adopted a benchmark price cap system for measuring the
reasonableness of existing basic and cable programming service tier rates
(other than per-event or per-channel service rates), and a formula for
evaluating future rate increases. Alternatively, cost-of-service measurements
to justify rates above the applicable benchmarks are also permitted. In
general, under the April 1993 rules, the reduction for existing basic and cable
programming service tier rates was the greater of the applicable benchmark
level or the rates in force as of September 30, 1992, minus 10 percent adjusted
forward for inflation. Future rate increases may not exceed an inflation-
indexed amount, plus increases in certain costs such as taxes, franchise fees
and programming costs that exceed the inflation index. Cost recovery and
pricing allowances are also provided for new programming services added to the
regulated tiers. The April 1993 rate regulations became effective September 1,
1993. Basic and cable programming service tier rates, related equipment and
installation charges, and additional outlet charges were adjusted so as to
bring these rates and charges into compliance with the applicable benchmark.
The FCC's September 1993 guidelines were significantly modified in February
1994. Among other things, the FCC ordered a further reduction of 7% in basic
and cable programming service tier rates in effect on September 30, 1992, if
those rates exceeded a new per-channel benchmark recomputed by the FCC. This
would result in an overall reduction of 17% in basic and cable programming
service tier rates in effect on September 30, 1992. The guidelines to implement
this most recent modification were released on March 30, 1994 and the
regulations became effective May 1994 with allowable extension to July 1994.
On December 22, 1994, the FCC issued an Order concerning one cable television
system of Providence Journal Cable. The Order ruled that certain "a la carte"
channels offered by the system were subject to rate regulation and directed the
system to recalculate its maximum permitted rates as determined under rules and
regulations of the FCC. Providence Journal Cable has filed a petition for
reconsideration of this decision with the FCC. If such petition does not result
in adequate relief, Providence Journal Cable can, and presently intends to,
pursue its remedy of an appeal to the FCC and/or the courts. In addition, in
March and April, 1995, the FCC issued rate orders on two cable franchises of
Providence Journal Cable. The FCC has agreed to stay final action on these
orders until resolution of the aforementioned order. It is too early for
management to determine whether any rate refunds and prospective rate
reductions to subscribers may result from these actions, and no refunds have
been accrued.
Additionally, on July 6, 1995, the City of Los Angeles issued a draft order
that the a la carte channels offered by the cable system servicing part of the
Los Angeles area should be treated as cable programming service tiers and
therefore be subject to regulation. Providence Journal Cable has documented its
opposition to the City's conclusions and intends to seek relief with an appeal
to the FCC, if necessary. Because of the uncertainty as to the ultimate outcome
on reconsideration by the City, or with appeal to the FCC, Providence Journal
Cable has established an accrual for potential rate refunds of $1.9 million.
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.
154
<PAGE>
DESCRIPTION OF CONTINENTAL
BUSINESS
Continental is currently the fifth largest cable television system operator
in the United States. Continental's five management regions operate cable
television systems/1/ in 16 states, principally in suburban areas and mid-
sized cities. As of June 30, 1995, Continental's systems and those of its
domestic affiliates passed approximately 5,437,000 Homes and provided cable
service to approximately 3,133,000 basic subscribers./2/ Giving effect to the
Merger and other acquisitions described herein, Continental anticipates that
it will become the third largest cable television system operator in the
United States, passing approximately 7,116,000 Homes and serving approximately
4,117,000 basic subscribers in 20 states. Continental also participates in
cable television and telecommunications ventures outside of the United States.
Continental owns, subject to receipt of regulatory approvals, an approximate
50% interest in the largest cable television operator in Argentina, which
currently serves over 600,000 subscribers; has a 25% equity interest in a
joint venture that is constructing a cable television system (which
Continental will manage for a period of time) to serve Singapore's
approximately 820,000 households; and has formed a joint venture in Australia
in which Continental currently holds a 46.5% equity interest and which is
constructing a network to provide cable television, local telephone and a
variety of advanced broadband interactive services to business and residential
customers. Continental continues to pursue other international cable
television and telecommunications investments. Continental recently signed a
memorandum of understanding relating to the provision of cable television,
telephony, multimedia and interactive services in Japan. In addition,
Continental has made investments in (i) the telecommunications and technology
industries, including companies offering competitive access telephony and DBS
service in the United States and (ii) various programming ventures.
Continental's objective is to further build its subscriber base by acquiring
and retaining customers that will subscribe to a broad range of video and
telecommunications services. This objective is achieved through the pursuit of
the following key operating principles: (i) the continued expansion of its
nationwide operating scale (as measured by Homes passed); (ii) the formation
of large regional system clusters in demographically attractive markets; (iii)
the continued development of locally responsive management; (iv) the
development of technologically advanced networks capable of providing both
expanded video and telecommunications services; (v) a focus on targeted
marketing; and (vi) a commitment to superior customer service and community
relations.
Continental intends to apply these operating principles, as appropriate, in
its international operations as they develop. (See "International
Operations".)
DOMESTIC CABLE TELEVISION BUSINESS
Cable television is a service that delivers a wide variety of channels of
television programming, consisting primarily of video entertainment, sports
and news, as well as informational services, locally originated programming
and digital radio programming, to the homes of subscribers who pay a monthly
fee for the service. Television and radio signals are received by off-air
antennas, microwave relay systems and satellite earth stations and then are
modulated, amplified and distributed to subscribers' homes over networks of
coaxial and fiber-optic cables.
--------
/1/Each of Continental's systems includes all areas served from a single
"headend"; thus, a system may include one or more communities or franchise
areas.
/2/A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's Basic Broadcast Tier ("BBT"), which generally consists of
broadcast television signals available locally off-air, local origination and
public, educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate BBT
bulk-billed revenues by the stated BBT rate. In reporting subscriber and other
data for systems not controlled or managed by Continental, only that portion
of data corresponding to Continental's percentage ownership is included. (See
"Description of Continental--Domestic Cable Television Business".)
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<PAGE>
Cable television systems typically are constructed and operated under
nonexclusive franchises awarded by local governmental authorities for a
specified multi-year term. Franchises typically contain many conditions, such
as deadlines for the commencement or completion of construction; fees to
government authorities; conditions of service to schools and other public
institutions; and the maintenance of insurance and indemnity bonds. The
provisions of franchises are subject to both the 1984 Cable Act and the 1992
Cable Act. Continental has never had a franchise revoked, and to date, all of
Continental's franchises have been renewed or extended at their expirations,
frequently on modified but satisfactory terms.
Continental's systems offer subscribers various levels (or "tiers") of cable
services consisting of television signals available off-air in any locality,
television signals from so-called "superstations" originating in distant cities
(such as WTBS, WGN and WWOR), various satellite-delivered, non-broadcast
channels (such as ESPN, CNN, USA, and MTV), displays of information featuring
news, weather and stock market reports and programming originated locally by
the systems (such as public, educational and governmental access channels).
Continental's systems also provide premium services to basic subscribers for an
extra monthly charge. These premium services include HBO, Cinemax, Showtime,
The Movie Channel, The Disney Channel and certain regional sports networks,
which are satellite-delivered channels that consist principally of feature
films, live sporting events and other special entertainment features, usually
presented without commercial interruption. Certain of Continental's systems
also carry "multiplexed" premium services, which are available from certain
premium-service providers such as HBO. Multiplexing allows a premium-service
provider to offer its programming on two or more channels simultaneously, but
scheduled differently, so as to provide the subscriber with an expanded choice
of programs at any given time.
Although services vary from system to system because of differences in
channel capacity and viewer interest, each of Continental's systems offers a
BBT as the lowest-priced tier (consisting generally of broadcast television
signals available locally off-air, local origination and public, educational
and governmental access channels), one or more Cable Programming Service
("CPS") tiers (which include satellite-delivered cable programming services)
and several premium and pay-per-view channels. Subscribers may choose various
combinations of such services. In a limited number of Continental's systems,
certain satellite-delivered, non-broadcast services are currently offered as a
New Product Tier ("NPT"), which the FCC has indicated it will forebear from
regulating. (See "Legislation and Regulation" for a description of recent
legislation and regulation which limits Continental's ability to price and tier
certain programming services.) Continental may offer such NPTs to subscribers
in additional systems as it expands channel capacity in such systems.
A customer generally pays an initial installation charge and fixed monthly
fees for BBT, CPS, NPT and premium programming services. Such monthly service
fees constitute Continental's primary source of revenues. In addition to these
monthly revenues, Continental's systems generate revenues from additional fees
paid by customers for pay-per-view programming of movies and special events and
from the sale of available advertising spots on advertiser-supported
programming. Continental's systems also offer home shopping services, from
which Continental receives a share of revenues from sales of merchandise in its
service areas.
DOMESTIC OPERATING STRATEGY
Continental's objective is to further build its subscriber base by acquiring
and retaining customers that will subscribe to a broad range of video and
telecommunications services. Continental's key operating principles are:
OPERATING SCALE. Continental is committed to preserving and further expanding
its operating scale, as measured by the number of Homes passed by its systems,
through internal growth and strategic acquisitions. Continental believes that
operating scale is critical to its ability to meet the growing capital and
technical requirements that are vital to its long-term competitiveness and will
enable it to realize lower programming costs, enhance its ability to develop
and deploy new technologies, provide new services and improve operating
margins.
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As of June 30, 1995, Continental's systems and those of its domestic
affiliates served approximately 3,133,000 basic subscribers and passed
approximately 5,437,000 Homes, making it the fifth largest cable television
company in the United States. Giving effect to the Merger and the other
acquisitions described herein (certain of which are still pending),
Continental anticipates that it will become the third largest cable television
operator in the United States, passing approximately 7,116,000 Homes and
serving approximately 4,117,000 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
$34,600/3/. Continental's systems are currently located in 16 states and are
divided into five 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, 12 years of experience with Continental and
18 years within the cable industry. Certain employees, including the regional
Senior Vice Presidents, are awarded equity compensation in the form of
restricted stock grants, which vest over time, as an additional incentive to
maximize stockholder value. Continental believes that the experience,
stability and commitment of its regional management is integral to its ability
to provide superior customer service, maintain strong community relations and
maximize growth potential.
TECHNOLOGICALLY ADVANCED SYSTEMS. Continental strives to maintain the
highest technological standards in the industry and is continually upgrading
its systems. By deploying high-capacity fiber-optic cable and addressable
technology in its network, Continental continues to develop the foundation
from which to provide a broad range of video and telecommunications services.
Fiber-optic cable generates the capacity necessary to provide such services,
while addressable technology is essential to realize the full growth potential
of pay-per-view, tiered programming offerings such as NPTs, 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.
--------
/3/Median household income data in this Joint Proxy Statement-Prospectus are
derived from demographic information provided by Equifax Marketing Decision
Systems, Inc. The demographic information was provided by zip code area and
was averaged by Continental (weighted by the number of households in each zip
code area) (i) for all of the zip code areas Continental serves and (ii) for
the zip code areas in each of Continental's five domestic cable television
management regions. Equifax Marketing Decision Systems, Inc. developed the
1994 demographic information by adjusting 1990 census data to take into
account estimated growth rates which were developed by the WEFA Group
(formerly Wharton Econometric Forecasting Associates and Chase Econometrics).
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As of June 30, 1995, Continental provided at least 54-channel capacity in
systems serving over 75% of its basic subscribers. In addition, Continental has
addressable technology in systems serving over 85% of its basic subscribers.
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
more than 25% 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 is deploying an information technology
system in order to take advantage of the growing success of on-line services,
home sales of personal computers and widespread Internet access.
Continental has recently installed digital advertising insertion systems in
seven markets including Boston, Richmond, Jacksonville, Pompano, Dayton, Fresno
and Detroit. These digital advertising insertion systems allow Continental to
download advertisements electronically to certain headends, thereby
significantly enhancing the flexibility and reliability of Continental's
advertising sales. Continental's New England region employs high-speed
Asynchronous Transfer Mode switches, which, in addition to facilitating its
advertising insertion efforts, have other potential uses, including improving
Continental's ability to provide expanded video, voice and data offerings.
TARGETED MARKETING. As part of its operating strategy, Continental seeks to
maximize revenues by increasing subscriptions to BBT, CPS, NPT, premium and
pay-per-view programming services through targeted marketing, combined with a
local focus on customer service and community relations. Continental markets
cable television services through telemarketing, direct mail and door-to-door
solicitation, reinforced by radio, cable television, off-air television and
newspaper advertising. Continental seeks to attract and retain long-term
subscribers and increase the percentage of Homes in its service areas that
subscribe to expanded service offerings. Continental believes that its
marketing efforts, coupled with its technologically advanced systems and the
demographic profile of its subscriber base, are essential to its ability to
sustain pay-to-basic penetration rates which have consistently exceeded the
industry average. As of June 30, 1995, Continental's 85.1% 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 $35.65 as of June 30, 1995, 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,
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Continental believes it has created one of the most extensive customer-service
programs in the industry, supported by training centers in each of its regions.
To improve its customer-service efforts, Continental is in the process of
incorporating wide-area computer networks into its customer-service functions,
which will enable it to review customer accounts more easily. In addition,
these desktop technologies will bring Continental into closer contact with
customers and enable it to provide customer service more efficiently.
Continental's emphasis on customer service has helped it to foster and
sustain good relationships with the communities it serves. With 19 Beacon
Awards in the past three years, Continental has received more public service
awards from the Cable Television Public Affairs Association ("CTPAA") than any
other cable company during that period. In addition, CTPAA awarded to Amos B.
Hostetter, Jr., Continental's Chairman and CEO, its 1992 Crystal Beacon Award
for his and Continental's commitment to public affairs. In 1993 and 1994,
Continental received the Partnership in Education award for its outstanding
record in partnering with local schools. In 1991 and 1992, Continental also won
Community Action Network Awards for applying the resources of cable television
to help solve social problems in various communities. In 1990, Continental
received a Broadcasting Award from the National Education Association ("NEA")
for its work in supporting education, the first time the NEA had so recognized
a cable operator. Continental is a founder of Cable in the Classroom, an
industry-wide initiative providing 525 hours of commercial-free educational
programming each month to more than 3,000 public and private schools in the
communities it serves. Amos B. Hostetter, Jr. served as the first Chairman of
Cable in the Classroom.
Continental believes that its focus on customer service and community
relations will provide a competitive advantage as it plans to market a broader
range of video and telecommunications services to Homes in its operating
regions, frequently in competition with other providers of these services. (See
"Competition".)
EXPANDED SERVICE OFFERINGS. Continental believes that the operating strategy
described above has generated and will continue to enable it to generate
additional revenues from numerous sources, as customer demand and regulations
permit. Continental believes that the delivery of superior and diverse services
to its subscribers is a key component in its continued success and growth.
Increased channel capacity and addressability will enable Continental to
offer expanded programming services such as "tiered" and "multiplexed"
services. Continental believes that the "tiering" of programming services,
which includes providing NPTs, leads to increased customer acceptance by
offering subscribers a wider variety of programming and pricing packages from
which to choose. In addition, Continental currently uses "multiplexing" in many
systems to enhance the value of certain of its premium service offerings.
In recent years, Continental has begun to generate revenues from additional
sources, including advertising, pay-per-view and home shopping services.
Continental derives revenues from the sale of advertising time on advertising-
supported, satellite-delivered networks such as ESPN, MTV and CNN, as well as
on locally originated programming. Continental's advertising revenues increased
from $18 million for the year ended December 31, 1989 to $58 million for the
year ended December 31, 1994 (representing a 26% compound annual growth rate in
advertising revenues) and accounted for 4.8% and 4.7% of Continental's total
revenues for the year ended December 31, 1994 and the six months ended June 30,
1995, respectively. Continental has increased its advertising sales through its
participation in several regional cable advertising interconnects (associations
of cable companies designed to effectively deliver a large market to
advertisers), as well as through the deployment of advanced technologies,
including digital advertising insertion systems. Continental also participates
in the national development of cable advertising through its ownership interest
in National Cable Communications, L.P. ("NCC"), the largest cable advertising
representation firm in the country.
Pay-per-view programming is offered to subscribers on an individual event
basis and consists of recently released movies and special events (including
boxing matches, other sporting events and concerts). Continental realized 14%
compound annual growth in pay-per-view revenues from December 31, 1989 to
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<PAGE>
December 31, 1994; for the year ended December 31, 1994, and the six months
ended June 30, 1995 pay-per-view revenues accounted for approximately 2% of
Continental's total revenues. Continental experienced a 5% decline in pay-per-
view revenues for the year ended December 31, 1994 as compared to 1993, due
primarily to an industry-wide lack of availability of special events.
Continental believes that increased channel capacity and the further deployment
of addressable technology in its systems will enable it to expand the number of
channels dedicated to pay-per-view services and increase the number of
subscribers with access to pay-per-view programming.
Continental also receives a percentage of the proceeds from subscribers'
purchases of merchandise offered on home shopping programming services such as
QVC, Inc. ("QVC"), Home Shopping Network ("HSN") and Valuevision. Combined
advertising, pay-per-view and home shopping revenues have increased at a
compound annual rate of 22% over the past five years. Continental believes that
these and other services 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 were then
reduced by as much as 17% below their September 30, 1992 levels if they
exceeded the new per-channel benchmark. The old benchmark formula called for a
reduction of up to 10%.
Under current law both the FCC and local franchise authorities have the
ability to regulate cable rates. Local franchise authorities may certify to the
FCC in order to regulate the rates charged for BBT services and equipment and
installation. Currently, local franchise authorities in systems representing
approximately 38% of Continental's BBT subscribers have certified to regulate
rates. The rates charged for CPS are regulated by the FCC if a subscriber or
other interested party filed a valid complaint with the FCC on or before
February 28, 1994, or files a valid complaint within 45 days of a future CPS
rate increase. Complaints were filed with the FCC concerning CPS rates covering
approximately 52% of Continental's CPS subscribers. Premium services such as
HBO and Showtime, NPTs and pay-per-view channels, remain unregulated. In
addition, systems serving approximately 2% of Continental's subscribers are
subject to effective competition as defined by the 1992 Cable Act and are
thereby exempt from regulation. By law, local franchise authorities must
observe the rate regulation rules established by the FCC. The primary means
established by the FCC for regulating both BBT and CPS rates uses certain
formulas or "benchmarks" to establish the applicable tier rate. Equipment rates
are set based on actual cost plus a reasonable return and allowance for taxes.
The FCC also allows cable operators to use cost-of-service showings to justify
rates higher than the otherwise applicable benchmark, if the benchmark formulas
do not yield a rate sufficient to cover costs and yield an appropriate return
on a cable operator's investment. Companies electing to justify rates using
cost-of-service instead of the benchmark methodology initially were required by
the FCC to rely on general rate-making principles. After the first round of
cost-of-service justifications were filed, the FCC issued interim cost-of-
service regulations, but it has not yet adopted final rules.
160
<PAGE>
After extensive evaluation of cost-of-service principles and economic and
legal analyses by experts in the rate regulation area, Continental decided to
defend certain of its service rates using the FCC's benchmark methodology in
regulated systems serving approximately 20% of its BBT subscribers and 24% of
its CPS subscribers, and certain of its service rates using the cost-of-service
methodology in regulated systems serving approximately 18% of its BBT
subscribers and 29% of its CPS subscribers. The decision to rely on cost-of-
service showings was based in part on the fact that Continental's systems
generally have substantially higher channel capacities and addressability than
the industry as a whole, reflecting greater capital investment on a per
subscriber basis. Having decided to pursue the cost-of-service process in some
of its systems, Continental added the resources and availed itself of the
expertise needed to support the filings both at the FCC and locally.
On August 3, 1995, the Social Contract between Continental and the FCC was
adopted. The Social Contract covers all of Continental's existing franchises,
including those that are currently unregulated, and is the first comprehensive
rate agreement involving cable television ever approved by the FCC. The Social
Contract is designed to (1) assure fair and reasonable rates for Continental's
cable service customers; (2) improve Continental's cable service by
substantially upgrading the channel capacity and technical reliability of its
domestic cable systems; and (3) reduce the administrative burden and costs of
regulation for local governments, the FCC and Continental. The Social Contract
settles Continental's pending cost-of-service rate cases and its benchmark CPS
tier rate cases. Benchmark BBT cases will be resolved by Continental and local
franchising authorities. As part of the Social Contract, Continental agrees to,
among other things, (i) invest at least $1.35 billion in domestic system
rebuilds and upgrades from 1995 through 2000 to expand channel capacity and
improve system reliability and picture quality, (ii) make in-kind refunds to
affected subscribers totalling approximately $9.5 million and (iii) reduce all
of its BBT regulated and unregulated rates, as described below. The resolution
of pending rate cases is without any finding by the FCC of any wrongdoing by
Continental.
Pursuant to the Social Contract, Continental agrees to convert, by no later
than January 1, 1996, all its existing BBT services to a low price "lifeline
basic" tier by setting rates at levels specified in the Social Contract and
then reducing those rates 15% to 20%. The specified levels of BBT rates before
the reduction are: (i) the benchmark rates, where Continental defended
regulated rates by the FCC's benchmark formula; (ii) the lower of the current
rate or the benchmark rate, where Continental defended regulated rates using
the cost-of-service methodology; and (iii) current rates in unregulated
franchise areas. Continental must reduce the BBT rates by 15%, but it has
discretion to reduce them as much as 20% where BBT rates in franchise areas
within a single system vary and the deeper reduction would achieve greater
uniformity of rates. The programming for the "lifeline basic" tier (consisting
generally of broadcast television signals locally available off-air, local
origination and public, educational and governmental access channels) will be
maintained for the life of the Social Contract. The Social Contract will allow
Continental to offset BBT revenue reductions resulting in the creation of
"lifeline basic" tiers with adjustments to rates on its CPS tiers. In the
future, rates for the "lifeline basic" tier can be increased for external cost
increases and inflation. Local franchise authorities will be able to opt out of
the BBT refund provision of the Social Contract with respect to the cost-of-
service BBT cases over which they have jurisdiction and independently resolve
with Continental any refund amounts for the 12 months preceding the "lifeline
basic" tier restructuring. In some cases, Continental has waived the 12 month
rule and must defend its rates under cost-of-service principles from the start
of regulation until rates are restructured. Local franchise authorities may not
opt out of any other provisions of the Social Contract. In unregulated areas or
in areas where rates were defended using the FCC's benchmark formula, local
franchise authorities may not opt out of any provisions of the Social Contract.
By January 1, 1996, (i) all regulated CPS rates that are determined
according to the FCC's benchmark formula will be set at the benchmark and (ii)
all regulated CPS rates that are currently defended using the cost-of-service
methodology, as well unregulated CPS rates, will be maintained at current
levels. In each case,
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Continental will be permitted to adjust its CPS rates to offset the 15% to 20%
reductions in its BBT and to allow for external cost increases, inflation and
channel additions permitted by the FCC's "going forward" rules. Under the
"going forward" rules, Continental, along with other cable operators, during
the three-year period beginning January 1, 1995, is permitted, subject to
limits prescribed in those rules, to add new services and to reflect the cost
of those new services by an amount not to exceed $.20 per added channel, plus
the actual license fees for the added channels not to exceed $.30 per added
channel (the "Going Forward Rules".)
Pursuant to the Social Contract, Continental is permitted to conduct a second
round of channel additions during the three-year period commencing January 1,
1998 on the same terms as the first round of the Going Forward Rules.
Continental is the first cable operator that has been be afforded a second
round of Going Forward channel additions.
Pursuant to the Social Contract, Continental is permitted to average broad
categories of equipment and various installation costs for all its systems on a
state-wide or region-wide basis, rather than on a franchise by franchise basis.
Those rates will be reviewed and approved by the FCC, subject to enforcement by
local franchise authorities.
Finally, Continental is permitted on each system to move up to four existing
services on CPS tier(s) to a single Migrated Product Tier, provided the
Migrated Product Tier is offered without requiring customers to purchase any
tier other than the BBT. The rates of the Migrated Product Tier will be
regulated in accordance with price limits contained in the Social Contract
until January 1, 1997, at which point Continental systems may elect to convert
their Migrated Product Tiers into NPTs, as defined by the Going Forward Rules,
provided the tiers continue to be offered without requiring customers to
purchase any tier other than the BBT. The rates for the NPTs are regulated by
market forces. (See "Legislation and Regulation--Federal Regulation--Rate
Regulation".) In addition, Continental has the right to add an unlimited number
of new channels to its Migrated Product Tier at $.20 per channel, plus the
actual license fees for the added channels.
Continental has the right to petition the FCC to incorporate future
acquisitions of cable television systems under the Social Contract. No
determination has been made at this time on whether or not to seek to include
Providence Journal Cable and other acquisitions under the Social Contract. (See
"Domestic Acquisitions and Investments--Domestic Acquisitions".)
The rate restructuring, Migrated Product Tier and "going forward" adjustments
that Continental is implementing under the Social Contract will continue to
apply to cable systems divested by Continental through a system sale or trade.
Other rights and obligations will apply only if the new owner notifies the FCC
that it agrees to be bound by the same or similar terms and conditions as those
contained in the Social Contract. Continental will not be relieved of its total
investment requirement under the Social Contract by reason of these
divestitures.
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 industries, including companies
offering competitive access telephony and DBS service in the United States;
(ii) cable television businesses in certain international markets where growth
prospects are attractive; and (iii) programming, including, among others,
investments in Turner Broadcasting System, Inc. ("Turner"), E! Entertainment
Television, Inc. ("E!") and New England Cable News. (See "Domestic Acquisitions
and Investments," "International Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Continental--
Liquidity and Capital Resources".)
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The following table summarizes the growth of Continental and its affiliates
within the United States since December 31, 1991.
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------------------------ ---------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Homes Passed by
Cable(1)............... 4,880,000 4,981,000 5,192,000 5,372,000 5,437,000
Number of Basic
Subscribers(2)......... 2,784,000 2,856,000 2,895,000 3,081,000 3,133,000
Basic Penetration(3).... 57.0% 57.3% 55.8% 57.4% 57.6%
Number of Premium
Subscriptions(4)....... 2,603,000 2,545,000 2,454,000 2,635,000 2,666,000
Premium Penetration(5).. 93.5% 89.1% 84.8% 85.5% 85.1%
Monthly Revenue per
Average Basic
Subscriber(6).......... $32.98 $34.46 $35.76 $35.29 $35.65
</TABLE>
--------
(1) Estimated dwelling units located sufficiently close to Continental's cable
plant to be practicably connected without any further extension of
principal transmission lines. In reporting Homes passed and subscriber and
other data for systems not controlled or managed by Continental, only that
portion of data corresponding to Continental's percentage ownership is
included.
(2) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's BBT, which generally consists of broadcast television
stations available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate
BBT bulk-billed revenues by the stated BBT rate. In reporting subscriber
and other data for systems not controlled or managed by Continental, only
that portion of data corresponding to Continental's percentage ownership is
included.
(3) Basic subscribers as a percentage of Homes passed by cable. Continental's
basic penetration for the years ended December 31, 1993 and 1994, and the
six months ended June 30, 1995 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 six month period ended
June 30, 1995.
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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 June 30,
1995.
<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).. 359,670 242,525 67.4% 194,015 80.0%
Southern New England (MA). 272,457 204,638 75.1% 172,439 84.3%
Northern New England (NH,
ME)...................... 229,637 177,502 77.3% 88,294 49.7%
Western New England (MA,
CT)...................... 221,512 151,308 68.3% 120,736 79.8%
New York
(Haverstraw/Ossining).... 77,751 60,034 77.2% 57,347 95.5%
--------- --------- ---- --------- -----
Total................... 1,161,027 836,007 72.0% 632,831 75.7%
========= ========= ==== ========= =====
WESTERN REGION
Southern California....... 1,044,800 330,312 31.6% 425,638 128.9%
Greater Metropolitan
Fresno................... 294,858 146,572 49.7% 140,887 96.1%
Greater Metropolitan
Stockton................. 121,800 66,972 55.0% 55,282 82.5%
Yuba City, California..... 43,971 32,904 74.8% 19,915 60.5%
Reno, Nevada.............. 13,640 9,736 71.4% 6,391 65.6%
--------- --------- ---- --------- -----
Total................... 1,519,069 586,496 38.6% 648,113 110.5%
========= ========= ==== ========= =====
SOUTHEAST REGION
Jacksonville, Florida..... 411,337 242,581 59.0% 223,623 92.2%
Pompano, Florida.......... 237,740 148,296 62.4% 106,166 71.6%
Richmond, Virginia........ 243,960 161,246 66.1% 118,506 73.5%
--------- --------- ---- --------- -----
Total................... 893,037 552,123 61.8% 448,295 81.2%
========= ========= ==== ========= =====
MICHIGAN/OHIO REGION
Greater Dayton............ 248,596 169,842 68.3% 106,858 62.9%
Greater Metropolitan
Detroit.................. 174,998 121,692 69.5% 125,424 103.1%
Lansing and Greater
Metropolitan Lansing..... 125,504 87,694 69.9% 41,161 46.9%
Greater Metropolitan
Cleveland................ 121,259 84,973 70.1% 57,679 67.9%
North Central Ohio........ 120,767 81,618 67.6% 53,335 65.3%
--------- --------- ---- --------- -----
Total................... 791,124 545,819 69.0% 384,457 70.4%
========= ========= ==== ========= =====
CENTRAL REGION
Greater Metropolitan
Chicago (West)........... 416,778 251,023 60.2% 254,683 101.5%
Southern Illinois......... 84,860 61,335 72.3% 33,433 54.5%
St. Louis, Missouri....... 173,018 98,158 56.7% 114,319 116.5%
St. Paul, Minnesota....... 147,474 64,115 43.5% 59,396 92.6%
--------- --------- ---- --------- -----
Total................... 822,130 474,631 57.7% 461,831 97.3%
========= ========= ==== ========= =====
Affiliated Companies(1)..... 250,661 137,677 54.9% 90,443 65.7%
--------- --------- ---- --------- -----
Total................... 5,437,048 3,132,753 57.6% 2,665,970 85.1%
========= ========= ==== ========= =====
SYSTEMS DESIGNATION:
Consolidated Systems...... 5,186,387 2,995,076 57.7% 2,575,527 86.0%
Affiliated Companies(1)... 250,661 137,677 54.9% 90,443 65.7%
--------- --------- ---- --------- -----
Total................... 5,437,048 3,132,753 57.6% 2,665,970 85.1%
========= ========= ==== ========= =====
</TABLE>
--------
(1) Affiliated Companies are those companies not majority-owned or controlled
by Continental. The systems held by Affiliated Companies consist of
systems held by five limited partnerships. (See "Domestic Acquisitions and
Investments--Domestic Minority Cable Investments".) Continental owns less
than 50% of the outstanding limited partnership interests of each such
partnership. None of the systems owned by Affiliated Companies are managed
by Continental. In reporting subscriber and other data for systems not
controlled or managed by Continental, only that portion of data
corresponding to Continental's percentage ownership is included. N-COM
Limited Partnership II ("N-COM") is currently an Affiliated Company.
Continental has entered into an agreement, which is in the process of
being renegotiated, to purchase the remaining partnership interests in N-
COM and assume certain liabilities from the other partners. Continental
anticipates that this acquisition will close in 1995. No assurances can be
made at this time that such transaction will be consummated. (See
"Domestic Acquisitions and Investments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Continental".)
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MANAGEMENT REGIONS: A description of Continental's five domestic cable
television management regions and their significant operating clusters is set
forth below:
New England. The New England region is Continental's largest management
region, representing approximately 21% of Continental's total Homes passed and
27% of its total basic subscribers as of June 30, 1995. This region includes
systems in the New England states of Maine, New Hampshire, Massachusetts and
Connecticut, as well as in Westchester County, New York. Significant operating
clusters in Massachusetts, which include the Boston suburban communities of
Needham, Cambridge, Newton, Wellesley, Watertown and Winchester in the eastern
part of the state, and Northfield, Springfield, Longmeadow, and Westfield in
the western part of the state, represent approximately 68% of the region's
total basic subscribers. The New England region commenced a five year rebuild
program in 1994, which upon completion will result in a combination of 550 MHz
and 750 MHz capacity for most of the region. The median household income for
the communities served by Continental in the New England region is
approximately $49,000, versus the national median household income of $34,600.
Upon the consummation of the Merger, the New England region's basic
subscriber base will increase by approximately 24%, to more than 1,000,000
basic subscribers.
Western. The Western region represented approximately 28% of Continental's
total Homes passed and 19% of its total basic subscribers as of June 30, 1995.
This region includes its systems in Los Angeles, where Continental is the
largest cable operator, with approximately 80% of its basic subscribers
clustered in geographically contiguous franchises served by two headends. This
region also includes Continental's Northern California systems, which include
the cities of Fresno, Visalia, Stockton, and Yuba City, as well as Reno,
Nevada. An upgrade of the Los Angeles systems, that will bring capacity to 750
MHz, is currently under way. The median household income for the communities
served by Continental in the Western region is approximately $34,500.
Upon the consummation of the Merger and another pending acquisition, the
Western region's basic subscriber base will increase by approximately 53%, to
more than 890,000 basic subscribers.
Southeast. The Southeast region represented approximately 16% of
Continental's total Homes passed and 18% of its total basic subscribers as of
June 30, 1995. This region includes significant operating clusters serving the
communities surrounding Jacksonville and Pompano, Florida and Richmond,
Virginia. The Jacksonville cluster is one of Continental's largest, serving
over 200,000 basic subscribers. In 1994, the Jacksonville and Pompano systems
commenced rebuild projects which will provide 750 MHz capacity to fiber nodes
serving approximately 2,000 or fewer homes by 1997. The median household income
for the communities served by Continental in the Southeast region is
approximately $36,900.
Upon the consummation of the Merger, the Southeast region's basic subscriber
base will increase by approximately 34%, to more than 738,000 basic
subscribers.
Michigan/Ohio. The Michigan/Ohio region represented approximately 15% of
Continental's total Homes passed and 17% of its total basic subscribers as of
June 30, 1995. This region includes Continental's systems in greater
metropolitan Detroit and Lansing, which includes the communities of Southfield,
Dearborn Heights, Westland, and Jackson. In Ohio, Continental's systems serve
the greater Dayton and Cleveland communities, as well as several communities
throughout North Central Ohio. By mid-1995, The Dayton systems have recently
been rebuilt to provide 550 MHz capacity to fiber nodes serving approximately
2,000 or fewer homes. The median household income for the communities served by
Continental in the Michigan/Ohio region is approximately $39,000.
Continental has reached agreement to purchase several cable systems in 1995,
which will increase the Michigan/Ohio region's basic subscriber base by
approximately 24%, to more than 670,000 total basic subscribers. (See "Domestic
Acquisitions and Investments" and "Management's Discussion of Financial
Condition and Results of Operations of Continental.")
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Central. The Central region represented approximately 15% of Continental's
total Homes passed and 15% of its total basic subscribers as of June 30, 1995.
This region includes Continental's systems in metropolitan Chicago and Southern
Illinois, St. Paul, Minnesota, and St. Louis, Missouri. Continental's
metropolitan Chicago cluster, which includes the Chicago suburban communities
of Elmhurst, Forest Park, Oak Brook, Rosemont, Northfield, Westchester, and
Willmette, is one of Continental's largest, with 241,000 basic subscribers
served by four headends. All of the Central region's systems are scheduled to
be rebuilt or upgraded by 1997, at which time all major markets will have
between 600 MHz and 750 MHz capacity. The median household income for the
communities served by Continental in the Central region is approximately
$47,100.
In August 1995, Continental acquired several cable television systems serving
approximately 88,000 basic subscribers in the Chicago, Illinois area. These
basic subscribers combined with those resulting from the Merger will increase
this region's basic subscribers by 36% to more than 640,000 basic subscribers.
FRANCHISES. Continental believes it has maintained good relations with its
local franchise authorities. Continental has never had a franchise revoked, and
to date all of its franchises have been renewed or extended at their
expirations, frequently on modified but satisfactory terms. Continental's
franchises establish the terms and conditions under which its systems are
operated. Typically, they establish certain performance and safety standards
related to Continental's construction and maintenance of facilities in, under
and over public streets and rights of way in the franchise areas. Some, but not
all, of these franchises specify the services to be offered. Nearly all of
Continental's franchises provide for the payment of fees to the local
franchising authorities, which currently average approximately 3% of gross
revenues. The 1984 Cable Act prohibits local franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. Continental's
franchises are usually issued for fixed terms ranging from 10 to 15 years and
must periodically be renewed. Most of such franchises can be terminated prior
to their stated expirations for breach of material provisions.
Franchises representing approximately 1,292,000 basic subscribers
(approximately 41% of the basic subscribers of Continental and its domestic
affiliates as of June 30, 1995) are scheduled to expire through 1999. The 1984
Cable Act provides, among other things, for an orderly franchise renewal
process in which a franchise renewal will not be unreasonably withheld or, if
renewal is withheld and the system is acquired by the franchise authority or a
third party, the franchise authority must pay the operator the "fair market
value" of the system covered by such franchise. In addition, the 1984 Cable Act
establishes comprehensive renewal procedures which require that an incumbent
franchisee's renewal application be assessed on its own merit and not as part
of a comparative process with competing applications. (See "Legislation and
Regulation--Cable Communications Policy Act of 1984".)
PROGRAMMING. Continental provides programming to its subscribers pursuant to
contracts with programming suppliers. Continental generally pays a flat monthly
fee per subscriber for programming on its basic and premium services. Some
programming suppliers provide volume discount pricing structures and/or offer
marketing support to Continental. Continental's programming contracts are
generally for fixed periods of time ranging from 3 to 10 years and are subject
to negotiated renewal. The costs to Continental to provide cable programming
have increased in recent years and are expected to continue to increase due to
additional programming being provided to basic subscribers, increased costs to
produce or purchase cable programming, inflationary increases and other
factors. Increases in the cost of programming services have been offset in part
by additional volume discounts as a result of the growth of Continental and its
success in selling such services to its customers. Effective in May 1994, the
FCC's rate regulations under the 1992 Cable Act permit operators to pass
through to customers increases in programming costs in excess of the inflation
rate. Management believes that Continental will continue to have access to
programming services at reasonable price levels. (See "Legislation and
Regulation".)
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MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains new broadcast
signal carriage requirements, and the FCC has adopted regulations which are
currently in force implementing such statutory carriage requirements. These new
rules allow local commercial television broadcast stations, commencing on June
17, 1993 and every three years thereafter, either to elect required carriage
("must-carry" status), or to require a cable television system to negotiate for
"retransmission consent" rights. A cable television system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Local non-
commercial television stations are also given mandatory carriage rights on
cable television systems under the 1992 Cable Act and the FCC's rules; however,
such stations are not given the option to negotiate for retransmission consent
rights. Additionally, as of October 6, 1993, cable television systems were
required to obtain retransmission consent for all "distant" commercial
television stations (except for commercial satellite-delivered independent
"superstations" such as WTBS), commercial radio stations and certain low power
television stations carried by cable television systems. With its 1993
agreement with Capital Cities/ABC Inc. ("Capital Cities") and The Hearst
Corporation ("Hearst"), Continental was the first major cable television
company to reach a retransmission consent agreement with a broadcaster not
requiring cash compensation in exchange for the right to carry the
broadcaster's local television signals. In exchange for permission to carry the
local television signals of broadcast stations owned by Capital Cities and
Hearst, Continental agreed to carry ESPN2, a national sports programming
network owned by Capital Cities and Hearst. Since then, Continental has been
successful at reaching retransmission consent agreements, for terms generally
ranging from 3 to 7 years, with virtually all of the local broadcast stations
that elected retransmission consent (all without payment of cash compensation),
and only in a very few instances has Continental been forced to drop a local
broadcast signal from its programming. Some of Continental's systems have been
required to carry television broadcast stations that they otherwise would not
have elected to carry due to must-carry elections. At this time, Continental
cannot predict the outcome of any future must-carry elections by and
retransmission consent negotiations with local broadcasters.
DOMESTIC ACQUISITIONS AND INVESTMENTS
Management believes that the telecommunications industry, including the cable
television and telephony industries, is in a period of consolidation
characterized by mergers, joint ventures, acquisitions, cable system exchanges
and similar transactions. Management also believes that Continental is well
positioned to participate in this consolidation trend due to its well-clustered
systems, the technical quality of its cable plant, its management strengths and
its relationships within the cable industry. Continental, like other cable
television companies, has participated from time to time and will continue to
participate in discussions with third parties regarding a variety of potential
transactions, any of which, if consummated might be material to Continental and
its stockholders.
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 operating scale and enlarge and enhance its
regional system clusters. Continental generates growth in operating income in
such acquired systems through a combination of efficiencies resulting from
system consolidation and expansion of the service offerings of the acquired
systems. Continental may also make acquisitions of cable television systems
that would form the basis for the creation of additional system clusters. In
addition, Continental periodically reviews opportunities to exchange its
systems for those of other cable television system operators in order to
enlarge and enhance its regional system clusters. The following is a summary of
recent and pending acquisitions of domestic cable systems, excluding the
Merger:
In June 1994, Continental acquired a cable television system serving
approximately 44,000 basic subscribers in Manchester, New Hampshire and its
surrounding communities for a purchase price of approximately $48,000,000. The
Manchester system is adjacent to several of Continental's existing systems in
the New England region.
In November 1994, Continental acquired three cable television systems serving
approximately 34,000 basic subscribers in Florida for a purchase price of
approximately $67,000,000. These systems are in close proximity to
Continental's existing systems in the Southeast region.
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In August 1995, Continental acquired several cable television systems serving
approximately 88,000 basic subscribers in the Chicago, Illinois area for a
purchase price of approximately $168,500,000. These systems are in close
proximity to Continental's existing systems in its Central region.
Continental has entered into a purchase and sale agreement with Columbia
Associates L.P., a Delaware limited partnership, to purchase several cable
television systems serving approximately 74,000 basic subscribers in Michigan
for approximately $155,000,000. Continental has also entered into an agreement,
which is in the process of being renegotiated, to acquire the remaining
partnership interests of N-COM, a limited partnership that operates cable
television systems serving approximately 56,000 basic subscribers in the
Detroit suburbs. Continental currently owns a 33.77% limited partnership
interest in such partnership. The purchase price for the remaining interests is
approximately $90,000,000. The Columbia and N-COM systems are in close
proximity to Continental's existing systems in its Michigan/Ohio region. The
Columbia and N-COM acquisitions are expected to close in 1995.
In addition, in March 1995, Continental entered into a purchase and sale
agreement with Consolidated Cablevision of California to purchase cable
television systems serving approximately 12,000 basic subscribers in Northern
California for approximately $17,000,000. This acquisition is expected to close
in 1995. These systems are in close proximity to Continental's existing systems
in California.
There can be no assurances that any of the foregoing pending transactions
will be consummated. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Continental--Liquidity and Capital
Resources--Capital Expenditures and Domestic Acquisitions".)
The following table summarizes certain pro forma operating data of
Continental's domestic systems and its domestic affiliates and gives effect to
the Merger and the other acquisitions described above.
<TABLE>
<CAPTION>
JUNE 30,
1995
---------
<S> <C>
Homes Passed by Cable(1)
Continental........................................................ 5,437,000
Providence Journal................................................. 1,262,000
Other(2)........................................................... 417,000
---------
Total.............................................................. 7,116,000
=========
Number of Basic Subscribers(3)
Continental........................................................ 3,133,000
Providence Journal................................................. 773,000
Other(2)........................................................... 211,000
---------
Total.............................................................. 4,117,000
=========
Basic Penetration(4)
Continental........................................................ 57.6%
Providence Journal................................................. 61.3%
Other(2)........................................................... 50.6%
---------
Total.............................................................. 57.9%
=========
Number of Premium Subscriptions(5)
Continental........................................................ 2,666,000
Providence Journal................................................. 512,000
Other(2)........................................................... 168,000
---------
Total.............................................................. 3,346,000
=========
Premium Penetration(6)
Continental........................................................ 85.1%
Providence Journal................................................. 66.2%
Other(2)........................................................... 79.6%
---------
Total.............................................................. 81.3%
=========
</TABLE>
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--------
(1) Estimated dwelling units located sufficiently close to Continental's cable
plant to be practicably connected without any further extension of
principal transmission lines.
(2) "Other" includes the Illinois acquisition and the pending acquisitions in
Michigan and Northern California, which are expected to close in 1995.
Approximately 66.3% of N-COM's total Homes passed and subscriber data is
included under "Other" with the remaining 33.7% included under
"Continental", reflecting Continental's current minority stake in N-COM.
(3) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's BBT, which generally consists of broadcast television signals
available locally off-air, local origination and public, educational and
governmental access channels. Bulk subscribers are accounted for on an
"equivalent billing unit" basis, by dividing aggregate BBT bulk-billed
revenues by the stated BBT rate. In reporting subscriber and other data for
systems not controlled or managed by Continental, only that portion of data
corresponding to Continental's percentage ownership is included.
(4) Basic subscribers as a percentage of Homes passed by cable.
(5) Equals the number of premium services subscribed to by subscribers. Premium
services include single channel services offered for a monthly fee per
channel.
(6) Premium subscriptions as a percentage of basic subscribers. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium subscription. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service.
DOMESTIC MINORITY CABLE INVESTMENTS. The acquisition of minority ownership
interests in various domestic cable television companies has contributed to
Continental's nationwide operating scale. As of June 30, 1995, through wholly
owned subsidiaries, Continental held minority ownership positions in the
following domestic cable companies.
<TABLE>
<CAPTION>
JUNE 30, 1995
------------------------------
HOMES TOTAL BASIC PERCENTAGE
INVESTMENT PASSED SUBSCRIBERS OWNERSHIP
---------- ------- ----------- ----------
<S> <C> <C> <C>
Insight Communications Company, L.P.............. 298,961 157,458 34.42%
Meredith/New Heritage Strategic Partners, L.P.... 236,947 120,447 37.90%
N-COM Limited Partnership II(1).................. 91,791 56,246 33.77%
Prime Cable of Hickory, L.P...................... 51,798 35,688 33.30%
Inland Bay Cable TV Associates................... 19,815 14,188 49.00%
------- -------
Total.......................................... 699,312 384,027
======= =======
</TABLE>
--------
(1) Continental anticipates that in 1995 it will acquire the remaining
ownership interests in N-COM from the other partners and assume certain
liabilities for total consideration of approximately $90,000,000. No
assurances can be made at this time that such transaction will be
consummated. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Continental--Liquidity and Capital
Resources--Capital Expenditures and Domestic Acquisitions".)
INTERNATIONAL OPERATIONS
Continental has made and continues to pursue investments in international
video networks and also seeks to make investments in international telephony
networks. Such investments represent opportunities for Continental to apply its
managerial, technical and marketing expertise in attractive international
markets. In addition, Continental receives valuable information and experience
operating in lines of business, such as telephony, that have not been open to
Continental in the United States. 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 and competitive
environments. To date, Continental has made investments in cable television
systems in Argentina and Singapore, has formed a joint venture in Australia,
and has signed a memorandum of understanding relating to a potential joint
venture in Japan. Continental is pursuing other international opportunities
principally in Latin America, Asia and the Pacific Rim. (See "Risk Factors--
Risk Factors Related to the Continental Merger Stock--International
Investments".) Continental's international investments include the following:
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ARGENTINA. In 1994, Continental acquired an approximate 50% interest in
Fintelco, S.A. ("Fintelco"), an Argentine cable television operator, subject to
the receipt of certain governmental approvals permitting Continental to hold an
equity interest in an Argentine cable television company (such approvals are
pending). Fintelco is the largest cable television operator in Argentina, with
over 618,000 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 June 30, 1995, Fintelco had over 315,000 subscribers in the
province of Buenos Aires, 190,000 subscribers in the province of Cordoba and
113,000 subscribers in the province of Santa Fe. Average rates for Fintelco's
cable television services are the equivalent of approximately US$30 per month.
There is currently no regulation of cable subscription rates in Argentina. Most
systems in Argentina provide a single package of services, which typically
includes premium movie channels such as HBO Ole.
Fintelco was one of Argentina's first cable television operators through its
primary operating subsidiary in Buenos Aires, Video Cable Comunicacion, S.A.
("VCC"). In the late 1980's VCC grew through the construction of cable
television systems in Buenos Aires as well as through strategic acquisitions of
smaller systems in the region. More recently, Fintelco's growth has come
through strategic acquisitions in the provinces of Cordoba and Santa Fe. Sixty-
six percent of the country's population is located in the provinces of Buenos
Aires, Cordoba and Santa Fe. Fintelco will continue to seek opportunities over
time to grow through acquisitions in these regions.
As of June 30, 1995, Continental had invested approximately US$148 million in
Fintelco and its subsidiaries and had committed to invest an additional US$33.5
million. 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.
Cable operators in Argentina are issued non-exclusive broadcast licenses for
the carriage of their programming services, and may compete with other cable
operators for the same subscribers. Fintelco competes in certain areas of
Buenos Aires. Other cable operators in the province of Buenos Aires include:
Cablevision (which is currently 51% owned by U.S. cable operator TCI), Grupo
Clarin (d/b/a Multicanal) and Fin Cable S.A. (d/b/a Telefe).
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 has not previously been 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 activated its first
subscribers in June 1995, and by 1999, when construction is expected to be
completed, it is anticipated that there will be nearly 1 million households in
Singapore. SCV will include both Mandarin and English language programming.
Continental is managing the system's construction and ongoing operations under
a five year renewable agreement, for which it will receive a management fee
based upon the gross revenues generated by the system.
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Continental has made capital contributions of US$17.6 million and has
committed to make additional capital contributions to SCV of approximately
US$27 million (based upon exchange rates as of June 30, 1995) to be paid
through 1996. In addition, Continental has made commitments to SCV to lend up
to approximately US$45 million (based upon exchange rates as of June 30, 1995)
if third party debt financing cannot be obtained. SVC is in the process of
arranging an aggregate of S$200 million in senior credit facilities with
certain financial institutions. Such facilities may be increased to S$300
million at the option of SCV under certain circumstances. No assurances can be
given at this time that such facilities will be successfully raised.
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, Minnesota system, currently serves as President of SCV.
AUSTRALIA. Continental has entered into an agreement with Optus
Communications Pty Limited ("Optus"), a provider of long-distance and cellular
telephone services in Australia, Publishing and Broadcasting Limited ("Nine"),
the parent company of Kerry Packer's Nine Network, and Seven Network Limited
("Seven") to create a broadband communications network in Australia. The
venture, Optus Vision, is owned 46.5% by Continental, 46.5% by Optus, 5% by
Nine and 2% by Seven. Each of Nine and Seven has an option to increase its
shareholding to 20% and 15%, respectively, at any time prior to July 1, 1997.
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. Formation of the joint venture has received all
necessary regulatory approvals from the Australian government.
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 has commenced construction, with 1,000 homes being passed per
day. Optus Vision's 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.
Although the network will have capacity for 64 channels, 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. 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 and
Seven will provide local sports programming.
The subscription television industry in Australia has been and is expected to
continue to be competitive. Optus Vision expects to compete in Australia with,
among others, (i) TNC, the publicly announced joint venture between Telstra
Corporation Limited, the government-owned Australian national
telecommunications carrier, and The News Corporation Limited, a major
international media and entertainment company, which will provide subscription
television services under the name FOXTEL over a proposed cable television
network, and (ii) Australis, which will provide subscription television
services via both MMDS and DBS technology.
Optus Vision currently employs approximately 450 people, including several
Continental employees. Frank Anthony, the former Senior Vice President and
General Manager of Continental's New England region, currently serves as the
Chief Operating Officer of Optus Vision.
As of June 30, 1995, Continental had invested approximately US$33.4 million.
Optus Vision anticipates that the required funding needs of the project will
total over US$1.5 billion (based upon exchange rates as of June 30, 1995)
through 1999, which will be provided by a combination of equity from the joint
venture partners and third-party debt.
JAPAN. In March 1995, Continental and Tomen Corporation, a leading Japanese
trading company, signed a memorandum of understanding relating to the provision
of cable television, telephony, multimedia
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and interactive services in Japan. In addition to agreeing to conduct
feasibility studies, Continental and Tomen Corporation have agreed to form a
new company, CT Telecom, which may, either individually or in conjunction with
other Japanese companies, seek to obtain licenses to provide these services to
markets with a total of at least one million homes in Japan. At this time, the
terms of the joint venture have not been finalized.
Currently, approximately 1.6 million of Japan's 44 million households
receive broadcast and cable networks over cable television systems. However,
recent reforms of its cable television and telecommunications laws have
encouraged foreign investment in cable television companies and the creation
of multiple system operators in Japan, where cable television licenses are
awarded on a non-exclusive basis.
Tomen Corporation has ownership interests in four cable television systems
in Japan, one of which is conducting a 300-home technology and market test
involving telephony, fax, personal computer and near video on demand services.
Tomen Corporation is also the contractor for telecommunications networks in
Thailand, the Philippines, Malaysia, Indonesia and Romania.
Continental's capital commitment to CT Telecom will be dependent upon the
licenses received, the associated construction schedule and the other equity
partners involved. Additionally, no assurances can be given at this time as to
the degree of success that CT Telecom will have in obtaining licenses to
provide cable television and telecommunications services in Japan.
STRATEGIC INVESTMENTS
Continental's investments and potential investments include certain emerging
businesses, such as telecommunications and technology, and programming.
Continental views lines of business outside of cable television as key markets
for the future. All of Continental's strategic investments are currently held
by wholly owned subsidiaries and include the following:
TELECOMMUNICATIONS AND TECHNOLOGY INVESTMENTS. Continental is rebuilding and
upgrading its plant to create advanced fiber-optic and coaxial cable networks,
which will serve as the infrastructure for the provision of expanded video
services and both wireline and wireless telephony services. Continental
believes that its fiber-optic plant will position it to provide these new
services as they become available. As markets develop for these services,
Continental will make the additional capital investments required to provide
such services. Although Continental believes that demand exists to support the
entry of cable television companies into the wireline and wireless telephony
businesses, the offering of these services will require the removal of
existing regulatory and legislative barriers to local telephone competition.
(See "Competition" and "Legislation and Regulation".)
Teleport Communications Group Inc. Continental has a 20% equity interest in
Teleport Communications Group Inc. ("TCG"), a local telecommunications
services provider and a leading fiber-optic-based competitor to local
telephone companies nationwide. Continental believes that its involvement in
TCG is an effective means of utilizing its existing fiber-optic and coaxial
cable network to participate in the growth of the local competitive access
telephony business.
TCG provides local telecommunications services over high-capacity fiber-
optic networks (which it owns or leases from cable operators such as
Continental) to meet the voice, data and video transmission needs of high-
volume business customers in major metropolitan areas throughout the United
States. TCG's customers include long-distance carriers and resellers,
international telephone carriers, financial services firms, banking and
brokerage institutions, media companies and other telecommunications-intensive
businesses. In competition with the Regional Bell Operating Companies (the
"RBOCs") and other local exchange carriers ("LECs"), TCG offers its customers
vendor diversity for local service, superior quality, competitive pricing and
state-of-the-art technology.
Since 1985, TCG has owned and operated the nation's largest non-LEC local
telecommunications network in the New York City metropolitan area, the
country's leading telecommunications market. Beginning in 1988 with the
construction of a Boston network, TCG has actively expanded its network
operations to 24 telecommunications markets in the United States, including
Los Angeles, Chicago, San Francisco, Dallas, Detroit, Miami, Houston, Seattle,
San Diego and Milwaukee. In several of these markets,
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Continental is a partner and a primary network provider for TCG. As of June 30,
1995, TCG provided service to more than 3,240 buildings and had networks which
spanned over 4,700 route miles.
TCG has emphasized the expansion of the telecommunications services and
products it offers to its customers. TCG was the first competitive access
telephony provider to offer local switched services using sophisticated digital
switching devices capable of routing a call over different available circuits
to reach the intended termination point of the call anywhere on the public
switched telephone network. Local dedicated line and special access services
represent an available market of approximately $5.9 billion nationally, and
switched access services for business represent approximately $20 billion of
the $98.7 billion local telecommunications services market in the United
States.
Through June 30, 1995, Continental had invested $116.5 million in TCG and
related joint ventures. In addition to these investments, Continental has made
commitments to TCG to loan up to $69.9 million through 2003, of which $54
million was outstanding as of June 30, 1995. In May 1995 TCG entered into a
$250 million revolving credit facility with a group of financial institutions
to fund general corporate purposes. (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Continental--Liquidity and
Capital Resources".)
In addition to Continental, the other partners in TCG currently include Cox,
TCI and Comcast, which have interests of approximately 30%, 30% and 20%,
respectively.
The recently announced business arrangement among TCI, Cox and Comcast (the
"Cable Partners") and Sprint contemplates the contribution to the Sprint
venture of the Cable Partners' interests in TCG, in the local joint ventures
among the Cable Partners and TCG, and in other competitive access assets owned
by them. The contribution of the Cable Partners' interests in TCG to the Sprint
venture would require the prior consent of Continental. Should it be in its
best interest, Continental would negotiate with the Cable Partners regarding
the acquisition of Continental's interests in TCG and TCG's local joint
ventures. William T. Schleyer, the President and Chief Operating Officer of
Continental, and Nancy Hawthorne, a Senior Vice President and Chief Financial
Officer of Continental, serve on the Board of Directors of TCG.
Other Telecommunications Activities. Continental is currently exploring
various business arrangements through which to provide wireline and wireless
telephony services, although there can be no assurances that any such
arrangement will be consummated. Continental's options include: (i) affiliating
with other cable television companies; (ii) affiliating with an RBOC or an
Interexchange Carrier ("IXC"); (iii) entering the business on its own in
certain markets or (iv) market-by-market affiliations. Given its national
operating scale, large regional system clusters in demographically attractive
markets and technologically advanced systems, Continental believes that it is
well positioned to provide both wireline and wireless telephony services in the
future (either alone or in conjunction with one or more partners).
Continental is one of six cable television operators participating in Cable
Television Laboratories' ("CableLabs") telecommunications Request for Proposal
("RFP"), which is an initiative to achieve a uniform network architecture for
delivery of expanded video and telephony services. CableLabs has received
quotes on this RFP from approximately 45 equipment manufacturers.
The FCC is currently auctioning broadband licenses for wireless personal
communications services ("PCS"). The first phase of these auctions, for
licenses in the 51 Major Trading Areas ("MTAs") of the United States, was
completed recently. A partnership between Continental and Cablevision Systems
Corporation bid for PCS licenses in the Boston, Massachusetts and Cleveland,
Ohio MTAs, and Continental bid independently for broadband PCS licenses in
other MTAs, representing no more than 6.1 million people in the aggregate. Both
the partnership and Continental were unsuccessful in their bids. However,
Continental, either independently or in partnership, may: (i) continue to
pursue direct ownership of licenses in the subsequent phases of the PCS
auctions in the 493 Basic Trading Areas of the United States; (ii) acquire PCS
licenses from successful bidders after the auctions have been completed; or
(iii) invest in or affiliate with successful bidders. Continental's strategy in
pursuing any one or a combination of these options is to enhance its ability to
bundle services such as wireless communications with wireline telephony and
existing cable services in markets where it has large system clusters.
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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 492,000
subscribers nationwide as of June 30, 1995. 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. Continental served over 48,000 of PrimeStar's 492,000 subscribers as
of June 30, 1995. PrimeStar currently offers a wide range of programming,
including 73 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. Recently, however, the FCC International Bureau voided
the construction permit of Advanced Communications Corporation for high-powered
DBS service at 110 degrees. PrimeStar had planned to use this orbital location
for its high-powered satellites. The decision is being appealed to the full
FCC. If upheld, the decision could cause significant delays or possibly prevent
PrimeStar from launching a high-powered DBS service. PrimeStar is currently
investigating alternate locations for high-powered satellites. These new
satellites would enable PrimeStar to offer up to 200 channels of service. No
assurances can be given at this time that PrimeStar will be able to secure an
acceptable high-powered orbital slot. In the meantime, PrimeStar will continue
to provide medium-powered DBS service.
Continental's investment in PrimeStar was $13.5 million as of June 30, 1995.
In addition, a subsidiary of Continental has issued a $56.3 million standby
letter of credit on behalf of PrimeStar to guarantee a portion of the financing
that PrimeStar is incurring to construct a successor satellite system. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Continental--Liquidity and Capital Resources".) Jeffrey T.
DeLorme, an Executive Vice President of Continental, serves on the Partner
Committee of PrimeStar.
The following is a summary of financial and operating statistics for
PrimeStar, which commenced operations in 1991 (information is in thousands
except for percentage figures):
<TABLE>
<CAPTION>
1992 1993 1994
------ ------- -------
<S> <C> <C> <C>
Revenues........................................... $5,200 $10,900 $27,800
Growth Rate........................................ 643% 110% 155%
Subscribers........................................ 44.2 66.8 230.8
Growth Rate........................................ 235% 51% 246%
</TABLE>
CERTAIN PROGRAMMING AND OTHER INVESTMENTS. Continental has made and continues
to make minority investments in programming services, based upon Continental's
belief that unique programming is a means of generating additional interest in
cable television. To date, Continental has made approximately $62 million in
programming investments (excluding Turner, QVC and HSN). The following
summarizes certain of Continental's programming investments:
Turner Broadcasting System and Home Shopping Network, Inc. Continental holds
marketable equity securities of Turner and HSN. As of June 30, 1995, the
approximate market values of Continental's investments in Turner and HSN were
$115.9 million and $4.2 million, respectively. In February 1995,
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<PAGE>
Comcast and TCI consummated a tender offer for all outstanding QVC shares at
$46 per share, which resulted in Continental selling all of its QVC shares for
$27.4 million and realizing a gain of $23 million. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental--Liquidity and Capital Resources".) 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 10.4% interest in E!,
whose programming includes entertainment related news, information and
features. E! has agreements with every major domestic cable television operator
and, as of December 31, 1994, was distributed to over 27 million customers,
representing 48% of U.S. cable television subscribers. Continental's partners
in E! are Comcast, Cox, Newhouse Broadcasting Corp. and TCI, each with an
approximate 10.4% interest, and Time Warner Cable, with a 48% 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>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $22,100 $31,700 $49,100
Growth Rate..................................... 53.5% 43.4% 54.9%
Subscribers..................................... 19,700 25,800 27,800
Growth Rate..................................... 8.1% 30.1% 7.8%
</TABLE>
National Cable Communications, L.P. Continental has a 12.5% limited
partnership interest in NCC, a partnership that represents cable television
companies to advertisers. NCC is the largest representation firm in spot cable
advertising sales. It enhances affiliated cable television systems' ability to
generate advertising sales by enabling advertisers to place spots in selected
systems on a regional or national basis. The other limited partners in NCC are
Cox, Time Warner Cable and Comcast, each with a 12.5% interest. NCC's managing
partner is Katz Cable Corporation, with a 50% interest. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Continental--Liquidity and Capital Resources".)
New England Cable News. Continental and the Hearst Corporation each own 50%
of New England Cable News, a regional cable news network featuring news, sports
and weather programming on an exclusive basis to cable television systems in
the New England area. New England Cable News had revenues of $4.0 million for
the year ended December 31, 1994. William T. Schleyer, the President and Chief
Operating Officer of Continental, and Nancy Jackson, a Vice President of
Marketing in Continental's New England region, serve on the Board of Directors
of New England Cable News.
Viewer's Choice. PPVN Holding Co. ("PPVN"), which operates under the brand-
name Viewer's Choice, is a cable operator-controlled buying cooperative and
distributor for pay-per-view programming. Continental holds a 10% interest in
PPVN.
The Golf Channel. Continental owns an approximate 20% interest in The Golf
Channel, a newly formed cable programming service which provides golf-related
programming 24 hours a day. Timothy P. Neher, Director and Vice Chairman of the
Board of Continental, serves on the Board of Directors of The Golf Channel.
The Food Channel. Continental owns an approximate 15% interest in The Food
Channel, a cable operator-owned programming service which offers programs on
cooking, food preparation and other related topics. Robert A. Stengel, a Senior
Vice President of Continental, serves on the Management Committee of The Food
Channel.
The Sunshine Network Joint Venture ("The Sunshine Network"). Continental owns
an approximate 8% interest in The Sunshine Network, a joint venture which
provides programming consisting of Florida sporting events, sports news and
related programs, as well as local public affairs programs. Jeffrey T. DeLorme,
an Executive Vice President of Continental, serves on the Board of Directors of
The Sunshine Network.
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<PAGE>
Prime Sports Network Upper Midwest. Continental owns an approximate 17%
interest in Prime Sports Network Upper Midwest, a joint venture which provides
sports, public affairs, and general entertainment programming in Minnesota.
Emmett White, the Senior Vice President and General Manager of Continental's
Midwest region, serves on the Board of Directors of Prime Sports Network Upper
Midwest.
Digital Cable Radio Associates ("Digital Cable Radio"). Digital Cable Radio,
which operates under the brand-name Music Choice, distributes audio programming
in digital format via coaxial cable. The service allows cable television
customers to receive compact disc quality sound in several music formats.
Continental owns an approximate 10% interest in Digital Cable Radio.
Zing Systems, L.P. ("Zing"). Continental owns an approximate 13% interest in
Zing, which develops interactive software and hardware for use in cable
television systems. The Zing system package allows cable subscribers to
interact with licensed programmers and advertisers. Zing is expected to have a
limited introductory consumer launch in 1995.
COMPETITION
Continental's operating strategy, especially its focus on marketing, customer
service and community relations, improves its ability to compete with new
providers of video services. Management believes that investing in advanced
technologies will further strengthen Continental's competitive position.
Continental's systems compete with other communications and entertainment
media, including conventional off-air television broadcasting services,
newspapers, movie theaters, live sporting events and home-video products. Cable
television service was first offered as a means of improving television
reception in markets where terrain factors or remoteness from major cities
limited the availability of off-air television. In some of the areas served by
the systems, a substantial variety of television programming can be received
off-air. For the last several years, the FCC has been authorizing the creation
of additional low-power (UHF) television stations, which will increase the
number of television signals in the country and provide off-air television
programs to limited local areas. The extent to which cable television service
is competitive depends upon a cable television system's ability to provide, on
a cost-effective basis, an even greater variety of programming than that
available off-air or through other alternative delivery sources.
Since Continental's domestic cable television systems operate under non-
exclusive franchises, other companies may obtain permission to build cable
television systems in areas where Continental presently operates. While
Continental believes that the current level of overbuilding is not material, it
is currently unable to predict the extent to which overbuilds may occur in its
franchise areas and the impact, if any, such overbuilds may have on Continental
in the future.
Additional competition may come from SMATV cable television systems serving
condominiums, apartment complexes and other private residential developments.
The operators of these private systems often enter into exclusive agreements
with apartment building owners or homeowners' associations that preclude
operators of franchised cable television systems from serving residents of such
private complexes. The widespread availability of reasonably priced earth
stations enables private cable television systems to offer both improved
reception of local television stations and many of the same satellite-delivered
program services that are offered by franchised cable television systems. FCC
regulations permit SMATV operators to use point-to-point microwave service to
distribute video entertainment programming to their SMATV systems. A private
cable television system normally is free of the regulatory burdens imposed on
franchised cable television systems. Although a number of states have enacted
laws to afford operators of franchised systems access to private complexes, the
U.S. Supreme Court has held that cable companies cannot have such access
without compensating the property owner. The access statutes of several states
have been challenged successfully in the courts, and others are currently being
challenged, including statutes in states in which Continental operates.
In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional
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<PAGE>
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 73 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, initial sales of DBS services indicate that DBS may offer
substantial competition to cable television operators in the future. (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. Recently NYNEX Corp. and Bell Atlantic Corp., agreed to invest up to
$100,000,000 in CAI Wireless Systems Inc., a MMDS operator. In addition,
Pacific Telesis Group has acquired Cross Country Wireless Inc., a MMDS
operator. A series of actions taken by the FCC, including reallocating certain
frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. The FCC also initiated a new rule-making
proceeding to allocate frequencies in the 28 GHz band for a new multi-channel
wireless video service. Continental is unable to predict the extent to which
additional competition from these services will materialize in the future or
the impact such competition would have on Continental's operations.
Continental believes that as a result of its investment in technologically
advanced systems, it is well positioned to offer new services such as video
game channels, on-line services, data communications and telephony. Continental
believes that the ability to offer interactive services over a high-capacity,
two-way network provides a distinct competitive advantage over DBS and MMDS,
which are currently one-way services.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services, including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.
In the past, federal cross-ownership restrictions have limited entry into the
cable television business by potentially strong competitors such as telephone
companies. Proposals recently adopted by the FCC, pending litigation and
potential legislation, could make it possible for companies with considerable
resources, and consequently a potentially greater willingness or ability to
overbuild, to enter the business. The FCC recently amended its rules to permit
local telephone companies to offer "video-dialtone" service for video
programmers, including channel capacity for the carriage of video programming
and certain non-common
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<PAGE>
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. The Supreme Court has
agreed to hear arguments on this issue during its 1995-1996 term. Separate
bills to repeal the telco/cable cross-ownership ban, subject to certain
regulatory requirements, have been passed by the United States House of
Representatives and the United States Senate. Under the terms of these bills, a
telephone company could build and operate a cable television system within its
region or acquire an in-region cable operator, under certain circumstances.
These bills would also, inter alia, preempt state and locally-imposed barriers
to the provision of intrastate and interstate telecommunications services by
cable system operators in competition with local telephone companies. Even in
the absence of further changes in the cross-ownership restrictions, the
expansion of telephone companies' fiber-optic systems may facilitate entry by
other video service providers in competition with cable systems. (See
"Legislation and Regulation--Federal Regulation".)
PROPERTIES
Continental's principal physical assets consist of cable television systems,
including signal receiving, encoding and decoding apparatus, headends,
distribution systems, and subscriber house drop equipment for each of its
systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment, and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. Continental's distribution systems consist of coaxial and
fiber-optic cables and related electronic equipment. Subscriber equipment
consists of taps, house drops, converters and analog addressable converters.
Continental owns its distribution system, various office and studio fixtures,
test equipment and service vehicles. The physical components of Continental's
systems require maintenance and periodic upgrading to keep pace with
technological advances.
Continental's coaxial and fiber-optic cables are generally attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The FCC regulates pole attachment rates under the Federal Pole
Attachments Act. (See "Legislation and Regulation--Federal Regulation--Pole
Attachments".)
Continental owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices.
Continental owns the building which houses its headquarters in Boston,
Massachusetts.
Continental believes that its properties, both owned and leased, are in good
operating condition and are suitable and adequate for its business operations.
EMPLOYEES
Continental currently has approximately 7,000 full-time employees, including
approximately 100 employees located at Continental's Boston headquarters, who
provide staff support in the areas of corporate planning, finance, marketing,
program acquisition, employee training and benefits administration, government
relations, internal auditing, financial and tax reporting and regulatory
compliance. Continental believes that its relations with its employees are
good.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against Continental.
Continental is subject to legal proceedings and claims which arise in the
ordinary course of business, none of which is material to its consolidated
financial condition or results of operations in the opinion of management.
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CAPITALIZATION
The following table sets forth Continental's actual and pro forma
consolidated capitalization at June 30, 1995, after giving effect to (i) the
Continental Recapitalization Amendment (Pro Forma A) and (ii) the Merger, the
Continental Recapitalization Amendment, and other pro forma transactions (Pro
Forma B) described in the Notes to Continental's Pro Forma Condensed
Consolidated Balance Sheet and Statement of Income included elsewhere in this
Joint Proxy Statement-Prospectus. This table should be read in conjunction
with the Notes referred to above and the historical consolidated financial
statements and related notes included in this Joint Proxy Statement-
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
-------------------------------------
ACTUAL PRO FORMA A PRO FORMA B
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior Debt:
8 1/2% Senior Notes......................... $ 200,000 $ 200,000 $ 200,000
8 5/8% Senior Notes......................... 100,000 100,000 100,000
8 7/8% Senior Debentures.................... 275,000 275,000 275,000
9% Senior Debentures........................ 300,000 300,000 300,000
9 1/2% Senior Debentures.................... 525,000 525,000 525,000
1994 Credit Facility........................ 1,663,740 1,663,740 1,824,890
1995 Credit Facility(1)..................... -- -- 1,032,000
Prudential Notes............................ 138,250 138,250 138,250
----------- ----------- -----------
Total Senior Debt......................... 3,201,990 3,201,990 4,395,140
Subordinated Debt:
10 5/8% Senior Subordinated Notes........... 100,000 100,000 100,000
11% Senior Subordinated Debentures.......... 300,000 300,000 300,000
Senior Subordinated Floating Rate
Debentures................................. 100,000 100,000 100,000
----------- ----------- -----------
Total Subordinated Debt................... 500,000 500,000 500,000
----------- ----------- -----------
Other Debt.................................... 26,111 26,111 26,111
----------- ----------- -----------
Total Debt................................ 3,728,101 3,728,101 4,921,251
----------- ----------- -----------
Redeemable Common Stock, $.01 par value;
16,684,150 shares outstanding................ 242,721 242,721 242,721
----------- ----------- -----------
Stockholders' Equity (Deficiency):
Preferred Stock............................. -- -- --
Series A Convertible Preferred Stock........ 11 11 11
Class A Common Stock........................ 3 86 393
Class B Common Stock........................ 37 926 926
Additional Paid-In Capital.................. 618,236 617,264 1,213,026
Unearned Compensation....................... (51,708) (51,708) (51,708)
Net Unrealized Holding Gain on Marketable
Equity Securities.......................... 49,104 49,104 49,104
Deficit..................................... (2,340,718) (2,340,718) (2,340,718)
----------- ----------- -----------
Stockholders' Equity (Deficiency)......... (1,725,035) (1,725,035) (1,128,966)
----------- ----------- -----------
Total Capitalization.................... $ 2,245,787 $ 2,245,787 $ 4,035,006
=========== =========== ===========
Shares Authorized and Outstanding:
Preferred Stock, $.01 par value:
Authorized................................. 1,557,142 198,857,142 198,857,142
Issued..................................... -- -- --
Series A Convertible Preferred Stock, $.01
par value,
liquidation preference of $507,123,000,
Authorized and Outstanding................. 1,142,858 1,142,858 1,142,858
Class A Common Stock; $.01 par value:
Authorized................................. 7,500,000 425,000,000 425,000,000
Outstanding................................ 343,252 8,581,300 39,306,507
Class B Common Stock; $.01 par value:
Authorized................................. 7,500,000 200,000,000 200,000,000
Outstanding................................ 3,704,681 92,617,025 92,617,025
</TABLE>
--------
(1) Includes the New Cable Indebtedness, $405,000,000 of borrowings for the
King Cable Purchase and $245,000,000 of borrowings for cable system
acquisitions in Michigan, adjusted downward for the Working Capital
deficit of approximately $16,000,000 and a Capital Expenditure Adjustment
of approximately $12,000,000. (See "The Merger--General Provisions--
Working Capital and Capital Expenditure Adjustment" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation of
Continental--Liquidity and Capital Resources".)
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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, 1990 through December 31, 1994
and the six months ended June 30, 1994 and 1995. The unaudited selected
historical financial information for the six months ended June 30, 1994 and
1995 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 six months ended June 30, 1994 and 1995 are not
necessarily indicative of the results that may be expected for any other
interim period or the year as a whole.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
--------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 938,032 $1,039,163 $1,113,475 $1,177,163 $1,197,977 $589,390 $650,048
Costs and Expenses:
Operating.............. 316,199 347,469 365,513 382,195 405,535 198,618 224,846
Selling, General and
Administrative........ 231,338 246,986 259,632 267,376 267,349 128,783 150,332
Depreciation and
Amortization.......... 262,703 267,510 272,851 279,009 283,183 135,523 148,412
Non-Cash Stock
Compensation(1)....... 6,903 10,067 9,683 11,004 11,316 5,675 5,905
--------- ---------- ---------- ---------- ---------- -------- --------
Total................ 817,143 872,032 907,679 939,584 967,383 468,599 529,495
--------- ---------- ---------- ---------- ---------- -------- --------
Operating Income........ 120,889 167,131 205,796 237,579 230,594 120,791 120,553
--------- ---------- ---------- ---------- ---------- -------- --------
Interest (Net).......... 313,858 324,976 296,031 282,252 315,541 147,910 166,314
Other (Income)
Expenses(2)............ 1,000 1,936 11,071 (10,978) 24,048 7,806 2,016
--------- ---------- ---------- ---------- ---------- -------- --------
Total................ 314,858 326,912 307,102 271,274 339,589 155,716 168,330
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before Income
Taxes, Extraordinary
Item and Cumulative
Effect of Accounting
Change................. (193,969) (159,781) (101,306) (33,695) (108,995) (34,925) (47,777)
(Benefit) Provision for
Income Taxes........... 1,482 1,861 1,654 (7,921) (40,419) (11,304) (14,710)
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before
Extraordinary Item and
Cumulative Effect of
Accounting Change...... (195,451) (161,642) (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary Item, Net
of Income Taxes........ -- -- -- -- (18,265) -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before Cumulative
Effect of Accounting
Change................. (195,451) (161,642) (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative Effect of
Accounting Change...... -- -- -- (184,996) -- -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Net Loss................ (195,451) (161,642) (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred Stock
Preferences............ (61,102) (5,771) (16,861) (34,115) (36,800) (17,887) (19,347)
--------- ---------- ---------- ---------- ---------- -------- --------
Loss Available for
Common Stockholders.... $(256,553) $ (167,413) $ (119,821) $ (244,885) $ (123,641) $(41,508) $(52,414)
========= ========== ========== ========== ========== ======== ========
Loss Per Common Share:
Before Extraordinary
Item and Cumulative
Effect of Accounting
Change................ $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (23.04) $ (9.10) $ (11.14)
Extraordinary Item..... -- -- -- -- (3.99) -- --
Cumulative Effect of
Accounting Change..... -- -- -- (40.55) -- -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Net Loss............... $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (27.03) $ (9.10) $ (11.14)
========= ========== ========== ========== ========== ======== ========
</TABLE>
180
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------- AS OF JUNE 30,
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 10,377 $ 14,265 $ 27,352 $ 122,640 $ 11,564 $ 15,342
Total Assets............ 2,175,120 2,082,182 2,003,196 2,091,853 2,483,639 2,693,894
Total Debt.............. 3,127,347 3,338,281 3,011,669 3,177,178 3,449,907 3,728,101
Redeemable Preferred
Stock.................. 157,835 -- -- -- -- --
Redeemable Common Stock. 436,700 445,463 223,716 213,548 232,399 242,721
Stockholder's Equity
(Deficiency)........... (1,759,535) (1,919,525) (1,486,231) (1,667,088) (1,688,334) (1,725,035)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3)............... $390,495 $444,708 $488,330 $527,592 $525,093 $261,989 $274,870
EBITDA to Revenues...... 41.6% 42.8% 43.9% 44.8% 43.8% 44.5% 42.3%
Total Debt (less cash)
to EBITDA(3)........... 7.98 7.47 6.11 5.79 6.55 6.11 6.75
EBITDA to Total Interest
Expense................ 1.24 1.37 1.65 1.87 1.66 1.77 1.65
Net Cash Provided From
Operating Activities... 82,196 123,543 215,045 250,504 236,304 123,568 77,526
Capital Expenditures.... 166,938 145,846 145,189 185,691 300,511 109,484 231,021
</TABLE>
--------
(1) This is the difference between the consideration paid by employees for
purchases of shares of Continental Common Stock under Continental's
Restricted Stock Purchase Program and the fair market value of such shares
at the date of issuance (as determined by Continental's Board of
Directors), amortized over the vesting schedule of such shares. (See Note
11 to Continental's Consolidated Financial Statements.)
(2) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, and
gains of $10,253,000, $17,067,000 and $24,067,000 from Continental's sales
of its investment in affiliates in 1992 and 1993 and sale of an investment
and marketable equity securities during the six months ended June 30,
1995, respectively. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental".)
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve
as important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance
with GAAP) as an indicator of Continental's performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Substantially all of
Continental's financing agreements contain certain covenants in which
EBITDA is used as a measure of financial performance. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
of Continental".) For purposes of calculating the ratio of Total Debt to
EBITDA for the six months ended June 30, 1994 and 1995, EBITDA has been
annualized.
181
<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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Basic Cable Service.... $ 790,508 $ 845,213 $ 849,889 $419,215 $457,539
Premium Cable Service.. 249,020 242,956 245,605 121,793 126,480
Advertising............ 43,392 52,618 57,896 27,554 30,259
Pay-Per-View........... 22,191 25,746 24,523 12,748 13,158
Other.................. 7,319 8,875 14,035 7,222 8,433
DBS.................... 1,045 1,755 6,029 858 14,179
---------- ---------- ---------- -------- --------
Total................. 1,113,475 1,177,163 1,197,977 589,390 650,048
Operating, Selling,
General and
Administrative
Expenses............... 625,145 649,571 672,884 327,401 375,178
Depreciation and
Amortization........... 272,851 279,009 283,183 135,523 148,412
Non-Cash Stock
Compensation(1)........ 9,683 11,004 11,316 5,675 5,905
---------- ---------- ---------- -------- --------
Operating Income........ 205,796 237,579 230,594 120,791 120,553
Interest................ 296,031 282,252 315,541 147,910 166,314
Other (Income)
Expenses(2)............ 11,071 (10,978) 24,048 7,806 2,016
---------- ---------- ---------- -------- --------
Loss before Income
Taxes, Extraordinary
Item and Cumulative
Effect of Accounting
Change................. (101,306) (33,695) (108,995) (34,925) (47,777)
(Benefit) Provision for
Income Taxes........... 1,654 (7,921) (40,419) (11,304) (14,710)
---------- ---------- ---------- -------- --------
Loss before
Extraordinary Item and
Cumulative Effect of
Accounting Change...... (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary Item...... -- -- (18,265) -- --
---------- ---------- ---------- -------- --------
Loss before Cumulative
Effect of
Accounting Change...... (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative Effect of
Change in
Accounting Principle... -- (184,996) -- -- --
---------- ---------- ---------- -------- --------
Net Loss................ $ (102,960) $ (210,770) $ (86,841) $(23,621) $(33,067)
========== ========== ========== ======== ========
OTHER DATA:
EBITDA(3)............... $ 488,330 $ 527,592 $ 525,093 $261,989 $274,870
EBITDA as a % of
Revenues............... 43.9% 44.8% 43.8% 44.5% 42.3%
</TABLE>
--------
(1) This is the difference between the consideration paid by employees for
purchases of shares of Continental Common Stock under Continental's
Restricted Stock Purchase Program and the fair market value of such shares
at the date of issuance (as determined by Continental's Board of
Directors), amortized over the vesting schedule of such shares. (See Note
11 to Continental's Consolidated Financial Statements.)
(2) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, and
gains of $10,253,000, $17,067,000 and $24,067,000 from Continental's sales
of its investment in affiliates in 1992 and 1993 and sale of an investment
and marketable equity securities during the six months ended June 30,
1995, respectively. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental".)
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
Continental believes that EBITDA and related measures of cash flow serve
as important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance
with GAAP) as an indicator of Continental's performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Substantially all of
Continental's financing agreements contain certain covenants in which
EBITDA is used as a measure of financial performance. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
of Continental".)
182
<PAGE>
RESULTS OF OPERATIONS. Continental's operations consist primarily 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 cable installation fees. Additional
revenues are generated by the sale of advertising, pay-per-view programming
fees, DBS and payments received as a result of revenue sharing agreements for
products sold through home shopping networks. Continental expects that
advertising and home shopping revenues (which currently represent approximately
6% of Continental's total revenues) may become a larger percentage of total
revenues. These sources of revenues tend to be cyclical and seasonal in nature
and could introduce cyclicality and seasonality to Continental's total
revenues.
During the period from January 1, 1991 through December 31, 1993,
Continental's revenues increased at a compound annual growth rate of 8%
primarily through basic subscriber growth and increases in monthly revenue per
average basic subscriber. Revenues for the year ended December 31, 1994
increased only 1.8% compared to 1993 primarily as a result of basic rate
reductions and non-cash revenue reserves recorded in connection with the FCC
rate regulations. Continental's business is subject to significant regulatory
developments, including recent federal laws and regulations, which regulate
rates charged by Continental for certain cable services. (See "Legislation and
Regulation".) Such laws and regulations will limit Continental's ability to
increase or restructure its rates for certain services.
The high level of depreciation and amortization associated with Continental's
capital expenditures and acquisitions 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.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30, 1994--
Revenues increased 10.3% (or $60,658,000) to $650,048,000. The acquisitions of
cable television systems that served approximately 78,000 basic subscribers
located in New England and Florida accounted for $13,201,000 of such revenue
increase. Excluding the effects of such acquisitions, revenues increased 8.1%
(or $47,457,000) as a result of a 3.2% increase in ending basic cable
subscribers, an increase in monthly basic cable revenue per average basic
subscriber and increases in premium, DBS and other revenues. Excluding the
acquisitions and DBS revenue, monthly cable revenue per average basic
subscriber increased from $35.29 to $35.94. The $.65 increase in monthly cable
revenue per average basic subscriber reflects an increase in basic rates during
the six months ended June 30, 1995, the recording of non-cash revenue reserves
during the six months ended June 30, 1994 in connection with the FCC's rate
regulations, (see "Liquidity and Capital Resources--Recent Legislation") and an
increase in premium and other revenue categories. Revenues from premium cable
services increased by $2,351,000 (excluding the acquisitions and DBS) due
primarily to a 3.6% increase in premium subscriptions to 2,614,000. The
increase in revenues (excluding the acquisitions and DBS) was also due to a
$2,703,000 increase in advertising revenues, a $1,116,000 increase in home
shopping revenues and a $188,000 increase in pay-per-view revenues. Revenues
from DBS services increased by $13,321,000 to $14,179,000 principally as a
result of an increase in DBS subscribers from approximately 5,000 to over
48,000.
Operating, selling, general and administrative expenses increased 15% to
$375,178,000 due to the acquisitions, the provision of DBS service, and
increases in programming costs and wages. Depreciation and amortization
expenses increased 10% to $148,412,000 due to the acquisitions and increased
levels of capital expenditures in 1994 and 1995. Operating income decreased
0.2% to $120,553,000. Interest expense increased approximately 12% to
$166,314,000 as a result of a 12% increase in average debt outstanding. The
effective interest rate remained consistent at 9.3%. Other (income) expenses
included a gain of $23,032,000 on the sale of Continental's shares of QVC
common stock and a gain of $1,035,000 on the partial sale of an investment in
NCC. Other (income) expenses also includes equity in net loss of affiliates,
which increased from $9,807,000 to $25,817,000 primarily due to Continental
recording its proportionate share of losses from
183
<PAGE>
TCG, the Golf Channel and the international investments in Argentina and
Singapore. As a result of such factors, the net loss before extraordinary item
for the six months ended June 30, 1995 compared to June 30, 1994 increased by
$9,446,000 to $33,067,000.
1994 Compared to 1993. Revenues increased by 1.8% (or $20,814,000) to
$1,197,977,000. The acquisitions of cable television systems serving
approximately 78,000 basic subscribers accounted for $8,025,000 of such
increase. (See "Domestic Acquisitions and Investments--Domestic
Acquisitions".) Excluding the effects of these acquisitions, revenue increased
1.1% (or $12,789,000) as a result of a 3.7% increase in ending basic
subscribers and an increase in premium and certain other revenue. Monthly
revenue per average basic subscriber decreased from $35.76 to $35.41. The $.35
decrease was primarily due to rate reductions and non-cash revenue reserves
recorded during 1994 in connection with the FCC's rate regulations; net of a
$.12 increase in premium, advertising, DBS and other revenue. (See "Liquidity
and Capital Resources--Recent Legislation" and "Legislation and Regulation".)
Revenues from premium cable services increased by $1,343,000 (excluding the
acquisition of cable television systems) due to an increase in premium
subscriptions from 2,454,000 to 2,594,000. The increase in revenues (excluding
the acquisition of cable television systems) was also due to a $5,050,000
increase in advertising revenue, a $4,274,000 increase in DBS revenue and a
$5,101,000 increase in other revenue due to continued growth in home shopping
revenue, less a $1,273,000 decrease in pay-per-view revenue. Pay-per-view
revenue decreased due to the lack of availability of special events offered as
compared to 1993, reflecting industry-wide trends.
Operating, selling, general and administrative expenses increased 3.6% to
$672,884,000, primarily due to the acquisitions and to increases in
programming costs and wages. Depreciation and amortization expenses increased
1.5% to $283,183,000 due to an increase in capital expenditures. Non-cash
stock compensation increased 2.8% to $11,316,000 due to the vesting of a
greater percentage of shares issued under Continental's Restricted Stock
Purchase Program as compared to 1993. Operating income decreased 2.9% to
$230,594,000. Interest expense increased approximately 11.8% to $315,541,000
due to a 5% increase in average debt outstanding and an increase in the
effective interest rate from 9.1% to 9.7%. Other (Income) Expenses decreased
as a result of equity in net loss of affiliates which increased from
$12,827,000 to $25,002,000, primarily due to Continental recording its
proportionate share of losses from PrimeStar and TCG and its affiliates.
Continental also recorded an extraordinary item of $18,265,000 due to the
extinguishment of debt.
As a result of such factors, loss before the cumulative effect of the
accounting change for the year ended December 31, 1994, compared to December
31, 1993, increased by $61,067,000 to $86,841,000, and net loss for the year
ended December 31, 1994, compared to December 31, 1993, decreased from
$210,770,000 to $86,841,000. Continental implemented SFAS 109 as of January 1,
1993. The cumulative effect of this change was a non-recurring increase in net
loss of $184,996,000 in 1993.
1993 Compared to 1992--Revenues increased 6% to $1,177,163,000, as a result
of a 1.4% increase in basic subscribers to 2,895,000 and an increase in
monthly revenue per average basic subscriber from $34.46 to $35.76. The $1.30
increase reflected primarily (i) an increase of $1.34 due to basic rate
increases prior to the imposition of the FCC's rate regulation and revenue
growth from other basic services, (ii) an increase of $.29 in advertising and
pay-per-view revenue, and (iii) a decrease of $.33 in premium subscription
revenue, which was due to the decrease in the pay-to-basic percentage from
88.5% to 84.2%, reflecting industry-wide trends. The total number of premium
subscriptions decreased from 2,545,000 to 2,454,000 in 1993.
Operating, selling, general and administrative expenses increased 4% to
$649,571,000, a rate of growth less than that of revenues, reflecting
continued operating efficiencies. Depreciation and amortization expenses
increased 2.3% to $279,009,000. Non-cash stock compensation increased 14% to
$11,004,000 due to the vesting of a greater percentage of shares issued under
Continental's Restricted Stock Purchase Program as compared to 1992. Operating
income increased 15.4% to $237,579,000. Interest expense decreased 4.7% to
$282,252,000 due to a reduction in the average debt outstanding and lower
effective interest rates during 1993.
184
<PAGE>
Other (income) expenses included a gain of $4,322,000 on the sale of
marketable equity securities and a gain of $17,067,000 on the sale of
investments, which consisted of a gain of $15,919,000 due to the exchange of
Continental's equity interest in Insight Communications Company U.K., L.P. for
stock representing a minority interest in International CableTel, Incorporated
and a gain of $1,148,000 due to a post-closing adjustment in connection with
the sale of Continental's interest in North Central Cable Communications
Corporation ("North Central Cable"). Other (income) expenses also included a
gain of $2,325,000 relating to the reversal of previously accrued liabilities
recorded in connection with litigation relating to four partnerships managed by
a subsidiary of Continental, which was settled in 1993. Equity in net loss of
affiliates increased to $12,827,000 primarily due to Continental recording its
proportionate share of losses from TCG and its affiliates. (See "Strategic
Investments--Telecommunications and Technology Investments--Teleport
Communications Group, Inc.")
SFAS 109 required a change from the deferred to the liability method for
computing deferred income taxes. Continental implemented SFAS 109 as of January
1, 1993, and the cumulative effect of this change was a non-recurring increase
in net loss of $184,996,000. The cumulative change resulted from net deferred
tax liabilities recognized for the difference between the financial reporting
and tax bases of assets and liabilities. Income tax expense (benefit) changed
from an expense of $1,654,000 in 1992 to a benefit of $7,921,000 in 1993 due to
deferred tax benefits recognized under SFAS 109. The income tax benefit for
1993 was decreased by $4,182,000 as a result of applying the newly enacted
federal tax rates to deferred tax balances as of January 1, 1993.
As a result of such factors, net loss before the cumulative effect of this
accounting change for the year ended December 31, 1993 decreased by $77,186,000
to $25,774,000, and net loss for the year ended December 31, 1993 increased
from $102,960,000 to $210,770,000.
EBITDA. Based on its experience in the cable television industry, Continental
believes that EBITDA and related measures of cash flow serve as financial
analysis tools for measuring and comparing cable television companies in
several areas, such as liquidity, operating performance and leverage. EBITDA
should not be considered as an alternative to operating or net income (measured
in accordance with GAAP) as an indicator of Continental's performance or as an
alternative to cash flows from operating activities (measured in accordance
with GAAP) as a measure of Continental's liquidity. For the six months ended
June 30, 1995, EBITDA increased approximately 5% to $274,870,000, as compared
to the same period in 1994, as a result of increases in revenue. DBS service
contributed ($844,000) and $1,242,000 of the EBITDA for the six months ended
June 30, 1994 and 1995, respectively. EBITDA decreased 0.5% to $525,093,000 for
the year ended December 31, 1994, primarily due to rate reductions and non-cash
revenue reserves recorded in connection with the FCC's rate regulations. EBITDA
increased 8% to $527,592,000 during the year ended December 31,1993, primarily
due to increases in revenue.
* * * *
Inflation. Certain of Continental's expenses, such as those for wages and
benefits, for equipment repair and replacement and for billing and marketing,
increase with general inflation. However, Continental does not believe that its
results of operations have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically. (See
"Legislation and Regulation" for a description of recent laws and regulation
that may limit Continental's ability to raise its rates for certain services.)
Recent Accounting Pronouncements. In May 1993, the FASB issued SFAS 115,
which is effective for fiscal years beginning after December 15, 1993. SFAS 115
establishes standards for the accounting and reporting of investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Effective January 1, 1994, Continental implemented SFAS
115, which resulted in a net unrealized holding gain of $84,650,000 on
marketable equity securities after recording deferred income taxes of
$56,434,000 and is reported as a reduction of stockholders' deficiency.
In May 1993, the FASB issued SFAS 114, which is effective for fiscal years
beginning after December 15, 1994. SFAS 114 addresses the accounting for
certain loans which may be deemed impaired made by
185
<PAGE>
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.
In March 1995, the FASB issued SFAS 121, which is effective for fiscal years
beginning after December 31, 1995. SFAS 121 addresses the accounting for
potential impairment of long-lived assets. The effect of implementing SFAS 121
is expected to be immaterial to Continental's financial position and results of
operations.
LIQUIDITY AND CAPITAL RESOURCES. The cable television business requires
substantial financing for the construction, expansion and maintenance of plant
and for acquisitions and investments. Continental has historically financed its
capital expenditures, acquisitions and investments through long-term debt and,
to a lesser extent, through private issuances of equity and cash provided from
operating activities. Continental's ability to generate cash adequate to meet
its needs depends generally on the results of its operations and the
availability of external financing. Continental believes that cash generated
from operating activities, together with borrowings from existing and future
credit facilities and proceeds from future equity issuances will be sufficient
to meet its future debt service requirements and stock repurchase obligations
and to make anticipated acquisitions, investments and capital expenditures.
The following table sets forth for the period indicated certain items from
Continental's Statements of Consolidated Cash Flows (in thousands).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995
----------------
<S> <C>
NET CASH PROVIDED FROM OPERATING ACTIVITIES............. $ 77,527
=========
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES:
Net Borrowings (Repayments)(1)........................ $ 278,194
Other................................................. 1,047
---------
Total............................................... $ 279,241
=========
NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES:
Property, Plant and Equipment......................... $(231,021)
Investments........................................... (121,719)
Other Assets.......................................... (28,788)
Proceeds from Sale of Marketable Equity Securities.... 27,357
Proceeds from Sale of Investment...................... 1,181
---------
Total............................................... $(352,990)
=========
</TABLE>
--------
(1) Borrowings are shown net of financing fees paid.
Recent Financing Activities. On October 17, 1994 Continental closed its 1994
Credit Facility, which represents an amendment and restatement of the 1990
Credit Agreement, with a group of financial institutions (the "1994 Credit
Facility"). The 1994 Credit Facility is an unsecured, reducing revolving credit
facility with maximum credit availability of $2,200,000,000. Credit
availability under the 1994 Credit Facility will decrease annually commencing
December 31, 1997 with a final maturity in October 2003. As of June 30, 1995,
Continental had credit availability of $536,260,000 under the 1994 Credit
Facility (See "Description of Continental Indebtedness").
On July 18, 1995 certain of Continental's subsidiaries closed a new
unsecured, revolving credit facility with a group of financial institutions
(the "1995 Credit Facility"). The maximum credit availability under
186
<PAGE>
the 1995 Credit Facility is $1,200,000,000 which will decrease annually
commencing December 31, 1998, with a final maturity in September 2004. Such
facility has other terms and conditions which are similar in certain respects
to those contained in the 1994 Credit Facility. Continental anticipates using
proceeds from the 1995 Credit Facility to fund: (i) the King Cable Purchase and
assumed liabilities in connection with the Merger in an aggregate amount of
$815,000,000 (see "Capital Expenditures and Domestic Acquisitions"), (ii)
approximately $245,000,000 of cable system acquisitions in Michigan and (iii)
general corporate purposes, which would include capital expenditures of the
acquired cable systems. The Closing of the Merger is a condition to funding
under the 1995 Credit Facility. (See "Description of Continental
Indebtedness".)
Credit Arrangements of the Company. On June 30, 1995, Continental had cash on
hand of $15,342,000 and the following credit arrangements: (i) $1,663,740,000
outstanding under the 1994 Credit Facility; (ii) $138,250,000 of 10.12% Senior
Notes Due 1999 to the Prudential Life Insurance Company (the "Prudential
Notes"); (iii) $200,000,000 of 8 1/2% Senior Notes Due 2001; (iv) $100,000,000
of 8 5/8% Senior Notes Due 2003; (v) $275,000,000 of 8 7/8% Senior Debentures
Due 2005; (vi) $300,000,000 of 9% Senior Debentures Due 2008; (vii)
$525,000,000 of 9 1/2% Senior Debentures Due 2013; (viii) $100,000,000 of 10
5/8% Senior Subordinated Notes Due 2002; (ix) $100,000,000 of Senior
Subordinated Floating Rate Debentures Due 2004; and (x) $300,000,000 of 11%
Senior Subordinated Debentures Due 2007. Other miscellaneous debt was
$26,111,000 as of June 30, 1995.
In addition, a subsidiary of Continental has issued a standby letter of
credit of $56,250,000 on behalf of PrimeStar, which guarantees a portion of the
financing PrimeStar incurred to construct a successor satellite system.
Continental anticipates that the obligations under such letter of credit will
increase next year up to a maximum of $70,625,000. The letter of credit is
secured by certain marketable equity securities with a fair market value of
$120,042,000 as of June 30, 1995.
The annual maturities of Continental's indebtedness for the years ending
December 31, 1995, 1996, 1997, 1998 and 1999 will be $24,265,000, $27,250,000,
$30,550,000, $33,250,000 and $35,000,000 respectively.
Interest Rate Protection Products. Continental's policy is to use interest
rate protection products (including interest rate exchange agreements and
interest rate cap agreements) to hedge its interest rate risk. In accordance
with the 1994 Credit Facility, Continental is required to maintain a minimum of
50% of its debt at fixed interest rates, when the ratio of total debt to EBITDA
exceeds certain levels.
. Interest Rate Exchange Agreements ("Swaps") are matched with either fixed
or variable rate debt. Continental accounts for outstanding Swaps on a
settlement basis as an adjustment to interest expense. Gains or losses
resulting from the termination of Swaps are amortized over the remaining
life of the underlying debt or the Swap, whichever is less. As of June
30, 1995 Continental had Swaps pursuant to which it pays fixed interest
rates averaging approximately 9.0% on notional amounts of $900,000,000
(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 6.0%.
. As of June 30, 1995, Continental had $800,000,000 of Interest Rate Cap
Agreements ("Caps"), which limit 6-month LIBOR to approximately 8%.
Continental amortizes the cost of its Caps over the life of the Cap
agreement as an adjustment to interest expense.
As of June 30, 1995, Continental's ratio of fixed interest rate debt (which
factors in Swaps, Caps and debt fixed by its terms) to total debt was
approximately 56%. 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. Continental's expenditures
for property, plant and equipment totaled $231,021,000 for the six months ended
June 30, 1995 ($32,774,000 of which was related to the provision of DBS
service). Continental anticipates that it will spend up to approximately
$350,000,000
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for capital expenditures for its existing systems during 1995. In addition,
Continental anticipates spending approximately $55,000,000 for DBS home-
premises equipment in connection with its role as a distributor for PrimeStar.
However, Continental is continually re-evaluating its capital budget. The
anticipated increase in capital expenditures for 1995 as compared to 1994 is
due to: (i) Continental's intention to further expand channel capacity and to
deploy addressable technology more extensively in its systems and (ii) the
provision of DBS service. Continental anticipates funding its capital
expenditures in 1995 with proceeds from the 1994 Credit Facility and cash
provided from operating activities. In accordance with the recently adopted
Social Contract with the FCC (see Legislation and Regulation), Continental is
required to invest a certain amount in domestic system rebuilds and upgrades
over time to expand channel capacity and improve system reliability and picture
quality. (See "Description of Continental--Regulatory Response".)
In November 1994, Continental entered into a purchase and sale agreement to
purchase several cable television systems in Michigan for approximately
$155,000,000, of which $7,500,000 was funded in escrow and included in Other
Assets in 1994. Subsequent to December 31, 1994, Continental entered into
purchase and sale agreements to purchase cable television systems in Chicago,
Illinois and Northern California for approximately $168,500,000 (see Other
Financing and Investment Activities) and $17,000,000, respectively. Continental
also entered into an agreement, which is currently being renegotiated, to
acquire the remaining ownership interests and assume certain liabilities of N-
COM, a limited partnership that owns and operates cable television systems in
Michigan, for total consideration of approximately $90,000,000. Continental
currently owns a 33.77% limited partnership interest in N-COM. For the most
part, these cable television systems serve communities that are contiguous or
in close proximity to Continental's existing systems. The Illinois acquisition
closed on August 4, 1995. The remaining pending acquisitions are expected to
close in 1995. Continental will fund the cable system acquisitions in Michigan
with proceeds from the 1995 Credit Facility. Continental funded the cable
system acquisition in Illinois and will fund the cable system acquisition in
Northern California with proceeds from its 1994 Credit Facility. (See "Pro
Forma Condensed Financial Statements".) There can be no assurances that all or
any of the pending acquisitions will be consummated (See "Domestic Acquisitions
and Investments--Domestic Acquisitions".)
INVESTMENTS. For purposes of the Statements of Consolidated Cash Flows,
investments include investments in telecommunications and technology,
international investments and other investments.
Investments in Telecommunications and Technology. Continental has made
numerous investments which are related to its ownership interests in TCG and
PrimeStar.
In 1993, Continental purchased 20% of TCG for a purchase price of
$66,020,000. In addition, Continental has committed to lend up to $69,920,000
to TCG through 2003, of which $53,800,000 was advanced as of June 30, 1995.
Continental has also invested $50,507,000 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. On May 22, 1995 TCG entered into a $250 million revolving credit
facility with a group of financial institutions. Proceeds from the facility may
be used for general corporate purposes of TCG, including capital expenditures.
Such facility will reduce the amount of future advances from TCG's
shareholders, including Continental.
Continental also owns an approximate 10% partnership interest in PrimeStar
and has an investment of $13,481,000 as of June 30, 1995. (See "Strategic
Investments--Telecommunications and Technology Investments".) Continental has
made cash investments to fund PrimeStar's ongoing operations and may in the
future make additional investments in PrimeStar. Continental anticipates
funding any additional investments in PrimeStar with cash provided from
operating activities and proceeds from the 1994 Credit Facility.
International Investments. Continental has advanced US$148,000,000 to
Fintelco, a company which owns and operates cable television systems serving
over 600,000 subscribers in Argentina. Continental
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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$33,469,000
to Fintelco in order to finance a portion of certain acquisitions of Argentine
cable television systems. Continental anticipates funding such commitments with
proceeds from its 1994 Credit Facility and cash provided from operating
activities. In addition, Fintelco is in the process of arranging an aggregate
of approximately $150 million in senior credit facilities with a group of
financial institutions. Such facilities may reduce the amount of future
advances from Fintelco's shareholders, including Continental. No assurance can
be given at this time that such facilities will be successfully raised.
In September 1994, Continental acquired a 25% equity interest in SCV which
will construct, own and operate an exclusive cable television system in
Singapore. To date, Continental has made capital contributions of US$17,614,000
and committed to contribute up to approximately US$27,000,000 (based on
exchange rates as of June 30, 1995) in additional capital through 1996. In
addition, Continental has committed to lend up to approximately US$45,000,000
(based on exchange rates as of June 30, 1995) to SCV if third-party debt
financing is unavailable. SCV is in the process of arranging an aggregate of
S$200,000,000 in senior credit facilities with certain financial institutions.
Such facilities, which can be increased to S$300,000,000 at the option of SCV
under certain circumstances, will reduce the amount of future advances from
SCV's shareholders, including Continental. No assurance can be given at this
time that such facilities will be successfully raised. (See "International
Operations".) Continental anticipates funding such commitments with proceeds
from its 1994 Credit Facility and cash provided from operating activities.
Continental and Optus, a provider of long-distance and cellular telephone
services in Australia, have formed a joint venture to create a broadband
communications network in Australia. The venture, called Optus Vision, is owned
46.5% by Continental, 46.5% by Optus, 5% by Nine and 2% by Seven. Each of Nine
and Seven has an option to increase its shareholdings to 20% and 15%,
respectively, at any time prior to July 1, 1997. 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.
As of June 30, 1995 Continental has invested approximately US$33.4 million in
Optus Vision. Optus Vision anticipates at this time that the required funding
needs of the project will total over US$1.5 billion (based upon exchange rates
at June 30, 1995) through 1999, which will be provided by a combination of
equity from the joint venture partners and third-party debt. Consummation of
the joint venture is subject to the receipt of regulatory approvals. No
assurances can be given at this time that such approvals will be granted.
Continental anticipates funding its share of the equity contributions to Optus
Vision with proceeds from its 1994 Credit Facility, cash provided from
operating activities, and other capital transactions which could include the
issuance of new indebtedness and/or equity. Continental's funding requirements
would be reduced if either or both of Nine and Seven exercise their options to
increase their equity interests in Optus Vision to 20% and 15%, respectively.
There can be no assurances that Nine and/or Seven will exercise their options.
Other Financing and Investment Activities. Other Assets increased by
$28,788,000 during the six months ended June 30, 1995 due primarily to a
$16,850,000 deposit in connection with the acquisition of a cable system in
Chicago, Illinois, which closed in August 1995, and approximately $13,000,000
of loans to certain employees to cover tax obligations in connection with the
Company's Restricted Stock Purchase Program (see Note 11 to the Company's
Consolidated Financial Statements).
In addition, the Company sold its shares of QVC common stock in a tender
offer for approximately $27,357,000 and sold a portion of its investment in NCC
for approximately $1,181,000. The proceeds from these sales were used to repay
amounts outstanding under the 1994 Credit Facility.
RECENT STOCK REPURCHASES AND 1998-1999 SHARE REPURCHASE PROGRAM. Continental
is a party to a liquidity agreement (the "Stock Liquidation Agreement") with
certain stockholders, including H. Irving Grousbeck (a co-founder of
Continental), and the partners of certain general investment limited
partnerships
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<PAGE>
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 private placements of
Continental Class A Common Stock which occurred in November 1993 and November
1994. A condition to some of the repurchases by Continental was the release by
certain parties of all rights under the Stock Liquidation Agreement as to any
shares not sold to Continental.
As a result of the tender offer in 1992 and subsequent repurchases of
Continental Redeemable Common Stock, Continental has reduced its obligations to
repurchase shares of Continental Redeemable Common Stock pursuant to the 1998-
1999 Share Repurchase Program to 667,366 shares (16,684,150 shares, giving
effect to the Continental Recapitalization Amendment and the Continental Stock
Split) (representing approximately 9.5% of its outstanding shares of
Continental Common Stock on a fully diluted basis, assuming conversion of the
outstanding shares of Continental Series A Preferred Stock after giving effect
to the Merger and the Continental Recapitalization Amendment and the
Continental Stock Split) from the Selling Stockholders pursuant to the 1998-
1999 Share Repurchase Program. None of the officers or Directors of Continental
elected to participate in the 1998-1999 Share Repurchase Program. The Selling
Stockholders have agreed not to acquire any additional shares of Continental
Common Stock (or securities convertible into or granting the right to purchase
shares of Continental 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.
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<PAGE>
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 Continental Preferred Stock.
CAPITAL RESOURCES. Historically, cash generated from Continental's operating
activities in conjunction with borrowings and proceeds from private equity
issuances has been sufficient to meet its debt service requirements, stock
repurchase obligations and acquisition, investment and capital expenditure
requirements. Continental believes that cash generated from operating
activities, together with borrowings from existing and future credit facilities
(including the 1995 Credit Facility) and proceeds from future equity issuances,
will be sufficient to meet its future debt service requirements and stock
repurchase obligations and to make anticipated acquisitions, investments and
capital expenditures. However, there can be no assurance in this regard.
Continental anticipates that it will offer shares of its capital stock in a
private or public offering in the future. (See "The Merger--Undertakings
Regarding Public Offering".) There can be no assurance in this regard or that
any such future equity issuance would be at a price per share equal to or
greater than the price per share ascribed to the Continental Merger Stock.
Furthermore, there can be no assurance that the terms available for any future
debt financing would be favorable to Continental.
RECENT LEGISLATION. In October 1992, Congress enacted the 1992 Cable Act,
which, among other things, authorizes the FCC to set standards for governmental
authorities to regulate the rates for certain cable television services and
equipment and gives local broadcast stations the option to elect mandatory
carriage or require retransmission consent.
Pursuant to authority granted under the 1992 Cable Act, the FCC in April 1993
promulgated rate regulations that established maximum allowable rates for cable
television services, except for services offered on a per-channel or per-
program basis. On February 22, 1994, the FCC adopted a revised regulatory
scheme which included, among other things, interim cost-of-service standards
and a new benchmark formula to determine certain service rates. In creating the
new benchmark formula, the FCC authorized a further reduction in rates for
certain regulated services. As a result, rates for certain regulated services
in effect were then reduced by as much as 17% below their September 30, 1992
levels if they exceeded the new per-channel benchmark rates. The old benchmark
formula called for a reduction of up to 10%. As part of the implementation of
the regulations, the FCC froze rates for regulated services from April 1, 1993
through May 15, 1994.
191
<PAGE>
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. In accordance with the
regulations, Continental has either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for these
regulated franchises. 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
recorded a revenue reserve in 1994. In the opinion of management, the ultimate
resolution of these existing filings will not have a material adverse effect on
Continental's consolidated financial position.
Continental has settled all of its pending cost-of-service rate cases and all
of its benchmark CPS tier rate cases through the recently adopted Social
Contract with the FCC. Benchmark BBT cases will continue to be resolved by
Continental and local franchising authorities. (For a description of the Social
Contract, see "Description of Continental--Regulatory Response".)
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<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 June 30, 1995, and gives effect to (i) the
Merger and certain related transactions, including the assumption of
$410,000,000 of New Cable Indebtedness and the King Cable Purchase for
$405,000,000 (a portion of the 1995 Credit Facility will fund the New Cable
Indebtedness and the King Cable Purchase); (ii) various other acquisitions of
domestic cable television systems (Columbia Cable of Michigan, Cablevision of
Chicago, N-COM and Consolidated Cablevision of California); and (iii) the
Continental Recapitalization Amendment and the Continental Stock Split, in each
instance as though each of such events had occurred as of June 30, 1995. The
following unaudited Pro Forma Condensed Statements of Operations for the year
ended December 31, 1994 and the six months ended June 30, 1995 gives effect to:
(i) each of the above transactions, (ii) the Manchester, New Hampshire and Clay
Cablevision acquisitions, (iii) the closing of the 1994 Credit Facility and
(iv) the redemption of the 12 7/8% Senior Subordinated Debentures ("12 7/8%
Debt") as though each of such events had occurred as of January 1, 1994. Pro
forma adjustments are described in the accompanying notes.
These pro forma financial statements should be read in conjunction with the
Consolidated Financial Statements and related notes of Continental and
Providence Journal Cable included elsewhere in this Joint Proxy Statement-
Prospectus. The Pro Forma Condensed Statements of Operations are not
necessarily indicative of the actual results of operations that would have been
reported if the acquisitions and the other transactions described above had
occurred as of January 1, 1994, nor do they purport to indicate the results of
future operations of Continental. In the opinion of management, all adjustments
necessary to present fairly such pro forma financial statements have been made.
193
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1995
(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.................... $ 15,342 $ 1,334 (1) $ 16,676 $ 210 $ -- $ 16,886
Accounts Receivable--
net.................... 60,203 1,025 (1) 61,228 25,423 -- 86,651
Prepaid Expenses and
Other.................. 3,536 154 (1) 3,690 5,396 -- 9,086
Supplies................ 76,542 -- 76,542 7,198 -- 83,740
Marketable Equity
Securities............. 120,042 -- 120,042 -- -- 120,042
Investments............. 432,487 -- 432,487 -- -- 432,487
Property, Plant and
Equipment--net......... 1,482,638 142,856 (1) 1,625,494 257,656 153,665 (3) 2,036,815
Other Assets--net....... 503,104 284,960 (1) 788,064 522,750 794,692 (3) 2,105,506
----------- -------- ----------- -------- --------- -----------
TOTAL................. $ 2,693,894 $430,329 $ 3,124,223 $818,633 $ 948,357 $ 4,891,213
=========== ======== =========== ======== ========= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Accounts Payable........ $ 71,062 $ 354 (1) $ 71,416 $ 12,466 $ -- $ 83,882
Accrued Interest........ 74,061 -- 74,061 -- -- 74,061
Accrued and Other
Liabilities............ 197,451 2,159 (1) 199,610 41,217 -- 240,827
Debt.................... 3,728,101 406,150 (1) 4,134,251 -- 815,000 (3) --
(12,000)(3) 4,921,251
(16,000)(3) --
Due to Affiliate--
Providence Journal..... -- -- -- 611,567 (611,567)(3) --
Deferred Income Taxes... 101,735 21,666 (1) 123,401 86,066 244,172 (3) 453,639
Minority Interest in
Subsidiaries........... 3,798 -- 3,798 14,402 (14,402)(3) 3,798
Redeemable Common Stock. 242,721 -- 242,721 -- -- 242,721
Stockholders' Equity
(Deficiency):
Series A Convertible
Preferred Stock....... 11 -- 11 -- -- 11
Common Stock........... 40 972 (2) 1,012 -- 307 (3) 1,319
Additional Paid-In
Capital............... 618,236 (972)(2) 617,264 -- 595,762 (3) 1,213,026
Unearned Compensation.. (51,708) -- (51,708) -- -- (51,708)
Net Unrealized Holding
Gain on Marketable
Equity Securities..... 49,104 -- 49,104 -- -- 49,104
Retained Earnings
(Deficit)............. (2,340,718) -- (2,340,718) 52,915 (52,915)(3) (2,340,718)
----------- -------- ----------- -------- --------- -----------
TOTAL................. $ 2,693,894 $430,329 $ 3,124,223 $818,633 $ 948,357 $ 4,891,213
=========== ======== =========== ======== ========= ===========
</TABLE>
See Notes to Pro Forma Condensed Balance Sheets.
194
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
The following adjustments are presented to reflect the effects of recording
the acquisitions and applying purchase accounting to the accounts of the
following cable television systems: (i) Columbia Cable of Michigan, purchase
price of approximately $155,000,000; (ii) Consolidated Cablevision of
California, purchase price of approximately $17,000,000 (iii) Cablevision of
Chicago, purchase price of approximately $168,500,000; and (iv) for the
remaining non-owned interest in N-COM, purchase price of approximately
$90,000,000 (which includes assumed liabilities). (See "Description of
Continental--Domestic Acquisitions and Investments".) A summary of the combined
purchase adjustment is as follows (in thousands):
<TABLE>
<S> <C>
Purchase Price:
Purchase Price of Cable Television Systems......................... $352,242
Net Working Capital Deficit and Liabilities of Cable Television
Systems assumed................................................... 78,258
--------
Total $430,500
========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment.............. $142,856
Estimated Fair Value of Acquired Franchises........................ 287,644
Deferred Taxes Related to Property, Plant and Equipment
and Acquired Franchise Write-up ($430,500-$374,946) X 39%......... (21,666)
--------
408,834
--------
Excess of Purchase Price Over Property, Plant and Equipment and
Acquired Franchises............................................... $ 21,666
========
</TABLE>
(1) To record the fair value of property, plant and equipment, franchise costs
and certain current assets and current liabilities of the above cable
television systems. The adjustment for goodwill and deferred taxes
represents the preliminary estimate of the excess of the purchase price
plus net liabilities assumed over the fair value of property, plant and
equipment and acquired franchises, reduced by the property, plant and
equipment and acquired franchises previously recorded by the above cable
television systems. Continental will borrow a total of $406,150,000 in debt
under the 1994 Credit Facility and 1995 Credit Facility to finance the
acquisitions (excluding the Merger) and refinance liabilities assumed (see
"Management Discussion and Analysis of Financial Condition and Results of
Operations of Continental--Liquidity and Capital Resources--Capital
Expenditures and Domestic Acquisitions"). As of June 30, 1995, Continental
has funded an escrow deposit of $7,500,000 relating to the acquisition of
Columbia Cable of Michigan and an escrow deposit of $16,850,000 relating to
the acquisition of Cablevision of Chicago, which were included in Other
Assets. The Cablevision of Chicago acquisition closed on August 4, 1995.
The preliminary estimates of the fair value of property, plant and
equipment and acquired franchises may change upon final appraisal.
The following table sets forth as of June 30, 1995 the fair value of the
property, plant and equipment, franchise costs and certain assets and
current liabilities of the above cable television systems and the debt
incurred to finance these acquisitions or refinance the liabilities assumed
(in thousands):
<TABLE>
<CAPTION>
CONSOLIDATED
COLUMBIA CABLE CABLEVISION CABLEVISION
N-COM OF MICHIGAN OF CHICAGO OF CALIFORNIA TOTAL
-------- -------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 1,334 $ -- $ -- $ -- $ 1,334
Accounts Receivable--
net.................... 1,025 -- -- -- 1,025
Prepaid Expenses and
Other.................. 154 -- -- -- 154
Property, Plant and
Equipment--net......... 40,706 46,500 50,550 5,100 142,856
Other Assets--net....... 70,960 101,000 101,100 11,900 284,960
-------- -------- -------- ------- --------
Total................. $114,179 $147,500 $151,650 $17,000 $430,329
======== ======== ======== ======= ========
LIABILITIES
Accounts Payable........ $ 354 $ -- $ -- $ -- $ 354
Accrued and Other
Liabilities............ 2,159 -- -- -- 2,159
Debt.................... 90,000 147,500 151,650 17,000 406,150
Deferred Income Taxes... 21,666 -- -- -- 21,666
-------- -------- -------- ------- --------
Total................. $114,179 $147,500 $151,650 $17,000 $430,329
======== ======== ======== ======= ========
</TABLE>
195
<PAGE>
(2) To record the increase in Continental Common Stock due to the Continental
Recapitalization Amendment and the Continental Stock Split.
(3) To record the estimated fair value of $596,069,000 for the 30,725,207
shares of Continental Class A Common Stock to be issued to shareholders of
Providence Journal in exchange for all the shares of Providence Journal
Common Stock. To record $410,000,000 of New Cable Indebtedness, which will
be made available to Providence Journal and/or a subsidiary under the 1995
Credit Facility prior to the Effective Time and will be assumed by a
Continental subsidiary upon consummation of the Merger. To record the King
Cable Purchase for $405,000,000, which will be funded under the 1995 Credit
Facility. To record the Working Capital deficit of approximately
$16,000,000 and Capital Expenditure Adjustment of approximately $12,000,000
both to be paid in cash to Continental. The cash will be utilized to repay
amounts outstanding under the 1995 Credit Facility. To adjust property,
plant and equipment and acquired franchises of Providence Journal Cable to
fair value based on preliminary estimates and to eliminate historical
equity accounts. The adjustment for goodwill and deferred taxes represents
the preliminary estimate of the excess of the purchase price plus net
liabilities assumed over the fair value of the property, plant and
equipment and acquired franchises, reduced by the property, plant and
equipment and acquired franchises previously recorded by Providence Journal
Cable. Such amount may change upon final appraisal.
The following adjustments are presented to reflect the effects of recording
the Merger and applying purchase accounting to the accounts of Providence
Journal Cable. A summary of the basis for these adjustments is as follows
(in thousands):
<TABLE>
<S> <C>
Purchase Price:
Estimated Fair Value of Shares to be Issued.................... $ 596,069
Cash Payment for King Cable Purchase........................... 405,000
New Cable Indebtedness of Providence Journal Cable Assumed..... 410,000
----------
1,411,069
Liabilities of Providence Journal Cable Assumed by Continental. 73,522
----------
Total........................................................ $1,484,591
==========
Allocation of Purchase Price:
Estimated Fair Value of Property, Plant and Equipment.......... $ 411,321
Estimated Fair Value of Acquired Franchises.................... 1,073,270
Deferred Taxes Related to Property, Plant and Equipment
and Acquired Franchise Write-up ([$1,484,591--$858,509] X
39%).......................................................... (244,172)
----------
1,240,419
----------
Excess of Purchase Price Over Property, Plant and Equipment
and Acquired Franchises....................................... $ 244,172
==========
</TABLE>
196
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $1,197,977 $103,859 (1) $1,301,836 $284,993 $ -- $1,586,829
Costs and Expenses:
Operating.............. 405,535 42,697 (1) 448,232 114,868 -- 563,100
Selling, General and
Administrative........ 267,349 22,320 (1) 289,669 58,152 -- 347,821
Allocated Corporate
Overhead from
Parent Companies...... -- -- -- 11,034 (11,034)(4) --
Restricted Stock
Purchase Program...... 11,316 -- 11,316 -- -- 11,316
Depreciation and
Amortization.......... 283,183 26,513 (1) 309,696 85,783 (11,715)(5) 383,764
---------- -------- ---------- -------- -------- ----------
Total................ 967,383 91,530 1,058,913 269,837 (22,749) 1,306,001
---------- -------- ---------- -------- -------- ----------
Operating Income........ 230,594 12,329 242,923 15,156 22,749 280,828
Interest Expense--net... 315,541 35,606 (1) 336,156 41,318 13,772 (6) 391,246
(16,133)(2)
1,142 (3)
Other Expenses--net..... 24,253 (2,341)(1) 21,912 (555) -- 21,357
Minority Interest....... (205) -- (205) -- -- (205)
---------- -------- ---------- -------- -------- ----------
Loss from Operations.... (108,995) (5,945) (114,940) (25,607) 8,977 (131,570)
---------- -------- ---------- -------- -------- ----------
Income Tax (Benefit)
Expense................ (40,419) (2,319)(7) (42,738) (8,182) 3,501 (7) (47,419)
---------- -------- ---------- -------- -------- ----------
Net Loss Before
Extraordinary Item..... $ (68,576) $ (3,626) $ (72,202) $(17,425) $ 5,476 $ (84,151)
========== ======== ========== ======== ======== ==========
Per Share Data:
Earnings Per Share
Before
Extraordinary Item.... $ (.92)(8) $ (.83)(8)
========== ==========
Average Common Shares
Outstanding........... 114,334 (9) 145,059 (10)
========== ==========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA PROVIDENCE PROVIDENCE
ADJUSTMENTS PRO FORMA JOURNAL JOURNAL PRO FORMA
CONTINENTAL OTHER CONTINENTAL CABLE CABLE TOTAL
----------- ----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $650,048 $44,792 (1) $694,840 $145,380 $ -- $840,220
Costs and Expenses:
Operating.............. 224,846 18,392 (1) 243,238 59,941 -- 303,179
Selling, General and
Administrative........ 150,332 10,087 (1) 160,419 29,106 -- 189,525
Allocated Corporate
Overhead from
Parent Companies...... 3,818 (3,818)(4) --
Restricted Stock
Purchase Program...... 5,905 -- 5,905 -- -- 5,905
Depreciation and
Amortization.......... 148,412 11,009 (1) 159,421 42,314 (5,280)(5) 196,455
-------- ------- -------- -------- ------ --------
Total................ 529,495 39,488 568,983 135,179 (9,098) 695,064
-------- ------- -------- -------- ------ --------
Operating Income........ 120,553 5,304 125,857 10,201 9,098 145,156
Interest Expense--net... 166,314 15,231 (1) 181,545 21,234 8,279 (6) 211,058
Other Expenses--net..... 2,056 (1,494)(1) 562 (1,899) -- (1,337)
Minority interest....... (40) -- (40) -- -- (40)
-------- ------- -------- -------- ------ --------
Loss from Operations.... (47,777) (8,433) (56,210) (9,134) 819 (64,525)
-------- ------- -------- -------- ------ --------
Income Tax (Benefit)
Expense................ (14,710) (3,289)(7) (17,999) (2,621) 320 (7) (20,300)
-------- ------- -------- -------- ------ --------
Net Loss Before
Extraordinary Item..... $(33,067) $(5,144) $(38,211) $ (6,513) $ 499 $(44,225)
======== ======= ======== ======== ====== ========
Per Share Data:
Earnings Per Share
Before
Extraordinary Item.... $ (.45)(8) $ (.43)(8)
======== ========
Average Common Shares
Outstanding........... 117,627 (9) 148,352 (10)
======== ========
</TABLE>
See Notes to Pro Forma Condensed Statements of Operations.
197
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(1) To record the results of operations for the cable television systems
acquired in 1994 and acquired or to be acquired in 1995. The results of
operations for certain cable television systems have been adjusted, where
necessary, from a September 30 fiscal year end to a December 31 fiscal year
end. The results of operations have been adjusted to reverse historical
interest expense of $24,432,000 and record interest expense of $35,606,000
(the pro forma interest expense is net of amounts recorded by Continental
as a result of cable television systems already acquired and deposits paid)
for the year ended December 31, 1994, as a result of approximately
$538,000,000 of additional debt incurred to finance the cable television
systems acquired in 1994 and acquired or to be acquired in 1995. The
results of operations have been adjusted to reverse historical interest
expense of $15,231,000 and record interest expense of $12,518,000 for the
six months ended June 30, 1995, as a result of approximately $406,150,000
of additional debt incurred to finance the cable television systems to be
acquired in 1995 (excluding the Merger). The incremental interest rate used
to calculate pro forma interest expense for the year ended December 31,
1994 and six months ended June 30, 1995 was 7% and 7.5%, respectively.
Continental's equity in net loss includes a loss of $2,400,000 and
$1,541,000 for the year ended December 31, 1994 and the six months ended
June 30, 1995, respectively, relating to its 33.77% interest in N-COM. This
amount has been eliminated to reflect the results of operations of N-COM as
if it was wholly owned by Continental during 1994 and 1995. The results of
operations have also been adjusted to reverse historical depreciation and
amortization expense of $33,280,000 and $13,572,000 for the year ended
December 31, 1994 and the six months ended June 30, 1995, respectively, and
record depreciation and amortization expense of $26,513,000 and $11,009,000
for the year ended December 31, 1994 and the six months ended June 30,
1995, respectively, based on the fair value of the assets acquired and the
current expected lives of these assets. Depreciation and amortization
expense for property, plant and equipment has been determined based on an
estimated weighted average life of ten years. Costs of acquired franchises
and goodwill arising from the acquisitions are amortized over 40 years.
Such depreciation and amortization may change upon final appraisal.
The following table sets forth the historical results of operations of (i)
the cable television systems acquired in 1994, for the period in which they
were not owned by Continental (Manchester, acquired on June 30, 1994 and
Clay Cablevision, acquired in November, 1994) and; (ii) the cable television
systems acquired or to be acquired in 1995 for the year ended December 31,
1994 and the six months ended June 30, 1995 (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------------------------
CABLE TELEVISION CABLE TELEVISION SYSTEMS
SYSTEMS ACQUIRED IN 1994 ACQUIRED OR TO BE ACQUIRED IN 1995
-------------------------- --------------------------------------------
CONSOLIDATED
COLUMBIA CABLEVISION
CLAY CABLEVISION CABLE OF OF PRO FORMA
MANCHESTER CABLEVISION N-COM OF CHICAGO MICHIGAN CALIFORNIA ADJUSTMENTS TOTAL
----------- ------------ -------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $6,391 $10,404 $ 21,320 $34,395 $26,428 $ 4,921 $ -- $103,859
Costs and Expenses:
Operating.............. 3,950 4,032 7,955 14,402 10,144 2,214 -- 42,697
Selling, General and
Administrative........ 753 1,782 3,828 9,092 5,941 924 -- 22,320
Depreciation and
Amortization.......... 831 2,430 13,001 5,288 7,620 4,110 (6,767) 26,513
----------- ------------ -------- ------- ------- ------- ------- --------
Total................ 5,534 8,244 24,784 28,782 23,705 7,248 (6,767) 91,530
----------- ------------ -------- ------- ------- ------- ------- --------
Operating Income (Loss). 857 2,160 (3,464) 5,613 2,723 (2,327) 6,767 12,329
Interest Expense--net... -- 2,012 10,549 10,280 -- 1,591 11,174 35,606
Other (Income)
Expense--net........... -- 17 -- 53 (9) (2) (2,400) (2,341)
----------- ------------ -------- ------- ------- ------- ------- --------
Income/(Loss) From
Operations Before
Income Taxes........... $ 857 $ 131 $(14,013) $(4,720) $ 2,732 $(3,916) $(2,007) $(20,936)
=========== ============ ======== ======= ======= ======= ======= ========
</TABLE>
198
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------------------
CABLE TELEVISION SYSTEMS ACQUIRED
OR TO BE ACQUIRED IN 1995
-------------------------------------------
COLUMBIA CONSOLIDATED
CABLEVISION CABLE OF CABLEVISION PRO FORMA
N-COM OF CHICAGO MICHIGAN OF CALIFORNIA ADJUSTMENTS TOTAL
------- ----------- -------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $10,555 $17,766 $14,046 $ 2,425 $-- $44,792
Costs and Expenses:
Operating.............. 4,675 7,065 5,501 1,151 -- 18,392
Selling, General and
Administrative........ 1,612 5,035 3,014 426 -- 10,087
Depreciation and
Amortization.......... 5,349 2,541 3,915 1,767 (2,563) 11,009
------- ------- ------- ------- ------ -------
Total................ 11,636 14,641 12,430 3,344 (2,563) 39,488
------- ------- ------- ------- ------ -------
Operating Income (Loss). (1,081) 3,125 1,616 (919) 2,563 5,304
Interest Expense--net... 6,061 5,543 -- 914 2,713 15,231
Other (Income)
Expense--net........... -- 33 7 7 (1,541) (1,494)
------- ------- ------- ------- ------ -------
Income/(Loss) From
Operations Before
Income Taxes........... $(7,142) $(2,451) $ 1,609 $(1,840) $1,391 $(8,433)
======= ======= ======= ======= ====== =======
</TABLE>
(2) To record the net decrease in interest expense as a result of the
redemption by Continental of the $325,000,000 of 12 7/8% Debt in November
1994. The adjusted interest rate was 6 1/2% for the ten months ended
October 31, 1994.
(3) To record the net increase in interest expense associated with the
amortization of deferred financing costs of the 1994 Credit Facility and
the 12 7/8% Debt.
(4) To reverse Allocated Corporate Overhead from Parent Companies recorded by
Providence Journal Cable. These costs relate to allocated corporate
overhead such as executive salaries and other corporate departments such
as Treasury, Tax and Human Resources. These costs also include a portion
of the management fees assessed to KHC by the joint venture partners. As a
result of Continental's existing corporate infrastructure, no incremental
costs such as these are expected to be incurred upon the acquisition of
Providence Journal Cable.
(5) To reverse the historical depreciation and amortization expense of
$85,783,000 and $42,314,000 for the year ended December 31, 1994 and the
six months ended June 30, 1995, respectively, recorded by Providence
Journal Cable and record depreciation and amortization expense of
$74,068,000 and $37,034,000 for the year ended December 31, 1994 and the
six months ended June 30, 1995, respectively, based on the fair value of
the assets acquired based on the current expected lives of these assets.
Depreciation and amortization expense for property, plant and equipment
has been determined based on an estimated weighted average life of ten
years. Cost of acquired franchises and goodwill arising from the Merger
are amortized over 40 years. Such depreciation and amortization expense
may change upon final appraisal.
(6) To reverse historical interest expense of $41,318,000 and $21,234,000 for
the year ended December 31, 1994 and the six months ended June 30, 1995,
respectively, as a result of the Providence Journal Cable intercompany
debt and record interest expense of $55,090,000 and $29,513,000 for the
year ended December 31, 1994 and six months ended June 30, 1995,
respectively, due to the net $787,000,000 increase in debt ($410,000,000
of New Cable Indebtedness plus $405,000,000 of borrowings under the 1995
Credit Facility to finance the King Cable Purchase less the Working
Capital deficit of $16,000,000 and the Capital Expenditure Adjustment of
$12,000,000 to be paid in cash to Continental and utilized to repay
amounts outstanding under the 1995 Credit Facility). The incremental
interest rate used to calculate interest expense was 7% for the year ended
December 31, 1994 and 7.5% for the six months ended June 30, 1995.
(7) To record the income tax effect at an effective rate of 39%.
(8) Net Loss Before Extraordinary Item has been adjusted for Preferred Stock
Preferences in order to calculate loss per common share.
(9) Represents 4,573,000 and 4,705,000 weighted average shares outstanding
during the year ended December 31, 1994 and six months ended June 30,
1995, respectively, adjusted for the Continental Recapitalization
Amendment and the Continental Stock Split.
(10) Represents the actual weighted average shares outstanding during the year
ended December 31, 1994 and six months ended June 30, 1995 of 4,573,000
shares and 4,705,000, respectively, adjusted for the Continental
Recapitalization Amendment and the Continental Stock Split and the
issuance of 30,725,207 shares of Continental Class A Common Stock to be
issued upon the consummation of the Merger.
199
<PAGE>
MARKET PRICE OF CONTINENTAL COMMON STOCK AND DIVIDEND POLICY OF CONTINENTAL
No established public trading market exists for the Continental Common Stock,
and accordingly no high and low bid information or quotations are available
with respect to the Continental Common Stock.
As of August 1, 1995 there were 157 holders of record of the Continental
Class A Common Stock and 270 holders of record of the Continental Class B
Common Stock. Certain stockholders hold both Class A and 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
William T. Schleyer.............. President and Chief Operating Officer
Michael J. Ritter................ Director
Roy F. Coppedge III.............. Director
Jonathan H. Kagan(1)............. Director
Robert B. Luick.................. Director and Secretary
Henry F. McCance................. Director
Lester Pollack................... Director
Vincent J. Ryan(1)............... Director
Ronald H. Cooper................. Executive Vice President
Jeffrey T. DeLorme............... Executive Vice President
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................... Vice President and Treasurer
Nancy B. Larkin.................. Vice President--Community Relations
Phyllis A. Traver................ Vice President--Marketing
R.B. Lerch....................... Vice President--Programming
Lawrence F. Christofori.......... Assistant Treasurer
Benjamin A. Gomez................ Assistant Treasurer
W. Lee H. Dunham................. Assistant Secretary
Patrick K. Miehe................. Assistant Secretary
</TABLE>
--------
(1)Members of the Executive Committee
200
<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 and Pollack, have been nominated to serve
as Directors for an additional three-year term, expiring at the 1998 Annual
Meeting of Continental. (See "Proposal to Approve and Adopt the Continental
Recapitalization Amendment, Election of Directors and Ratification of
Appointment of Accountants".) The term of the Class A Directors,
Messrs. McCance, Coppedge, 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".) If elected,
they will be Class C Directors.
The executive officers and other officers were elected by the Continental
Board of Directors on May 19, 1994, with the exception of Messrs. Strickland
and Christofori, who were appointed to their present positions by the Board of
Directors on November 17, 1994, Messrs. Krauss, Cooper and Lerch and Ms.
Traver, who were appointed to their present positions effective January 1,
1995, and Mr. Schleyer, who was appointed to his present position effective as
of March 15, 1995 to replace Mr. Ritter, who retired. All executive officers
and other officers hold office until the first meeting of the Continental Board
following the next annual meeting of stockholders and until their successors
are chosen and qualified.
The following is a description of the business experience during the past
five years of each Director and officer and includes, as to Directors, other
directorships held in companies required to file periodic reports with the
Commission and registered investment companies.
DIRECTORS AND EXECUTIVE OFFICERS
Amos B. Hostetter, Jr. (58), a cofounder of Continental, is the Chairman of
the Board and Chief Executive Officer of Continental. He has been a Director
since 1963. Mr. Hostetter is a past Chairman of the National Cable Television
Association ("NCTA") and currently serves on NCTA's Board and Executive
Committee. He is past Chairman and serves on the Executive Committee of the
Board of Directors of both Cable in the Classroom and C-SPAN and serves as a
Director and Chairman of the Audit Committee of Commodities Corporation (USA).
Timothy P. Neher (47) is the Vice Chairman of the Board of Continental. He
has been a Director since 1982 and has been employed by Continental since 1974.
Prior to 1991 he was President and Chief Operating Officer of Continental,
prior to 1986 he was an Executive Vice President of Continental, and prior to
1982 he was Vice President and Treasurer of Continental. He currently is on the
Board of Directors of Turner Broadcasting System, Inc.
William T. Schleyer (44) is the President and Chief Operating Officer of
Continental. Prior to March 15, 1995 he was an Executive Vice President and
prior to 1989 he was the Senior Vice President and General Manager of
Continental's New England management region. He is a member of the Boards of
Directors of
201
<PAGE>
CableLabs, the research and development arm of the cable industry, and TCG. He
has been employed by Continental since 1978.
Michael J. Ritter (54) has been a Director since 1991 and was employed by
Continental from 1980 until March 15, 1995, at which time he retired as the
President and Chief Operating Officer of Continental. Prior to 1991 he was an
Executive Vice President, and prior to 1988 he was the Senior Vice President
and General Manager of Continental's Michigan management region.
Roy F. Coppedge III (47) 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 (39) is Managing Director of Corporate Advisors, L.P. and a
Managing Director of Lazard. He has been associated with Lazard since 1980. He
was elected to serve as a Director of Continental in 1992. Mr. Kagan currently
is on the Board of Directors of Tyco Toys, Inc.
Robert B. Luick (83) is of counsel to the law firm of Sullivan & Worcester,
which firm has acted as counsel to Continental since its inception. Mr. Luick
has been with Sullivan & Worcester since 1943. He is a member of the Board of
Directors of Ionics, Incorporated, a diversified water treatment company. He
has been Secretary and a Director of Continental since 1963.
Henry F. McCance (52) has been general partner of the following venture
capital partnerships (either directly or indirectly as the general partner of
the general partner of such partnerships) since their formation: Greylock
Ventures Limited Partnership (1983), Greylock Investments Limited Partnership
(1985), Greylock Capital Limited Partnership (1987), Greylock Limited
Partnership (1990) and Greylock Equity Limited Partnership (1994). He is also
President and Treasurer of Greylock Management Corporation, an investment
services organization, and a Director of Brookstone, Inc., Manugistics, Inc.
and Shiva Corporation. Prior to 1990, Mr. McCance was a Vice President and
Treasurer of Greylock Management Corporation. Mr. McCance has been a Director
of Continental since 1972.
Lester Pollack (61) is Senior Managing Director of Corporate Advisors, L.P.
and Chief Executive Officer of Centre Partners, L.P., investment partnerships
affiliated with Lazard, as well as a Managing Director of Lazard. 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 (59) has been Chairman of the Board and a Director of
Schooner Capital Corporation, a venture capital organization, since 1971. Mr.
Ryan is also Chairman of the Board of Iron Mountain Information Management
Company, Inc., an information management company. He has been a Director of
Continental since 1980.
Jeffrey T. DeLorme (42) is an Executive Vice President of Continental. Prior
to March 1993, he was the Senior Vice President and General Manager of
Continental's Florida/Georgia management region. He was formerly the Director
of Corporate Services in Continental's Michigan management region. He has been
employed by Continental since 1980.
Ronald H. Cooper (38) is an Executive Vice President of Continental. Prior to
1995, he was the Senior Vice President of Continental's Southern California
management region. Prior to 1990 he was the Senior Vice President of
Continental's Northern California management region. He has been employed by
Continental since 1982.
Nancy Hawthorne (44) 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
202
<PAGE>
Continental. Prior to 1988, she was a Vice President and the Treasurer of
Continental. She is a member of the Boards of Directors of Perini Corporation,
a construction company, and TCG. She has been employed by Continental since
1982.
OTHER OFFICERS
Andrew L. Dixon Jr. (53) is Senior Vice President--Human Resources of
Continental. From 1985 to 1991, he was the Vice President of Human Resources
of Continental. He has been employed by Continental since 1982.
David M. Fellows (42) is Senior Vice President--Engineering and Technology
of Continental. Prior to December 1992, he was the Vice President of Strategic
Operations and the President of Scientific Atlanta's Transmissions Systems
Business Division, where he was responsible for that company's head end, fiber
and digital compression products. He is a member of the Board of Directors of
Anadigics, Inc.
Richard A. Hoffstein (47) is a Senior Vice President and the Corporate
Controller of Continental. Prior to 1986, he was the Corporate Controller,
Assistant Treasurer and Assistant Secretary of Continental. He has been
employed by Continental since 1976.
Frederick C. Livingston (49) is Senior Vice President--Marketing of
Continental. Prior to 1988, he was a Vice President of Continental, and prior
to 1984 he was the Director of Marketing for Continental. He has been employed
by Continental since 1979.
Robert J. Sachs (46) is Senior Vice President--Corporate and Legal Affairs
of Continental. Prior to 1988, he was a Vice President of Continental, and
prior to 1983 he was Continental's Director of Corporate Development. He has
been employed by Continental since 1979.
Robert A. Stengel (52) is Senior Vice President--Programming of Continental.
Prior to 1988, he was a Vice President of Programming of Continental. He has
been employed by Continental since 1980.
Robert A. Strickland (32) is Senior Vice President--Information Systems of
Continental. He has been employed by Continental since August 1994. He was
formerly employed by Harvard Business School since 1991.
P. Eric Krauss (31) is a Vice President and the Treasurer of Continental.
Prior to January 1995, he was the Treasurer, and prior to December 1993, he
was the Assistant Treasurer of Continental. He has been employed by
Continental since January 1990. He was formerly employed by The First National
Bank of Boston since 1986.
Nancy B. Larkin (44) 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.
R. B. Lerch (34) is a Vice President--Programming of Continental. He has
been employed by Continental since October 17, 1988. Prior to January 1995, he
was the Director of Programming of Continental.
Phyllis A. Traver (43) is a Vice President--Marketing of Continental. She
has been employed by Continental since January 1995. She was formerly employed
by Nestle Foods Corp. as a Business Director and by Homeview Realty Centers as
Vice President of Marketing.
Lawrence F. Christofori (33) is an Assistant Treasurer of Continental. He
has been employed by Continental since October 1994. He was formerly employed
by The First National Bank of Boston since 1989.
Benjamin A. Gomez (29) is an Assistant Treasurer of Continental. He has been
employed by Continental since April 1994. He was formerly employed by The Bank
of New York since 1990.
W. Lee. H. Dunham (54) is an Assistant Secretary of Continental. He has been
a partner of the law firm of Sullivan & Worcester since 1974.
203
<PAGE>
Patrick K. Miehe (47) is an Assistant Secretary of Continental. He has been a
partner of the law firm of Sullivan & Worcester since 1990.
Biographical information concerning the Directors, executive officers and
other officers is as of August 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -----------------------
OTHER ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK AWARDS COMPENSA-
NAMEAND PRINCIPAL POSITION YEAR # SALARY($) BONUS($)(1) SATION ($) ($)(2)(3) TION($)(4)
--------------------------- ------ --------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Amos B. Hostetter, Jr. 1994 $649,876 $ 97,991 $ $ $4,273
Chairman and Chief 1993 624,961 238,653 -- -- 4,273
Executive Officer 1992 615,154 203,470 -- 4,499,850 4,404
Michael J. Ritter(5) 1994 469,769 99,860 3,868
President and Chief 1993 439,845 146,691 -- -- 3,868
Operating Officer 1992 400,250 123,235 -- 2,999,900 3,910
William T. Schleyer(5) 1994 315,815 30,639 3,403
Executive Vice 1993 291,923 61,418 -- -- 3,403
President 1992 272,084 52,131 -- 1,499,950 3,360
Jeffrey T. DeLorme 1994 294,846 49,166 3,403
Executive Vice 1993 268,484 56,871 111,608(6) -- 3,403
President 1992 197,890 21,846 -- 1,437,317 3,361
Nancy Hawthorne 1994 241,938 18,331 3,403
Chief Financial 1993 224,896 46,590 -- -- 3,403
Officer and Senior 1992 198,000 86,454 -- 979,823 3,361
Vice President
</TABLE>
--------
(1) (See Note 11 to Consolidated Financial Statements.) Continental has made
loans to these and other persons in amounts equal to the income taxes
incurred by them as a result of their restricted stock purchases. Such
loans were financed through cash provided from operating activities and
long-term borrowings. Continental charges interest on these loans generally
at rates ranging from 5% to 8% per annum and declares bonuses to each of
these persons in the amount of the interest due each year. Continental
declared no other bonus to any Continental Named Executive Officer during
the years presented (other than a $50,000 bonus to Nancy Hawthorne in 1992
which is reflected in the Summary Compensation Table). As of August 1,
1995, the amounts of the loans outstanding to certain of the Continental
Named Executive Officers and one other Executive Officer were as follows:
William T. Schleyer ($1,751,974), Jeffrey T. DeLorme ($1,311,077), Ronald
H. Cooper ($261,500) and Nancy Hawthorne ($1,100,277). The outstanding
principal balance of each such loan is generally payable upon the earlier
to occur of (i) the fifth anniversary of such loan or (ii) the termination
of such person's employment with Continental. Each of Mr. DeLorme and Mr.
Cooper has an additional loan from an Unrestricted Subsidiary of
Continental, of which the current amounts outstanding are: Mr. DeLorme
($400,000) and Mr. Cooper ($278,680). Since the beginning of the fiscal
year ended December 31, 1992,
204
<PAGE>
the largest aggregate amounts of indebtedness of the following executive
officers were as follows: William T. Schleyer ($1,751,974), Jeffrey T.
DeLorme ($1,711,077), Ronald H. Cooper ($1,270,997) and Nancy Hawthorne
($1,100,277). (See "Compensation Committee Interlocks and Insider
Participation" for loan amounts to certain other Continental Named Executive
Officers.)
(2) Shares of restricted stock are entitled to dividends at the same rate as
all other shares of Continental Common Stock.
(3) Shown below are (i) the total number of unvested shares and current market
value of such shares as of December 31, 1994 and (ii) the vesting schedule
of such shares for each of the Continental Named Executive Officers (the
shares will be fully vested in two years):
<TABLE>
<CAPTION>
TOTAL RESTRICTED SHARES
HELD AS OF 12/31/94 VESTING OVER THREE YEARS FROM 12/31/94
------------------------ ---------------------------------------------
NAME SHARES VALUE SHARES VESTING IN 1995 SHARES VESTING IN 1996
---- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
Amos B. Hostetter, Jr... 123,750 $ 2,400,750 82,500 41,250
Michael J. Ritter....... 107,500 2,085,500 80,000 27,580
William T. Schleyer..... 41,250 800,250 27,500 13,750
Jeffrey T. DeLorme...... 46,475 901,615 26,400 20,075
Nancy Hawthorne......... 28,525 553,385 17,975 10,550
</TABLE>
(4) Includes payment by Continental in the fiscal years ended December 31,
1992, 1993 and 1994, respectively, of premiums for term life insurance on
behalf of the Continental Named Executive Officers: Amos B. Hostetter, Jr.
($1,350, $1,125 and $1,125), Michael J. Ritter ($856, $720 and $720),
William T. Schleyer ($306, $255 and $255), Jeffrey T. DeLorme ($307, $255
and $255) and Nancy Hawthorne ($307, $255 and $255). The remaining amounts
for the Continental Named Executive Officers represents the employer
matching contribution under Continental's matched savings plan.
(5) Mr. Ritter retired as the President and Chief Operating Officer, and was
replaced with Mr. Schleyer, effective March 15, 1995.
(6) Represents a one-time reimbursement of moving and related expenses incurred
by Mr. DeLorme in connection with his relocation to Continental's Boston,
Massachusetts office (grossed up for income taxes incurred by Mr. DeLorme).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Base annual
compensation for executive officers was determined during the last fiscal year
by the Chairman, the Vice Chairman and the President of Continental. Pursuant
to authority delegated by the Continental Board of Directors, the Chairman also
awarded grants of restricted stock in 1992 and 1995 to key employees designated
by the Continental Board in accordance with Continental's Restricted Stock
Purchase Program. Amos B. Hostetter, Jr., Timothy P. Neher and Michael J.
Ritter, the Chairman, Vice Chairman and President (until March 14, 1995) of
Continental, respectively, are Directors and participate in deliberations
concerning executive officer compensation.
Continental has made loans to these three executive officers and other
persons in amounts equal to the income taxes incurred by them as a result of
their restricted stock purchases. Such loans were financed through cash
provided from operating activities and long-term borrowings. Continental
charges interest on these loans generally at rates ranging from 5% to 8% per
annum and declares bonuses to each of these persons in the amount of the
interest due each year. As of August 1, 1995, the amounts of the loans
outstanding to the three executive officers named above were as follows: Amos
B. Hostetter, Jr. ($3,379,546), Timothy P. Neher ($2,669,856) and Michael J.
Ritter ($1,689,612). Since the beginning of the fiscal year ended December 31,
1992, the largest aggregate amounts of indebtedness of such executive officers
were as follows: Amos B. Hostetter, Jr. ($3,379,546), Timothy P. Neher
($4,057,356) and Michael J. Ritter ($2,020,797). The outstanding principal
balance of each such loan is generally payable upon the earlier to occur of (i)
the fifth anniversary of such loan or (ii) the termination of such person's
employment with Continental. For information regarding loans to other executive
officers, see footnote (1) to the Summary Compensation Table.
205
<PAGE>
On December 31, 1993, Continental accepted payment for loans incurred in
connection with restricted stock purchases pursuant to Continental's 1989
Restricted Stock Purchase Agreement ("RSPA III") which became due on such date
by (i) transfer to Continental and cancellation of vested shares of Continental
Common Stock with a value equal to the loan outstanding, valued at $485 per
share, which would have been equivalent to $19.40 per share after giving effect
to the Continental Recapitalization Amendment and the Continental Stock Split
(the "Stock-for-Loan Exchange"), (ii) payment in cash or (iii) a combination of
the two. Continental also made an offer (the "RSPA Offer") in January 1994 to
purchase shares of Continental Common Stock up to a maximum of 53,399 (not
giving effect to the Continental Recapitalization Amendment and Continental
Stock Split) shares at a purchase price of $485 per share. The persons who were
eligible to participate in the Stock-for-Loan Exchange and to accept the RSPA
Offer were persons who held shares of Continental Common Stock issued pursuant
to RSPA III (current or former employees and family members of employees and
former employees). The valuation of the shares at $485 was equal to the price
last paid in a private placement of shares of Continental Class A Common Stock,
which was consummated in November, 1993. (See "Management's Discussion and
Analysis of Financial Position and Results of Operations of Continental--
Liquidity and Capital Resources".) The three executive officers named above
repaid the following loan amounts in shares of Continental Common Stock in the
Stock-for-Loan Exchange: Amos B. Hostetter, Jr. ($1,471,936), Timothy P. Neher
($1,387,500) and Michael J. Ritter ($331,185), and sold the following number of
shares of Continental Common Stock (not giving effect to the Continental
Recapitalization Amendment and Continental Stock Split) to Continental pursuant
to the RSPA Offer: Amos B. Hostetter, Jr. (0), Timothy P. Neher (1,192) and
Michael J. Ritter (397). (For information regarding other executive officers,
see "Certain Transactions".) In addition, the Hostetter Foundation, an entity
controlled by Mr. Hostetter, sold 1,184 shares of Continental Class B Common
Stock (not giving effect to the Continental Recapitalization Amendment and the
Continental Stock Split) to Continental in January, 1994 for a purchase price
of $485 per share.
RETIREMENT PLANS. The following table sets forth, as computed in accordance
with the basic benefit formula employed for purposes of Continental's
Retirement Plan (the "Continental Retirement Plan") and its Supplemental
Executive Retirement Plan ("SERP"), the estimated annual benefits payable upon
retirement to employees of Continental in the following compensation and years-
of-service classifications. Such benefits are before offset in recognition of
the employer contribution toward social security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
COMPENSATION 10 15 20 25 30 OR MORE
------------ ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$150,000........................... $14,250 $21,375 $ 28,500 $ 35,625 $ 42,750
$200,000........................... 19,000 28,500 38,000 47,500 57,000
$300,000........................... 28,500 42,750 57,000 71,250 85,500
$400,000........................... 38,000 57,000 76,000 95,000 114,000
$500,000........................... 47,500 71,250 95,000 118,750 142,500
$600,000........................... 57,000 85,500 114,000 142,500 171,000
$700,000........................... 66,500 99,750 133,000 166,250 199,500
</TABLE>
Actual benefits are computed on the basis of (1) .95% of the employee's
average annual compensation less .37% of average annual compensation (limited
to social security covered compensation) multiplied by (2) the number of years
of service (not to exceed thirty years). Average annual compensation is the
average of a participant's compensation for the five consecutive years in which
compensation was the highest.
The SERP, effective in 1995, provides additional retirement benefits for any
employee of Continental whose accrued benefits under the Continental Retirement
Plan are limited by the Code's limit (currently $150,000) on compensation which
may be taken into account under that plan or by the Code's Section 415 limit on
the size of retirement benefits which may be funded under that plan. The SERP
is an unfunded, non tax-qualified plan which is intended to create for each
participant a benefit upon termination of employment generally equal in value
to the excess of what his accrued vested benefit in the Continental Retirement
Plan
206
<PAGE>
would have been without the $150,000 compensation limit and the Section 415
limit on benefits which may be funded, over the actual benefit under that plan.
The benefit under the SERP is payable upon termination of employment, at the
participant's election, in a lump sum or in equal annual installments (with
interest) over 2, 5 or 10 years. A participant may designate a beneficiary
under the SERP to receive his benefit should he die before its complete pay-
out.
The covered compensation for each Continental Named Executive Officer is
based upon the amounts shown in the "Salary" column of the Summary Compensation
Table. For each Continental Named Executive Officer, the current compensation
covered by the Continental Retirement Plan does not differ substantially (by
more than 10%) from the aggregate compensation set forth in the Summary
Compensation Table.
The Continental Named Executive Officers have been credited with the
following years of service: Mr. Hostetter, 32 years; Mr. Ritter, 14 years; Mr.
Schleyer, 17 years; Mr. DeLorme, 15 years; and Ms. Hawthorne, 13 years.
COMPENSATION OF DIRECTORS
The members of the Continental Board of Directors who are not officers of
Continental currently receive an annual retainer of $10,000 and a fee of $2,500
for each meeting attended. In addition, Directors who reside outside the
Greater Boston Area are reimbursed for their travel expenses incurred in
connection with attendance at meetings of the Continental Board of Directors.
CERTAIN TRANSACTIONS
On June 22, 1992, Continental sold 1,142,858 shares of Continental Series A
Preferred Stock to a group of investors, including 728,953 shares to Corporate
Partners for a purchase price of $255,133,550 and 52,107 shares to Corporate
Offshore Partners for a purchase price of $18,237,450, both of which are
investment partnerships affiliated with Lazard. Lester Pollack, a Director of
Continental, is Senior Managing Director of Corporate Advisors and a Managing
Director of Lazard. Jonathan H. Kagan, a Director of Continental, is Managing
Director of Corporate Advisors and a Managing Director of Lazard.
Corporate Advisors is the sole general partner of Corporate Partners and
Corporate Offshore Partners. A wholly owned subsidiary of Lazard is the sole
general partner of Corporate Advisors. Corporate Advisors is also an investment
manager for the SBA which purchased 76,084 shares of Continental Series A
Preferred Stock in a private placement subject to its investment management
agreement with Corporate Advisors. Certain entities controlled by Lazard also
own limited partnership interests in Corporate Partners and Corporate Advisors.
On June 22, 1992, Continental sold 42,857 shares of Continental Series A
Preferred Stock to ContCable for a purchase price of $14,999,950. ContCable is
an affiliate of Chemical Bank, a co-agent of the 1994 Credit Facility, an agent
of the 1995 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.
207
<PAGE>
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
Ventures Investors, and for certain other investment banking services during
the year ended December 31, 1992. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental--Liquidity and
Capital Resources".)
Lazard also received fees and underwriting discounts from Continental in an
aggregate amount of $7,748,400 for its services as an underwriter to
Continental of $1.4 billion of senior notes and debentures during the year
ended December 31, 1993.
Lazard has acted as a financial advisor to Continental in connection with the
negotiations and the consummation of the Merger and the related transactions,
and, for such services, will receive a fee of $5,500,000, payable upon the
Closing. Continental has also agreed to reimburse Lazard for its reasonable
out-of-pocket expenses, including fees and expenses of legal counsel.
For a discussion of loans made to executive officers of Continental in
connection with Continental's Restricted Stock Purchase Program, see footnote
(1) to the Summary Compensation Table and "Compensation Committee Interlocks
and Insider Participation". For a description of Continental's Stock-for-Loan
Exchange and the RSPA Offer to repurchase shares of Continental Common Stock,
and information regarding certain executive officers who are Directors
participating therein, see "Compensation Committee Interlocks and Insider
Participation". The following executive officers who are not Directors of
Continental participated in the Stock-for-Loan Exchange in the following
amounts: William T. Schleyer ($291,000), Jeffrey T. DeLorme ($155,000), Ronald
H. Cooper ($159,497) and Nancy Hawthorne ($274,464). In addition, William T.
Schleyer made a cash payment for the remaining $141,063 of his outstanding loan
incurred in connection with restricted stock purchases pursuant to RSPA III.
All of the share numbers listed above are before the Continental
Recapitalization Amendment and the Continental Stock Split.
BENEFICIAL OWNERSHIP OF CONTINENTAL CAPITAL STOCK AFTER THE MERGER
The following table provides information as of August 1, 1995 (giving effect
to the Merger, the Continental Recapitalization Amendment and the Continental
Stock Split), with respect to the shares of Continental Common Stock and
Continental Series A Preferred Stock beneficially owned by each person known by
Continental to own more than 5% of the outstanding Continental Common Stock or
Continental Series A Preferred Stock, each Director of Continental, each
Continental Named Executive Officer and by all Directors and executive officers
of Continental as a group. (For information relating to percentage beneficial
ownership prior to the Merger and certain defined terms used in the following
table, see "The Special Meetings--Ownership of Continental Securities".) 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 August 1, 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.
The amounts indicated in the columns listing Percentage of Outstanding Shares
of Continental Common Stock after the Merger and Percentage Voting Power are
calculated based on the number of shares of Continental Class A Common Stock
that will be issued to Providence Journal stockholders in the Merger if all
minority interests are purchased by Providence Journal prior to the Effective
Time. (See "The Merger--General Provisions--Share Exchange".)
208
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PERCENTAGE OF SHARES OF PERCENTAGE OF
NUMBER OF OUTSTANDING CONTINENTAL OUTSTANDING
SHARES OF SHARES OF SERIES A CONTINENTAL
CONTINENTAL CONTINENTAL PREFERRED SERIES A
COMMON STOCK(1) COMMON STOCK(2) SHARES OF PERCENTAGE
BENEFICIALLY STOCK AFTER BENEFICIALLY PREFERRED VOTING
NAME OWNED THE MERGER OWNED STOCK POWER
---- --------------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Amos B. Hostetter,
Jr.(3)................. 45,272,425 30.46% -- -- 31.95%
Timothy P. Neher(4)..... 1,671,725 1.12 -- -- 1.18%
Michael J. Ritter....... 589,900 * -- -- *
Roy F. Coppedge III(5).. 7,514,075 5.06 -- -- 5.01%
Jonathan H. Kagan(6).... 28,571,450 16.13 1,142,858 100.00 20.16%
Robert B. Luick(7)...... 229,575 * -- -- *
Henry F. McCance(8)..... 258,125 * -- -- *
Lester Pollack(6)....... 28,571,450 16.13 1,142,858 100.00 20.16%
Vincent J. Ryan(9)...... 5,719,825 3.85 -- -- 4.04%
William T. Schleyer..... 766,200 * -- -- *
Jeffrey T. Delorme...... 391,525 * -- -- *
Nancy Hawthorne......... 209,325 * -- -- *
Stephen Hamblett(6)..... 100,305 * -- -- *
Trygve E. Myhren(6)..... 990 * -- -- *
Directors and Executive
Officers as a Group (15
persons)(6)............ 91,474,720 51.63 1,142,858 100.00 64.20%
H. Irving Grousbeck(10). 10,033,000 6.75 -- -- 7.08%
Boston Ventures Company
Limited Partnership III
Boston Ventures
Limited
Partnership III(11).. 3,034,525 2.04 -- -- 2.14%
Boston Ventures
Limited
Partnership IIIA(11). 799,825 * -- -- *
Boston Ventures Company
Limited Partnership IV
Boston Ventures
Limited
Partnership IV(11)... 2,381,725 1.60 -- -- 1.40%
Boston Ventures
Limited
Partnership IVA(11).. 1,298,000 * -- -- *
---------- -----
Total as a group.... 7,514,075 5.05 -- -- 5.02%
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............. 18,223,825 10.76 728,953 63.78 12.83%
Mellon Bank, N.A. as
Trustee for First
Plaza Group
Trust(12)(13)........ 4,285,725 2.76 171,429 15.00 3.02%
The State Board of
Administration of
Florida(12).......... 1,902,100 1.24 76,084 6.66 1.34%
Vencap Holdings (1992)
Pte Ltd(12).......... 1,785,700 1.17 71,428 6.25 1.26%
Corporate Offshore
Partners, L.P.(12)... 1,302,675 * 52,107 4.56 *
ContCable Co-
Investors, L.P.(12).. 1,071,425 * 42,857 3.75 *
---------- ----- --------- ------ -----
Total as a group.... 28,571,450 15.90%(14) 1,142,858 100.00 20.12%
</TABLE>
--------
*Less than 1% of class.
209
<PAGE>
(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 26.52% of the Continental
Common Stock and approximately 2.73% of the voting power of the
Continental Common Stock, the Continental Class A Common Stock has not
been shown as a separate class of stock, but rather Continental Common
Stock has been treated as one class. Every greater than 5% beneficial
owner of Continental Class B Common Stock would be a greater than 5%
beneficial owner of Continental Class A Common Stock.
(2) Under the rules for determining beneficial ownership promulgated by the
Commission, each holder of Continental Series A Preferred Stock is deemed
to own currently that number of shares of Continental Common Stock into
which the Continental Series A Preferred Stock is convertible. The
Continental Series A Preferred Stock will be presently convertible into
Continental Common Stock on a 25-for-one basis as a result of the
Continental Recapitalization Amendment and the Continental Stock Split.
The table therefore shows the number of shares of Continental Series A
Preferred Stock owned by each holder in the column for the Continental
Series A Preferred Stock and includes that number of shares in the column
for Continental Common Stock into which the Continental Series A Preferred
Stock would be convertible taking into effect the Continental
Recapitalization Amendment and the Continental Stock Split.
(3) Mr. Hostetter has shared voting and investment power as to 42,843,550
shares of Continental Common Stock held by the Trust of which Messrs.
Hostetter and Neher are the sole trustees. Mr. Hostetter has shared voting
and investment power as to a further 446,400 shares of Continental Common
Stock; as to 223,200 of such shares, he disclaims beneficial ownership.
Additionally, Mr. Hostetter disclaims beneficial ownership of 550,000
shares of Continental Common Stock with respect to which his wife acts as
a trustee with Mr. Neher and 38,950 shares of Continental Common Stock
held by him as custodian for four minor children. The shares listed in the
table as being beneficially owned by Mr. Hostetter include those as to
which Mr. Hostetter has shared voting and/or investment power and those as
to which Mr. Hostetter disclaims beneficial ownership. Mr. Hostetter's
address is The Pilot House, Lewis Wharf, Boston, Massachusetts 02110.
(4) Mr. Neher has shared voting and investment power as to 550,000 shares of
Continental Common Stock with respect to which he acts as a trustee with
Mrs. Hostetter, and as to 42,843,550 shares of Continental Common Stock
with respect to which he acts as a trustee with Mr. Hostetter. Mr. Neher
disclaims beneficial ownership as to such shares, and the table does not
indicate such shares as being beneficially owned by Mr. Neher. (See
footnote (3) above.) Additionally, Mr. Neher disclaims beneficial
ownership as to 165,000 shares with respect to which he acts as trustee
and 55,000 shares held by his wife as custodian for their minor children,
which are included in the table as being beneficially owned by Mr. Neher.
(5) All the shares listed in the table as beneficially owned by Mr. Coppedge
are held by the four limited partnerships described in Footnote (11)
below. Mr. Coppedge, a partner of each of the general partners of the
limited partnerships and a Director of Boston Ventures Management, Inc.,
which manages the investments of the four limited partnerships, has shared
voting and investment power as to these shares. Mr. Coppedge is entitled
to beneficial ownership of an indeterminate number of these shares and
disclaims beneficial ownership as to the balance. Mr. Coppedge's address
is c/o Boston Ventures Management, Inc., 21 Custom House Street, Boston,
Massachusetts 02110.
(6) All shares listed in the table as being beneficially owned by Mr. Pollack
and Mr. Kagan are beneficially owned by Corporate Advisors. (See footnote
(12) below.) Mr. Pollack may be deemed to have shared voting and
investment power over such shares as the Chairman and Treasurer and as a
Director of LFCP Corp. and Mr. Kagan may be deemed to have shared voting
and investment power over such shares as the President of LFCP Corp. LFCP
Corp. is the sole general partner of Corporate Advisors and a wholly owned
subsidiary of Lazard. Mr. Pollack and Mr. Kagan are both Managing
Directors of Lazard. Mr. Pollack's and Mr. Kagan's address is c/o
Corporate Advisors, L.P., One Rockefeller Plaza, New York, New York 10020.
Mr. Pollack and Mr. Kagan disclaim beneficial ownership of all such
shares. The shares listed in the table as being owned by Mr. Hamblett and
Mr. Myhren are shares that will be issued to them in the Merger as
stockholders of Providence Journal and are not currently owned. For
purposes of beneficial ownership calculation, it was assumed that Messrs.
Hamblett and Myhren would receive only shares of Continental Class A
Common Stock in the Merger. Mr. Hamblett and Mr. Myhren are not presently
Directors of Continental but will be appointed upon the Closing.
210
<PAGE>
(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,800 shares owned by Mr. Luick's daughter and 37,500 shares
with respect to which she acts as trustee for Mr. Luick's grandchildren.
Mr. Luick disclaims beneficial ownership of these shares.
(8) The shares listed in the table as being beneficially owned by Mr. McCance
include 225,000 shares held by Greylock Limited Partnership, of which Mr.
McCance is a general partner. Mr. McCance has shared voting and
investment power as to these shares, is entitled to beneficial ownership
of an indeterminate number of these shares and disclaims beneficial
ownership as to the balance. Of the remaining shares, Mr. McCance
disclaims beneficial ownership as to 12,500 shares with respect to which
his wife acts as trustee for his daughter and 12,500 shares held by his
daughter.
(9) Mr. Ryan holds 136,250 shares of Continental Common Stock. The remaining
shares of Continental Common Stock listed in the table as being
beneficially owned by Mr. Ryan are held by Schooner Capital Corporation
(and its subsidiaries), over which Mr. Ryan has shared voting and
investment power as the Chairman and principal stockholder.
(10) All of these shares are subject to the Stock Liquidation Agreement
pursuant to which Mr. Grousbeck must sell such shares to Continental in
either 1998 or 1999. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Continental--Liquidity
and Capital Resources--Recent Stock Repurchases and 1998-1999 Share
Repurchase Program".) Mr. Grousbeck's address is Room 382, Graduate
School of Business, Stanford University, Stanford, California 94305.
(11) These four limited partnerships may be deemed to be a "group" of persons
acting together for the purpose of acquiring, holding, voting or
disposing of shares of Continental Common Stock. BV Co. III, as the sole
general partner of each of Boston Ventures Limited Partnership III and
Boston Ventures Limited Partnership IIIA, is deemed to be the beneficial
owner of the shares held by such limited partnerships and to have shared
voting and investment power with respect to such shares. BV Co. IV, as
the sole general partner of each of Boston Ventures Limited Partnership
IV and Boston Ventures Limited Partnership IVA, is deemed to be the
beneficial owner of the shares held by such limited partnerships and to
have shared voting and investment power with respect to such shares. BV
Co. III disclaims beneficial ownership of the shares beneficially owned
by BV Co. IV; and BV Co. IV disclaims beneficial ownership of the shares
beneficially owned by BV Co. III. Mr. Coppedge may be deemed to
beneficially own all such shares. (See footnote (5).)
(12) These stockholders may be deemed to be a "group" of persons acting
together for the purpose of acquiring, holding, voting or disposing of
shares of Continental Series A Preferred Stock. Corporate Advisors, as
the general partner of Corporate Partners and Corporate Offshore
Partners, has sole voting and investment power as to the shares held by
them. Corporate Advisors serves as investment manager over a certain
investment management account for SBA and has sole voting and dispositive
power with respect to the shares of Continental Series A Preferred Stock
held by SBA. Pursuant to the Co-Investment Agreement, Corporate Advisors
has sole voting and dispositive power with respect to the shares held by
Vencap and ContCable. The address of Corporate Advisors, Corporate
Partners, Corporate Offshore Partners, FPGT, SBA, ContCable and Vencap
is: c/o Corporate Advisors, L.P., One Rockefeller Plaza, New York, New
York 10020. (See footnote (6) above.)
(13) Mellon Bank, N.A. acts as the trustee for FPGT, a trust under and for the
benefit of certain employee benefit plans of General Motors Corporation
and its subsidiaries. The shares listed in the table may be deemed to be
beneficially owned by GMIMC, a wholly owned subsidiary of General Motors
Corporation. GMIMC's principal business is providing investment advice
and investment management services with respect to the assets of certain
employee benefit plans of General Motors Corporation and its subsidiaries
and with respect to the assets of certain direct and indirect
subsidiaries of General Motors Corporation and associated entities. GMIMC
is serving as FPGT's investment manager with respect to these shares and,
in that capacity, it has the sole power to direct Mellon Bank, N.A. as to
the voting and disposition of these shares. Because of its limited role
as trustee, Mellon Bank, N.A. disclaims beneficial ownership of these
shares. Pursuant to the Co-Investment Agreement, FPGT is obligated,
subject to its fiduciary duties under the Employee Retirement Income
Security Act of 1974, as amended, (i) to transfer shares held by it only
in a transaction in which the other parties to the Co-Investment
Agreement participate on a pro rata basis and (ii) to exercise all voting
and other rights with respect to such shares in the same manner as is
done by Corporate Advisors on behalf of Corporate Partners and Corporate
Offshore Partners.
(14) The percentage ownership for the group assumes the conversion of shares
of Continental Series A Preferred Stock into Continental Common Stock by
all members of the group. The percentage ownership for each individual
member of the group assumes conversion by only that stockholder.
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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 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. As
of August 1, 1995, there were outstanding 8,685,900 shares of Continental Class
A Common Stock and 109,196,050 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. 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 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), 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".
Under the Continental Restated Certificate, the vote of holders of at least
66 2/3% of the total votes of all Continental Voting 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 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). In addition to voting together with all other
shares of Continental Voting Stock and in addition to any special rights that
the Continental Series A Preferred Stock has as a series the Continental
Preferred Stock has, under Delaware Law, a separate majority class vote with
respect to any amendment to the Continental Restated Certificate to increase or
decrease the authorized shares of Continental Preferred Stock, increase or
decrease the par value of the shares of such class or alter or change the
powers, preferences or special rights of such class so as to adversely affect
it. Certain other provisions also require a 66 2/3% vote. (See "DGCL and
Certain Provisions of the Continental Restated Certificate and the Continental
By-Laws".) There are no cumulative voting rights in the election of the
Continental Board of Directors.
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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 such shares into shares
of Continental Class A Common Stock, effective on the date of such purported
transfer. 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. "Permitted Class B Transferees"
of a Class B Holder are 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.
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UNISSUED CONTINENTAL PREFERRED STOCK
The 198,857,142 shares of authorized and unissued Continental Preferred Stock
(after giving effect to the Continental Recapitalization Amendment may be
issued with such designations, powers, preferences and other rights and
qualifications, limitations and restrictions thereon as the Continental Board
of Directors may authorize without further action by Continental's
stockholders, including but not limited to: (i) the designation of each series
and the number of shares that will constitute such series; (ii) the voting
rights, if any, of shares of such series; (iii) the dividend rate on the shares
of such series; restrictions, limitations or conditions upon the payment of
such dividends; and whether dividends shall be cumulative and the dates on
which dividends are payable; (iv) the prices at which, and the terms and
conditions on which, the shares of such series may be redeemed, if such shares
are redeemable; (v) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series; (vi) any preferential amount
payable upon shares of such series in the event of the liquidation, dissolution
or winding up of Continental or the distribution of its assets; and (vii) the
prices or rates of conversion at which, and the terms and conditions on which,
the shares of such series may be converted into other securities, if such
shares are convertible. The rights of holders of shares of Continental Common
Stock as described above will be subject to, and may be adversely affected by,
the rights of holders of any Continental Preferred Stock that may be issued in
the future. The issuance of Continental Preferred Stock may also have the
effect of delaying, deferring or preventing a change of control of Continental
or other corporate action.
CONTINENTAL SERIES A PREFERRED STOCK
The terms of the Continental Series A Preferred Stock are set forth in a
Certificate of Designation that constitutes part of the Continental Restated
Certificate (the "Series A Certificate of Designation"). All of the 1,142,858
shares of Continental Preferred Stock that have been designated Continental
Series A Preferred Stock were issued in a private placement that closed on June
22, 1992 for a purchase price per share of $350 pursuant to a Stock Purchase
Agreement by and between Continental and the Continental Preferred Stock
Investors (the "Preferred Stock Purchase Agreement") and are still held by the
Continental Preferred Stock Investors.
DIVIDENDS. The Continental Series A Preferred Stock participates in all
dividends (other than dividends payable in shares of Continental Common Stock)
declared by the Continental Board of Directors on the Continental Common Stock
as if such shares had been converted into shares of Continental Common Stock.
The holders of Continental Series A Preferred Stock are entitled to receive
payment of any dividend declared, (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. The shares of Continental Series A Preferred Stock are
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 Continental Preferred Stock Investor or its Allowed Transferees
(as defined in "Conversion" below) continues to hold its shares and to meet
certain other requirements, each share of Continental Series A Preferred Stock
will be entitled to 250 votes per share. (See "Conversion" below.) If shares of
Continental Series A Preferred Stock are transferred to persons other than
Allowed Transferees, or if, under certain circumstances, Corporate Advisors
ceases to have voting and dispositive power over such shares, such shares will
be entitled to only 25 votes per share and will be convertible at any time only
into Continental Class A Common Stock. (See "Conversion" below.)
The Continental Series A Preferred Stock has separate voting rights as a
series with respect to certain matters. The affirmative vote of 66 2/3% of the
Continental Series A Preferred Stock is necessary (A) to
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increase the authorized number of or issue any additional shares of Continental
Series A Preferred Stock, (B) to change by amendment to the Continental
Restated Certificate the aggregate authorized number or par value of the
Continental Series A Preferred Stock or the powers, preferences or special
rights of the Continental Series A Preferred Stock so as to affect the
Continental Series A Preferred Stock adversely, or (C) to purchase any
Continental Series A Preferred Stock when dividends on the Continental Series A
Preferred Stock are in arrears or there is a redemption default.
The Continental Series A Preferred Stock also has separate class voting
rights under Delaware Law as to (i) an increase or decrease in authorized
shares of Continental Preferred Stock, (ii) an increase or decrease in the par
value of shares of Continental Preferred Stock and (iii) an alteration or
change in the powers, preferences or special rights of Continental Preferred
Stock that would have an adverse effect on such class.
BOARD REPRESENTATION. Corporate Advisors, on behalf of the Continental
Preferred Stock Investors has the right to designate two persons to be
nominated to serve on Continental's Board of Directors. (See "Description of
Continental--Directors, Executive Officers and Other Officers of Continental".)
Mr. Hostetter has contractually agreed to vote all shares of Continental Common
Stock owned by him in favor of such nominees. The number of Directors Corporate
Advisors is entitled to designate for election is reduced to one if the
Continental Preferred Stock Investors do not beneficially own at least a 10
percent economic ownership interest in Continental's then outstanding voting
stock and to zero if the Continental Preferred Stock Investors' economic
ownership interest is less than 5 percent of Continental's then outstanding
voting securities (unless such reduction is caused by Continental's issuance of
additional voting stock).
In addition, holders of Continental Series A Preferred Stock have the right
(voting separately as a class or as a class with the holders of any other
capital stock of Continental ranking on parity, either as to dividends or upon
liquidation, dissolution or winding up with the Continental Series A Preferred
Stock if such holders are then entitled to elect additional Directors pursuant
to any similar provision of the Certificate of Designation for such stock) to
elect two additional Directors to the Continental Board of Directors
("Directors Upon Default") in the event of (a) a breach by Continental of the
Preferred Stock Purchase Agreement or (b) a failure to declare or pay dividends
or distributions on the Continental Series A Preferred Stock in accordance with
"Dividends" above or to redeem shares of Continental Series A Preferred Stock
when required. Upon such election, if the Continental Preferred Stock Investors
have two designees already serving on the Continental Board of Directors one
such designee must resign. Such right to designate two Directors Upon Default
continues until such time as Continental has cured the default, at which time
such Directors Upon Default must resign. Upon such resignation, the Continental
Preferred Stock Investors are entitled to designate an additional Director to
the extent they are entitled otherwise then to nominate two representatives to
the Continental Board of Directors.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
Continental, holders of shares of Continental Series A Preferred Stock are
entitled to receive an amount per share equal to the greater of (i) the
Accreted Value (as defined in "Redemption Rights" below) determined as of the
date of such liquidation, dissolution or winding up and (ii) the aggregate
amount that would be distributable to holders of Continental Common Stock in
respect of the number of shares of Continental Common Stock into which a share
of Continental Series A Preferred Stock is then convertible, plus, in either
case, unpaid dividends, if any, that have been declared and are payable on the
Continental Series A Preferred Stock.
REDEMPTION RIGHTS. On June 22, 2002, any holder of the Continental Series A
Preferred Stock has the right to cause Continental to redeem its Continental
Series A Preferred Stock at a price per share (the "Series A Redemption Price")
equal to $350 plus an amount calculated to provide such holder with a yield of
8% thereon from June 22, 1992, compounded semi-annually in arrears, as adjusted
to reflect any cash dividends paid on the Continental Series A Preferred Stock
(the "Accreted Value"). Continental has the right to redeem all (but not less
than all) of the Continental Series A Preferred Stock at the Series A
Redemption Price by
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notifying the holders of the Continental Series A Preferred Stock of such
election not more than 30 or less than 20 trading days prior to June 22, 2002.
Continental may elect to pay all or any portion of the Series A Redemption
Price (other than unpaid dividends) in cash or in shares of Continental Common
Stock based on the then current market value (determined in accordance with the
provisions set forth in the Continental Restated Certificate) of the
Continental Common Stock. If Continental does not exercise its redemption
rights prior to June 22, 2002, Continental will have the right on such date to
redeem all (but not less than all) of the Continental Series A Preferred Stock
not put to Continental by the holders thereof on June 22, 2002, at a price per
share equal to the Accreted Value up to and including the date of redemption,
which may be paid at Continental's election, in cash or in shares of
Continental Common Stock or any combination thereof.
At any time after June 22, 1997, provided that the current market value
(determined in accordance with the provisions set forth in the Continental
Restated Certificate) of the number of shares of Continental Common Stock into
which a share of Continental Series A Preferred Stock is then convertible
exceeds 137.5% of the then Accreted Value (as of the date notice of conversion
is given), Continental may cause all (but not less than all) of the outstanding
shares of Continental Series A Preferred Stock to be converted into Continental
Common Stock.
CONVERSION. Giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split, each share of Continental Series A Preferred Stock
is currently convertible at the option of the holder at any time into 25 shares
of Continental Common Stock. If the holder is one of the Continental Preferred
Stock Investors (i.e. one of the original purchasers) or an Allowed Transferee
of a Continental 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, each share of Continental Series A Preferred Stock will thereafter be
convertible into the kind and amount of securities and property (including
cash) receivable upon such event by a holder of that number of shares of
Continental Common Stock into which such share of Continental Series A
Preferred Stock was convertible immediately prior to such event.
CHANGE OF CONTROL. If a Change of Control (as defined below) of Continental
occurs and at such time the current market value of the number of shares of
Continental Common Stock into which the Continental Series A Preferred Stock is
then convertible is less than the then Accreted Value of the Continental Series
A Preferred Stock, the holders of Continental Series A Preferred Stock have the
right to require Continental to redeem the Continental Series A Preferred Stock
at a per share price equal to the then Series A Redemption Price.
Continental may elect to redeem the Continental Series A Preferred Stock by
paying the Series A Redemption Price in cash or Continental Common Stock which,
for purposes of determining the number of shares to be issued, will be valued
at 90% of its then current market value (as determined in accordance with
provisions set forth in the Continental Restated Certificate).
"Change of Control" means: (a) the acquisition by any individual, entity or
group of 50% or more of the combined voting or economic power of the then
outstanding Continental voting securities, but excluding, for this purpose, any
such acquisition by (i) Continental or any of its subsidiaries or (ii) any
corporation with respect to which, following such acquisition, more than 50% of
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of Directors is then
beneficially owned, directly or indirectly, by individuals and entities who
were the beneficial owners of
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Continental voting securities in substantially the same proportion as their
ownership, immediately prior to such acquisition; or (b) approval by the
stockholders of Continental of a reorganization, merger or consolidation, in
each case, with respect to which all or substantially all the individuals and
entities who were the respective beneficial owners of the voting securities of
Continental immediately prior to such reorganization, merger or consolidation
do not, following such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50% of the combined voting or economic
power of the then outstanding Continental voting securities of the combined
corporation; or (c) the sale or other disposition of all or substantially all
the assets of Continental in one transaction or series of related transactions.
RESTRICTIONS ON CONTINENTAL. If (a) Continental breaches its obligations
under the Preferred Stock Purchase Agreement, (b) any dividends or
distributions payable on the Continental Series A Preferred Stock have not been
declared or paid or (c) shares of Continental Series A Preferred Stock have not
been redeemed as required, neither Continental nor any of its affiliates,
subject to certain exceptions, can (i) declare or pay dividends or make any
distribution on any capital stock ranking junior to (including the Continental
Common Stock) or on a parity with the Continental Series A Preferred Stock,
(ii) redeem or otherwise acquire any capital stock ranking junior to or on a
parity with the Continental Series A Preferred Stock or make any sinking fund
or similar payment thereon or (iii) make any loan or advance to any stockholder
of Continental or any affiliates or associates thereof.
RANKING WITH OTHER PREFERRED STOCK. Continental may not issue a series or
class of convertible Continental Preferred Stock that ranks prior to the
Continental Series A Preferred Stock with respect to dividends, liquidation
preference, or rights upon dissolution and winding up.
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 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 with a classified board may be removed by the stockholders only for
cause, at any time during his term of office by affirmative vote of the holders
of a majority of the shares then entitled to vote at an election of Directors.
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The Continental By-Laws and the Continental Restated Certificate both provide
that a vacancy on the Continental Board, including a vacancy created by an
increase in the size of the Continental Board by the Directors, may be filled
by a majority of the remaining Directors or by a sole remaining Director, and
if no Directors remain, then by the stockholders. The Continental Restated
Certificate also provides that any Director elected by the Continental Board to
replace another Director of a given class of Directors will hold office until
the next election of such class of Directors. These provisions are to ensure
that a third-party would be precluded from removing incumbent Directors and
simultaneously gaining control of the Continental Board by filling the
vacancies created by such removal with its own nominees. Moreover, even if a
majority of the holders of the outstanding Continental voting securities were
to vote to remove Directors for cause, only the remaining Directors would have
the power to fill the vacancies created by such removal, unless such vote
provided for the removal of the entire Continental Board of Directors for
cause.
AMENDMENT OF CERTAIN PROVISIONS OF THE CONTINENTAL RESTATED CERTIFICATE AND
THE CONTINENTAL BY-LAWS. The Continental Restated Certificate and the
Continental By-Laws contain provisions requiring the affirmative vote of the
holders of at least 66 2/3% of the Continental voting securities, 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. 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 ensure 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.
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Each certificate representing shares of Continental Preferred Stock,
Continental Class A Common Stock and Continental Class B Common Stock must bear
a legend indicating that the shares are subject to these restrictions on their
transfer and these redemption rights.
ANTI-TAKEOVER STATUTE. Subject to certain exceptions set forth therein,
Section 203 of the DGCL provides that a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (a) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder, (b) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (c) on or subsequent to such date, the business combination
is approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as specified therein, an interested
stockholder is defined to mean any person that (i) is the owner of 15% or more
of the outstanding voting stock of the corporation, or (ii) is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, or any affiliate or associate 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 Class B Common 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
39,411,107 shares of Continental Class A Common Stock, 109,196,050 shares of
Continental Class B Common Stock and 1,142,858 shares of Continental Series A
Preferred Stock outstanding.
Of these shares, the 30,725,207 shares of Continental Class A Common Stock
(otherwise referred to as the Continental Merger Stock) registered and sold to
the Providence Journal stockholders pursuant to the Continental Registration
Statement, after the expiration of the Transfer Restrictions 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. 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 approximately 143,397,450
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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, approximately 44,746,525 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, approximately
94,499,900 shares would be eligible for sale, subject to compliance with volume
and other limitations under Rule 144. The remaining shares of currently
outstanding Continental Class A Common Stock or shares of Continental Class A
Common Stock issuable upon currently outstanding convertible securities would
become eligible for sale at various times thereafter.
RULE 144 AND 145 RESTRICTIONS
Restricted securities may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including Rule 144. In general, under Rule 144 as currently in
effect, beginning 90 days after the Registration Effective Date, a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Continental Common Stock or shares of Continental Series A Preferred
Stock (which is convertible into shares of Continental Common Stock) that have
been outstanding and not held by any "affiliate" of Continental for a period of
at least two years is entitled to sell within any three-month period a number
of shares that does not exceed the greater of (a) one percent of the then
outstanding shares of the Continental Class A Common Stock (approximately
394,111 shares, based on the number of shares of Continental Common Stock that
will be outstanding after the Merger), or (b) the average weekly reported
trading volume of the Continental Class A Common Stock during the four calendar
weeks preceding the date on which notice of such sale is given, subject to
certain manner of sale provisions, notice requirements and the availability of
current public information (which requirement as to the availability of current
public information is expected to be satisfied commencing 90 days after the
date of this Joint Proxy Statement-Prospectus). As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through the
use of one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.
Affiliates of Continental are also subject to the restrictions and
requirements of Rule 144 with respect to restricted securities of Continental
beneficially owned by them. In addition, sales by affiliates of Continental of
shares of Continental Common Stock that are not "restricted securities" (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 issued and sold pursuant to
the Continental Registration Statement in connection with the Merger are
registered securities, and thus not restricted securities. However, such shares
are subject to the Transfer Restrictions pursuant to the Continental By-Laws
for a period of one year after the Effective Time. Thereafter, non-affiliates
of Providence Journal will be able to freely sell the Continental Merger Stock
after the Merger in the public market.
Persons who are currently affiliates of Providence Journal and who are not
affiliates of Continental, for two years after the Effective Time (subject to
the Transfer Restrictions in the first year), may only sell the Continental
Merger Stock subject 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
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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 (in addition to being subject to
the Transfer Restrictions) subject to the same Rule 144 requirements as an
affiliate of Continental with respect to non-restricted shares, except that no
notification of sale is required to be filed with respect to such shares. (See
"Description of Continental--Directors, Executive Officers and Other Officers
of Continental" for a description of the rights of Providence Journal to
appoint two persons to serve on the Board of Directors of Continental.)
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
an exemption from the registration requirements of the Securities Act for the
resale of shares originally purchased from an issuer by its employees,
directors, officers, consultants or advisers pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons
before such issuer becomes subject to the reporting requirements of the
Exchange Act. Securities issued in reliance on Rule 701 are "restricted";
however, beginning 90 days after the Registration Effective Date, such shares
may be sold (i) by persons other than affiliates of Continental subject only to
the manner of sale provisions of Rule 144 and (ii) by affiliates of Continental
under Rule 144 without compliance with its two-year minimum holding period
requirements, but subject to all other requirements of Rule 144.
In January 1995, Continental issued 2,393,750 shares of Continental Class B
Common Stock to certain of its officers and employees pursuant to its 1995
Restricted Stock Purchase Program V, including 832,500 shares to persons deemed
to be affiliates of Continental and 1,561,250 shares to non-affiliates of
Continental. Such shares are subject to vesting over a period of seven years at
6-month intervals, beginning on June 30, 1995. The vesting is not straight-line
and commences slowly, peaks in the middle years of the vesting schedule and
then slows again at the end of the vesting schedule. These shares of
Continental Class B Common Stock are convertible into shares of Continental
Class A Common Stock and may be sold in reliance on Rule 701 once they vest.
OUTSTANDING REGISTRATION RIGHTS
Certain persons and entities (the "Continental Rightsholders") are entitled
to certain rights with respect to the registration under the Securities Act of
a total of 1,760,499 shares of Continental Common Stock (which is equivalent to
44,012,475 shares of Continental Common Stock after giving effect to the
Continental Recapitalization Amendment and the Continental Stock Split and
assuming conversion of the Continental Series A Preferred Stock into
Continental Common Stock) (the "Registrable Shares") under the terms of
agreements among Continental and the Continental Rightsholders (the
"Registration Agreements"). The Continental Preferred Stock Investors have the
right to request that Continental register the 1,142,858 shares of Continental
Series A Preferred Stock outstanding or the Continental Common Stock into which
the Continental Series A Preferred Stock is convertible upon five occasions,
with Continental paying certain 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
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include Registrable Shares in such registration, unless the managing
underwriters of such offering recommended excluding for marketing reasons some
or all of such Registrable Shares from such registration.
In addition to the rights of the Continental Rightsholders described above,
MD Co. has the right to demand registration of the shares of Continental Class
A Common Stock into which the 148,366 shares (which is equivalent to 3,709,150
shares after giving effect to the Continental Recapitalization Amendment and
the Continental Stock Split) of Continental Class B Common Stock held by it are
convertible; however, such rights do not continue after an initial public
offering of Continental Class A Common Stock and, therefore would not exist
after the consummation of the Merger. MD Co. does have rights which survive the
Merger to participate, in certain circumstances, in registrations; however, its
rights are junior in priority to those of the Continental Preferred Stock
Investors, the Boston Ventures Investors and the other investors who purchased
shares of Continental Class B Common Stock in a private placement. Continental
is required to use its best efforts to effect such registrations, subject to
certain conditions and limitations.
Prior to the Effective Time, there will be no public market for the
Continental Class A Common Stock and no predictions can be made as to the
effect, if any, that market sales of shares or the availability of shares for
sale will have on the market price for the Continental Class A Common Stock
prevailing from time to time. Sales of substantial amounts of Continental Class
A Common Stock in the public market could adversely affect prevailing market
prices.
DESCRIPTION OF CONTINENTAL INDEBTEDNESS
The following is a summary description of the various material credit
arrangements which Continental has entered into with its lenders or, in the
case of the 1995 Credit Facility, which it has arranged on behalf of certain of
its subsidiaries. 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 but excluding the 1995 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. Upon
consummation of the Merger, the PJC Cable Subsidiaries initially will not be
designated as Restricted Subsidiaries for purposes of the 1994 Credit Facility
or the Prudential Notes.
"Unrestricted Subsidiaries" are subsidiaries that have not been so designated
as Restricted Subsidiaries. Continental's credit agreements give Continental
the ability to terminate the designation of a Restricted Subsidiary under
certain circumstances. The borrowers and guarantors under the 1995 Credit
Facility will be Unrestricted Subsidiaries for purposes of the 1994 Credit
Facility, the Prudential Notes and the Notes and Debentures described herein.
1994 CREDIT FACILITY. Continental and its Restricted Subsidiaries (the
"Restricted Group") are parties to the 1994 Credit Facility with various
financial institutions (the "Credit Agreement Lenders"), which provides for
revolving credit availability to Continental of $2,200,000,000. Credit
availability under the 1994 Credit Facility will decrease on a schedule
commencing December 31, 1997 with annual reductions on each
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December 31 thereafter, with a final maturity of October 10, 2003. As of June
30, 1995, Continental had credit availability of $536,260,000 under the 1994
Credit Facility. Continental's obligations under the 1994 Credit Facility are
guaranteed by substantially all of the Restricted Subsidiaries.
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 (ii) the margin
(or "spread") over such reference rate. The reference rate is, subject to
certain exceptions, based on the "base" rate of the agent, as from time to time
in effect, or may be fixed for periods of up to 60 months for each fixing by
reference to interest rates prevailing at the date of fixing in selected
interbank Eurodollar markets ("Eurodollar" rates). The "spread" over the
reference rate is determined by the ratio of the consolidated total debt of the
Restricted Group, minus cash and certain cash equivalents held by the
Restricted Group ("Consolidated Total Debt"), to annualized consolidated
operating income, including income on account of management fees, before
depreciation, amortization, non-cash regulatory reserves and non-operating
expenses, interest and income taxes of the Restricted Group ("Consolidated
Operating Income"). The margins currently in effect are .25% for base rate
borrowings and 1.5% for Eurodollar borrowings.
In accordance with the 1994 Credit Facility, Continental is required to
maintain a minimum of 50% of its debt at fixed interest rates when the ratio of
total debt to EBITDA exceeds certain levels. As of June 30, 1995, Continental's
ratio of fixed interest rate debt (which factors in Swaps, Caps and debt fixed
by its terms) to total debt was approximately 56%. 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 shorter. As of June 30, 1995 Continental had Swaps, pursuant
to which it pays fixed interest rates averaging approximately 9.0% on notional
amounts of $900,000,000 (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 6.0%. As of June 30, 1995, Continental had $800,000,000 of Caps,
which limit 6-month LIBOR to approximately 8%. Continental amortizes the cost
of a Cap over the life of the Cap agreement as an adjustment to interest
expense. Continental's exposure, if the other parties fail to perform under
both Swaps and Caps, would be limited to the impact of variable interest rate
fluctuations and the periodic settlement of amounts due under these agreements.
Prepayments of outstanding borrowings under the 1994 Credit Facility are
required in certain circumstances out of a portion of the proceeds of certain
sales of Restricted Group assets.
In addition to customary financial covenants, covenants restricting the
incurrence of debt, investments and encumbrances on assets, and covenants
limiting mergers and acquisitions, the 1994 Credit Facility provides that (i)
the Restricted Group may not purchase or redeem, or pay cash dividends on,
capital stock of Continental and (ii) a Restricted Subsidiary may not pay cash
dividends on its capital stock (other than dividends paid to Continental or
another Restricted Subsidiary) 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 $610,222,000 was available as of
June 30, 1995 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,
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cash or certain operating assets having an aggregate value (after deducting
certain underwriting discounts and expenses) of at least $100,000,000.
In addition to customary events of default it is an event of default under
the 1994 Credit Facility if Amos B. Hostetter, Jr., certain of his permitted
transferees and the other officers of Continental and its subsidiaries
(collectively, the "Management Group") fail to own at least 25% of the voting
power of Continental's capital stock; provided that such percentage may fall
below 25% after an offering and sale of capital stock of Continental so long as
the Management Group maintains a block of voting power larger than any block of
voting power held by any other person, together with such person's affiliates
and any members of a group with such person. After giving effect to the
issuance of Continental Class A Common Stock pursuant to the Merger,
Continental anticipates that the Management Group will hold greater than 25% of
the voting power of Continental's capital stock.
INDENTURES FOR NOTES AND DEBENTURES. Continental is currently party to
indentures for the following debt securities (collectively, the "Notes and
Debentures"):
(i) $300,000,000 of 9% Debentures due September 1, 2008; $100,000,000 of
8 5/8% Notes due August 15, 2003; $200,000,000 of 8 1/2% Notes due
September 15, 2001; and $275,000,000 of 8 7/8% Debentures due September 15,
2005 (collectively, the "Non-Callable Notes and Debentures"); and
(ii) the Prudential Notes; $300,000,000 of 11% Debentures due June 1,
2007; $100,000,000 of 10 5/8% Notes due June 15, 2002; $525,000,000 of 9
1/2% Debentures due August 1, 2013 and $100,000,000 of floating rate
Debentures (the "Floating Rate Debentures") which currently bear interest
at a rate per annum equal to three-month LIBOR, adjusted quarterly, plus
300 basis points (collectively, the "Callable Notes and Debentures").
The Non-Callable Notes and Debentures are not redeemable at the option of
Continental prior to their maturity. At any time after June 1, 1999 for the 11%
Debentures, June 15, 1997 for the 10 5/8% Notes, and August 1, 2005 for the 9
1/2% Debentures, Continental may prepay all or any part of each such class of
securities at a premium (which differs for each class and which decreases on an
annual basis after the date on which a particular class becomes callable). The
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 August 1, 1995, $125,750,000 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. Continental anticipates that Mr.
Hostetter and such permitted transferees will continue to hold greater than 30%
of the Continental Common Stock after giving effect to the issuance of
Continental Class A Common Stock pursuant to the Merger. Upon a
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Change of Control Event, each holder of the Floating Rate Debentures has the
right to tender all, but not less than all, of such holder's Floating Rate
Debentures to Continental for redemption at the principal amount thereof, plus
(i) accrued interest and (ii) certain other amounts relating to breakage costs
and certain taxes. Continental is required to give notice of the Change of
Control Event and the right of the holders to have their Floating Rate
Debentures redeemed within 10 days of the occurrence thereof by publishing a
notice in certain specified newspapers to that effect, which notice must
include the date on which payment will be made by Continental in respect of all
Floating Rate Debentures tendered for redemption (which must be at least 31 and
no more than 60 days after the date of Continental's notice). Any holder of
Floating Rate Debentures who elects to have its Floating Rate Debentures
redeemed as a result of the Change of Control Event must give notice to such
effect to Continental within 30 days after Continental's notice.
The indentures for the Notes and Debentures contain customary financial and
other covenants, as well as a restriction against the redemption or repurchase
of, or the payment of cash dividends on, the capital stock of Continental
similar to those contained in the 1994 Credit Facility, as described above.
1995 CREDIT FACILITY. Continental recently arranged the 1995 Credit Facility
on behalf of certain of its subsidiaries. The 1995 Credit Facility will provide
such subsidiaries, which will include Colony after the Effective Time
(collectively, the "Borrowers"), with maximum credit availability of
$1,200,000,000. The following discussion summarizes certain material terms of
the 1995 Credit Facility, which generally contains terms and conditions similar
to those contained in the 1994 Credit Facility. Neither Continental nor any
other member of the Restricted Group has any obligations in respect of the 1995
Credit Facility.
Proceeds of advances under the 1995 Credit Facility will be used to fund (1)
the $410,000,000 of the New Cable Indebtedness to be incurred by Providence
Journal prior to the PJC Spin-Off as described below (see "Pre-Merger
Transactions--New Indebtedness"), (2) the King Cable Purchase for $405,000,000
(See "Pre-Merger Transactions--King Cable Purchase"), (3) approximately
$245,000,000 of cable system acquisitions in Michigan (see "Description of
Continental--Domestic Acquisitions and Investments"), and (4) general corporate
purposes of the Borrowers and their subsidiaries (collectively, the "New
Borrowing Group"), which will include capital expenditures of the PJC Cable
Business after the Effective Time and of the Michigan cable systems after they
are acquired. Each Borrower guarantees each other Borrower's obligations under
the 1995 Credit Facility, and all wholly owned subsidiaries of the Borrowers
also guarantee such obligations. Immediately prior to the Closing, a subsidiary
of Continental organized for purposes of borrowing funds under the 1995 Credit
Facility in connection with the Merger will borrow approximately $815,000,000
under the 1995 Credit Facility, will immediately use $405,000,000 of such funds
for the King Cable Purchase and will immediately lend the balance of such funds
to Providence Journal and/or one of the PJC Cable Subsidiaries to satisfy
certain liabilities in connection with the Merger elsewhere referred to as the
New Cable Indebtedness. After consummation of the Merger, Colony will become a
Borrower under the 1995 Credit Facility.
There will be no credit availability under the 1995 Credit Facility until the
initial borrowing immediately prior to the Merger, at which time $910,000,000
will become available to the Borrowers (of which $815,000,000 will be borrowed
as described above). An additional $290,000,000 will become available in
connection with the consummation of the two Michigan cable system acquisitions.
(See "Description of Continental-Domestic Acquisitions and Investments".)
Borrowings under the 1995 Credit Facility will be available to the Borrowers on
a revolving basis. Credit availability will decrease on a schedule commencing
December 31, 1998 with annual reductions each December 31 thereafter, and a
final maturity of September 30, 2004.
As with the 1994 Credit Facility, the 1995 Credit Facility permits the
Borrowers to elect interest rates from time to time, as to all or a portion of
the borrowings made thereunder, which rates are composed of the reference rate
and the "spread" over such reference rate. The reference rate is, subject to
certain exceptions, based on the "base" rate of the agent, as from time to time
in effect, or may be fixed for periods of up to 60 months for each fixing by
reference to Eurodollar rates. The "spread" over the reference rate is
determined by the ratio of the combined total debt of the New Borrowing Group,
minus cash and certain cash equivalents
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of the New Borrowing Group ("Combined Total Debt"), to annualized combined
operating income of the New Borrowing Group, before depreciation, amortization,
non-cash regulatory reserves and non-operating expenses, interest and income
taxes of the New Borrowing Group ("Combined Operating Income").
As with the 1994 Credit Facility, the Borrowers are required to maintain a
minimum of 50% of Combined Total Debt at fixed interest rates when the ratio of
Combined Total Debt to Combined Operating Income exceeds certain levels. The
Borrowers will use interest rate protection products consistent with
Continental's existing policy to hedge their interest rate risk and to comply
with such covenant.
In addition to customary financial covenants similar to those found in the
1994 Credit Facility, the 1995 Credit Facility prohibits the New Borrowing
Group from purchasing or redeeming, or paying cash dividends on, its capital
stock (other than the purchase of minority interests in any member of the New
Borrowing Group and dividends paid to another member of the New Borrowing
Group) when the ratio of Combined Total Debt to Combined Operating Income
exceeds 5.0 to 1. The 1995 Credit Facility does not impose any restrictions
(other than that no default exists) on any such dividend, purchase or
redemption at any time when the ratio of Combined Total Debt to Combined
Operating Income is less than 5.0 to 1; provided, however, that the Borrowers
are required to permanently reduce the 1995 Credit Facility in an amount equal
to the amount of any cash dividends paid (other than a dividend to be paid by
Colony to Continental in connection with one of the Michigan cable system
acquisitions) or stock repurchases or redemptions made by the Borrowers.
Prepayments of outstanding borrowings under the 1995 Credit Facility are
required out of a portion of the proceeds of certain sales of New Borrowing
Group assets and of certain additional indebtedness.
In addition to customary events of default, it is an event of default under
the 1995 Credit Facility (1) if Continental fails to own directly or indirectly
at least 80% of the combined voting power of the Borrowers and (2) if the
Management Group fails to own at least 25% of the voting power of Continental's
capital stock; provided that such percentage may fall below 25% 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.
The initial closing under the 1995 Credit Facility, at which time the first
$910,000,000 of funds will become available to the Borrowers, will be subject
to usual and customary conditions for credit facilities of such size. In
addition, such closing will be conditioned upon a contemporaneous closing of
the Merger.
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 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, 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 on the other. The following does not purport to be a complete
description of the differences between the rights of Continental and Providence
Journal stockholders. Such differences may be determined in full by reference
to the RIBCA, the DGCL, the Continental Restated Certificate, the Providence
Journal Charter, the respective Continental and Providence Journal By-Laws and
the Rights Agreement.
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RIGHTS TO PURCHASE OR REDEEM SHARES
PROVIDENCE JOURNAL. The Providence Journal Charter contains a provision
granting Providence Journal the right to purchase any shares offered by the
holder of such shares for sale to a third party at the lowest price at which
the holder is willing to sell such shares.
CONTINENTAL. The Continental Restated Certificate does not contain a similar
provision granting a right of first refusal with respect to third party
purchases of shares of its capital stock. However the Continental Restated
Certificate includes provisions designed to ensure that the ownership or
purchase of shares of Continental's capital stock will not result in a
violation of laws or regulations. Specifically, Continental may redeem shares
to the extent necessary to prevent the loss or secure the reinstatement of any
license or franchise from any governmental authority at a price equal to the
lesser of (a) fair market value or (b) if the shares were purchased within one
year of the redemption date, the price paid for such shares.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS
Both the RIBCA and the DGCL generally require approval of a merger,
consolidation, dissolution or sale of all or substantially all of a
corporation's assets by the affirmative vote of the holders of a majority of
the outstanding shares of stock of the corporation entitled to vote thereon. In
certain instances, a charter may require super-majority stockholder approval of
a transaction if it is a "Business Combination" as described below. In
addition, under Rhode Island Law, if any class of stock is entitled to vote
separately, approval of the plan of merger or consolidation, dissolution or
sale of all or substantially all assets also requires the affirmative vote of
the holders of a majority of the shares of each class of stock entitled to vote
as a class thereon. The DGCL, absent a charter provision to the contrary, does
not require such a class vote.
PROVIDENCE JOURNAL. Rhode Island Law provides that, unless the corporate
charter provides otherwise, the vote of the stockholders of a surviving
corporation is not required to approve a merger if (a) the plan of merger does
not amend the corporation's charter and (b) the number of shares of common
stock to be issued or transferred in the merger, plus the number of shares of
common stock into which any other securities to be issued in the merger are
convertible within one year, does not exceed one-third of the total combined
voting power of all classes of stock then entitled to vote for the election of
directors which would be outstanding immediately after the merger.
The Providence Journal Charter provides that with regard to: (a) the sale,
lease, exchange, transfer, or other disposition by Providence Journal or any of
its subsidiaries of all or substantially all of its assets to or with any
person participating in the Business Combination, as defined in the Business
Combination Act of 1990 (Section 7-5.2-1 et seq.); (b) any merger or
consolidation of Providence Journal or any of its subsidiaries into or with a
corporation, irrespective of which corporation is the surviving corporation in
such merger or consolidation; or (c) any reclassification of securities,
recapitalization, or other transaction which has the effect, directly or
indirectly, of any partial or complete liquidation or spin-off of Providence
Journal (each of clauses (a) through (c) is hereinafter referred to as a
"Providence Journal Business Combination"), such Providence Journal Business
Combination must either (x) receive the approval by affirmative vote of not
less than two-thirds of the whole Board of Directors of Providence Journal plus
any affirmative vote of stockholders required under Rhode Island Law; or (y)
receive the prior approval of 80% or more of the outstanding capital stock of
Providence Journal entitled to vote thereon and must satisfy certain enumerated
qualification tests relating to the adequacy of price and procedure including
solicitation of stockholder approval of the Providence Journal Business
Combination pursuant to a proxy statement that must include any recommendations
of the Providence Journal Board and any fairness opinion (or lack of fairness)
from a selected investment banking firm. The Providence Journal Charter adopts
the provisions set forth in the Business Combination Act of 1990 (Section 7-
5.2-1 et seq.). (See "State Anti-Takeover Statutes".) The Merger would
constitute a Providence Journal Business Combination, and accordingly, the
voting requirements set forth above must be satisfied.
CONTINENTAL. Pursuant to the DGCL, unless the corporate charter provides
otherwise, no vote of the stockholders of a surviving corporation is required
to approve a merger if (a) the agreement of merger does
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not amend in any respect the surviving corporation's charter; (b) each share of
the corporation's stock outstanding immediately prior to the effective date of
the merger is to remain outstanding; and (c) the number of shares of the
surviving corporation's common stock (including shares issuable upon conversion
of any convertible securities) to be issued or delivered under the plan of
merger does not exceed 20% of the surviving corporation's common stock
outstanding immediately prior to the effective date of the merger. For
transactions falling outside the enumerated exceptions, majority stockholder
approval is required. The Merger must be approved by the affirmative vote of a
majority of the outstanding shares of Continental Voting Stock.
The DGCL sets forth specific requirements for certain business combinations.
(See "Description of Continental Capital Stock--DGCL and Certain Provisions of
the Continental Restated Certificate and the Continental By-Laws--Anti-Takeover
Statute".)
CHARTER AMENDMENTS
GENERAL LAW. To authorize an amendment to the corporate charter, both
Delaware and Rhode Island Law generally require the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon. Both
Delaware and Rhode Island Law provide for any class or series of stock to vote
as a class for the proposed amendment if the amendment would increase or
decrease the number of authorized shares or change the number or par value of
the aggregate authorized shares of a class or series, unless the charter
provides otherwise. The DGCL also provides for class voting if the amendment
would alter or modify the powers, preferences or special rights of the shares
of such class to affect such class adversely. Rhode Island Law similarly
requires separate class voting if the amendment would, among other things,
change the designations, preferences, limitations, or relative rights of the
class, effect an exchange, or create a right of exchange of all or any part of
the shares of another class into shares of the class, or create a new class of
shares having rights and preferences prior and superior to the shares of the
class.
PROVIDENCE JOURNAL. The Providence Journal Charter provides that any
amendment, alteration, change, repeal or adoption of the provisions of the
Providence Journal Charter relating to election and service of Directors,
liability of Directors, Providence Journal Business Combinations, and
Providence Journal's right of first refusal requires either the affirmative
vote of 80% of the outstanding capital stock entitled to vote thereon, or the
approval by a two-thirds vote of the Providence Journal Board and any
stockholder vote required by law.
CONTINENTAL. Under the Continental Restated Certificate, the approval of 66
2/3% of the votes entitled to be cast by the holders of Continental Voting
Stock is required for the amendment of certain provisions of the Continental
Restated Certificate. A separate majority vote of the Continental Series A
Preferred Stock is also required as to certain amendments affecting the
Continental Preferred Stock. The Continental Restated Certificate overrides
certain separate class votes of the Continental Class A Common Stock and Class
B Common Stock that would otherwise be required under the DGCL. (See
"Description of Continental Capital Stock--Continental Common Stock--Voting
Rights" and "DGCL and Certain Provisions of the Continental Restated
Certificate and the Continental By-Laws--Amendment of Certain Provisions of the
Continental Restated Certificate and the Continental By-Laws".)
BY-LAW AMENDMENTS
GENERAL LAW. The RIBCA generally, and the DGCL if so provided in the charter,
provides that the by-laws of a corporation may be amended by the vote of a
majority of the Board of Directors. The DGCL similarly permits the Board to
amend a corporation's certificate of incorporation if so provided. The Board of
Directors' authority to adopt, amend or repeal the by-laws of a corporation
does not divest or 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.
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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 Common Stock and
Continental Class B Common Stock vote together as a single class, except as
otherwise required by the DGCL. Each share of Continental Series A Preferred
Stock entitles the holder to vote on all matters voted on by the holders of
Continental Common Stock into which such Continental Series A Preferred Stock
is convertible. The Continental Series A Preferred Stock is convertible into
either Continental Class A Common Stock or Continental Class B Common Stock and
has certain class voting rights. (See "Description of Continental Capital
Stock--Continental Series A Preferred Stock--Voting Rights" and "Board
Representation".) BOTH THE HOLDERS OF PROVIDENCE JOURNAL CLASS A COMMON STOCK
AND PROVIDENCE JOURNAL CLASS B COMMON STOCK WILL RECEIVE THE SAME CONSIDERATION
PURSUANT TO THE MERGER FROM CONTINENTAL, THEREFORE THE CURRENT DISPARATE VOTING
RIGHTS OF SUCH HOLDERS WILL NOT BE PRESERVED UPON RECEIPT OF THE CONTINENTAL
MERGER STOCK.
RIGHTS AGREEMENT
PROVIDENCE JOURNAL. Pursuant to the Providence Journal Charter, approximately
75% of the shares of each of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock are set aside for issuance under the
Rights Agreement. For a description of terms of the Providence Journal Rights
Agreement see "Description of New Providence Journal Common 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
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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. However, for a
period of one year following the Effective Time, the shares of Continental
Class A Common Stock which will be issued in the Merger to Providence Journal
stockholders will be subject to the Transfer Restrictions. (See "The Merger--
General Provisions--Restrictions on Transfer of Continental Merger Stock".)
SPECIAL MEETINGS
PROVIDENCE JOURNAL. Rhode Island Law permits a special meeting of
stockholders to be called by the President, the Board of Directors, or by the
holders of 10% or more of the shares entitled to vote at such meeting, or such
other officers or persons specified by the charter or by-laws. The Providence
Journal By-Laws permit a special meeting of the stockholders to be called at
any time for any purpose by the Chairman of the Board, the President, the
Providence Journal Board, or by a stockholder or stockholders holding of record
at least 20% of the voting power of the outstanding shares of Providence
Journal entitled to vote at such meeting.
CONTINENTAL. Under the DGCL, a special meeting of stockholders may be called
by the Board of Directors or such other persons as are authorized by the
certificate of incorporation or by-laws. The Continental By-Laws provide
special meetings may be called for any purpose, unless otherwise prescribed by
law, by the Chairman, or Vice Chairman of the Continental Board, or by a
majority of the Continental Board then in office, and shall be called by the
President or Secretary at the written request of the stockholders holding of
record a majority of the shares of stock of Continental issued and outstanding
and entitled to vote. Additionally, the Series A Certificate of Designation
provides that the Chairman shall call a special meeting upon receipt of the
written request of the holders of record of 20% of the voting power represented
by the outstanding shares of Continental Series A Preferred Stock, if the
holders of the Continental Series A Preferred Stock are entitled to vote
separately as a single class for Directors upon Default, or the holders of
record of 20% of the voting power represented by the outstanding shares of
Continental Series A Preferred Stock and any series of preferred stock with
rights on parity with the Continental Series A Preferred Stock, if Continental
is in default under the terms of such stock.
CORPORATE ACTION WITHOUT A MEETING
PROVIDENCE JOURNAL. Except for corporate action relating to a merger or
consolidation, acquisition or disposition, Rhode Island Law permits corporate
action without a meeting if the charter or by-laws of a corporation authorizes
such action, and the stockholders consenting to such action would be entitled
to vote thereon and comprise at least the minimum number of votes which would
be required to take such action. Rhode Island Law further provides that
corporate action relating to a merger, consolidation, acquisition or
disposition may be taken without a meeting if all stockholders entitled to vote
thereon consent in writing. The Providence Journal By-Laws authorize corporate
action without a meeting by unanimous written consent, or by less than
unanimous consent to the extent permitted by Rhode Island Law and the
Providence Journal Charter.
CONTINENTAL. The DGCL permits corporate action without a stockholder's
meeting, without prior notice and without a vote of stockholders upon receipt
of the written consent of that number of shares that would be necessary to
authorize the proposed corporate action at a meeting at which all shares
entitled to vote thereon were present and voting, unless the charter expressly
provides otherwise. Prompt notice of the taking of action without a meeting by
less than unanimous written consent must be given to all stockholders who have
not consented in writing. The Continental By-Laws permit corporate action
without a meeting of the stockholders in accordance with the parameters set
forth in the DGCL.
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DIVIDENDS
PROVIDENCE JOURNAL. Under Rhode Island Law, the Board of Directors has the
power to declare and pay dividends in cash, property or securities of the
corporation unless (a) such corporation is or would be thereby made insolvent
or (b) the declaration or payment of such dividends would be contrary to any
restrictions contained in the charter. Rhode Island Law further provides that
no distribution may be made (i) if the corporation would become unable to pay
its debts as they become due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of its liabilities plus,
unless the articles of incorporation permit otherwise, the amount that would be
needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose rights are superior to those receiving the distribution. The
Providence Journal Charter provides for the ratable payment of dividends to
holders of shares of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock in accordance with Rhode Island Law.
CONTINENTAL. Under the DGCL, the directors of a corporation are generally
permitted to declare and pay dividends out of surplus or out of net profits for
the current and/or preceding fiscal year, provided that such dividends will not
reduce capital below the amount of capital represented by all classes of issued
and outstanding stock having a preference upon the distribution of assets. Also
under the DGCL, a corporation may generally redeem or purchase shares of its
stock if such redemption or purchase will not impair the capital of the
corporation. Pursuant to the Continental Restated Certificate, the holders of
shares of Continental Class A Common Stock and Continental Class B Common Stock
share ratably in dividends, but the right of holders of either Continental
Class A Common Stock or Continental Class B Common Stock to receive dividends
is subject to the rights of the Continental Series A Preferred Stock.
LIQUIDATION
GENERAL LAW. Pursuant to both Rhode Island Law and the DGCL, upon the winding
up, dissolution or liquidation of a corporation, the stockholders of such
corporation are entitled to share in any of the assets distributable to the
holders of the respective corporation's stock upon such liquidation,
dissolution or winding up in accordance with their respective rights and
interests.
PROVIDENCE JOURNAL. The Providence Journal Charter provides for the ratable
distribution to holders of Providence Journal Class A Common Stock and
Providence Journal Class B Common Stock in the event of any liquidation,
dissolution or winding up.
CONTINENTAL. Similarly, the Continental Restated Certificate provides for the
ratable distribution to holders of Continental Class A Common Stock and
Continental Class B Common Stock in the event of a liquidation, dissolution or
winding up. However, the rights of holders of Continental Class A Common Stock
and Continental Class B Common Stock (or any other capital stock, if issued,
ranking junior to Continental Series A Preferred Stock) are subject to the
preferential rights of the holders of Continental Series A Preferred Stock.
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 that require stockholder approval; and (c) sales or
exchanges of all or substantially all of the property and assets of a
corporation in a transaction requiring stockholder approval. In addition,
unless otherwise provided in the articles of incorporation, no dissenters'
rights are available to holders of shares of any class of stock which, as of
the date fixed to determine the stockholders entitled to receive notice of the
proposed transaction, is either (i) listed on a national securities exchange or
included as national market securities on NASDAQ or any successor system or
(ii) held of record by 2,000 or more stockholders. There are no provisions in
the Providence Journal Charter relating to dissenters' rights. Pursuant to
Rhode Island Law, the stockholders of Providence Journal will have dissenters'
rights in connection with the Merger. (See "Rights of Dissenting Stockholders--
Providence Journal".)
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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, as of the record
date, is either: (a) listed on a national securities exchange or designated as
a national market system security and quoted on NASDAQ or (b) held of record by
more than 2,000 stockholders, unless such stockholders are required by the
terms of the merger to accept anything other than: (i) shares of stock of the
surviving corporation; (ii) shares of stock of another corporation which are or
will be so listed on a national securities exchange or designated as a national
market system security and quoted on NASDAQ or held of record by more than
2,000 stockholders; (iii) cash in lieu of fractional shares of such stock; or
(iv) any combination thereof. The Continental Restated Certificate has no
provision relating to appraisal rights. (See "Rights of Dissenting
Stockholders--Continental".)
PROVISIONS RELATING TO DIRECTORS AND OFFICERS
GENERAL LAW. Under both Rhode Island Law and Delaware Law, a corporation must
have a Board of Directors consisting of at least one director. Under Rhode
Island Law and the DGCL, a corporation's charter may (i) confer upon holders of
any class or series of stock the right to elect one or more directors to serve
for such term and to have such voting powers as may be specified therein, (ii)
permit classification of the Board of Directors, and (iii) permit cumulative
voting for the election of directors.
PROVIDENCE JOURNAL. The Providence Journal Charter provides for a Board of
Directors consisting of no fewer 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. However, 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
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of Continental Capital Stock--Continental Series A Preferred Stock--Voting
Rights" and "Board Representation".)
REMOVAL
PROVIDENCE JOURNAL. Under Rhode Island Law, a director may be removed by the
stockholders without cause, if the charter or by-laws so provide. The
Providence Journal Charter provides that any director or the entire Providence
Journal Board may be removed at any time, but only for cause and only by the
affirmative vote of (a) the holders of 80% of the outstanding shares of
capital stock entitled to vote in the election of directors; or (b) the
holders of a majority of outstanding shares and upon the recommendation of not
less than two-thirds of the whole Providence Journal Board.
CONTINENTAL. Under the DGCL, any director or the entire Board of Directors
of a corporation may be removed, with or without cause, by the holders of a
majority of the shares then entitled to elect Directors. In the case of a
corporation whose Board of Directors is classified, stockholders may effect
such removal only for cause unless the charter provides otherwise. The
Continental Restated Certificate does not contain any provision setting forth
an alternative standard for removal of directors. (See "Description of
Continental Capital Stock--DGCL and Certain Provisions of the Continental
Restated Certificate and the Continental By-Laws".)
DERIVATIVE SUITS
Under both Rhode Island Law and the DGCL, stockholders may bring suit on
behalf of the corporation to enforce the rights of a corporation. Under both
Rhode Island Law and the DGCL, a person may institute and maintain a suit only
if such person was a stockholder at the time of the transaction which is the
subject of the suit.
RHODE ISLAND LAW. Under Rhode Island Law, upon final judgment and a finding
that the commencement of a derivative action by a stockholder was without
reasonable cause, a court may require the plaintiff(s) to pay to the parties
named as defendant(s) the reasonable expenses including legal fees incurred by
them in defense of such action.
DGCL. Additionally, under the DGCL, the plaintiff generally must be a
stockholder not only at the time of the transaction which is the subject of
the suit, but also through the duration of the derivative suit. The DGCL also
requires that the derivative plaintiff make demand on the directors of the
corporation to assert the corporate claim before the suit may be prosecuted by
the derivative plaintiff, unless such demand would be futile.
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
thereof, 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.
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STATE ANTI-TAKEOVER STATUTES
PROVIDENCE JOURNAL. Pursuant to Sections 7-5.2-1 et seq. of the 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 (a) the Board of Directors of the corporation approved the business
combination or transaction prior to the date the stockholder became an
interested stockholder; (b) holders of two-thirds of the outstanding voting
stock, excluding any stock owned by the interested stockholder or any affiliate
or associate of the interested stockholder, have approved the business
combination at a meeting called for such purpose no earlier than five years
after the interested stockholder's stock acquisition date; or (c) the business
combination meets each of the following conditions: (i) the nature, form and
adequacy of the consideration to be received by the corporation's stockholders
in the business combination transaction satisfies certain specific enumerated
criteria; (ii) the holders of all the outstanding shares of stock of the
corporation not beneficially owned by the interested stockholder are entitled
to receive the specified consideration in the business combination transaction;
and (iii) the interested stockholder shall not acquire additional shares of
voting stock of the corporation except in certain specifically identified
transactions.
The restrictions prescribed by the statute will not be applicable to any
business combination (a) involving a corporation that does not have a class of
voting stock registered under the Exchange Act unless the charter provides
otherwise; (b) involving a corporation which did not have a class of voting
stock registered under the Exchange Act at the time the 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.
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CABLE COMMUNICATIONS POLICY ACT OF 1984
The 1984 Cable Act became effective in December 1984. This federal statute,
which amended the Communications Act of 1934, creates uniform national
standards and guidelines for the regulation of cable television systems.
Violations by a cable television system operator of provisions of the 1984
Cable Act, as well as of FCC regulations, can subject the operator to
substantial monetary penalties and other sanctions. Among other things, the
1984 Cable Act affirmed the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more franchises
within their jurisdictions. It also prohibited non-grandfathered cable
television systems from operating without a franchise in such jurisdictions. In
connection with new franchises, the 1984 Cable Act provides that in granting or
renewing franchises, franchising authorities may establish requirements for
cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
OVERVIEW. In October 1992, Congress enacted the 1992 Cable Act. This
legislation made significant changes to the legislative and regulatory
environment in which the cable industry operates. It amended the 1984 Cable Act
in many respects. The 1992 Cable Act became effective in December 1992,
although certain provisions, most notably those dealing with rate regulation
and retransmission consent, became effective at later dates. The legislation
required the FCC to initiate a number of rule-making proceedings to implement
various provisions of the statute, the majority of which, including certain of
those related to rate regulation, have been completed. The 1992 Cable Act
allows for a greater degree of regulation of the cable industry with respect
to, among other things: (i) cable system rates for both basic and certain cable
programming services; (ii) programming access and exclusivity arrangements;
(iii) access to cable channels by unaffiliated programming services; (iv)
leased access terms and conditions; (v) horizontal and vertical ownership of
cable systems; (vi) customer service requirements; (vii) franchise renewals;
(viii) television broadcast signal carriage and retransmission consent; (ix)
technical standards; (x) customer privacy; (xi) consumer protection issues;
(xii) cable equipment compatibility; (xiii) obscene or indecent programming;
and (xiv) subscription to tiers of service other than basic service as a
condition of purchasing premium services. Additionally, the legislation
encourages competition with existing cable television systems by: allowing
municipalities to own and operate their own cable television systems without a
franchise; preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area; and prohibiting the common ownership of
cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also
precludes video programmers affiliated with cable television companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multi-channel video distributors.
Various cable operators have filed actions in the United States District
Court in the District of Columbia challenging the constitutionality of several
sections of the 1992 Cable Act. Pursuant to special jurisdictional provisions
in the 1992 Cable Act, a challenge to the must-carry provisions of the Act was
heard by a three-judge panel of the district court. In April 1993, the three-
judge court granted summary judgment for the government, upholding the
constitutional validity of the must-carry provisions of the 1992 Cable Act.
That decision was appealed directly to the United States Supreme Court. In June
1994, the United States Supreme Court remanded the case to the district court.
Pending the outcome of further proceedings before the district court, the must-
carry statutes and the FCC regulations remain in place.
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 were also filed in that court from the FCC's rate regulation rule-
making decisions. The FCC's rate regulations were substantially upheld in June
1995.
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FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over cable
television, has promulgated regulations covering such areas as the registration
of cable television systems, cross-ownership between cable television systems
and other communications businesses, carriage of television broadcast
programming, consumer education and lockbox enforcement, origination,
cablecasting and sponsorship identification, children's programming, the
regulation of basic cable service rates in areas where cable television systems
are not subject to effective competition, signal leakage and frequency use,
technical performance, maintenance of various records, equal employment
opportunity, and antenna structure notification, marking and lighting. The FCC
has the authority to enforce these regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities often used in
connection with cable operations. The 1992 Cable Act required the FCC to adopt
additional regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity,
and various aspects of DBS system ownership and operation. A brief summary of
certain of these federal regulations as adopted to date follows.
RATE REGULATION. The 1984 Cable Act codified existing FCC preemption of rate
regulation for premium channels and optional cable programming service tiers.
The 1984 Cable Act also deregulated basic cable rates for cable television
systems determined by the FCC to be subject to effective competition. The 1992
Cable Act substantially changed the 1984 Cable Act and FCC rate regulation
standards then in existence. The 1992 Cable Act replaced the FCC's old standard
for determining effective competition, under which most cable systems were not
subject to local rate regulation, with a statutory provision that results in
nearly all cable television systems becoming subject to local rate regulation
of basic service. Additionally, the legislation eliminates the 5% annual rate
increase for basic service previously allowed by the 1984 Cable Act without
local approval; requires the FCC to adopt a formula, for franchising
authorities to enforce, to assure that basic cable rates are reasonable; allows
the FCC to review rates for cable programming service tiers (other than per-
channel or per-event services) in response to complaints filed by franchising
authorities and/or cable customers; prohibits cable television systems from
requiring subscribers to purchase service tiers above basic service in order to
purchase premium services if the system is technically capable of doing so;
requires the FCC to adopt regulations to establish, on the basis of actual
costs, the price for installation of cable service, remote controls, converter
boxes and additional outlets; and allows the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The FCC issued rule-making decisions designed to implement these
rate regulation provisions in April 1993.
The FCC's regulations adopted in April 1993 set standards for the regulation
of basic and cable programming service tier rates. The FCC also ordered an
interim 120-day freeze on these rates effective April 5, 1993, which was
extended until May 15, 1994. The FCC's rules governing rates became effective
for cable systems serving more than 1,000 subscribers in September 1993. The
FCC had granted a temporary stay of its rate regulation rules for small systems
serving 1,000 or fewer subscribers, but the stay was lifted when the FCC
revised its rate regulations on February 22, 1994, to be effective on the
effective date of those revised regulations, May 15, 1994.
The April 1993 rate regulations adopted a benchmark price cap system for
measuring the reasonableness of existing basic and cable programming service
rates. Regulated services include: (i) the basic service tier 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
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benchmark. As discussed below, the FCC has published regulations setting forth
the procedures to be utilized in such a cost-of-service showing; however, the
rules are not yet final. The rules regarding rate regulation also require that
charges for cable-related equipment (e.g., converter boxes and remote control
devices) and installation services be unbundled from the provision of cable
service and based upon actual costs plus a reasonable profit and established a
formula for evaluating future rate increases. Local franchising authorities (if
certified by the FCC) and/or the FCC are empowered to order a reduction of
existing rates. Refund liability for basic cable rates is limited to a one-year
period, initially calculated from the effective date of the FCC's regulations.
Refund liability for cable programming service rates is calculated from the
date a complaint is filed with the FCC until the refund is implemented. A
complaint alleging an unreasonable rate for a cable programming service in
effect on September 1, 1993, must have been filed by February 28, 1994. After
that date, a complaint regarding a rate increase for a cable programming
service must be filed with the FCC within 45 days from the date that the
complainant receives the bill. In general, in order to avoid refund liability,
cable operators whose rates were above FCC benchmark levels were required,
absent a successful cost-of-service showing, to reduce those rates to the
benchmark level or by up to 10% of the rates in effect on September 30, 1992,
whichever reduction was less, adjusted for inflation and channel modifications
occurring subsequent to September 30, 1992. The FCC, however, reserved the
right to raise or lower the benchmarks that it established. The regulations
also provided that future rate increases could not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operator's control,
such as taxes, franchise fees and increased programming costs that exceed the
inflation index.
On February 22, 1994, the FCC adopted a revision of its benchmark regulations
effective May 15, 1994. The FCC allowed a sixty day transition period for
implementing the new rates to July 15, 1994. The new benchmarks subject cable
television systems to rate reductions, absent a successful cost-of-service
showing, of up to 17% of the rates in effect on September 30, 1992, adjusted
for inflation, channel modifications, equipment costs and certain increases in
programming costs. Further rate reductions for cable systems whose rates are
below the revised benchmark levels will be held in abeyance pending completion
by the FCC of cable system cost studies, as will reductions that would require
operators to reduce rates below benchmark levels in order to achieve a 17% rate
reduction. These additional rate reductions below the new benchmarks would be
required only if validated by the studies. The FCC also announced its intention
to investigate cable systems whose rates are substantially above the permitted
benchmark levels. Those studies have not been completed by the FCC nor has the
FCC instigated such investigations.
Also on February 22, 1994, the FCC adopted interim rules for cost-of-service
showings that establish a regulatory framework pursuant to which a cable
television operator may attempt to justify rates in excess of the new
benchmarks. Such justifications are based upon (i) the operator's costs in
operating a cable television system (including certain operating expenses,
depreciation and taxes) and (ii) a return on the investment the operator has
made to provide regulated cable television services in such system (such
investment being referred to as its "rate base"). The guidelines disallow from
a cable operator's rate base "excess acquisition costs" beyond the original
construction costs or "book value" of a cable system but include in the rate
base the costs associated with certain intangibles such as franchise rights and
customer lists. The uniform rate of return for regulated cable television
service is 11.25%, after taxes, on a cable system's rate base. The interim
guidelines originally included a "productivity offset feature" that could
reduce otherwise justifiable rate increases based on a claimed increase in a
cable television system's operational efficiencies. The FCC dropped this
proposal in September, 1994.
Some cable operators, relying on provisions in the 1992 Cable Act that exempt
programming offered on an individual per-channel basis from rate regulation,
offered a group of such per-channel (or "a la carte") offerings at a discounted
package price. On February 22, 1994, the FCC adopted rules that revised its
treatment of a la carte programming offerings by applying various criteria to
determine whether a cable operator's a la carte packages should be subject to
rate regulation. Local franchising authorities were given the authority under
FCC rules, subject to review by the FCC, to determine whether an a la carte
offering should be subject to rate regulation. If a cable operator is found to
have bundled channels in an a la carte package to evade rate regulations, the
FCC may impose forfeitures or other sanctions.
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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.
(These are commonly referred to as the Going Forward Rules.) The FCC instituted
a three-year flat fee mark-up plan for charges relating to new channels of
cable programming services in addition to the present formula for calculating
the permissible rate for new services. Commencing on January 1, 1995, operators
may charge for new channels of cable programming services added after May 14,
1994 at a markup of up to 20 cents per channel over actual programming costs,
but may not make adjustments to monthly rates totalling more than $1.20, plus
an additional 30 cents solely for programming license fees, per subscriber over
the first two years of the three-year period for these new services. Cable
operators may charge an additional 20 cents in the third year only for channels
added in that year. Cable operators electing to use the 20 cent per channel
adjustment may not take a 7.5% mark-up on programming cost increases, which is
permitted under the FCC's current rate regulations. The FCC requested further
comment on whether cable operators should continue to receive the 7.5% mark-up
on increases in license fees on existing programming services.
Additionally, the FCC will permit cable operators to offer NPTs at rates
which they elect so long as, among other conditions, other service tiers that
are subject to rate regulation are priced in conformity with applicable FCC
regulations, and cable operators do not remove programming services from
existing service tiers and offer them on the NPT.
The FCC in 1995 significantly relaxed its rate rules for small cable systems.
Neither Continental nor Providence Journal qualifies for relief under these
standards.
Many franchising authorities have become certified by the FCC to regulate the
rates charged by Continental and Providence Journal for basic cable service and
associated basic cable service equipment. In addition, a number of the
Continental and Providence Journal customers have filed complaints with the FCC
regarding the rates charged for cable programming services. Some local
franchising authority decisions have been rendered that were adverse to
Continental and Providence Journal. Several of these have been appealed to the
FCC, and it is likely that some refunds will be ordered in the future. Either
Continental and Providence Journal revenues could be materially and adversely
affected if either Continental or Providence Journal was required to reduce its
rates and pay refunds, or if the ability to implement rate increases consistent
with past practices were materially limited by the regulations that the FCC has
adopted.
The FCC also has publicly announced that it will consider "social contracts"
as an alternative form of rate regulation for cable operators. Continental has
negotiated a social contract with the FCC, which settles all of its pending
cost-of-service rate cases and all of its benchmark cable programming service
tier rate cases. Benchmark BBT cases will be resolved by Continental and local
franchising authorities. Time Warner Cable has also negotiated a social
contract with the FCC which is subject to a public comment period. (See
"Description of Continental--Regulatory Response".)
Separate bills recently approved by the U.S. Senate and House of
Representatives would significantly modify the rate regulation provisions of
the 1992 Cable Act. Neither Continental nor Providence Journal can predict the
likelihood of passage of this or other legislation that would reduce the
regulatory restrictions on the ability of Continental or Providence Journal to
market and price their services.
OTHER REGULATIONS UNDER THE 1992 CABLE ACT. In addition to the foregoing rate
regulations, the FCC has adopted regulations pursuant to the 1992 Cable Act
which require cable systems to permit customers to purchase video programming
on a per-channel or a per-event basis without the necessity of subscribing to
any tier of service, other than the basic service tier, unless the cable system
is technically incapable of doing
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so. Generally, this exemption from compliance with the statute for cable
systems that do not have such technical capability is available until a cable
system obtains the capability, but not later than December 2002. The FCC also
has adopted a number of measures for improving compatibility between existing
cable systems and consumer equipment. In conjunction therewith, the FCC rules
prohibit cable operators from scrambling program signals carried on the basic
tier, absent a waiver. The FCC also is proposing to extend this prohibition to
cover all regulated tiers.
The FCC also has adopted regulations in connection with its cost-of-service
proceedings which govern programming charges for affiliated entities. These
rules apply to systems subject to regulation under both the benchmark and cost-
of-service regulations. The cost of programming to affiliated entities must be
the prevailing company price, based on the sale of programming to third
parties, or a price equal to the lower of the programming service's net book
cost and its estimated fair market value.
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The 1992 Cable Act contains new
signal carriage requirements. These new rules allow commercial television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Area of Dominant Influence, to elect every three years
whether to require the cable system to negotiate for "retransmission consent"
to carry the station. The first such election was made in June 1993. A recent
amendment to the Copyright Act will in some cases increase the number of
stations that may elect must-carry status on cable systems located within such
stations' Areas of Dominant Influence. Local non-commercial television stations
are given mandatory carriage rights, subject to certain exceptions, within the
larger of: (i) a 50 mile radius from the station's city of license or (ii) the
station's Grade B contour (a measure of signal strength). Unlike commercial
stations, noncommercial stations are not given the option to negotiate
retransmission consent for the carriage of their signal. In addition, cable
systems have to obtain retransmission consent for the carriage of all "distant"
commercial broadcast stations, except for certain "superstations" (i.e.,
commercial satellite-delivered independent stations such as WTBS). The must-
carry provisions for non-commercial stations became effective in December 1992.
Implementing must-carry rules for non-commercial and commercial stations and
retransmission consent rules for commercial stations were adopted by the FCC in
March 1993. All commercial stations entitled to carriage were to have been
carried by June 1993, and any non-must-carry stations (other than
superstations) for which retransmission consent had not been obtained could no
longer be carried after October 5, 1993.
NONDUPLICATION OF NETWORK PROGRAMMING. Cable television systems that have
1,000 or more customers must, upon the appropriate request of a local
television station, delete the simultaneous or nonsimultaneous network
programming of a distant station when such programming has also been contracted
for by the local station on an exclusive basis.
DELETION OF SYNDICATED PROGRAMMING. FCC regulations enable television
broadcast stations that have obtained exclusive distribution rights for
syndicated programming in their market to require a cable system to delete or
"black out" such programming from other television stations which are carried
by the cable system. The extent of such deletions will vary from market to
market and cannot be predicted with certainty. However, it is possible that
such deletions could be substantial and could lead the cable operator to drop a
distant signal in its entirety. The FCC also has commenced a proceeding to
determine whether to relax or abolish the geographic limitations on program
exclusivity contained in its rules, which would allow parties to set the
geographic scope of exclusive distribution rights entirely by contract, and to
determine whether such exclusivity rights should be extended to noncommercial
educational stations. It is possible that the outcome of these proceedings will
increase the amount of programming that cable operators are required to black
out. 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
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franchises in effect prior to the effective date of the 1984 Cable Act,
franchising authorities may enforce requirements contained in the franchise
relating to facilities, equipment and services, whether or not cable-related.
The 1984 Cable Act, under certain limited circumstances, permits a cable
operator to obtain modifications of franchise obligations.
RENEWAL OF FRANCHISES. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Nevertheless, renewal is by
no means assured, as the franchisee must meet certain statutory standards. Even
if a franchise is renewed, a franchising authority may impose new and more
onerous requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under which a cable
operator seeks to enforce its renewal rights that could make it easier in some
cases for a franchising authority to deny renewal. While a cable operator must
still submit its request to commence renewal proceedings within 30 to 36 months
prior to franchise expiration to invoke the formal renewal process, the request
must be in writing and the franchising authority must commence renewal
proceedings not later than six months after receipt of such notice. The four-
month period for the franchising authority to grant or deny the renewal now
runs from the submission of the renewal proposal, not the completion of the
public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
Franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
However, the franchising authority is estopped from denying renewal if, after
giving the cable operator notice and opportunity to cure, it fails to respond
to a written notice from the cable operator of its failure or inability to
cure. Courts may not reverse a denial of a renewal based on procedural
violations found to be "harmless error."
CHANNEL SET-ASIDES. The 1984 Cable Act permits local franchising authorities
to require cable operators to set aside certain channels for public, education
and governmental access programming. The 1984 Cable Act further requires cable
television systems with 36 or more activated channels to designate a portion of
their channel capacity for commercial leased access by unaffiliated third
parties. While the 1984 Cable Act allowed cable operators substantial latitude
in setting leased access rates, the 1992 Cable Act required leased access rates
to be set according to an FCC-prescribed formula. The FCC adopted such a
formula and implemented regulations in April 1993, but various parties have
filed petitions requesting the FCC to reconsider its decision.
COMPETING FRANCHISES. Questions concerning the right of a municipality to
award de facto exclusive cable television franchises and to impose certain
franchise restrictions upon cable television companies are under consideration
in Preferred Communications, Inc. v. City of Los Angeles, involving a proposed
applicant for a franchise in one of Continental's service areas, in which the
United States Supreme Court declared that cable television operators have First
Amendment rights which cannot be abridged in the absence of overriding
governmental interests. While establishing this broad judicial standard, the
Supreme Court remanded the case to a lower federal court for trial on the
factual issues surrounding a cable television operator's use of public 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
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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.
The Supreme Court has agreed to hear arguments on this issue during its 1995-96
term. The FCC in 1992 amended its rules to permit local telephone companies to
offer "video dialtone" service for video programmers, including channel
capacity for the carriage of video programming and certain noncommon carrier
activities such as video processing, billing and collection and joint marketing
arrangements. The FCC recently issued an order on reconsideration reaffirming
its initial decision, and this order has been appealed. Several LECs in the
service areas of Continental's cable systems have applied to the FCC for
permission to offer video-dialtone service, and some of these applications have
been granted. In its video dialtone order, the FCC concluded that neither the
1984 Cable Act nor its rules apply to prohibit the IXC's (i.e., long distance
telephone companies such as AT&T) from providing such services to their
customers. Additionally, the FCC also concluded that where a LEC makes its
facilities available on a common carrier basis for the provision of video
programming to the public, the 1984 Cable Act does not require the LEC or its
programmer customers to obtain a franchise to provide such service. This aspect
of the FCC's video dialtone order was upheld on appeal by the U.S. Court of
Appeals for the D.C. Circuit. Because cable operators are required to bear the
costs of complying with local franchise requirements, including the payment of
franchise fees, the FCC's decision could place cable operators at a competitive
disadvantage vis-a-vis services offered on a common carrier basis over local
telephone company-provided facilities. The FCC is currently examining whether a
LEC is required to obtain a franchise, and meet other regulatory requirements
of cable systems, if and when a LEC acts as a programmer over its own video
dialtone facilities because of a court's removal of the statutory prohibition
on such programming activities.
As part of the same proceeding in which it approved "video dialtone", the FCC
recommended that Congress amend the 1984 Cable Act to allow LECs to provide
their own video programming services over their facilities in competition with
their customers' services. The FCC also decided to loosen ownership and
affiliation restrictions currently applicable to telephone companies, and has
proposed to increase the numerical limit on the population of areas qualifying
as "rural" and in which LECs can provide cable service without FCC waiver.
Separate bills to repeal the telco/cable cross-ownership ban, subject to
certain regulatory requirements, have been passed by the United States Senate
and the House of Representatives. Under the terms of these bills, a telephone
company could build and operate a cable television system within its region or
acquire an in-region cable operator, under certain circumstances. These bills
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. The outcome of
these FCC legislative or court proceedings and proposals or the effect of such
outcome on cable system operations cannot be predicted.
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,
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although the FCC has adopted an order that substantially relaxes the
network/cable cross-ownership prohibitions subject to certain national and
local ownership limits. As a part of the same action, the FCC also voted to
recommend to Congress that the broadcast/cable cross-ownership restrictions
contained in the 1984 Cable Act be repealed. Finally, in order to encourage
competition in the provision of video programming, the FCC adopted a rule
prohibiting the common ownership, affiliation, control or interest in cable
television systems and MDS facilities having overlapping service areas, except
in very limited circumstances. The 1992 Cable Act codified this restriction and
extended it to co-located SMATV systems. Permitted arrangements in effect as of
October 5, 1992 were grandfathered. In January 1995, the FCC loosened its
previously stringent interpretation of the lack of ability of a cable operator
to purchase a SMATV system in the same franchise area. The 1992 Cable Act
permits states or local franchising authorities to adopt certain additional
restrictions on the ownership of cable television systems. Many of these cross-
ownership limitations would be eliminated or modified by the bills recently
approved by the United States Senate and the House of Representatives.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more
than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder
of more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the United States District Court
decision holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a cable
system which can be occupied by programming in which the entity that owns the
cable system has an attributable interest. The limit is 40% of all activated
channels.
BROADBAND PCS AUCTIONS. PCS represents mobile radio communications services
that can be integrated with a variety of networks. The FCC has allocated 120
MHz of spectrum in the 2GHz band to be licensed to competing broadband PCS
providers, who it is anticipated will offer advanced digital wireless services
in competition with current cellular and specialized mobile radio services as
well as with landline telephone service. Broadband PCS spectrum will be
auctioned by the FCC in three separate auctions that began in December 1994.
Six licenses will be auctioned in each service area, and FCC rules permit some
aggregation of PCS spectrum by PCS operators. The first broadband PCS auction,
which was completed in the first quarter of 1995 included 30 MHz frequency
blocks of spectrum (Blocks "A" and "B") licensed by MTA. The next auction is
expected to commence in 1995 at a date yet to be determined, and will be for
spectrum Block C, a 30 MHz frequency block which is available only to parties
that meet specific FCC eligibility criteria and will be licensed using Basic
Trading Areas. The final auctions will include three Basic Trading Area 10 MHz
blocks of spectrum, Blocks D, E and F, at least one of which will be subject to
the additional eligibility requirements imposed on Block C.
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 must
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
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enforcement rights. In the event that a cable operator is found to have
violated the customer privacy provisions of the 1984 Cable Act, it could be
required to pay damages, attorneys' fees and other costs. Under the 1992 Cable
Act, the privacy requirements are strengthened to require that cable operators
take such actions as are necessary to prevent unauthorized access to personally
identifiable information.
ANTI-TRAFFICKING. The 1992 Cable Act precludes cable operators from selling
or otherwise transferring ownership of a cable television system within 36
months after acquisition or initial construction, except for: resales required
by the terms of a contract covering the acquisition of multiple systems; tax-
free sales or reorganizations; governmentally required divestitures; or
internal transfers to a commonly controlled entity. The anti-trafficking
restriction applies to systems acquired prior to the effective date of the new
law (i.e., December 4, 1992) as well as subsequent acquisitions. The FCC may
waive the foregoing restrictions where generally consistent with the public
interest, unless the franchising authority has refused to grant any required
approval. The 1992 Cable Act also requires franchising authorities to act on
any franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
REGISTRATION PROCEDURE AND REPORTING REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable
operators who operate in certain frequency bands are required on an annual
basis to file the results of their periodic cumulative leakage testing
measurements. Operators who fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in
those frequency bands in addition to other sanctions.
TECHNICAL REQUIREMENTS. Historically, the FCC has imposed technical standards
applicable to the cable channels on which broadcast stations are carried, and
has prohibited franchising authorities from adopting standards that were in
conflict with or more restrictive than those established by the FCC. The FCC
has recently revised such standards and made them applicable to all classes of
channels which carry downstream National Television System Committee video
programming. Local franchising authorities are permitted to enforce the FCC's
new technical standards. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. The 1992 Cable Act requires the FCC to periodically
update its technical standards to take into account changes in technology and
to entertain waiver requests from franchising authorities who would seek to
impose more stringent technical standards upon their franchised cable
television systems. Although the 1992 Cable Act requires the FCC to establish
"minimum technical standards relating to cable televisions systems' technical
operation and signal quality," the FCC has announced that its recently
completed cable television technical standards rule-making satisfies the new
statutory mandate.
POLE ATTACHMENTS. The FCC currently regulates the rates and conditions
imposed by certain public utilities for use of their poles, unless under the
Federal Pole Attachments Act state public utility commissions are able to
demonstrate that they regulate rates, terms and conditions of the cable
television pole attachments. A number of states and the District of Columbia
have certified to the FCC that they regulate the rates, terms and conditions
for pole attachments. In the absence of state regulation, the FCC administers
such pole attachment rates through use of a formula which it has devised and
from time to time revises. Legislation pending before the United States
Congress (See "Description of Continental--Competition") could, if enacted,
significantly increase the costs of pole attachments for cable operators that
offer voice and data services as well as video services.
OTHER MATTERS. FCC regulation also includes matters regarding a cable
system's carriage of local sports programming; restrictions on origination and
qcablecasting by cable system operators; application of the rules
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governing political broadcasts; customer service; home wiring and limitations
on advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC adopted requirements
for payment of 1994 annual "regulatory fees." Cable television systems were
required to pay regulatory fees of $0.37 per subscriber, which may be passed on
to subscribers as "external cost" adjustments to rates for basic cable service.
This amount is to be increased to $0.49 per subscriber in 1995. Fees are also
assessed for other licenses, including licenses for business radio and cable
television relay systems and earth stations, which, however, may not be
collected directly from subscribers. Beginning in 1995, no fee will be assessed
for receive-only cable earth stations.
COPYRIGHT REGULATION
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to a
federal copyright royalty pool and meeting certain other obligations, cable
operators obtain a statutory license to retransmit broadcast signals. The
amount of this royalty payment varies, depending on the amount of system
revenues from certain sources, the number of distant signals carried and the
location of the cable system with respect to over-the-air television stations.
Cable operators are liable for interest on underpaid and unpaid royalty fees,
but are not entitled to collect interest on refunds received for the
overpayment of copyright fees. Originally, the Federal Copyright Royalty
Tribunal was empowered to make and, in fact, did make several adjustments in
copyright royalty rates. This tribunal was eliminated by Congress in 1993. Any
future adjustment to the copyright royalty rates will be done through an
arbitration process to be supervised by the U.S. Copyright Office. Present
rates will remain in place through 1995, barring the successful filing of a new
petition for ratemaking with the Copyright Office and any changes in the FCC's
signal carriage, syndicated exclusivity or sports blackout rules.
Various bills have been introduced into Congress over the past several years
that would eliminate or modify the cable television compulsory license. The FCC
has recommended to Congress that it repeal the cable industry's compulsory
copyright license. The FCC determined that the statutory compulsory copyright
license for local and distant broadcast signals no longer serves the public
interest and that private negotiations between the applicable parties would
better serve the public. Without the compulsory license, cable operators might
need to negotiate rights from the copyright owners for each program carried on
each broadcast station in the channel lineup. Such negotiated agreements could
increase the cost to cable operators of carrying broadcast signals. The 1992
Cable Act's retransmission consent provisions expressly provide that
retransmission consent agreements between television broadcast stations and
cable operators do not obviate the need for cable operators to obtain a
copyright license for the programming carried on each broadcaster's signal.
Copyright music performed in programming supplied to cable television systems
by pay cable networks (such as HBO) and cable programming networks (such as the
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. ASCAP and BMI offer "through to the viewer" licenses to the cable
networks, which cover the retransmission of the cable networks' programming by
cable television systems to their customers. The cable industry has not yet
concluded negotiations on licensing fees with music performing rights societies
for the use of music performed in programs locally originated by cable
television systems.
STATE AND LOCAL REGULATIONS
Because cable television systems use local streets and rights-of-way, cable
television systems are subject to state and local regulation, typically imposed
through the franchising process. State and/or local officials are usually
involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
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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.
REGULATION OF TELECOMMUNICATIONS ACTIVITIES
As noted above under "Description of Continental--Strategic Investments--
Telecommunications and Technology Investments", Continental provides in certain
of its systems alternate access local telecommunications services over a
portion of its fiber-optic cable facilities, and Continental owns a 20%
interest in TCG. Local telecommunications activities are regulated by either
the FCC or state public utility commissions, or both. In some instances,
Continental or TCG may be required to obtain regulatory permission to offer
such services, and may be required to file tariffs for its service offerings,
depending on whether particular alternate access activities of Continental or
TCG are classified as common carriage or private carriage. (See "Federal
Regulation--Ownership and Cross-Ownership Limitations".)
Separate bills to repeal the telco/cable cross-ownership ban, subject to
certain regulatory requirements, have been passed by the United States Senate
and the House of Representatives. Under the terms of these bills, a telephone
company could build and operate a cable television system within its region or
acquire an in-region cable operator, under certain circumstances. These bills
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
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system operators in competition with local telephone companies. The outcome of
these FCC legislative or court proceedings and proposals or the effect of such
outcome on cable system operations cannot be predicted.
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 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. All of the Directors of
Continental have waived their appraisal rights with respect to shares of
Continental Voting Stock that they own.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX III 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 III. THIS DISCUSSION AND ANNEX III SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR
WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE
PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF APPRAISAL
RIGHTS.
A holder of record of Continental Voting Stock as of the Continental Record
Date who makes the demand described below with respect to such shares, who
continuously is the record holder of such shares through the Effective Time,
who otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the Merger Agreement nor consents thereto in writing
may be entitled to an appraisal by the Delaware Court of Chancery (the
"Delaware Court") of the fair value of his or her shares of stock. All
references in this summary of appraisal rights to a "stockholder" is to the
record holder or holders of shares of Continental Voting Stock. Except as set
forth herein, stockholders of Continental will not be entitled to appraisal
rights in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Continental Special Meeting, not less than
20 days prior to the meeting, each constituent corporation must notify each of
the holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Joint Proxy Statement-Prospectus shall constitute such notice
to the record holders of Continental Voting Stock.
Continental voting stockholders who desire to exercise their appraisal rights
must not vote in favor of the Merger Agreement or the Merger and must deliver a
separate written demand for appraisal to Continental prior to the vote by the
stockholders of Continental on the Merger Agreement and the Merger. A
stockholder who signs and returns a proxy without expressly directing by
checking the applicable boxes on the reverse side of the proxy card enclosed
herewith that his or her shares of Continental Voting Stock be voted against
the proposal or that an abstention be registered with respect to his or her
shares of Continental Voting Stock in connection with the proposal will
effectively have thereby waived his or her appraisal rights as to those shares
of Continental Voting Stock because, in the absence of express contrary
instructions, such shares of
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Continental Voting Stock will be voted in favor of the proposal. (See "The
Special Meetings--Solicitation and Voting of Proxies--Continental".)
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, Vice President and Treasurer.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Continental Voting Stock owned, and
that the stockholder is thereby demanding appraisal of his or her shares. A
proxy or vote against the Merger Agreement will not by itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation
must provide notice of the Effective Time to all stockholders who have complied
with Section 262.
Within 120 days after the Effective Time, either the surviving corporation or
any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the surviving
corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
Accordingly, Continental stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262. If
appraisal rights are available, within 120 days after the Effective Time, any
stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
of Continental Voting Stock not voting in favor of the Merger Agreement and
with respect to which demands for appraisal were received by Continental and
the number of holders of such shares. Such statement must be mailed within 10
days after the written request therefor has been received by the surviving
corporation.
If a petition for an appraisal is timely filed and assuming appraisal rights
are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and
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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
ascertainable as of the date of the merger that throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
The cost of the appraisal proceeding may be determined by the Delaware Court
and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of Continental, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of Continental Voting Stock who has duly demanded
appraisal in compliance with Section 262 will not, after the Effective Time, be
entitled to vote for any purpose any shares subject to such demand or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal; after this period, the
stockholder may withdraw such demand for appraisal only with the consent of the
surviving corporation. If no petition for appraisal is filed with the Delaware
Court within 120 days after the Effective Time, stockholders' rights to
appraisal shall cease. Any stockholder may withdraw such stockholder's demand
for appraisal by delivering to the surviving corporation a written withdrawal
of his or her demand for appraisal and acceptance of the Merger, except that
(i) any such attempt to withdraw made more than 60 days after the Effective
Time will require written approval of the surviving corporation and (ii) no
appraisal proceeding in the Delaware Court shall be dismissed as to any
stockholder without the approval of the Delaware Court, and such approval may
be conditioned upon such terms as the Delaware Court deems just.
PROVIDENCE JOURNAL
Each stockholder of Providence Journal has the right to dissent from the
Merger and, in lieu of receiving 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 IV 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
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ENTIRETY BY REFERENCE TO ANNEX IV. THIS DISCUSSION AND ANNEX IV 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 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 Merger, whether in
person at the Providence Journal Special Meeting or by proxy, will waive his,
her or its dissenters' rights. However, a stockholder is not required to vote
against the 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 Merger. If the Merger is approved by the required
vote, and the stockholder shall not have voted in favor of it, the stockholder
must, within ten days after the date on which the vote was taken, make written
demand on Continental for payment of the fair value of the stockholder's
shares, and, if the proposed 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 Merger, excluding any appreciation or
depreciation in anticipation of the Merger. Any stockholder failing to make
demand within such ten day period shall be bound by the terms of 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 MERGER, 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
OR WRITTEN DEMAND.
A stockholder may not dissent as to less than all the shares registered in
his or her name which are owned beneficially by him or her. A nominee or
fiduciary may not dissent on behalf of any beneficial owner as to less than
all of the shares of the owner registered in the name of the nominee or
fiduciary.
No demand may be withdrawn unless Continental shall consent thereto. If,
however, the demand shall be withdrawn upon consent, or if the 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 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 Merger, 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.
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If within thirty (30) days after the date on which the Merger 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 Merger 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 Merger was effected,
shall, or at its election at any time within the period of sixty (60) days may,
file a petition in any court of competent jurisdiction in Providence County in
Rhode Island praying that the fair value of the shares be found and determined.
If Continental shall fail to institute the proceeding as provided in Section
74, any dissenting stockholder may do so in the name of Continental. All
dissenting stockholders, wherever residing, shall be made parties to the
proceeding as an action against their shares quasi in rem. A copy of the
petition shall be served on each dissenting stockholder who is a resident of
Rhode Island and shall be served by registered or certified mail on each
dissenting stockholder who is a nonresident.
Service on nonresidents shall also be made by publication as provided by law.
The jurisdiction of the court shall be plenary and exclusive. All stockholders
who are parties to the proceeding shall be entitled to judgment against
Continental for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as shall be specified in the order of their
appointment or an amendment thereof. The judgment shall be payable only upon
and concurrently with the surrender to Continental of the certificate or
certificates representing the shares. Upon payment of the judgment, the
dissenting stockholder shall cease to have any interest in the shares.
The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all the circumstances, from the date
on which the vote was taken on the Merger to the date of payment.
The costs and expenses of any proceeding shall be determined by the court and
shall be assessed against Continental, but all or any part of the costs and
expenses may be apportioned and assessed as the court may deem equitable
against any or all of the dissenting stockholders who are parties to the
proceeding to whom Continental shall have made an offer to pay for the shares
if the court shall find that the action of the stockholders in failing to
accept the offer was arbitrary or vexatious or not in good faith. The expenses
shall include reasonable compensation for and reasonable expenses of the
appraisers, but shall exclude the fees and expenses of counsel for and experts
employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which Continental offered to pay therefor, or if
no offer was made, the court in its discretion may award to any stockholder who
is a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the stockholder in
the proceeding.
Within twenty (20) days after demanding payment for his, her or its shares of
Providence Journal Common Stock, each stockholder demanding payment shall
submit the certificate or certificates representing his, her or its shares of
Providence Journal Common Stock to Continental for notation thereon that the
demand has been made. His, her or its failure to do so shall, at the option of
Continental, terminate his, her or its rights under Section 74 unless a court
of competent jurisdiction, for good and sufficient cause shown, shall otherwise
direct. If shares of Providence Journal Common Stock represented by a
certificate on which notation has been so made shall be transferred, each new
certificate issued therefor shall bear similar notation, together with the name
of the original dissenting holder of the shares, and a transferee of the shares
shall acquire by the transfer no rights in Providence Journal other than those
which the original dissenting stockholder had after making demand for payment
of the fair value thereof.
250
<PAGE>
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 becomes 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 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 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.
PAYMENTS AND DISTRIBUTIONS TO STOCKHOLDERS
Shares of New Providence Journal Common Stock issued as a result of the PJC
Spin-Off will be distributed to Providence Journal stockholders as a stock
dividend paid on shares of Providence Journal Common Stock outstanding on the
record date for such stock dividend. New Providence Journal will mail New
Providence Journal Common Stock to the holders of record of Providence Journal
Common Stock at the Effective Time at the address of such holders which appears
on the stock transfer books of Providence Journal.
In order to receive shares of Continental Merger Stock, together with any
cash in lieu of fractional interests, pursuant to the Merger, each stockholder
of Providence Journal will be required to surrender the certificates evidencing
such stockholder's 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
Providence Journal Common Stock shall pass, only upon proper delivery of the
shares to the Exchange Agent) advising such stockholder of the effectiveness of
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 Continental Merger Stock, together with any cash in lieu of
fractional shares. Stockholders should surrender shares only with a letter of
transmittal. Please do not send shares with the enclosed proxy.
If payment of the Continental Merger Stock, together with any cash in lieu of
fractional shares, 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 Continental
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 Providence Journal Common Stock shall
represent only the right to receive the Continental
251
<PAGE>
Merger Stock, together with any cash in lieu of fractional shares, 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 of Providence Journal 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
Continental Merger Stock, together with any cash in lieu of fractional shares;
provided however, that no party shall be liable to any holder of certificates
formerly representing Providence Journal 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 and certain tax matters will be passed upon by Edwards & Angell.
Partners and of counsel attorneys of Edwards & Angell own 94 shares of
Providence Journal Common Stock. Benjamin P. Harris, a Director of Providence
Journal is a partner of Edwards & Angell.
Certain legal matters relating to the validity of the shares of Continental
Merger Stock will be passed upon by Sullivan & Worcester. Partners and of
counsel attorneys of Sullivan & Worcester own 606,500 shares of Continental
Common Stock after giving effect to the Continental Recapitalization Amendment.
Robert B. Luick, Secretary and a Director of Continental, is of counsel to, and
W. Lee H. Dunham, an Assistant Secretary of Continental and Secretary and a
Director of substantially all of Continental's subsidiaries, and Patrick K.
Miehe, an Assistant Secretary of Continental and substantially all of its
subsidiaries, are partners of Sullivan & Worcester. Certain legal matters
relating to the liquidation preference of the Continental Merger Stock will be
passed upon by Richards, Layton & Finger.
EXPERTS
The portions of this Joint Proxy Statement-Prospectus under the caption
"Description of Continental Business--Competition" and "Legislation and
Regulation" have been reviewed by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Washington, D.C., and the statements therein have been included
herein in reliance upon their opinion.
The consolidated financial statements and schedule of Providence Journal
Company and Subsidiaries as of December 31, 1993 and 1994 and for each of the
years in the three-year period ended December 31, 1994 have been included in
this Joint Proxy Statement-Prospectus in reliance upon the reports of KPMG Peat
Marwick LLP and Deloitte & Touche LLP, independent auditors, appearing herein
and elsewhere in this registration statement, given 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. as of December
31, 1993 and 1994 and the ten-month period ended December 31, 1992 and the
years end December 31, 1993 and 1994 included in this Joint Proxy Statement-
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and is included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Providence Journal Cable as of December
31, 1993 and 1994 and for each of the years in the three-year period ended
December 31, 1994 have been included in this Joint Proxy Statement-Prospectus
in reliance upon the reports of KPMG Peat Marwick LLP and Deloitte & Touche
LLP, independent auditors, appearing herein and elsewhere in this registration
statement and upon the authority of said firms as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP, refers to a change in accounting
for income taxes in 1992.
The consolidated financial statements of King Videocable Company as of
December 31, 1993 and 1994 and the ten-month period ended December 31, 1992 and
the years ended December 31, 1993 and 1994 (not included herein) have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report
252
<PAGE>
appearing herein and is included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Continental Cablevision, Inc. and
subsidiaries as of December 31, 1993 and 1994 and for each of the three years
in the period ended December 31, 1994 included in this Joint Proxy Statement-
Prospectus and the related financial statement schedule included elsewhere in
the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports (which reports express an
unqualified opinion and includes an explanatory paragraph referring to a change
in the method of accounting for income taxes and investments in 1993 and 1994,
respectively) appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The financial statements as of December 31, 1993 and 1994 and for each of the
two years ended December 31, 1994 of Columbia Cable of Michigan (a division of
Columbia Associates, L.P.) included in this Joint Proxy Statement-Prospectus
have been audited by Arthur Andersen LLP, independent auditors, as stated in
their report appearing herein.
The financial statements as of September 30, 1994 and for the nine months
ended September 30, 1994 of Clay Cablevision (a division of Rifkin Cable Income
Partners, L.P.) included in this Joint Proxy Statement-Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of N-COM Limited Partnership II at
September 30, 1993 and 1994, and for each of the two years ended September 30,
1994, appearing in this Joint Proxy Statement-Prospectus have been audited by
Ernst & Young, LLP, independent auditors, as stated in their report appearing
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Cablevision of Chicago (a limited partnership) as
of December 31, 1993 and 1994 and for each of the two years ended December 31,
1994 have been included in this Joint Proxy Statement-Prospectus in reliance
upon the report of KPMG Peat Marwick LLP, independent auditors, appearing
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements described above are included in reliance upon such
applicable reports as given upon the authority of such firms as experts in
accounting and auditing.
253
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Independent Auditors' Reports........................................... F-3
Consolidated Balance Sheets, December 31, 1993, and 1994 and (Unaudited)
June 30, 1995.......................................................... F-4
Consolidated Statements of Operations, for the Years Ended December 31,
1992, 1993, and 1994 and (Unaudited) Six Months Ended June 30, 1994 and
1995................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1992, 1993, and 1994 and (Unaudited) Six Months Ended June 30, 1994 and
1995................................................................... F-6
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1992, 1993, and 1994 and (Unaudited) Six Months Ended June
30, 1995............................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
KING HOLDING CORP. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-28
Consolidated Balance Sheets, December 31, 1993 and 1994 and (Unaudited)
June 30, 1995.......................................................... F-29
Consolidated Statements of Operations for the Period February 25, 1992
to December 31, 1992 and the years ended December 31, 1993 and 1994 and
(Unaudited) Six Months Ended June 30, 1994 and 1995.................... F-30
Consolidated Statements of Stockholders' Equity for the Period February
25, 1992 to December 31, 1992 and the years ended December 31, 1993 and
1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995........... F-31
Consolidated Statements of Cash Flows, for the Period February 25, 1992
to December 31, 1992 and the years ended December 31, 1993 and 1994 and
(Unaudited) Six Months Ended June 30, 1995............................. F-32
Notes to Consolidated Financial Statements.............................. F-33
PROVIDENCE JOURNAL CABLE
Independent Auditors' Reports........................................... F-44
Combined Balance Sheets, December 31, 1993 and 1994 and (Unaudited) June
30, 1995............................................................... F-46
Combined Statements of Operations for the Years Ended December 31, 1992,
1993, and 1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995. F-47
Combined Statements of Changes in Group Equity for the Years Ended
December 31, 1992, 1993, and 1994 and (Unaudited) Six Months Ended June
30, 1995............................................................... F-48
Combined Statements of Cash Flows, for the Years Ended December 31,
1992, 1993, and 1994 and (Unaudited) Six Months Ended June 30, 1994 and
1995................................................................... F-49
Notes to Combined Financial Statements.................................. F-50
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-59
Consolidated Balance Sheets, December 31, 1993 and 1994 and (Unaudited)
June 30, 1995.......................................................... F-60
Statements of Consolidated Operations, for the Years Ended December 31,
1992, 1993, and 1994 and (Unaudited) Six Months Ended June 30, 1994 and
1995................................................................... F-61
Statements of Consolidated Shareholders' Equity (Deficiency), for the
Years Ended December 31, 1992, 1993 and 1994 and (Unaudited) Six Months
Ended June 30, 1995.................................................... F-62
Statements of Consolidated Cash Flows, for the Years Ended December 31,
1992, 1993 and 1994 and (Unaudited) Six Months Ended June 30, 1994 and
1995................................................................... F-63
Notes to Consolidated Financial Statements.............................. F-64
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
COLUMBIA CABLE OF MICHIGAN (A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
Report of Independent Public Accountants............................... F-80
Statements of Assets, Liabilities and Control Account, December 31,
1993 and 1994 and (Unaudited) June 30, 1995........................... F-81
Statements of Operations and Control Account, for the Years Ended
December 31, 1993 and 1994 and (Unaudited) Six Months Ended June 30,
1994 and 1995......................................................... F-82
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995.......... F-83
Notes to Financial Statements.......................................... F-84
CLAY CABLEVISION (A DIVISION OF RIFKIN CABLE INCOME PARTNERS, L.P.)
Report of Independent Accountants...................................... F-87
Balance Sheet, September 30, 1994...................................... F-88
Statement of Operations, for the Nine Months Ended September 30, 1994.. F-89
Statements of Cash Flows, for the Nine Months Ended September 30, 1994. F-90
Notes to Financial Statements.......................................... F-91
N-COM LIMITED PARTNERSHIP II
Report of Independent Auditors......................................... F-94
Consolidated Balance Sheet, September 30, 1993 and 1994 and (Unaudited)
June 30, 1995......................................................... F-95
Consolidated Statement of Operations and Partners' Net Capital
Deficiency, for the Year Ended
September 30, 1993 and 1994 and (Unaudited) Nine Months Ended June 30,
1994 and 1995......................................................... F-96
Consolidated Statement of Cash Flows, for the Year Ended September 30,
1993 and 1994 and (Unaudited) Nine Months Ended June 30, 1994 and
1995.................................................................. F-97
Notes to Consolidated Financial Statements............................. F-98
CABLEVISION OF CHICAGO (A LIMITED PARTNERSHIP)
Independent Auditors' Report........................................... F-102
Balance Sheets, December 31, 1993 and 1994 and (Unaudited) June 30,
1995.................................................................. F-103
Statements of Operations and Partners' Deficiency, for the Years ended
December 31, 1993 and 1994 and (Unaudited) Six Months Ended June 30,
1994 and 1995......................................................... F-104
Statements of Cash Flows, for the Years Ended December 31, 1993 and
1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995.......... F-105
Notes to Financial Statements.......................................... F-106
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Providence Journal Company:
We have audited the accompanying consolidated balance sheets of Providence
Journal Company and Subsidiaries (the Company) as of December 31, 1993 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the consolidated financial statements of King Holding Corp. a 50%
owned investee company. The Company's investment in King Holding Corp. at
December 31, 1993 and 1994 was $85,154,000 and $76,829,000, respectively and
its equity in losses of King Holding Corp. was $12,602,000 for the period from
February 25, 1992 through December 31, 1992 and $7,244,000 and $8,325,000 for
the year ended December 31, 1993 and 1994, respectively. The consolidated
financial statements of King Holding Corp. were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for King Holding Corp. is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
As discussed more fully in note 2 to the consolidated financial statements,
the Company entered into an Agreement and Plan of Merger, dated November 18,
1994, and amended on August 1, 1995, whereby it will sell all owned and
partially owned cable television businesses to Continental Cablevision, Inc.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Providence Journal Company and
Subsidiaries as of December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 7 to the consolidated financial statements, the
Company changed its method of accounting for income taxes, and as discussed in
notes 1 and 11 to the consolidated financial statements, the Company also
changed its method of accounting for certain postretirement benefits in 1992.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1995, except as to
Note 2 which is as of August 1, 1995
F-3
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash......................................... $ 1,017 $ 1,319 $ 298
Accounts receivable, net of allowance for
doubtful accounts of $2,134 in 1993, and
$1,950 in 1994.............................. 24,432 24,916 23,098
Television program rights, net (note 9)...... 5,006 4,699 3,606
Inventories, prepaid expenses and other
current assets.............................. 2,725 4,593 3,673
Federal and state income taxes receivable.... 667 1,661 5,336
Deferred income taxes (note 7)............... 5,159 20,526 20,526
-------- -------- --------
Total current assets....................... 39,006 57,714 56,537
Investments in affiliated companies (note 3)... 90,685 83,966 92,328
Notes receivable, net (note 4)................. 22,599 19,513 18,078
Television program rights, net (note 9)........ 3,093 2,670 392
Property, plant and equipment, net (note 5).... 142,320 130,287 125,556
License costs, goodwill and other intangible
assets, net................................... 51,420 35,222 33,731
Other assets (note 11)......................... 30,302 31,331 29,798
Net assets of discontinued operations (note 2). 396,260 364,010 404,861
-------- -------- --------
$775,685 $724,713 $761,281
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................. $ 7,657 $ 10,202 $ 8,288
Accrued expenses and other current
liabilities (note 6)........................ 25,782 92,840 89,981
Current installments of long-term debt (note
8).......................................... 3,505 13,588 13,567
Current portion of television program rights
payable (note 9)............................ 5,251 4,542 3,024
-------- -------- --------
Total current liabilities.................. 42,195 121,172 114,860
Long term debt (note 8)........................ 276,601 247,173 296,895
Television program rights payable (note 9)..... 2,246 2,822 1,345
Other liabilities (note 11).................... 45,984 44,428 45,875
Deferred income taxes (note 7)................. 14,271 11,944 11,279
Deferred compensation (note 11)................ 34,813 11,287 12,663
-------- -------- --------
Total liabilities.......................... 416,110 438,826 482,917
-------- -------- --------
Commitments and contingencies (notes
3,10,11,14)
Stockholders' equity (notes 11,15):
Class A common stock, par value $2.50 per
share; authorized 600,000 shares; issued
38,353 shares, and 38,369 shares in 1993 and
1994, respectively.......................... 96 96 96
Class B common stock, par value $2.50 per
share; authorized 300,000 shares; issued
47,297 shares, and 47,281 shares in 1993 and
1994, respectively.......................... 118 118 118
Additional capital........................... 1,225 1,225 1,225
Retained earnings............................ 361,293 291,791 285,265
Unrealized gain (loss) on securities held for
sale, net................................... -- 105 (892)
Treasury stock at cost--427 shares and 961
shares in 1993 and 1994, respectively....... (3,157) (7,448) (7,448)
-------- -------- --------
Total stockholders' equity................. 359,575 285,887 278,364
-------- -------- --------
$775,685 $724,713 $761,281
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Newspaper advertising....... $ 88,253 $ 93,886 $ 97,006 $47,216 $ 46,768
Circulation................. 32,263 31,028 30,887 15,167 15,919
Broadcasting................ 43,281 45,506 54,024 25,197 28,707
Other....................... 9,782 10,053 10,374 5,150 4,422
-------- -------- -------- ------- --------
Total net revenues........ 173,579 180,473 192,291 92,730 95,816
-------- -------- -------- ------- --------
Expenses:
Operating................... 98,338 96,571 97,607 53,773 59,694
Selling, general and
administrative............. 62,787 74,986 83,656 30,270 31,375
Depreciation and
amortization............... 21,566 21,412 20,708 10,514 9,612
Provision for impairment of
assets..................... 661 3,363 1,016 -- --
-------- -------- -------- ------- --------
Total expenses............ 183,352 196,332 202,987 94,557 100,681
-------- -------- -------- ------- --------
Operating loss............... (9,773) (15,859) (10,696) (1,827) (4,865)
Other income (expense):
Interest income from
related parties (note 12).. 31,452 -- -- -- --
Management fees from
related parties (note 3)... 9,592 3,781 3,525 1,763 1,763
Interest expense (note 2)... (6,455) (2,578) (2,426) (1,366) (1,176)
Equity in loss of
affiliated companies (note
3)......................... (12,642) (7,788) (12,154) (3,273) (240)
Other income (note 4)....... 5,707 1,051 1,698 1,062 1,165
-------- -------- -------- ------- --------
Total other income
(expense)................ 27,654 (5,534) (9,357) (1,814) 1,512
-------- -------- -------- ------- --------
Income (loss) from continuing
operations, before income
taxes (benefits),
discontinued operations,
extraordinary item and
cumulative effect of
accounting changes.......... 17,881 (21,393) (20,053) (3,641) (3,353)
Income taxes (benefits) (note
7).......................... 11,837 (5,765) 2,367 (626) (1,671)
-------- -------- -------- ------- --------
Income (loss) from continuing
operations, before
discontinued operations,
extraordinary item and
cumulative effect of
accounting changes.......... 6,044 (15,628) (22,420) (3,015) (1,682)
Discontinued operations (note
2):
Income (loss) from
operations of discontinued
segments, net of income
taxes...................... 2,869 (7,056) (2,607) (1,934) --
Loss on disposal of
segments, net of income
tax benefits............... -- -- (34,764) -- --
-------- -------- -------- ------- --------
Income (loss) before
extraordinary item and
cumulative effect of
accounting changes.......... 8,913 (22,684) (59,791) (4,949) (1,682)
Extraordinary item, net...... -- 1,551 -- -- --
Cumulative effect of changes
in accounting principles,
net......................... 1,257 -- -- -- --
-------- -------- -------- ------- --------
Net income (loss)............ $ 10,170 $(21,133) $(59,791) $(4,949) $ (1,682)
======== ======== ======== ======= ========
Net income (loss) per common
share:
From continuing operations.. $ 70.26 $(183.21) $(264.13) $(35.44) $ (19.86)
From discontinued
operations................. 33.35 (82.72) (440.27) (22.73) --
Extraordinary item and
changes in accounting
principles................. 14.61 18.18 -- -- --
-------- -------- -------- ------- --------
Net income (loss) per common
share....................... $ 118.22 $(247.75) $(704.40) $(58.17) $ (19.86)
======== ======== ======== ======= ========
Weighted average shares
outstanding................. 86,026 85,302 84,882 85,079 84,689
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1992 1993 1994 1994 1995
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Income (loss) from
continuing operations..... $ 6,044 $(15,628) $(22,420) $ (3,015) $ (1,682)
Adjustments to reconcile
income (loss) from
continuing operations to
cash flows provided by
continuing operations:
Depreciation and
amortization............ 21,566 21,412 20,708 10,514 9,612
Program rights
amortization............ 8,080 7,674 7,356 3,314 3,491
Provision for impairment
of assets............... 661 3,363 1,016 -- --
Equity in loss of
affiliated companies.... 12,642 7,788 12,154 3,273 240
Interest income on notes
receivable.............. (22,611) -- -- -- --
Deferred income taxes.... (1,093) (4,846) (3,258) (12) --
Provision (payments) for
deferred compensation... (2,952) 5,767 7,740 (1,425) 1,376
Changes in assets and
liabilities:
Accounts receivable...... (2,456) (1,451) (484) 52 1,818
Inventories, prepaid
expenses and other
current assets.......... 4,187 (660) (1,868) (422) (3,420)
Accounts payable......... (5,988) (3,128) 2,545 (940) (1,914)
Accrued expenses and
other current
liabilities............. (153) 1,961 (280) (1,418) (3,338)
Other, net................. 1,326 1,131 1,718 1,570 2,202
--------- -------- -------- -------- --------
Cash flows provided by
continuing operations. 19,253 23,383 24,927 11,491 8,385
Income (loss) from
discontinued operations.... 2,869 (7,056) (37,371) (1,934) --
Adjustments to reconcile
income (loss) from
discontinued operations to
cash flows provided by
discontinued operations.... 26,860 51,782 84,853 23,847 27,285
--------- -------- -------- -------- --------
Cash flows provided by
operating activities.. 48,982 68,109 72,409 33,404 35,670
Investing activities:
Investment securities held
for sale.................. -- (5,551) -- -- --
Investments in and
advances to affiliated
companies................. (105,820) (5,783) (6,555) (5,320) (9,028)
Dividends from affiliates.. -- 1,001 1,120 554 706
Additions to property,
plant and equipment....... (20,030) (11,597) (6,481) (2,917) (3,410)
Collections on notes
receivable................ 15,959 2,751 3,086 2,171 1,435
Proceeds from sale of
assets.................... 3,501 1,073 594 -- --
--------- -------- -------- -------- --------
Cash flows used in
investing activities of
continuing operations..... (106,390) (18,106) (8,236) (5,512) (10,297)
Investment in discontinued
operations................ (94,123) (35,255) (23,764) (5,123) (68,136)
--------- -------- -------- -------- --------
Cash flows used in
investing activities.. (200,513) (53,361) (32,000) (10,635) (78,433)
Financing activities:
Proceeds from long-term
debt...................... 234,100 30,000 -- -- 53,500
Principal payments on
long-term debt and
financing costs........... (50,699) (11,153) (19,345) (9,895) (3,799)
Payments on television
program rights payable.... (8,112) (7,296) (6,760) (3,383) (3,115)
Dividends paid............. (8,128) (8,872) (9,711) (4,867) (4,844)
Purchase of treasury
stock..................... (10,014) (2,387) (4,291) (4,291) --
--------- -------- -------- -------- --------
Cash flows provided by
(used in) financing
activities of continuing
operations................ 157,147 292 (40,107) (22,436) 41,742
Financing activities of
discontinued operations... (5,000) (15,000) -- -- --
--------- -------- -------- -------- --------
Cash flows provided by
(used in) financing
activities............ 152,147 (14,708) (40,107) (22,436) 41,742
--------- -------- -------- -------- --------
Increase (decrease) in cash. 616 40 302 333 (1,021)
Cash at beginning of year... 361 977 1,017 1,017 1,319
--------- -------- -------- -------- --------
Cash at end of year......... $ 977 $ 1,017 $ 1,319 $ 1,350 $ 298
========= ======== ======== ======== ========
</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 (LOSS) TREASURY STOCK
-------------- -------------- ADDITIONAL RETAINED ON SECURITIES ---------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS HELD FOR SALE SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 29,
1991................... 38,986 $ 97 47,975 $120 $1,225 $399,267 -- (100) $ (770) $399,939
Treasury stock activity:
Purchases.............. -- -- -- -- -- -- -- (1,311) (10,014) (10,014)
Retirement............. (1,021) (2) (290) (1) -- (10,011) -- 1,311 10,014 --
Conversion upon sale of
Class B to Class A
common stock........... 14 -- (14) -- -- -- -- -- -- --
Dividends declared,
$94.60 per share....... -- -- -- -- -- (8,128) -- -- -- (8,128)
Net income.............. -- -- -- -- -- 10,170 -- -- -- 10,170
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1992................... 37,979 95 47,671 119 1,225 391,298 -- (100) (770) 391,967
Treasury stock activity:
Tender offer and other
purchases............. -- -- -- -- -- -- -- (337) (2,460) (2,460)
Issuance of common
stock from treasury... -- -- -- -- -- -- -- 10 73 73
Conversion upon sale of
Class B to Class A
common stock........... 374 1 (374) (1) -- -- -- -- -- --
Dividends declared, $104
per share.............. -- -- -- -- -- (8,872) -- -- -- (8,872)
Net loss................ -- -- -- -- -- (21,133) -- -- -- (21,133)
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1993................... 38,353 96 47,297 118 1,225 361,293 -- (427) (3,157) 359,575
Purchases of treasury
stock.................. -- -- -- -- -- -- -- (534) (4,291) (4,291)
Conversion upon sale of
Class B to Class A
common stock........... 16 -- (16) -- -- -- -- -- -- --
Dividends declared,
$114.40 per share...... -- -- -- -- -- (9,711) -- -- -- (9,711)
Cumulative effect of
change in accounting
principle (note 1(c)).. -- -- -- -- -- -- 5,120 -- -- 5,120
Decrease in unrealized
gain on securities held
for sale............... -- -- -- -- -- -- (5,015) -- -- (5,015)
Net loss................ -- -- -- -- -- (59,791) -- -- -- (59,791)
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at December 31,
1994................... 38,369 $ 96 47,281 $118 $1,225 $291,791 $ 105 (961) $(7,448) $285,887
Conversion upon sale of
Class B to Class A
Common Stock
(unaudited) ........... 136 -- (136) -- -- -- -- -- -- --
Dividends declared,
$57.20 per share
(unaudited)............ -- -- -- -- -- (4,844) -- -- -- (4,844)
Decrease in unrealized
gain on securities held
for sale (unaudited)... -- -- -- -- -- -- (997) -- -- (997)
Net loss (unaudited).... -- -- -- -- -- (1,682) -- -- -- (1,682)
------ ---- ------ ---- ------ -------- ------- ------ ------- --------
Balances at June 30,
1995 (unaudited)....... 38,505 $ 96 47,145 $118 $1,225 $285,265 $ (892) (961) $(7,448) $278,364
====== ==== ====== ==== ====== ======== ======= ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Providence Journal Company and Subsidiaries (the
"Company") are:
(a) Description of Business and Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of Providence Journal Company and its wholly-owned and
majority-owned subsidiaries:
. Providence Journal Company, the parent company, engaged in newspaper
operations and its wholly-owned subsidiaries ("Providence Journal").
. Colony Communications, Inc. and its wholly-owned and majority-owned cable
television subsidiaries ("Colony"). As discussed in note 2, these cable
television operations have been presented as discontinued operations.
. Providence Journal Broadcasting Corp. and its wholly-owned television
broadcasting subsidiaries ("Broadcasting").
Investments in affiliates in which the Company has significant influence
(generally 20% to 50% owned) are accounted for using the equity method. Other
investments (generally less than 20% owned) are carried at the lower of cost or
net realizable value. The results of operations of wholly-owned and majority-
owned subsidiaries acquired or disposed of during the year are included in the
consolidated statements of operations since the date of acquisition or up to
the date of disposal. All significant intercompany balances and transactions
have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(b) Cash
The Company has a cash management program whereby outstanding checks in
excess of cash in the concentration account are not accounted for as reductions
of cash until presented to the bank for payment. At December 31, 1993 and 1994,
the Company reclassified $3,991 and $2,805, respectively, of net outstanding
checks to accounts payable.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes paid during the year................ $ 9,823 $ 9,815 $ 2,588
======== ======== ========
Interest paid during the year, net of amounts
capitalized..................................... $ 10,686 $20,285 $20,911
======== ======== ========
Obligations incurred for acquisition of
television program rights (non-cash
transactions)................................... $ 5,428 $ 5,898 $ 6,627
======== ======== ========
</TABLE>
F-8
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
During 1992, the Company acquired certain assets and assumed certain
liabilities in connection with various purchase business combinations, as
follows:
<TABLE>
<S> <C>
Tangible assets (primarily property, plant and equipment) acquired. $ 86,388
========
Intangible assets acquired......................................... $270,325
========
Liabilities assumed................................................ $ 24,214
========
Exchange of note receivable in connection with purchase business
combination....................................................... $250,555
========
</TABLE>
(c) Marketable Equity Securities
Marketable equity securities consist of one common stock investment, which is
included in other assets on the accompanying consolidated balance sheets. Prior
to January 1, 1994, marketable equity securities were stated at cost.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under this standard, the Company's marketable equity
securities are considered to be "held for sale" and unrealized gains, net of
the related tax effect, are recorded as a separate component of stockholders'
equity. At December 31, 1993 and 1994, the cost of marketable equity securities
totaled $5,873 and $5,552, respectively; fair market value totaled $14,406 and
$5,727, respectively.
A decline in the market value of any marketable equity security below cost
that is deemed other than temporary results in an adjustment to the cost basis
of the security which is charged to the statement of operations.
(d) Inventories
Inventories, principally comprising raw materials, are stated at the lower of
cost or market. Cost is determined principally on the last-in, first-out (LIFO)
basis. Replacement cost of inventories was $1,433 and $1,945 at December 31,
1993 and 1994, respectively.
(e) Television Program Rights
Television program rights acquired under license agreements are recorded as
assets at the gross value of the related liabilities at the time the programs
become available for showing. The rights are amortized using accelerated
methods over the term of the applicable contract. Amortized costs are included
in operating expenses in the accompanying statements of operations.
Program rights classified as a current asset represent the total amount
estimated to be amortized within a year. Related liabilities due to licensers
are classified as current or long-term in accordance with the payment terms.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to income as incurred; significant
improvements are capitalized. The Company provides for depreciation using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements...................................... 2-45 years
Machinery and equipment......................................... 3-15
Furniture and fixtures.......................................... 5-11
Broadcast equipment............................................. 6-15
</TABLE>
F-9
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
When the Company determines that certain property, plant and equipment is
impaired, a loss for impairment is recorded for the excess of the carrying
value over the fair value of the asset. Fair value is determined by independent
appraisal, if an active market exists for the related asset. Otherwise, fair
value is estimated through forecasts of expected cash flows.
(g) License Costs, Goodwill and Other Intangible Assets
License costs and other intangible assets are stated at cost. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company provides for amortization using the straight-line method over
periods ranging from 5 to 40 years.
Amortization expense on intangible assets charged to continuing operations
totaled $3,851, $3,649 and $3,366 in 1992, 1993, and 1994, respectively.
Accumulated amortization on intangible assets totaled $33,440 and $36,002 at
December 31, 1993 and 1994, respectively.
The Company continually reviews its intangible assets to determine whether
any impairment has occurred. The Company assesses the recoverability of
intangible assets by reviewing the performance of the underlying operations, in
particular the future operating cash flows (earnings before income taxes,
depreciation, and amortization) of the acquired operation.
Costs of obtaining debt financing have been deferred and are being amortized
using the straight-line method over the period of the related debt. Deferred
financing costs totaled $7,097 at December 31, 1993 and 1994. Accumulated
amortization at December 31, 1993 and 1994 aggregated $985 and $1,876,
respectively.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
Effective January 1, 1992, the Company adopted Statement 109 and it has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1992 consolidated statement of operations (see note 7).
(i) Pension and Other Postretirement Benefits
The Company has defined benefit pension plans covering substantially all
employees of Providence Journal and certain employees of Broadcasting. The
plans are funded in accordance with the requirements of the Employee Retirement
Income Security Act.
The Company sponsors a defined life insurance and medical plan for its
newspaper and one of its broadcast operations, respectively. Effective January
1, 1992, the Company adopted Statement of Financial Accounting Standards No.
106, "Employer's Accounting for Postretirement Benefits Other than Pensions",
which establishes a new accounting principle for the cost of retiree health
care and other postretirement
F-10
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
benefits (see note 11). The cumulative effect of the change in method of
accounting for postretirement benefits other than pensions is reported in the
1992 consolidated statement of operations.
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative financial
instruments are used only to manage well-defined interest rate risks.
The Company has entered into interest rate swap agreements which are
accounted for as a hedge of the obligation and, accordingly, the net swap
settlement amount is recorded as an adjustment to interest expense in the
period incurred (see note 8). Gains and losses upon settlement of a swap
agreement are deferred and amortized over the remaining term of the agreement.
(k) Net Income Per Share
Net income (loss) per share is based on the weighted average number of Class
A and Class B shares of common stock outstanding. Restricted stock units and
stock options are both considered common stock equivalents. Common stock
equivalents were anti-dilutive for all periods in which the common stock
equivalents were outstanding.
(l) Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of and for the six months ended June
30, 1994 and 1995 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 order to facilitate 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, as amended on August 1, 1995, 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) Continental will purchase from King Broadcasting Company (King), a
wholly owned subsidiary of King Holding Corp., all of King's cable
television operations for an aggregate cash purchase price of $405,000 (the
"King Cable Purchase");
c) The Company will incur additional indebtedness of approximately
$685,000. Such indebtedness together with the proceeds from the King Cable
Purchase will be used to repay existing indebtedness of
F-11
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
the Company and King Holding Corp., complete the King acquisition (see (d)
below), pay costs associated with Merger and certain deferred compensation,
pay approximately $120,000 in taxes due as a result of the King Cable
Purchase, and purchase minority interests in other cable television
subsidiaries/investments; and,
d) The Company will acquire all of the capital stock of King Holding
Corp. (as discussed in note 3(a)), the Company presently owns 50% of such
capital stock). The Company has signed an agreement, dated January 18, 1995
with its joint venture partner, whereby both parties have agreed to the
acquisition by the Company of all capital stock of King Holding Corp. at a
purchase price of $265,000 (including transaction costs).
The merger will be completed by an exchange of shares of the Company (after
spin-off of all non-cable television businesses) for shares of capital stock of
Continental with a value equal to approximately $596,000. The number of
Continental shares exchanged may be reduced to the extent the Company is unable
to acquire minority interests in existing cable television
subsidiaries/investments.
In addition, Continental will assume substantially all liabilities of the
Company's cable television businesses, including $410,000 of the additional
indebtedness described in (c) above. However, the Company will indemnify
Continental from any and all liabilities arising from the non-cable television
businesses, and will be responsible for all Federal and state income tax
liabilities for periods ending on or before the closing date. Pursuant to such
indemnification, New Providence Journal has agreed that for a period of four
years subsequent to the closing it will not sell or otherwise dispose of
assets, nor will it pay dividends or make other distributions such that the
fair market value of New Providence Journal falls below specified levels.
The Company is obligated to make capital improvements to all cable systems
being sold, totaling $55,000 on an annualized basis, from November 18, 1994,
until the closing of the merger.
If the Merger Agreement is terminated under certain limited circumstances,
the Company may be required to pay Continental a termination fee of $42,000,
plus up to an additional $10,000 to reimburse Continental for reasonable fees
and expenses it incurred in connection with the merger transaction.
Consummation of the merger requires approval by the shareholders of the
Company and Continental, consent of the FCC to the transfer of control of
certain licenses issued to the Company, and consent and/or waiver from relevant
governmental authorities under certain franchises issued to the Company. As
such, closing of the merger is not expected to be completed until the second
half of 1995.
The net assets of the cable television businesses to be acquired by
Continental are presented in the accompanying consolidated balance sheets as
"net assets of discontinued operations". Discontinued assets consist primarily
of plant and equipment, and intangible assets. Liabilities to be assumed
consist primarily of accounts payable and accrued expenses.
The results of operations of the cable television segment, the cellular
system and the paging subsidiary have been reported as discontinued in the
accompanying consolidated statements of operations. Prior year
F-12
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
financial statements have been reclassified to present these businesses as
discontinued operations. Operating results of these discontinued operations
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................... $ 112,334 $ 177,417 $ 177,953
Costs and expenses......................... (107,824) (185,998) (180,597)
Equity in income of affiliate.............. 1,314 438 1,192
--------- --------- ---------
Income (loss) before income taxes.......... 5,824 (8,143) (1,452)
Income tax expense (benefit)............... 2,955 (1,087) 1,155
--------- --------- ---------
Net income (loss).......................... $ 2,869 $ (7,056) $ (2,607)
========= ========= =========
</TABLE>
Income (loss) from operations of discontinued segments includes allocated
interest expense totaling $8,774, $19,807 and $20,674 in 1992, 1993 and 1994,
respectively. Interest allocated to discontinued segments was limited to the
associated interest on debt that is to be repaid in connection with the merger.
The estimated loss on disposal of segments of $34,764, which is net of income
tax benefits of $8,038, includes severance packages, transaction costs and a
provision for loss during the phase-out period of approximately $6,800 (which
includes allocated interest of $21,671). In addition, in 1994 the Company sold
its remaining cellular system investment and its paging subsidiary. As a result
of these transactions, the Company recorded gains of $1,390 (net of phase-out
period operating losses and income taxes).
Included in discontinued operations is a 50% equity investment in
Copley/Colony, Inc. ("Copley/Colony"), a joint venture between Colony and
Copley Press Electronics Company ("Copley"), engaged in cable television
operations.
In connection with the Merger Agreement with Continental, Colony and Copley
have entered into a letter of intent agreement dated November 29, 1994, whereby
Copley would sell one thousand (1,000) shares of Class A common stock (which
represents Copley's entire interest in Copley/Colony) to Colony for a fixed
aggregate purchase price of $47,790 in cash. The purchase and sale of these
shares was consummated on May 9, 1995. Proceeds will be held in escrow until
approval of certain franchise authorities.
(3) INVESTMENTS IN AFFILIATED COMPANIES
(a) King Holding Corp.
In February 1992 Providence Journal acquired 50% of King Holding Corp. for
$105,000. King Holding Corp. subsequently acquired all of the common stock of
King Broadcasting Company ("King"), a company engaged in broadcast and cable
television operations, for $547,000. The Company has accounted for this
investment under the equity method.
In connection with this investment the Company received a transaction fee in
1992 totaling $6,000. The transaction fee paid to the Company in 1992 was for
time and effort incurred to structure the merger, secure debt financing, and
related matters. The Company also receives annual governance fees of $1,000,
all of which have been included with management fees from related parties in
the accompanying consolidated statements of operations. Providence Journal has
a management agreement with King to operate its broadcast stations and cable
systems and charged King base contracted management fees of $2,104, $2,525 and
$2,525 in 1992, 1993 and 1994, respectively, which has also been included in
management fees from related parties. The Company charged King $300 and $1,130
for accounting services in 1993 and 1994,respectively, and was also
F-13
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
reimbursed $2,202, $2,842 and $3,240, by King for expenses in its capacity as
manager in 1992, 1993 and 1994, respectively. No fee for accounting services
was charged in 1992.
As part of the initial financing of the King transaction, the Company was
awarded a warrant allowing for the purchase of 2,102 shares of Class B
nonvoting common stock at $0.10 per share. In addition, the management
agreement provides for the awarding of certain warrant bonuses, both on an
annual and cumulative basis, based on operating cash flow during defined
periods. The Company was awarded a warrant bonus providing for the purchase of
1,050, 339 and 163 shares, during 1992, 1993 and 1994, respectively, of King's
Class B nonvoting common stock at $0.10 per share. It is not management's
intention to exercise any outstanding warrants.
The Company can also earn cash bonuses based on operating cash flow achieved
during defined periods. The Company recorded a cash bonus under the management
agreement equal to $488 and $257 in 1992 and 1993, respectively. No cash bonus
was earned in 1994.
(b) Television Food Network, G.P.
In August 1993, the Company, through its wholly owned subsidiaries PJ
Programming, Inc. and Colony Cable Networks, Inc., acquired a 21% interest in
Television Food Network, G.P. The Company controls 20% of the voting interest
in the partnership, which was formed specifically to own and operate the
Television Food Network channel (TVFN). TVFN develops cable television
programming related to food, its preparation and other related topics. The
Company invested $5,001 and $2,500 in the partnership in 1993 and 1994,
respectively. In addition, it has agreed to invest $3,900 in 1995. The
investment is accounted for under the equity method.
Effective March 1994 the Company entered into a sub-lease agreement with TVFN
for use of the Company's C-band primary transponder. The lease is effective
through March 1999. Monthly lease payments received by the Company were $200
through September 1994 and $100, thereafter. The monthly lease payment will be
reduced for each additional sublease agreement the Company enters into. The
Company received $1,700 in rental payments from TVFN in 1994. The Company also
grants TVFN carriage rights on its cable networks.
(c) Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary
Colony/Linkatel Networks, Inc., invested in Linkatel Pacific, L.P. (a
development stage enterprise), with two other communications companies. The
Company has a 42% limited interest in the partnership, which was formed to
pursue the development of alternative access networks.
Through December 31, 1994, the Company had invested $4,507 in Linkatel
Pacific, L.P. In addition, the Company has committed to invest an additional
$4,500 during 1995. The investment is accounted for under the equity method.
F-14
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Summary combined financial information for King Holding Corp.; Television
Food Network, G.P.; and Linkatel Pacific, L.P. as of December 31, 1993 and
1994, and for the years ended December 31, 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Current assets......................................... $ 55,204 $ 47,082
Current liabilities.................................... (36,194) (51,537)
--------- ---------
Working capital...................................... 19,010 (4,455)
Property, plant and equipment, net..................... 59,850 70,166
Intangible and other assets............................ 155,055 141,154
Net assets of discontinued operations.................. 286,931 255,902
Long-term liabilities.................................. (329,725) (289,798)
--------- ---------
Net assets........................................... $ 191,121 $ 172,969
========= =========
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- ---------
<S> <C> <C> <C>
Revenues...................................... $ 84,466 $101,353 $ 119,015
======== ======== =========
Operating income.............................. $ 14,910 $ 9,218 $ 4,217
======== ======== =========
Loss from continuing operations............... $(13,937) $ (6,131) $ (13,242)
======== ======== =========
Net loss...................................... $(25,203) $(21,520) $ (37,157)
======== ======== =========
</TABLE>
(4) NOTES RECEIVABLE
In September 1990, Providence Journal advanced the Lowell Sun Publishing
Company and Lowell Sun Realty Company (collectively the "Lowell Sun") $25,650
and agreed to provide a $6,500 revolving credit facility. The loan and
revolving credit facility are available through March 1996. As of December 31,
1994 amounts outstanding bear interest at a floating rate of prime plus 1.25%.
The advance is collateralized by all assets of the Lowell Sun and an interest
in Lowell Sun stock. The principal balance receivable at December 31, 1993 and
1994 was $23,975 and $23,675, respectively.
As additional consideration for making the advance, the Lowell Sun granted
Providence Journal a warrant to acquire a 41.67% interest in the Lowell Sun.
The warrant is exercisable by Providence Journal between September 1993 and
September 1995. The exercise price is calculated based on the maximum amount
advanced by Providence Journal to the Lowell Sun. In the event that the warrant
is not exercised, Providence Journal will receive a percentage of the increase
in value of the Lowell Sun since September 1990 based upon the warrant formula.
In 1995, management informed Lowell Sun that it does not intend to exercise the
warrant.
The Company collected in full its note receivable, with a principal balance
including accrued interest of $14,716 and a carrying value of approximately
$11,800, with Dial Page, Inc. in November of 1992. The corresponding gain
($2,916) has been included in other income in the accompanying consolidated
statements of operations.
F-15
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, consist of the following at December
31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Land...................................................... $ 17,444 $ 17,054
Machinery and equipment................................... 80,516 78,503
Buildings and improvements................................ 76,216 75,608
Broadcast equipment....................................... 37,593 38,307
Furniture and fixtures.................................... 39,982 39,871
Construction in progress.................................. 651 1,564
-------- --------
252,402 250,907
Less accumulated depreciation............................. 110,082 120,620
-------- --------
$142,320 $130,287
======== ========
</TABLE>
Depreciation expense on property, plant and equipment used in continuing
operations totaled $17,715, $17,761 and $17,342 in 1992, 1993 and 1994,
respectively.
In 1993, the Company wrote down its investment in the Washington Street
Garage by $2,702. The Company wrote down its investment in the Omni Biltmore
Hotel by $561 in 1992.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Significant components of accrued expenses and other current liabilities
consisted of the following amounts at December 31:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Accrued costs on disposal of the cable television segment... $ -- $35,075
Deferred compensation....................................... -- 31,266
Accrued interest............................................ -- 7,263
Salaries, wages and other employee benefits................. 7,825 7,033
Unearned revenue............................................ 3,211 4,024
Purchase price payable on Palmer Communications, Inc.
acquisition................................................ 6,045 --
Other....................................................... 8,701 8,179
------- -------
$25,782 $92,840
======= =======
</TABLE>
(7) FEDERAL AND STATE INCOME TAXES
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1992. The cumulative effect of this change in accounting for income taxes of
$3,371 was determined as of January 1, 1992 and is included in the cumulative
effect of changes in accounting principles, net, in the consolidated statement
of operations for the year ended December 31, 1992. Income tax expense
(benefit) has been allocated as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Continuing operations............................. $11,837 $(5,765) $ 2,367
Operations of discontinued segments............... 2,955 (1,087) 1,155
Loss on disposal of segments...................... -- -- (8,038)
Extraordinary item................................ -- 799 --
Stockholder's equity.............................. -- -- 70
Changes in accounting principles.................. (4,460) -- --
------- ------- -------
$10,332 $(6,053) $(4,446)
======= ======= =======
</TABLE>
F-16
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal.................................. $13,316 $(3,137) $ 10,179
State......................................... (386) 2,044 1,658
------- ------- --------
$12,930 $(1,093) $ 11,837
======= ======= ========
Year ended December 31, 1993:
U.S. Federal.................................. $ (547) $(4,886) $ (5,433)
State......................................... (372) 40 (332)
------- ------- --------
$ (919) $(4,846) $ (5,765)
======= ======= ========
Year ended December 31, 1994:
U.S. Federal.................................. $ 6,272 $(3,258) $ 3,014
State......................................... (647) -- (647)
------- ------- --------
$ 5,625 $(3,258) $ 2,367
======= ======= ========
During the fourth quarter of 1994 the Company agreed to a final settlement
with the Internal Revenue Service (IRS) relating to examinations of its income
tax returns for the years 1984 through 1986. In addition, the Company also
agreed to a settlement in connection with the IRS initiative for settlement of
intangible asset issues.
Deferred tax liabilities previously recorded for uncertainties related to
income taxes in connection with prior purchase business combinations were
adjusted to reflect the revised tax basis resulting from the aforementioned
settlements. As a result of these adjustments, deferred tax liabilities and
goodwill associated with the purchase business combinations, were reduced by
approximately $12,500.
During 1994, the Company provided additional income tax expense of $6,000,
relating primarily to interest on settlements discussed above and various
contingencies on income tax exposures identified during on-going examinations.
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax income from continuing
operations as a result of the following:
<CAPTION>
1992 1993 1994
------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)....... $ 6,079 $(7,274) $ (6,818)
Increase (decrease) in income taxes resulting
from:
Reserve for tax contingencies and interest on
settlements.................................. -- -- 6,000
Equity in net loss of King Holding Corp....... 4,285 2,463 2,831
State and local income taxes, net of federal
income tax................................... 1,117 (219) (427)
Rehabilitation credit......................... -- (1,248) --
Amortization of goodwill...................... 138 271 231
Other, net.................................... 218 242 550
------- ------- --------
$11,837 $(5,765) $ 2,367
======= ======= ========
</TABLE>
F-17
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Deferred compensation................................. $ 14,892 $ 14,915
State net operating loss carryforwards................ 4,481 3,252
Investment and other reserves......................... 5,219 5,117
Partnership investment, principally due to book and
tax basis differences................................ 1,325 --
Self-insurance reserves............................... 1,103 1,027
Vacation accrual...................................... 811 702
Postretirement benefits............................... 942 1,897
Accounts receivable, principally due to allowance for
doubtful accounts.................................... 598 438
Loss on disposal of segments.......................... -- 7,021
Other................................................. 3,364 3,510
-------- --------
Total gross deferred tax assets..................... 32,735 37,879
Less valuation allowance............................ (4,535) (3,252)
-------- --------
Net deferred tax assets............................. 28,200 34,627
-------- --------
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest................ (19,470) (15,477)
Net intangibles, principally due to differences in
basis................................................ (11,758) (4,140)
Pension income........................................ (4,355) (4,016)
Partnership investment................................ -- (486)
Other................................................. (1,729) (1,926)
-------- --------
Total gross deferred tax liabilities................ (37,312) (26,045)
-------- --------
Net deferred tax asset (liability).................. $ (9,112) $ 8,582
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible, or the recovery of taxes
paid in the carryback period. Management considers the scheduled reversal of
deferred tax liabilities, available taxes in the carryback period, projected
future taxable income and tax planning strategies in making this assessment.
Management's analysis of the realizability of deferred tax assets indicates
that temporary differences relating to certain costs for the disposal of a
segment and certain amounts accrued for deferred compensation, will reverse in
1995. The net operating loss resulting in 1995, due to the reversal of these
temporary differences, can be carried back and offset in full by taxable income
for the year ended December 31, 1992, totaling approximately $42,000. Deferred
tax assets related to these temporary differences total approximately $17,000,
at December 31, 1994.
Based upon its consideration of the aforementioned items, management believes
it is more likely than not the Company will realize the benefits of recorded
deferred tax assets, net of the valuation allowance, as of December 31, 1994.
F-18
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The valuation allowance for deferred tax assets as of January 1, 1993 was
$4,141. The net change in the total valuation allowance was an increase of $394
in 1993 and a decrease of $1,283 in 1994. Changes to the valuation allowance
relate principally to deferred tax assets recorded for state net operating loss
carryforwards.
At December 31, 1994, the Company had net operating loss carryforwards for
state income tax purposes of approximately $60,052 which are available to
offset future state taxable income, if any, expiring in various years ending in
2009.
(8) LONG-TERM DEBT
At December 31, 1993 and 1994, long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of
interest averaging 4.8% and 5.8% in 1993 and 1994,
respectively............................................ $262,000 $243,655
Bonds payable at various rates of interest averaging 3.5%
payable through December 2022........................... 10,000 9,900
Note payable at an annual rate of interest equal to 18%
payable through April 2002.............................. 8,014 7,123
Other.................................................... 92 83
-------- --------
Total long-term debt................................... 280,106 260,761
Less current installments................................ 3,505 13,588
-------- --------
Long-term debt, excluding current installments......... $276,601 $247,173
======== ========
</TABLE>
Scheduled principal payments on outstanding debt total $260,761 and are due
in the following years: 1995--$13,588; 1996--$26,015; 1997--$45,525; 1998--
$60,035; 1999--$52,545 and thereafter--$63,053.
In September of 1992 the Company negotiated a $340,000 revolving credit and
term loan facility with a syndicate of banks to refinance existing debt,
complete certain acquisitions and finance working capital requirements. The
agreement consists of a $240,000 two-year revolving credit, converting to a
seven-year term loan with a final maturity of September 30, 2001 and a $100,000
eight-year revolving credit with a final maturity of September 30, 2000. The
agreement provides for borrowings indexed to the higher of the managing banks'
prime rate or federal funds rate, the certificate of deposit rate or eurodollar
rate at the option of the Company, plus certain margins as defined in the
agreement. A commitment fee of 3/8% per annum is payable on the unused portion
of the facilities, quarterly in arrears. At December 31, 1994, the Company had
$93,845 available for use under the agreement. Commitments under the $240,000
revolving credit and term loan began reducing on a quarterly basis in the
fourth quarter of 1994. Quarterly reductions will range from $2,500 to $15,500
over the term of the loan.
The facilities are secured by a pledge of stock of Colony Communications,
Inc. and its subsidiaries, Providence Journal Broadcasting Corp. and its
subsidiaries, in addition to a pledge of intercompany notes due to the Company
from Providence Journal Broadcasting Corp.
The revolving credit and term loan facilities contain restrictive covenants
which, among other things, include limitations as to levels of indebtedness,
capital expenditures and sales of subsidiaries.
F-19
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
In January 1993, the Company retired an industrial revenue bond with a face
value of $9,500 for $7,150. The gain resulting from this transaction, totaling
$1,551 net of tax, has been presented as an extraordinary item in the 1993
statement of operations. In addition, during December 1993 the Company settled
the 11.25% note payable and incurred a prepayment penalty equal to $546
(included with discontinued operations). Both retirements were funded through
additional borrowings under the revolving credit and term loan facility.
In November 1992, the Company entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its revolving credit and term
loan facilities described above. The interest rate under the swap agreement is
equal to 6.71% plus an applicable margin as defined in the revolving credit and
term loan facility which effectively sets the interest rate at 8.1% on the
first $200,000 of outstanding debt. The Company recorded additional interest
expense during 1993 and 1994 totaling approximately $6,883 and $4,880,
respectively, which represents the excess of the swap agreement rate over the
original contractual rate. The notional amounts and respective periods covered
under the agreement are as follows:
<TABLE>
<CAPTION>
AMOUNT PERIOD
------ ------
<S> <C>
$200,000............................... December 30, 1992--December 30, 1996
$175,000............................... December 30, 1996--December 30, 1997
$150,000............................... December 30, 1997--December 30, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement, however, the Company does not
anticipate nonperformance under the agreement.
(9) TELEVISION PROGRAM RIGHTS PAYABLE
Television program rights payable consist of the gross value of payments due
on the acquisition of program rights. Future payments total $7,364 and are due
in the following years: 1995--$4,542; 1996--$1,619; 1997--$934; 1998--$162; and
1999--$107.
Television program rights are reviewed periodically and, if necessary,
adjusted to estimated net realizable value. Accumulated amortization on
television program rights totaled $17,272 and $24,628 at December 31, 1993 and
1994, respectively.
(10) OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options
for land, buildings, machinery and equipment. Future minimum lease payments
under noncancelable operating leases are due in the following years: 1995--
$4,631; 1996--$3,826; 1997--$3,661; 1998--$3,228; 1999--$2,929; and
thereafter--$16,056. Gross rental expense for the years ended December 31,
1992, 1993 and 1994, was $1,604, $2,173, and $5,167, respectively.
Future minimum rental income under noncancelable subleases is as follows:
1995--$2,146; 1996--$2,338; 1997--$2,565; 1998--$2,838; and 1999--$1,704.
Sublease rental income totaled $2,100 in 1994. There was no sublease rental
income in 1992 and 1993.
(11) PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plans
The Company has two noncontributory defined benefit retirement plans. The
Company's funding policy for the defined benefit plans is to contribute such
amounts as are deductible for federal income tax purposes. Benefits are based
on the employee's years of service and average compensation immediately
preceding retirement.
F-20
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The funded status of the defined benefit plans is as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations............................ $(47,939) $(49,956)
======== ========
Accumulated benefit obligations....................... $(51,926) $(54,169)
======== ========
Projected benefit obligations........................... $(68,045) $(71,227)
Plan assets at fair value (primarily corporate equity
and debt securities, government securities and real
estate)................................................ 95,230 89,106
-------- --------
Excess of plan assets over projected benefit
obligations.......................................... $ 27,185 $ 17,879
======== ========
</TABLE>
Certain changes in the items shown above are not recognized as they occur,
but are amortized systematically over subsequent periods. Unrecognized amounts
to be amortized and amounts included in the consolidated balance sheets are
shown below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Unrecognized net gain (loss)............................... $ 1,564 $(8,336)
Unrecognized net transition asset being amortized
principally over 18 years................................. 13,184 11,956
Unrecognized prior service cost due to plan amendment...... (3,856) (3,504)
Prepaid pension cost (included in other assets)............ 16,293 17,763
------- -------
Excess of plan assets over projected benefit obligations. $27,185 $17,879
======= =======
</TABLE>
The components of 1992, 1993 and 1994 pension income as determined by the
plans' actuary, are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost..................................... $(1,556) $(1,971) $(2,017)
Interest cost.................................... (4,309) (5,022) (5,093)
Actual return on plan assets..................... 6,594 8,681 (2,724)
Net amortization of unrecognized net assets and
deferrals....................................... 1,284 (691) 11,304
------- ------- -------
Pension income................................. $ 2,013 $ 997 $ 1,470
======= ======= =======
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 8.0% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.5 5.0 5.0
Expected long-term rate of return on assets................ 8.5 8.5 8.5
</TABLE>
(b) Defined Contribution and Incentive Compensation Plans
The Company contributes to defined contribution plans based on the amount of
each employee's plan contribution, not to exceed a predetermined amount as
defined by each plan. The total expense of these plans was $1,115, $1,086 and
$1,150 in 1992, 1993 and 1994, respectively.
F-21
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The Company has a deferred incentive compensation plan which is administered
by the Executive Committee of the Board of Directors. The expense under this
plan was $2,492, $5,330 and $12,747 in 1992, 1993 and 1994, respectively. On
October 26, 1994, the Company's Board of Directors voted to terminate and pay-
out the aforementioned deferred incentive compensation plan. Payment will be
made in 1995 upon revaluation of the Company. As of December 31, 1993 and 1994,
the amount accrued under this plan equaled $23,385 and $31,266, respectively.
The 1994 amount has been classified as current.
(c) Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plans, Broadcasting
provides postretirement medical benefits to a limited group of employees and
the Journal provides postretirement life insurance benefits to substantially
all of its employees. The plans are non-contributory and are not funded.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", as of
January 1, 1992. The cumulative effect of adopting Statement 106 was recognized
in full during 1992 and totaled $2,114 (net of income taxes).
The Company's accrued postretirement benefit cost as of December 31, 1993 and
1994 was $3,008 and $3,086, respectively, consisting primarily of accumulated
postretirement benefit obligations for retirees. Net periodic postretirement
benefit cost for 1992, 1993 and 1994 totaled $251, $252 and $300, respectively,
consisting primarily of interest costs.
For measurement purposes relating to the medical plan, a medical trend rate
of 17.0% for pre-65 year old participants was used grading to 7.0% after ten
years and a medical trend rate of 12.0% for post-64 year old participants was
used grading to 6.0% after six years. A 1% change in the medical trend rate
does not result in a material impact to the Company's reported postretirement
benefits. The discount rate used in determining the accumulated postretirement
benefit obligation for the medical and life insurance plans was 7.5% in 1993
and 1994.
(d) Supplemental Retirement Plan
The Company maintains an unfunded supplemental retirement plan which provides
supplemental benefits to a select group of senior management employees. At
December 31, 1993 and 1994, the vested benefit obligation was $211 and $376,
respectively, and the accumulated benefit obligation was $1,649 and $2,593,
respectively. The projected benefit obligation totaled $4,154 and $4,955,
respectively, at December 31, 1993 and 1994.
The net periodic pension cost for 1993 and 1994 was $1,501 and $997,
respectively, consisting of service and interest costs. An assumed discount
rate of 7.5% and compensation level increase rate of 5.0% were used at December
31, 1993 and 1994.
(e) Restricted Stock Unit Plan
During 1993, the Company established a Restricted Stock Unit Plan for certain
key executives. Participants are awarded restricted stock units with each unit
being equivalent to one share of Class A Common Stock. Restricted stock units,
including additional units accrued as a result of dividends and reinvested
dividends, will be 100% vested at the end of three years from the date of the
award. Upon vesting, the restricted stock units will be paid out, net of taxes,
in actual shares of Class A Common Stock. Participants will be offered an
opportunity to defer such payout. Vesting is accelerated for death, total
F-22
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
disability, termination other than for cause, and for retirement (pro-rata). In
connection with the Plan, a total of 680 Class A shares have been reserved. As
of December 31, 1993 and 1994, 655 and 666 units, respectively, were awarded.
Compensation expense, included in continuing operations, totaled $405 and
$2,400, during 1993 and 1994, respectively.
(f) Stock Option Plans
Effective October 1, 1994, the Board of Directors of the Company adopted the
"1994 Employee Stock Option Plan" and the "1994 Non-Employee Director Stock
Option Plan", (The "Option Plans"). The Option Plans are being submitted for
approval, by the stockholders of the Company, at its Annual Meeting in 1995. If
such approval has not occurred by September 28, 1995, the aforementioned Option
Plans will be terminated, and any option grants previously made shall be void.
Assuming that approval is obtained prior to September 28, 1995, and assuming
stockholder approval of the Plan of Reorganization and the Merger, the Option
Plans will remain in effect until the earlier of October 1, 1999 or termination
of the aforementioned Option Plans by the Board of Directors of New Providence
Journal.
Under the terms of the Option Plans, key employees recommended by the
Executive Committee of the Board (or by any other committee appointed by the
Board consisting of two or more non-employee Directors) and all ten non-
employee directors, are eligible to receive grants of stock options. The
maximum number of shares of Class A Common Stock that can be used for purposes
of the Option Plans is 4,000. Shares may be awarded from authorized and
unissued shares or from treasury shares, as determined by the Executive
Committee.
Options granted under the "1994 Employee Stock Option Plan" are exercisable
in four equal annual installments beginning one year after the grant date.
Options under the "1994 Non-Employee Director Stock Option Plan" are
exercisable on the first anniversary date of the grant. Options granted under
both plans have a term of ten years.
Upon a "Change of Control" as defined in the Option Plans, all options
granted will become immediately vested and exercisable. During 1994, 687
options were granted, at an exercise price of $7,700. None of the options were
exercisable as of December 31, 1994.
(g) Change in Control Agreements
The Company has agreements with various management employees which only
become effective upon a change-in-control of the Company. These agreements were
executed effective October 11, 1993.
In event of a change of control, the agreements offer a maximum three year
term of employment with responsibilities, compensation, and benefits at least
commensurate as those during the prior six (6) months. If terminated
involuntarily, the individuals are entitled to a maximum of 299% of their
highest base pay and average bonus received during the prior three years as a
lump sum severance payment. In a supplemental agreement, also executed on
October 11, 1993, the Company committed to paying the severance stated above in
the event an individual was involuntarily terminated as a result of corporate
restructuring, even if prior to a change-in-control.
(12) ACQUISITION
In December 1992, the Company completed the acquisition of the cable
television assets of Palmer Communications, Inc. (Palmer) for approximately
$326,000. The Company has accounted for this acquisition as a purchase and has
included the results of operations in the accompanying consolidated financial
statements from the date of acquisition.
F-23
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
In December 1990, the Company advanced Palmer $210,500 in cash comprising a
six-year term loan of $205,500 and revolving credit commitment of $5,000. In
December 1992, the note was settled in full in connection with the acquisition
of Palmer's cable television assets. Interest income earned on this note
totaled $31,452 during 1992.
(13) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Current Assets and Liabilities
The carrying amount of cash, trade receivables, trade accounts payable and
accrued expenses approximates fair value because of the short maturity of these
instruments.
(b) Notes Receivable
The fair values of the Company's notes receivable are based on the amount of
future cash flows associated with each instrument, discounted using current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same maturities.
(c) Long-Term Debt and Obligations for Television Program Rights
The fair values of each of the Company's long-term debt instruments are based
on the amount of future cash flows associated with each instrument discounted
using the Company's current borrowing rate, for similar debt instruments of
comparable maturity.
The fair value of obligations for television program rights are based on
future cash flows, discounted using the Company's current borrowing rate, over
the term of the related contract.
(d) Interest Rate Swaps
The fair value of interest rate swaps is the amount at which they could be
settled, based on estimates obtained from dealers. The amount of payment
required to settle outstanding interest rate swaps at December 31, 1993
approximated $12,135. At December 31, 1994 settlement approximated a $9,443
receivable to the Company. At June 30, 1995, the amount of payment required to
settle outstanding interest rate swaps approximated $4,726.
(e) Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The estimated fair value of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1993 AT DECEMBER 31, 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Notes receivable.............. $ 22,599 $ 22,599 $ 19,513 $ 19,513
========== ========== ========== ==========
Long-term debt................ $ 280,106 $ 283,409 $ 260,761 $ 263,430
========== ========== ========== ==========
Television program rights
payable...................... $ 7,497 $ 7,016 $ 7,364 $ 6,458
========== ========== ========== ==========
</TABLE>
F-24
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(14) COMMITMENTS AND CONTINGENCIES
The Company has outstanding payment commitments at December 31, 1994, for not
yet available broadcast television programming, totaling $22,950.
The Company has insurance programs for workers' compensation, general
liability, auto and certain health coverages which comprise a form of self-
insurance. The Company's liability for large losses is capped, individually and
in the aggregate, through contracts with insurance companies. In addition, the
Company is self-insured for environmental hazards. An estimate for claims
incurred but not paid is accrued annually.
The Company is party to various claims, legal actions and complaints arising
in the ordinary course of business. In the opinion of management, all such
matters are adequately covered by insurance or, if not so covered, are without
merit or are of such kind, or involve such amounts, that unfavorable
disposition would not have a material effect on the consolidated financial
position or results of operations of the Company.
The Company has a letter of credit commitment in an amount not to exceed
$12,000 in support of industrial revenue bonds of a wholly-owned subsidiary.
In 1987, the Company repurchased approximately 8% of its outstanding shares
of common stock from an unaffiliated party. On July 14, 1995, the Company
agreed to pay this unaffiliated party an amount to be determined just prior to
the contemplated merger with Continental in full settlement under the terms of
the redemption agreement dated April 15, 1987. Management believes this
settlement will not be material to the financial statements.
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act). As a
result the 1992 Cable Act, several cable television systems of the Company are
subject to regulation by local franchise authorities and/or the FCC.
Regulations imposed by the 1992 Cable Act, among other things, allow regulators
to limit and reduce the rates that cable operators can charge for certain basic
cable television services and equipment rental charges. The Company has been
notified by certain franchise authorities that various regulated rates charged
to subscribers were in excess of the rates permitted. The Company has reviewed
the notifications as well as the disputed rates and has accrued amounts for
refunds it believes will be made.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operations
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
On August 12, 1994, Department of Insurance regulators seized control of
Confederation Life Insurance Company. The Company's Qualified Compensation
Deferral Plan has an investment contract with Confederation Life Insurance
Company. The contract was entered into in 1991 and is scheduled to mature on
January 2, 1996. As a result of the seizure, the value of the contract as of
August 11, 1994, has been frozen at $3,840. The Company has agreed to guarantee
the difference between the amount eventually paid by the regulators and the
contract value on the seizure date. To date this amount cannot be quantified.
The Company's share of other allocated fees associated with the settlement
process would not have a material effect on the consolidated financial position
or results of operations of the Company.
(15) STOCKHOLDERS' EQUITY
The Company has two classes of common stock: Class A and Class B. Each class
has the same rights and privileges, except that Class A common stock is
entitled to one vote per share, whereas Class B common stock is entitled to
four votes per share. In addition, the transfer of Class B common stock is
limited to "Permitted Transferees" only, otherwise the shares convert to Class
A common stock upon sale.
F-25
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Effective September 26, 1990, pursuant to a shareholder rights agreement, the
Company issued to shareholders one common stock right for each share of Class A
or Class B common stock then outstanding. The right entitles the holder to
purchase one share of Class A or Class B common stock at a purchase price of
$35,000 per share. Upon the occurrence of certain events, as defined in the
rights agreement, the Board of Directors may order the exchange of three common
shares for each right held. The shareholder rights agreement will be terminated
in connection with the closing under the Merger Agreement and a substantially
similar agreement will be entered into by New Providence Journal.
Treasury stock at December 31, 1993 and 1994, consisted of 221 and 641, Class
A shares and 206 and 320 Class B shares, respectively.
(16) BUSINESS SEGMENT INFORMATION
The Company operates in principally two industries, publishing and broadcast
television. Publishing consists primarily of the publication and sale of the
only daily newspaper serving Rhode Island and parts of southeastern
Massachusetts. Broadcast television consists of four stations that serve
markets in Louisville, Charlotte, Tucson and Albuquerque.
F-26
<PAGE>
PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Operating results and other financial data for the principal business
segments of the Company for 1992, 1993 and 1994 are presented below. Operating
income (loss) by business segment is total revenue less operating expenses.
Other income (expense), income taxes and extraordinary items have all been
excluded from the computation of operating income (loss) by segment.
Identifiable assets by business segment are those assets used in Company
operations in each segment. Capital expenditures are reported exclusive of
acquisitions.
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Publishing.................................. $120,516 $124,914 $127,893
Broadcasting................................ 43,281 45,506 54,024
Other....................................... 9,782 10,053 10,374
-------- -------- --------
$173,579 $180,473 $192,291
======== ======== ========
Operating income (loss):
Publishing.................................. $ 10,590 $ 9,891 $ 9,233
Broadcasting................................ (5,276) (2,213) 5,576
Corporate................................... (14,441) (20,886) (26,386)
Other....................................... (646) (2,651) 881
-------- -------- --------
$ (9,773) $(15,859) $(10,696)
======== ======== ========
Identifiable assets
Publishing.................................. $158,878 $162,327 $174,108
Broadcasting................................ 116,837 108,305 85,724
Discontinued operations, net................ 403,080 396,260 364,010
Investments in affiliated companies......... 93,691 90,685 83,966
Other....................................... 20,947 18,108 16,905
-------- -------- --------
$793,433 $775,685 $724,713
======== ======== ========
Depreciation and amortization:
Publishing.................................. $ 10,387 $ 11,426 $ 11,198
Broadcasting................................ 10,162 8,682 7,856
Other....................................... 1,017 1,304 1,654
-------- -------- --------
$ 21,566 $ 21,412 $ 20,708
======== ======== ========
Capital expenditures
Publishing.................................. $ 14,870 $ 9,962 $ 3,756
Broadcasting................................ 3,746 1,368 1,587
Other....................................... 1,414 267 1,138
-------- -------- --------
$ 20,030 $ 11,597 $ 6,481
======== ======== ========
</TABLE>
F-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, 1993 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period February 25, 1992 (date of commencement of operations) to December
31, 1992 and for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Holding Corp. and
subsidiaries at December 31, 1993 and 1994, and the results of their operations
and their cash flows for the periods ended December 31, 1992, 1993 and 1994, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-28
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994, AND JUNE 30, 1995
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents.................... $ 833 $ 3,578 $ 570
Accounts receivable--net..................... 23,685 26,801 25,401
Film and syndication rights, current portion. 10,589 7,995 2,378
Prepaid and other current assets............. 2,137 1,604 2,369
-------- -------- --------
Total current assets....................... 37,244 39,978 30,718
-------- -------- --------
PROPERTY AND EQUIPMENT--Net.................... 58,389 58,131 56,999
-------- -------- --------
OTHER ASSETS:
Film and syndication rights, long-term
portion..................................... 4,567 787 663
Deferred financing costs--net................ 12,107 10,625 9,883
Intangible assets--net....................... 130,887 124,070 120,690
Long-term pension asset...................... 3,481 2,927 2,535
Other assets................................. 94 44 42
-------- -------- --------
Total other assets......................... 151,136 138,453 133,813
-------- -------- --------
NET ASSETS OF DISCONTINUED OPERATIONS.......... 286,930 255,902 250,443
-------- -------- --------
TOTAL ASSETS............................... $533,699 $492,464 $471,973
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt............ $ 15,000 $ 28,804 $ 33,606
Current portion of film and syndication
rights...................................... 9,614 7,753 2,703
Accounts payable and other accrued expenses.. 9,756 12,247 4,816
-------- -------- --------
Total current liabilities.................. 34,370 48,804 41,125
LONG-TERM OBLIGATIONS:
Long-term debt............................... 300,000 265,245 248,862
Film and syndication rights obligations...... 5,525 1,501 1,210
Deferred income taxes........................ 17,948 17,202 17,202
Other........................................ 5,213 5,721 5,662
-------- -------- --------
Total liabilities.......................... 363,056 338,473 314,061
-------- -------- --------
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................... 210,314 210,314 210,314
Accumulated deficit.......................... (39,692) (56,344) (52,423)
-------- -------- --------
Total stockholders' equity................. 170,643 153,991 157,912
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $533,699 $492,464 $471,973
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND YEARS ENDED DECEMBER 31, 1993
AND 1994 AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Gross broadcast revenue.... $ 97,241 $117,967 $135,177 $ 61,059 $ 66,261
Less agency commission..... 12,775 15,627 18,118 8,101 8,897
-------- -------- -------- -------- --------
Net revenues............. 84,466 102,340 117,059 52,958 57,364
-------- -------- -------- -------- --------
COST AND EXPENSES:
Operating.................. 38,666 44,005 48,734 22,884 23,661
Selling, general, and
administrative............ 23,415 25,233 27,179 11,881 13,543
Management and other fees
paid to related parties... 2,131 2,034 2,624 1,312 1,312
Depreciation and
amortization.............. 12,364 14,697 13,746 6,957 6,824
-------- -------- -------- -------- --------
Total.................... 76,576 85,969 92,283 43,034 45,340
-------- -------- -------- -------- --------
OPERATING INCOME............. 7,890 16,371 24,776 9,924 12,024
OTHER INCOME (EXPENSE):
Interest expense, net of
allocation to discontinued
operations................ (7,696) (8,972) (8,694) (4,311) (4,136)
Other--net................. 24 288 24 174 95
-------- -------- -------- -------- --------
Total other expense (7,672) (8,684) (8,670) (4,137) (4,041)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERA-
TIONS BEFORE INCOME TAXES... 218 7,687 16,106 5,787 7,983
INCOME TAX PROVISION......... 1,620 6,787 8,843 3,225 4,062
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.................. (1,402) 900 7,263 2,562 3,921
LOSS FROM DISCONTINUED CABLE
OPERATIONS, NET OF TAXES.... (11,266) (15,389) (11,837) (5,822) --
PROVISION FOR LOSS ON DISCON-
TINUED CABLE OPERATIONS DUR-
ING PHASE-OUT PERIOD, NET OF
TAXES....................... -- -- (12,078) -- --
-------- -------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY
ITEM........................ (12,668) (14,489) (16,652) (3,260) 3,921
EXTRAORDINARY ITEM--LOSS ON
EXTINGUISHMENT OF DEBT, NET
OF TAXES.................... (12,535) -- -- -- --
-------- -------- -------- -------- --------
NET LOSS..................... $(25,203) $(14,489) $(16,652) $ (3,260) $ 3,921
======== ======== ======== ======== ========
INCOME (LOSS) PER COMMON
SHARE:
Income (loss) from
continuing operations..... $ (7.79) $ 4.26 $ 34.38 $ 12.13 $ 18.57
Discontinued operations.... (62.60) (72.86) (113.23) (27.57) --
Extraordinary item......... (69.66) -- -- -- --
-------- -------- -------- -------- --------
Net loss per common share.. $(140.05) $ (68.60) $ (78.85) $ (15.44) $ 18.57
======== ======== ======== ======== ========
Weighted average shares out-
standing.................... 179,952 211,198 211,198 211,198 211,198
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND YEARS ENDED DECEMBER 31, 1993
AND 1994 AND SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------
ADDITIONAL TOTAL
CLASS CLASS PAID-IN ACCUMULATED STOCKHOLDERS'
A B CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
CAPITALIZATION OF THE
COMPANY AT THE ACQUISITION
DATE
(February 25, 1992)........ $-- $ 21 $209,979 $ 210,000
Net loss.................. $(25,203) (25,203)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1992 -- 21 209,979 (25,203) 184,797
Compensation costs related
to warrant bonuses....... 335 335
Net loss.................. (14,489) (14,489)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1993.. -- 21 210,314 (39,692) 170,643
Net loss.................. (16,652) (16,652)
------ ----- -------- -------- ---------
BALANCE, DECEMBER 31, 1994.. -- 21 210,314 (56,344) 153,991
Net income (unaudited).... 3,921 3,921
------ ----- -------- -------- ---------
BALANCE, JUNE 30, 1995 (un-
audited)................... $-- $ 21 $210,314 $(52,423) $ 157,912
====== ===== ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND YEARS ENDED DECEMBER 31, 1993
AND 1994 AND SIX MONTHS ENDED JUNE 30, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations......................... $ (1,402) $ 900 $ 7,263 $ 2,562 $ 3,921
-------- -------- -------- -------- --------
Adjustments to reconcile income
(loss) from continuing operations
to net cash provided by operating
activities:
Depreciation and amortization...... 12,364 14,697 13,746 6,957 6,824
Loss on disposal of fixed assets... 345 -- 464 -- --
Compensation costs related to
warrant bonuses................... -- 335 -- -- --
Deferred income taxes.............. (13,603) 18 (746) -- --
Changes in assets and liabilities:
Accounts receivable............... 5,755 (4,695) (3,116) 855 1,400
Prepaid and other current assets.. 1,124 905 533 279 (765)
Accounts payable and other accrued
expenses......................... (2,422) 838 2,491 (3,901) (7,430)
Other, net........................ 1,263 575 2,595 755 1,234
Film rights assets and
liabilities...................... (1,509) (1,286) 489 578 400
-------- -------- -------- -------- --------
Total adjustments................ 3,317 11,387 16,456 5,523 1,663
-------- -------- -------- -------- --------
Net cash provided by continuing
operating activities............ 1,915 12,287 23,719 8,085 5,584
-------- -------- -------- -------- --------
Loss from discontinued operations... (11,266) (15,389) (11,837) (5,822) --
Adjustment to derive cash flows from
discontinued operating activities:
Change in net operating assets..... 25,571 37,318 31,997 18,678 12,767
-------- -------- -------- -------- --------
Net cash provided by discontinued
operating activities............. 14,305 21,929 20,160 12,856 12,767
-------- -------- -------- -------- --------
Net cash provided by operating
activities....................... 16,220 34,216 43,879 20,941 18,351
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments...... 608 -- -- -- --
Purchase of property and equipment.. (3,050) (3,086) (7,136) (1,461) (2,469)
Increase in other assets, net....... (45) (250) -- -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities of continuing
operations....................... (2,487) (3,336) (7,136) (1,461) (2,469)
Net cash used in investing
activities of discontinued
operations....................... (11,859) (14,691) (13,047) (5,606) (7,311)
-------- -------- -------- -------- --------
Net cash used in investing
activities....................... (14,346) (18,027) (20,183) (7,067) (9,780)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable........... (19,000) (16,000) (20,951) (12,350) (11,581)
Early extinguishment of debt........ (12,535) -- -- -- --
-------- -------- -------- -------- --------
Net cash used in financing
activities....................... (31,535) (16,000) (20,951) (12,350) (11,581)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE)................ (29,661) 189 2,745 1,524 (3,010)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD (INCLUDING CASH AND CASH
EQUIVALENTS INCLUDED IN NET ASSETS
OF DISCONTINUED OPERATIONS)......... 30,348 687 876 876 3,621
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD:
Continuing operations............... 647 833 3,578 2,357 570
Included in net assets of
discontinued operations............ $ 40 $ 43 $ 43 $ 43 $ 41
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FEBRUARY 25, 1992 TO DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--King Holding Corp. (the Company) owns and operates certain
television stations and cable television properties throughout the central and
western United States and Hawaii. The Company was formed as a joint venture
between the Providence Journal Company and subsidiaries (the Providence
Journal) and an investment banking organization (the Investor Stockholder). The
Providence Journal and Investor Stockholder each own a 50% interest in the
Company. On February 25, 1992, the Company acquired the outstanding capital
stock of King Broadcasting Company (Broadcasting), the parent company of King
Videocable Company (Videocable), for a purchase price of approximately $364,000
plus assumed liabilities aggregating $183,000 (the Acquisition). The
Acquisition has been accounted for as a purchase, and accordingly, the
accompanying consolidated statements of operations, stockholders' equity, and
cash flows include the operations of the Company and its subsidiaries
commencing February 25, 1992. The purchase price was funded through the initial
capitalization of the Company and proceeds received from debt financing with a
syndicate of banks (see Note 5). As part of the initial capitalization of the
Company, the Providence Journal was awarded a warrant allowing for the purchase
of 2,012 shares of Class B nonvoting common stock at $.10 per share.
During 1994 the Company entered into a plan to dispose of its Cable
operations (see Note 2).
Summary of Significant Accounting Policies
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The accompanying
consolidated financial statements differ from those previously issued by the
Company due to the reporting of its discontinued cable operations (see Note 2).
All significant transactions between the consolidated entities have been
eliminated (see Note 9).
Interim Financial Information--The consolidated financial statements for the
six months ended June 30, 1994 and 1995 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.
Investment in Nonconsolidated Partnerships--The Company has made certain
investments in media partnerships as a limited and general partner with voting
interests of approximately 10% and 50%, respectively. These investments are
accounted for using the equity method and are included in net assets of
discontinued operations. Income attributable to the Company's proportional
share of the partnership earnings is reported within other expense.
Allowance for Doubtful Accounts--The allowance for doubtful accounts of the
continuing operations at December 31, 1993 and 1994 aggregated $715 and $1,200,
respectively.
Property and Equipment--Property and equipment are recorded at cost, or in
the case of property and equipment acquired as a result of the Acquisition, at
appraised fair value at the date of purchase. Cable system betterments,
including materials, labor and interest, are recorded at cost. Depreciation and
amortization are
F-33
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
provided using the straight-line method over the estimated useful lives of the
related assets, generally three to twenty years.
In 1993, due to provisions of the Cable Television Consumer Protection and
Competition Act of 1992 (Cable Act) which effectively transferred ownership of
wiring and additional outlets installed in a customer's residence, Videocable
accelerated the depreciation of these items based upon the estimated customer
churn rate and expensed all costs of installation and wiring in the home as
incurred effective January 1, 1993.
Deferred Financing Costs--Costs of obtaining debt financing have been
deferred and are being amortized using the straight-line method over the
amortization period of the related debt (ten years). Included in such costs are
$12,000 of fees paid to the Company's stockholders to assist in the arrangement
of the financing. Accumulated amortization at December 31, 1993 and 1994
aggregated $2,718 and $4,201, respectively.
Intangible Assets--Intangible assets are recorded at their appraised fair
value at the date of Acquisition. Amortization is provided using the straight-
line method over the estimated useful lives of the related assets, generally
fifteen to forty years. The Company evaluates the recoverability of intangible
assets by reviewing the performance of the underlying operations, in particular
the future undiscounted operating cash flows. The Company also evaluates the
amortization periods of the intangible assets to determine whether events or
circumstances warrant revised estimates of useful lives.
Film and Syndication Rights--Assets and liabilities related to film and
syndication rights are recorded at cost, when the related film or television
series is available for broadcast. Film rights assets are amortized using
principally accelerated methods, based on the anticipated value of each film
showing and the number of anticipated showings. Syndication rights are
amortized ratably over the term of the series expected showing.
Cash and Cash Equivalents--The Company considers all short-term, highly
liquid investments purchased with remaining maturities of three months or less
to be cash equivalents.
Supplemental cash flow information for the periods ended December 31, 1992,
1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest expense....................... $22,765 $25,453 $25,165
Cash paid for income taxes........................... 373 3,021 4,736
</TABLE>
Income Taxes--Deferred income taxes are provided to recognize temporary
differences between book and tax bases of the Company's assets and liabilities
and the effects of credits and other items not yet recognized for tax purposes.
Interest Rate Swaps--The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Derivative
financial instruments are used only to manage well-defined interest rate risks.
The Company has entered into interest rate swap agreements which are
accounted for as a hedge of the obligation and accordingly, the net swap
settlement amount is recorded as an adjustment to interest expense in the
period incurred. Gains and losses upon settlement of a swap agreement are
deferred and amortized over the remaining term of the agreement.
F-34
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Net Loss Per Common Share--Net loss per common share is computed using the
weighted average number of common shares outstanding during the year.
2. DISCONTINUED OPERATIONS
In November 1994, the Providence Journal entered into an agreement with
Continental Cablevision, Inc. (Continental) whereby Continental would acquire
all of the Providence Journal's cable operations, both wholly and partly owned.
Under the terms of the agreement, as modified in August 1995 (the August
Modification), in an integrated transaction, Broadcasting would sell its entire
interest in Videocable to Continental for proceeds expected to approximate $405
million. Simultaneously with this transaction, the Providence Journal would
then acquire the remaining 50% interest in the Company held by the Investor
Stockholder, thus becoming sole owner of the Company. Immediately thereafter,
the remaining cable operations of the Providence Journal would be merged into
Continental in accordance with the terms of the agreement in a tax-free
transaction.
Prior to the August Modification, the transaction had been structured to
qualify as a tax-free exchange effected through a distribution of assets to the
shareholders, which would have resulted in no gain or loss for the Company.
Accordingly, the Company provided for the anticipated operating losses of
Videocable through the expected date of its disposal in the Company's 1994
financial statements. The provision for loss during the phase-out period,
recorded by the Company during 1994, including allocated interest of $18,258,
net of taxes was $12,078. Videocable's net loss for the six months ended June
30, 1995, $5,700 has been charged against the accrual recorded during 1994 to
provide for such expected losses.
Proceeds of the transaction are expected to be used to repay all of the
Company's existing long-term debt and to settle the outstanding interest rate
swaps. The transaction, as currently structured, is expected to result in a
gain to the Company, after tax.
A number of legal and regulatory approvals are required to finalize the
merger. Stockholder approval from Continental and the Providence Journal will
also be required. The transaction is not expected to close until the second
half of 1995.
The net assets of Videocable have been segregated in the accompanying
consolidated balance sheets as "net assets of discontinued operations". Net
assets to be acquired consist primarily of property and equipment, and
intangible assets. Such amounts have been reported net of costs and expenses
expected to be incurred through the disposal date.
The results of operations of Videocable have been reported as discontinued
operations in the accompanying consolidated statements of operations. Prior
year financial statements have been reclassified to conform to the current year
presentation. The condensed statements of operations relating to the
discontinued cable operations are presented below:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 66,006 $ 83,538 $ 84,174
Costs and expenses.......................... (82,602) (106,342) (101,261)
-------- --------- ---------
(Loss) before income taxes.................. (16,596) (22,804) (17,087)
Income tax benefit.......................... 5,330 7,415 5,250
-------- --------- ---------
Net (loss).................................. $(11,266) $ (15,389) $ (11,837)
======== ========= =========
</TABLE>
F-35
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Land and buildings....................................... $ 40,118 $ 40,225
Broadcast equipment...................................... 27,625 30,352
Office equipment......................................... 2,749 2,979
Leasehold improvements................................... 1,176 1,207
Construction-in-process.................................. 1,422 4,343
-------- --------
Total................................................ 73,090 79,106
Less accumulated depreciation and amortization........... (14,701) (20,975)
-------- --------
Property and equipment--net.............................. $ 58,389 $ 58,131
======== ========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
FCC license agreements................................... $ 59,780 $ 59,780
Goodwill................................................. 28,774 28,774
Advertiser relations..................................... 47,200 47,200
Other.................................................... 7,484 7,669
-------- --------
Total................................................ 143,238 143,423
Less accumulated amortization............................ (12,351) (19,353)
-------- --------
Intangible assets--net................................... $130,887 $124,070
======== ========
</TABLE>
5. FINANCING AGREEMENTS
The Company has a credit agreement (the Credit Agreement) with a syndicate of
banks which consists of a revolving credit facility, "swing" loans (as
defined), and a term loan.
The revolving credit facility provides for borrowings of up to $50,000 of
which $10,800 was outstanding on December 31, 1994. Borrowings outstanding
under the facility are payable in full in February 2000. The term loan of
$283,249 is payable in 32 quarterly installments commencing in March 1994.
"Swing" loans are available to the Company from the lead bank of the
syndicate. "Swing" loans are available up to a maximum aggregate borrowing
level of $5,000 at any one time, and are generally subject to the same
repayment terms as the revolving credit facility.
Borrowings under the Credit Agreement bear interest at either a bank's CD
rate plus an applicable margin (as defined), the LIBOR rate plus the applicable
margin or an alternate base rate determined as the greater of a bank's prime
rate, the Federal Funds rate plus 1/2% or a secondary market determined rate
plus 1 1/4% all determined at the Company's option. At December 31, 1994, the
interest rate on the revolving credit facility was 7.375%. During 1994,
interest rates on the term loan ranged between 4.88% and 7.75%, based on the
one and three month LIBOR rates, respectively.
F-36
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
In connection with the Credit Agreement, the Company is required to pay an
annual fee of 3/8 of 1% of the average daily unused availability under the
revolving credit facility. In addition, the Company is required to pay the lead
bank an annual fee of 3/8 of 1% of the average daily unused "swing" loan
availability. Such fees aggregated $97, $187 and $194 in 1992, 1993 and 1994,
respectively.
The Credit Agreement contains certain limitations on additional indebtedness,
capital expenditures, payments to affiliates and disposition of assets and
requires the Company to maintain certain leverage and interest coverage ratios,
all as defined in the Agreement.
At December 31, 1994, long-term debt is due as follows:
<TABLE>
<S> <C>
1995........................................................ $ 28,804
1996........................................................ 38,408
1997........................................................ 38,408
1998........................................................ 38,408
1999........................................................ 28,804
Thereafter.................................................. 121,217
--------
Total................................................... $294,049
========
</TABLE>
In March 1992, the Company entered into two interest rate swap agreements to
minimize interest rate risk on its revolving and term credit facilities
described above and to access lower interest rates in certain markets. The
interest rate under the swap agreements is equal to 7.23%, plus an applicable
margin as defined in the revolving credit and term loan facility, which
effectively sets the interest rate at 8.6%. The agreements expire March 25,
1999 and cover $250,000 of notional principal amount.
The Company recorded additional interest expense during 1992, 1993 and 1994
totaling approximately $6,433, $9,915 and $7,427, respectively, which
represents the excess of the swap agreement rate over the original contractual
rate. The notional amounts and respective periods covered under the agreements
are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
$250,000.......................... March 25, 1992--March 25, 1995
$200,000.......................... March 25, 1995--March 25, 1996
$160,000.......................... March 25, 1996--March 25, 1997
$110,000.......................... March 25, 1997--March 25, 1998
$ 50,000.......................... March 25, 1998--March 25, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements, however, the Company does
not anticipate nonperformance under the agreement.
Videocable has been allocated interest (including amortization of deferred
financing costs) of $16,355, $19,054 and $18,224 for the periods ended December
31, 1992, 1993 and 1994, respectively and $9,162 and $8,790 for the periods
ended June 30, 1994 and 1995, respectively. Interest expense has been allocated
to Videocable based upon intercompany financing in connection with the
Acquisition. The effective interest rate used in these allocations was 8.36%
during these periods. The common stock and assets of the Company are pledged to
collateralize all external financing arrangements.
F-37
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The Company was required to pay certain lenders to the predecessor owners a
prepayment penalty of approximately $19,000 at the date of Acquisition. The
payment, which is a loss associated with the early extinguishment of debt, has
been reported as an extraordinary item in the accompanying 1992 consolidated
financial statements.
6. EMPLOYEE BENEFIT PLANS
In connection with the Acquisition described in Note 1, the Company assumed a
defined benefit pension plan (the Plan). The Plan covers all qualified
employees who meet certain employment service and age requirements and are not
covered by union pension plans. Net periodic pension cost is comprised of the
components listed below, as determined using the actuarial cost aggregate
method. The Company's funding policy is to make annual contributions to the
Plan in such amounts necessary to fund benefits provided by the Plan on the
basis of information provided by the Plan's actuary.
Consolidated net periodic pension cost without regard to the effect of the
discontinued operations for the periods ended December 31, 1992, 1993 and 1994
is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the
period......................................... $ 696 $ 852 $ 908
Interest cost on projected benefit obligation... 1,463 1,804 1,896
Return on Plan assets........................... (412) (2,481) 774
Net deferral.................................... (1,427) 323 (3,030)
Amortization of prior service cost.............. -- -- (18)
------- ------- -------
Total....................................... $ 320 $ 498 $ 530
======= ======= =======
</TABLE>
The following table sets forth the Plan's funded status and obligations at
December 31, 1993 and 1994 without regard to the effect of the discontinued
operations:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations, including vested benefits of $20,753 and
$20,012 in 1993 and 1994, respectively................. $(20,787) $(23,146)
======== ========
Projected benefit obligation............................ $(25,110) $(26,596)
Plan assets at fair value, consisting of cash and equity
securities............................................. 27,123 28,226
-------- --------
Plan assets in excess of projected benefit obligation... 2,013 1,630
Prior service cost...................................... -- (176)
Unrecognized net loss................................... 1,926 1,955
-------- --------
Pension asset........................................... $ 3,939 $ 3,409
======== ========
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 8.0% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.5 5.0 5.0
Expected long-term rate of return on assets................ 8.5 8.5 8.5
</TABLE>
F-38
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
In 1993, the Company instituted an employee savings plan (401(k) Plan) to
provide benefits for substantially all employees of the Company meeting certain
eligibility requirements. The Plan requires the Company to match 25% of
employee contributions, up to a maximum of 1% of covered compensation. Expense
related to the Plan without regard to the effect of the discontinued operations
aggregated $228 and $252 for the years ended December 31, 1993 and 1994,
respectively.
Pension expense allocated to Videocable, pursuant to these plans, aggregated
$60 and $54 for 1993 and 1994, respectively. Further, prepaid pension costs
with respect to the defined benefit plan of $457 and $384 have been allocated
to Videocable at December 31, 1993 and 1994, respectively.
7. INCOME TAXES
The income tax provision for continuing operations recorded for the periods
ended December 31, 1992, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------ ------
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $ 10,696 $5,577 $8,103
State............................................ 1,184 579 1,486
-------- ------ ------
Total.......................................... 11,880 6,156 9,589
-------- ------ ------
Deferred:
Federal.......................................... (9,146) 651 (886)
State............................................ (1,114) (20) 140
-------- ------ ------
Total.......................................... (10,260) 631 (746)
-------- ------ ------
Income tax provision--net.......................... $ 1,620 $6,787 $8,843
======== ====== ======
</TABLE>
A reconciliation of the net income tax provision computed using the U.S.
federal statutory rate of 34% (35% in 1994) to pretax income from continuing
operations was as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense........................ $ 74 $2,614 $5,637
Amortization of goodwill............................... 1,500 1,800 1,850
State and local taxes, net of federal tax benefit...... 46 362 1,057
Enacted future rate change............................. -- 1,880 362
Other.................................................. -- 131 (63)
------ ------ ------
Effective tax.......................................... $1,620 $6,787 $8,843
====== ====== ======
</TABLE>
F-39
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The significant components of deferred income tax provision attributable to
income from continuing operations for the periods ended December 31, 1992, 1993
and 1994 are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Deferred income tax (exclusive of the effects
of other components below).................... $ (9,661) $(1,950) $(4,899)
(Increase) decrease in alternative minimum tax. (526) 701 3,845
State net operating loss benefit, net of
federal tax................................... (73) -- 244
Federal net operating loss benefit............. -- -- 64
Enacted future rate change..................... -- 1,880
-------- ------- -------
Total deferred tax provision (benefit)......... $(10,260) $ 631 $ (746)
======== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts....................................... $ 372 $ 279
Film and syndication rights, principally due to different
accounting methods...................................... 714 511
Compensated absences, principally due to accrual for
financial reporting purposes............................ 265 212
Net operating loss carryforwards......................... 321 13
Alternative minimum tax credit carryforwards............. 2,574 --
Other.................................................... (1,035) 1,186
------- -------
Gross deferred tax assets.................................. 3,211 2,201
------- -------
Deferred tax liabilities:
Property and equipment, principally due to basis
differences............................................. 18,121 17,778
Retirement plan, principally due to accrual for financial
reporting purposes...................................... 1,304 1,256
Enacted future rate increases............................ 1,880 --
Other.................................................... (146) 369
------- -------
Gross deferred tax liabilities............................. 21,159 19,403
------- -------
Net deferred tax liabilities............................... $17,948 $17,202
======= =======
</TABLE>
At December 31, 1994, the Company has net operating loss carryforwards of
$75,000 for state income tax purposes which are available to offset future
state taxable income, if any, through 2009. Approximately $54,000 of these net
operating loss carryforwards were present at Acquisition and, due to
uncertainty of eventual realization, a full valuation reserve was provided
against these assets at that time. Should these net operating loss
carryforwards be realized in the future, the effect would be to reduce the
recorded value of certain intangible assets.
F-40
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
8. COMMITMENTS
Film and Syndication Rights--The Company has entered into certain film and
syndication rights' agreements which allow for showings of certain programs
over various periods. At December 31, 1994, film and syndication rights
liabilities related to programs available for broadcast are due as follows:
<TABLE>
<S> <C>
1995.......................................................... $7,753
1996.......................................................... 787
1997.......................................................... 487
1998.......................................................... 189
1999.......................................................... 38
Thereafter.................................................... --
------
Total..................................................... $9,254
======
</TABLE>
In addition, the Company has entered into film and syndication rights'
agreements covering programs not yet available for broadcast. No asset or
liability related to these programs has been reflected in the financial
statements. At December 31, 1994, the Company had executed contracts
aggregating $36,745 (net of deposits) for programs not yet available for
broadcast.
Operating Leases--The Company leases office and other facilities under
operating leases expiring at various dates through 2004. At December 31, 1994,
minimum payments required under noncancelable leases with terms in excess of
one year for continuing operations are as follows:
<TABLE>
<S> <C>
1995.......................................................... $ 888
1996.......................................................... 880
1997.......................................................... 812
1998.......................................................... 567
1999.......................................................... 309
Thereafter.................................................... 899
------
Total..................................................... $4,355
======
</TABLE>
Rent expense under operating leases from continuing operations aggregated
$324, $383 and $490 for the periods ended December 31, 1992, 1993 and 1994,
respectively.
9. RELATED-PARTY TRANSACTIONS
The Company has entered into a management agreement (the Management
Agreement) with the Providence Journal, under the terms of which the Providence
Journal will operate and manage the Company's cable systems and Broadcasting's
television stations through February 1997. The Management Agreement provides
for a base management fee of $2,525 per year and payment of bonuses based on
operating cash flow (as defined in the Management Agreement) at the end of each
fiscal year for managing both the Company and Broadcasting. Bonus expense
earned by the Providence Journal during 1992 was $745. No bonus was earned
during 1993 and 1994.
In addition, the Management Agreement provides for the awarding of certain
warrant bonuses, both on an annual and cumulative basis, based on operating
cash flow at the end of defined periods. Through December 31, 1994, the
Providence Journal had been awarded warrant bonuses providing for the purchase
F-41
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
of 1,552 shares, of the Company's Class B nonvoting common stock at $0.10 per
share. Compensation expense recorded related to these warrant issuances
aggregated $335 in 1993. Based upon the purchase and sale agreement (See note
2) whereby the Providence Journal will buy out the Investor Stockholder for a
fixed price, it is not probable that the Providence Journal will exercise any
outstanding warrants and accordingly, the Company has not recorded compensation
expense during 1994.
The Providence Journal is also entitled to compensation for out-of-pocket
costs incurred in its capacity as manager of the cable systems for which the
Company reimbursed the Providence Journal $2,202, $2,842 and $3,844 during
1992, 1993 and 1994, respectively.
The Company is also obligated to pay the Providence Journal an annual $1,000
governance fee, in advance, on December 20 of each year.
The Company entered into a consulting and advisory services agreement (the
Services Agreement) with the Investor Stockholder. Under the terms of the
Services Agreement, the Company is obligated to pay the Investor Stockholder an
annual fee of $1,000, in advance, on January 1 of each year.
For the periods ended December 31, 1992, 1993 and 1994, Videocable has been
allocated expenses under the terms of the Management Agreement, and other
related fees discussed above, aggregating $2,131, $2,034 and $1,901,
respectively.
10. FAIR VALUE DISCLOSURE
Current Assets and Liabilities--The carrying amount of cash, trade
receivables, trade accounts payable and accrued expenses approximates fair
value because of the short maturity of these instruments.
Long-term Debt--The fair values of each of the Company's long-term debt
instruments are based on the amount of future cash flows associated with each
instrument discounted using current borrowing rates for similar debt
instruments of comparable maturity. The fair value of long-term debt
approximated carrying value at December 31, 1993 and 1994.
Interest Rate Swaps--The fair value of interest rate swaps is the amount at
which they could be settled based on estimates obtained from dealers. The
amount required to settle outstanding interest rate swaps at December 31, 1993
and 1994 approximated ($17,343) (loss) and $3,575 (gain), respectively and at
June 30, 1995 approximated ($5,836) (loss).
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 $756 as
of December 31, 1994.
In October 1992, the Congress of the United States passed the Cable Act. As a
result of the Cable Act, several cable television systems of the Company are
subject to regulation by local franchise authorities and/or the FCC.
Regulations imposed by the Cable Act, among other things, allow regulators to
limit and reduce the rates that cable operators can charge for certain basic
cable television services and equipment rental
F-42
<PAGE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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 for amounts it believes it may 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 the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
Videocable is obligated to make capital improvements of $17,100 on an
annualized basis under the terms of the various agreements entered into at the
Merger Agreement date (see Note 2).
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Providence Journal Company:
We have audited the accompanying combined balance sheets of Colony
Communications, Inc., Copley/Colony, Inc., Colony Cablevision, a division of
Providence Journal Company, and King Videocable Company, (collectively
"Providence Journal Cable"), as of December 31, 1993 and 1994, and the related
combined statements of operations, changes in group equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
combined financial statements are the responsibility of Providence Journal
Cable's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits. We did not audit the
consolidated financial statements of King Videocable Company, which statements
reflect total assets constituting 45 percent of the related combined totals in
1993 and 1994, and total revenues constituting 33 percent in 1992, and 30
percent in 1993 and 1994, respectively, of the related combined totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for King
Videocable Company, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
The accompanying combined financial statements are intended to present the
cable television businesses owned or partially owned by Providence Journal
Company that are to be acquired by Continental Cablevision, Inc., pursuant to
an agreement and plan of merger described in note 1.
In our opinion, based on our audits and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of Providence Journal Cable as of December 31,
1993 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in notes 1(h) and 9 to the combined financial statements,
Providence Journal Cable changed its method of accounting for income taxes in
1992.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1995
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
King Videocable Company:
We have audited the consolidated balance sheets of King Videocable Company
and subsidiaries (a wholly owned subsidiary of King Broadcasting Company, a
subsidiary of King Holding Corp.) as of December 31, 1993 and 1994, and the
related consolidated statements of operations, stockholders's equity, and cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 (not
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Videocable Company at
December 31, 1993 and 1994, and the results of their operations and their cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-45
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................. $ 543 $ 237 $ 210
Accounts receivable, less allowance for doubtful
accounts of $805 and $419 at December 31, 1993
and 1994, respectively.......................... 23,176 26,894 25,423
Inventory (note 4)............................... 5,914 6,131 7,198
Prepaid expenses................................. 3,629 5,124 5,396
Property, plant and equipment, net (note 5)...... 256,199 254,728 257,656
Franchise costs and other intangible assets, net
(note 6)........................................ 519,553 480,886 517,869
Other assets..................................... 4,292 3,102 4,881
-------- -------- --------
Total assets................................. $813,306 $777,102 $818,633
======== ======== ========
LIABILITIES AND GROUP EQUITY
Accounts payable................................. 13,565 11,993 12,466
Accrued expenses................................. 18,815 22,313 27,178
Deferred revenue................................. 13,456 13,438 14,039
Deferred income taxes (note 9)................... 69,030 70,686 86,066
Minority interests in combined entities.......... 34,964 26,709 14,402
Amounts due to parent companies (note 8)......... 593,073 574,821 611,567
-------- -------- --------
Total liabilities................................ 742,903 719,960 765,718
Commitments and contingencies (notes 2, 10, 11
and 12)
Group equity..................................... 70,403 57,142 52,915
-------- -------- --------
Total liabilities and group equity........... $813,306 $777,102 $818,633
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-46
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------------
1992 1993 1994 1994 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue (note 2)......... $199,684 $281,593 $284,993 $141,704 $145,380
-------- -------- -------- -------- --------
Operating costs and
expenses:
Operating.............. 76,523 105,037 114,868 56,528 59,941
Selling, general and
administrative........ 45,180 62,446 58,152 29,650 29,106
Depreciation and
amortization.......... 58,750 99,554 85,783 45,610 42,314
Allocated overhead from
parent companies (note
8(b))................. 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- --------
Total operating costs
and expenses........ 186,966 276,688 269,837 135,491 135,179
-------- -------- -------- -------- --------
Operating income......... 12,718 4,905 15,156 6,213 10,201
Other income (note 3).... 3,660 2,746 2,547 1,147 1,899
Interest expense (note
7)...................... (3,052) (1,908) (88) (26) (354)
Allocated interest
expense from parent
companies (note 8(a))... (16,516) (39,938) (41,318) (20,035) (20,880)
Loss on sale of assets... (17) (2,679) (1,904) -- --
-------- -------- -------- -------- --------
Loss before income taxes,
cumulative effect of
accounting change and
minority interests...... (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for income
taxes (note 9).......... 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- --------
Loss before cumulative
effect of accounting
change and minority
interests............... (3,901) (25,655) (17,425) (8,707) (6,513)
Cumulative effect at
January 1, 1992 of
change in accounting for
income taxes (note 9)... 4,831 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before
minority interests...... 930 (25,655) (17,425) (8,707) (6,513)
Minority interests in
combined entities....... 4,152 6,724 4,164 2,207 2,286
-------- -------- -------- -------- --------
Net income (loss)........ $ 5,082 $(18,931) $(13,261) $ (6,500) $ (4,227)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-47
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1991 (unaudited)............................. $ 61,470
Capitalization of King Videocable Company, net of minority interest
(note 3)............................................................ 22,782
Net income........................................................... 5,082
--------
Balance at December 31, 1992......................................... 89,334
Net loss............................................................. (18,931)
--------
Balance at December 31, 1993......................................... 70,403
Net loss............................................................. (13,261)
--------
Balance at December 31, 1994......................................... $ 57,142
Net loss (unaudited)................................................. (4,227)
--------
Balance at June 30, 1995 (unaudited)................................. $ 52,915
========
</TABLE>
See accompanying notes to combined financial statements.
F-48
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........... $ 5,082 $(18,931) $(13,261) $ (6,500) $ (4,227)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Change in accounting for
income taxes.............. (4,831) -- --
Depreciation and
amortization.............. 58,750 99,554 85,783 45,610 42,314
Loss on sale or abandonment
of assets................. 17 4,079 1,904 -- --
Equity in income of
affiliates................ (183) (1,187) (1,615) (691) (921)
Minority interests in
combined entities......... (4,152) (6,724) (4,164) (2,207) (2,286)
Deferred income taxes...... 2,261 (10,114) 1,656 -- --
Changes in assets and
liabilities:
Accounts receivable....... (3,616) (791) (3,718) 289 1,471
Prepaid expenses.......... (2,650) 748 (1,495) (90) (272)
Other assets.............. (309) (413) 1,290 (2,156) (1,311)
Accounts payable.......... 1,738 1,714 (1,572) 2,704 473
Accrued expenses.......... (3,470) 1,953 3,498 (107) 4,865
Deferred revenue.......... 5,116 52 (18) (2,344) 601
-------- -------- -------- -------- --------
Net cash provided by
operating activities.... 53,753 69,940 68,288 34,508 40,707
-------- -------- -------- -------- --------
Investing activities:
Cash distributions received
from affiliates............ 50 1,095 1,515 762 359
Purchase of minority
shareholders' interests.... -- -- -- -- (51,950)
Property, plant, and
equipment.................. (27,391) (49,094) (47,766) (23,142) (25,631)
-------- -------- -------- -------- --------
Net cash used in
investing activities.... (27,341) (47,999) (46,251) (22,380) (77,222)
-------- -------- -------- -------- --------
Financing activities:
Cash distributions to
minority shareholders...... (3,085) (2,982) (4,091) (1,633) (258)
Principal payments on long-
term debt.................. (5,000) (15,000) -- -- --
Increase (decrease) in
amounts due to parent
companies.................. (18,116) (3,812) (18,252) (10,594) 36,746
-------- -------- -------- -------- --------
Net cash (used in)
provided by financing
activities.............. (26,201) (21,794) (22,343) (12,227) 36,488
-------- -------- -------- -------- --------
Increase (decrease) in cash.. 211 147 (306) (99) (27)
Cash at beginning of year.... 185 396 543 543 237
-------- -------- -------- -------- --------
Cash at end of year.......... $ 396 $ 543 $ 237 $ 444 $ 210
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(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 and amended on August 1, 1995. The cable television businesses included in
the combined financial statements are Colony Communications, Inc. ("Colony"), a
wholly owned subsidiary of the Journal; Copley/Colony, Inc. ("Copley"), a joint
venture between Colony and Copley Press Electronics Company; Colony Cablevision
(formerly Palmer Communications, Inc.) ("Cablevision"), a division of the
Journal; and King Videocable Company ("KVC"), (collectively, Providence Journal
Cable). KVC is wholly owned by King Broadcasting Company ("Broadcasting"),
which in turn is wholly owned by King Holding Corp. ("King Holding"), a joint
venture between the Journal and an investment banking organization (the
Investor Stockholder). All significant intercompany and affiliated company
balances and transactions have been eliminated in combination. The accompanying
combined financial statements do not reflect adjustments to the valuation of
assets or for the recognition of liabilities that may be required as a
consequence of the aforementioned merger. These combined financial statements
include certain allocations from the Journal and King Holding (collectively,
the parent companies).
Although Journal accounted for the operations of investments in the 50% joint
ventures under the equity method, the operations of such ventures have been
fully combined on the basis that they are managed, together with all wholly-
owned and majority owned cable television businesses, by the Journal and its
subsidiaries. In connection with the aforementioned merger, the Journal will
purchase the 50% joint venture partners interest and therefore, at the date of
merger with Continental, all acquired cable television businesses will be
wholly-owned.
Cable franchise areas are located in California, Florida, Massachusetts, New
York, Rhode Island, Minnesota, Idaho and Washington state. Providence Journal
Cable's credit risk is limited primarily to outstanding trade accounts
receivable from subscribers in these states.
(b) Cash
Providence Journal Cable participates in the cash management programs of the
Journal and King Holding. Under these programs, outstanding checks in excess of
cash are not accounted for as reductions of cash until presented to the bank
for payment. Consequently, at December 31, 1993 and 1994, Providence Journal
Cable reclassified outstanding checks to accounts payable totaling $6,132 and
$5,225 respectively.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Income taxes paid during the year (including federal
and certain state taxes paid to the parent companies
for returns filed on a combined basis)............... $11,863 $1,250 $3,648
======= ====== ======
Interest paid during the year, net of amounts
capitalized.......................................... $ 2,102 $2,092 $ 45
======= ====== ======
</TABLE>
F-50
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; major improvements
are capitalized. Providence Journal Cable provides for depreciation using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................................ 5-20 years
Cable systems..................................................... 3-10 years
Furniture and fixtures............................................ 5-10 years
</TABLE>
When assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to income.
When Providence Journal Cable determines that certain property, plant and
equipment is impaired, a loss for impairment is recorded for the excess of the
carrying value over the fair value of the asset.
(d) Franchise Costs and Other Intangible Assets
Franchise costs represent the amount paid to acquire the operating franchises
of Providence Journal Cable. These costs are amortized using the straight-line
method over three to forty years, beginning when the franchise is awarded.
Goodwill resulting from the excess of purchase price over fair value of net
assets acquired is generally amortized over 15-40 years.
Amortization expense on franchise costs and other intangible assets totaled
$18,968, $39,814 and $38,730 for the years ended December 31, 1992, 1993 and
1994, respectively.
Providence Journal Cable continually reviews its intangible assets to
determine whether any impairment has occurred. Providence Journal Cable
assesses the recoverability of intangible assets by reviewing the performance
of the underlying operations, in particular the future operating cash flows
(earnings before income taxes, depreciation, and amortization) of the acquired
operation.
(e) Investments in Affiliated Companies
Providence Journal Cable has investments in three media limited partnerships
which are accounted for using the equity method with voting interests of
approximately 10%, 10% and 50%. The excess of cost of one investment over
Providence Journal Cable's share of net partnership assets is being amortized
over the life of the related partnership agreement (7 years). These investments
are included with other assets in the accompanying combined financial
statements.
(f) Revenue Recognition
Providence Journal Cable bills subscribers one month in advance for certain
cable television services. These revenues are deferred and recognized when the
related service is provided.
(g) Fair Value of Financial Instruments
The carrying amount of substantially all of Providence Journal Cable's
financial instruments approximates fair value due to the short maturity of the
instruments.
F-51
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment
date.
Effective January 1, 1992, Providence Journal Cable adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and it has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1992 combined statement of operations (see note 9).
Colony and Cablevision are included in the consolidated Federal income tax
return of the Journal. KVC is included in the consolidated Federal income tax
return of Broadcasting and King Holding. Copley files its own Federal income
tax return. Federal income taxes are computed for Colony, Cablevision and KVC
as if those entities filed a separate Federal income tax return.
(i) Unaudited Combined Interim Financial Statements
The combined financial statements as of and for the six months ended June 30,
1994 and 1995 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 under either a "benchmark" or "cost of service" method.
Effective December 31, 1994, all but one of Providence Journal Cable's systems
had set their rates using the bench-mark method which compares Providence
Journal Cable's rates to those which are in effect at cable systems deemed by
the FCC to face effective competition.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, several cable television systems of
Providence Journal Cable are subject to regulation by local franchise
authorities and/or the FCC. Regulations imposed by the 1992 Cable
F-52
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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 may be required to refund.
On December 22, 1994, the Federal Communications Commission (FCC) issued an
Order concerning one cable television system of Providence Journal Cable. The
Order ruled that certain "a la carte" channels offered by the system are
subject to rate regulation and directed the system to recalculate its maximum
permitted rates as determined under rules and regulations of the FCC.
Providence Journal Cable has filed a petition for reconsideration of this
decision with the FCC. If such petition does not result in adequate relief,
Providence Journal Cable can and presently intends to, pursue its remedies of
an appeal to the FCC and/or the courts. It is too early for management of
Providence Journal Cable to determine whether any rate refunds and prospective
rate reductions to subscribers may result from this action. Accordingly, no
amounts have been accrued for rate refund liabilities in the accompanying
combined financial statements.
On July 6, 1995, the City of Los Angeles issued a draft order that the a la
carte channels offered by the cable system servicing part of the Los Angeles
area should be treated as cable programming service tiers and therefor subject
to regulation. Providence Journal Cable has documented its opposition to the
City's conclusions and intends to seek relief with appeal to the FCC, if
necessary. Because of the uncertainty as to the ultimate outcome on
reconsideration by the City, or with appeal to the FCC, Providence Journal
Cable has established an accrual for potential refunds of $1.9 million as of
June 30, 1995.
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
Copley/Colony
In May 1995, Colony purchased the 50% interest of its joint venture party in
Copley/Colony for $47,790.
Colony Cablevision (Cablevision)
In 1992 the Journal completed the acquisition of the cable television assets
of Cablevision (formerly Palmer Communications, Inc.) for approximately
$326,000. Prior to the acquisition of Cablevision, Colony managed Cablevision
and received a management fee totaling $2,770 in 1992 which has been included
in other income in the accompanying combined statements of operations.
King Videocable Company (KVC)
In February 1992, King Holding acquired the outstanding capital stock of
Broadcasting for a purchase price of approximately $364,000 plus assumed
liabilities aggregating $183,000, resulting in a total purchase price of
$547,000. Based upon the 1992 appraisal of assets acquired, $327,000 of the
total purchase price was allocated to KVC.
Lakewood Cable, Inc.
In January, 1992, Colony completed the acquisition of Lakewood Cable, Inc.
("Lakewood") in Lakewood, California for $25,000.
F-53
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The aforementioned acquisitions were accounted for as purchases, and for
purposes of these combined financial statements have been presented as
purchases by Providence Journal Cable. The acquisition of KVC in 1992 resulted
in the contribution of capital (push-down of equity) to this entity of $22,782
(net of minority interest). The results of operations have been included in the
accompanying combined financial statements from the respective dates of
acquisition.
(4) INVENTORY
Inventory is recorded at cost and consists primarily of supplies used in
repairs and maintenance and construction inventory used in the construction of
cable plant.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Cable systems.............................................. $369,636 $384,563
Land and buildings......................................... 29,483 31,197
Machinery and equipment.................................... 23,953 33,582
Furniture and fixtures..................................... 7,543 8,214
Construction in progress................................... 4,381 8,843
-------- --------
434,996 466,399
Less accumulated depreciation.............................. 178,797 211,671
-------- --------
$256,199 $254,728
======== ========
</TABLE>
During 1992, 1993 and 1994, Providence Journal Cable capitalized interest
expense on construction in progress of $109, $223 and $300, respectively.
Depreciation expense on property, plant and equipment totaled $39,782, $59,740
and $47,053 in 1992, 1993 and 1994, respectively.
In 1993, due to provisions of the Cable Act (see note 2) which effectively
transferred to cable customers ownership of wiring and additional outlets
located in cable customers' homes, Providence Journal Cable accelerated the
depreciation of these assets based upon the customer churn rate and expensed
all costs of installation and wiring in the home as incurred effective January
1, 1993.
(6) FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
Franchise costs and other intangible assets consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Franchise costs............................................ $446,760 $446,760
Goodwill................................................... 107,299 107,299
Non-compete agreements..................................... 19,683 19,683
Other intangible assets.................................... 16,328 15,719
-------- --------
590,070 589,461
Less accumulated amortization.............................. 70,517 108,575
-------- --------
$519,553 $480,886
======== ========
</TABLE>
F-54
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(7) LONG-TERM DEBT
During 1993, Providence Journal Cable had a note outstanding payable in
annual installments of $2,500. Interest expense on this note totaled $2,268 and
$1,546 in 1992 and 1993, respectively. In December 1993, Providence Journal
Cable settled this note payable and incurred a prepayment penalty equal to $546
(included with interest expense).
(8) RELATED PARTY TRANSACTIONS
(a) Amounts Due to Parent Companies
Substantially all financing arrangements are provided through the parent
companies. Amounts due to parent companies are the net result of transactions
occurring through the shared cash management systems, additions due to
intercompany financing in connection with the acquisitions discussed in note 3,
as well as amounts allocated by parent companies for income taxes, interest and
overhead. Major activity relating to amounts due to parent companies included
the following during 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Beginning balance........................................ $596,885 $593,073
Allocated interest and overhead.......................... 49,589 52,352
Repayments and other activity............................ (53,401) (70,604)
-------- --------
$593,073 $574,821
======== ========
</TABLE>
Interest expense was allocated by parent companies based upon average monthly
balances of amounts due to parent companies. The effective rates on interest
allocated were 7.57% and 8.21% during 1993 and 1994, respectively. Effective
interest rates are based upon parent company financing arrangements.
(b) Allocated Overhead
The parent companies provide certain services to Providence Journal Cable
including cash management, human resources, accounting, legal, tax, and other
corporate services. For purposes of the accompanying combined financial
statements corporate overhead relating to these services, totaling $6,513,
$9,651 and $11,034 in 1992, 1993 and 1994, respectively, has been allocated to
Providence Journal Cable. In the opinion of management these charges have been
made on a basis (revenue of each individual business to total revenue) that is
reasonable, however, these charges are not necessarily indicative of the level
of expenses that might have been incurred by Providence Journal Cable on a
stand-alone basis.
KVC, through King Holding, has entered into a consulting and advisory
services agreement with the Investor Stockholder and a management agreement
with the Journal under which the Journal will operate and manage KVC's cable
systems through 1997. In connection with these agreements, King Holding is
obligated to pay $3,500 in annual fees to the Journal and $1,000 to the
Investor Stockholder. For purposes of the accompanying combined financial
statements, a portion of the expenses incurred in relation to these agreements
has been allocated to KVC. Amounts totaling $2,131, $2,034 and $1,901 were
allocated to KVC in 1992, 1993 and 1994, respectively, on the basis of KVC
revenue to total King Holding revenue. These expenses have been included in the
allocation of corporate overhead discussed in the preceding paragraph.
F-55
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(9) INCOME TAXES
As discussed in note 1(h), Providence Journal Cable adopted Statement 109 as
of January 1, 1992. The cumulative effect of this change in accounting for
income taxes of $4,831 was determined as of January 1, 1992 and was reported
separately in the combined statement of operations for the year ended December
31, 1992.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal................................. $ (453) $ (496) $ (949)
State........................................ 2,376 (733) 1,643
------- ------- --------
$ 1,923 (1,229) 694
======= ======= ========
Year ended December 31, 1993:
U.S. Federal................................. $(4,247) (7,763) (12,010)
State........................................ 1,677 (886) 791
------- ------- --------
$(2,570) (8,649) (11,219)
======= ======= ========
Year ended December 31, 1994:
U.S. Federal................................. $(9,318) 2,201 (7,117)
State........................................ (519) (546) (1,065)
------- ------- --------
$(9,837) $ 1,655 $ (8,182)
======= ======= ========
</TABLE>
Provision for income tax expense (benefit) differed from the amounts computed
by applying the U.S. federal income tax rate of 34% to pretax income as a
result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax......................... $(1,090) $(12,533) $(8,707)
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income tax benefit........................... 1,085 521 (703)
Amortization of goodwill...................... 1,211 1,198 1,165
Excess of fair value of securities, donated to
charitable foundation, over basis in those
securities................................... (304) -- --
Utilization of investment tax credit
carryforwards................................ -- (209) --
Other, net.................................... (208) (196) 63
------- -------- -------
$ 694 $(11,219) $(8,182)
======= ======== =======
</TABLE>
F-56
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
State net operating loss carryforwards.................. $ 5,658 $ 5,572
Alternative minimum tax credit carryforward............. 1,489 883
Uniform capitalization and Section 263A depreciation.... 1,434 1,560
Deferred compensation and vacation accrual.............. 655 776
Self-insurance reserves................................. 437 404
Partnership investment, principally due to basis
differences............................................ 1,084 2,235
Other................................................... 722 930
------- -------
Total gross deferred tax assets....................... 11,479 12,360
Less valuation allowance.............................. (5,456) (5,569)
------- -------
Net deferred tax assets............................... 6,023 6,791
------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in
amortization........................................... 47,891 48,130
Plant and equipment, principally due to differences in
depreciation and capitalized interest.................. 25,895 28,824
Other................................................... 1,267 523
------- -------
Total gross deferred tax liabilities.................. 75,053 77,477
------- -------
Total net deferred tax liability...................... $69,030 $70,686
======= =======
</TABLE>
The 1993 beginning valuation allowance for deferred tax assets was $4,867.
The net change in the total valuation allowance was an increase of $589 and
$113 in 1993 and 1994, respectively. Changes to the valuation allowance relate
principally to deferred tax assets recorded for state net operating loss
carryforwards.
At December 31, 1994, Providence Journal Cable has net operating loss
carryforwards for state income tax purposes of $99,000, which are available to
offset future state taxable income, if any, expiring in various years ending in
2008.
F-57
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(10) OPERATING LEASES
Providence Journal Cable has certain noncancelable operating leases with
renewal options for land, buildings and equipment. Leases for land and
buildings are subject to annual consumer price index adjustments. In 1992, 1993
and 1994, rental expense for all leases, including pole rentals, totaled
$3,973, $5,081 and $5,125, respectively.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<S> <C>
1995............................................................... $ 2,583
1996............................................................... 2,011
1997............................................................... 1,636
1998............................................................... 1,403
1999............................................................... 1,184
Thereafter......................................................... 3,808
-------
$12,625
=======
</TABLE>
(11) RETIREMENT PLANS
Providence Journal Cable has three defined contribution retirement plans
which include a 401(k) plan and cover substantially all of its employees.
Providence Journal Cable matches participants' 401(k) contributions up to a
maximum of 1% of participants' compensation. Additionally, KVC participates in
a defined benefit plan sponsored by Broadcasting, covering substantially all
employees of KVC. Expenses recorded under these plans totaled $774, $1,516 and
$1,108 in 1992, 1993 and 1994, respectively. Prepaid pension costs with respect
to the defined benefit plan of $457 and $384 have been allocated to KVC at
December 31, 1993 and 1994, respectively.
(12) COMMITMENTS AND CONTINGENCIES
Providence Journal Cable is obligated to make capital improvements of $55,000
on an annualized basis from the date of the merger agreement with Continental
until the merger's closing date (see note 1). Providence Journal Cable also has
letter of credit commitments amounting to $3,203 at December 31, 1994.
Providence Journal Cable has, or participates with its parent companies in,
insurance programs for workers compensation, general liability, auto and
certain health coverages which are a form of self-insurance. Providence Journal
Cable's liability for large losses is capped, individually and in the
aggregate, through contracts with insurance companies. An estimate for claims
incurred but not paid is accrued annually.
The Journal has a revolving credit and term loan facility (totaling $243,655
at December 31, 1994) that is secured in part by a pledge of stock of Colony
Communications, Inc. and its subsidiaries. King Holding has a credit agreement
with a syndicate of banks (totaling $294,049 at December 31, 1994) that is
secured in part by a pledge of stock and assets of KVC.
Providence Journal Cable is a party to various claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, all such matters are without merit or are of such kind, or involve
such amounts, that unfavorable disposition would not have a material effect on
the financial position or results of operations of Providence Journal Cable.
F-58
<PAGE>
INDEPENDENT AUDITORS' REPORT
CONTINENTAL CABLEVISION, INC.:
We have audited the accompanying consolidated balance sheets of Continental
Cablevision, Inc. and its subsidiaries as of December 31, 1993 and 1994 and the
related statements of consolidated operations, consolidated shareholders'
equity (deficiency) and consolidated cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements of Continental
Cablevision, Inc. and its subsidiaries present fairly, in all material
respects, the financial position of the companies at December 31, 1993 and 1994
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes 12 and 4 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and investments in
1993 and 1994, respectively.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1995
F-59
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
------------------------ JUNE 30,
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Cash and Cash Equivalents............... $ 122,640 $ 11,564 $ 15,342
Accounts Receivable-net................. 44,530 58,212 60,203
Prepaid Expenses and Other.............. 4,800 14,321 3,536
Supplies................................ 31,638 62,517 76,542
Marketable Equity Securities............ 58,676 122,510 120,042
Investments............................. 136,186 335,479 432,487
Property, Plant and Equipment-net....... 1,211,507 1,353,789 1,482,638
Intangible Assets-net................... 387,719 421,420 377,359
Other Assets-net........................ 94,157 103,827 125,745
----------- ----------- -----------
Total............................... $ 2,091,853 $ 2,483,639 $ 2,693,894
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
-----------------------------
Accounts Payable........................ $ 43,342 $ 82,083 $ 71,062
Accrued Interest........................ 72,424 82,040 74,061
Accrued and Other Liabilities........... 145,191 206,271 197,451
Debt.................................... 3,177,178 3,449,907 3,728,101
Deferred Income Taxes................... 105,041 116,482 101,735
Minority Interest in Subsidiaries....... 2,217 2,791 3,798
Redeemable Common Stock, $.01 par value;
670,682, 667,366 and 667,366 shares
outstanding............................ 213,548 232,399 242,721
Commitments and Contingencies........... -- -- --
Shareholders' Equity (Deficiency):
Preferred Stock, $.01 par value;
1,557,142 shares authorized;
none outstanding...................... -- -- --
Series A Convertible Preferred Stock,
$.01 par value:
1,142,858 shares authorized and
outstanding; liquidation preference
$450,976,000, $487,776,000 and
$507,123,000.......................... 11 11 11
Class A Common Stock, $.01 par value;
7,500,000 shares authorized; 248,060,
343,420 and 343,252 shares
outstanding........................... 2 3 3
Class B Common Stock, $.01 par value;
7,500,000 shares authorized;
3,652,420, 3,611,655 and 3,704,681
shares outstanding.................... 37 36 37
Additional Paid-In Capital............. 577,249 583,368 618,236
Unearned Compensation.................. (23,577) (12,097) (51,708)
Net Unrealized Holding Gain on
Marketable Equity Securities.......... -- 47,996 49,104
Deficit................................ (2,220,810) (2,307,651) (2,340,718)
----------- ----------- -----------
Shareholders' Equity (Deficiency)..... (1,667,088) (1,688,334) (1,725,035)
----------- ----------- -----------
Total............................... $ 2,091,853 $ 2,483,639 $ 2,693,894
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-60
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................ $1,113,475 $1,177,163 $1,197,977 $589,390 $650,048
Costs and Expenses:
Operating............. 365,513 382,195 405,535 198,618 224,846
Selling, General and
Administrative....... 259,632 267,376 267,349 128,783 150,332
Restricted Stock
Purchase Program..... 9,683 11,004 11,316 5,675 5,905
Depreciation and
Amortization......... 272,851 279,009 283,183 135,523 148,412
---------- ---------- ---------- -------- --------
Total............... 907,679 939,584 967,383 468,599 529,495
---------- ---------- ---------- -------- --------
Operating Income........ 205,796 237,579 230,594 120,791 120,553
---------- ---------- ---------- -------- --------
Other (Income) Expense:
Interest.............. 296,031 282,252 315,541 147,910 166,314
Equity in Net Loss of
Affiliates........... 9,402 12,827 25,002 9,807 25,817
Gain on Sale of
Marketable Equity
Securities........... -- (4,322) (1,204) (1,204) (23,032)
Gain on Sale of
Investments.......... (10,253) (17,067) -- -- (1,035)
Partnership
Litigation........... 10,280 (2,325) -- -- --
Minority Interest in
Net Income (Loss) of
Subsidiaries......... 136 184 (205) -- (40)
Dividend Income....... (330) (650) (824) (504) (319)
Other................. 1,836 375 1,279 (293) 625
---------- ---------- ---------- -------- --------
Total............... 307,102 271,274 339,589 155,716 168,330
---------- ---------- ---------- -------- --------
Loss From Operations
Before Income Taxes,
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... (101,306) (33,695) (108,995) (34,925) (47,777)
Income Tax Expense
(Benefit).............. 1,654 (7,921) (40,419) (11,304) (14,710)
---------- ---------- ---------- -------- --------
Loss Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary Item, Net
of Income Taxes........ -- -- (18,265) -- --
---------- ---------- ---------- -------- --------
Loss Before Cumulative
Effect of Change in
Accounting for Income
Taxes.................. (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- (184,996) -- -- --
---------- ---------- ---------- -------- --------
Net Loss................ (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred Stock
Preferences............ (16,861) (34,115) (36,800) (17,887) (19,347)
---------- ---------- ---------- -------- --------
Loss Applicable to
Common Shareholders.... $ (119,821) $ (244,885) $ (123,641) $(41,508) $(52,414)
========== ========== ========== ======== ========
Loss Per Common Share:
Loss Before
Extraordinary Item
and Cumulative
Effect of Change in
Accounting for
Income Taxes........ $ (25.06) $ (13.13) $ (23.04) $ (9.10) $ (11.14)
Extraordinary Item... -- -- (3.99) -- --
---------- ---------- ---------- -------- --------
Loss Before
Cumulative Effect of
Change in Accounting
for Income Taxes.... (25.06) (13.13) (27.03) (9.10) (11.14)
Cumulative Effect of
Change in Accounting
for Income Taxes.... -- (40.55) -- -- --
---------- ---------- ---------- -------- --------
Net Loss............. $ (25.06) $ (53.68) $ (27.03) $ (9.10) $ (11.14)
========== ========== ========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-61
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
NET UNREALIZED
SERIES A COMMON STOCK GAIN ON
CONVERTIBLE -------------- ADDITIONAL MARKETABLE RETAINED
PREFERRED CLASS CLASS PAID-IN UNEARNED EQUITY EARNINGS
STOCK A B CAPITAL COMPENSATION SECURITIES (DEFICIT)
----------- ------ ------ ---------- ------------ -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1992................... $ -- $ 32 $ -- $ -- $(12,477) $ -- $(1,907,080)
Net Loss............... -- -- -- -- -- -- (102,960)
Accretion of Redeemable
Common Stock.......... -- -- -- (13,806) -- -- --
Reclassification of
Redeemable Common
Stock................. -- 3 1 141,958 -- -- --
Issuance of Series A
Convertible Preferred
Stock................. 11 -- -- 394,338 -- -- --
Conversion of Class A
to Class B Common
Stock................. -- (33) 33 -- -- -- --
Issuance of Class B
Common Stock.......... -- -- 5 153,834 -- -- --
Restricted Stock
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)
Adjustment due to
change in accounting
principle for
marketable equity
securities, net of
income taxes of
$56,434............... -- -- -- -- -- 84,650 --
Net Loss............... -- -- -- -- -- -- (86,841)
Accretion of Redeemable
Common Stock.......... -- -- -- (19,932) -- -- --
Restricted Stock
Purchase Program:
Stock Vested.......... -- -- -- -- 11,316 -- --
Stock Forfeited....... -- -- -- (164) 164 -- --
Stock Exchanged for
Loans................ -- -- -- (611) -- -- --
Conversion of Class B
to Class A Common
Stock................. -- 1 (1) -- -- -- --
Stock Repurchased...... -- -- -- (3,674) -- -- --
Issuance of Class A
Common Stock.......... -- -- -- 30,500 -- -- --
Change in Unrealized
Gain, net of income
taxes of $24,081...... -- -- -- -- -- (36,654) --
----- ----- ------ --------- -------- -------- -----------
Balance December 31,
1994................... 11 3 36 583,368 (12,097) 47,996 (2,307,651)
(Unaudited)
Net Loss............... -- -- -- -- -- -- (33,067)
Accretion of Redeemable
Common Stock.......... -- -- -- (10,322) -- -- --
Restricted Stock
Purchase Program:
Stock Issued.......... -- -- 1 45,985 (45,985) -- --
Stock Vested.......... -- -- -- -- 5,905 -- --
Stock Forfeited....... -- -- -- (469) 469 -- --
Stock Exchanged for
Loans................ -- -- -- (326) -- -- --
Change in Unrealized
Gain, net of income
taxes of $748......... -- -- -- -- -- 1,108 --
----- ----- ------ --------- -------- -------- -----------
Balance, June 30, 1995.. $ 11 $ 3 $ 37 $618,236 $(51,708) $49,104 $(2,340,718)
===== ===== ====== ========= ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-62
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- --------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............... $ (102,960) $ (210,770) $ (86,841) $ (23,621) $ (33,067)
Adjustments to
Reconcile Net Loss to
Net Cash Provided from
Operating Activities:
Extraordinary Item... -- -- 18,265 -- --
Cumulative Effect of
Change in Accounting
for
Income Taxes........ -- 184,996 -- -- --
Depreciation and
Amortization........ 272,851 279,009 283,183 135,523 148,412
Restricted Stock
Purchase Program.... 9,683 11,004 11,316 5,675 5,905
Amortization of
Deferred Financing
Costs............... 6,552 5,554 5,759 2,618 4,366
Equity in Net Loss of
Affiliates.......... 9,402 12,827 25,002 9,807 25,817
Gain on Sale of
Marketable Equity
Securities.......... -- (4,322) (1,204) (1,204) (23,032)
Gain on Sale of
Investments......... (10,253) (17,067) -- -- (1,035)
Minority Interest in
Net Income (Loss) of
Subsidiaries........ 136 184 (205) -- (40)
Deferred Income
Taxes............... -- (9,788) (42,272) (12,346) (15,495)
Accrued Interest..... (10,965) 15,787 9,632 (857) (7,979)
Accounts Payable,
Accrued and Other
Liabilities......... 40,649 (3,633) 66,142 10,753 (21,092)
Other Working Capital
Changes............. (50) (13,277) (52,473) (2,780) (5,233)
----------- ----------- ----------- --------- ---------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES... 215,045 250,504 236,304 123,568 77,527
----------- ----------- ----------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from
Borrowings............ 918,000 1,502,304 1,709,980 118,750 383,100
Repayment of
Borrowings............ (1,292,712) (1,369,341) (1,456,061) (82,205) (104,906)
Premium Paid on
Extinguishment of
Debt.................. -- -- (20,924) -- --
Increase (Decrease) in
Minority Interests.... 389 (2,580) 779 386 1,047
Issuance of Series A
Convertible Preferred
Stock................. 394,349 -- -- -- --
Issuance of Common
Stock................. 153,840 46,500 30,500 -- --
Repurchase of Common
Stock and Redeemable
Common Stock.......... (233,984) (31,232) (4,755) (4,755) --
----------- ----------- ----------- --------- ---------
NET CASH PROVIDED FROM
(USED FOR)
FINANCING ACTIVITIES... (60,118) 145,651 259,519 32,176 279,241
----------- ----------- ----------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions, Net of
Liabilities Assumed
and Cash Acquired..... -- -- (114,990) (49,573) --
Property, Plant and
Equipment............. (145,189) (185,691) (300,511) (109,484) (231,021)
Investments............ (17,908) (106,819) (192,119) (123,219) (121,719)
Other Assets........... (12,996) (7,182) (16,832) (833) (28,788)
Purchase of Marketable
Equity Securities..... -- (8,042) -- -- --
Proceeds from Sale of
Marketable Equity
Securities............ -- 5,719 17,553 17,553 27,357
Proceeds from Sale of
Investment--net....... 34,253 1,148 -- -- 1,181
----------- ----------- ----------- --------- ---------
NET CASH USED FOR
INVESTING ACTIVITIES... (141,840) (300,867) (606,899) (265,556) (352,990)
----------- ----------- ----------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 13,087 95,288 (111,076) (109,812) 3,778
BALANCE AT BEGINNING OF
PERIOD................. 14,265 27,352 122,640 122,640 11,564
----------- ----------- ----------- --------- ---------
BALANCE AT END OF
PERIOD................. $ 27,352 $ 122,640 $ 11,564 $ 12,828 $ 15,342
=========== =========== =========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-63
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 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 $766,000, $908,000 and $2,377,000 in 1992, 1993 and
1994. Depreciation is provided using the straight-line group method over
estimated useful lives as follows: buildings, 25 to 40 years; reception and
distribution facilities, 3 to 15 years; and equipment and fixtures, 4 to 12 1/2
years. (See Note 6)
Intangible and Other Assets
Intangible assets consist primarily of franchise costs and goodwill recorded
in various acquisitions. Such amounts are generally amortized over 10 to 40
years. Franchise costs, net of accumulated amortization, at December 31, 1993
and 1994 and June 30, 1995 are $365,887,000, $355,488,000 and $312,118,000,
respectively. Other assets represent deferred financing costs and loans to
employees (see Note 11). Accumulated amortization for intangible and other
assets aggregated $622,453,000, $714,492,000 and $760,731,000 at December 31,
1993 and 1994 and June 30, 1995, respectively.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of intangible assets by reviewing the
performance of the underlying operations, in particular, the future
undiscounted operating cash flows of the acquired entities.
Allowance for Doubtful Accounts
The allowance for doubtful accounts at December 31, 1993 and 1994 is
$9,435,000 and $9,771,000, respectively.
Investments
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115) requires that certain debt
and equity securities be categorized as either securities available for sale,
securities held to maturity or trading account securities. The Company has
classified all investments subject to SFAS 115 as available for sale and as
such reports these securities at fair value, with the unrealized gains or
losses, net of tax, reported as a separate component of shareholders' equity
(deficiency). Realized gains and losses are included in results of operations.
Prior to January 1, 1994, marketable equity securities were carried at either
the lower of cost or market. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. (See Note 4)
F-64
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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 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 probability of being executed. Derivative
financial instruments used include Interest Rate Exchange Agreements (Swaps)
and Interest Rate Cap Agreements (Caps). These instruments are matched with
either fixed or variable rate debt and periodic cash payments are accrued on a
settlement basis as an adjustment to interest expense. Derivative financial
instruments are not held for trading purposes. Any premiums associated with the
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized over
the shorter of the remaining term of the instrument or the underlying debt.
(See Note 7)
Income Taxes
The Company implemented Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) as of January 1, 1993. Deferred tax
liabilities and assets are recognized for the future tax consequences of
temporary differences between the financial reporting and tax bases of existing
assets and liabilities. In addition, future tax benefits, such as net operating
loss and investment tax credit carryforwards, are recognized to the extent
realization of such benefits is more likely than not. (See Note 12)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts. The fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1993 and 1994.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein. The following is a summary of the estimated fair value and
carrying value of the Company's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Marketable Equity Securities (See
Note 4)........................... $ 58,676 $ 199,596 $ 122,510 $ 122,510
Cost Method Investments (See Note
5)................................ 27,740 40,543 33,175 47,322
LIABILITIES
Total Debt, Swaps and Caps (See
Note 7)........................... 3,177,178 3,510,020 3,449,907 3,516,588
Redeemable Common Stock (See Note
9)................................ 213,548 339,365 232,399 329,011
</TABLE>
The Company believes carrying value approximates fair value for all other
financial instruments.
F-65
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Loss per Common Share
Loss per common share is calculated by dividing the loss available to common
shareholders by the weighted average number of common shares outstanding of
4,782,000, 4,562,000 4,573,000, 4,563,000 and 4,705,000 for the years ended
December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and
1995, respectively. Shares of the Series A Convertible Preferred Stock were not
assumed to be converted into shares of common stock since the result would be
anti-dilutive by decreasing the loss per share for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), which is effective for
fiscal years beginning after December 31, 1995. SFAS 121 addresses the
accounting for potential impairment of long-lived assets. The effect of
implementing SFAS 121 is expected to be immaterial to the Company's financial
position and results of operations.
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 of a normal recurring nature
necessary for a fair presentation of such information. The consolidated results
of operations and cash flows for the six months ended June 30, 1994 and 1995
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, 1992,
1993 and 1994 and the six months ended June 30, 1994 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Dispositions:
Gain on Sale of Investment (See
Note 5)....................... $ 10,253 $ 15,919 $ -- $ -- $ --
Deferred Gain on Sale of In-
vestment...................... -- 165 -- -- --
Bases of Assets Sold........... -- 429 -- -- --
Gain on Sale of Marketable Eq-
uity Securities............... -- 3,471 -- -- --
Bases of Properties Received... -- (19,984) -- -- --
Promissory Note Issued to Buy-
er............................ 24,000 -- -- -- --
-------- -------- -------- -------- --------
Proceeds Received from Dispo-
sition...................... $ 34,253 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Accretion of Redeemable Common
Stock........................... $ 13,806 $ 14,766 $ 19,932 $ 10,100 $ 10,322
======== ======== ======== ======== ========
Accretion of Series A Convertible
Preferred Stock................. $ 16,861 $ 34,115 $ 36,800 $ 17,887 $ 19,347
======== ======== ======== ======== ========
Cash Paid During the Period for
Interest........................ $301,210 $261,846 $299,115 $145,111 $178,837
======== ======== ======== ======== ========
Cash Paid During the Period for
Income Taxes.................... $ 1,259 $ 2,370 $ 2,411 $ 1,001 $ 845
======== ======== ======== ======== ========
</TABLE>
F-66
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
3. ACQUISITIONS
In June 1994, the Company purchased cable television systems in Manchester,
New Hampshire for approximately $47,990,000, and in November 1994 purchased
cable television systems in Florida for approximately $67,000,000. The
accompanying financial statements reflect the results of operations commencing
on the acquisition dates. Had these acquisitions occurred on January 1, 1993,
the results of operations of the Company would not have been materially
different for 1993 or 1994.
The Company, Providence Journal, King Holding Corp., King Broadcasting
Company and New Providence Journal entered into an agreement and plan of merger
(the Merger) which provides that Providence Journal (which at the time of the
Merger will include only the Providence Journal cable businesses) will be
merged with and into the Company and that the Company will purchase the cable
television businesses and assets of King Broadcasting Company (the King Cable
Purchase). The Company will issue shares of capital stock to shareholders of
Providence Journal in exchange for all shares of Providence Journal. The fair
value of the shares to be exchanged is estimated to be $596,069,000 and does
not necessarily reflect the price at which such shares will trade following the
Merger. The Merger also provides for the assumption of $410,000,000 of debt of
Providence Journal, the King Cable Purchase for $405,000,000, and working
capital and capital expenditure adjustments which will be settled in cash. The
Merger and the King Cable Purchase will be accounted for using the purchase
method of accounting and are expected to close in the fourth quarter of 1995.
In 1994 and 1995 the Company entered into purchase and sale agreements (one
of which is currently being renegotiated) to purchase several cable television
systems in Michigan for approximately $155,000,000 and $90,000,000,
respectively. In 1995, the Company entered into a purchase and sale agreement
to purchase a cable television system in California for approximately
$17,000,000. These transactions will be accounted for using the purchase
method, and the pending transactions are expected to close in 1995. Subsequent
to June 30, 1995, the Company purchased for cash several cable television
systems in the Chicago, Illinois area for approximately $168,500,000.
4. MARKETABLE EQUITY SECURITIES
At December 31, 1993, marketable equity securities were carried at cost and
had an aggregate market value of $199,596,000. Effective January 1, 1994, the
Company adopted SFAS 115 and classified marketable equity securities as
available for sale. These investments had a fair value of $183,245,000 and a
cost of $42,161,000 at the date of adoption. The unrealized gain of
$141,084,000, less income taxes of $56,434,000 was reported as an adjustment to
shareholders' equity (deficiency). These securities have an aggregate cost
basis of $42,161,000 and $37,837,000 as of December 31, 1994 and June 30, 1995,
respectively. During the year ended December 31, 1994, the Company recognized a
gross unrealized holding loss of $60,735,000 and a gross realized gain of
$1,204,000. During the six months ended June 30, 1995, the Company recognized a
gross unrealized holding gain of $22,585,000 and a gross realized gain of
$23,032,000.
F-67
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
5. INVESTMENTS
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
APPROXIMATE ----------------- JUNE 30,
OWNERSHIP 1993 1994 1995
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Method Investments:
Teleport Communications Group, Inc.
(TCG) and TCG Partners............ 20% $ 67,473 $ 93,954 $103,095
Regional TCG Partnerships.......... 10%-30% 19,056 34,609 42,527
Fintelco S.A. ..................... 50% -- 146,040 174,978
Optus Vision Pty Ltd............... 47% -- -- 33,147
Singapore Cablevision Pte Ltd. .... 25% -- 8,484 16,279
PrimeStar Partners, L.P. .......... 10% 19,521 12,500 13,481
Other.............................. 20%-50% 2,396 6,717 12,676
-------- -------- --------
108,446 302,304 396,183
-------- -------- --------
Cost Method Investments.............. 27,740 33,175 36,304
-------- -------- --------
Total............................ $136,186 $335,479 $432,487
======== ======== ========
</TABLE>
Management's estimated fair value of cost method investments are $40,543,000
and $47,322,000 as of December 31, 1993 and 1994, respectively, primarily based
on recent private transactions or other valuation methods.
In September 1992, the Company completed the disposition of its 50% interest
in North Central Cable Communications Corporation (NCCC) to Meredith/New
Heritage Strategic Partners, L.P. (Meredith) and simultaneously purchased an
ownership interest in Meredith. The Company sold a portion of its interest in
NCCC for $48,253,000 in cash and simultaneously invested $14,000,000 of the
proceeds in Meredith. In addition, the Company exchanged its remaining interest
in NCCC and issued a $24,000,000 promissory note to Meredith and, as a result,
currently has approximately a one-third ownership interest in Meredith. The
$10,253,000 preliminary gain represented the proceeds received less the basis
in NCCC, the cash investment in Meredith and the promissory note. In April
1993, an additional gain of $1,148,000 was recorded due to 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.
In October 1993, the Company exchanged its equity interest in Insight
Communications Company U.K., L.P. for stock representing less than a 5%
interest in International CableTel, Incorporated (CableTel), a
telecommunications company operating in the United Kingdom. The Company
accounted for the investment in CableTel as a marketable equity security and
recorded a gain of $15,919,000. During the year ended December 31, 1994, the
CableTel marketable equity securities were sold and an additional gain of
$1,204,000 was realized.
In addition to its equity investment, the Company has made commitments to TCG
to loan up to $69,920,000 through 2003, of which $39,500,000 was outstanding as
of December 31, 1994 ($53,800,000 at June 30, 1995). These loans bear interest
at approximately 7%. 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.
F-68
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
As of December 31, 1994, the Company has advanced $114,000,000 in cash
($148,000,000 at June 30, 1995) to Fintelco, S.A. which owns and operates cable
television systems in Argentina. Continental currently holds an approximate 50%
interest in Fintelco, S.A. subject to certain regulatory approvals. In
addition, the Company has recorded commitments to contribute an additional
$32,216,000 to Fintelco S.A. ($33,469,000 at June 30, 1995) The initial
investment in Fintelco, S.A. was acquired in February 1994 at a cost of
$80,000,000.
In September 1994, the Company made an initial equity investment in Singapore
Cablevision Private Limited (SCV), which will construct, own and operate a
cable television system in Singapore. As of December 31, 1994 the Company is
committed to make additional capital contributions to SCV of approximately
$35,000,000 ($27,000,000 as of June 30, 1995) to be paid through 1996. In
addition, the Company has made commitments to SCV to loan up to approximately
$45,000,000, if third party debt financing cannot be obtained by SCV.
As of December 31, 1994, a wholly owned subsidiary of the Company issued a
standby letter of credit of $38,750,000 (subsequently increased to $56,250,000)
on behalf of PrimeStar Partners L.P. (PrimeStar), a limited partnership that
provides direct broadcast satellite services. The standby letter of credit
guarantees a portion of the financing PrimeStar incurred to construct a
satellite system and is collateralized by certain marketable equity securities
with a carrying value of $65,781,000 as of December 31, 1994 ($120,042,000 as
of June 30, 1995). As a result of the commitments and other qualitative
factors, the Company accounts for its investment in PrimeStar using the equity
method.
As of June 30, 1995, the Company has advanced approximately $30,000,000 in
cash to Optus Vision Pty Ltd (Optus Vision) a joint venture which will create a
broadband communications network in Australia. The Company currently holds a
46.5% interest in Optus Vision.
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.
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,
----------------- JUNE 30,
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, Plant and Equipment.................... $106,000 $226,000 $274,000
Total Assets..................................... 253,000 495,000 592,000
Total Liabilities................................ 196,000 387,000 475,000
Equity........................................... 57,000 108,000 117,000
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 49,000 $ 63,000 $146,000 $ 55,000 $113,000
Depreciation and Amortiza-
tion..................... 20,000 22,000 27,000 12,000 19,000
Operating Loss............ (4,000) (5,000) (4,000) (2,000) (5,000)
Net Loss.................. (21,000) (19,000) (28,000) (12,000) (23,000)
</TABLE>
F-69
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and Buildings.................................... $ 50,040 $ 56,630
Reception and Distribution Facilities................. 1,893,925 2,122,304
Equipment and Fixtures................................ 249,192 288,950
---------- ----------
Total............................................... 2,193,157 2,467,884
Less-Accumulated Depreciation......................... 981,650 1,114,095
---------- ----------
Property, Plant and Equipment-net................... $1,211,507 $1,353,789
========== ==========
</TABLE>
7. DEBT
Total debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank Indebtedness.................................. $ 754,550 $1,373,790
Insurance Company Notes............................ 171,500 150,000
Senior Notes and Debentures........................ 1,400,000 1,400,000
Subordinated Debt.................................. 825,000 500,000
Other.............................................. 26,128 26,117
---------- ---------- ---
Total.......................................... $3,177,178 $3,449,907
========== ========== ===
</TABLE>
In October 1994, the Company amended and restated its bank indebtedness by
entering into a $2,200,000,000 unsecured reducing revolving credit agreement
(Reducing Revolver). Borrowings under the Reducing Revolver were utilized to
refinance the prior bank indebtedness agreements. Credit availability under the
Reducing Revolver will decrease annually commencing December 31, 1997 with a
final maturity in October 2003. Borrowings under the Reducing Revolver bear
interest at a rate between the agent bank's prime rate (8 1/2% as of December
31, 1994 and 9% as of June 30, 1995) 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 certain subsidiaries (the "Restricted Subsidiaries"), which
primarily represent the Company's owned and operated cable systems. Prepayments
are required from the proceeds of certain sales of Restricted Subsidiaries'
assets. As of June 30, 1995 $1,663,740,000 was outstanding under the Reducing
Revolver.
Subsequent to June 30, 1995, the Company entered into a $1,200,000,000
unsecured reducing revolving credit agreement. Borrowings under the new
facility will be utilized to finance the Merger with Providence Journal,
including the King Cable Purchase, and certain other acquisitions expected to
close in 1995.
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. As of June 30, 1995 the remaining
balance outstanding on the Insurance Company Notes was $138,250,000.
F-70
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The Company's unsecured Senior Notes and Debentures rank pari passu in right
of payment with the Insurance Company Notes and Reducing Revolver
(collectively, Senior Debt) and are non-redeemable prior to maturity, except
for the 9 1/2% Senior Debentures. The 9 1/2% Senior Debentures are redeemable
at the Company's option at par plus declining premiums beginning in 2005. In
addition, at any time prior to August 1996, the Company may redeem a portion of
the 9 1/2% Senior Debentures at a premium with the proceeds from any offering
by the Company of its capital stock. No sinking fund is required for any of the
Senior Notes and Debentures. The Senior Notes and Debentures consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
8 1/2% Senior Notes, Due September 15, 2001........ $ 200,000 $ 200,000
8 5/8% Senior Notes, Due August 15, 2003........... 100,000 100,000
8 7/8% Senior Debentures, Due September 15, 2005... 275,000 275,000
9% Senior Debentures, Due September 1, 2008........ 300,000 300,000
9 1/2% Senior Debentures, Due August 1, 2013....... 525,000 525,000
---------- ---------- ---
Total............................................ $1,400,000 $1,400,000
========== ========== ===
</TABLE>
The Company's Senior Debt limits the Restricted Group with respect to, among
other things, payment of dividends and the repurchase of certain capital stock
in excess of $550,000,000, the creation of liens and additional indebtedness,
property dispositions, investments and leases, and require certain minimum
ratios of debt to cash flow and cash flow to related fixed charges.
The Company's Subordinated Debt is redeemable at the Company's option at par
plus declining premiums at various dates, and is subordinated to the Company's
Senior Debt. Subordinated Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
10 5/8% Senior Subordinated Notes, Due June 15, 2002.. $100,000 $100,000
12 7/8% Senior Subordinated Debentures, Due November
1, 2004.............................................. 325,000 --
Senior Subordinated Floating Rate Debentures, Due No-
vember 1, 2004....................................... 100,000 100,000
11% Senior Subordinated Debentures, Due June 1, 2007.. 300,000 300,000
-------- -------- ---
Total............................................... $825,000 $500,000
======== ======== ===
</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 the remaining
$325,000,000 of these debentures for a price equal to 106.438% of their
principal amounts plus accrued interest thereon. As a result of the redemption
and the write-off of $7,176,000 of unamortized deferred financing costs, the
Company recorded an extraordinary loss of $28,100,000, less an income tax
benefit of $9,835,000.
The Senior Subordinated Floating Rate Debentures bear interest at LIBOR plus
3% through November 1996, increasing to LIBOR plus 6.5% through maturity.
As of December 31, 1994, the Company has Swaps pursuant to which it pays
fixed interest rates averaging 9.1% (9% as of June 30, 1995) on notional
amounts of $800,000,000 ($900,000,000 as of June 30,
F-71
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
1995) (expiring 1995 through 2000) and variable interest rates on notional
amounts of $1,575,000,000 ($1,575,000 as of June 30, 1995) (expiring 1998
through 2003). The variable interest rates are based on six month LIBOR (7% as
of December 31, 1994 and 6% as of June 30, 1995). In addition, the Company has
a notional amount of $800,000,000 of Caps, included in Other Assets, with a
carrying value of $1,176,000 as of December 31, 1994, expiring in 1995 and
1996, which limit six month LIBOR to approximately 8%. The Company's exposure,
if the other parties fail to perform under the agreements, would be limited to
the impact of variable interest rate fluctuations and the periodic settlement
of amounts due under these agreements. As of December 31, 1993 and 1994,
amounts receivable (payable) under Swaps were $658,000 and $(5,000,000),
respectively.
The variable-rate Swaps include $325,000,000 of Swaps that may be extended by
the counterparty at a certain time in the future at the existing contracted
rates. The Company entered into such Swaps to further manage its interest rate
risk. Such Swaps are related to specific portions of the Company's fixed-rate
debt and are with counterparties that are lenders to the Company under the
Reducing Revolver. Premium income or expense is amortized over the life of the
agreement and is included in the Company's results of operations.
The fair value of total debt, Swaps and Caps is estimated to be
$3,510,020,000 and $3,516,588,000 as of December 31, 1993 and 1994,
respectively, and is based on recent trades and dealer quotes. The components
of the fair value are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Carrying Value of Debt................................ $3,177,178 $3,449,907
Unrealized Loss/(Gain) on Debt........................ 238,295 (130,442)
Unrealized Loss on Floating to Fixed Rate Swaps....... 81,222 14,247
Unrealized Loss on Fixed to Floating Rate Swaps....... 13,325 184,903
Unrealized Gain on Interest Rate Cap Agreements....... -- (2,027)
---------- ----------
Total............................................... $3,510,020 $3,516,588
========== ==========
</TABLE>
Annual maturities of debt for the five years subsequent to December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995.......................................................... $ 24,265
1996.......................................................... 27,250
1997.......................................................... 30,550
1998.......................................................... 33,250
1999.......................................................... 35,000
Thereafter.................................................... 3,299,592
----------
Total....................................................... $3,449,907
==========
</TABLE>
8. COMMITMENTS
The Company and its subsidiaries have entered into various operating lease
agreements, with total commitments of $34,952,000 as of December 31, 1994.
Commitments under such agreements for the years 1995-1999 approximate
$8,778,000, $7,534,000, $5,437,000, $4,189,000 and $3,230,000, respectively.
The Company and its subsidiaries also rent pole space from various companies
under agreements which are generally terminable on short notice. Lease and
rental costs charged to operations for the years ended December 31, 1992, 1993
and 1994 were $17,876,000, $18,378,000 and $20,113,000, respectively.
F-72
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
9. REDEEMABLE STOCK
Pursuant to a Stock Liquidation Agreement with certain shareholders (the
Selling Shareholders), the Company committed to repurchase 1,228,193 shares of
its common stock in December 1998 or January 1999 at a defined purchase price
(Purchase Price). The Purchase Price is the greater of the estimated amount of
net proceeds per share from an underwritten public offering of the Company's
common stock or, the net proceeds per share from the liquidation of the Company
less a 22.5% discount. The Stock Liquidation Agreement also required the
Company to offer to repurchase up to 300,000 shares from all shareholders by
October 15, 1993 (the Mandatory Tender Offer).
The fair value of the Redeemable Common Stock is estimated at $339,365,000
and $329,011,000 as of December 31, 1993 and 1994, respectively, based on the
estimate of the Purchase Price at these dates of $506 and $493 per share,
respectively, as determined by an investment banker of the Company.
In the event the Company is unable to meet its commitments under the Stock
Liquidation Agreement, the Selling Shareholders may cause the sale of all or
substantially all of the assets of the Company.
Pursuant to the Company's August 1992 Tender Offer, the Company repurchased
319,022 Redeemable Common shares, 159,437 Class A shares, and 237,302 Class B
shares in October 1992 for approximately $239,852,000, of which $5,868,000 was
paid in January 1993. This transaction satisfied the Mandatory Tender Offer
and, together with agreements with certain shareholders to withdraw from the
1998-1999 Share Repurchase, reduced the number of Redeemable Common shares to
751,305 shares.
During 1993, the Company repurchased 64,176 Redeemable Common shares for
approximately $31,125,000 and during 1994, the Company repurchased 8,705 of
Class B shares and 1,099 of Class A shares. These transactions, together with
an agreement with a certain shareholder to withdraw from the 1998-1999 Share
Repurchase, reduced the number of Redeemable Common shares to 670,682 shares
and 667,366 shares at December 31, 1993 and 1994, respectively. The effect of
these transactions on certain accounts is as follows:
<TABLE>
<CAPTION>
REDEEMABLE ADDITIONAL
COMMON COMMON PAID-IN
STOCK STOCK CAPITAL
---------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Repurchase of 715,761 Shares
(319,022 were Redeemable Shares).............. $ (93,591) $ (4) $(146,257)
Reclassification of 457,866 Shares to Common
Stock......................................... (141,962) 4 141,958
--------- ---- ---------
Total for the Year Ended December 31, 1992... $(235,553) $-- $ (4,299)
========= ==== =========
Repurchase of 64,176 Redeemable Shares......... $ (19,848) $-- $ (11,277)
Reclassification of 16,447 Shares to Common
Stock......................................... (5,085) -- 5,085
--------- ---- ---------
Total for the Year Ended December 31, 1993... $ (24,933) $-- $ (6,192)
========= ==== =========
Repurchase of 9,804 Shares
(3,316 were Redeemable Shares)
Total for the Year Ended December 31, 1994... $ (1,081) $-- $ (3,674)
========= ==== =========
</TABLE>
The initial estimated repurchase cost for the Redeemable Common Stock has
been adjusted by periodic accretions through the repurchase dates, based on the
interest method, of the difference between the initial estimate and the
subsequent estimates of the Purchase Price.
F-73
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
10. SHAREHOLDERS' EQUITY (DEFICIENCY)
In 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 June 30,
1995, there were 345,436 and 4,369,863 Class A and Class B shares of common
stock outstanding, respectively. Shareholders' Equity (Deficiency) reflects
only 343,252 and 3,704,681 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 1993 and 1994, the Company sold 95,876 shares of Class A Common
Stock for approximately $46,500,000 and 62,886 shares of Class A Common Stock
for approximately $30,500,000, respectively.
In 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 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 six months ended June 30, 1995,
the carrying value of the Convertible Preferred has been increased by
$19,347,000 to reflect the Accreted Value of $507,123,000 as of June 30, 1995.
After June 1997, if the value of the common stock is greater than 137.5% of
the then Accreted Value, the Company will have the right to convert each
outstanding share of Convertible Preferred into one share of common stock.
In June 2002, each outstanding share of Convertible Preferred may be
converted at the option of the holder or the Company into a number of common
shares which will have a value equal to the Accreted Value. The Company may, at
its sole option, purchase for cash at the Accreted Value all or part of the
Convertible Preferred instead of accepting or requiring conversion.
In connection with the above-referenced sale of shares of Convertible
Preferred Stock and Class B Common Stock, the issuance of subordinated debt,
senior notes, and debentures, and certain other investment banking services,
the Company paid aggregate fees and underwriting discounts to Lazard Freres &
Co. LLC (Lazard) of approximately $9,000,000 and $7,700,000 in 1992 and 1993,
respectively. Two directors of the Company are managing directors of Lazard and
are managing directors of Corporate Partners, L.P., which purchased 728,953
shares of Convertible Preferred on the same terms as all other purchasers of
Convertible Preferred.
11. RESTRICTED STOCK PURCHASE PROGRAM
The Company maintains a Restricted Stock Purchase Program under which certain
employees of the Company, selected by the Board of Directors, are permitted to
buy shares of the Company's common stock
F-74
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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 2001 as the shares vest. Shares of common stock
issued under the program for the years ended December 31, 1992 and 1993 were
108,450 and 1,600, respectively, none were issued during 1994 and 94,817 shares
were issued during the six months ended June 30, 1995. At December 31, 1993 and
1994, and June 30, 1995, 78,327, 40,157 and 116,754 shares, respectively, were
not yet vested. In connection with the Restricted Stock Purchase Program, a
wholly-owned subsidiary of the Company has loaned approximately $14,035,000,
$13,541,000 and $25,502,000 at December 31, 1993 and 1994 and June 30, 1995,
respectively, to the participating employees to fund their individual tax
liabilities. These loans are due through 2001, bear interest at a range from 5%
to 8%, and are included in Other Assets in the accompanying financial
statements.
12. INCOME TAXES
Effective January 1, 1993, the Company implemented the provisions of SFAS 109
and recognized an additional charge of $184,996,000 for deferred income taxes.
Such amount has been reflected in the consolidated financial statements as the
cumulative effect of change in accounting for income taxes.
During 1993, the Company revised its estimated annual effective tax rate to
reflect a change in the federal statutory rate from 34% to 35%. The income tax
benefit for the year decreased approximately $4,182,000 as a result of applying
the newly enacted federal tax rates to deferred tax balances as of January 1,
1993.
The provision (benefit) for income taxes is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal................... $ -- $ 647 $ (196)
State..................... 1,654 1,220 2,049
Deferred:
Federal................... -- (7,968) (35,549)
State..................... -- (1,820) (6,723)
------ ------- --------
Total................... $1,654 $(7,921) $(40,419)
====== ======= ========
Extraordinary Item--De-
ferred..................... $ -- $ -- $ (9,835)
====== ======= ========
</TABLE>
Differences between the effective income tax rate and the federal statutory
rates are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Federal Statutory Rate........................ (34.0)% (35.0)% (35.0)%
Enacted Tax Rate Change....................... -- 12.4 --
Net Operating Losses without Current Income
Tax Benefit.................................. 14.8 -- --
Depreciation and Amortization Not Deductible
for Tax Purposes............................. 17.4 -- --
State Income Tax, Net of Federal Income Tax
Benefit...................................... 1.1 (1.2) (2.2)
Other......................................... 2.3 .3 .5
------- ------- -------
Total....................................... 1.6 % (23.5)% (36.7)%
======= ======= =======
</TABLE>
F-75
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Deferred income taxes prior to the implementation of SFAS 109 resulted
primarily from timing differences in the recognition of certain expense items
for tax and financial reporting purposes. The tax effect of each major
component is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1992
----
(IN THOUSANDS)
<S> <C>
Accelerated Depreciation and Amortization............. $ 7,811
Restricted Stock Purchase Program..................... 7,469
Gain on Sale of Investment............................ 3,486
Deferred Income....................................... (4,555)
Utilization of Accounting Net Operating Losses........ (7,669)
Other................................................. (6,542)
-------
Total............................................... $ --
=======
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred Tax Liabilities:
Depreciation and Amortization................... $(482,320) $(506,560)
Unrealized Holding Gain on Marketable Equity Se-
curities....................................... -- (32,353)
Other........................................... (14,989) (5,245)
Deferred Tax Assets:
Net Operating Loss Carryforwards.............. 439,577 460,469
Tax Credit Carryforwards...................... 60,304 59,397
Other......................................... 49,858 60,836
Valuation Allowance........................... (157,471) (153,026)
--------- ---------
Net Deferred Tax Liability...................... $(105,041) $(116,482)
========= =========
</TABLE>
The Company and its subsidiaries have net operating loss carryforwards of
approximately $1,000,000,000 at December 31, 1994 for federal income tax
purposes expiring through 2009, and investment tax credit carryforwards of
approximately $60,000,000 expiring through 2005.
Valuation allowances have been established for uncertainties in realizing
transitional investment tax credit carryforwards and the tax benefit of certain
limited use net operating losses for federal and state income tax purposes. If
in future periods the realization of tax credit and net operating loss
carryforwards acquired as a result of business combinations becomes more likely
than not, $29,000,000 of the valuation allowance will be allocated to reduce
goodwill and other intangible assets. The net change of the valuation allowance
during 1994 was a decrease of $4,445,000. The 1994 decrease relates primarily
to the expiration of investment tax credit carryforwards.
An affirmed tax court decision affecting the cable television industry
ratified the deductibility of certain franchise cost amortization. As a result,
the Company revised the estimated tax bases of certain intangible assets as of
December 31, 1993. This resulted in the Company adjusting the carrying values
of goodwill,
F-76
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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,
-------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year...... $ 2,479 $ 2,584 $ 2,934
Interest Cost on Projected Benefit Obligations.... 1,118 1,336 1,576
Actual (Return) Loss on Plan Assets............... (179) (136) 417
Other Items....................................... (422) (615) (1,514)
------- ------- -------
Total........................................... $ 2,996 $ 3,169 $ 3,413
======= ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial Present Value of:
Vested Benefit Obligation............................. $ (8,384) $ (9,159)
Non-Vested Benefit Obligation......................... (1,647) (1,201)
-------- --------
Accumulated Benefit Obligation.......................... (10,031) (10,360)
Effect of Projected Salary Increases.................... (10,553) (12,691)
-------- --------
Projected Benefit Obligation............................ (20,584) (23,051)
Plan Assets at Market Value............................. 11,350 12,397
-------- --------
Funded Status........................................... (9,234) (10,654)
Deferred Transition Loss................................ 1,264 1,194
Unrecognized Prior Service Cost......................... (89) (511)
Unrecognized Net Loss................................... 1,884 2,233
-------- --------
Accrued Pension Cost................................ $ (6,175) $ (7,738)
======== ========
</TABLE>
The actuarial assumptions as of the year-end measurement date are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Discount Rate.................................................. 7.75% 8.75%
Expected Long-Term Rate of Return.............................. 9.00% 9.00%
Rate of Increase in Future Salary Levels....................... 4.75% 5.75%
</TABLE>
F-77
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
At December 31, 1994, plan assets consist of equity and debt securities, U.S.
Government obligations and cash equivalents.
The Company sponsors a defined contribution Matched Savings Plan covering
substantially all of its employees. The Company's contribution for this plan is
based on a percentage of each participant's salary. Total costs for the years
ended December 31, 1992, 1993 and 1994 were $2,418,000, $2,550,000, $2,652,000.
14. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the
Company.
15. LEGISLATION AND REGULATION
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, the FCC in April 1993 promulgated rate regulations that establish maximum
allowable rates for cable television services, except for services offered on a
per-channel or per-program basis. On February 22, 1994, the FCC adopted a
revised regulatory scheme which included, among other things, interim cost-of-
service standards and a new benchmark formula to determine service rates. In
creating the new benchmark formula, the FCC authorized a further reduction in
rates for certain regulated services. As a result, rates for certain regulated
services may now be reduced as much as 17% below their September 30, 1992
level, adjusted for inflation, if they exceed the new per-channel benchmark
rates. The FCC's regulations require rates for equipment and installations to
be cost-based, and require reasonable rates for regulated cable television
services to be established based on, at the election of the cable television
operator, either application of the FCC's benchmark formula or a cost-of-
service showing pursuant to interim standards adopted by the FCC.
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. In accordance with the
regulations, the Company either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for
regulated franchises. Certain positions taken by the Company in its cost-of-
service filings are based on provisions of the FCC's interim cost-of-service
rules that allow certain "presumptions" in the rules to be overcome on a case-
by-case basis. While the Company believes that its showings in this regard are
sufficient, the results of these cases are unknown. As a result, during 1994
the Company recorded a revenue reserve. In the opinion of management, the
ultimate resolution of these filings will not have a material adverse effect on
the Company's consolidated financial position.
On August 3, 1995, a Social Contract between the Company and the FCC (the
"Social Contract") was adopted. The Social Contract is a six-year agreement
covering all of the Company's existing franchises, including those that are
currently unregulated, and settles the Company's pending cost-of-service rate
cases and benchmark cable programming service tier (CPS) rate cases. Benchmark
broadcast service tier (BBT) cases will be resolved by the Company and local
franchising authorities. As part of the resolution of these cases, the Company
agrees to, among other things, (i) invest at least $1.35 billion in domestic
system rebuilds and upgrades in the next six years to expand channel capacity
and improve system reliability and picture quality, (ii) reduce its BBT service
rates and (iii) make in-kind refunds to affected subscribers with a retail
value of approximately $9.5 million (this amount is fully reserved). The
resolution of pending rate cases is without any finding by the FCC of any
wrongdoing by the Company.
F-78
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for 1993, 1994 and 1995 are summarized below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Revenues....................... $ 287,542 $ 297,238 $ 295,458 $ 296,925
Depreciation and Amortization.. 68,010 68,817 70,087 72,095
Restricted Stock Purchase
Program....................... 2,690 2,689 2,690 2,935
Operating Income............... 58,780 63,713 57,469 57,617
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes.................. (5,397) (1,491) (13,487) (5,399)
Cumulative Effect of Change in
Accounting for Income Taxes... (184,996) -- -- --
Net Loss....................... (190,393) (1,491) (13,487) (5,399)
Loss Applicable to Common
Shareholders.................. (198,602) (9,819) (22,305) (14,159)
Loss Per Common Share:
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes................. (2.99) (2.16) (4.90) (3.08)
Cumulative Effect of Change in
Accounting for Income Taxes.. (40.61) -- -- --
Net Loss..................... (43.60) (2.16) (4.90) (3.08)
1994
Revenues....................... $ 290,764 $ 298,626 $ 296,246 $ 312,341
Depreciation and Amortization.. 67,458 68,065 71,277 76,383
Restricted Stock Purchase
Program....................... 2,838 2,837 2,827 2,814
Operating Income............... 59,284 61,507 53,565 56,238
Loss Before Extraordinary Item. (13,640) (9,981) (21,871) (23,084)
Extraordinary Item............. -- -- -- (18,265)
Net Loss....................... (13,640) (9,981) (21,871) (41,349)
Loss Applicable to Common
Shareholders.................. (22,518) (18,990) (31,309) (50,824)
Loss Per Common Share:
Loss Before Extraordinary
Item......................... (4.93) (4.16) (6.87) (7.07)
Extraordinary Item............ -- -- -- (3.96)
Net Loss...................... (4.93) (4.16) (6.87) (11.03)
1995
Revenues....................... $ 318,576 $331,472
Depreciation and Amortization.. 74,422 73,990
Restricted Stock Purchase
Program....................... 2,850 3,055
Operating Income............... 59,192 61,361
Net Loss....................... (6,902) (26,165)
Loss Applicable to Common
Shareholders.................. (16,505) (35,909)
Loss Per Common Share:
Net Loss...................... (3.52) (7.61)
</TABLE>
F-79
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Columbia Associates, L.P.:
We have audited, the financial statements of Columbia Associates, L.P. as of
December 31, 1993 and 1994, and have issued our report thereon dated February
24, 1995. In connection therewith, we have also audited the statements of
assets, liabilities and control account of Columbia Cable of Michigan (a
division of Columbia Associates, L.P.) as of December 31, 1993 and 1994, and
the related statements of operations and control account and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Columbia Cable of Michigan as
of December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Stamford, Connecticut,
February 24, 1995
F-80
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF ASSETS, LIABILITIES AND CONTROL ACCOUNT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CASH.................................... $ 674,099 $ 385,054 $ 189,327
----------- ----------- -----------
SUBSCRIBER RECEIVABLES, net of allowance
for doubtful accounts of $213,482,
$162,191 and $197,607 in 1993, 1994 and
1995, respectively..................... 573,723 605,547 285,471
----------- ----------- -----------
INVESTMENT IN CABLE TELEVISION SYSTEMS
(Notes 3 and 4):
Property, plant and equipment, at
cost................................. 54,140,130 58,271,277 59,108,745
Less--Accumulated depreciation........ (18,032,166) (23,441,707) (25,972,428)
----------- ----------- -----------
36,107,964 34,829,570 33,136,317
Franchising costs, net of accumulated
amortization of $13,245,295,
$14,882,450 and $15,706,990 in 1993,
1994 and 1995, respectively.......... 4,257,209 2,631,381 1,813,787
Goodwill and other intangible assets,
net of accumulated amortization of
$2,390,633, $2,663,051 and $2,814,991
in 1993, 1994 and 1995, respectively. 637,415 332,766 180,827
----------- ----------- -----------
Total investment in cable television
systems............................ 41,002,588 37,793,717 35,130,931
----------- ----------- -----------
OTHER ASSETS, net....................... 991,729 1,058,194 846,115
----------- ----------- -----------
$43,242,139 $39,842,512 $36,451,844
=========== =========== ===========
LIABILITIES AND CONTROL ACCOUNT
-------------------------------
LIABILITIES:
Accounts payable and accrued expenses. $ 1,868,647 $ 2,070,908 $ 1,502,509
Subscriber advance payments and
deposits............................. 632,171 658,394 660,972
----------- ----------- -----------
Total liabilities................... 2,500,818 2,729,302 2,163,481
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2
and 6)
CONTROL ACCOUNT, excess of assets over
liabilities............................ 40,741,321 37,113,210 34,288,363
----------- ----------- -----------
$43,242,139 $39,842,512 $36,451,844
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-81
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF OPERATIONS AND CONTROL ACCOUNT
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ------------------------
1993 1994 1994 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES................. $ 25,130,342 $ 26,428,244 $13,044,425 $14,045,883
------------ ------------ ----------- -----------
EXPENSES:
Service costs.......... 9,402,956 10,143,788 5,008,173 5,500,963
Selling, general and
administrative
expenses.............. 4,168,761 4,491,103 2,233,886 2,266,580
Indirect expenses...... 1,413,452 1,449,917 699,950 747,663
Depreciation and
amortization
(Notes 3 and 4)....... 7,046,029 7,620,122 3,744,556 3,915,051
Other expense.......... -- 18,255 10,155 24,960
Gain on disposal of
equipment, net........ (57,958) (26,975) (200) (18,270)
------------ ------------ ----------- -----------
Total expenses....... 21,973,240 23,696,210 11,696,520 12,436,947
------------ ------------ ----------- -----------
Net income........... 3,157,102 2,732,034 1,347,905 1,608,936
CONTROL ACCOUNT,
beginning of year....... 39,723,609 40,741,321 40,741,321 37,113,210
ADVANCES TO PARENT....... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
------------ ------------ ----------- -----------
CONTROL ACCOUNT, end of
year.................... $ 40,741,321 $ 37,113,210 $38,279,768 $34,288,363
============ ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-82
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................. $ 3,157,102 $ 2,732,034 $1,347,905 $1,608,936
----------- ----------- ---------- ----------
Adjustments to reconcile
division income to net
cash provided by operating
activities:
Depreciation and
amortization............ 7,046,029 7,620,122 3,744,556 3,915,051
Gain on disposal of
equipment............... (57,958) (26,975) (200) (18,270)
Change in assets and
liabilities--
(Increase) decrease in
subscriber
receivables........... (107,581) (31,824) 124,608 320,076
(Increase) decrease in
other assets.......... (213,137) (66,604) 320,578 212,079
Increase (decrease) in
accounts payable and
accrued expenses...... 115,297 202,261 42,115 (568,399)
Increase (decrease) in
subscriber advance
payments and deposits. (2,984) 26,223 17,882 2,578
----------- ----------- ---------- ----------
Total adjustments.... 6,779,666 7,723,203 4,249,539 3,863,115
----------- ----------- ---------- ----------
Net cash provided by
operating
activities.......... 9,936,768 10,455,237 5,597,444 5,472,051
----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in investment in
existing cable television
systems................... (7,574,365) (4,454,226) (2,460,807) (1,252,265)
Proceeds on disposal of
equipment................. 169,165 70,089 200 18,270
----------- ----------- ---------- ----------
Net cash used in
investing
activities.......... (7,405,200) (4,384,137) (2,460,607) (1,233,995)
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances to parent......... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
----------- ----------- ---------- ----------
Net cash used in
financing
activities.......... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
----------- ----------- ---------- ----------
Net increase
(decrease) in cash.. 392,178 (289,045) (672,621) (195,727)
CASH, beginning of year...... 281,921 674,099 674,099 385,054
----------- ----------- ---------- ----------
CASH, end of period.......... $ 674,099 $ 385,054 $ 1,478 $ 189,327
=========== =========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-83
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(1) PARTNERSHIP FORMATION AND SALE:
Columbia Cable of Michigan ("Michigan") is a division of Columbia Associates,
L.P. (the "Partnership"). The Partnership is a limited partnership which was
formed on March 7, 1985, under the laws of the State of Delaware and which
operates under the terms of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") dated as of June 2, 1992. The
Partnership will continue until March 1, 1995 unless previously dissolved in
accordance with the terms of the Partnership Agreement. The partners are
presently contemplating an extension of the Partnership Agreement.
On November 1, 1994, the Partnership entered into an agreement to sell
substantially all the assets and certain of the liabilities of Michigan for
$155 million, subject to closing adjustments. The Partnership expects the sale
to be completed in 1995.
(2) CABLE REGULATION:
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "Act") which, among other things, expanded
governmental regulation of rates for basic and other cable services. Pursuant
to the Act, the Federal Communications Commission (the "FCC") issued
regulations in April 1993. The FCC's regulations require rates for equipment to
be cost-based. Rates for basic and any regulated tiers of service were to be
based on, at the election of the cable operator, either the FCC's benchmark
rates or a cost-of-service showing based upon interim standards adopted by the
FCC. As a result of these regulations and the actions of the local franchise
authorities, Michigan is currently subject to regulation by the local franchise
authorities and the FCC.
Effective September 1, 1993, Michigan elected to use the FCC's benchmark
methodology. In February 1994, the FCC significantly modified the April 1993
regulations. The new regulations, among other things, ordered a lower benchmark
rate that became effective in May 1994 with allocable extensions until July
1994.
In July 1994, Michigan elected to justify its rates using a cost of service
showing instead of the benchmark methodology, but did not raise its rates to
the maximum permitted cost of service rates. Set forth below is a summary of
rates for the regulated tiers of service:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
COST OF
BENCHMARK SERVICE
NUMBER OF RATE PER RATE PER
SYSTEM SUBSCRIBERS ACTUAL RATE FILING FILING
------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Michigan--Ann Arbor Filing.......... 63,043 $21.25 $20.42 $22.92
Michigan--Brighton Filing........... 12,353 21.00 20.24 23.50
</TABLE>
Michigan's cost of service filings are currently being reviewed by the local
franchise authorities and the FCC. Michigan believes it is in compliance in all
material respects with the provisions of the Act and current regulations, and
accordingly, no revenue reserves have been recorded.
(3) SIGNIFICANT ACCOUNTING POLICIES:
Basis of financial statement presentation--
Michigan's financial statements include all the direct costs of operating the
business. Costs specifically incurred by the Partnership on behalf of Michigan
were directly included in selling, general and administrative expenses and
service costs. Costs which were not incurred specifically for any of the
Partnership's divisions were allocated to Michigan based on Michigan's total
subscribers as a percentage of
F-84
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the Partnership's total subscribers. All the indirect cost incurred by the
Partnership which have been allocated to Michigan have been included as
"indirect expenses" in the accompanying statements of operations and control
account. Management believes the foregoing allocations were made on a
reasonable basis. Nonetheless, the financial information included herein may
not necessarily reflect the financial position and results of operations of
Michigan in the future or what the financial position or results of operations
of Michigan would have been as a separate stand-alone entity.
The control account consists of accumulated earnings/losses, allocated
expenses from the Partnership, as well as any payable/receivable balance due
to/from the Partnership resulting from cash transfers. No provision for
interest has been made to the control account. Set forth below is an analysis
of the control account for the years ended December 31, 1993 and 1994 and the
six months ended June 30, 1995:
<TABLE>
<S> <C>
Control account--December 31, 1992................................. $39,723,609
Net income--1993................................................... 3,157,102
Cash transfers to the Partnership.................................. (25,024,245)
Cash transfers from the Partnership................................ 16,950,000
Direct and indirect expenses....................................... 5,934,855
-----------
Control account--December 31, 1993................................. 40,741,321
Net income--1994................................................... 2,732,034
Cash transfers to the Partnership.................................. (26,789,688)
Cash transfers from the Partnership................................ 14,000,000
Direct and indirect expenses....................................... 6,429,543
-----------
Control account--December 31, 1994................................. 37,113,210
Net income--six months ended June 30, 1995......................... 1,608,936
Cash transfers to the Partnership.................................. (14,406,231)
Cash transfers from the Partnership................................ 6,200,000
Direct and indirect expenses....................................... 3,772,448
-----------
Control account--June 30, 1995..................................... $34,288,363
===========
</TABLE>
The average balance outstanding of the control account was approximately
$40,200,000, $38,900,000, and $35,700,000 during 1993, 1994 and the six month
period June 30, 1995, respectively.
Property, plant and equipment--
Property, plant and equipment is recorded at purchased cost, together with
labor and indirect labor costs amounting to approximately $446,000 and $364,000
in 1993 and 1994, respectively.
Intangible assets--
Franchise costs include the assigned fair value of the franchises from
purchased cable television systems and costs of original franchise
applications, which are deferred until the franchise has been granted, at which
time such costs are amortized. All costs related to unsuccessful franchise
applications are charged to expense when it is determined that the efforts to
obtain the franchises were unsuccessful. Franchise costs are amortized over the
remaining franchise life, while goodwill is amortized over ten years and other
intangible assets (primarily subscriber lists) are amortized over the average
period that a subscriber is expected to remain connected to the cable system.
Amortization of franchise costs, goodwill and other intangible assets amounted
to approximately $1,646,000, $263,000 and $48,000 respectively, in 1993 and
approximately $1,642,000, $261,000 and $44,000, respectively in 1994.
F-85
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Revenue recognition--
Revenues are recognized as the services are provided.
Interim financial statements--
In the opinion of Michigan, the accompanying unaudited financial statements
contain all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of Michigan as of June 30,
1995 and the results of its operations and changes in its cash flows for the
six month periods ended June 30, 1994 and 1995.
(4) PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1993 and 1994, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Cable systems and equipment......................... $51,855,580 $55,994,897
Land, buildings and improvements.................... 808,174 809,696
Vehicles............................................ 770,857 753,121
Furniture and fixtures.............................. 705,519 713,563
----------- -----------
$54,140,130 $58,271,277
=========== ===========
</TABLE>
Depreciation is calculated on a straight-line basis over the following useful
lives:
<TABLE>
<S> <C>
Cable systems and equipment................................... 5 to 12 years
Buildings and improvements.................................... 15 to 20 years
Vehicles...................................................... 5 years
Furniture and fixtures........................................ 5 to 10 years
</TABLE>
(5) SALARY DEFERRAL PLAN:
The Partnership established a salary deferral plan (the "Plan") in accordance
with Internal Revenue Code Section 401(k), as amended, in 1989. The Plan
provides for discretionary and matching contributions by Michigan on behalf of
participating employees. Discretionary and matching contributions totaled
approximately $151,000 and $162,000 in 1993 and 1994, respectively.
(6) COMMITMENTS:
Under various lease and rental agreements, Michigan had rental expense of
approximately $114,000 and $112,000 in 1993 and 1994, respectively. Approximate
future minimum annual payments under these agreements are as follows:
<TABLE>
<S> <C>
1995.............................................. 38,000
1996.............................................. 39,000
1997.............................................. 32,000
1998.............................................. 18,000
1999.............................................. 18,000
Thereafter........................................ 46,000
</TABLE>
In addition, Michigan rents access to utility poles in its operations
generally under short-term, but recurring, agreements. Total rental expense for
utility poles was approximately $157,000 and $160,000 in 1993 and 1994,
respectively.
F-86
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Rifkin Cable Income Partners L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Clay Cablevision, a Division of Rifkin Cable Income
Partners L.P. (RCIP), at September 30, 1994 and the results of its operations
and its cash flows for the nine months then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Division's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
March 31, 1995
Denver, Colorado
F-87
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
BALANCE SHEET
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
------
Cash.............................................................. $ 24,383
Subscriber accounts receivable, net of allowance for doubtful
accounts of $87,179.............................................. 216,384
Other receivables................................................. 29,700
Prepaid expenses and deposits..................................... 144,820
Property, plant and equipment, at cost:
Cable television transmission and distribution systems and
related equipment.............................................. 19,994,782
Land, buildings, vehicles and furniture and fixtures............ 1,731,480
-----------
21,726,262
Less accumulated depreciation................................... (10,177,292)
-----------
Net property, plant and equipment............................. 11,548,970
Franchise costs, net of accumulated amortization of $11,776,013... 11,585,731
Other assets, net of accumulated amortization of $189,751......... 216,878
-----------
Total assets.................................................. $23,766,866
===========
LIABILITIES AND DIVISION DEFICIT
--------------------------------
Accounts payable, trade........................................... $ 110,711
Other accrued liabilities......................................... 811,940
Subscriber deposits and prepayments............................... 262,616
Interest payable.................................................. 1,154,445
Advances from RCIP................................................ 26,450,447
-----------
Total liabilities............................................. 28,790,159
Commitments (Note 3)
Division deficit.................................................. (5,023,293)
-----------
Total liabilities and division deficit............................ $23,766,866
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-88
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
REVENUE
Service.......................................................... $8,901,680
Installation and other........................................... 451,149
----------
Total revenue.................................................. 9,352,829
==========
COSTS AND EXPENSES
Operating expense................................................ 3,658,130
Selling, general and administrative expense...................... 1,090,328
Depreciation and amortization.................................... 2,430,245
Management fees.................................................. 503,732
Loss on retirement of assets..................................... 16,544
----------
Total costs and expenses....................................... 7,698,979
----------
Operating income................................................... 1,653,850
Interest expense................................................... 2,012,487
----------
Net loss........................................................... $ (358,637)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $ (358,637)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 2,430,245
Loss on retirement of assets................................... 16,544
Decrease in accounts payable................................... (98,097)
Decrease in other liabilities.................................. (10,018)
Increase in subscriber deposits and prepayments................ 3,200
Increase in interest payable................................... 568,350
Decrease in subscriber accounts receivables.................... 43,400
Decrease in other receivables.................................. 17,282
Decrease in prepaid expenses and deposits...................... 10,726
----------
Net cash provided by operating activities.................... 2,622,995
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment....................... (589,797)
Proceeds from disposal of assets................................. 12,609
----------
Net cash used in investing activities........................ (577,188)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from RCIP............................................... 2,085,903
Repayments to RCIP............................................... (3,519,486)
Net change in division deficit................................... (615,296)
----------
Net cash used in financing activities........................ (2,048,879)
----------
Net decrease in cash............................................... (3,072)
Cash at beginning of period........................................ 27,455
----------
Cash at end of period.............................................. $ 24,383
==========
</TABLE>
Interest paid for the nine months ended September 30, 1994 was $1,444,137.
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
Clay Cablevision (Clay, a Division of Rifkin Cable Income Partners L.P
(RCIP)) operates cable television (CATV) systems in Florida. RCIP was formed in
1986 as a limited partnership under the laws of the state of Delaware to
acquire and operate CATV systems. Rifkin Cable Management Partners L.P., an
affiliate of Rifkin and Associates, Inc., is the general partner of RCIP.
On August 24, 1994, RCIP signed an Asset Purchase Agreement ("Agreement")
providing for the sale of substantially all of the net assets of Clay to
Continental Cablevision of Jacksonville, Inc. On November 7, 1994, the sale was
finalized.
Basis of Presentation
The accompanying financial statements present Clay as if it had existed as a
company separate from RCIP and includes the historical assets, liabilities,
revenues, and expenses that are directly related to Clay's business.
Clay's financial statements include all the direct costs of operating the
business. General and administrative expenses specifically incurred by RCIP on
behalf of Clay were included while costs which were not incurred specifically
for any of RCIP's divisions were allocated to Clay based on Clay's total assets
as a percentage of RCIP's total assets. Management believes the foregoing
allocations were made on a reasonable basis. Nonetheless, the financial
information included herein may not necessarily reflect the financial position
and results of operations of Clay in the future or what the financial position
or results of operations of Clay would have been as a separate stand-alone
entity.
Revenue and Programming
Subscriber fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the
subscriber.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which in the
case of assets constructed includes amounts for material, labor, overhead and
interest, if applicable.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings....................................................... 21-30 years
Cable television transmission and distribution systems and
related equipment.............................................. 3-15 years
Vehicles and furniture and fixtures............................. 3- 5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
F-91
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Franchise Costs
The costs to acquire cable television franchises are capitalized and
amortized using the straight-line method over the remaining lives of the
franchises as of the date they were acquired, ranging from four to fifteen
years.
Other Assets
Certain loan costs of RCIP have been deferred and are amortized over the term
of the related debt. A portion of RCIP's loan costs and related accumulated
amortization of $270,795 and $167,581, respectively, have been allocated to
Clay (Note 2).
Income Taxes
RCIP is not an income tax paying entity. Accordingly, no provision is made
for income taxes since the effects of RCIP's operations are reportable by its
partners on their income tax returns.
Advances from RCIP
The indebtedness of RCIP is joint and severally secured by the assets of all
of its divisions, including Clay, and accordingly, a portion of RCIP's debt has
been allocated to Clay (Note 2) as advances from RCIP.
Cash
The only cash balances allocated to Clay were the nominal cash balances
maintained at Clay's operating facilities.
Division Deficit
The division deficit account consists of accumulated earnings/losses as well
as any payable/receivable balance due to/from RCIP resulting from cash
transfers. No provision for interest has been made on interdivisional balances.
The net change in division deficit shown on the Statement of Cash Flows
represents the change in payable/receivable balance due to/from RCIP.
2. RELATED PARTY TRANSACTIONS
RCIP has entered into a management agreement with Rifkin and Associates, Inc.
(Rifkin). The management agreement provides that Rifkin shall act as manager of
RCIP's CATV systems, and shall be entitled to annual compensation of 5% of
RCIP's CATV revenues, net of certain CATV programming costs ("net CATV
revenue"). In addition, the management agreement provides for the reimbursement
by RCIP of certain costs and expenses incurred on its behalf by Rifkin,
including the expense of certain employees devoting time of providing services
to RCIP. This fee has been allocated to Clay based on Clay's net CATV revenue
as a percentage of RCIP's net CATV revenue.
The advances from RCIP of $26,450,447 at September 30, 1994, represent a
portion of RCIP's third-party debt allocated to Clay based on Clay's total
assets as a percentage of RCIP's total assets. The advances from RCIP bear
interest at approximately 7.48 percent, which represents RCIP's average monthly
overall borrowing rate. Interest allocated to Clay for the nine months totaled
$2,012,487, of which $1,154,445 is reflected as interest payable at September
30, 1994.
3. COMMITMENTS AND RENTAL EXPENSE
Clay leases certain real and personal property under noncancelable operating
leases expiring through the year 2002. Future minimum lease payments under such
noncancelable leases as of September 30, 1994
F-92
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are: $5,341 remaining in 1994; $12,991 in 1995; $10,485 in 1996; $6,288 in
1997; $5,092 in 1998; and $17,882 thereafter, totaling $58,079.
Total rental expense for the nine months ended September 30, 1994 was
$127,822, including $94,180 relating to cancelable pole rental agreements.
4. CABLE REREGULATION
On September 14, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the Cable Act). On April 1, 1993, the
Federal Communications Commission (FCC) adopted, with effect from September 1,
1993, rules for implementing regulation of CATV subscriber rates. The rates may
be determined under one of two methods, calculation of benchmark rates or cost
of service showings. The Cable Act also gives subscribers and franchisors
certain rights with respect to challenging and regulating local rates.
Regulations to implement the Cable Act were issued in April 1993, and
management, using its best interpretation of regulations, calculated benchmark
rates for its systems, which it implemented effective September 1, 1993.
On February 22, 1994, the FCC issued a statement regarding regulations and
notices of proposed rule-making to implement further the provisions of the
Cable Act. These regulations included a number of significant changes to the
rules issued in 1993 and were intended to achieve a further overall reduction
in cable rates. Clay's calculations of the maximum permitted rates for
regulated programming services and equipment are based on management's best
estimates.
F-93
<PAGE>
REPORT OF INDEPENDENT AUDITORS
General and Limited Partners
N-COM Limited Partnership II
We have audited the accompanying consolidated balance sheets of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the related consolidated
statements of operations, partners' net capital deficiency, and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
December 23, 1994
F-94
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash............................... $ 1,670,307 $ 1,484,300 $ 545,678
Subscriber and other accounts
receivable; less allowance for
doubtful accounts of $3,668 in
1993, $3,965 in 1994 and $10,136
in 1995........................... 1,086,328 933,394 1,025,175
Prepaid expenses................... 256,645 184,566 153,637
------------ ------------ ------------
Total current assets............. 3,013,280 2,602,260 1,724,490
Property, plant and equipment, at
cost:
Land and improvements.............. 16,000 16,000 16,000
Building and improvements.......... 332,501 338,921 354,410
Cable television distribution
systems........................... 14,915,497 16,662,687 17,308,542
Vehicles........................... 327,027 511,167 604,322
Other equipment and furniture...... 310,621 375,213 374,432
Construction in progress........... 710,744 975,838 6,278,398
------------ ------------ ------------
16,612,390 18,879,826 24,936,104
Less accumulated depreciation........ (4,164,921) (6,856,833) (8,630,541)
------------ ------------ ------------
Net property, plant and equipment.... 12,447,469 12,022,993 16,305,563
Other assets, at cost:
Intangible assets, less accumulated
amortization...................... 33,662,304 24,408,514 18,112,311
Other assets....................... 22,960 22,910 28,260
------------ ------------ ------------
33,685,264 24,431,424 18,140,571
------------ ------------ ------------
$ 49,146,013 $ 39,056,677 $ 36,170,624
============ ============ ============
LIABILITIES AND PARTNERS' NET CAPITAL DEFICIENCY
------------------------------------------------
Current liabilities:
Accounts payable................... $ 430,233 $ 463,774 $ 354,012
Accrued liabilities:
Programming costs.................. 343,479 473,986 307,785
Compensation and related taxes..... 96,449 64,093 51,324
Management fee..................... 70,000 70,000 48,482
State taxes........................ 97,467 9,200 --
Interest........................... 169,442 214,558 10,527
Other.............................. 392,899 293,828 669,400
Unearned subscriber revenues......... 1,071,722 947,731 1,070,768
Long-term debt due within one year... 1,770,366 3,775,000 3,000,000
------------ ------------ ------------
Total current liabilities........ 4,442,057 6,312,170 5,512,298
Deferred management fee.............. 676,100 912,400 1,130,582
Deferred incentive compensation...... 524,014 568,510 568,542
Long-term debt....................... 47,114,294 41,395,000 43,285,000
Promissory notes to partners......... 21,730,563 28,535,001 35,640,144
Partners' net capital deficiency..... (25,341,015) (38,666,404) (49,965,942)
------------ ------------ ------------
$ 49,146,013 $ 39,056,677 $ 36,170,624
============ ============ ============
</TABLE>
See accompanying notes.
F-95
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF OPERATIONS AND PARTNERS' NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Subscriber............ $ 18,607,097 $ 18,830,785 $ 14,148,540 $ 14,777,770
Other................. 676,987 892,080 652,418 934,783
------------ ------------ ------------ ------------
19,284,084 19,722,865 14,800,958 15,712,553
Operating expenses:
Direct operating
expenses............. 7,653,673 8,403,794 6,216,054 6,776,535
Selling, general and
administrative....... 3,264,030 2,939,681 2,140,711 2,382,627
Management Fee........ 338,565 345,230 260,364 263,780
Depreciation and
amortization......... 11,750,559 12,079,983 8,895,808 8,578,257
------------ ------------ ------------ ------------
Operating loss.......... (3,722,743) (4,045,823) (2,711,979) (2,288,646)
Interest expense
(including partners'
amounts of $5,692,883,
$6,278,203, $4,506,590
and $6,038,034)........ 8,233,622 9,279,566 6,663,480 8,840,077
------------ ------------ ------------ ------------
Net loss................ (11,956,365) (13,325,389) (9,375,459) (11,128,723)
Partnership
Distribution........... -- -- -- (170,815)
Partners' net capital
deficiency at beginning
of year/period......... (13,384,650) (25,341,015) (25,341,015) (38,666,404)
------------ ------------ ------------ ------------
Partners' net capital
deficiency at end of
year/period............ $(25,341,015) $(38,666,404) $(34,716,474) $(49,965,942)
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-96
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1993 1994 1994 1995
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss.............. $(11,956,365) $(13,325,389) $(9,375,459) $(11,128,723)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Deferred interest... 5,563,729 6,107,973 3,608,725 5,172,448
Depreciation and
amortization....... 11,750,559 12,079,983 8,895,808 8,578,257
Deferred management
fee and incentive
compensation....... 469,560 280,796 171,812 218,214
Loss (gain) on
disposal of
equipment.......... 81,828 106,806 (40,539) 84,871
Changes in cash due
to:
Accounts
receivable....... 174,663 152,934 (73,055) (91,781)
Prepaid expenses.. (69,952) 72,079 81,569 30,929
Accounts payable.. (149,237) 33,541 (84,978) (109,760)
Accrued
liabilities...... 68,423 (44,071) 70,883 (38,147)
Unearned
subscriber
revenue.......... (174,943) (123,991) 107,388 123,037
------------ ------------ ------------ -------------
Net cash
provided by
operating
activities..... 5,758,265 5,340,661 3,362,154 2,839,345
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.. (2,101,790) (2,402,656) (1,541,081) (6,175,195)
Other assets.......... (10,527) (105,817) (32,661) (479,651)
Payments on behalf of
partners ............ -- -- -- (170,815)
------------ ------------ ------------ -------------
Net cash used in
investing
activities..... (2,112,317) (2,508,473) (1,573,742) (6,825,661)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance
of long-term debt.... 49,759,502 1,477,450 1,417,934 6,232,694
Principal payment of
long-term debt and
capital lease
obligations.......... (52,029,872) (4,495,645) (3,330,000) (3,185,000)
------------ ------------ ------------ -------------
Net cash provided
by/(used in) financing
activities............. (2,270,370) (3,018,195) (1,912,066) 3,047,694
------------ ------------ ------------ -------------
Net increase
(decrease) in
cash........... 1,375,578 (186,007) (123,654) (938,622)
Cash, beginning of year. 294,729 1,670,307 1,670,307 1,484,300
------------ ------------ ------------ -------------
Cash, end of period..... $ 1,670,307 $ 1,484,300 $ 1,546,653 $ 545,678
============ ============ ============ =============
Supplemental disclosures
of cash flow
information:
Interest paid......... $ 4,459,959 $ 3,623,092 $ 2,913,118 $ 2,679,735
============ ============ ============ =============
</TABLE>
See accompanying notes.
F-97
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
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.
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 June 30, 1994
and 1995 are not necessarily indicative of results that would be expected for a
full year.
F-98
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INTANGIBLE ASSETS
Intangible assets are being amortized on the straight-line method and consist
of the following:
<TABLE>
<CAPTION>
AMORTIZATION
CATEGORY PERIOD 1993 1994
-------- ------------ ----------- -----------
<S> <C> <C> <C>
Cost in excess of fair value of tangible
net assets acquired...................... 5.25 years $46,048,466 $46,048,466
Franchise agreements...................... 12 years 94,388 200,254
Organization costs........................ 5.25 years 832,785 832,785
Refinancing costs......................... 4-5 years 1,778,732 1,778,732
----------- -----------
48,754,371 48,860,237
Less accumulated amortization............. 15,092,067 24,451,723
----------- -----------
$33,662,304 $24,408,514
=========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Senior Secured Credit Agreement..................... $48,875,000 $45,170,000
Other notes payable................................. 9,660 --
----------- -----------
48,884,660 45,170,000
Less current portion due within one year............ 1,770,366 3,775,000
----------- -----------
$47,114,294 $41,395,000
=========== ===========
25% subordinated promissory notes to Partners
including deferred interest, interest payable
quarterly with option for deferral through March
31, 1997, at which time the entire balance is due.. $10,721,965 $14,968,264
Subordinated promissory notes to Partners including
deferred interest, fixed interest at 21% payable
quarterly, with option for deferral through March
31, 1997, at which time the entire balance is due.
Additional interest at 4% is payable upon payment
of the principal, contingent upon the Partnership
exceeding operating cash flow, as defined.......... 11,008,598 13,566,737
----------- -----------
$21,730,563 $28,535,001
=========== ===========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1995................................................. $ 3,775,000
1996................................................. 3,500,000
1997................................................. 34,785,001
1998................................................. 8,500,000
1999................................................. 11,062,500
Thereafter........................................... 12,082,500
-----------
$73,705,001
===========
</TABLE>
As of December 31, 1992, the Company refinanced its revolving credit
agreement and entered into a Senior Secured Credit Facility with a consortium
of banks whereby the Company can borrow up to
F-99
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$60,000,000 comprised of a $50,000,000 term loan (Facility A) and a $10,000,000
revolving credit arrangement (Facility B). Interest under the facility (5.3125%
and 7.125% at September 30, 1993 and 1994, respectively) is based on a ratio of
debt to cash flow and will range from 3/8% to 1 1/8% above prime or 1 5/8% to 2
3/8% above LIBOR rate. Interest on a certain portion of such debt shall not
exceed 8% under an interest rate cap agreement. Facility A is charged an agency
fee of .125% per annum and Facility B is charged a commitment fee of one-half
of one percent per annum on the unused balance. The term loan is payable in
quarterly installments through December 31, 2000 and the revolving credit
facility has commitment reductions over its term. The Senior Secured Credit
Facility Agreement provides that the Company shall prepay the term loan in
amounts equal to 100% of excess cash flow, as defined, commencing December 31,
1993. Excess cash flow for calendar year 1994 is anticipated based on the
Company's estimate and accordingly, $1,900,000 has been classified as current.
The Senior Secured Credit Facility and the subordinated promissory notes
include significant restrictive covenants, which include the requirements that
the Company maintain certain financial ratios relating to leverage and cash
flows. The loans are collateralized by substantially all of the assets of the
Company. At March 31, 1994 and September 30, 1994, the Partners elected to
defer the quarterly interest payment then due on the subordinated notes, and
accordingly, waivers of default were obtained from the Partners.
4. RELATED PARTY TRANSACTIONS
N-COM Inc., the Partnership's general partner, charges the Partnership a
management fee for administrative salaries and related benefits, legal fees and
other administrative expenses. For the year ended September 30, 1993 and 1994,
the management fee amounted to $338,565 and $345,230, respectively. At
September 30, 1994, certain management fees were deferred totaling $912,400 (of
which $184,600 bears interest at prime and $727,800 bears interest at 25%) and
is due in 1997. At September 30, 1993 $676,100 of management fees were
deferred.
Annually, the Company pays to N-Com II Inc., an affiliate of the Company,
approximately $70,000 to compensate for certain tax effects of the January,
1992 restructuring transaction.
Continental Cablevision Investments, Inc., (Continental) a limited partner of
the Partnership, obtains programming services for the Company at rates more
favorable than would otherwise be available to the Company. The Company
reimburses Continental for such programming services at the higher service
costs and receives loans for the difference in programming service costs. Such
loans may be up to a maximum of $4,465,250 and bear interest at 25% (see Note
3). At September 30, 1994, the Company had loans together with deferred
interest totaling $3,984,881 ($1,808,176 at September 30, 1993).
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases tower sites, vehicles and administrative facilities under
noncancelable operating leases. Rent expense amounted to $273,400 and $278,000
for the year ended September 30, 1993 and 1994, respectively. Minimum future
lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1995.................................................... $114,410
1996.................................................... 99,388
1997.................................................... 75,210
1998.................................................... 10,195
1999.................................................... 20,351
Thereafter.............................................. 39,408
--------
$358,962
========
</TABLE>
F-100
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incentive Plan
The Company provides an incentive compensation plan to key employees which is
contingent upon certain conditions including continuous employment through
December 31, 1996. The amount of the incentive payment for each employee is
based on the results of operations. Estimated incentive compensation is being
accrued over the period of the Plan. Incentive compensation expense amounted to
$324,792 and $0 for the years ended September 30, 1993 and 1994, respectively.
Payments under the plan are payable at the termination of the plan (1997) or
earlier upon certain sale transactions.
Franchise Renewal
Since 1992, the Company has been engaged in negotiations with a consortium of
four municipalities (representing approximately 25,000 of the Company's cable
subscribers), for the long term renewal of their respective cable television
franchises. Under the provisions of the Federal Cable Communications Policy Act
of 1984 (the "Cable Act"), the Company has submitted formal proposals for these
franchise renewals. In the context of the continuing negotiations, each of the
municipalities has made a preliminary assessment not to accept the Company's
formal proposal. If the negotiations do not result in mutually acceptable
franchise renewals, the municipalities are required to convene an
Administrative Hearing at which they would have to establish by a preponderance
of the evidence that the Company's formal proposals are not entitled to the
strong presumption of renewal provided under the Cable Act. One of the
municipalities has postponed its Administrative Hearing to an indefinite date,
and none of the other municipalities has scheduled an Administrative Hearing.
If necessary, the Company intends to pursue vigorously the franchise renewals
in any Administrative Hearings and, if needed, through its rights of appeal in
the federal or state courts, as provided under the Cable Act. The Company
expects in the near term to reach mutually agreeable franchise renewal terms
with the communities. In any event, it is the Company's opinion, based on the
opinion of legal counsel, that it is probable that the franchises will
ultimately be renewed.
Authority to Sell
As a result of the failure of the Partnership in 1994 to meet cash flow
levels, as defined, and failure to make quarterly interest payment due on
September 30, 1994, certain of the partners have the right to elect to cause
the business of the partnership to be sold during a period of one year from
such election subject to approval of terms of sale by a majority in interest of
the partners electing to sell. To date such election has not been made or
waived.
Other
The Company has performance bonds outstanding at September 30, 1994
aggregating $384,000 representing obligations under franchise and utility
license agreements.
6. CALL OPTION
Continental has the right to purchase 80% of the Partnership's interests at a
formula price based on cash flow anytime from December 31, 1996 through January
31, 1997 or in the event that the partnership is sold. If Continental exercises
the Call Option, the remaining Partners shall have the right to sell to
Continental the remaining 20% interest in the Partnership.
7. EVENT (UNAUDITED) SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
On March 29, 1995 the partners of N-Com Limited Partnership II (the
"Partnership") executed an Agreement to Purchase Partnership Interests in N-Com
Limited Partnership II (the "Purchase Agreement"). If the transactions
contemplated by the Purchase Agreement are consummated, Continental Cablevision
Investments, Inc. will own 100% of the partnership interests in the
Partnership. The Purchase Agreement contains a number of closing conditions,
including obtaining all necessary franchise consents and certain franchise
renewals. The transaction is scheduled to close in 1995.
F-101
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Cablevision of Chicago:
We have audited the accompanying balance sheets of Cablevision of Chicago (a
limited partnership) as of December 31, 1993 and 1994, and the related
statements of operations and partners' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cablevision of Chicago as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Jericho, New York
March 3, 1995
F-102
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 339 $ 11 $ 184
Accounts receivable-subscribers (less
allowance for doubtful accounts of $134,
$183 and $143)........................... 406 719 509
Other receivables......................... 492 335 711
Prepaid expenses.......................... 165 99 75
Property, plant and equipment, net........ 21,440 21,678 21,434
Deferred acquisition and development costs
(less accumulated amortization of $1,304,
$1,422 and $1,457)....................... 153 35 --
Deferred financing costs (less accumulated
amortization of $883, $1,185 and $1,344). 1,888 1,789 1,630
Other intangibles (less accumulated
amortization of $981, $1,165 and $1,257). 307 123 31
Deposits and other assets................. 103 186 175
-------- -------- --------
$ 25,293 $ 24,975 $ 24,749
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIENCY
------------------------------------
Accounts payable.......................... $ 4,554 $ 4,992 $ 5,436
Accounts payable to affiliates, net....... 290 783 765
Subordinated amounts payable to
affiliates............................... 26,129 23,569 26,518
Accrued liabilities:
Interest................................ 621 983 653
Franchise fees.......................... 800 763 876
Payroll and related benefits............ 1,316 1,395 1,168
Other................................... 1,855 1,286 2,231
Debt:
Affiliates.............................. 12,314 12,314 12,314
Bank and other.......................... 65,575 71,771 70,120
-------- -------- --------
Total liabilities..................... 113,454 117,856 120,081
-------- -------- --------
Commitments & contingencies
Partners' deficiency
General partners........................ (1,149) (1,196) (1,221)
Limited partners........................ (87,012) (91,685) (94,111)
-------- -------- --------
Total partners' deficiency............ (88,161) (92,881) (95,332)
-------- -------- --------
$ 25,293 $ 24,975 $ 24,749
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-103
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1993 1994 1994 1995
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues--net................. $ 34,562 $ 34,395 $ 17,262 $ 17,766
Technical expenses (including
affiliate amounts of $1,482,
$1,184, $587 and $627)....... 14,045 14,402 7,117 7,065
Selling, general and
administrative expenses
(including affiliate amounts
of $2,432, $2,932, $1,255 and
$1,567)...................... 9,054 9,092 4,573 5,035
Depreciation and amortization. 5,593 5,288 2,743 2,541
------------ ------------ -------- --------
Operating income.......... 5,870 5,613 2,829 3,125
------------ ------------ -------- --------
Other income (expense):
Interest income............. 31 30 -- --
Interest expense (including
affiliate amounts of
$4,507, $4,493, $2,228 and
$2,328).................... (9,760) (10,310) (4,969) (5,543)
Miscellaneous, net.......... (12) (53) (48) (33)
------------ ------------ -------- --------
(9,741) (10,333) (5,017) (5,576)
------------ ------------ -------- --------
Net loss.................. $ (3,871) $ (4,720) $ (2,188) $ (2,451)
============ ============ ======== ========
Partners' deficiency:
Beginning of year/period.... $ (84,290) $ (88,161) $(88,161) $(92,881)
Net loss allocated to gen-
eral partners.............. (39) (47) (22) (25)
Net loss allocated to lim-
ited partners.............. (3,832) (4,673) (2,166) (2,426)
------------ ------------ -------- --------
End of year/period.......... $ (88,161) $ (92,881) $(90,349) $(95,332)
============ ============ ======== ========
</TABLE>
See accompanying notes to financial statements.
F-104
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1993 1994 1994 1995
------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ $ (3,871) $ (4,720) $(2,188) $(2,451)
------------ ----------- ------- -------
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization. 5,593 5,288 2,743 2,541
Amortization of deferred
financing costs.............. 287 302 156 159
Loss (gain) on sale of
equipment.................... (4) (39) (8) 3
Changes in asset and liability
accounts:
Accounts receivable--
subscribers................ 137 (313) (203) 210
Other receivables........... (235) 157 (147) (376)
Prepaid expenses............ 113 66 68 24
Deposits and other assets... (19) (83) (19) 11
Accounts payable and accrued
expenses................... 193 273 (71) 945
Accounts payable and
subordinated amounts
payable to affiliates, net. (4,320) (2,067) 2,709 2,931
------------ ----------- ------- -------
Total adjustments......... 1,745 3,584 5,228 6,448
------------ ----------- ------- -------
Net cash provided by (used
in) operating activities. (2,126) (1,136) 3,040 3,997
------------ ----------- ------- -------
Cash flows from investing
activities:
Capital expenditures............ (3,872) (5,278) (2,594) (2,225)
Proceeds from sale of equipment. 5 93 11 52
------------ ----------- ------- -------
Net cash used in investing
activities............... (3,867) (5,185) (2,583) (2,173)
------------ ----------- ------- -------
Cash flows from financing
activities:
Proceeds from bank debt......... 70,750 10,971 2,250 449
Repayment of bank debt.......... (53,511) (4,750) (2,145) (2,100)
Payment of debt to affiliates... (10,072) -- -- --
Payments of capital lease
obligations.................... (79) (25) (22) --
Additions to deferred debt
financing...................... (1,035) (203) -- --
------------ ----------- ------- -------
Net cash provided by (used
in) financing activities. 6,053 5,993 83 (1,651)
------------ ----------- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 60 (328) 540 173
Cash and cash equivalents at
beginning of year/period......... 279 339 339 11
------------ ----------- ------- -------
Cash and cash equivalents at end
of year/period................... $ 339 $ 11 $ 879 $ 184
============ =========== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-105
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY
Cablevision of Chicago (the "Company") is a limited partnership, organized in
January 1979, under the provisions of the Uniform Limited Partnership Act of
the State of Illinois, for the purpose of constructing and operating cable
television systems. The partnership will terminate December 31, 2020, unless
earlier termination occurs as provided in the partnership agreement.
The partnership consists of two general partners and three limited partners.
The general partners are one individual and Cablevision Systems Services
Corporation (CSSC), a corporation wholly-owned by the individual general
partner. The limited partners of the Company are Cablevision of Illinois (C of
I), Chicago Cablevision Investments (CCI) and Cablevision Headquarters
Investment (CHI) which are all limited partnerships. The individual general
partner of the Company is also a general partner in C of I, CCI and CHI while
CSSC is a general partner in C of I. In addition, a subsidiary of Cablevision
Systems Corporation (CSC), a corporation controlled by the individual general
partner of the Company, is a general partner in CHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment
Property, plant and equipment, including construction materials, are recorded
at cost, which includes all direct costs and certain indirect costs associated
with the construction of cable television transmission and distribution systems
and the costs of new subscriber installations. Property, plant and equipment is
depreciated on the straight-line method over the estimated useful life of the
asset. Leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases.
Revenue Recognition
The Company recognizes revenues as cable television services are provided to
subscribers.
Deferred Acquisition, Development Costs and Intangible Assets
Costs incurred to acquire cable television franchises and expenses incurred
during the initial development period were deferred until the date the first
subscriber was connected. Such costs are being amortized on the straight-line
basis over the average lives of the franchises. Intangible assets are being
amortized over periods ranging from seven to fifteen years on the straight line
basis.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-line
basis over the term to maturity of the related debt.
Income Taxes
The Company operates as a limited partnership; accordingly, its taxable
income or loss is includable in the tax returns of the individual partners and
no provision for income taxes is made on the books of the
F-106
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company. The partners are required to report their share of income or loss in
their income tax returns. The Company's income or loss is allocated to the
partners in accordance with the terms of the partnership agreement. At December
31, 1994, the carrying amount of net assets for financial statement purposes
was less than their tax bases by approximately $3,186.
Cash Flows
For purposes of the statements of cash flows, the Company considers all short
term investments with a maturity at date of purchase of three months or less to
be cash equivalents. The Company paid cash interest of approximately $14,444
(of which approximately $8,500 in 1993 represents interest on the CSSC
subordinated demand note) and $11,904 during the years ended December 31, 1993
and 1994, respectively.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
Unaudited Information
In the opinion of management, the financial statements for the unaudited
periods include all adjustments (consisting of a normal recurring nature)
necessary for a fair presentation of such information. The results of
operations and cash flows for the six months ended June 30, 1994 and 1995 are
not necessarily indicative of results that would be expected for a full year.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are
depreciated on the straight line basis over the estimated useful lives shown
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ESTIMATED
1993 1994 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Cable television transmission and distribution
systems:
Converters.................................... $11,496 $12,441 5 years
Headend....................................... 4,294 4,420 9 years
Distribution system........................... 60,553 63,272 12 years
Program, service and test equipment........... 3,977 4,166 7 years
Microwave equipment and satellite receivers... 2,771 2,771 7 1/2 years
Construction materials and supplies........... 99 112
------- -------
83,190 87,182
Land............................................ 410 410
Building........................................ 3,186 3,186 25 years
Furniture and fixtures.......................... 622 639 8 years
Vehicles........................................ 2,169 2,218 4 years
Leasehold improvements.......................... 1,722 1,744 Term of Lease
------- -------
91,299 95,379
Less accumulated depreciation and amortization.. 69,859 73,701
------- -------
$21,440 $21,678
======= =======
</TABLE>
F-107
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. DEBT
Debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Partners:
CSC subordinated demand note, bearing interest at 14%
(Note 6)................................................. $12,314 $12,314
======= =======
Other:
Bank debt................................................. $65,550 $71,771
Capital lease obligation.................................. 25 --
------- -------
Total other............................................. $65,575 $71,771
======= =======
</TABLE>
On February 5, 1993, the Company entered into a third amended and restated
credit agreement (the "New Credit Agreement") with a group of banks led by Bank
of Montreal, as agent. On June 21, 1994 the Company executed the First
Amendment to the New Credit Agreement with the Bank of Montreal and several
other banks which modified certain restrictive covenants through the maturity
date of the loan. The Company may borrow up to $80,306 under the New Credit
Agreement, of which $7,555 and $150 was restricted for certain letters of
credit at December 31, 1993 and 1994 respectively. Undrawn funds available to
the Company under the New Credit Agreement as of December 31, 1993 and 1994
amount to approximately $10,395 and $8,851 respectively.
The New Credit Agreement includes a $55,306 term loan, of which $58,000 and
$55,305 was outstanding at December 31, 1993 and 1994 respectively, and a
$25,000 revolving line of credit, of which $7,050 and $16,000 was outstanding
at December 31, 1993 and December 31, 1994, respectively. Repayment of the term
loan commenced March 31, 1993 with quarterly payments continuing through
December 31, 2000. The amount available under the revolving line of credit will
be reduced by $2,500 on each of December 31, 1996 and 1997, $3,125 on December
31, 1998, $5,625 on December 31, 1999, and the balance on December 31, 2000.
Based on the outstanding borrowings as of December 31, 1994, future payments
under the terms of the New Credit Agreement are as follows: 1995--$4,200;
1996--$7,800; 1997--$9,900; 1998--$11,100; 1999--$11,100; thereafter $11,205.
The Credit Agreement contains various restrictive covenants, among which are
limitations on various payments and the maintenance of various financial
ratios. The Company was in compliance with the covenants of its credit
agreement on December 31, 1994.
Borrowings bear interest at varying rates depending on the ratio of the
Company's debt to annualized cash flow, as defined in the new Credit Agreement.
The Company has the option of selecting either the bank's prime rate or the
London Interbank Offering Rate (LIBOR) as the borrowing base rate. At December
31, 1994, the weighted average interest rate on the bank debt was 7.96%. The
Company is obligated to pay fees to the banks of 3/8 of 1% per annum on the
unused portion of the loan commitment.
F-108
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has entered into interest rate swap agreements with two banks on
a notional amount of $25,000 whereby the Company pays a fixed rate of interest
and receives a variable rate. Interest rates and terms vary in accordance with
each of the agreements. The lengths of the agreements range from one to two
years. As of December 31, 1994, the agreements have a weighted average
remaining life of two years. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the counterparties.
Substantially all of the assets of the Company have been pledged to secure
the borrowings under the Credit Agreement.
In September, 1994 the Company borrowed approximately $8,255, in accordance
with the terms of the New Credit Agreement, to repay $1,503 in accrued
management fees to Cablevision Systems Company and $6,753 in accrued interest
thereon.
In addition the Company has a $2,000 overdraft note with the Bank of
Montreal, of which $466 is outstanding at December 31, 1994.
5. LEASES
The Company leases certain office and production facilities under terms of
leases expiring at various dates through 1999. Rent expense for operating
leases amounted to approximately $457 in 1993 and $499 in 1994.
In addition, the Company rents space on utility poles in its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Rental expense under these agreements was
approximately $196 in 1993 and $205 in 1994.
Future minimum payments under all noncancelable operating leases, including
pole rentals through December 31, 1998, at rates currently in force as of
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1995................................................... $ 540
1996................................................... 512
1997................................................... 444
1998................................................... 446
1999................................................... 454
Thereafter............................................. 124
------
Total future minimum lease payments.................... $2,520
======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with Cablevision Systems Company to provide the
Company with management services. Cablevision Systems Company is owned by the
individual general partner of the Company and certain trusts established for
the benefit of his family members. The agreement can be renewed
F-109
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
indefinitely at the option of Cablevision Systems Company and generally
provides for the payment, in addition to expense reimbursement, of a fee equal
to 3 1/2% of the Company's gross revenues. The fees accrued for 1993 and 1994
were approximately $1,209 and $1,203, respectively. In addition, interest
accrues on the unpaid balance at prime plus two percent. For 1993 and 1994 the
Company accrued approximately $1,097 and $1,188, respectively, for interest on
unpaid management fees. Cumulative unpaid management fees and interest thereon
at December 31, 1993 and 1994 amounted to $15,458 and $9,593, respectively.
Unpaid management fees and interest are included in subordinated amounts
payable to affiliates in the accompanying balance sheets. The Company paid
approximately $730 and $6,753 of accrued interest outstanding on unpaid
management fees in 1993 and 1994, respectively through available bank debt.
Subsequent payments are subject to certain limitations and restrictions as
defined in the New Credit Agreement.
CSC has made advances to or incurred expenses on behalf of the Company.
Unpaid amounts bear interest at the rate of 14% per annum. A portion of this
amount was converted to a subordinated demand note (the "CSC Demand Note"). The
principal balance of the CSC Demand Note at December 31, 1993 and 1994 amounted
to $12,314 and accrued interest thereon approximated $10,089 and $13,394 at
December 31, 1993 and 1994, respectively. The CSC Demand Note is subordinated
to bank debt and is restricted in accordance with certain provisions of the New
Credit Agreement. The amounts of unpaid interest are included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
CSC also has interests in several companies engaged in providing cable
television programming and other services to the cable television industry,
including the Company. During 1993 and 1994 the Company was charged
approximately $1,482 and $1,184, respectively, by these companies primarily for
programming services. One of these companies subleases space in the Company's
main studio production facility, for which the Company was paid approximately
$567 in 1993 and $541 in 1994. Amounts owed these companies at December 31,
1993 and 1994 were approximately $830 and $900, respectively of which
approximately $161 and $318, respectively are included in accounts payable to
affiliates and approximately $582 in each year is included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
The Company is charged for certain selling, general and administrative
expenses by CSC. For the years ended December 31, 1993 and 1994, these expenses
amounted to approximately $1,223 and $1,729, respectively. Amounts owed CSC at
December 31, 1993 and 1994 were approximately $264 and $723, respectively, and
are included in accounts payable to affiliates in the accompanying balance
sheets.
7. PENSION PLAN
The Company is a participant, with other affiliates, in a defined
contribution pension plan covering substantially all employees. The Company
contributed 1 1/2% of each eligible employees' annual compensation, as defined,
to the defined contribution portion of the Pension Plan (the "Pension Plan")
and an equivalent amount to the Section 401(k) portion of the plan (the
"Savings Plan"). Employees may voluntarily contribute up to 15% of eligible
compensation, subject to certain restrictions, to the Savings Plan, with an
additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings Plan. Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. At December 31, 1993 and 1994, the cost associated
with these plans was approximately $130 and $118, respectively. The Company
does not provide any postretirement benefits for any of its employees.
F-110
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. CONTINGENCY
The Company has obtained thirty one franchises authorizing it to construct
and operate cable television systems in the suburban areas of Chicago,
Illinois. Certain franchises contain provisions granting the municipalities an
option, at the expiration of the franchise, to purchase the cable television
system for $1 plus any outstanding debt attributable to the system.
9. FINANCING
Since its inception, the Company has incurred substantial losses. Not
withstanding such losses, the Company's cash flow from operations and available
borrowings under its New Credit Agreement (note 4) have been sufficient to meet
its current obligations as a result of the deferral of payment of management
fees and interest thereon and the deferral of interest payments on the
subordinated demand note (note 4 and 6). Payment of the subordinated demand
note, including interest thereon, is restricted in accordance with certain
provisions of the New Credit Agreement. The Company believes that internally
generated funds as well as borrowings under the revolving lines of credit are
sufficient through year end 1995 to fund its requirements for existing cable
operations and meet its debt service requirements.
10. RECENT CABLE TELEVISION REGULATIONS
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act) which
among other matters, provides for the regulation of basic and cable programming
services. In April 1993, the Federal Communications Commission ("FCC") adopted
regulations governing rates for basic and cable programming services which
became effective September 1, 1993. Under the provisions of these regulations,
certain revenues derived from cable television are determined under either a
"benchmark" or "cost of service" method. Effective September 1, 1993 the
Company's systems had set their rates using the benchmark method which compares
the Company's rates to those which are in effect at cable systems deemed to
face effective competition by the FCC.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, many of the cable television systems of
the Company are subject to regulation by local franchise authorities and/or the
FCC. Regulations imposed by the 1992 Cable Act, among other things, allow
regulators to limit and reduce the rates that cable operators can charge for
certain basic cable television services and equipment rental charges.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operation
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
11. SUBSEQUENT EVENTS
In January 1995, the Company entered into an agreement with Continental
Cablevision, Inc. to sell its cable systems for a sale price of $168,500,
subject to post closing adjustments. The sale is expected to close in 1995.
F-111
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. TAX INFORMATION (UNAUDITED)
The following represents a reconciliation of the losses allocated to the
partners for financial reporting purposes and that utilized for tax purposes.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Losses allocated to partners for financial reporting
purposes.................................................... $(3,871) $(4,720)
Depreciation and amortization adjustments for tax purposes... 2,347 1,564
Management fees and related interest......................... 1,576 (5,886)
Other........................................................ (385) 111
------- -------
Tax loss allocable to partners............................... $ (333) $(8,931)
======= =======
Tax loss allocable to general partners....................... $ (4) $ (89)
======= =======
Tax loss allocated to limited partners....................... $ (329) $(8,842)
======= =======
</TABLE>
F-112
<PAGE>
Annex I
-------
AGREEMENT AND PLAN OF MERGER
By and Among
PROVIDENCE JOURNAL COMPANY,
THE PROVIDENCE JOURNAL COMPANY,
KING BROADCASTING COMPANY,
KING HOLDING CORP.
and
CONTINENTAL CABLEVISION, INC.
dated as of
November 18, 1994,
as Amended and Restated
as of
August 1, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE 1.
THE MERGER
1.1 The Merger.......................................................... 2
1.2 Effect of the Merger on Capital Stock............................... 2
1.3 Adjustment.......................................................... 3
1.4 Effective Time of the Merger........................................ 4
1.5 Exchange of Certificates............................................ 4
1.6 Distribution with Respect to Shares Represented by
Unexchanged Certificates...................................... 6
1.7 No Fractional Shares................................................ 6
1.8 No Liability........................................................ 7
1.9 Lost Certificates................................................... 7
1.10 Standstill......................................................... 7
ARTICLE 2.
CERTAIN PRE-MERGER TRANSACTIONS
2.1 New Indebtedness.................................................... 8
2.2 King Videocable Acquisition......................................... 9
2.3 Kelso Acquisition................................................... 11
2.4 Contribution of Assets to and Assumption of
Liabilities by NPJ;
Distribution of NPJ Common Stock.............................. 11
2.5 Certain Other Actions............................................... 12
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY, NPJ,
BROADCASTING AND HOLDING
3.1 Organization; Authority............................................. 13
3.2 No Breach or Conflict............................................... 14
3.3 Consents and Approvals.............................................. 14
3.4 Approval of the Boards; Fairness Opinions........................... 15
3.5 Vote Required....................................................... 15
3.6 Capitalization...................................................... 15
3.7 Financial Statements................................................ 17
3.8 Absence of Undisclosed Liabilities.................................. 17
3.9 Absence of Certain Changes.......................................... 17
3.10 Compliance With Laws............................................... 18
3.11 Tax Matters........................................................ 18
3.12 Litigation......................................................... 19
3.13 Employee Benefits; ERISA Matters................................... 19
3.14 Full Disclosure.................................................... 20
3.15 Brokers and Finders................................................ 20
ARTICLE 4.
i
<PAGE>
REPRESENTATIONS AND WARRANTIES REGARDING
THE CABLE SUBSIDIARIES
4.1 Organization and Authority.......................................... 21
4.2 No Breach or Conflict............................................... 21
4.3 Capitalization...................................................... 22
4.4 Financial Statements................................................ 22
4.5 Absence of Undisclosed Liabilities.................................. 23
4.6 Absence of Certain Changes.......................................... 23
4.7 Compliance with Laws................................................ 23
4.8 Franchises and Material Agreements.................................. 24
4.9 Title to Properties; Encumbrances................................... 26
4.10 Labor Matters...................................................... 26
4.11 Litigation......................................................... 27
4.12 Employee Benefits; ERISA Matters................................... 27
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
5.1 Organization and Authority.......................................... 31
5.2 No Breach or Conflict............................................... 32
5.3 Consents and Approvals.............................................. 32
5.4 Approval of the Board............................................... 33
5.5 Vote Required....................................................... 33
5.6 Capitalization...................................................... 34
5.7 Financial Statements................................................ 35
5.8 Absence of Undisclosed Liabilities.................................. 35
5.9 Absence of Certain Changes.......................................... 35
5.10 Compliance with Laws............................................... 35
5.11 Franchises and Material Agreements................................. 36
5.13 Litigation......................................................... 39
5.14 Title to Properties; Encumbrances.................................. 39
5.15 Employee Benefits; ERISA Matters................................... 39
5.16 Labor Matters...................................................... 43
5.17 Full Disclosure.................................................... 44
5.18 Brokers and Finders................................................ 44
ARTICLE 6.
OTHER AGREEMENTS
6.1 No Solicitation..................................................... 44
6.2 Conduct of Business of the Company; Ownership
of Cable Subsidiaries......................................... 45
6.3 Conduct of Business of the Cable Subsidiaries....................... 47
6.4 Conduct of Business of Acquiror..................................... 50
6.5 Access to Information............................................... 50
ii
<PAGE>
6.6 SEC Filings......................................................... 51
6.7 Reasonable Best Efforts............................................. 55
6.8 Public Announcements................................................ 56
6.9 Board Recommendation................................................ 56
6.10 Tax Matters........................................................ 56
6.11 Notification....................................................... 61
6.12 Employee Benefits.................................................. 62
6.13 Meeting of Stockholders of the Company;
Other Agreements.............................................. 66
6.14 Meeting of Stockholders of Acquiror................................ 66
6.15 Regulatory and Other Authorizations................................ 67
6.16 Further Assurances................................................. 68
6.17 Internal Revenue Service Ruling.................................... 68
6.18 Records Retention.................................................. 69
6.19 No Related Party Agreements with NPJ............................... 69
6.20 Company Name....................................................... 69
6.21 Undertakings Relating to a Public
Offering; Registration Rights................................. 70
6.22 Matters Relating to Shareholders and Liquidity..................... 71
6.23 Acquiror Board of Directors........................................ 71
6.24 Acquiror Schedules................................................. 73
6.25 Employee Stock Options............................................. 73
6.26 Rights Plan........................................................ 73
ARTICLE 7.
CLOSING AND CLOSING DATE; CONDITIONS TO CLOSING
7.1 Closing and Closing Date............................................ 73
7.2 Conditions to the Obligations of the
Company, NPJ, Broadcasting and Acquiror....................... 74
7.3 Conditions to the Obligations of the
Company, NPJ and Broadcasting................................. 75
7.4 Conditions to Obligations of Acquiror............................... 76
ARTICLE 8.
TERMINATION
8.1 Termination......................................................... 79
8.2 Effect of Termination............................................... 80
8.3 Fees and Expenses................................................... 80
ARTICLE 9.
SURVIVAL; INDEMNIFICATION
9.1 Survival............................................................ 83
9.2 Indemnification by NPJ.............................................. 83
9.3 Indemnification by Acquiror......................................... 83
9.4 Indemnification by the Company...................................... 84
iii
<PAGE>
9.5 Additional Indemnification Relating to
Certain Litigation and Claims................................. 84
9.6 Notification of Claims.............................................. 86
9.7 Indemnification Procedures.......................................... 86
9.8 Working Capital Adjustment.......................................... 87
ARTICLE 10.
MISCELLANEOUS
10.1 Entire Agreement................................................... 88
10.2 Notices............................................................ 88
10.3 Governing Law...................................................... 89
10.4 Descriptive Headings............................................... 90
10.5 Parties in Interest................................................ 90
10.6 Counterparts....................................................... 90
10.7 Expenses........................................................... 90
10.8 Personal Liability................................................. 91
10.9 Binding Effect; Assignment......................................... 91
10.10 Amendment......................................................... 91
10.11 Extension; Waiver................................................. 91
10.12 Legal Fees; Costs................................................. 91
10.13 Specific Performance.............................................. 91
10.14 Severability...................................................... 92
10.15 Transfer of Office Lease.......................................... 92
ARTICLE 11.
DEFINITIONS
EXHIBITS
Exhibit A Form of Amendment to Acquiror Restated By-Laws
Exhibit B Form of Amendment to NPJ By-Laws
Exhibit C Form of Contribution and Assumption Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Voting Agreement
Exhibit F Non-Competition Agreement
Exhibit G Form of Charter Amendment
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of November 18, 1994, as
amended and restated as of August 1, 1995 (this "Agreement"), 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 Broadcasting Company, a Washington corporation
("Broadcasting"), King Holding Corp., a Delaware corporation ("Holding"), and
Continental Cablevision, Inc., a Delaware corporation ("Acquiror").
RECITALS
WHEREAS, the Company, NPJ and Acquiror entered into an Agreement and Plan
of Merger dated as of November 18, 1994 (the "Original Agreement");
WHEREAS, the Original Agreement has heretofore been amended and restated in
its entirety pursuant to an Amended and Restated Agreement and Plan of Merger
dated as of November 18, 1994 among the Company, NPJ, Holding, Broadcasting and
Acquiror (the "First Amended Agreement");
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 to amend and restate the First Amended Agreement in its
entirety and to enter into this Amended and Restated Agreement and Plan of
Merger which, among other things, provides for (i) Acquiror or one of its wholly
owned Subsidiaries to acquire from Broadcasting all of the issued and
outstanding capital stock of King Videocable Company, a Washington corporation
("King Videocable"); (ii) the Company to contribute to NPJ substantially all of
the assets of the Company (other than those assets described in the Contribution
Agreement as being retained by the Company) and to distribute to its
stockholders the outstanding shares of NPJ Common Stock so that the stockholders
of the Company will become the stockholders of NPJ; and (iii) the Company
(immediately following such contribution and distribution) to merge with and
into Acquiror, as a result of which the stockholders of the Company immediately
prior to such merger will become stockholders of Acquiror; and
WHEREAS, for federal income tax purposes, it is intended that the
transactions contemplated by clauses (ii) and (iii) of the immediately preceding
paragraph will qualify as a tax-free reorganization within the meaning of
Sections 368(a)(1)(D), 355 and 368(a)(1)(A) of the Internal Revenue Code.
<PAGE>
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) the Company shall be merged with and into Acquiror (the
"Merger"), and the separate existence of the Company shall cease and Acquiror
shall continue as the surviving corporation in the Merger (the "Surviving
Corporation"), (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 Company Common Stock issued and outstanding immediately
prior to the Merger (except shares subject to Section 1.2(b) or Section 1.2(e))
shall be converted into and shall become that number equal to the Common Stock
Conversion Number of fully paid and nonassessable shares of Acquiror Class A
Common Stock.
(b) Each share of the capital stock of the Company issued and outstanding
immediately prior to the Merger and owned directly or indirectly by the Company
as treasury stock, by NPJ or by any of their respective Subsidiaries shall be
cancelled, and no consideration shall be delivered in exchange therefor.
2
<PAGE>
(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 Maximum Common 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 Merger (except shares subject to
Section 1.2(b)).
(e) The holder of any shares ("Dissenting Shares") of Company Common Stock
outstanding immediately prior to the Merger which has validly exercised such
holder's dissenters' rights, if any, under the Rhode Island Business
Corporations Act (the "RIBCA") 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 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 RIBCA. 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 are 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 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 RIBCA 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 RIBCA. 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.
1.3 Adjustment.
----------
3
<PAGE>
(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 the 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 Company Common Stock to be
converted into Acquiror Merger Securities or the number of Acquiror Merger
Securities into which Company Common Stock is to be converted, as applicable,
and (ii) the amounts set forth in Section 1.7 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 the Company, the Maximum Common
Stock Amount shall be decreased as follows:
(i) if Copley/Colony, Inc. is not then wholly owned by the Company,
the Maximum Common Stock Amount shall be reduced by $42,610,000; and
(ii) if Dynamic Cablevision of Florida, Ltd. (the "Dynamic
Partnership") is not then wholly owned by the Company, the Maximum Common
Stock Amount shall be reduced by $11,300,000.
1.4 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 the Company and thereafter delivered
to the Secretary of State of Delaware and articles of merger shall be duly
prepared, executed and acknowledged by Acquiror and the Company and thereafter
delivered to the Secretary of State of Rhode Island (together, the "Certificate
of Merger") for filing pursuant to the Delaware General Corporation Law and the
RIBCA, 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").
1.5 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
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<PAGE>
acceptable to Acquiror to act as exchange agent (the "Exchange Agent") in
connection with the surrender of certificates evidencing shares of Company
Common Stock converted into Acquiror Merger Securities pursuant to the Merger.
Prior to the Closing Date, 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 as may be required from time to time to make
payment of cash in lieu of fractional shares in accordance with Section 1.7
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
immediately prior to the Effective Time evidenced outstanding shares of Company
Common Stock (the "Certificates") other than the Company, 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 Acquiror Merger 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 Acquiror Merger
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 1.7), 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 Acquiror
Merger Securities may be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent, accompanied (A) by
all documents required to evidence and effect such transfer, and (B) 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 represented shares of Company Common Stock shall, until surrendered
for exchange in accordance with this Section 1.5, be deemed for all purposes to
evidence solely the right to receive the Acquiror Merger Securities to which
such Certificate is entitled pursuant to the Merger.
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<PAGE>
(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 Company Common Stock for Acquiror Merger Securities. Any Acquiror
Merger Securities deposited with the Exchange Agent that remain unclaimed by the
former stockholders of the Company after six months following the Effective Time
shall be delivered to the Surviving Corporation upon demand and any former
stockholders of the Company who have not then complied with the instructions for
exchanging their Certificates shall thereafter look only to the Surviving
Corporation for exchange of Certificates.
(e) Effective upon the Closing Date, the stock transfer books of the
Company shall be closed, and there shall be no further registration of transfers
of shares of Company Common Stock thereafter on the records of the Company.
(f) All Acquiror Merger Securities issued upon conversion of shares of
Company 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
Company Common Stock.
1.6 Distribution with Respect to Shares Represented by Unexchanged
--------------------------------------------------------------
Certificates. No dividend or other distribution declared or made after the
------------
Effective Time by the Surviving Corporation with respect to the Acquiror Merger
Securities with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to 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
1.5. Subject to the effect of applicable Law, following surrender of any such
Certificate there shall be paid, without interest, by the Surviving Corporation
to the record holder of Acquiror Merger 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 Effective Time theretofore paid by
the Surviving Corporation with respect to such Acquiror Merger Securities; and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date declared by the Surviving Corporation after the
Effective Time but prior to surrender of such Certificate and a payment date
subsequent to such surrender payable with respect to such Acquiror Merger
Securities. No interest shall be paid on any of the Transaction Securities.
1.7 No Fractional Shares.
--------------------
(a) No fraction of a share of Acquiror Class A Common Stock shall be
issued upon surrender of Certificates pursuant to Section
6
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1.5. In lieu of any such fractional interests, each holder of Company 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 to which such holder would
otherwise be entitled (after taking into account all shares of Acquiror Class A
Common 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 the Company 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 the Company who have not then surrendered
their Certificates shall thereafter look only to the Surviving Corporation for
payment in lieu of any fractional interests.
1.8 No Liability. None of Acquiror, NPJ or the Company will be liable to
------------
any holder of shares of Company 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.
1.9 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 Acquiror Merger
Securities (and any dividend or distribution with respect thereto made after the
Effective Time and prior to such issuance and any cash payable in lieu of
fractional shares pursuant to Section 1.7) 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 Acquiror Merger Securities are to be issued, as a condition precedent to the
issuance thereof, shall give the Surviving Corporation a bond satisfactory to
the Surviving Corporation against any claim that may be made against the
Surviving Corporation with respect to the Certificate alleged to have been lost,
stolen or destroyed.
1.10 Standstill.
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7
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(a) Until the first anniversary of the Effective Date (the "One-Year Lock-
Up Period"), any Person who receives or is entitled to receive on the Effective
Date any Acquiror Merger Securities pursuant to Section 1.5 and any shares of
NPJ Common Stock pursuant to Section 2.4 shall not Transfer, and Acquiror or NPJ
shall not be required to register the Transfer of, any share of such Acquiror
Merger Securities or NPJ Common Stock, except as permitted by the Acquiror
Restated By-Laws or the By-Laws of NPJ, as the case may be, each as amended to
date.
(b) Each certificate representing shares of the Acquiror Merger Securities
issued pursuant to the Merger and NPJ Common Stock shall bear the following
legend:
"The shares represented by this certificate may not be transferred
prior to [first anniversary date of the Effective Date to be inserted]
except as otherwise permitted by the By-Laws of the Corporation. A
copy of the By-Laws of the Corporation will be furnished without
charge upon written request addressed to the Corporation at [insert
address], Attention: [insert officer's title]."
(c) In order to implement the provisions of this Section 1.10, each of the
Acquiror Restated By-Laws and the By-Laws of NPJ shall be amended on or prior to
the Closing Date to include the provisions as to the limitations on the
transferability of the Acquiror Merger Securities and NPJ Common Stock, as the
case may be, set forth on Exhibit A and Exhibit B, respectively, hereto.
--------- ---------
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 Contribution, Acquiror and the Company shall use their
reasonable best efforts to cooperate in obtaining for the Company and/or one or
more Cable Subsidiaries (other than King Videocable and its Subsidiaries)
financing (the "New Company Debt") in a minimum principal amount equal to Four
Hundred Ten Million Dollars ($410,000,000). 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 Contribution, the Company
or such other borrowers shall draw down $410,000,000 of the New Company Debt
which, together with the King
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<PAGE>
Videocable Purchase Price and the NPJ Debt, will be used in order to, among
other things, finance the acquisition of the Kelso Interests, finance the
acquisition of interests not owned, directly or indirectly, by the Company in
the Cable Subsidiaries identified in Section 1.3(b) hereof, repay all existing
indebtedness of the Company, Broadcasting and the Cable Subsidiaries and (except
as otherwise provided in Section 2.2(c)) pay all Taxes payable in connection
with the transfer of the King Videocable Shares. Without limiting the generality
of the foregoing, the parties hereby agree that the New Company Debt may take
the form of a credit facility made available to Subsidiaries of Acquiror in an
aggregate principal amount exceeding $410,000,000, the proceeds of which may be
utilized by such Subsidiaries for general corporate purposes (including, without
limitation, for capital expenditures and mergers and acquisitions and to finance
the King Videocable Purchase Price). In such event, one or more Subsidiaries of
Acquiror will borrow $410,000,000 under such facility immediately prior to the
Contribution and will immediately loan such borrowings to the Company and/or one
or more Cable Subsidiaries (other than King Videocable and its Subsidiaries) to
be used for the purposes described above.
(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 principal amount equal to at least Two
Hundred Fifty Million Dollars ($250,000,000). 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 a portion of the NPJ Debt in
order to, among other things, finance certain of the transactions described in
Section 2.1(a) as to which the New Company Debt is insufficient to fund.
2.2 King Videocable Acquisition.
---------------------------
(a) Subject to the provisions of this Agreement, Broadcasting hereby
agrees to sell, assign, transfer and deliver to Acquiror or a wholly owned
Subsidiary of Acquiror, and Acquiror agrees to purchase and accept, or to cause
such Subsidiary to purchase and accept, as the case may be, the assignment,
transfer and delivery of, all of the issued and outstanding shares of capital
stock of King Videocable (the "King Videocable Shares"). The purchase price to
be paid to Broadcasting by Acquiror or such Subsidiary in respect of the King
Videocable Shares shall be Four Hundred Five Million Dollars ($405,000,000) (the
"King Videocable Purchase Price"). Such sale and purchase shall be consummated
on the Closing Date immediately prior to the acquisition of the Kelso Interests
and the Contribution. At the Closing (i) Broadcasting will deliver
certificate(s) representing the King Videocable Shares duly endorsed for
transfer to Acquiror or its Subsidiary or with a stock transfer power
effectively conveying all of Broadcasting's
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<PAGE>
right, title and interest in and to the King Videocable Shares and (ii) Acquiror
will make or cause to be made payment of the King Videocable Purchase Price by
wire transfer of immediately available funds to such bank account in the United
States as may be designated in writing by Broadcasting.
(b) The King Videocable Shares will be sold, assigned and transferred to
Acquiror or such Subsidiary free and clear (except as set forth below) of all
liabilities whether fixed, contingent or otherwise.
(c) Any Taxes payable in connection with the transfer of the King
Videocable Shares pursuant to this Section 2.2 shall be borne by Broadcasting
and Holding or, in the event neither Broadcasting nor Holding is able to pay
such Taxes, NPJ. In order to induce Acquiror to purchase, or cause its
Subsidiary to purchase, the King Videocable Shares and to consummate the other
transactions contemplated by this Agreement, the Company and NPJ hereby agree to
cause irrevocable letter(s) of credit (collectively, the "Letter of Credit") to
be issued simultaneously with the closing of the purchase of the King Videocable
Shares by financial institutions reasonably acceptable to Acquiror in favor of
Acquiror as security for the payment by Broadcasting and NPJ of the Taxes
payable in connection with the transfer of the King Videocable Shares. Such
Letter of Credit shall be in an initial aggregate face amount of $120,000,000,
which face amount may be reduced from time to time to reflect payments made by
Broadcasting or NPJ in respect of such Taxes upon receipt of evidence reasonably
satisfactory to Acquiror that such payment has been made. The terms of each
such Letter of Credit shall be reasonably acceptable to Acquiror. Acquiror
shall be entitled to draw upon the Letter of Credit commencing on the date which
is ten business days after the IRS or any applicable state taxing authority
shall demand payment from Acquiror or any of its Subsidiaries of all or any
portion of such Taxes, and Acquiror agrees to give NPJ written notice of such
demand promptly (and in any event within two business days) after receipt
thereof. Any such draw shall be in the amount equal to the amount of such
demand. Acquiror agrees that the proceeds of any draw upon the Letter of Credit
shall be applied by Acquiror to the payment of the Taxes in respect of which the
demand was made.
(d) Acquiror, at its option by giving written notice to the Company not
later than ten (10) days prior to the Closing Date, may elect to treat the
acquisition of the King Videocable Shares as an acquisition of the assets of
King Videocable and its Subsidiaries pursuant to Section 338 of the Code. In
the event Acquiror makes such an election, (i) Acquiror and Holding shall elect
to treat the acquisition of the King Videocable Shares as an acquisition by
Acquiror or its Subsidiary of all of the assets of each of King Videocable and
each of its Subsidiaries and as a sale of assets by King Videocable and each
such Subsidiary to Acquiror or such
10
<PAGE>
Subsidiary pursuant to Section 338(h)(10) of the Code, and (ii) notwithstanding
the provisions of Section 6.10, Acquiror shall indemnify and hold harmless NPJ
from and against an amount equal to the excess (if any) of (A) the Taxes payable
by Holding or its shareholders in connection with the acquisition of the King
Videocable Shares as a result of such election minus (B) the Taxes which would
-----
have been payable by Holding or its shareholders in connection with the
acquisition of the King Videocable Shares if such election had not been made.
Each of Acquiror and Holding agrees to execute IRS Form 8023 and such other
forms and instruments as shall be reasonably necessary, and to supply any
information called for by such forms and instruments, in order to effectuate
such elections, and to timely file such forms and instruments with required
attachments with the IRS and any applicable state taxing authorities.
2.3 Kelso Acquisition. Prior to the Contribution but after consummation
-----------------
of the acquisition of the King Videocable Shares, the Company 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.
2.4 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 the Company and NPJ
in the form attached hereto as Exhibit C (the "Contribution Agreement"), the
---------
Company shall contribute and transfer (the "Contribution") to NPJ all of the
Company's right, title and interest in and to any and all assets of the Company,
whether tangible or intangible and whether fixed, contingent or otherwise,
including the stock of all Subsidiaries of the Company; provided, however, that
-------- -------
the Company shall not contribute to NPJ (i) the issued and outstanding capital
stock of, and its right, title and interest in any advances to, any Cable
Subsidiary, (ii) the Company'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 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 2.5 shall have been consummated.
(b) In partial consideration for the Contribution, concurrently therewith
and pursuant to the Contribution Agreement,
11
<PAGE>
NPJ shall assume any and all liabilities of the Company, 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 the Company except as provided in the Contribution
Agreement, and (iii) the Company's obligations created pursuant to the
Contribution Agreement. Concurrently with the Contribution, NPJ will cause the
Company 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 2.4(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, 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, the
Company shall distribute (the "Distribution") one fully paid and nonassessable
share of NPJ Class A Common Stock to the holder of each share of Company 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 Company 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 the
Company 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.
2.5 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 the Company used or usable in connection with the
Company's ownership and operation of the Palmer Systems (the "Related Assets")
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 Colony will be merged with and into the Company.
12
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY, NPJ,
BROADCASTING AND HOLDING
The Company and NPJ jointly and severally represent and warrant to Acquiror
as follows:
3.1 Organization; Authority. The Company is a corporation duly organized,
-----------------------
validly existing and in good standing under the laws of the State of Rhode
Island. Each of Holding and NPJ 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, Broadcasting or Holding, 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, Broadcasting and Holding of this Agreement, (ii) the approval,
execution and delivery on 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 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 and the Charter
Amendment must be approved by the stockholders of the Company to the extent
described in Section 3.5. Each Transaction Document to which the Company, NPJ,
Broadcasting or Holding, 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, Broadcasting or Holding, 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
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<PAGE>
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, Broadcasting and Holding 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, Broadcasting and Holding will not, (i) violate or conflict with
the charter documents or By-Laws of the Company, NPJ, Broadcasting or Holding;
(ii) except as set forth on Schedule 3.2 hereto (which was delivered to Acquiror
after the execution and delivery of the First Amended Agreement) 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, Broadcasting and Holding 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 the
Certificate of Merger with the Secretaries of State of Rhode Island and
Delaware, the Charter Amendment with the Secretary of State of Rhode Island, and
appropriate documents with
14
<PAGE>
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 (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, Broadcasting or Holding from performing their
respective obligations under each Transaction Document to which it is a party or
consummating the transactions contemplated thereby.
3.4 Approval of the Boards; Fairness Opinions. The Boards of Directors of
-----------------------------------------
the Company, NPJ, Broadcasting, Holding and Westerly have each, by resolutions
duly adopted at meetings duly called and held (or, on the part of Holding,
Broadcasting and Westerly, by duly executed written consents in lieu of such
meeting), unanimously approved and adopted this Agreement, the Merger
Transactions, the Charter Amendment 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 the holders 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 Incorporation 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 or series of the capital stock of the Company necessary to approve the
Charter Amendment under applicable Law and the Company's Articles of
Incorporation 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 were issued and outstanding
37,728 shares of Company Class A Common Stock and 46,961 shares of Company Class
B Common Stock. All such shares outstanding on the date hereof are duly
authorized, validly issued and fully paid and nonassessable. Other than as set
15
<PAGE>
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 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 of any new or additional equity interests in the
Company (or any other securities of the Company 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). 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. 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 approximately 50% of the issued and
outstanding shares of each class of capital stock of Holding (except that the
Kelso Partnerships own approximately 49% of the issued and outstanding Class A
Common Stock of Holding and a warrant to acquire one share of such Class A
Common Stock and the Company owns 51% of such issued and outstanding Class A
Common Stock); Holding owns all of the issued and outstanding shares of capital
stock of Broadcasting; and Broadcasting owns all of the issued and outstanding
shares of capital stock of King Videocable.
(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) 180,000,000 shares of NPJ Class A Common Stock and (ii)
46,825,000 shares of NPJ Class B Common Stock. As of November 18, 1994, there
were 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) The Company has delivered to Acquiror a full and complete copy of the
Rights Agreement and the First Amendment to Rights Agreement dated as of
February 10, 1995 between the Company and The First National Bank of Boston, as
Rights Agent (the "Rights Agreement Amendment"). As of the date of execution of
this 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 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
16
<PAGE>
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 Rights Agreement Amendment and the amendment required by
Section 6.26 hereof, (i) the holders of Rights shall not have any rights to
acquire shares of Acquiror Common Stock, and (ii) Acquiror shall not be liable
for, or assume by virtue of 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, Broadcasting or Holding to perform their
respective material obligations under the Transaction Documents to which they
are a party.
17
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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 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.
(c) As of the Effective Time, the basis for federal income tax purposes in
the King Videocable Shares shall not exceed the basis for federal income tax
purposes in the assets of King Videocable and its Subsidiaries (excluding for
such purposes the stock of any such Subsidiary).
18
<PAGE>
3.12 Litigation. Except for the Dynamic Litigation or 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;
(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;
19
<PAGE>
(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,
---------------
Broadcasting and Holding 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, Broadcasting or
-------------------
Holding nor any officer, director, employee or Affiliate of the Company, NPJ,
Broadcasting or Holding 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
20
<PAGE>
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
as follows:
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, Broadcasting and Holding 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, Broadcasting and Holding 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,
21
<PAGE>
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 (which has been amended as of the date
--------------
of execution of this Agreement) 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 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
22
<PAGE>
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. 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.
23
<PAGE>
(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. 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.
(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
24
<PAGE>
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.
25
<PAGE>
(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 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. 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.
26
<PAGE>
(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 for the Dynamic Litigation or 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.
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,
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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.
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(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 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.
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(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.
(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
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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, NPJ and Broadcasting as
follows:
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
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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.
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,
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<PAGE>
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 Rhode Island 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 (to the extent applicable),
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 this Agreement and the Merger 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 and the affirmative vote or action by written
consent of a majority of the votes entitled to be cast by the holders of the
Acquiror Series A Preferred Stock are the only votes 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 consisted 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 were 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 were, 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
34
<PAGE>
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, 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.
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. 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
35
<PAGE>
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
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<PAGE>
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
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
37
<PAGE>
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 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.
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(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
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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 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
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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 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)
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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
42
<PAGE>
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 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
43
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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 their respective directors, officers, employees, representatives
and agents) concerning any merger, consolidation, share exchange or similar
transaction
44
<PAGE>
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, the
Company shall not, without the prior written consent of Acquiror:
(i) amend its Articles of Incorporation 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
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stock, or redeem or otherwise acquire any of its capital stock,
except 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;
(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 2.4
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 2.4 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 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
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Contribution Agreement directly or indirectly respecting the
Retained Assets or the Retained Liabilities or affecting the
rights or obligations of the Company 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 (other than King Videocable and its Subsidiaries,
which will be acquired by Acquiror or a Subsidiary of Acquiror pursuant to
Section 2.2 hereof) 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
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<PAGE>
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;
(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
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<PAGE>
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 benefit, severance, pension or employment plans in existence on November
18, 1994, 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 employment agreement in existence on
November 18, 1994 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 severance agreement in existence on November 18, 1994 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; or
(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
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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 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 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 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 6.24
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
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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 and the
Cable Subsidiaries, 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.
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(a) Acquiror and NPJ have heretofore prepared and filed with the SEC
registration statements (collectively, the "Registration Statements") and
amendments to such 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 and amendments thereto contained 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 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"). The Company, NPJ and
Acquiror agree to file as promptly as practicable after the date hereof an
amendment to each Registration Statement to reflect the changes to the
transactions contemplated hereby (including, without limitation, seeking proxies
from the Company's stockholders to approve the Charter Amendment).
(b) The Company, NPJ and Acquiror have used, and will continue to 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
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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 the date of execution of this
Agreement, 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 Statements, 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
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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 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
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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
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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 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
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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
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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,
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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 the
Charter Amendment and (ii) the recommendation of Acquiror's Board of Directors
to Acquiror's stockholders to vote in favor of the Merger and the
Recapitalization Amendment; provided, however, that either the Company Board of
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Directors 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.
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(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
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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
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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.
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(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.
(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
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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
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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 is 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 and Holding 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 the Company immediately
prior to the Merger to
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any Person (other than to any corporation which is a member of the
affiliated group of which Acquiror is the common parent), 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 the Company immediately prior to the Merger to sell any
shares of capital stock of such Subsidiary to any Person (other than to any
corporation which is a member of the affiliated group of which Acquiror is
the common parent);
(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.
For purposes of the covenants in this Section 6.10(i) and for the avoidance of
doubt, neither King Videocable nor any of its Subsidiaries shall be a Cable
Subsidiary or a Subsidiary of the Company immediately prior to the Merger and,
accordingly, the limitations imposed in this Section 6.10(i) shall not be
applicable to the stock or assets of King Videocable or any such Subsidiary.
6.11 Notification. Each party hereto shall, in the event of, or promptly
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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
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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.
6.12 Employee Benefits.
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(a) As part of the assumption of liabilities of the Company by NPJ
pursuant to Section 2.4 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 Date ("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 Date, Acquiror shall become
the employer of all employees of the Cable Subsidiaries as of the Effective
Date, including any such employee who is on an approved leave of absence or
short-term disability leave, as of the Effective Date other than any corporate,
regional or divisional employee which Acquiror has informed the Company not less
than thirty (30) days prior to the Effective Date it does not wish to employ
following the Effective Date, 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
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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 Date, 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
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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 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) The Company or NPJ, as applicable, agrees to continue coverage of
Cable Employees under existing group health plans through the Effective Time and
to reimburse covered Cable Employees
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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 the Company on the
Effective Date, 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, on the Effective Date, 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 Date 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.
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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, on the Effective Date, 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 to the
Effective Date; (iii) the payment of all long-term disability income benefits to
all Cable Employees who, as of the Effective Date, are receiving long-term
disability benefits or are disabled as of the Effective Date 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 Date 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 Date 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
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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, the Charter Amendment and
the Merger Transactions. The only stockholder votes required for the adoption
and approval of the Merger Transactions and the Charter Amendment 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 the Charter Amendment 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 and the Charter
Amendment. 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 and the Charter
Amendment.
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 Transactions
(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 proxies held by the Company
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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.
(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 parties hereto under
Section 6.15(a), each such party 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
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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 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 the
-------------------------------
date hereof, the Company shall prepare and submit to the IRS an amendment to its
existing request for a private letter ruling requesting 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. The initial request (and any earlier
submissions to the IRS) was, and such amended 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 has and shall continue to afford Acquiror with reasonable opportunity to
review and comment on such amended request prior to its submission to the IRS,
and such request as filed shall be reasonably acceptable to Acquiror. The
Company has and shall continue to 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.
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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 came 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 or as otherwise agreed to by NPJ and Acquiror, 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 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 or any of the
Cable Subsidiaries or pursuant to which the Company or any of the Cable
Subsidiaries may have any obligation or liability. After the Effective Time,
none of the Company 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
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 cause all of its affected Subsidiaries to
change their names to delete any reference therein to "Providence Journal" or
"King".
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(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".
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 provided that any such secondary
offering during the One-Year Lock-Up Period shall not include any Acquiror
Merger Securities) prior to the expiration of the One-Year Lock-Up Period 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
expiration of the One-Year Lock-Up Period, shares of its capital stock for an
aggregate consideration of not less than $1,000,000,000, and (ii) Acquiror's
obligation, if any, to consummate an Offering at the expiration of the One-Year
Lock-Up Period shall be extended if Acquiror's investment banker shall have
advised Acquiror in writing 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, Acquiror and NPJ hereby agree to
enter into a registration rights agreement (the "Registration Rights Agreement")
relating to the Acquiror Class A Common Stock to be issued pursuant to the
Merger in the form attached hereto as Exhibit D. In the event the transactions
---------
contemplated by this Agreement are consummated, each shareholder of the Company
entitled to receive shares of Acquiror Merger Securities as a result of the
Merger shall be conclusively deemed (a) to have duly constituted and appointed
NPJ, 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 substantially in the form attached hereto as Exhibit D and (ii)
---------
such other documents, instruments and certificates considered necessary or
appropriate by the officer or officers of NPJ executing the Registration Rights
Agreement to carry out the provisions of the same, and (b) to approve and
consent to NPJ 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
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irrevocable so long as the Registration Rights Agreement shall remain in force
and effect.
6.22 Matters Relating to Shareholders and Liquidity.
----------------------------------------------
(a) If Acquiror has not completed or commenced the Offering prior to the
expiration of the One-Year Lock-Up Period, subject to applicable Law, Acquiror
agrees to conduct a shareholder relations program promptly after the expiration
of the restrictions on transfer referred to in Section 1.10, in form and
substance reasonably satisfactory to NPJ, informing potential investors about
the business and financial condition of Acquiror.
(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 E, 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 or Acquiror, as the case may be, held by each such stockholder in favor
of the Merger Transactions (the "Voting Agreement").
(d) On or prior to the expiration of the One-Year Lock-Up Period, Acquiror
shall cause the Acquiror Class A Common Stock to be approved for listing on the
Nasdaq National Market System or on a national securities exchange.
6.23 Acquiror Board of Directors. From November 18, 1994 and prior 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
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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 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
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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.
6.25 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 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.
6.26 Rights Plan. The Company has heretofore entered into the Rights
-----------
Agreement Amendment. The Company agrees that as soon as practicable after the
date of execution of this Agreement it will enter into another amendment to the
Rights Agreement in form and substance reasonably satisfactory to the Company
and Acquiror in order to reflect the revised structure contemplated by this
Agreement. In addition, the Company agrees that it will not take any action
resulting in the application of the Rights Agreement to the Merger Transactions.
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, Broadcasting and
-------------------------------------------------------------------
Acquiror. The respective obligations of the
--------
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Company, NPJ 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 and the Charter Amendment 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 and 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;
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(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 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 and Broadcasting.
------------------------------------------------------------------
The obligations of the Company, NPJ 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; and
(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.
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,
Broadcasting and NPJ 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
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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, Broadcasting and Holding
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;
(c) Immediately prior to the Effective Time, the Company shall have no
assets except (i) all the capital stock of the Cable Subsidiaries (either
directly or indirectly, other than King Videocable and its Subsidiaries, which
will have been acquired by Acquiror pursuant to Section 2.2 hereof), (ii) the
contract rights referred to in Section 2.4(a)(ii), (iii) the cash referred to in
Section 2.4(a)(iii) to the extent such cash has not previously been used to pay
other expenses of the Company 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 2.5 hereof
shall have been consummated, and (v) assets that in the aggregate are not
material to the Company and its Subsidiaries (excluding the Cable Subsidiaries)
taken as a whole and are associated with the operation of the cable systems of
the Company and its Subsidiaries;
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(d) Immediately prior to the Effective Time (after giving effect to NPJ's
assumption of liabilities pursuant to the Contribution Agreement), the Company
shall have no liabilities except (i) any liabilities associated with the
operations of the Cable Subsidiaries or the cable operations of the Company,
(ii) the New Company Debt, and (iii) the contractual obligations referred to in
Section 2.4(b)(iii);
(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
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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) The Company and NPJ shall have entered into a non-competition
agreement with Acquiror in substantially the form attached hereto as Exhibit F;
---------
(h) The Company 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 of the
Company and as to the number of shares of capital stock of the Company
outstanding as of the Closing Date, indicating the class and series of such
shares; and
(i) Acquiror shall not, 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 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.
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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 and
the Charter Amendment 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 and 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.
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(b) In order to induce the Company, NPJ and Broadcasting 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 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
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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).
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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 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, 3.11(c) 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, 3.11(c) or
4.3 hereof, (iii) are based upon or arise out of any inaccurate information in
the certificate to be delivered by the Company 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 6.25.
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 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
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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, the Original
Agreement or the First Amended 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 any holder listed on Schedule 4.3 of any of the
equity securities of any of the Cable Subsidiaries, 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.
(c) In addition to the general indemnification provisions set forth in
this Article 9 (which shall continue to be applicable to the Dynamic
Litigation), the following additional provisions shall apply to the Dynamic
Litigation:
(i) In the event that Dynamic sells its interest in the Dynamic
Partnership prior to the Effective Time as a result of a final, non-
appealable judgment in the Dynamic Litigation or a settlement with Cable
LP, (A) the amount of New Company Debt borrowed by the Company immediately
prior to the Contribution in accordance with Section 2.1(a) shall be
reduced by the sum of (x) $115,000,000 (the "Target Price") and (y) the
excess of (1) the amount by which the consideration received by Dynamic for
the sale of its interest exceeds the Target Price (the "Additional
Consideration") over (2) the incremental Taxes payable as a result of the
receipt of the Additional Consideration, and (B) the Cable Franchise Area
relating to the Dynamic Partnership's systems shall be deemed Transferable
Franchise Areas.
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(ii) In the event that Dynamic sells its interest in the Dynamic
Partnership after the Effective Time as a result of a final, non-appealable
judgment in the Dynamic Litigation or a settlement with Cable LP, NPJ shall
pay over to Acquiror simultaneously with the closing of such sale an amount
equal to the sum of (A) the amount (if any) by which the consideration
received by Dynamic for the sale of such interest is less than the Target
Consideration plus (B) the Taxes which would have been payable assuming
----
the purchase price for such interest equaled the Target Price.
(iii) In the event that the interests of the Company and its
Subsidiaries in Dynamic and the Dynamic Partnership are required to be
contributed to NPJ as part of the Contribution as a result of a final, non-
appealable judgment in the Dynamic Litigation or as a result of an order
issued by the Circuit Court of the 11th Judicial Circuit in and for Dade
County, Florida (or any appellate court in Florida as a result of an appeal
of the Dynamic Litigation), then (A) the amount of New Company Debt
borrowed by the Company immediately prior to the Contribution in accordance
with Section 2.1(a) shall be reduced by the Target Price, (B) the Cable
Franchise Area relating to the Dynamic Partnership's systems shall be
deemed Transferable Franchise Areas, and (C) at the request of the Company,
Acquiror and the Company will negotiate in good faith a management
agreement pursuant to which Acquiror or one of its Subsidiaries will manage
the cable systems owned by the Dynamic Partnership.
(iv) In addition to the foregoing actions, NPJ shall indemnify and
hold harmless Acquiror for any additional Losses and Expenses directly
resulting from the Dynamic Litigation.
(v) Notwithstanding the foregoing, from and after the Effective Time,
each of the Company, NPJ and Acquiror agrees to use its best efforts to
contest and defend against the Dynamic Litigation and that it shall not
(and it shall permit any of its Subsidiaries to) settle the Dynamic
Litigation without the written consent of each other party, which consent
shall not be unreasonably withheld or delayed. Each party shall cooperate
in all reasonable respects with the other parties and their respective
attorneys in the investigation, trial and defense of the Dynamic Litigation
and any appeal arising therefrom but only to the extent that such
cooperation will not interfere with, or constitute a waiver of, attorney-
client privilege or any other privilege associated with, or invoked in
connection with, the Dynamic Litigation.
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)
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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
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
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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), the Company shall prepare and deliver to Acquiror a schedule
showing the Company's best estimate of the Working Capital (the "Company Working
Capital Calculation"). If the Company Working Capital Calculation is greater
than zero, Acquiror shall pay the excess to NPJ in immediately available funds
on the Effective Time; if the Company Working Capital Calculation is less than
zero, NPJ shall pay the difference to Acquiror in immediately available funds on
the Effective Time.
(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
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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.
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with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, MA 02109
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
if to the Company, NPJ, Broadcasting or Holding:
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
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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 Contribution, the Company shall pay, or make
--------
adequate provision for the payment of, all costs and expenses required to be
paid by the Company 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 and any
other indebtedness (up to a maximum aggregate principal amount, including the
New Company Debt, of $815,000,000), incurred by Acquiror or any of its
Subsidiaries, the Company or any Cable Subsidiary contemporaneously with the
Closing in part in order to finance or refinance the King Videocable Purchase
Price paid in connection with acquisition of the King Videocable Shares (except
that the expenses borne by the Company pursuant to this clause (B) shall not
exceed $3,260,000); 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 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.
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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
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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 Transfer of Office Lease. Notwithstanding anything herein to the
------------------------
contrary, the parties hereto acknowledge and agree that certain Agreement of
Lease dated as of June 8, 1992 by and between Colony and Rhode Island School of
Design, a Rhode Island non-profit corporation, relating to the corporate
headquarters of Colony at 20 Washington Place, Providence, Rhode Island will be
transferred and assigned by Colony to, and all liabilities associated therewith
will be assumed by, NPJ simultaneously with the Contribution or, alternatively,
to the Company prior to the Contribution (in which case, the Company's rights,
title and interest in such lease agreement shall be assigned to, and all
liabilities associated therewith will be assumed by, NPJ as part of the
Contribution).
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.
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"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 to be
issued pursuant to the Merger.
"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 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
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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(a).
"Broadcasting" has the meaning set forth in the first paragraph of this
Agreement.
"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 LP" means Cable LP I, Inc., a Florida corporation, and its
successors and assigns.
"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 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.
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"Cable Tax Returns" has the meaning set forth in Section 6.10(h).
"Certificates" has the meaning set forth in Section 1.5(b).
"Certificate of Merger" has the meaning set forth in Section 1.4.
"Charter Amendment" means the amendment in the form attached hereto as
Exhibit G to the Company's Articles of Incorporation necessary in order to make
---------
the Distribution permissible under such Articles of Incorporation.
"Closing" and "Closing Date" have the meanings set forth in Section 7.1.
"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 2.5.
"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.
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"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.
"Company Working Capital Calculation" has the meaning set forth in Section
9.8(a).
"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 2.4(a).
"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.
"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 1.2(e).
"Distribution" has the meaning set forth in Section 2.4(c).
"Dynamic" means Dynamic Cablevision of Florida, Inc., a Florida
corporation.
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"Dynamic Litigation" means that certain pending lawsuit brought by Cable LP
against Dynamic, Colony and the Company in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida.
"Dynamic Partnership" had the meaning set forth in Section 1.3(b).
"Effective Date" has the meaning set forth in Section 1.4.
"Effective Time" has the meaning set forth in Section 1.4.
"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 1.5(a).
"FCC" means the Federal Communications Commission.
"FCC Approvals" has the meaning set forth in Section 3.3.
"First Amended Agreement" has the meaning set forth in the preambles to
this Agreement.
"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.
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"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 first paragraph of 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.
"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 2.3.
"King Videocable" has the meaning set forth in the preambles to this
Agreement.
"King Videocable Purchase Price" and "King Videocable Shares" have the
meanings set forth in Section 2.2(a).
"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
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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 $596,069,000 or such lesser amount as
shall be calculated in accordance with Section 1.3(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 Contribution Agreement, and (iv)
the Distribution.
"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(a).
"Non-Competition Agreement" means the Non-Competition Agreement among the
Company, NPJ and Acquiror in the form attached hereto as Exhibit F.
---------
"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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"NPJ Debt" has the meaning set forth in Section 2.1(b).
"NLRB" means the National Labor Relations Board.
"Offering" has the meaning set forth in Section 6.21(a).
"One-Year Lock-Up Period" has the meaning set forth in Section 1.10(a).
"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.
"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 2.5.
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"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.
"RIBCA" has the meaning set forth in Section 1.2(e).
"Rights" has the meaning set forth in the Rights Agreement.
"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, as amended by the Rights
Agreement Amendment.
"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.
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"Tax", "Taxes" and "Taxable" have the meanings set forth in Section
6.10(h).
"Tax Return" has the meaning set forth in Section 6.10(h).
"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.
"Transfer" has the meaning set forth in Exhibit A hereto with respect to
---------
the Acquiror Merger Securities and Exhibit B hereto with respect to the NPJ
---------
Common Stock.
"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 2.5.
"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 the Company and the Cable Subsidiaries
(including, without limitation, King Videocable and its 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
By: /s/ Trygve E. Myhren
----------------------------------------
Name: Trugve E. Myhren
Title: President and Chief Operating Officer
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Stephen Hamblett
-----------------------------------------
Name: Stephen Hamblett
Title: Chairman of the Board and C.E.O.
KING BROADCASTING COMPANY
By: /s/ Trygve E. Myhren
-----------------------------------------
Name: Trygve E. Myhren
Title: President and Chief Operating
Officer
KING HOLDING CORP.
By: /s/ Trygve E. Myhren
-----------------------------------------
Name: Trygve E. Myhren
Title: President and Chief Operating
Officer
CONTINENTAL CABLEVISION, INC.
By: /s/ Amos B. Hostetter, Jr.
-----------------------------------------
Name: Amos B. Hostetter, Jr,
Title: Chairman and C.E.O.
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Schedules to the Merger Agreement have been omitted from this filing, but will
be provided upon request.
104
<PAGE>
EXHIBIT A
---------
FORM OF AMENDMENT TO ACQUIROR RESTATED BY-LAWS
----------------------------------------------
ARTICLE XIII
RESTRICTIONS ON
TRANSFER OF CERTAIN SHARES OF CAPITAL STOCK OF THE CORPORATION
Section 1. Restrictions on Transfer. Any Person who receives or is
------------------------
entitled to receive any shares of Class A Common Stock of the Corporation (the
"Merger Securities") issued pursuant to the Agreement and Plan of Merger dated
as of November 18, 1994, as amended and restated as of August 1, 1995, by and
among the Corporation, Providence Journal Company, The Providence Journal
Company, King Holding Corp. and King Broadcasting Company, as amended to date
(the "Merger Agreement"), shall not Transfer (as defined herein), and the
Corporation shall not be required to register the Transfer of, any share of such
Merger Securities until the first anniversary of the effective date of the
merger of Providence Journal Company with and into the Corporation pursuant to
the terms of the Merger Agreement (the "Effective Date"), except a Permitted
Transfer (as defined below) to a Permitted Transferee (as defined below) of the
economic owner of the share of the Merger Securities (the "Restricted Holder").
Capitalized terms used herein and not otherwise defined shall have the meanings
prescribed therefor in the Merger Agreement.
The term "Permitted Transferee" has the following meanings with respect to
each Restricted Holder:
a. the following persons shall be "Permitted Transferees" of each
Restricted Holder who is a natural person:
(1) The spouse or former spouse of such Restricted Holder, any
lineal descendant of a grandparent of such Restricted Holder or
of a grandparent of the spouse or former spouse of such
Restricted 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
Restricted 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 of such trustees are any of
the following (each a "Qualified Person"): such Restricted
Holder, one of such Restricted 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 June 7,
1995) 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 Restricted Holder or
one or more of such Restricted
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Holder's Permitted Transferees described in any subclause of this
clause (a) other than subclause (2) or this subclause (3);
(4) A corporation of which a majority of the outstanding shares
of capital stock entitled to vote generally for the election of
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 Restricted
Holder or his or her Permitted Transferees described in any
subclause of this clause (a) other than this subclause (4);
(5) If the Restricted Holder is deceased, bankrupt or insolvent,
the estate of such Restricted Holder; and
(6) A corporation, trust, partnership or financial institution
which shall hold any Merger Securities in a custodial or nominee
arrangement.
b. the following persons shall be entitled to have the
"Permitted Transferees" indicated:
(1) In the case of any corporation or limited liability company
that is a Restricted Holder, "Permitted Transferee" means (x) any
Person with economic ownership of any of the outstanding shares
of capital stock entitled to vote generally for the election of
directors of such corporation or limited liability company, as
the case may be, as of the Effective Date, and the Permitted
Transferees of such person, or (y) any entity which is more than
90% owned by such corporation or limited liability company.
(2) In the case of any partnership which is a Restricted Holder
and which is dissolved or liquidated, "Permitted Transferee"
means (x) each of the partners of such partnership as of the
Effective Date, and (y)the Permitted Transferees of such
partners.
(3) In the case of any other corporation or partnership,
"Permitted Transferee" means (x) with respect to each share of
Merger Securities 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 Merger Share
held by such corporation or partnership, any person who is a
Permitted Transferee with respect to the share of Merger
Securities in respect of which such Subsequent Merger Share was
issued.
(4) In the case of a revocable trust which is a Restricted
Holder, "Permitted Transferee" means (x) with respect to shares
of Merger Securities held by such trust as a Restricted Holder,
the settlor of such
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trust and Permitted Transferees of such settlor and the
beneficiaries of such trust as of the Effective Date and
Permitted Transferees of such beneficiaries, and (y) with respect
to each share of Merger Securities transferred to such trust in a
Permitted Transfer, any person who transferred such share of
Merger Securities to such trust and any Permitted Transferee of
any such transferor, and (z) with respect to each Subsequent
Merger Share, any person who is a Permitted Transferee with
respect to the share of Merger Securities in respect of which
such Subsequent Merger Share was issued.
(5) In the case of a trust (other than a voting trust) which was
irrevocable on the Effective Date, "Permitted Transferee" means
with respect to shares of Merger Securities held by such trust as
a Restricted Holder and with respect to each share of Merger
Securities transferred to such trust in a Permitted Transfer and
with respect to each Subsequent Merger 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.
(6) In the case of a voting trust or any other trust (other than
a trust described in paragraph (4) or (5) above), "Permitted
Transferee" means (x) with respect to each share of Merger
Securities transferred to such trust in a Permitted Transfer, any
person who transferred such share of Merger Securities to such
trust and any Permitted Transferee of any such transferor, and
(y) with respect to each Subsequent Merger Share any person who
is a Permitted Transferee with respect to the share of Merger
Securities in respect of which such Subsequent Merger Share was
issued.
(7) In the case of a holder of Merger Securities which is the
estate of a deceased, bankrupt or insolvent Restricted Holder,
"Permitted Transferee" means, with respect to each share of
Merger Securities transferred to such estate in a Permitted
Transfer and with respect to each Subsequent Merger Share, a
Permitted Transferee of such deceased, bankrupt or insolvent
Restricted Holder.
(8) In the case of a corporation, trust, partnership or financial
institution which is the holder of record of Merger Securities as
nominee for the person who is the beneficial owner of such
shares, "Permitted Transferee" means such beneficial owner and
any Permitted Transferee of such beneficial owner.
Section 2. Pledges. Notwithstanding anything to the contrary set forth
-------
herein, any Restricted Holder may pledge his shares of Merger Securities to a
pledgee pursuant to a bona fide pledge of such shares as collateral security for
indebtedness (which indebtedness must be full recourse against the Restricted
Holder) 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 ARTICLE XIII. In the event of foreclosure or other similar
action
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with respect to such shares by the pledgee, such pledged shares of Merger
Securities may only be transferred to a Permitted Transferee of the pledgor.
Section 3. Definitions. For purposes of this ARTICLE XIII of these By-
-----------
Laws:
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 Merger Share" means any share of Merger
Securities issued by the Corporation to a Restricted Holder in respect of
an existing share of Merger Securities held by such Restricted Holder.
d. The term "Permitted Transfer" means a Transfer not for any value or
consideration, including but not limited to, a Transfer by gift, by
bequest, pursuant to the terms of a trust or the laws of descent or
distribution, or by operation of law.
e. The term "Transfer" includes, but is not limited to, any indirect or
direct transfer, offer to sell, sale, assignment, grant of an option to
acquire, pledge, or other disposition.
f. The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
g. A minor for whom shares of Merger Securities are held pursuant to the
Uniform Gifts to Minors Act, as in effect in any state, or any similar law,
shall be considered a Restricted Holder.
h. Unless otherwise specified, the term "Person" means both natural
persons and legal entities.
i. Each reference to a corporation shall include any corporation
resulting from merger or consolidation, and each reference to a partnership
shall include any successor partnership resulting solely from the death,
bankruptcy or other withdrawal of a partner.
j. The term "beneficial owner" has the meaning ascribed to such term in
Rule 13d-3 of the 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 June 7, 1995.
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Section 4. Legend on Stock Certificates. The Corporation shall note on
----------------------------
the certificates for shares of Merger Securities issued upon transfer that the
shares represented by such certificates are subject to the restrictions on
transfer and registration of transfer imposed by this ARTICLE XIII.
Section 5. Termination of Restrictions on Transfers. The provisions of
----------------------------------------
this ARTICLE XIII shall terminate in their entirety on the first anniversary of
the Effective Date.
109
<PAGE>
EXHIBIT B
---------
FORM OF AMENDMENT TO NPJ BY-LAWS
--------------------------------
Section 11.03(b). 1. Restrictions on Transfer. Any person who receives or is
------------------------
entitled to receive any shares of capital stock of the Corporation on the
Effective Date pursuant to the Distribution contemplated by the Agreement and
Plan of Merger dated as of November 18, 1994, by and among Continental
Cablevision, Inc., Providence Journal Company, the Corporation, King Holding
Corp. and King Broadcasting Company, as amended and restated as of August 1,
1995, as amended to date (the "Merger Agreement") shall not Transfer (as defined
herein), and the Corporation shall not be required to register the Transfer of,
any share of such capital stock of the Corporation until the first anniversary
of the Effective Date, except a Permitted Transfer (as defined herein) to a
Permitted Transferee (as defined herein) of the economic owner of such share of
capital stock of the Corporation (the "Restricted Holder"). Capitalized terms
used in this Section 11.03(b) and not otherwise defined shall have the meaning
prescribed therefor in the Merger Agreement.
The term "Permitted Transferee" has the following meanings with respect to
each Restricted Holder:
a. the following persons shall be "Permitted Transferees" of each
Restricted Holder who is a natural person:
(1) The spouse or former spouse of such Restricted Holder, any
lineal descendant of a grandparent of such Restricted Holder or of a
grandparent of the spouse or former spouse of such Restricted 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 Restricted 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 of such trustees are any of the following (each a
"Qualified Person"): such Restricted Holder, one of such Restricted
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
June 7, 1995) 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 Restricted Holder or one or more of
such Restricted Holder's Permitted Transferees described in any subclause
of this clause (a) other than subclause (2) or this subclause (3);
(4) A corporation of which a majority of the outstanding shares
of capital stock entitled to vote generally for the election of directors
is beneficially
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<PAGE>
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
Restricted Holder or his or her Permitted Transferees described in any
subclause of this clause (a) other than this subclause (4);
(5) If the Restricted Holder is deceased, bankrupt or insolvent,
the estate of such Restricted Holder; and
(6) A corporation, trust, partnership or financial institution
which shall hold any shares of capital stock of the Corporation in a custodial
or nominee arrangement.
b. the following persons shall be entitled to have the "Permitted
Transferees" indicated:
(1) In the case of any corporation or limited liability company
that is a Restricted Holder, "Permitted Transferee" means (x) any person
with economic ownership of any of the outstanding shares of capital stock
entitled to vote generally for the election of directors of such
corporation or limited liability company, as the case may be, as of the
Effective Date, and the Permitted Transferees of such person or persons, or
(y) any entity which is more than 90% owned by such corporation or limited
liability company.
(2) In the case of any partnership which is a Restricted Holder
and which is dissolved or liquidated, "Permitted Transferee" means (x) each
of the partners of such partnership as of the Effective Date, and (y)the
Permitted Transferees of such partners.
(3) In the case of any other corporation or partnership,
"Permitted Transferee" means (x) with respect to each share of capital
stock of the Corporation 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 Capital Share held by such corporation or partnership, any
person who is a Permitted Transferee with respect to the share of capital
stock in respect of which such Subsequent Capital Share was issued.
(4) In the case of a revocable trust which is a Restricted
Holder, "Permitted Transferee" means (x) with respect to shares of capital
stock of the Corporation held by such trust as a Restricted Holder, the
settlor of such trust and Permitted Transferees of such settlor and the
beneficiaries of such trust as of the Effective Date and Permitted
Transferees of such beneficiaries, and (y) with respect to each share of
capital stock of the Corporation transferred to such trust in a Permitted
Transfer, any person who transferred such share of capital stock of the
Corporation to such trust and any Permitted Transferee of any such
transferor, and (z) with respect to each Subsequent Capital Share, any
person who is a Permitted Transferee with respect to the share of capital
stock of the Corporation in respect of which such Subsequent Capital Share
was issued.
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(5) In the case of a trust (other than a voting trust) which was
irrevocable on the Effective Date, "Permitted Transferee" means with
respect to shares of capital stock of the Corporation held by such trust as
a Restricted Holder and with respect to each share of capital stock of the
Corporation transferred to such trust in a Permitted Transfer and with
respect to each Subsequent Capital 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.
(6) In the case of a voting trust or any other trust (other than
a trust described in paragraph (4) or (5) above), "Permitted Transferee"
means (x) with respect to each share of capital stock of the Corporation
transferred to such trust in a Permitted Transfer, any person who
transferred such share of capital stock of the Corporation to such trust
and any Permitted Transferee of any such transferor, and (y) with respect
to each Subsequent Capital Share any person who is a Permitted Transferee
with respect to the share of capital stock of the Corporation in respect of
which such Subsequent Capital Share was issued.
(7) In the case of a holder of capital stock of the Corporation
which is the estate of a deceased, bankrupt or insolvent Restricted Holder,
"Permitted Transferee" means, with respect to each share of capital stock
transferred of the Corporation to such estate in a Permitted Transfer and
with respect to each Subsequent Capital Share, a Permitted Transferee of
such deceased, bankrupt or insolvent Restricted Holder.
(8) In the case of a corporation, trust, partnership or financial
institution which is the holder of record of capital stock of the
Corporation as nominee for the person who is the beneficial owner of such
shares, "Permitted Transferee" means such beneficial owner and any
Permitted Transferee of such beneficial owner.
2. Pledges. Notwithstanding anything to the contrary set forth herein,
-------
any Restricted Holder may pledge his shares of capital stock of the Corporation
to a pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness (which indebtedness must be full recourse against the
Restricted Holder) 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 11.03(b). In the event of foreclosure or
other similar action with respect to such shares by the pledgee, such pledged
shares of capital stock of the Corporation may only be transferred to a
Permitted Transferee of the pledgor.
3. Definitions. For purposes of this Section 11.03(b):
-----------
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.
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b. The term "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
c. The term "Subsequent Capital Share" means any share of capital stock
of the Corporation issued by the Corporation to a Restricted Holder in
respect of an existing share of capital stock of the Corporation held by
such Restricted Holder.
d. The term "Permitted Transfer" means a Transfer not for any value or
consideration, including but not limited to, a Transfer by gift, by
bequest, pursuant to the terms of a trust or the laws of descent or
distribution, or by operation of law.
e. The term "Transfer" includes, but is not limited to, any indirect or
direct transfer, offer to sell, sale, assignment, grant of an option to
acquire, pledge, or other disposition.
f. The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
g. A minor for whom shares of capital stock of the Corporation are held
pursuant to the Uniform Gifts to Minors Act, as in effect in any state, or
any similar law, shall be considered a Restricted Holder.
h. Unless otherwise specified, the term "Person" means both natural
persons and legal entities.
i. Each reference to a corporation shall include any corporation
resulting from merger or consolidation, and each reference to a partnership
shall include any successor partnership resulting solely from the death,
bankruptcy or other withdrawal of a partner.
j. The term "beneficial owner" has the meaning ascribed to such term in
Rule 13d-3 of the 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 June 7, 1995.
4. Legend on Stock Certificates. The Corporation shall note on the
----------------------------
certificates for shares of capital stock of the Corporation issued at the
Effective Time and upon subsequent Transfer that the shares represented by such
certificates are subject to the restrictions on Transfer and registration of
Transfer imposed by this Section 11.03(b).
5. Termination of Restrictions on Transfer. The provisions of the this
---------------------------------------
Section 11.03(b) shall terminate in their entirety on the first anniversary of
the Effective Date.
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Exhibit C
---------
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement (this "Agreement"), dated as of
____________, 1995 is made by and between Providence Journal Company, a Rhode
Island corporation (the "Company"), and The Providence Journal Company, a
Delaware corporation and a wholly owned subsidiary of the Company ("NPJ").
RECITALS
WHEREAS, the Company, NPJ, King Broadcasting Company, a Washington
corporation ("Broadcasting"), King Holding Corp., a Delaware corporation, and
Continental Cablevision, Inc., a Delaware corporation ("Acquiror"), are parties
to that certain Agreement and Plan of Merger dated as November 18, 1994, as
amended and restated as of August 1, 1994 (the "Merger Agreement") pursuant to
which, among other things, the Company has agreed to contribute to NPJ all of
the assets of the Company (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 Company 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
the Company with and into Acquiror and by acquiring from Broadcasting all of the
issued and outstanding stock of King Videocable, and (ii) NPJ will conduct the
business conducted by the Company and its Subsidiaries prior to giving effect to
the Contribution (as defined in Section 1.1 hereof) 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 1
CONTRIBUTION AND ASSUMPTION
1.1 Contribution of Assets.
----------------------
(a) Subject to Section 1.1(b), the Company hereby contributes, grants,
conveys, assigns, transfers and delivers to NPJ without recourse (the
"Contribution") all of the Company's right, title and interest in and to any and
all assets of the Company, whether tangible or intangible and whether fixed,
contingent or otherwise, including, without limitation, the capital stock of all
Subsidiaries of the Company, 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").
(b) Notwithstanding Section 1.1(a), the Company hereby retains and does
not contribute, grant, convey, assign, transfer or deliver to NPJ (i) the issued
and outstanding
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capital stock of, and its right, title and interest in any advances to, each
Cable Subsidiary, (ii) the Company'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 2.5 of the Merger
Agreement shall have been consummated (collectively, the "Retained Assets").
(c) Notwithstanding anything contained in this Agreement or in the Merger
Agreement to the contrary, NPJ acknowledges and agrees that the Company 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.
1.2 Assumption of Liabilities.
-------------------------
(a) 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 the Company, whether
contingent or otherwise, including, without limitation, the NPJ Debt (the
"Assumed Liabilities").
(b) Notwithstanding Section 1.2(a), the Company 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 the Company,
and (iii) the Company's obligations created pursuant to this 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.
1.3 Employee Benefits. All plans and arrangements for the benefit of the
-----------------
Company's employees (including stock option plans) in place as of the Effective
Time are subject to the terms of Sections 6.12 and 6.25 of the Merger Agreement.
Obligations of NPJ under such Sections shall be treated as Assumed Liabilities
and not as Retained Liabilities under this Agreement.
1.4 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.
1.5 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 liabilities associated with the
transfer of the King Videocable Shares are subject to the terms of Section 2.2
of the Merger Agreement, and all obligations of NPJ under Sections 2.2 and 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 (other than the acquisition by Acquiror or one of its
Subsidiaries of the King Videocable
115
<PAGE>
Shares) are intended to qualify as a tax-free reorganization within the meaning
of Sections 368(a)(l)(D), 355 and 368(a)(l)(A) of the Internal Revenue Code.
1.6 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.
1.7 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.
ARTICLE 2
MISCELLANEOUS
2.1 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.
2.2 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.
2.3 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.
2.4 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 the Company:
c/o Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, MA 02110
Telecopy: (617) 742-0530
Attention: Amos B. Hostetter, Jr.
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<PAGE>
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 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.
2.5 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 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).
2.6 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.
2.7 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
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<PAGE>
any party hereto or any officer, director, employee, agent, representative or
investor of any party hereto.
2.8 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.
2.9 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.
2.10 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of all the parties.
2.11 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.
2.12 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.
2.13 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.
2.14 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
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<PAGE>
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.
PROVIDENCE JOURNAL COMPANY
By:________________________
Name:
Title:
THE PROVIDENCE JOURNAL COMPANY
By:________________________
Name:
Title:
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<PAGE>
Exhibit D
---------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of _________ __, 1995 among CONTINENTAL CABLEVISION, INC., a Delaware
corporation (the "Company"), the holders of Registrable Securities named in
Schedule A hereto (collectively, the "Holders" and singly, a "Holder"), and The
----------
Providence Journal Company, a Delaware corporation, as the representative
hereunder (the "Representative") for the Holders of Registrable Securities.
RECITALS
--------
A. This Agreement is being entered into in connection with, and pursuant
to section 6.21(b) of, the Agreement and Plan of Merger, dated as of November
18, 1994, as amended and restated as of August 1, 1995, among Providence Journal
Company, The Providence Journal Company, King Holding Corp., King Broadcasting
Company and the Company (the "Merger Agreement").
B. The Company has heretofore entered into (i) a Registration Rights
Agreement dated as of June 22, 1992 with Corporate Partners, L.P. and certain
other signatories thereto (collectively, the "CP Purchasers") and (ii) an
amendment thereto dated as of July 15, 1992 (said Registration Rights Agreement
and amendment are hereinafter referred to as the "CP Agreement").
C. The Company has heretofore entered into a Registration Rights
Agreement dated as of July 15, 1992 with Boston Ventures Limited Partnership III
and certain other signatories thereto (collectively, the "BV Purchasers") (said
Registration Rights Agreement is hereinafter referred to as the "BV Agreement").
D. It is intended by the Company and the Representative that this
Agreement shall become effective immediately upon the issuance of the securities
to be issued pursuant to Article 1 of the Merger Agreement (the "Merger
Securities").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
Holders of Registrable Securities and the Representative, intending to be
legally bound, each hereby agrees as follows:
ARTICLE 3.
REGISTRATION UNDER SECURITIES ACT
---------------------------------
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<PAGE>
Section 1.01 Registration Upon Request. (a) Request. Subject to the
------------------------- -------
provisions of this Agreement (including Section 4.13 hereof), at any time and
from time to time after the obligation of the Company under section 6.21(a) of
the Merger Agreement to effect a registered public offering of shares of Class A
Common Stock shall have either been satisfied or terminated, upon the written
request of the Representative on behalf of one or more Holders (the "Initiating
Holders") of at least fifteen percent (15%) of Registrable Securities requesting
that the Company effect the registration under the Securities Act of Registrable
Securities (which request shall specify the number of Registrable Securities to
be registered and the intended method of distribution thereof), the Company
shall provide prompt written notice of such request for registration to the
Representative (and the Representative shall be responsible for relaying such
notice to the Holders of Registrable Securities other than the Initiating
Holders) and to all record holders of CP/BV Registrable Securities (or to any
representative(s) of such holders to the extent, provided for under section 1.02
of the CP Agreement or the BV Agreement, as the case may be), and shall use its
best efforts to register under the Securities Act (a "Demand Registration"),
including by means of a shelf registration pursuant to Rule 415 under the
Securities Act if so requested in such request and if the Company is then
eligible to use such a registration, as expeditiously as may be practicable, the
Registrable Securities which the Company has been requested to register by the
Initiating Holders, together with all other Registrable Securities and CP/BV
Registrable Securities whose record holders (having received the aforementioned
written notice) shall have requested in writing to be included in such Demand
Registration within fifteen (15) days after the receipt of such written notice
(such holders together with the Initiating Holders are hereinafter referred to
as the "Selling Holders"), all to the extent requisite to permit the disposition
of such Registrable Securities and CP/BV Registrable Securities in accordance
with the plan of distribution set forth in the applicable registration
statement. In the case of any Demand Registration, the Initiating Holders must
request registration of Registrable Securities representing not less than such
number of Registrable Securities the Expected Proceeds of which, on the date of
the aforementioned written request, would equal at least $25 million.
Notwithstanding anything herein to the contrary, the rights of Holders of
Registrable Securities shall be subject to the provisions of the penultimate
sentence of Section 1.02(a) hereof.
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this Section 1.01 in connection with an
underwritten offering by one or more Selling Holders of Registrable Securities,
no securities other than Registrable Securities and CP/BV Registrable Securities
shall be included among the securities covered by such registration unless the
managing underwriter, if any, of such offering shall have advised the
Representative in writing that the inclusion of such other securities would not
adversely affect such offering.
(c) Registration Statement Form. Registrations under this Section
---------------------------
1.01 shall be on such appropriate registration form of the Commission as shall
be selected by the Company and available to it under the Securities Act. The
Company agrees to include in any such registration statement all information
which, in the opinion of counsel to the Selling Holders of Registrable
Securities so to be registered and counsel to the Company, is reasonably
required to be included therein under the Securities Act.
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<PAGE>
(d) Limitations on Registration; Expenses. The Company will not be
-------------------------------------
required to effect more than two (2) Demand Registrations pursuant to this
Section 1.01. Subject to the provisions of Sections 1.01(h) and 1.02(b) hereof,
the Company shall pay the Registration Expenses in connection with such Demand
Registrations provided, however, that holders of CP/BV Registrable Securities
-------- -------
(but not Holders of Registrable Securities) shall be responsible for paying to
the Company a portion of such Registration Expenses as and to the extent
provided in section 1.02(b) of the CP Agreement and the BV Agreement,
respectively.
(e) Effective Registration Statement. Subject to the provisions of
--------------------------------
Section 1.01(i) hereof, a registration requested pursuant to this Section 1.01
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective, (ii) if after it has become
effective, such registration is materially interfered with by any stop order,
injunction or similar order or requirement of the Commission or other
governmental agency or court for any reason not attributable to any of the
Selling Holders and has not thereafter become effective, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of any of the Selling Holders.
(f) Selection of Underwriters. In the case of any Demand
-------------------------
Registration, (i) the selection of any managing underwriter(s) shall be made by
the Company (with the consent of the Representative, which consent shall not be
unreasonably withheld), provided, however, that, in the case of any Demand
-------- -------
Registration where the Expected Proceeds of the sale of all Registrable
Securities and CP/BV Registrable Securities to be included among the securities
covered by such registration pursuant to this Section 1.01 would exceed $75
million, the Representative shall be entitled to select (with the consent of the
Company, which consent shall not be unreasonably withheld) one (1) managing
underwriter other than the lead managing underwriter, and (ii) the selection of
the underwriters (other than the managing underwriter(s)) shall be made by the
mutual agreement of the Company and the Representative.
(g) Certain Requirements in Connection with Registration Rights. In
--------------------------------------- -------------------
the case of a Demand Registration, if the Initiating Holders requesting such
Demand Registration have determined to enter into one or more underwriting
agreements in connection therewith, all shares constituting Registrable
Securities and CP/BV Registrable Securities to be included in such Demand
Registration shall be subject to such underwriting agreements and no Person may
participate in such Demand Registration unless such Person agrees to sell his or
its securities on the basis provided in the underwriting arrangements and
completes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents which are reasonable and customary under the
circumstances.
(h) Priority in Demand Registration. If the managing underwriter of
-------------------------------
any underwritten offering shall advise the Company in writing (with a copy to
the Representative (and the Representative shall be responsible for relaying
such copy to the Holders of
Registrable Securities) and each Selling Holder of CP/BV Registrable Securities)
that, in its opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range acceptable to the Selling
122
<PAGE>
Holders of 66-2/3% of the Registrable Securities requested to be included in
such registration, the Company will reduce to the number which the Company is so
advised can be sold in such offering within such price range (the "Actual Number
of Securities to be Registered"), the Registrable Securities and CP/BV
Registrable Securities requested to be included in such registration. Subject to
the provisions of Section 4.13 hereof, in such registration, each Selling Holder
shall be entitled to register up to such number of Registrable Securities or
CP/BV Registrable Securities, as the case may be, obtained by multiplying the
Actual Number of Securities to be Registered by a fraction, the numerator of
which is the number of Registrable Securities or CP/BV Registrable Securities
beneficially owned by such Selling Holder and the denominator of which is the
aggregate number of Registrable Securities and CP/BV Registrable Securities
beneficially owned by all Selling Holders. If one or more Selling Holders do not
request the registration of the maximum number of Registrable Securities or
CP/BV Registrable Securities to which they are entitled in accordance with the
preceding sentence (such maximum number minus the number of Registrable
Securities or CP/BV Registrable Securities requested by such Selling Holder(s)
being referred to as the "Shortfall"), the other Selling Holders (the
"Participating Holders") shall be entitled to register securities in addition to
those to which they are entitled under the preceding sentence up to the amount
equal to the result obtained by multiplying the Shortfall by a fraction, the
numerator of which is the number of Registrable Securities or CP/BV Registrable
Securities, as the case may be, beneficially owned by such Participating Holder
and the denominator of which is the aggregate number of Registrable Securities
and CP/BV Registrable Securities beneficially owned by all Participating
Holders. The procedure set forth in the immediately preceding sentence shall be
applied until the Actual Number of Securities to be Registered is apportioned
among the Selling Holders in accordance with the preceding two sentences. If, as
a result of any such reduction in the number of securities requested to be
registered, the number of securities requested to be included in such
registration by the Holders of the Registrable Securities is reduced by twenty
percent (20%) or more because of the inclusion in such registration of CP/BV
Registrable Securities pursuant to the provisions of this Section 1.01, then
notwithstanding anything to the contrary contained in this Agreement or in any
other agreement or interpretation of any agreement between the Company and the
Holders of Registrable Securities, a Demand Registration in connection with such
registration will not be deemed to have been effected under Section 1.01(e)
hereof.
In the case of a registration which would have been deemed to be a
Demand Registration under Section 1.01(e) hereof but for the application of the
immediately preceding sentence of this Section 1.01(h) (a "Restricted
Registration"), the Company shall pay the Registration Expenses of the Holders
of the Registrable Securities in connection with one such Restricted
Registration (the "Paid Restricted Registration") and the Selling Holders shall
pay the Registration Expenses of any other Restricted Registration to the extent
provided for and in accordance with Section 1.02(b) hereof and of the CP
Agreement and the BV Agreement, provided, however, that the Initiating Holders
-------- -------
may elect by written notice to the Company (with a copy to the Representative,
and the Representative shall be responsible for relaying such notice to the
Holders of Registrable Securities other than the Initiating Holders), after the
Paid Restricted Registration, to have the Company pay the Registration
Expenses of the Holders of Registrable Securities in one (1) subsequent
Restricted Registration, in which case the number of Demand Registrations
available to the Holders of
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<PAGE>
Registrable Securities under Section 1.01(d) hereof shall remain unchanged but
the number of Demand Registrations the expenses of which will be paid by the
Company shall be reduced from two to one.
In connection with any such registration to which this paragraph (h)
is applicable, no securities other than Registrable Securities and CP/BV
Registrable Securities shall be covered by such registration.
(i) Certain Other Matters. For purposes of Section 1.01(e)(i) hereof,
---------------------
should a Demand Registration not become effective due to the failure of the
Representative or any of the Selling Holders to perform their respective
obligations under this Agreement or the inability of the Selling Holders to
reach agreement with the underwriters on price or other customary terms for such
transaction, or in the event the Selling Holders withdraw or do not pursue the
request for the Demand Registration (in each of the foregoing cases, provided
that at such time the Company is in compliance in all material respects with its
obligations under this Agreement), then such Demand Registration shall be deemed
to have been effected.
Under the circumstances in which a Demand Registration otherwise would
be deemed to have been effected under Section 1.01(e) hereof (including as
contemplated by this Section 1.01(i)), if the Selling Holders pay the
Registration Expenses (other than the Registration Expenses referred to in
clause (a) of the definition of Registration Expenses) incurred by the Company
through the date of abandonment of the registration, the Demand Registration
shall not be deemed to have been effected for purposes of Section 1.01(e) of
this Agreement, provided, however, that if on the date of abandonment of the
-------- -------
registration a preliminary prospectus related to the Demand Registration has not
been filed with the Commission, the Selling Holders shall be required to pay on
the date that is six (6) months following the date of such abandonment only one-
half (1/2) of the Company's out-of-pocket legal and accounting expenses incurred
specifically in connection with such registration. At any time during such 6-
month period, the Initiating Holders shall be entitled to reactivate the
abandoned registration, in which case the reactivated registration and abandoned
registration shall be deemed to be one registration, and the Selling Holders
shall not be required to pay any Registration Expenses.
(j) CP and BV Agreements. The Representative and the Holders of
--------------------
Registrable Securities acknowledge that the Holders of Registrable Securities
have no rights under this Agreement or otherwise to participate in a demand
registration initiated by any holder of CP/BV Registrable Securities under
Section 1.01 of the CP Agreement or the BV Agreement, respectively.
Section 1.02 Incidental Registration. (a) Rights to Include. Subject to
----------------------- -----------------
the provisions of this Agreement (including Section 4.13 hereof), if, at any
time after the obligation of the Company under section 6.21(a) of the Merger
Agreement to effect a registered public offering of shares of Class A Common
Stock shall have either been satisfied or terminated, the Company proposes to
register the offering of any shares of Class A Common Stock under the Securities
Act on Form S-1, S-2 or S-3 (or any successor or similar form thereto) in
connection with a primary public offering of Class A Common Stock being offered
for the
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<PAGE>
account of the Company, the Company shall furnish prompt written notice to the
Representative of its intention to effect such registration and the intended
method of distribution in connection therewith. The Representative shall be
responsible for relaying such notice to the Holders of Registrable Securities.
Upon the written request of any Holder of Registrable Securities made to the
Company within fifteen (15) days after the delivery of the aforementioned notice
by the Company to the Representative (five (5) days if the Company is
registering on Form S-3 and a shorter time is necessary because of a planned
filing date of such Form S-3), which request shall specify the number of shares
of Registrable Securities intended to be registered, the Company shall include
such Registrable Securities in such registration, subject however to the
following sentence of this Section 1.02(a) and to the provisions of Section
1.02(c) hereof. If the Company shall thereafter determine in its sole discretion
not to register or to delay the registration of such securities, the Company
may, at its election, provide written notice of such determination to the
Representative (and the Representative shall be responsible for relaying such
notice to the Holders of Registrable Securities) and (i) in the case of a
determination not to effect a registration, shall thereupon be relieved of the
obligation to register such Registrable Securities (but, under such
circumstances, the Company shall pay any Registration Expenses reasonably
incurred by the Holders of Registrable Securities who elected to request the
incidental registration of Registrable Securities until such time as such
Holders received the Company's written notice), and (ii) in the case of a
determination to delay a registration, shall thereupon be permitted to delay
registering any Registrable Securities for the same period as the delay in
respect of securities being registered for the Company's own account. No
incidental registration effected pursuant to this Section 1.02 shall be deemed
to have been effected or otherwise relieve the Company of any of its obligations
to the Holders of Registrable Securities pursuant to Section 1.01 hereof.
(b) The Holders of Registrable Securities whose securities are
actually registered in connection with any incidental registration as provided
in Section 1.02(a) hereof shall pay a portion of the Registration Expenses for
the registration in question (other than Registration Expenses (i) specified in
clause (a) of the definition of Registration Expenses and (ii) incurred by or on
behalf of a selling holder (other than a holder of Registrable Securities or
CP/BV Registrable Securities) for its benefit or the benefit of persons other
than holders of Registrable Securities or CP/BV Registrable Securities), pro
rata based on the percentage of the aggregate number of shares registered
pursuant to such registration which are represented by the Registrable
Securities or CP/BV Registrable Securities of such holder; provided, however,
-------- -------
that if the Company should agree to bear the Registration Expenses of any other
stockholder of the Company in any incidental registration for any other
stockholder of the Company on terms more favorable than those applicable to the
Holders of Registrable Securities, the Company will provide the more favorable
terms to the Holders of Registrable Securities.
(c) Priority in Incidental Registrations. If the managing underwriter
------------------------------------
of any underwritten offering shall inform the Company by letter of its belief
that the number of Registrable Securities requested to be included in such
registration would substantially interfere with such offering, then the Company
will include in such registration, to the extent of the number and type which
the Company is so advised can be sold in (or during the time of) such offering
without such substantial interference, first, all securities proposed by the
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<PAGE>
Company to be sold for its own account, second, subject to the provisions of
Section 4.13 hereof, all securities of the Company ranking senior to or on a
parity with (as to rights to dividends and upon liquidation) the Company's
Series A Participating Convertible Preferred Stock ("Senior Securities"),
Registrable Securities and CP/BV Registrable Securities requested to be included
in such registration (such Senior Securities, Registrable Securities and CP/BV
Registrable Securities to be included in such registration pro rata on the basis
of the Expected Proceeds from the sale thereof), and third, any other securities
of the Company requested to be included in such registration.
Section 1.03 Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of this Agreement to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Agreement, the Company shall, as expeditiously as practicable:
(a) In the case of each Demand Registration, use its best efforts to
prepare and file with the Commission and obtain the effectiveness of a
registration statement on such form as is available for the sale of Registrable
Securities by the holders thereof in accordance with the plan of distribution
set forth in such registration statement; provided, however, if a request for
-------- -------
registration pursuant to Section 1.01 hereof is made within sixty (60) days
before the end of the Company's fiscal year and the Company is not then eligible
to effect a registration under the Securities Act by use of Form S-3 (or other
comparable short-form registration statement), the Company shall be entitled to
delay the filing of such registration statement until the earlier of (i) such
time as the Company receives audited financial statements for such fiscal year
and (ii) the expiration of 90 days after the last day of such fiscal year; and
provided, further, that if the Company shall furnish to the Representative a
-------- -------
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed on the date filing would be required under this Agreement because
such registration would require premature disclosure of any acquisition,
corporate reorganization or other material transaction involving the Company and
that it is therefore essential to defer taking action with respect to the filing
of such registration statement, then the Company may direct that such request
for registration be delayed for a period not to exceed ninety (90) days, such
right to delay a request to be exercised by the Company not more than once in
any 12-month period. The Representative shall be responsible for relaying any
such certificate to the Holders of Registrable Securities.
(b) Prepare and file with the Commission such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for such period of time as is necessary to
complete the offering and the distribution of the securities covered thereby,
provided, however, that except with respect to any such registration statement
-------- -------
filed pursuant to Rule 415 under the Securities Act, such period need not exceed
one hundred eighty (180) days (unless the Registrable Securities registered
thereunder have been sold or disposed of prior to the expiration of such 180-day
period), in each case exclusive of any period during which the prospectus used
in connection with such registration statement shall not comply with the
requirements of section 10 of the Securities Act; and to comply with the
provisions of the Securities Act applicable to the Company with
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respect to the disposition of all securities covered by such registration
statement during such time as such registration statement is effective.
(c) Furnish to each seller of Registrable Securities and each
underwriter of the Registrable Securities being sold, as such seller and such
underwriter may reasonably request in order to facilitate the disposition of
Registrable Securities in accordance with the plan of distribution set forth in
such registration statement, (i) such number of copies (including manually
executed and conformed copies) of such registration statement and of each such
amendment thereof and supplement thereto (including all annexes, appendices,
schedules and exhibits), (ii) such number of copies of the prospectus used in
connection with such registration statement (including each preliminary
prospectus and the final prospectus filed pursuant to Rule 424(b) under the
Securities Act), and (iii) such other documents incident thereto.
(d) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions in which an exemption is not available as the
Representative and the managing underwriter shall reasonably request, and do any
and all other reasonable acts and things which may be necessary or advisable to
permit the offering and disposition of Registrable Securities in such
jurisdictions in accordance with the plan of distribution set forth in the
registration statement; provided, however, the Company shall not be required to
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qualify generally to do business as a foreign corporation, subject itself to
taxation, or consent to general service of process, in any jurisdiction wherein
it would not, but for the requirements of this Section 1.03, be obligated to do
so.
(e) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with, or approved by, such other
public, governmental or regulatory authorities as may be necessary in the
reasonable judgment of counsel for the Selling Holders and the Company to
facilitate the disposition of such Registrable Securities in accordance with the
plan of distribution set forth in such registration statement.
(f) Notify each seller of any Registrable Securities covered by such
registration statement and the managing underwriter, if any, promptly and, if
requested by any such Person, confirm such notification in writing, (i) when a
prospectus or any prospectus supplement has been filed with the Commission, and,
with respect to such registration statement or any post-effective amendment
thereto, when the same has been declared effective by the Commission, (ii) of
any request by the Commission for amendments or supplements to such registration
statement or related prospectus, or any written request by the Commission for
additional information, (iii) of the issuance by the Commission of any stop
order or the receipt of notice of the initiation of any proceedings for such or
a similar purpose (and the Company shall make every reasonable effort to obtain
the withdrawal of any such order at the earliest possible moment and the Holders
of Registrable Securities shall cooperate in all reasonable respects in such
efforts), (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the receipt of notice of the initiation or
threatening of any proceeding for such purpose (and the Company shall make every
reasonable effort to obtain the withdrawal of any such suspension at the
earliest possible moment and the Holders
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of Registrable Securities shall cooperate in all reasonable respects in such
efforts), (v) of the occurrence of any event during the period when a prospectus
with respect to the Registrable Securities is required to be delivered under the
Securities Act which requires the making of any changes to such registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (and the Company
shall promptly prepare and furnish to such seller and any managing underwriter a
reasonable number of copies of a supplemented or amended prospectus or
preliminary prospectus such that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus or preliminary prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading), and (vi)
of the Company's determination that the filing of a post-effective amendment to
such registration statement shall be necessary or appropriate. Each Holder of
Registrable Securities shall be deemed to have agreed by acquisition of such
Registrable Securities that upon the receipt of any notice from the Company of
the occurrence of any event of the kind described in clause (v) of this Section
1.03(f), such Holder shall forthwith discontinue such Holder's offer and
disposition of Registrable Securities until such Holder shall have received
copies of an appropriately supplemented or amended prospectus or preliminary
prospectus and, if so directed by the Company, shall deliver to the Company, at
its expense, all copies (other than permanent file copies) of the prospectus or
preliminary prospectus covering such Registrable Securities which are then in
such Holder's possession. In the event the Company shall provide any notice of
the type referred to in the preceding sentence, the 180-day period mentioned in
Section 1.03(b) hereof shall be extended by the number of days from and
including the date such notice is provided to and including the date when each
seller of any Registrable Securities covered by such registration statement and
the managing underwriter shall have received copies of the corrected prospectus
contemplated by clause (v) of this Section 1.03(f), plus an additional seven (7)
days. The underwriters or, if there are no underwriters, each seller of
Registrable Securities shall deliver such supplemented or amended prospectus or
preliminary prospectus to all purchasers or offerees of the Registrable
Securities sold by it to which such delivery may be required or advisable under
the Securities Act and any applicable state securities or "blue sky" laws.
(g) Otherwise use its best efforts in connection with each
registration and offering of Registrable Securities hereunder to comply with all
applicable rules and regulations of the Commission, as the same may hereafter be
amended, including section 11(a) of the Securities Act and Rule 158 thereunder.
(h) Use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on each securities exchange
on which the same class of securities issued by the Company are then listed, if
the listing of such Registrable Securities is then permitted under the rules and
regulations of such exchange and, if requested by the Holders of Registrable
Securities, cause all such Registrable Securities that are of a different class
or series than those Company securities already listed or traded to be listed on
one (but not more than one) securities exchange reasonably requested by the
Representative.
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(i) Engage and provide a transfer agent and registrar (which in each
case may be the Company) for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
(j) Furnish to each seller of Registrable Securities a signed
counterpart of an opinion from counsel to the Company, and a "cold comfort"
letter from the Company's independent certified public accounting firm covering
such matters of the type customarily covered by such opinions and "cold comfort"
letters as any managing underwriter and the Representative shall reasonably
request.
(k) Subject to confidentiality restrictions reasonably required by the
Company, at reasonable times and upon reasonable notice, and as necessary to
permit a reasonable investigation with respect to the Company and its business
in connection with the preparation and filing of such registration statement,
make available for inspection by any seller of Registrable Securities covered by
such registration statement, by any managing underwriter or other underwriters
participating in any disposition of Registrable Securities, and by any attorney,
accountant or other agent, representative or advisor retained by any such seller
or underwriters, all pertinent financial and other records and corporate
documents of the Company; and cause all of the Company's officers, directors and
employees to discuss pertinent aspects of the Company's business with any such
seller, underwriter, accountant, agent, representative or advisor in connection
with such registration statement; provided, however, that the Company shall not
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be obligated pursuant to this Section 1.03(k) to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
(l) Permit any Holder of Registrable Securities, which Holder, in the
judgment of its counsel, might be deemed to be a "control person" of the Company
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act), to participate in the preparation of such registration statement
and include therein material, furnished to the Company in writing which, in the
reasonable judgment of such Holder and its counsel, is required to be included
therein; and
(m) If any registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
and if such Holder reasonably believes it is or may be deemed to be a control
person in relation to, or an Affiliate of, the Company, then such Holder shall
have the right to require (i) the insertion in such registration statement of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the ownership by such Holder of such securities is not to be
construed as and is not intended to be a recommendation by such Holder of the
investment quality of, or the relative merits and risks attendant to the
purchase of, the Company's securities covered thereby, and that such ownership
does not imply that such Holder will assist in meeting any future financial or
operating requirements of the Company, or (ii) in the case where the reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal or state statute then in effect, the deletion of the reference
to such Holder.
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Section 1.04 Underwritten Offerings. (a) Requested Underwritten
---------------------- ----------------------
Offerings. If requested by the underwriters for any underwritten offering by
Holders of Registrable Securities pursuant to a Demand Registration, the Company
and the Selling Holders will use their best efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
(i) to be reasonably satisfactory in substance and form to the Company, the
Representative and the underwriters and (ii) to contain such representations and
warranties by the Company and such other terms as are reasonable and customary
in the circumstances on the part of an issuer in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Article 2 hereof. The Representative and the Holders of the
Registrable Securities proposed to be distributed by such underwriters shall
cooperate with the Company in the negotiation of the underwriting agreement.
Such Holders of Registrable Securities shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company other than representations, warranties or agreements regarding
such Holder, such Holder's Registrable Securities and such Holder's intended
method of distribution as otherwise required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 1.02 hereof and such securities are distributed by or through one or
more underwriters, the Holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters and may, at their option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders of Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such Holder, such Holder's Registrable Securities and such
Holder's intended method of distribution or as otherwise required by law.
(c) Limitations on Sale or Distribution of Other Securities. Anything
-------------------------------------------- ----------
herein to the contrary notwithstanding (including Section 1.01(a) hereof), if a
registration of any of the Company's securities shall be effected by the
Company, whether or not for its own account, by means of an underwritten
offering, each Holder of Registrable Securities shall be deemed to have agreed
by acquisition of such Registrable Securities not to effect any public sale or
distribution of any Registrable Securities, including any resale pursuant to
Rule 144 under the Securities Act, and to use such Holder's best efforts not to
effect any such public sale or distribution (other than as part of such
underwritten offering) of any other security which, with notice, lapse of time
and/or payment of monies, are exchangeable or
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exercisable for or convertible into any Registrable Securities, during the 15-
day period prior to, and during the 120-day period (or such longer period as
shall have been requested by the managing underwriters) commencing on, the
effective date of the registration statement filed with the Commission in
connection with such underwritten offering.
(d) In order to ensure compliance with the provisions of Section
1.04(c) hereof, the Company hereby agrees to notify the Representative as to the
status and proposed effective date of any registration statement of the Company
which is filed with the Commission. The Representative shall be responsible for
relaying such notice to the Holders of Registrable Securities.
(e) The Company hereby agrees not to effect, except pursuant to
employee benefit plans, any public sale or distribution of any securities of the
same class as (or otherwise similar to) the Registrable Securities, or any
securities which, with notice, lapse of time and/or payment of monies, are
exchangeable or exercisable for or convertible into any such securities during
the 15-day period prior to, and during the 90-day period commencing on, the
effective date of a registration statement filed with the Commission in
connection with an underwritten offering effected pursuant to Section 1.01 of
this Agreement, except to the extent otherwise required by the CP Agreement or
the BV Agreement.
(f) Without limiting the generality of the foregoing, the provisions
of Section 1.04(c) hereof shall not apply to any Holder of Registrable
Securities if such Holder is prevented by statute or other applicable regulation
from agreeing to such provisions.
Section 1.05 Certain Agreements of the Company and Holders of Registrable
--------------------------------------------- --------------
Securities. (a) The Holders of Registrable Securities included in any
----------
registration shall furnish to the Company such information regarding such Holder
and the plan of distribution proposed by such Holder as the Company may
reasonably request and as shall reasonably be required in connection with any
registration, qualification or compliance referred to in this Agreement. In the
case of a Demand Registration, the Company agrees that any plan of distribution
included in the registration statement (which plan relates to the Holders of
Registrable Securities) shall be as reasonably specified by the Holders of
Registrable Securities.
If requested by the Company, information with respect to any Holder of
Registrable Securities required, in the opinion of counsel for the Company and
the Representative, to be included pursuant to the Securities Act in any
registration statement or prospectus for an offering of Registrable Securities
shall be furnished to the Company promptly by such Holder in writing in a form
specifically and expressly for use in such registration statement or prospectus.
(b) If at the time of any transfer of any Registrable Securities, such
Registrable Securities shall not have been theretofore registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer, that the Holder thereof or such Holder's transferee furnish to the
Company (i) such information as is necessary in order to establish that such
transfer may be made without registration under the Securities Act; and (ii) at
the expense of the Holder thereof or such Holder's transferee, an opinion of
legal
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counsel designated by such Holder or such Holder's transferee to the effect that
such transfer may be made without registration under the Securities Act, except
that nothing contained in this Section 1.05(b) shall relieve the Company from
complying with any request for registration, qualification or compliance made
pursuant to the other provisions of this Agreement.
(c) Each Holder of Registrable Securities agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Holder may obtain from the Company, and which the
Company has marked "Confidential", "Proprietary" or "Secret" or has otherwise
identified as being such, pursuant to financial information, reports and other
materials and discussions with officers, directors, employees or agents made
available by the Company as required hereunder unless such information is or
becomes known to such Holder from a Person other than the Company (other than as
a result of a breach of a duty of confidentiality owed to the Company by such
Person) or is or becomes publicly known other than as a result of a breach of
this provision, or unless the Company gives its written consent to such Holder's
release of such information, except that no such written consent shall be
required (and such Holder shall be free to release such information) if such
information is to be provided to such Holder's counsel or accountant, or to an
officer, director, employee, advisor or partner of such Holder, provided that
--------
such Holder shall inform the recipient of the confidential nature of such
information, and shall require the recipient to treat the information as
confidential to the same extent as such Holder.
(d) In no event shall any sale of Registrable Securities be made
knowingly by any Holder of Registrable Securities, without the prior written
consent of the Company, to any Person (including Affiliates of any such Person)
which, to the knowledge of such Holder (or the knowledge of any underwriter for
such Holder), is (or would be after such sale) a "controlling person" of the
Company within the meaning of section 15 of the Securities Act or section 20 of
the Exchange Act.
(e) Each Holder of Registrable Securities agrees to perform any
further acts and to execute and deliver any further documents that may
reasonably be requested or necessary to confirm, or to carry out, the provisions
of this Agreement (including the provisions of Article 2 of this Agreement).
ARTICLE 2.
INDEMNIFICATION
---------------
Section 2.01 Indemnification. (a) With respect to each registration of
---------------
Registrable Securities pursuant to this Agreement, the Company hereby
indemnifies, to the fullest extent permitted by law, each Holder of Registrable
Securities included in such registration, its officers and directors, if any,
and each Person, if any, who controls such Holder within the meaning of section
15 of the Securities Act and section 20 of the Exchange Act, against all losses,
claims, damages, liabilities (or proceedings in respect thereof) and reasonable
expenses (under the Securities Act, common law and otherwise), joint or several,
caused by (i) any untrue statement or alleged untrue statement of a material
fact contained in the
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applicable registration statement or prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, if
used prior to the effective date of such registration statement (unless such
statement is corrected in the final prospectus and the Company has previously
furnished copies thereof to any Holder of Registrable Securities included in
such registration which is seeking such indemnification and to the underwriters
of the registration in question), or contained in the final prospectus (as
amended or supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) if used within the period during which
the Company is required to keep the registration statement to which such
prospectus relates current, or the omission or alleged omission to state therein
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
-------- -------
that such indemnification shall not extend to any such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses which are caused (x)
by any untrue statement or alleged untrue statement contained in, or by any
omission or alleged omission from, information furnished in writing to the
Company by any Holder of Registrable Securities or any underwriter thereof
specifically and expressly for use in any such registration statement or
prospectus or (y) any failure by such Holder of Registrable Securities or any
underwriter to deliver a prospectus or preliminary prospectus (or amendment or
supplement thereto) as and when required under the Securities Act after such
prospectus has been timely furnished by the Company.
(b) In the case of an underwritten offering in which the registration
statement covers Registrable Securities, the Company agrees to indemnify the
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for an issuer in an underwritten public offering.
(c) In connection with any written information furnished to the
Company or any underwriter of any underwritten offering specifically and
expressly for use in a registration statement with respect to a Holder of
Registrable Securities, each such Holder hereby indemnifies severally (but not
jointly), to the fullest extent permitted by law, the Company, its officers and
directors and each Person, if any, who controls the Company within the meaning
of section 15 of the Securities Act and section 20 of the Exchange Act, against
any losses, claims, damages, liabilities (or proceedings in respect thereof) and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated or necessary to make the statements in the registration statement or
prospectus, or any amendment thereof or supplement thereto, in light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that the indemnification set forth in this Section 2.01(c) shall only apply if,
and each such Holder shall be liable hereunder if and only to the extent that,
any such loss, claim, damage or liability arises solely out of or is based
solely upon an untrue statement or alleged untrue statement or omission or
alleged omission, made in reliance upon and in conformity with information
pertaining to such Holder, which is furnished in writing to the Company or any
underwriter of any underwritten offering by such Holder expressly for use in any
such registration statement or prospectus.
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(d) In the case of an underwritten offering of Registrable Securities,
each Holder of Registrable Securities shall agree to indemnify such
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for a selling stockholder in an underwritten public offering.
Section 2.02 Notices of Claims. (a) Any Person seeking indemnification
-----------------
under the provisions of this Article 2 shall, promptly after receipt by such
Person of notice of the existence of such claim or of the commencement of any
action, suit, claim or proceeding, notify each party against whom
indemnification is to be sought in writing of the existence or commencement
thereof; provided, however, the failure so to notify an indemnifying party shall
-------- -------
not relieve the indemnifying party from any liability which it may have under
this Article 2 or from any liability which the indemnifying party may otherwise
have (except if and to the extent that it has been prejudiced in any material
respect by such failure). In case any such action, suit, claim or proceeding is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party, except as otherwise provided in Section
2.02(c) hereof. Upon delivery of such notice by the Company (if it is the
indemnifying party) to such indemnified party and approval of such counsel by
such indemnified party, the Company will not be liable under this Article 2 for
any legal or other expenses subsequently incurred by any Holder of Registrable
Securities in connection with the defense of such action, suit, claim or
proceeding, except as otherwise provided in Section 2.02(b) hereof.
(b) Notwithstanding the foregoing, the indemnified party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such suit, action, claim or
proceeding, (ii) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of the defense
of such action, suit, claim or proceeding within a reasonable time after notice
of commencement of the action, suit, claim or proceeding, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
indemnifying party which, if the indemnifying party and the indemnified party
were to be represented by the same counsel, could result in a conflict of
interest for such counsel or materially prejudice the prosecution of the
defenses available to such indemnified party. If any of the events specified in
clauses (ii) or (iii) of the preceding sentence shall have occurred or such
clauses shall otherwise be applicable, then the fees and expenses of one counsel
or firm of counsel, plus one local or regulatory counsel or firm of counsel,
selected by a majority in interest of the indemnified parties shall be borne by
the indemnifying party.
(c) If, in any case, the indemnified party employs separate counsel,
the indemnifying party shall not have the right to direct the defense of such
action, suit, claim or proceeding on behalf of the indemnified party.
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(d) Anything in this Article 2 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement or compromise of, or
consent to entry of any judgment with respect to, any action, suit, claim or
proceeding effected without its prior written consent (which consent in the case
of an action, suit, claim or proceeding exclusively seeking monetary relief
shall not be unreasonably withheld). Such indemnification shall remain in full
force and effect irrespective of any investigation made by or on behalf of an
indemnified party.
Section 2.03 Contribution. (a) If the indemnification from the
------------
indemnifying party as provided in this Article 2 is unavailable or is otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party shall, to the fullest extent permitted by law, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations,
subject to the provisions of Section 2.03(b) hereof. The relative fault of such
indemnifying party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made, or relates to information supplied by such indemnifying party, and
the parties, relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 2.02 hereof, any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Article 2 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 2.03(a).
(b) No Person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(c) If indemnification is available under this Article 2, the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in Section 2.01 and Section 2.02 hereof without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 2.03.
Section 2.04 Indemnification Payments. The indemnification and
------------------------
contribution required by this Article 2 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
ARTICLE 3.
CERTAIN DEFINITIONS
-------------------
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As used herein, the following terms have the following respective meanings:
"Affiliate" shall have the meaning specified for "affiliate" in Rule 12b-2
under the Exchange Act.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Class A Common Stock" shall mean Class A Common Stock, par value $.01 per
share, of the Company.
"CP/BV Registrable Securities" shall mean the securities of the Company
which are defined as "Registrable Securities" under either the CP Agreement or
the BV Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Expected Proceeds" shall mean, as of any date, the aggregate proceeds that
would be expected to be received by a holder of securities from the sale of such
securities in an offering made on such date (without being reduced by any pro
forma expenses or underwriting discounts). The determination of Expected
Proceeds shall be made (a) if the offering is intended to be made in an
underwritten public offering, then by the intended managing underwriter of such
offering or (b) if the offering is not intended to be made in an underwritten
public offering, then by investment bankers mutually agreeable to the Company
and the Representative, the fees and expenses of which shall be paid by the
Company.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"Register", "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean, subject to the provisions of Sections
4.04(b) and 4.13 hereof, any and all Merger Securities which are shares of Class
A Common Stock. As to any particular Registrable Securities, such securities
shall cease to constitute Registrable Securities when (i) a registration
statement (other than the registration statement on Form S-4 with respect to the
Registrable Securities heretofore filed by the Company) with respect to the sale
of such securities shall have been declared effective under the Securities Act
and such securities shall have been disposed of in accordance with the methods
contemplated by the registration statement, (ii) such securities shall have been
sold in satisfaction of all applicable conditions to the resale provisions of
Rule 144 under the Securities Act (or any successor provision thereto), (iii)
such securities shall have been otherwise transferred, or (iv) such securities
shall have ceased to be issued and outstanding.
136
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"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Article 1, including, without limitation, (a)
any allocation of salaries and expenses of Company personnel or other general
overhead expenses of the Company, or other expenses for the preparation of
historical and pro forma financial statements or other data normally prepared by
the Company in the ordinary course of business; (b) all registration,
application, filing, listing, transfer and registrar fees; (c) all NASD fees and
fees and expenses of registration or qualification of Registrable Securities
under state securities or "blue sky" laws pursuant to Section 1.03(d) hereof;
(d) all word processing, duplicating and printing expenses, messenger and
delivery expenses; (e) the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of customary "cold
comfort" letters required by or incident to such performance and compliance; and
(f) any fees and disbursements of underwriters and broker-dealers customarily
paid by issuers or sellers of securities; provided, however, that in all cases
-------- -------
in which the Company is required to pay Registration Expenses hereunder,
Registration Expenses shall exclude, and the sellers of the Registrable
Securities being registered shall pay, the fees and disbursements of counsel to
such sellers, and underwriting discounts and commissions and transfer taxes in
respect of the Registrable Securities being registered and, to the extent such
laws prohibit the Company from paying such expenses on behalf of the holders of
Registrable Securities, expenses of registering or qualifying Registrable
Securities under state securities or blue sky laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
ARTICLE 4.
MISCELLANEOUS
-------------
Section 4.01 Rule 144. If the Company shall have filed with the
--------
Commission and obtained the effectiveness of a registration statement covering
the Company's equity securities pursuant to the requirements of section 12 of
the Exchange Act or pursuant to the requirements of the Securities Act, the
Company agrees that it shall timely file the reports required to be filed by it
under the Securities Act or the Exchange Act (including, without limitation, the
reports under sections 13 and 15(d) of the Exchange Act referred to in paragraph
(c)(1) of Rule 144 under the Securities Act), and shall take such further
actions as the Representative may reasonably request, all to the extent
necessary to enable the holders to sell Registrable Securities, from time to
time, pursuant to the resale limitations of (a) Rule 144 under the Securities
Act, as such rule may be hereafter amended, or (b) any similar rules or
regulations hereafter adopted by the Commission. Upon the written request of
the Representative, the Company shall deliver to the Representative a written
statement as to whether it has complied with such requirements.
Section 4.02 Nominees for Beneficial Owners. In the event that
------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its option, upon delivery to the Company of
such evidence of beneficial ownership as the Company may reasonably request, be
treated as the holder of such Registrable Securities for the purpose of any
request or other action by any Holder or
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<PAGE>
Holders of Registrable Securities pursuant to this Agreement (or any
determination of any number or percentage of shares constituting Registrable
Securities held by any Holder or Holders of Registrable Securities contemplated
by this Agreement).
Section 4.03 Other Registration Rights. The Company hereby covenants and
-------------------------
agrees not to hereafter enter into any agreement, arrangement or understanding
with respect to its securities which is inconsistent or otherwise materially
interferes with the rights granted to the Holders of Registrable Securities
under Section 1.01 of this Agreement unless Holders of Registrable Securities
holding a majority of the Registrable Securities at the time outstanding shall
have consented thereto in writing. The Representative and the Holders of
Registrable Securities acknowledge and agree that the Company's entering into
any agreement, arrangement or understanding after the date hereof pursuant to
which the Company grants demand registration rights to a third party or parties
shall not be deemed to be inconsistent or to otherwise materially interfere with
the rights granted to the Holders of Registrable Securities under Section 1.01
of this Agreement so long as the rights so granted to such a third party or
parties shall not conflict with, and shall be subject to, the provisions of
Section 1.04(e) hereof.
Section 4.04 Assignment; Calculation of Percentage Interests in
--------------------------------------------------
Registrable Securities. (a) This Agreement shall be binding upon and inure to
----------------------
the benefit of and be enforceable by the Company, the Representative and the
Holders of Registrable Securities and, with respect to the Company, its
respective successors and assigns and, with respect to any Holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
of percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
(b) The rights of Holders of Registrable Securities to cause the
Company to register Registrable Securities under Sections 1.01 and 1.02 hereof
may not be assigned or otherwise conveyed to any transferee or assignee of
Registrable Securities.
(c) For purposes of this Agreement, references to a percentage of the
Registrable Securities shall be calculated based upon the aggregate number of
shares of Registrable Securities outstanding at the date hereof, which aggregate
number is _________________ (_________), unless otherwise expressly stated
herein.
Section 4.05 Notices. Except as otherwise provided below, whenever it is
-------
provided in this Agreement that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon the
Company, the Representative or any Holder of Registrable Securities, or whenever
the Company, the Representative or any Holder of Registrable Securities desires
to provide to or serve upon any Person any other communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or sent by registered or certified
mail (return receipt requested, postage prepaid), or by overnight mail, courier,
or delivery service or by telecopy and confirmed by telecopy answerback,
addressed as follows:
(a) If to the Company, to:
---------------------
138
<PAGE>
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Vice President and Treasurer
---------
- With a copy to -
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
---------
(b) If to the Representative, to:
------------------------
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
139
<PAGE>
Attention: Walter G.D. Reed, Esq.
---------
(c) If to any Holder of Registrable Securities, to such Holder at:
------------------------------------------
c/o The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
Attention: Walter G.D. Reed, Esq.
---------
or, in the case of the Company or the Representative, at such other address as
may be substituted by it by notice delivered as provided herein. The furnishing
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed to have been duly
delivered, furnished or served on (i) the date on which personally delivered,
with receipt acknowledged, (ii) the date on which telecopied and confirmed by
telecopy answerback, (iii) the next business day if delivered by overnight or
express mail, courier or delivery service, or (iv) three business days after the
same shall have been deposited in the United States mail, as the case may be.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
The Representative shall be responsible for relaying any notice, demand,
request, consent, approval, declaration or other communication hereunder
delivered,
140
<PAGE>
furnished or served upon any Holder of Registrable Securities in care of the
Representative pursuant to Section 4.04(c) hereof to such Holder of Registrable
Securities.
Section 4.05 Entire Agreement; Amendment. This Agreement represents the
---------------------------
entire agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior oral and written
agreements, arrangements and understandings among the parties hereto with
respect to such subject matter; and can be amended, supplemented or changed, and
any provision hereof can be waived, only by a written instrument making specific
reference to this Agreement signed by the Company, the Representative and the
Holders of Registrable Securities holding a majority of the Registrable
Securities at the time outstanding.
Section 4.07 Paragraph Headings, etc. The paragraph headings contained in
-----------------------
this Agreement are for general reference purposes only and shall not affect in
any manner the meaning, interpretation or construction of the terms or other
provisions of this Agreement. The terms "including", "includes" and "included"
shall not be limiting.
Section 4.08 Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts, applicable to contracts to be made, executed, delivered and
performed wholly within such state and, in any case, without regard to the
conflicts of law principles of such state.
Section 4.09 Severability. If at any time subsequent to the date hereof,
------------
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
Section 4.10 Equitable Remedies. The parties hereto agree that
------------------
irreparable harm would occur in the event that any of the agreements and
provisions of this Agreement were not performed fully by the parties hereto in
accordance with their specific terms or conditions or were otherwise breached,
and that money damages are an inadequate remedy for breach of this Agreement
because of the difficulty of ascertaining and quantifying the amount of damage
that will be suffered by the parties hereto in the event that this Agreement is
not performed in accordance with its terms or conditions or is otherwise
breached. It is accordingly hereby agreed that the parties hereto shall be
entitled to an injunction or injunctions to restrain, enjoin and prevent
breaches of this Agreement by the other parties and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to and not in lieu of, any
other rights and remedies to which the other parties are entitled to at law or
in equity.
Section 4.11 No Waiver. The failure of any party at any time or times to
---------
require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or
141
<PAGE>
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
Section 4.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
Section 4.13 Special Limitation and Termination of Registration Rights.
---------------------------------------------------------
Anything in this Agreement to the contrary notwithstanding:
(a) The Company shall only be required to include Registrable
Securities in any registration statement to the extent that, in the Company's
reasonable judgment, such registration would not materially interfere with, or
violate or conflict with, any registration rights which may then be held by any
holders of the Company's capital stock.
(b) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall not apply to any proposed sales or other dispositions
or offers therefor of any Registrable Securities with respect to which Messrs.
Sullivan & Worcester or other counsel for the Company knowledgeable in
securities law matters has delivered a written opinion to the Company and the
Representative (and the Representative shall be responsible for relaying such
opinion to the such Holder of Registrable Securities proposing to make such
offer, sale or other disposition) to the effect that such Holder of Registrable
Securities has no obligation to comply with the registration requirements of the
Securities Act or to deliver a prospectus meeting the requirements of section
10(a)(3) of the Securities Act with respect to such proposed sales or other
dispositions or offers therefor or only has such obligation because such Holder
of Registrable Securities is or may be, or is an Affiliate of a Person who is or
may be, a "controlling person" of the Company or Providence Journal Company
within the meaning of the Securities Act. Notwithstanding the provisions of the
immediately preceding sentence, the Company shall be obligated to provide the
rights of registration set forth in Sections 1.01 and 1.02 hereof if, within
twenty (20) days of the delivery of any opinion of counsel pursuant to either
such paragraph, the Holder of Registrable Securities to whom such opinion was
delivered shall have delivered to the Company an opinion of its counsel, which
counsel shall be knowledgeable in securities law matters, to the effect that it
cannot concur in the opinion of counsel for the Company. In any such event, the
Company shall have the right to submit the matter, at its expense, to counsel
independent of the Company and reasonably satisfactory to such Holder of
Registrable Securities, whose opinion shall be determinative and conclusive, or
to seek a no-action letter from the Commission.
(c) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall cease and terminate upon the earlier of (i) six (6)
years after the date hereof and (ii) the date on which the aggregate number of
Registrable Securities issued and outstanding shall no longer exceed one third
(1/3) of the aggregate number of shares of Registrable Securities outstanding at
the date hereof.
142
<PAGE>
(d) The rights of registration provided for in Sections 1.01 and 1.02
hereof are subject to and limited by the terms and provisions of Article XIII of
the Restated By-Laws of the Company effective as of May 14, 1992, as amended
through the date hereof.
Section 4.14 Representations of the Representative. The Representative
-------------------------------------
represents and warrants as follows: The Representative is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
All necessary action, corporate or otherwise, required to have been taken by or
on behalf of the Representative by applicable Law, its charter documents or
otherwise, or required to have been taken by Holders of Registrable Securities,
to authorize (i) the approval, execution and delivery by the Representative, as
agent for the Holders of Registrable Securities, of this Agreement and (ii) the
performance by the Representative of its obligations under this Agreement, has
been taken. Each Holder of Registrable Securities has duly appointed the
Representative as his, her or its agent and has duly authorized the
Representative to execute this Agreement and to deliver it to the Company on
his, her or its behalf. This Agreement constitutes a valid and binding
agreement of the Representative and each of the Holders of Registrable
Securities, enforceable against the Representative and each such Holder in
accordance with its terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers, and (ii) for the limitations imposed by general
principles of equity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By:________________________________
Name:
Title:
143
<PAGE>
THE HOLDERS OF REGISTRABLE
SECURITIES NAMED IN SCHEDULE A
----------
HERETO
By: The Providence Journal
Company, as agent
By:________________________________
Name:
Title:
THE PROVIDENCE JOURNAL COMPANY, as
Representative
By:________________________________
Name:
Title:
144
<PAGE>
SCHEDULE A
----------
Holders of Registrable Securities
---------------------------------
Number of Shares of
Name and Address Class A Common Stock Held
------------------------- -------------------------
1.
2.
3.
4.
5.
145
<PAGE>
Exhibit E 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
146
<PAGE>
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, 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
147
<PAGE>
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 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
148
<PAGE>
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
149
<PAGE>
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 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.
150
<PAGE>
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.
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
151
<PAGE>
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
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.
152
<PAGE>
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
153
<PAGE>
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
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
154
<PAGE>
_____________________________
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
_____________________________
Joel N. Stark
Address for notices:
137 Briarcliff Avenue
Warwick, RI 02889
155
<PAGE>
_____________________________
James V. Wyman
Address for notices:
6 Barway Lane
Cumberland, RI 02864
156
<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>
157
<PAGE>
Exhibit B to Voting Agreement
-----------------------------
<TABLE>
<CAPTION>
Providence Providence
Journal Journal
Class A Class B
Stock Common Stock Common
------ ------------ ------
<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>
158
<PAGE>
Exhibit F
---------
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement"), dated as of
_____________, 1995, 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"), and
Continental Cablevision, Inc., a Delaware corporation ("Acquiror").
RECITALS
WHEREAS, the Company, NPJ, King Broadcasting Company, a Washington
corporation ("Broadcasting"), King Holding Corp., a Delaware corporation, and
Continental Cablevision, Inc., a Delaware corporation ("Acquiror"), are parties
to that certain Agreement and Plan of Merger dated as of November 18, 1994, as
amended and restated as of August 1, 1995 (the "Merger Agreement") pursuant to
which, among other things, the Company has agreed to contribute to NPJ all of
the assets of the Company (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 the Company
and its Cable Subsidiaries by merging the Company with and into Acquiror and by
acquiring from Broadcasting all of the issued and outstanding stock of King
Videocable, and (ii) NPJ will acquire and conduct the business previously
conducted by the Company 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 1
NONCOMPETITION COVENANTS
1.1 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 the Company and the Cable
Subsidiaries on November 18, 1994 (the "Restricted Business"; provided that the
term "Restricted Business" shall not be construed to include the
159
<PAGE>
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 the Company 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:
(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 the Company or any of its Subsidiaries
engaged on behalf of the Company in the Restricted Business and whom Acquiror
employs effective upon the Closing;
(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, consultant or otherwise
with any business or enterprise engaged in the Restricted Business in the
franchise areas served by the Company or Acquiror, or any of their respective
Subsidiaries, at the date hereof (the "Restricted Area"); or
(3) use or permit the Company'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 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; and provided, further however, that beginning twenty months after the
-------- ---------------
Closing Date, NPJ or any Subsidiary of NPJ may become the owner (as a passive
investor) of up to 50% of any class of securities registered pursuant to the
Exchange Act of any entity which is engaged in the Restricted Business.
1.2 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
the Company 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
160
<PAGE>
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.
1.3 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 2
MISCELLANEOUS
2.1 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.
2.2 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.
2.3 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.
2.4 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:
161
<PAGE>
if to the Company or 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 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.
2.5 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).
162
<PAGE>
2.6 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.
2.7 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.
2.8 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.
2.9 Amendment. This Agreement may not be amended except by an instrument
---------
in writing signed on behalf of all the parties.
2.10 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.
2.11 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.
2.12 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.
PROVIDENCE JOURNAL COMPANY
By:_____________________
Name:
Title:
163
<PAGE>
THE PROVIDENCE JOURNAL COMPANY
By:_____________________
Name:
Title:
CONTINENTAL CABLEVISION, INC.
By:_____________________
Name:
Title:
164
<PAGE>
EXHIBIT G
---------
PROVIDENCE JOURNAL COMPANY
Charter Amendment
---------------------
The "proviso clause" at the end of Paragraph (a) of Section 3 of the
Company's Articles of Incorporation shall be amended to read as follows:
"...provided, however, in the case of any dividend or other distribution
payable in stock of the Corporation (or the stock of another corporation
which just prior to the time of the distribution is a wholly-owned
subsidiary of the Corporation and which possesses authority to issue Class
A and Class B Common Stock with identical voting characteristics to those
provided in this Charter), including a distribution pursuant to a stock
dividend, a stock split or division of stock of the Corporation, or a spin-
off or split-up reorganization of the Corporation, only shares of Class A
Common Stock shall be distributed with respect to Class A Common Stock and
only shares of Class B Common Stock shall be distributed with respect to
Class B Common Stock."
165
<PAGE>
ANNEX II
[FORM OF BEAR STEARNS' OPINION]
September , 1995
Board of Directors
Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Ladies and Gentlemen:
We understand that Providence Journal Company ("Providence Journal") has
entered into (i) an Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") with various parties including Continental Cablevision,
Inc. ("Continental"); (ii) a Contribution and Assumption Agreement, a
Registration Rights Agreement and a Noncompetition Agreement with Continental;
(iii) a Stock Purchase Agreement ("Kelso Stock Purchase Agreement") with Kelso
& Company, Inc. ("Kelso"), and (iv) separate letters of intent or stock
purchase agreements (the "Minority Interest Purchase Agreements") with each of
Copley Press Electronics Company and Brown University (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) Continental will
purchase all of the cable television businesses and assets ("King Cable
Business") of King Broadcasting Company ("KBC") for a purchase price of $405
million, (ii) Providence Journal will acquire Kelso's interest in King Holding
Corp. ("KHC"), (iii) 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 PJC Cable Subsidiaries (as such term is defined in the
Merger Agreement and the Contribution and Assumption Agreement) and certain
other cable television assets and Providence Journal will then distribute all
of New Providence Journal's common stock to Providence Journal's shareholders
on a pro rata basis; (iv) Continental will assume or incur $410 million of New
Cable Indebtedness (as such term is defined in the Merger Agreement); and (v)
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 30,725,207 shares of newly issued Continental Class A Common
Stock, representing approximately 17.3% of Continental's fully diluted equity
securities outstanding after the merger. The aforementioned transactions and
related transactions described in the Agreements are collectively referred to
herein as the "Providence Journal Transactions." You have provided us with the
joint proxy statement-prospectus in substantially the form to be sent to the
stockholders of Providence Journal (the "Joint Proxy Statement Prospectus").
II-1
<PAGE>
You have asked us to render our opinion as to whether the Providence Journal
Transactions in the aggregate are fair, from a financial point of view, to the
stockholders of Providence Journal.
In the course of our analyses for rendering this opinion, we have, among
other things:
1. reviewed the Joint Proxy Statement-Prospectus;
2. reviewed the Merger Agreement (including the terms of the Continental
Merger Stock), the Contribution and Assumption Agreement; the Registration
Rights Agreement, the Noncompetition Agreement, the Kelso Stock Purchase
Agreement, the Minority Interest Purchase Agreements and the related
schedules of such agreements;
3. reviewed (i) the audited consolidated financial statements of
Providence Journal, Colony Communications, Inc. and Copley/Colony, Inc. for
the years ended December 31, 1990 through December 31, 1994 and their
unaudited financial statements for the six month period ended June 30,
1995; (ii) KHC's audited consolidated financial statements for the years
ended December 31, 1992 through December 31, 1994 and unaudited
consolidated financial statements for the six month period ended June 30,
1995; (iii) the Colony Cablevision division's internally prepared unaudited
income statements for the years ended December 31, 1991 through December
31, 1994 and the six month period ended June 30, 1995; (iv) internally
prepared consolidating pro forma financial statements for the year ended
December 31, 1994 and the six month period ended June 30, 1995 for the PJC
Cable Business; and (v) internally prepared consolidated pro forma balance
sheets as of June 30, 1995 for New Providence Journal and consolidated pro
forma statement of operations for the year ended December 31, 1994 and the
six month period ended June 30, 1995 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 KBC, provided to us by the managements of Providence
Journal, the PJC Cable Business and KBC;
5. reviewed Continental's audited financial statements for the years
ended December 31, 1991 through 1994 and its unaudited financial statements
for the six months ended June 30, 1995;
6. reviewed certain operating and financial information of Continental,
including certain estimated year end financial results for fiscal years
1994 and 1995 (excluding the effects of the Merger and other pending
acquisitions upon such estimated financial results) provided to us by
Continental's management, and, based on such estimated financial results
and discussions with Continental's management, extrapolated financial
results beyond 1995, which were reviewed by Continental's management;
7. met with certain members of the senior managements of Providence
Journal, the PJC Cable Business, KBC and Continental to discuss each
company's or division's respective operations, historical financial
statements and prospects, recent actions taken by the Federal
Communications Commission and the impact thereof on the PJC Cable Business
and Continental, and the amount and timing of potential synergics and/or
costs savings to Continental realizable as a result of the Merger;
8. reviewed the historical prices and volume of Continental's privately-
held common stock issued or traded in negotiated transactions as furnished
to us by Continental;
9. reviewed publicly available financial data and stock market
performance of publicly traded companies engaged in businesses that we
deemed generally comparable to the PJC Cable Business, Continental and KBC,
respectively;
10. reviewed the financial terms of recent acquisitions of companies we
deemed generally comparable to PJC Cable Business and KBC; and
11. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by
Providence Journal, the PJC Cable Business and Continental, among others, and
the reasonableness of the assumptions made with respect to their respective
projected financial results. We have not assumed any responsibility for such
information and we have further
II-2
<PAGE>
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 or estimates of the PJC Cable Business, KBC and
Continental, which were furnished to us, we have assumed that such financial
projections or estimates, as the case may be, 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
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 reorganization as contemplated by the Merger
Agreement. Bear Stearns also assumed the incurrence of taxes by Providence
Journal in connection with the sale of the King Cable Business to Continental.
In arriving at our opinion, we have not performed, nor were we furnished with,
any independent appraisal of the assets of Providence Journal, the PJC Cable
Business or Continental. We express no opinion as to the price or range of
prices at which the shares of Continental Class A Common Stock will trade
subsequent to the consummation of the Merger. Our opinion is necessarily based
on economic, market and other conditions, and the information made available to
us, as of the date of the opinion.
We have acted as financial advisor to Providence Journal in connection with
the Providence Journal Transactions and will receive a fee for such services,
payment of a significant portion of which is contingent upon the consummation
of the Providence Journal Transactions. As part of our engagement, we assisted
Providence Journal in identifying and contacting various knowledgeable and
qualified buyers which were given the opportunity to make a thorough evaluation
of the PJC Cable Business in preparation for the submission of a proposal to
acquire the PJC Cable Business. As a result of these efforts, Providence
Journal received various indications of interest regarding possible business
transactions involving the PJC Cable Business, which we have assessed and
reviewed with the senior management and the Board of Directors of Providence
Journal.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Providence Journal Transactions in the aggregate are fair,
from a financial point of view, to the stockholders of Providence Journal.
Very truly yours,
Bear, Stearns & Co., Inc.
By: _________________________________
Managing Director
II-3
<PAGE>
ANNEX III
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership interest of a member of a nonstock corporation; and
the words "depositary receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any share of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation or depository receipts in
respect thereof which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts of the corporations described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
III-1
<PAGE>
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.
(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
III-2
<PAGE>
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 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
III-3
<PAGE>
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 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.)
III-4
<PAGE>
ANNEX IV
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,
IV-1
<PAGE>
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
IV-2
<PAGE>
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.
IV-3
<PAGE>
ANNEX V
PROVIDENCE JOURNAL COMPANY
CABLE DIVISION SALE BONUS PLAN
1. PURPOSE. The purpose of the Providence Journal Company Cable Division Sale
Bonus Plan (the "Plan") is to maximize the cash flow of the Cable Division (the
"Cable Division") of the Providence Journal Company (the "Company") by
providing an opportunity for its key Cable management to participate in
significant incentives that will contribute to the enhancement of the Company's
shareholder value and financial performance.
2. ADMINISTRATION. The Plan will be administered by the Vice President of
Human Resources of the Company (the "Administrator"), who shall not be a
Participant in the Plan. The Administrator shall have authority to interpret
the provisions of the Plan and to decide all questions of fact arising in its
application, to provide all necessary information to the Executive Committee of
the Board of Directors of the Company (the "Executive Committee"), and to
communicate to Plan Participants concerning the administration of the Plan. The
Administrator, with the concurrence of the Chief Executive Officer, shall make
recommendations for awards under the Plan to the Executive Committee.
3. REVIEW AND AUTHORIZATION. All recommendations for awards to be made by the
Administrator pursuant to the provisions of this Plan are subject to the review
and approval by the Executive Committee.
4. ELIGIBILITY TO RECEIVE AWARDS. Persons eligible to receive awards under
the Plan shall be limited to those officers and other key executive employees
of the Cable Division who are in positions in which their decisions, actions
and counsel significantly affect the operation of the Cable Division. Employees
eligible to receive awards under the Plan are referred to herein as
"Participants". Participants will share in the Bonus Pool based upon a weighing
of salary and years of service. A list of eligible Participants is attached
hereto as Exhibit A.
5. BONUS POOL. A bonus pool of $2,100,000 will be established based upon the
fourteen (14) Participants who are listed in Exhibit A as of December 31, 1994.
The bonus opportunity is based upon performance in relation to the 1994 cash
flow objective for the Cable Division of $123,600,000 (the "1994 Objective").
The size of the Bonus Pool shall be increased by 50% of the amount in excess of
the 1994 Objective that is achieved.
6. CONDITIONS. Any bonus award earned out of the Bonus Pool will be
distributed to the Participants only upon all of the following conditions
having been satisfied:
(a) The closing of the sale, merger or other distribution of the Cable
Division (the "Closing").
(b) The Participant remaining in the employment of the Cable Division or
the Company through the date of the Closing.
Up to 20% of the bonus awared for 1994 performance is subject to forfeiture
should the 1995 cash flow objective not be attained prior to the closing.
7. GENERAL RESTRICTIONS.
(a) This Plan supersedes any other award that the Participant may be
eligible for pursuant to any other long-term incentive plan of the Company
or the Cable Division.
(b) Unforeseen changes, such as new statutes or regulations that
positively or negatively affect the cash flow of the Cable Division, will
be excluded from the calculation of the 1994 Objective or the 1995
Objective.
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<PAGE>
(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.
V-2
<PAGE>
EXHIBIT A
CABLE DIVISION SALE BONUS PLAN
<TABLE>
<CAPTION>
PARTICIPANT POSITION
----------- --------
<S> <C>
Bruce Clark President
Paul Silva VP Operations
Dan Donohue VP Human Resources
Mike Angi VP Technology
Dodie Tschirch VP Government Affairs
John VanLuling VP Finance
Jeff Wayne VP Sales/Marketing
Chuck Goy Director--Construction
Lorraine Cole Director--Marketing
Paul Redman Director--MIS
Ken Weichert Director/Ad Sales
Richard Wadman Division General Manager
Jim Petro Division Manager
Glen Schein Division Manager
</TABLE>
V-3
<PAGE>
PRELIMINARY COPY
CONTINENTAL CABLEVISION, INC.
PROXY FOR SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER and WILLIAM T. SCHLEYER, and each of
them, as the true and lawful attorneys and proxies for the undersigned, with
full power of substitution, to vote all shares of Class A Common Stock, Class B
Common Stock and Series A Cumulative Redeemable Preferred Stock that the
undersigned is entitled to vote at the Special Meeting in Lieu of Annual
Meeting of Stockholders of Continental Cablevision, Inc. (the "Company") to be
held at the offices of Sullivan & Worcester, One Post Office Square, Boston,
Massachusetts on September , 1995 at , local time, or at any adjournment
thereof, upon such business as may properly come before the meeting or any
adjournment including, without limiting such general authorization, the
following proposals described in the accompanying Joint Proxy Statement-
Prospectus:
1. FOR [_] AGAINST [_] ABSTAIN [_] Approval of the Amended and
Restated Agreement and Plan of
Merger, pursuant to which
Providence Journal Company (which
will then hold only Providence
Journal Company's cable television
businesses and assets) will merge
with and into the Company.
2. FOR [_] AGAINST [_] ABSTAIN [_] Approval of an amendment to the
Company's Restated Certificate of
Incorporation to increase the
total number of authorized shares
of the Company's capital stock
from 17,700,000 to 825,000,000,
including an increase in (a) the
number of authorized shares of
Common Stock from 15,000,000 to
625,000,000, of which 425,000,000
will be shares of Class A Common
Stock and 200,000,000 will be
shares of Class B Common Stock and
(b) the number of authorized
shares of Preferred Stock from
2,700,000 to 200,000,000.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. FOR [_] AGAINST [_] ABSTAIN [_] To elect Amos B. Hostetter, Jr.,
and Lester Pollack as the
Company's Class C Directors, each
to serve as a Director for a three
year term expiring at the 1998
Annual Meeting of Stockholders of
the Company.
To withhold authority to elect any Director nominee, write that person's name
in the space provided below:
4. FOR [_] AGAINST [_] ABSTAIN [_] To appoint Deloitte & Touche LLP
as the Company's independent
public accountants for the fiscal
year ending December 31, 1995.
UNLESS OTHERWISE SPECIFIED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR
THE DIRECTORS SPECIFIED ABOVE IN PROPOSAL 3 AND FOR PROPOSALS 1, 2 AND 4. THE
PERSONS WHO HAVE BEEN NAMED PROXIES HAVE AUTHORITY, WHICH THEY INTEND TO
EXERCISE, TO VOTE IN FAVOR OF THE PROPOSALS REFERRED TO AND ANY OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy should be
dated, signed by the
shareholder exactly as
printed at the left and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so
indicate.
Dated: , 1995
___________________________
(Signature)
___________________________
(Signature)
<PAGE>
PRELIMINARY COPY
CONTINENTAL CABLEVISION, INC.
IRREVOCABLE PROXY FOR
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
The undersigned, revoking all prior proxies, hereby constitutes and appoints
AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER and WILLIAM T. SCHLEYER, and each of
them, as the true and lawful attorneys and proxies for the undersigned, with
full power of substitution, to vote all shares of Series A Cumulative
Redeemable Preferred Stock that the undersigned is entitled to vote in any vote
to be taken by the Series A Cumulative Redeemable Preferred Stock voting
separately as a class at the Special Meeting In Lieu of Annual Meeting of
Stockholders of Continental Cablevision, Inc. (the "Company") to be held at the
offices of Sullivan & Worcester, One Post Office Square, Boston, Massachusetts
on September , 1995 at , local time, or at any adjournment thereof, upon the
proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to increase the total number of authorized shares of the
Company's capital stock from 17,700,000 to 825,000,000, including an increase
in (a) the number of authorized shares of Common Stock from 15,000,000 to
625,000,000, of which 425,000,000 will be shares of Class A Common Stock and
200,000,000 will be shares of Class B Common Stock and (b) the number of
authorized shares of Preferred Stock from 2,700,000 to 200,000,000, as
described in the accompanying Joint Proxy Statement-Prospectus. This proxy
shall be considered coupled with an interest in the Company's securities and
shall be irrevocable.
This Proxy should be
dated, signed by the
shareholder exactly as
printed at the left and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so
indicate.
Dated: , 1995
___________________________
(Signature)
___________________________
(Signature)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides, in effect, that any person made a party to
any action by reason of the fact that he is or was a Director, officer,
employee or agent of Continental may and, in certain cases, must be indemnified
by Continental against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorney's
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Continental. This indemnification
does not apply, in a derivative action, to matters as to which it is adjudged
that the Director, officer, employee or agent is liable to Continental, unless
upon court order it is determined that, despite such adjudication of liability,
but in view of all the circumstances of the case, he is fairly and reasonably
entitled to indemnity for expenses, and, in a non-derivative action, to any
criminal proceeding in which such person had reasonable cause to believe his
conduct was unlawful.
Article VII of the Continental By-Laws in effect provides that Continental
shall indemnify each person who is or was an officer or Director of Continental
to the fullest extent permitted by Section 145 of the DGCL.
Article Sixth of the Continental Restated Certificate provides that no
Director of Continental shall be personally liable to Continental or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except (i) for any breach of the duty of loyalty to Continental or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) for any transaction
from which the Director derived an improper personal benefit and (iv) for
liability under Section 174 of the DGCL relating to certain unlawful dividends
and stock repurchases.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K). Each exhibit marked by an asterisk (*) is incorporated by reference to
Continental's Registration Statement No. 33-46510 (as amended), declared
effective by the Securities and Exchange Commission on June 15, 1992, each
exhibit marked by two asterisks (**) is incorporated by reference to
Continental's Registration Statement No. 33-59806, declared effective by the
Securities and Exchange Commission on May 27, 1993, and each exhibit marked by
three asterisks (***) is incorporated by reference to Continental's
Registration Statement No. 33-65798, declared effective by the Securities and
Exchange Commission on August 6, 1993. Exhibit numbers in parenthesis refer to
the exhibit numbers in Registration Statements. Each exhibit marked by a pound
sign (#) is a management contract or compensatory plan.
2.1 Agreement and Plan of Merger dated as of November 18, 1994, by and
among Continental, Providence Journal Company, The Providence Journal
Company, King Holding Corp. and King Broadcasting Company, as amended
and restated as of August 1, 1995 . . . Included as Annex I to the
Joint Proxy Statement -Prospectus.
3.1 Restated Certificate of Incorporation of Continental./1/
3.1A Certificate of Designation of Continental relating to the Continental
Series A Preferred Stock./1/
3.1B Form of Amendment to Continental's Restated Certificate of
Incorporation increasing the number of authorized shares./1/
3.2A By-Laws of Continental . . . Filed herewith as Exhibit 3.2A.
3.2B Amendment to By-Laws of Continental. . . . Included as Exhibit A to
Annex I.
II-1
<PAGE>
4.1 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 10 5/8% Senior Subordinated Notes due 2002.* (4.1)
4.2 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 11% Senior Subordinated Debentures due 2007.* (4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and The
Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due
November 1, 2004.* (4.6)
4.4 Amended and Restated Credit Agreement dated as of October 1, 1994
among Continental and certain of its direct and indirect Subsidiaries
as Guarantors and The First National Bank of Boston, for itself and as
Administrative and Managing Agent, and certain financial institutions
named therein./1/
4.5 Amended and Restated Note Agreement dated as of October 17, 1994 by
and among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The Prudential Insurance Company of
America./1/
4.6 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 8
5/8% Senior Notes due 2003.** (4.10)
4.7 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 9%
Senior Debentures due 2008.** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 8 5/8% Senior
Debentures due 2005.*** (4.11)
4.9 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 9 1/2% Senior
Debentures due 2013.*** (4.12)
4.10 Indenture dated as of August 1, 1993 between Continental and the Bank
of New York, as Trustee, pertaining to Continental's 8 1/2% Senior
Notes due 2001.*** (4.13)
4.11 Credit Agreement dated as of July 18, 1995 among PJC Financing
Corporation, Colony Communications, Inc., Columbia Cable of Michigan,
N-COM Acquisition Corporation and their respective Subsidiaries and
The Toronto Dominion Bank as Documentation Agent and Managing Agent,
The First National Bank of Boston for itself and as Administrative
and Managing Agent and The Bank of New York for itself and as
Syndication and Managing Agent and certain financial institutions
named therein. . . . Filed herewith as Exhibit 4.11.
5 Opinion of Sullivan & Worcester. . . . Filed herewith as Exhibit 5.
7 Opinion regarding liquidation preference for Continental Preferred
Stock. . . . Filed herewith as Exhibit 7.
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)
II-2
<PAGE>
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)
10.12 Optus Vision Joint Venture-Optus Vision Shareholders Agreement dated
May 19, 1995 by and among Continental Cablevision of Australia, Inc.,
Optus Communications Pty Limited, Pay TV Holdings Pty Limited,
Tallglen Pty Limited, Optus Vision Pty Limited, Optus Networks Pty
Limited and Optus Administration Pty Limited. . . . Filed herewith as
Exhibit 10.12.
10.13 Management Incentive Plan #/1/
10.14 Purchase Agreement dated as of November 1, 1994 by and among Columbia
Associates, L.P., Columbia Cable of Michigan, Inc., and Continental
Cablevision of Manchester, Inc./1/
10.15 Supplemental Executive Retirement Plan. #/1/
10.16 Form of Registration Rights Agreement with New Providence Journal./1/
10.17 Form of Restricted Stock Purchase Agreements for 1995. #/1/
10.18 Form of Voting Agreement by and among Continental, Providence Journal
and certain stockholders of Continental and Providence Journal. . . .
Included as Exhibit E to Annex I.
II-3
<PAGE>
10.19 Amendment Number 1 to the Purchase Agreement dated March 24, 1995 by
and among Columbia Associates, L.P., Columbia Cable of Michigan,
Inc., and Continental Cablevision of Manchester, Inc./1/
10.20 Purchase Agreement dated January 6, 1995 by and between Continental
Cablevision, Inc. and Cablevision of Chicago./1/
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited
Partnership II and Continental Cablevision Investments, Inc./1/
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 11.12.
12.1 Computation of ratio of earnings to combined fixed charges and
preferred dividends. . . . Filed herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to combined fixed charges
and preferred dividends . . . . Filed herewith as Exhibit 12.2.
21 Subsidiaries of Continental./1/
23.1 Consent of Sullivan & Worcester. . . . Contained in the opinion of
Sullivan & Worcester filed herewith as Exhibit 5.
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./1/
24 Power of Attorney./1/
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves./1/
--------
/1./ Previously filed as part of this Registration Statement.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons of
Continental pursuant to the foregoing provisions, or otherwise, Continental has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Continental of expenses incurred or
paid by a Director, officer or controlling person of Continental in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, Continental will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement, relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering therein.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRANT'S REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON THE 9TH DAY
OF AUGUST, 1995.
Continental Cablevision, Inc.
By: /s/ Nancy Hawthorne
---------------------------------
Nancy Hawthorne
Chief Financial Officer and Senior
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRANT'S REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Amos B. Hostetter, Jr.* Director and August 9, 1995
------------------------------------- Chairman of the
AMOS B. HOSTETTER, JR. Board (principal
executive officer)
Timothy P. Neher* Director and Vice August 9, 1995
------------------------------------- Chairman of the
TIMOTHY P. NEHER Board
/s/ Nancy Hawthorne Chief Financial August 9, 1995
------------------------------------- Officer and Senior
NANCY HAWTHORNE Vice President
(principal
financial officer)
Richard A. Hoffstein* Senior Vice August 9, 1995
------------------------------------- President and
RICHARD A. HOFFSTEIN Corporate
Controller
(principal
accounting officer)
Roy F. Coppedge III* Director August 9, 1995
-------------------------------------
ROY F. COPPEDGE III
Jonathan H. Kagan* Director August 9, 1995
-------------------------------------
JONATHAN H. KAGAN
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Robert B. Luick* Director August 9, 1995
-------------------------------------
ROBERT B. LUICK
Henry F. McCance* Director August 9, 1995
-------------------------------------
HENRY F. MCCANCE
Lester Pollack* Director August 9, 1995
-------------------------------------
LESTER POLLACK
Vincent J. Ryan* Director August 9, 1995
-------------------------------------
VINCENT J. RYAN
*By /s/ Nancy Hawthorne August 9, 1995
----------------------------------
Nancy Hawthorne
(Attorney-in-Fact)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of November 18, 1994 by and
among Continental, Providence Journal Company, The Providence
Journal Company, King Holding Corp. and King Broadcasting
Company, as amended and restated as of August 1, 1995. . . .
Included as Annex I to the Joint Proxy Statement-Prospectus.
3.1 Restated Certificate of Incorporation of Continental./1/
3.1A Certificate of Designation of Continental relating to the
Continental Series A Preferred Stock./1/
3.1B Form of Amendment to Continental's Restated Certificate of
Incorporation increasing the number of authorized shares./1/
3.2A By-Laws of Continental. . . Filed herewith as Exhibit 3.2A.
3.2B Amendment to By-Laws of Continental. . . Included as Exhibit A to
Annex 1.
4.1 Indenture dated as of June 22, 1992 between Continental and
Morgan Guaranty Trust Company of New York as Trustee, pertaining
to Continental's 10 5/8% Senior Subordinated Notes due 2002.*
(4.1)
4.2 Indenture dated as of June 22, 1992 between Continental and
Morgan Guaranty Trust Company of New York as Trustee, pertaining
to Continental's 11% Senior Subordinated Debentures due 2007.*
(4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and
The Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due
November 1, 2004.* (4.6)
4.4 Amended and Restated Credit Agreement dated as of October 1, 1994
among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The First National Bank of Boston,
for itself and as Administrative and Managing Agent, and certain
financial institutions named therein./1/
4.5 Amended and Restated Note Agreement dated as of October 17, 1994
by and among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The Prudential Insurance Company
of America./1/
4.6 Indenture dated as of June 1, 1993 between Continental and The
First National Bank of Chicago, as Trustee, pertaining to
Continental's 8 5/8% Senior Notes due 2003.** (4.10)
4.7 Indenture dated as of June 1, 1993 between Continental and The
First National Bank of Chicago, as Trustee, pertaining to
Continental's 9% Senior Debentures due 2008.** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 5/8%
Senior Debentures due 2005.*** (4.11)
4.9 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 9 1/2%
Senior Debentures due 2013.*** (4.12)
4.10 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 1/2%
Senior Notes due 2001.*** (4.13)
4.11 Credit Agreement dated as of July 18, 1995 among PJC Financing
Corporation, Colony Communications, Inc., Columbia Cable of
Michigan, N-COM Acquisition Corporation and their respective
Subsidiaries and The Toronto Dominion Bank as Documentation Agent
and Managing Agent, The First National Bank of Boston for itself
and as Administrative and Managing Agent and The Bank of New York
for itself and as Syndication and Managing Agent and certain
financial institutions named therein. . . . Filed herewith as
Exhibit 4.11.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5 Opinion of Sullivan & Worcester. . . . Filed herewith as Exhibit
5.
7 Opinion regarding liquidation preference for Continental
Preferred Stock. . . . Filed herewith as Exhibit 7.
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)
10.12 Optus Vision Joint Venture-Optus Vision Shareholders Agreement
dated May 19, 1995 by and among Continental Cablevision of
Australia, Inc., Optus Communications Pty Limited, Pay TV
Holdings Pty Limited, Tallglen Pty Limited, Optus Vision Pty
Limited, Optus Networks Pty Limited and Optus Administration Pty
Limited. . . . Filed herewith as Exhibit 10.12.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.13 Management Incentive Plan.#/1/
10.14 Purchase Agreement dated as of November 1, 1994 by and among
Columbia Associates, L.P., Columbia Cable of Michigan, Inc., and
Continental Cablevision of Manchester, Inc./1/
10.15 Supplemental Executive Retirement Plan.#/1/
10.16 Form of Registration Rights Agreement with New Providence
Journal./1/
10.17 Form of Restricted Stock Purchase Agreements for 1995.#/1/
10.18 Form of Voting Agreement by and among Continental, Providence
Journal and certain stockholders of Continental and Providence
Journal. . . . Included as Exhibit E to Annex I.
10.19 Amendment Number 1 to the Purchase Agreement dated March 24, 1995
by and among Columbia Associates, L.P., Columbia Cable of
Michigan, Inc. and Continental Cablevision of Manchester, Inc./1/
10.20 Purchase Agreement dated January 6, 1995 by and between
Continental Cablevision, Inc. and Cablevision of Chicago./1/
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited
Partnership II and Continental Cablevision Investments, Inc./1/
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 11.12.
12.1 Computation of ratio of earnings to combined fixed charges and
preferred dividends. . . . Filed herewith as Exhibit 12.1.
12.2 Pro Forma computation of ratio of earnings to combined fixed
charges and preferred dividends. . . . Filed herewith as Exhibit
12.2.
21 Subsidiaries of Continental./1/
23.1 Consent of Sullivan & Worcester. . . . Contained in the opinion
of Sullivan & Worcester filed herewith as Exhibit 5.
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./1/
24 Power of Attorney./1/
27 Financial Data Schedules. . . . Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves./1/
</TABLE>
--------
(1) Each exhibit marked with a (/1/) has been previously filed as part of this
Registration Statement.
(2) Each exhibit marked by an asterisk (*) is incorporated by reference to
Continental's Registration Statement No. 33-46510 (as amended), declared
effective by the Securities and Exchange Commission on June 15, 1992.
<PAGE>
(3) Each exhibit marked by two asterisks (**) is incorporated by reference to
Continental's Registration Statement No. 33-59806, declared effective by
the Securities and Exchange Commission on May 27, 1993.
(4) Each exhibit marked by three asterisks (***) is incorporated by reference
to Continental's Registration Statement No. 33-65798, declared effective by
the Securities and Exchange Commission on August 6, 1993.
(5) Each exhibit marked by a pound sign (#) is a management contract or
compensatory plan.
<PAGE>
Exhibit 3.2A
RESTATED BY-LAWS
OF
CONTINENTAL CABLEVISION, INC.,
a Delaware Corporation
Effective as of May 14, 1992
<PAGE>
CONTINENTAL CABLEVISION, INC.
(A DELAWARE CORPORATION)
By-Laws
(Restated and effective as of May 14, 1992)
ARTICLE I.
----------
Offices
-------
Section 1. Registered Office. The registered office of the Corporation
---------- -----------------
shall be at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, State of Delaware, 19901.
Section 2. Additional Offices. The Corporation may also have offices at
---------- ------------------
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II.
-----------
Meetings of Stockholders
------------------------
Section 1. Time and Place. A meeting of stockholders for any purpose may
---------- --------------
be held at such time and place within or without the State of Delaware as the
Board of Directors may fix from time to time and as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
---------- --------------
on such date after the end of the Corporation's fiscal year and at such time and
place as shall be designated by the Board of Directors each year and as stated
in the notice of such annual meeting. At such annual meetings, the stockholders
shall elect directors to the Board of Directors as provided herein and in the
Corporation's Certificate of Incorporation, as may be amended or restated from
time to time, and as authorized by Section 141(d) of the Delaware General
Corporation Law, and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
---------- ------------------------
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting by mailing such notice, postage
prepaid, directed to each stockholder at the address thereof as it appears on
the records of the Corporation, not less than 10 (unless a longer period is
required by law or regulation) nor more than 60 days prior to the
-2-
<PAGE>
meeting. Such notice shall be deemed to be effective when deposited in the
United States mail.
Section 4. Special Meetings. Special meetings of the stockholders may be
--------- ----------------
called for any purpose or purposes, unless otherwise prescribed by statute or by
the Certificate of Incorporation, by the Chairman or Vice Chairman of the Board
or by a majority of the Board of Directors then in office, and shall be called
by the President or Secretary at the request in writing of the stockholders
holding of record a majority of the shares of stock of the Corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
---------- -------------------------
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting by mailing such notice, postage prepaid, directed to each
stockholder at the address thereof as it appears on the records of the
Corporation not less than 10 (unless a longer period is required by law or
regulation) nor more than 60 days prior to the meeting. Such notice shall be
deemed to be effective when deposited in the United States mail. Business to be
conducted at the special meeting shall only be that as specified in the notice
of the special meeting.
Section 6. List of Stockholders. The officer in charge of the stock
---------- --------------------
ledger of the Corporation or the transfer agent shall prepare and make, at least
10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business. Meetings of
---------- ---------------------------------------
stockholders shall be presided over by the Chairman of the Board, or if he is
not present or there is none, by the Vice Chairman of the Board, or if he is not
present or there is none, by the President, or if he is not present or there is
none, by a Vice President, or, if he is not present or there is none, by a
person chosen by the Board of Directors, or, if no such person is present or has
been chosen, by a chairman to be chosen
-3-
<PAGE>
by the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting and who
are present in person or represented by proxy. The Secretary of the Corporation,
or, if he is not present, an Assistant Secretary, or, if he is not present, a
person chosen by the Board of Directors, shall act as secretary at meetings of
stockholders; if no such person is present or has been chosen, the stockholders
owning a majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
Section 8. Quorum and Adjournments. The presence in person or
---------- -----------------------
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If two or more classes of stock
are entitled to vote as separate classes upon any question, then in the case of
each such class a quorum for the consideration of such question shall, except as
otherwise provided by statute or by the Certificate of Incorporation, consist of
a majority of the shares of such class issued, outstanding and entitled to vote.
If a quorum shall not be present or represented at any meeting of the
stockholders, the Chairman or a majority of the stockholders entitled to vote
thereat who are present in person or represented by proxy shall have the power
to adjourn the meeting from time to time until a quorum shall be present or
represented. Subject to the requirements of law or the Certificate of
Incorporation, on any issue on which two or more classes of stock are entitled
to vote separately, no adjournment shall be taken with respect to any class for
which a quorum is present unless the chairman of the meeting so directs. If the
time and place of the adjourned meeting are announced at the meeting at which
the adjournment is taken, no further notice of the adjourned meeting need be
given, otherwise notice shall be given. Even if a quorum shall be present or
represented at any meeting of the stockholders, the Chairman or a majority of
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time to a date that is not more than 30 days after the date of the original
meeting. Further notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
taken, otherwise notice shall be given. At any adjourned meeting at which a
quorum is present in person or represented by proxy, any business may be
transacted that might have been transacted at the meeting as originally called.
If the adjournment is for more than 30 days, or if, after the adjournment, a new
record date is fixed for the
-4-
<PAGE>
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 9. Voting.
---------- ------
a. At any meeting of stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. A proxy must be
in writing and executed by the stockholder or his or her duly authorized
attorney. In lieu thereof, to the extent permitted by law, a proxy may be
transmitted in a telegram, cablegram, facsimile or other means of electronic
transmission provided that the telegram, cablegram, facsimile or electronic
transmission either sets forth or is submitted with information from which it
can be determined that the telegram, cablegram, facsimile or other electronic
transmission was authorized by the stockholder. A copy, facsimile transmission
or other reliable reproduction of a written or electronically transmitted proxy
authorized by this Section 9a may be substituted for or used in lieu of the
original writing or electronic transmission. No proxy authorized by this Section
9a shall be voted or acted upon more than three years from its date, unless the
proxy provides for a longer period. Except as otherwise provided below, by law,
or by the Certificate of Incorporation, each stockholder of record shall be
entitled to one vote for each share of capital stock registered in his name on
the books of the Corporation, as provided in the Certificate of Incorporation.
Except as otherwise required by applicable law or any other provision of the
Certificate of Incorporation, holders of stock of the Corporation shall vote
together as a single class on all matters submitted to the stockholders for a
vote, including any amendment to the Certificate of Incorporation which would
increase or decrease the number of authorized shares of any class of capital
stock of the Corporation, subject to any voting rights which may be granted to
any holders of any preferred stock of the Corporation.
b. All elections of directors shall be determined by a plurality
vote, and, except as otherwise provided by law or the Certificate of
Incorporation, all other matters shall be determined by a vote of a majority of
the shares present in person or represented by proxy and voting on such other
matters. Elections of directors need not be by written ballot unless requested
by any stockholder entitled to vote; if the chairman of the meeting shall so
determine, a vote may be taken upon any such elections or upon any other matter
by ballot and shall be so taken upon the request of any stockholder entitled to
vote on such matter.
c. Every reference in the By-Laws to a majority or other portion of
shares of stock, including the provision in Article XII set forth below, shall
refer to such majority or other portion of the votes of such shares of stock.
-5-
<PAGE>
Section 10. Action by Written Consent. Any action required or permitted
----------- -------------------------
by law or the Certificate of Incorporation to be taken at any meeting of
stockholders may be taken without a meeting, without prior notice, and without a
vote if the written consent, setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present or represented by proxy
and voted. Such written consent shall be filed with the minutes of the meetings
of stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing thereto.
ARTICLE III.
------------
Directors
---------
Section 1. General Powers, Number, and Tenure.
---------- ----------------------------------
a. The business of the Corporation shall be managed by its Board of
Directors, which may exercise all powers of the Corporation and perform all
lawful acts that are not by law, the Certificate of Incorporation or these By-
Laws directed or required to be exercised or performed by stockholders. The
number of directors shall be determined by the Board of Directors from time to
time, but shall be not less than three. At any time during any year the number
of directors may be increased or decreased, in each case by vote of a majority
of the stock outstanding and entitled to vote for the election of directors or a
majority of the directors. Directors must be nominated and elected in
accordance with procedures and the sequence set out in this Section 1. The
directors to be elected in each year shall be elected at the annual meeting of
the stockholders, except as otherwise provided in Section 2 of this Article III,
and each director elected shall hold office as specified herein and in the
Certificate of Incorporation until his successor is elected and qualified or
until his earlier death, resignation or removal. Directors need not be
stockholders.
b. The number of directors of the Corporation shall be as specified
in Section 1a above, but such number may from time to time be increased or
decreased in such manner as may be prescribed by these 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,
-6-
<PAGE>
and the initial term of office of the initial Class C directors to expire at the
1995 annual meeting of stockholders. At each 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; provided, however, that upon the death,
resignation or removal of a director or upon the creation of any new
directorships, directors in each of the three classes may be adjusted and
reallocated by the Board of Directors to maintain as even a distribution as
possible.
c. In addition to any other applicable requirements, only persons
who are nominated in accordance with the following procedures shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting.
d. Notwithstanding the foregoing, whenever the holders of any
preferred stock, as provided in the Certificate of Incorporation or in any
resolution or resolutions of the Board of Directors establishing any such
preferred stock, shall have the right, voting as a class, to elect directors at
the annual meeting of stockholders, or any special meeting, the then authorized
number of directors of the Corporation may be increased by such number as may be
therein provided, and at such meeting the holders of such preferred stock shall
be entitled to elect the additional directors so provided for by a vote of the
holders of at least a majority of such preferred stock present or represented at
such meeting voting as a class. Any directors so elected, unless so re-elected
at the annual meeting of stockholders or special meeting held in place thereof,
next succeeding the time when the holders of any such preferred stock become
entitled to elect directors as above provided, shall not hold office beyond such
annual or special meeting. This provision shall apply notwithstanding the
maximum number of directors determined in accordance with the provisions of
these By-Laws.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
---------- ---------
or if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If
-7-
<PAGE>
there are no directors in office, any officer or stockholder may call a special
meeting of stockholders in accordance with the provisions of the Certificate of
Incorporation or these By-Laws, at which meeting such vacancies shall be filled.
Section 3. Removal or Resignation.
---------- ----------------------
a. Any director or the entire Board of Directors may be removed only
for cause, as provided in the Delaware General Corporation Law.
b. Any director may resign at any time by giving written notice to
the Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect upon delivery thereof to the Board of Directors
or the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
---------- -----------------
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
---------- --------------
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board of
---------- ----------------
Directors may be held at such time and place as may be determined from time to
time by the Board of Directors, at any place within or without the State of
Delaware. If the directors receive at the annual meeting of newly elected
directors, or any other meeting of directors, a schedule of any subsequent
regular meetings of the Board of Directors to be held until the next annual
meeting of directors, then such regular meetings may be held without additional
notice to the directors. If no such schedule of regular meetings is
distributed, then regular meetings may only be held on at least five (5)
business days' notice to each director if such notice is sent by mail, or on at
least three (3) business days' notice if such notice is delivered personally or
sent by telegram or given by telephone or by facsimile, provided that any notice
given by mail shall also be given by telephone or by facsimile.
Section 7. Special Meetings. Special Meetings of the Board of Directors
---------- ----------------
may be called by the Chairman of the Board, the Vice Chairman, or the President,
or by a majority of the Board of Directors then in office on at least two (2)
business days' notice to each director, if such notice is delivered
-8-
<PAGE>
personally or sent by telegram or given by telephone or by facsimile, or on at
least five (5) business days' notice if sent by mail, provided that any notice
given by mail shall also be given by telephone or by facsimile. Special meetings
shall be called by the Chairman of the Board, the Vice Chairman, or the
President, or Secretary, or by a majority of the Board of Directors then in
office in like manner and on like notice on the written request of one-half or
more of the number of directors then in office. Any such notice need not state
the purpose or purposes of such meeting except as required by law.
Section 8. Quorum and Adjournments. At all meetings of the Board of
---------- -----------------------
Directors, a majority of the directors then in office, but not less than three,
shall constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or the Certificate of Incorporation. If a quorum
is not present at any meeting of the Board of Directors, the directors present
may adjourn the meeting from time to time, upon announcement at the meeting at
which the adjournment is taken and notice to any director not present at the
meeting, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such
---------- ------------
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Written Consent. Any action required or permitted
----------- -------------------------
to be taken at any meeting of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
Board of Directors and such written consent is filed with the minutes of its
proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment. The
----------- ---------------------------------------------------------
Board of Directors, or any director, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
directors participating in the meeting can hear each other, and participation in
such a meeting shall constitute presence in person by any such director at such
meeting.
ARTICLE IV
----------
-9-
<PAGE>
Committees
----------
Section 1. Executive Committee. The Board of Directors, by resolution
---------- -------------------
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of two or more directors, one of whom shall be designated as chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
Section 2. Powers. The Executive Committee shall have and may exercise
---------- ------
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix its
---------- ----------------------
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall fix. The Executive Committee shall keep regular minutes of its meetings,
which it shall deliver to the Board of Directors from time to time. The
chairman of the Executive Committee or, in his absence a member of the Executive
Committee chosen by a majority of the members present shall preside at meetings
of the Executive Committee, and another member chosen by the Executive Committee
shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee or any other
---------- ------
committee shall constitute a quorum for the transaction of business, and the
affirmative vote of a majority of the members present at any meeting at which
there is a quorum shall be required for any action of the Executive Committee or
any other committee.
Section 5. Audit Committee. The Board of Directors, by resolution
---------- ---------------
adopted by a majority of the entire Board, may appoint an Audit Committee
consisting of two or more directors, which directors shall be independent of
management and free from any relationship that in the opinion of the Board of
Directors would interfere with their exercise of independent judgment as a
member of the Audit Committee. Each member of the Audit Committee shall continue
as a member thereof until the expiration of his term as a director or his
earlier resignation, unless sooner removed as a member or as a director.
Section 6. Powers. The Audit Committee shall have such powers and
---------- ------
perform such duties as may be prescribed by the resolution or resolutions
creating such committee.
-10-
<PAGE>
Section 7. Other Committees. The Board of Directors, by resolutions
---------- ----------------
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, powers, and
authority as it shall prescribe. Each such committee shall consist of two or
more directors.
Section 8. Committee Changes. The Board of Directors shall have the
---------- -----------------
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
Section 9. Compensation. Members of any committee shall be entitled to
---------- ------------
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any
member may waive compensation for any meeting. Any committee member receiving
compensation under these provision shall not be barred from serving the
Corporation in any other capacity (unless otherwise required by law or
regulation) and from receiving compensation and reimbursement of reasonable
expenses for such other services.
Section 10. Action by Written Consent. Any action required or permitted
----------- -------------------------
to be taken at any meeting of any committee of the Board of Directors may be
taken without a meeting if a written consent to such action is signed by all
members of the committee and such written consent is filed with the minutes of
its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment. The
----------- ---------------------------------------------------------
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
Section 12. Limitation of Committee Powers. No committee provided for in
----------- ------------------------------
this Article IV shall have or exercise the power or authority of the whole Board
of Directors in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending the By-Laws of the
Corporation, and no such committee shall have the power or authority to declare
a dividend or to issue stock.
ARTICLE V
---------
-11-
<PAGE>
Notices
-------
Section 1. Form and Delivery. Whenever a provision of any law, the
---------- -----------------
Certificate of Incorporation or these By-Laws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail addressed to the address of the director or stockholder as it appears on
the records of the Corporation, with postage prepaid. Such notices shall be
deemed to be given when they are deposited in the United States mail. Notice to
a director may also be given personally, by telegram or by facsimile sent to his
address as it appears on the records of the Corporation. Notices to a director
pursuant to Section 6 or Section 7 given by mail shall also be given by telegram
or facsimile.
Section 2. Waiver. Whenever any notice is required to be given under
---------- ------
the provisions of any law, the Certificate of Incorporation or these By-Laws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting the lack of notice, shall be conclusively deemed to
have waived notice of such meeting.
ARTICLE VI
----------
Officers
--------
Section 1. Designations. The officers of the Corporation shall be chosen
---------- ------------
by the Board of Directors. The Board of Directors shall choose a President, a
Secretary and a Treasurer and may choose a Chairman of the Board, a Vice
Chairman of the Board, a Vice President or Vice Presidents, one or more
Assistant Secretaries and/or Assistant Treasurers, and other officers and agents
that it shall deem necessary or appropriate. All officers of the Corporation
shall exercise the powers and perform the duties provided for in these By-Laws
or which shall from time to time be determined by the Board of Directors. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws provide otherwise.
Section 2. Term of, and Removal from, Office. At its first regular
---------- ---------------------------------
meeting after each annual meeting of stockholders, the Board of Directors shall
choose a President, a Secretary and a Treasurer. It may also choose a Chairman
of the Board, a Vice
-12-
<PAGE>
Chairman of the Board, a Vice President or Vice Presidents, one or more
Assistant Secretaries and/or Assistant Treasurers, and such other officers and
agents as it shall deem necessary or appropriate. Each officer of the
Corporation shall hold office until his successor is chosen and shall qualify.
Any officer elected or appointed by the Board of Directors may be removed, with
or without cause, at any time by the affirmative vote of a majority of the
directors then in office. Removal from office, however, shall not prejudice the
contract rights, if any, of the person removed. Any vacancy occurring in any
office of the Corporation may be filled for the unexpired portion of the term by
the Board of Directors.
Section 3. Compensation. No officer shall be prevented from receiving a
---------- ------------
salary because he is also a director of the Corporation.
Section 4. Chairman of the Board. The Chairman of the Board of
---------- ---------------------
Directors, if any, shall be the chief executive officer of the Corporation, and,
subject to the direction of the Board of Directors, shall have general charge of
the management and direction of the business, affairs and property of the
Corporation, and general supervision over its other officers and agents, and,
when present, shall preside at all meetings of the stockholders and the Board of
Directors. The Chairman of the Board of Directors shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time.
Section 5. Vice Chairman of the Board. The Vice Chairman of the Board,
---------- --------------------------
if any, shall be an officer of the Corporation and, subject to the direction of
the Board of Directors, shall perform such executive, supervisory, and
management functions and duties as may be assigned to him from time to time by
the Board of Directors or the Chairman of the Board. If the Chairman of the
Board is absent, he shall, if present, preside at meetings of the stockholders
and the Board of Directors.
Section 6. The President. The President shall be the chief operating
---------- -------------
officer of the Corporation. In general, he shall perform all duties incident to
the office of President and chief operating officer and shall see that all
orders and resolutions of the Board of Directors are carried into effect and
shall perform such other executive, supervisory and management functions and
duties as may be assigned to him from time to time by the Board of Directors or
the Chairman of the Board.
Section 7. The Vice President. The Vice President, if any, or in the
---------- ------------------
event there be more than one, the Vice Presidents in the order designated, or in
the absence of any designation in the order of their election, shall, in the
absence of the
-13-
<PAGE>
President or in the event of his disability, perform the duties and exercise the
powers of the President and shall generally assist the President and perform
such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
Section 8. The Secretary. The Secretary shall attend all meetings of the
---------- -------------
Board of Directors and the stockholders and record all votes and the proceedings
of the meetings in a book to be kept for that purpose. He shall perform like
duties for the Executive Committee or other committees, if required. He, or any
other authorized officer of the Corporation, shall give, or cause to be given,
notice of all meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may from time to time be
prescribed by the Board of Directors, the Chairman of the Board or the
President, under whose supervision he shall act. He shall have custody of the
seal of the Corporation, and he, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his signature or by the signature of the Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing thereof by his signature.
Section 9. The Assistant Secretary. The Assistant Secretary, if any, or
---------- -----------------------
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation in the order of their election,
shall, in the absence of the Secretary or in the event of his disability,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
Section 10. The Treasurer. The Treasurer shall be the principal financial
----------- -------------
officer of the Corporation and shall perform all duties incident to that office,
shall have the custody of the corporate funds and other valuable effects,
including securities, and shall keep full and accurate accounts or receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may from time to time be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation in accord
with the orders of the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, if any, the
President, and the Board of Directors, whenever they may require it or at
regular meetings of the Board, an account of all the Treasurer's transactions as
Treasurer and of the financial condition of the Corporation.
-14-
<PAGE>
Section 11. The Assistant Treasurer. The Assistant Treasurer, if any, or
----------- -----------------------
in the event there shall be more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation in the order of their election,
shall, in the absence of the Treasurer or in the event of his disability,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
Section 12. Subordinate Officers. The Board of Directors may appoint such
----------- --------------------
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officers to appoint and remove subordinate officers and prescribe
the powers and duties thereof.
ARTICLE VII.
------------
Indemnification of Officers,
Directors, Employees and Agents
-------------------------------
Section 1. Indemnification.
---------- ---------------
a. The Corporation shall provide indemnification to and shall hold
harmless any person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness or otherwise) in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted by the
Delaware General Corporation Law, as it may be amended or interpreted from time
to time, against all expenses, liability and loss (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred or suffered by him in connection with investigating, defending, being a
witness in, or participating in (including on appeal), or preparing for any such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
-15-
<PAGE>
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
b. The Corporation shall also indemnify and hold harmless any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred or
suffered by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
c. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in this Section, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. The rights provided to any person by this Article VII
shall be enforceable against the Corporation by such person who shall be
presumed to have relied upon it in serving or continuing to serve as an officer,
director, employee or agent as described above.
Section 2. Authorization. Any indemnification under Section 1 of this
---------- -------------
Article VII (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in this Article VII. Such
determination shall be made: (a) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit or
-16-
<PAGE>
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by a majority vote of the stockholders.
Section 3. Expense Advance. Expenses (including attorneys' fees)
---------- ---------------
incurred by a director, officer, employee or agent of the Corporation in
defending any civil, administrative, investigative or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
manner provided in Section 2 of this Article VII upon receipt of an undertaking
by or on behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as provided in this Article VII. Any obligation to reimburse
the Corporation for expense advances shall be unsecured and no interest shall be
charged thereon.
Section 4. Non-exclusivity. The indemnification provided by this Article
---------- ---------------
VII shall not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under these By-Laws, or any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 5. Insurance. The Corporation shall have power to purchase and
---------- ---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII.
Section 6. Settlement of Claims. The Corporation shall not be liable to
---------- --------------------
indemnify any officer, director, employee or agent under this Article VII for
any amounts paid in settlement of any action or claim effected without the
Corporation's written consent, which consent shall not be unreasonably withheld,
or for any judicial award if the Corporation was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action.
Section 7. Effect of Amendment. Any amendment, repeal, or modification
---------- -------------------
of this Article VII shall not adversely affect
-17-
<PAGE>
any right or protection of any officer, director, employee or agent existing at
the time of such amendment, repeal, or modification.
Section 8. Subrogation. In the event of payment under this Article VII,
---------- -----------
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the officer, director, employee or agent, who shall
execute all papers required and shall do everything that may be necessary to
secure such rights, including the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights.
Section 9. No Duplication of Payments. The Corporation shall not be
---------- --------------------------
liable under this Article VII to make any payment in connection with any claim
made against the officer, director, employee or agent to the extent such
officer, director, employee or agent has otherwise actually received payment
(under any insurance policy, agreement, vote, or otherwise) of the amounts
otherwise indemnifiable hereunder.
Section 10. "The Corporation". For the purposes of this Article VII,
----------- -----------------
references to "the Corporation" shall include, in addition to the resulting
corporation, and at the election of the Board of Directors of the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (but only to the extent the Board of Directors of the resulting
corporation so decides) shall stand in the same position under the provisions of
this Article VII with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
Section 11. Other Enterprises. For purposes of this Article VII,
----------- -----------------
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall
-18-
<PAGE>
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
Section 12. Continuation of Indemnification. The indemnification and
----------- -------------------------------
advancement of expenses provided by, or granted pursuant to, these By-laws
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VIII
------------
Affiliated Transactions and Interested Directors
------------------------------------------------
Section 1. Affiliated Transactions.
---------- -----------------------
a. No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation 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 this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof that authorizes the contract or
transaction or solely because his or their votes are counted for such purpose,
if:
i) The material facts as to his or their interest and as to the contract
or transaction are disclosed or are known to the Board of Directors or the
committee thereof, and the Board of Directors or committee thereof in good faith
authorizes the contract or transaction by a vote sufficient for such purpose
without counting the vote of the interested director or directors, even though
the disinterested directors be less than a quorum; or
ii) The material facts as to his or their 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 the vote of the stockholders; or
iii) The contract or transaction is fair as to the Corporation as of the
time it is first authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
b. No director or officer shall be liable to account to the
Corporation for any profit realized by him from or through such contract or
transaction solely by reason of the fact that he
-19-
<PAGE>
or any other corporation, partnership, association, or other organization in
which he is a director or officer, or has a financial interest, was interested
in such contract or transaction.
Section 2. Determining Quorum. Interested directors may be counted in
---------- ------------------
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee thereof which authorizes the contract or transaction.
ARTICLE IX
----------
Stock Certificates
------------------
Section 1. Form and Signatures.
---------- -------------------
a. Every holder of stock of the Corporation shall be entitled to a
certificate stating the number, class, and series, if any, of shares owned by
him, signed by either the Chairman or Vice Chairman of the Board, the President
or Vice President and the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, and bearing the seal of the
Corporation. The signatures and the seal may be facsimile. A certificate may
be signed, manually or by facsimile, by a transfer agent or registrar other than
the Corporation or its employee. In case any officer who has signed, or whose
facsimile signature was placed on, a certificate shall have ceased to be such
officer before the certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
b. Every certificate representing shares of capital stock which are
subject to any restriction on transfer pursuant to law, the Certificate of
Incorporation, these By-Laws, or any agreement to which the Corporation is a
party, shall have the restriction noted conspicuously on the certificate, and
shall also set forth, on the face or back, either the full text of the
restriction or a statement of the existence of such restriction and (except if
such restriction is imposed by law) a statement that the Corporation will
furnish a copy thereof to the holder of such certificate upon written request
and without charge.
Every certificate representing shares of capital stock issued when the
Corporation is authorized to issue more than one class or series of stock shall
set forth on its face or back either the full text of the preferences, voting
powers, qualifications, and special and relative rights of the shares of each
class and series authorized to be issued, or a statement of the existence of
such preferences, powers, qualifications and rights, and a statement that the
Corporation will furnish a copy
-20-
<PAGE>
thereof to the holder of such certificate upon written request and without
charge.
Section 2. Transfer of Shares. Subject to any applicable restrictions
---------- ------------------
noted upon the face or back of a stock certificate pursuant to law, the
Certificate of Incorporation, these By-Laws, or any agreement to which the
Corporation is a party, or as may be required by law, the shares of stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney lawfully constituted upon surrender for
cancellation of certificates for the same number of shares to the Corporation or
any transfer agent of the Corporation with an assignment and power of transfer
endorsed thereon or attached thereto duly executed with such proof or guaranty
of the authenticity of the signature as the Corporation or its agents may
reasonably require, and the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon its books.
Section 3. Registered Stockholders.
---------- -----------------------
a. Except as otherwise provided by law or the Certificate of
Incorporation, the Corporation shall be entitled to recognize the exclusive
right of a person who is registered on its books as the owner of shares of its
capital stock to receive dividends or other distributions and to vote or consent
as such owner, and, in the event the stock is not fully paid, to hold liable for
calls and assessments any person who is registered on its books as the owner of
shares of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
b. If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Fixing Date for Determination of Stockholders of Record. In
---------- -------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
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<PAGE>
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (a) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall unless otherwise required by law, not be more than sixty (60) nor
less than ten (10) days before the date of such meeting; (b) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten (10) days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (c) in the case of any other action, shall not be more than sixty
(60) days prior to such other action. If no record date is fixed: (a) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (b) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action of
the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (c) the record date for determining stockholders for any
other purpose shall be at the close of business on the day one which the Board
of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of
---------- ---------------------------------------
Directors may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing the issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require, and/or
to give the Corporation a bond in such sum, or other security in such form, as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate claimed to have been lost, stolen,
or destroyed.
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<PAGE>
ARTICLE X
---------
Execution of Documents By The Corporation
-----------------------------------------
Section 1. Execution of Checks, Notes, Etc. All checks and drafts on the
---------- -------------------------------
Corporation's bank accounts, all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money shall be
signed by such officer or agent or agents as shall be thereunto authorized from
time to time by the Board of Directors, which may in its discretion authorize
any such signature to be facsimile.
Section 2. Execution of Contracts, Assignments, Etc. Unless the Board of
---------- ----------------------------------------
Directors shall have otherwise provided generally or in a specific case, all
contracts, agreements, endorsements, assignments, transfers, stock powers, or
other instruments shall be signed by the Chairman, the Vice Chairman, the
President, any Vice President, the Secretary or the Treasurer. The Board of
Directors may, however, in its discretion, require any or all of such
instruments to be signed by any two or more of such officers or may permit any
or all such instruments to be signed by such other officer or officers or agent
or agents as it shall thereunto authorize from time to time.
Section 3. Voting Stock of Other Corporations. Unless otherwise
---------- ----------------------------------
prescribed by the Board of Directors, the Chairman, Vice Chairman or President
shall have full power and authority to attend, act, and vote on behalf of the
Corporation at any meeting of the security holders of other corporations in
which the Corporation may hold securities. At any such meeting, the Chairman,
Vice Chairman or President shall possess and may exercise any and all rights and
powers incident to the ownership of such securities that the Corporation might
have possessed and exercised if it had been present. The Board of Directors may
from time to time confer like powers upon any other person or persons.
Section 4. Execution of Proxies. The Chairman, Vice Chairman or
---------- --------------------
President, or in their absence or disability, a Vice President, may authorize
from time to time the signature and issuance of proxies to vote upon shares of
stock of other corporations or other legal entities standing in the name of the
Corporation. All such proxies shall be signed in the name of the Corporation by
the Chairman, Vice Chairman, President, a Vice President, the Secretary or the
Treasurer, or by such other or further officer or officers or agent or agents as
shall be thereunto authorized from time to time by the Board of Directors.
-23-
<PAGE>
ARTICLE XI
----------
General Provisions
------------------
Section 1. Dividends. Subject to the provisions of law and the
---------- ---------
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in the authorized
shares of the Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
---------- --------
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and, if so, what part, of the funds legally available for
the payment of dividends shall be declared as dividends and paid to the
stockholders of the Corporation.
Section 3. Capital. The Board of Directors, in its sole discretion, may
---------- -------
fix a sum that may be allocated, set aside or reserved over and above the paid-
in capital of the Corporation as capital of the Corporation in respect of any
shares of the Corporation or any designated class or classes or as a reserve for
any proper purpose, and any such reserve may, from time to time, be increased,
diminished, or varied.
Section 4. Inspection of Books. The Board of Directors shall determine
--------- -------------------
from time to time whether, and if allowed, to what extent and at what time and
places and under what conditions and regulations, the accounts and books of the
Corporation (except such as may by law be specifically open to inspection) 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 Corporation, except as conferred by the laws of the State of Delaware.
Section 5. Fiscal year. The fiscal year of the Corporation shall be
---------- -----------
determined from time to time by the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
---------- ----
name of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
ARTICLE XII
-----------
Amendments
----------
The Board of Directors shall have the power to alter or repeal these
By-Laws and to adopt new By-Laws by an affirmative vote of a majority of the
entire Board of Directors then in
-24-
<PAGE>
office. Any By-Law which may be adopted or amended by the Board of Directors may
be also amended, changed or repealed by the vote of the holders of not less than
sixty-six and two-thirds percent (66-2/3%) of the outstanding stock of the
Corporation entitled to vote generally in the election of directors.
-25-
<PAGE>
Exhibit 4.11
Execution Counterpart
---------------------
________________________________________________________________________________
________________________________________________________________________________
PJC FINANCING CORPORATION
COLONY COMMUNICATIONS, INC.
COLUMBIA CABLE OF MICHIGAN, INC.
N-COM ACQUISITION CORPORATION
CREDIT AGREEMENT
Dated as of July 18, 1995
THE TORONTO-DOMINION BANK,
as Documentation Agent and as a Managing Agent
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent and as a Managing Agent
THE BANK OF NEW YORK,
as Syndication Agent and as a Managing Agent
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION .................................... 1
------------------------------------------
2. THE CREDITS.................................................................... 19
2.1. Revolving Loan.......................................................... 19
--------------
2.1.1. Revolving Loan Accounts...................................... 19
-----------------------
2.1.2. Maturity, etc .............................................. 20
-------------
2.2. Money Market Rate Credit .............................................. 20
------------------------
2.2.1. Request by the Borrower .................................... 20
-----------------------
2.2.2. Dissemination of Requests for Bids for Money Market Loans.... 21
---------------------------------------------------------
2.2.3. Bids or Money Market Loans ................................. 21
--------------------------
2.2.4. Acceptance of Bids by the Borrower ......................... 22
----------------------------------
2.2.5. Funding by the Administrative Agent; Money Market Loan Account,
---------------------------------------------------------------
etc ......................................................................... 23
---
2.2.6. Funding; Legal Requirements ................................ 24
---------------------------
2.2.7. Prepayments in Respect of Money Market Loans .............. 24
--------------------------------------------
2.3. Swingline Credit ...................................................... 25
----------------
2.3.1. Swingline Loan Account ..................................... 25
----------------------
2.3.2. Maturity, etc .............................................. 26
-------------
2.4. Maximum Amount of Credit. ............................................. 26
-------------------------
2.5. Credit Reserves ....................................................... 27
---------------
2.5.1. Representations, Etc. ...................................... 27
---------------------
2.5.2. Qualifying Reinvestments. .................................. 28
-------------------------
2.6. Application of Proceeds; Specifically Prohibited Applications ......... 28
-------------------------------------------------------------
2.7. Nature of Obligations of Lenders to Make Loans ........................ 28
----------------------------------------------
2.7.1. Revolving Loans. ........................................... 28
----------------
2.7.2. Money Market Loans ......................................... 29
------------------
2.7.3. Swingline Loans ............................................ 29
3. INTEREST; EURODOLLAR PRICING OPTIONS; FEES; ETC .............................. 29
3.1. Interest on Revolving Loan. ........................................... 29
---------------------------
3.1.1. Computations of Interest ................................... 29
------------------------
3.2. Eurodollar Pricing Options ............................................ 30
--------------------------
3.2.1. Election of Eurodollar Pricing Options ..................... 30
--------------------------------------
3.2.2. Notices Relating to Eurodollar Pricing Options ............. 31
----------------------------------------------
3.3. Additional Provisions Concerning Eurodollar Pricing Options ........... 32
-----------------------------------------------------------
3.3.1. Selection of Eurodollar Interest Periods ................... 32
----------------------------------------
3.3.2. Additional Payments Relating to Eurodollar Pricing Options . 32
----------------------------------------------------------
3.3.3. Change in Applicable Laws, Regulations, etc ................ 33
-------------------------------------------
3.3.4. Funding Procedure .......................................... 33
-----------------
3.4. Interest on Money Market Loans ......................................... 34
------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.5. Interest on Swingline Loan ............................................ 34
--------------------------
3.6. Commitment Fees ....................................................... 34
---------------
3.6.1. Revolving Loan ............................................. 34
--------------
3.6.2. Swingline Loan ............................................. 35
--------------
3.7. Capital Adequacy ...................................................... 35
----------------
3.8. Taxes ................................................................. 36
-----
4. PAYMENT ...................................................................... 37
4.1. Payment at Maturity ................................................... 37
-------------------
4.2. Contingent Required Prepayments ....................................... 38
-------------------------------
4.2.1. Excess Credit Exposure ..................................... 38
----------------------
4.2.2. Proceeds from Asset Sales .................................. 38
-------------------------
4.2.3. Allocation of Payments. .................................... 38
-----------------------
4.3. Voluntary Prepayments ................................................. 39
---------------------
4.4. Payment and Interest Cutoff, etc ...................................... 39
--------------------------------
5. CONDITIONS TO MAKING LOANS ................................................... 39
5.1. Conditions to Making Initial Loans .................................... 39
----------------------------------
5.1.1. Notes and Lender Agreements ................................ 39
---------------------------
5.1.2. Acquisition of Providence Journal Cable Assets ............. 40
----------------------------------------------
5.1.3. Guarantors' Contribution Agreement ......................... 40
----------------------------------
5.1.4. CCI Subordination Agreement ................................ 40
---------------------------
5.1.5. Payment of Fees ............................................ 40
---------------
5.1.6. Legal Opinions ............................................. 40
--------------
5.2. Conditions to Making Acquisition Advances ............................. 41
-----------------------------------------
5.2.1. Acquisition Advances ....................................... 41
--------------------
5.2.2. Notes and Lender Agreements ................................ 41
---------------------------
5.2.3. Payment of Fees ............................................ 41
---------------
5.2.4. Legal Opinions ............................................. 41
--------------
5.3. Conditions to Making Each Loan ........................................ 42
------------------------------
5.3.1. Borrowers' Officer's Certificates .......................... 42
---------------------------------
5.3.2. Proper Proceedings ......................................... 42
------------------
5.3.3. Legality, etc. ............................................. 42
--------------
5.3.4. General .................................................... 42
6. GUARANTEES.................................................................... 43
6.1. Guarantees of Credit Obligations ...................................... 43
--------------------------------
6.2. Waivers ............................................................... 44
-------
6.3. Certain Representations ............................................... 45
-----------------------
6.4. Power to Amend, etc ................................................... 45
-------------------
6.5. Information Regarding the Borrowers, etc .............................. 46
----------------------------------------
6.6. No Subrogation; Subordination ......................................... 46
-----------------------------
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6.7. Further Assurances .................................................... 47
------------------
6.8. Release of Guarantors ................................................. 47
---------------------
7. COVENANTS .................................................................... 47
7.1. Corporate Existence; Conduct of Business .............................. 47
----------------------------------------
7.2. Financial Statements, etc ............................................. 47
-------------------------
7.2.1. Quarterly Report ........................................... 47
----------------
7.2.2. Annual Reports ............................................. 49
--------------
7.2.3. Audits ..................................................... 50
------
7.2.4. ERISA Reports .............................................. 50
-------------
7.2.5. Public Reports ............................................. 50
--------------
7.2.6. Defaults ................................................... 51
--------
7.2.7. Other Events ............................................... 51
------------
7.2.8. Requested Information ...................................... 51
---------------------
7.2.9. Notice of Certain Redemptions of Subordinated Debt ......... 51
--------------------------------------------------
7.2.10. Confidentiality ........................................... 52
---------------
7.3. Insurance ............................................................. 53
---------
7.4. Taxes; Claims ......................................................... 53
-------------
7.5. Maintenance of Properties ............................................. 53
-------------------------
7.6. Statutory Compliance .................................................. 53
--------------------
7.7. Indebtedness .......................................................... 53
------------
7.8. Liens ................................................................. 55
-----
7.9. Investments ........................................................... 56
-----------
7.10. Sales of Assets; etc ................................................. 58
--------------------
7.11. Mergers .............................................................. 61
-------
7.12. Distributions ........................................................ 62
-------------
7.13. Certain Financial Tests .............................................. 62
-----------------------
7.13.1. Combined Total Debt to Combined Annualized Operating Income
-----------------------------------------------------------
.............................................................................. 62
7.13.2. Combined Annualized Operating Cash Flow to Pro Forma Interest
-------------------------------------------------------------
Payments .................................................................... 63
--------
7.13.3. Combined Annualized Operating Cash Flow to Pro Forma Total
----------------------------------------------------------
Debt Service ................................................................ 64
------------
7.14. ERISA ................................................................ 64
-----
7.15. Intentionally Omitted ................................................ 64
---------------------
7.16. Transactions with Affiliates ......................................... 64
----------------------------
7.17. Interest Rate Protection ............................................. 65
------------------------
8. REPRESENTATIONS AND WARRANTIES ............................................... 66
8.1. Organization, Qualification and Standing .............................. 66
----------------------------------------
8.1.1. The Borrowers .............................................. 66
-------------
8.1.2. Subsidiaries ............................................... 66
------------
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8.1.3. Capitalization ............................................. 66
--------------
8.2. Authorization, etc .................................................... 67
------------------
8.3. Litigation ............................................................ 67
----------
8.4. Financial Statements .................................................. 67
--------------------
8.5. Title to Properties ................................................... 68
-------------------
8.6. No Adverse Developments ............................................... 68
-----------------------
8.7. Defaults .............................................................. 68
--------
8.8. Pension Plans ......................................................... 68
-------------
8.9. Disclosure ............................................................ 69
----------
9. EVENTS OF DEFAULT ............................................................ 69
9.1. Events of Default ..................................................... 69
-----------------
9.2. Certain Actions Following an Event of Default ......................... 71
---------------------------------------------
9.2.1. Specific Performance; Exercise of Remedies ................. 71
------------------------------------------
9.2.2. Acceleration ............................................... 71
------------
9.2.3. Enforcement of Payment; Setoff ............................. 71
------------------------------
9.3. Annulment of Defaults ................................................. 72
---------------------
9.4. Waivers ............................................................... 72
-------
9.5. Course of Dealing ..................................................... 72
-----------------
10. EXPENSES; INDEMNITY; AGENT'S FEE ............................................ 73
10.1. Fees and Expenses .................................................... 73
-----------------
10.2. Indemnification ...................................................... 73
---------------
11. NOTICES ..................................................................... 74
12. OPERATIONS .................................................................. 74
12.1. Interests in Revolving Loan .......................................... 75
---------------------------
12.2. Borrowers to Pay Administrative Agent ................................ 75
-------------------------------------
12.3. Lender Operations for Advances and Payments, etc ..................... 75
------------------------------------------------
12.3.1. Advances and Payments ..................................... 75
---------------------
12.3.2. Delinquent Lenders; Nonperforming Lenders ................. 75
-----------------------------------------
12.4. Sharing of Payments, etc. ........................................... 76
-------------------------
12.5. Administrative Agent's Authority to Act .............................. 77
---------------------------------------
12.6. Administrative Agent's Resignation ................................... 77
----------------------------------
12.7. Amendments, Consents, Waivers, etc ................................... 77
----------------------------------
12.7.1. Modifications to Voting Percentages ....................... 78
-----------------------------------
12.7.2. Obligations to Make New Loans ............................. 79
-----------------------------
12.8. Concerning the Administrative Agent .................................. 79
-----------------------------------
12.8.1. Action in Good Faith, etc ................................. 79
-------------------------
12.8.2. No Implied Duties, etc .................................... 79
----------------------
12.8.3. Validity, etc ............................................. 79
-------------
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12.8.4. Compliance ..................................................... 80
----------
12.8.5. Employment of Administrative Agents and Counsel ................ 80
-----------------------------------------------
12.8.6. Reliance on Documents and Counsel .............................. 80
---------------------------------
12.8.7. Administrative Agent's Reimbursement ........................... 80
------------------------------------
12.8.8. Rights as a Lender ............................................. 80
------------------
12.9. Independent Credit Decision ............................................... 81
---------------------------
12.10. Indemnification .......................................................... 81
---------------
12.11. Waiver of Pro Rata Event ................................................. 81
------------------------
12.12. Amendment to Section 12 .................................................. 82
-----------------------
13. SUCCESSORS AND ASSIGNS; LENDER ASSIGNMENTS AND PARTICIPATIONS .................... 82
13.1. Assignments by Lenders .................................................... 82
----------------------
13.1.1. Assignees and Assignment Procedures ............................ 82
-----------------------------------
13.1.2. Terms of Assignment and Acceptance ............................. 83
----------------------------------
13.1.3. Register ....................................................... 84
--------
13.1.4. Acceptance of Assignment and Assumption ........................ 84
---------------------------------------
13.1.5. Federal Reserve Bank ........................................... 85
--------------------
13.1.6. Further Assurances ............................................. 85
------------------
13.2. Credit Participants ....................................................... 85
-------------------
13.3. Replacement of Lenders .................................................... 86
----------------------
14. FOREIGN PERSONS .................................................................. 87
15. REPLACEMENT NOTES ................................................................ 88
16. SURVIVAL OF COVENANTS ............................................................ 88
17. VENUE; SERVICE OF PROCESS ........................................................ 88
18. WAIVER OF JURY TRIAL ............................................................. 88
19. GENERAL .......................................................................... 89
</TABLE>
<PAGE>
EXHIBITS
1A - Computation of Post Acquisition Cost Savings
1B - Effective Rates
2.1.1 - Notes
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
5.1.4. - CCI Subordination Agreement (Attached Separately)
5.3.1 - Officer's Certificate
8.1 - Borrowers and their respective Subsidiaries
8.3 - Certain Litigation
12.1 - Lenders and Revolving Percentage Interests
13.1.1 - Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of July 18, 1995, is among PJC Financing
Corporation, a Delaware corporation, (at such time as it shall become a party
hereto in accordance with Section 5.1.1) Colony Communications, Inc., a Rhode
Island corporation, N-Com Acquisition Corporation, a Michigan corporation, (at
such time as it shall become a party hereto in accordance with Section 5.2.2)
Columbia Cable of Michigan, Inc., a Delaware corporation, and each of their
respective Subsidiaries from time to time party hereto, the Lenders from time to
time party hereto, The Toronto-Dominion Bank, in its capacity as Documentation
Agent and as a Managing Agent for the Lenders, 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 Syndication
Agent and as a Managing Agent for itself and the other Lenders. The parties
agree as follows:
1. 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:
1.1. "Accrued Management Fees" means amounts owing from the Obligors to
-----------------------
the Company or one of its other Subsidiaries (other than the Obligor) party to
the CCI Subordination Agreement in respect of the Company's corporate overhead
expenses to the extent permitted under Section 7.16(g) which are not paid
currently, together with any interest accrued thereon, and for which:
(a) payments are not payable in cash until after the Final Maturity
Date; and
(b) all rights to payment are expressly subordinated to the Credit
Obligations pursuant to the CCI Subordination Agreement.
1.2. "Accrued Programming Costs" means the accrued and unpaid amounts
-------------------------
owing from the Obligors to the Company or one of its other Subsidiaries party to
the CCI Subordination Agreement in respect of charges for cable television
programming in excess of the Company's (or such other Subsidiary's) actual cost
therefor, together with any interest accrued thereon, and for which:
-1-
<PAGE>
(a) such excess charges, together with any interest accrued
thereon, are not payable in cash until after the Final Maturity Date; and
(b) all rights to payment are expressly subordinated to the Credit
Obligations pursuant to the CCI Subordination Agreement.
1.3. "Acquisition Date" means each of (a) the Initial Closing Date, (b)
----------------
the date of consummation of the Columbia Cable Acquisition and (c) the date of
consummation of the N-Com Acquisition.
1.4. "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.
1.5. "Affected Lender" is defined in Section 13.3.
---------------
1.6. "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 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.
1.7. "Agents" means each of the Managing Agents, CIBC Inc., Chemical Bank,
------
Citibank, N.A., Mellon Bank, N.A. and NationsBank of Texas, N.A. or any Lenders
acting as successor Agents hereunder from time to time.
1.8. "Applicable Rate Reference Period" means, for any fiscal quarter of
--------------------------------
the Borrowers, the most recent prior fiscal quarter of the Borrowers for which
financial statements of the Borrowers 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
April 1, 1996 through June 30, 1996, the Applicable Rate Reference Period will
be the fiscal quarter ended December 31, 1995.) Notwithstanding anything
contained herein to the contrary, for purposes of calculating the Commitment Fee
Rate, the Effective Rate and the Swingline Rate during the fiscal quarter in
which the Initial Closing Date occurs and the immediately following fiscal
quarter, (a) the applicable Combined Total Debt shall be that outstanding as of
the Initial Closing Date plus, upon the consummation of each of the Columbia
----
Cable Acquisition and the N-Com Acquisition, any Indebtedness incurred in
connection with such acquisition and (b) the applicable Combined Annualized
Operating Income shall be that for the most recent prior
-2-
<PAGE>
fiscal quarter of the applicable Borrowers for which financial statements have
been furnished to the Lenders prior to the commencement of the fiscal quarter in
question, adjusted on a pro forma basis to reflect cost savings associated with
the operation of newly acquired Borrowers and their respective Subsidiaries
after such acquisitions in accordance with the procedures contained in the
definition of "Combined Operating Income".
1.9. "Asset Sale" is defined in Section 4.2.2.
----------
1.10. "Asset Sale Designation" is defined in Section 2.5.2.
----------------------
1.11. "Assignee" is defined in Section 13.1.1.
--------
1.12. "Assignment and Acceptance" is defined in Section 13.1.1.
-------------------------
1.13. "Available Funds" means, on any date prior to the Initial Closing
---------------
Date, $0 and on the Initial Closing Date and any date thereafter, the sum of (a)
$910,000,000 plus (b) in the event the Columbia Cable Acquisition has then been
----
consummated (and such acquisition has been consummated prior to January 1,
1996), $170,000,000 plus (c) in the event the N-Com Acquisition has then been
----
consummated (and such acquisition has been consummated prior to January 1,
1996), $120,000,000.
1.14. "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.
1.15. "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.
1.16. "Bankruptcy Default" means an Event of Default under Section 9.1.10.
------------------
1.17. "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 Borrowers 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.
1.18. "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
-3-
<PAGE>
pursuant to the foregoing sentence shall, in the absence of manifest error, be
conclusive; provided, however, that at the request of any Borrower or any Lender
-------- -------
the Administrative Agent shall demonstrate the basis for such determination.
1.19. "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 any
-------- -------
Borrower or any Lender, such Managing Agent shall demonstrate the basis for such
determination.
1.20. "Borrowers" means, collectively, the Swingline Borrower (in its
---------
capacity as such), PJC Financing Corp., (at such time as it shall become a party
hereto in accordance with Section 5.1.1) Colony, N-Com and (at such time as it
shall become a party to this Agreement in accordance with Section 5.2.2)
Columbia.
1.21. "Boston Office" means the principal banking office of the
-------------
Administrative Agent in Boston, Massachusetts.
1.22. "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.
1.23. "CCI Subordination Agreement" is defined in Section 5.1.4.
---------------------------
1.24. "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.
1.25. "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.
1.26. "Colony" means Colony Communications, Inc., a Rhode Island
------
corporation.
1.27. "Columbia" means Columbia Cable of Michigan, Inc., a Delaware
--------
corporation.
-4-
<PAGE>
1.28. "Columbia Cable Acquisition" means the acquisition of all of the
--------------------------
outstanding capital stock of Columbia from Columbia Associates, L.P. by
Continental Cablevision of Manchester, Inc., an indirect wholly owned Subsidiary
of the Company.
1.29. "Combined" means, with respect to the accounts of any Persons, the
--------
combination of such accounts in accordance with GAAP.
1.30. "Combined Annualized Operating Cash Flow" means, for any fiscal
---------------------------------------
quarter, the sum of (a) Combined Operating Cash Flow for such fiscal quarter
multiplied by four, plus (b) the proceeds of any Cure Provision Junior
----
Subordinated Debt actually incurred (and not previously outstanding) by any
Designated Obligor during the period commencing on the first day of such fiscal
quarter and ending on the thirtieth day following the earlier of the date
financial statements for such period were actually delivered and the date such
financial statements were required to be delivered in accordance with Section
7.2.1 or 7.2.2.
1.31. "Combined Annualized Operating Income" means, for any fiscal
------------------------------------
quarter, Combined Operating Income for such fiscal quarter multiplied by four.
1.32. "Combined Operating Cash Flow" means, for any period, the total of
----------------------------
(a) Combined Operating Income for such period 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 Designated Obligors (but
not in any event including cash taxes paid in respect of extraordinary gains).
1.33. "Combined 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 (including Accrued Programming Costs and
Accrued Management Fees), interest and income taxes, but including all operating
income (or loss) on account of management fees, of the Designated Obligors for
such period, determined in accordance with generally accepted accounting
principles on a Combined basis, after eliminating all intercompany items,
excluding any extraordinary or nonrecurring items and the write-up of any asset;
provided, however, that for the fiscal quarter during which the Initial Closing
-------- -------
Date occurs and any subsequent fiscal quarter during which the Columbia Cable
Acquisition or the N-Com Acquisition is consummated, Combined Operating Income
for such fiscal quarter will be adjusted on a pro forma basis to reflect cost
savings associated with the operation of such Borrower and its Subsidiaries
after such acquisition (including on account of the elimination of certain
allocated overhead and the reduction in certain programming costs), as
determined in accordance with Exhibit 1A.
For purposes of calculating Combined Operating Income, operating income (or
loss) of the Designated Obligors for the most recently completed fiscal periods
shall include the operating income (or loss) of any Designated Obligor acquired
after the commencement of such fiscal periods (including Operating Assets
acquired by any Designated Obligor). If
-5-
<PAGE>
Combined Operating Income includes the operating income (or loss) of any such
Designated Obligor or Operating Assets for any fiscal period prior to its
acquisition and if, in the opinion of the Borrowers, the actual financial
statements of such newly acquired Designated Obligor 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 Designated Obligor or Operating Assets for such period in a form
approved in writing by all of the Managing Agents, and (b) the Borrowers shall
furnish to the Lenders with each quarterly and annual calculation under Section
7.2.1 or 7.2.2 such financial information relating to such Designated Obligor or
Operating Assets for such prior period as the Managing Agents may reasonably
request.
1.34. "Combined Total Debt" means, at any date as of which the amount
-------------------
thereof shall be determined, the total of (a) all Indebtedness of the Obligors
on a Combined basis, including all guarantees by the Obligors in respect of
Indebtedness of others, and all obligations of the Obligors, 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 Obligors, minus (c) Long-Term Subordinated Debt.
-----
1.35. "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.
1.36. "Commitment Fee Rate" means:
-------------------
(a) for each day in any fiscal quarter of the Borrowers for which
the amount of Combined Total Debt outstanding on the last day of the
Applicable Rate Reference Period is less than 550% of Combined Annualized
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.
1.37. "Company" means Continental Cablevision, Inc., a Delaware
corporation.
1.38. "Company Credit Facility" means the Amended and Restated Credit
-----------------------
Agreement dated as of October 1, 1994, as from time to time in effect, among the
Company, certain of its Subsidiaries, and certain lenders for which The First
National Bank of Boston is acting as administrative agent.
1.39. "Control Group Person" means any Person which is a member of the
--------------------
controlled group or under common control with any of the Obligors within the
meaning of sections 414(b) or 414(c) of the Code or section 4001(b)(1) of ERISA.
-6-
<PAGE>
1.40. "Credit Obligations" means all present and future obligations and
------------------
Indebtedness of any Borrower 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 Borrowers and Guarantors to
pay interest, commitment fees and other indemnities, charges, fees and amounts
from time to time owed hereunder or under any other Lender Agreement.
1.41. "Credit Participant" is defined in Section 13.2.
------------------
1.42. "Cure Provision Junior Subordinated Debt" means Indebtedness of any
---------------------------------------
Obligor owed to the Company (or any Subsidiary of the Company party to the CCI
Subordination Agreement) that has been designated in writing as "Cure Provision
Junior Subordinated Debt" by the Borrowers to the Managing Agents and for which:
(a) interest is not payable in cash until after the Final Maturity
Date;
(b) principal is not payable until after the Final Maturity Date;
and
(c) all rights to payment are expressly subordinated to the Credit
Obligations pursuant to the CCI Subordination Agreement; provided, however,
-------- -------
that (i) Cure Provision Junior Subordinated Debt may not be incurred, and
previously outstanding Indebtedness may not be designated as Cure Provision
Junior Subordinated Debt, more than four times prior to the Final Maturity
Date and (ii) Cure Provision Junior Subordinated Debt may not be incurred,
and previously outstanding Indebtedness may not be designated as Cure
Provision Junior Subordinated Debt, with respect to two consecutive fiscal
quarters.
1.43. "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 any Obligor
of an involuntary case under the Bankruptcy Code.
1.44. "Delinquency Period" is defined in Section 12.3.2.
------------------
1.45. "Delinquent Lender" is defined in Section 12.3.2.
-----------------
1.46. "Delinquent Payment" is defined in Section 12.3.2.
------------------
1.47. "Designated Obligor" means any Borrower and any other Obligor with
------------------
respect to which any Borrower shall, at the time, own directly or indirectly
through another Designated Obligor, at least 80% of (a) the outstanding voting
stock or (b) the equity, partnership or other beneficial interests.
-7-
<PAGE>
1.48. "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 any
Obligor, (b) the purchase, redemption or other retirement of any shares of
capital stock of any Obligor (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 do not constitute Indebtedness of the
payor) to the holder of any shares of capital stock of any Obligor in respect of
such capital stock, and (d) any payment of principal of or interest on, or
redemption or defeasance of, Subordinated Debt.
1.49. "Documentation Agent" means The Toronto-Dominion Bank in its
-------------------
capacity as documentation agent for the Lenders hereunder, as well as its
successors and assigns in such capacity.
1.50. "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 Borrowers, the sum
of:
(a) the rate for such portion shown in Exhibit 1B next to the ratio
of (i) the Combined Total Debt outstanding on the last day of the
Applicable Rate Reference Period to (ii) Combined Annualized 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 Borrowers 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.
1.51. "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.
1.52. "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
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<PAGE>
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 any Borrower or any Lender the Administrative Agent shall demonstrate
the basis for such determination.
1.53. "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.
1.54. "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.
1.55. "Eurodollar Rate" means for any Eurodollar Interest Period 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.
1.56. "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.
1.57. "Eurodollars" means deposits of United States Funds in a non-United
-----------
States office or an international banking facility of a Lender.
1.58. "Event of Default" is defined in Section 9.1.
----------------
1.59. "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.
-9-
<PAGE>
1.60. "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.
1.61. "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 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 any Borrower or any Lender
-------- -------
the Administrative Agent shall demonstrate the basis of such determination.
1.62. "Final Maturity Date" means September 30, 2004.
-------------------
1.63. "Financial Officer" of any Borrower (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 such Borrower (or such
specified Person).
1.64. "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.
1.65. "Guarantor" means each Borrower and each Subsidiary of the
---------
respective Borrowers which is or subsequently becomes party to this Agreement as
a Guarantor; provided, however, that in no event shall the term "Guarantor"
-------- -------
include any such Subsidiary which has been released as a Guarantor in accordance
with Section 6.8.
1.66. "Guarantors' Contribution Agreement" is defined in Section 5.1.3.
----------------------------------
1.67. "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.
-10-
<PAGE>
1.68. "Indentures" means, collectively, the 1989 Indenture and the 1992
----------
Indenture.
1.69. "Initial Closing Date" means the first date on or prior to December
--------------------
31, 1995 on which all applicable conditions set forth in Section 5 have been
satisfied.
1.70. "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
any Obligor 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 equity in
the losses of any such Person.
1.71. "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 each
Borrower provides its written consent with respect thereto, which consent shall
not be unreasonably withheld.
1.72. "Lender" means each of the Persons listed as lenders on Exhibit
------
12.1, as from time to time in effect, including each of Toronto Dominion (New
York) Inc., 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 Obligations, but
the term "Lender" shall not include any Person holding a participation in the
Credit Obligations under Section 13.2.
1.73. "Lender Agreement" means each of the following documents:
----------------
(a) this Agreement, the CCI Subordination Agreement and the Notes;
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<PAGE>
(b) all financial statements, reports, notices, assignments or
certificates delivered to the Administrative Agent or the Lenders by any
Borrower 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 any Borrower, 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.
1.74. "Loan" means the Revolving Loan, the Money Market Loan and the
----
Swingline Loan, collectively.
1.75. "Loan Accounts" means each of the Revolving Loan Accounts, the Money
-------------
Market Loan Accounts and the Swingline Loan Account.
1.76. "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 3.2.2 with respect to a
proposed Eurodollar Interest Period exceeding six months in duration.
1.77. "Long-Term Subordinated Debt" means, collectively, Accrued
---------------------------
Management Fees, Accrued Programming Costs and Cure Provision Junior
Subordinated Debt.
1.78. "Management Group" means, collectively, 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, along
with other officers of the Company and its Subsidiaries.
1.79. "Managing Agents" means The Toronto-Dominion Bank, 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.
1.80. "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.
1.81. "Maximum Amount of Credit" is defined in Section 2.4.
------------------------
1.82. "Money Market Loan" is defined in Section 2.2.
-----------------
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<PAGE>
1.83. "Money Market Loan Accounts" is defined in Section 2.2.5.1.
--------------------------
1.84. "Money Market Loan Closing Date" is defined in Section 2.2.1.
------------------------------
1.85. "Money Market Loan Interest Payment Date" is defined in Section
---------------------------------------
2.2.1.
1.86. "Money Market Loan Maturity Date" is defined in Section 2.2.1.
-------------------------------
1.87. "Money Market Rates" is defined in Section 2.2.3.
------------------
1.88. "Moody's" means Moody's Investors Service, Inc.
-------
1.89. "N-Com" means N-Com Acquisition Corporation, a Michigan corporation.
-----
1.90. "N-Com Acquisition" means the acquisition by N-Com (or Columbia) of
-----------------
(a) the outstanding partnership interests in N-Com Limited Partnership II not
currently owned by Continental Cablevision Investments, Inc. and (b) the
partnership interests in Omnicom CATV Limited Partnership and Irish Hills
Cablevision Limited Partnership owned by N-Com II, Inc.
1.91. "Net Cash Proceeds" means the cash proceeds of an Asset Sale by any
-----------------
Obligor 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 Borrowers in good faith, will, or, but for consolidation with
the Company, would be required to be paid by such Obligor in cash as a result
of, and within 15 months after, such Asset Sale, and (d) all reasonable expenses
of the Obligors or such seller incurred in connection with the Asset Sale.
1.92. "1989 Indenture" means the indenture 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.
1.93. "1989 Subordinated Debt" means the Company's Senior Subordinated
----------------------
Floating Rate Debentures, due 2004, issued in the aggregate principal amount of
$100,000,000, in accordance with the 1989 Indenture.
1.94. "1992 Indenture" means the indenture 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.
1.95. "1992 Subordinated Debt" means the Senior Subordinated Debentures,
----------------------
due 2007, issued by the Company in accordance with the 1992 Indenture.
1.96. "Nonperforming Lender" is defined in Section 12.3.2.
--------------------
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<PAGE>
1.97. "Note" is defined in Section 2.1.1.
----
1.98. "Obligor" means each of the Borrowers and each Borrower's
-------
Subsidiaries.
1.99. "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.
1.100. "Payment Date" means the last Banking Day of each March, June,
------------
September and December of each year.
1.101. "PBGC" means the Pension Benefit Guaranty Corporation or any
----
successor entity.
1.102. "Performing Lender" is defined in Section 12.3.2.
-----------------
1.103. "Person" means a corporation, association, partnership, joint
------
venture, company, trust, organization, business, individual or government or any
governmental agency or political subdivision thereof.
1.104. "Phase-In Period" means the period of four consecutive fiscal
---------------
quarters commencing with the fiscal quarter in which the Initial Closing Date
occurs.
1.105. "PJC Financing Corp." means PJC Financing Corporation, a Delaware
-------------------
corporation and a wholly owned Subsidiary of the Company, formed for the purpose
of borrowing funds hereunder and immediately lending such funds to Providence
Journal Company and its Subsidiaries immediately prior to, and solely in
connection with, the Providence Journal Cable Acquisition, and which will be
merged into Colony after the consummation of the Providence Journal Cable
Acquisition.
1.106. "Plan" means any pension plan subject to Title IV of ERISA
----
established or maintained, or to which contributions are made, by any Obligor or
any Control Group Person.
1.107. "Pro Forma Debt Service" means, for any period, the sum of (a) Pro
----------------------
Forma Interest Payments for such period 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 during such
period by any Obligor on all Indebtedness, including the Loan.
-14-
<PAGE>
1.108. "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 Obligors during such period 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
preferred stock of the Borrowers required to be paid in cash by the Borrowers
during such period. For purposes of computing projected interest for any period
under the preceding sentence, (i) the amount of Indebtedness or preferred 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 preferred stock is subject to a mandatory prepayment of principal or a
mandatory redemption of preferred stock, as the case may be, during such period,
(ii) if the Obligors have committed to incur additional Indebtedness or issue
additional preferred stock during such period, interest or cash dividends on
such additional Indebtedness or preferred 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, (v) where interest is subject to an
interest rate protection agreement, the effective interest cost to the Obligors
shall be deemed to be the interest rate set forth in such interest rate
protection agreement and (vi) interest required to be accrued during such period
on Long-Term Subordinated Debt shall be excluded.
1.109. "Pro Forma Ratio" means, with respect to any Asset Sale, the ratio
---------------
of Combined 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 Combined
Annualized 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 clause (b) of the last sentence of the definition of
Applicable Rate Reference Period for any Asset Sale which occurs before
financial statements have been or are required to have been delivered in
accordance with this Agreement) giving effect to (a) any reduction in Combined
Operating Income resulting from such Asset Sale and any other Asset Sale since
the end of such fiscal quarter and (b) any increase in Combined Operating Income
resulting from any acquisition of Operating Assets since the end of such fiscal
quarter.
1.110. "Pro Rata Event" is defined in Section 12.7.1.
--------------
1.111. "Purchase Price" means, with respect to any Qualifying
--------------
Reinvestment, the purchase price of the Operating Assets acquired in such
Qualifying Reinvestment which is
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<PAGE>
paid on the closing of such acquisition in cash or capital stock of any Borrower
or the Company without giving effect to any post-closing adjustments.
1.112. "Providence Journal Cable Acquisition" means the acquisition by the
------------------------------------
Company of the cable television systems of Providence Journal Company, a Rhode
Island corporation, and King Videocable Company, a Washington corporation, and
their respective subsidiaries pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of November 18, 1994 among the Company, Providence
Journal Company, The Providence Journal Company, King Holding Corp. and King
Broadcasting Company, a copy of which has heretofore been delivered by the
Company to the Managing Agents, as the same may from time to time be amended,
supplemented and modified, and pursuant to which Colony will become a direct
wholly owned Subsidiary of the Company.
1.113. "Qualifying Reinvestment" means, with respect to any Asset Sale,
-----------------------
the acquisition by any Obligor of Operating Assets which satisfies one of the
following conditions: (a) such acquisition occurs on the date of or within 90
days prior to such Asset Sale or (b)(i) within 180 days after such Asset Sale
any Obligor has executed and delivered a binding agreement pursuant to which
such Obligor is committed to acquire Operating Assets and (ii) within 180 days
after the execution and delivery of such agreement, such Obligor actually
acquires such Operating Assets.
1.114. "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).
1.115. "Redemption Amount" means in the case of one of the events
described in Section 7.2.9, the aggregate redemption price (as determined in
accordance with the applicable indenture or other document) of the maximum
aggregate amount of Subordinated Debt which a Borrower might be required to
redeem as a result of such event.
1.116. "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 any Borrower or any Lender the Administrative
-------
Agent shall demonstrate the basis for such determination.
1.117. "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
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<PAGE>
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 any Borrower or any Lender, such Managing Agent shall demonstrate the
basis for such determination.
1.118. "Register" is defined in Section 13.1.3.
--------
1.119. "Replacement Lender" is defined in Section 13.3.
------------------
1.120. "Request Date" is defined in Section 2.2.1.
------------
1.121. "Revolving Loan" is defined in Section 2.1.1.
--------------
1.122. "Revolving Loan Accounts" is defined in Section 2.1.1.
-----------------------
1.123. "Revolving Loan Closing Date" is defined in Section 2.1.
---------------------------
1.124. "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.
1.125. "S&P" means Standard & Poor's Ratings Group.
---
1.126. "Stated Maximum" is defined in Section 2.4.
--------------
1.127. "Subordinated Debt" means Indebtedness (including redeemable
-----------------
preferred stock that constitutes Indebtedness) subordinated to the Credit
Obligations.
1.128. "Subsidiary" means any Person of which any Borrower (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.
1.129. "Swingline Borrower" means Colony or such other Borrower as the
------------------
Borrowers may from time to time designate as the Swingline Borrower hereunder by
written notice to the Swingline Lender and to the Administrative Agent, if other
than the Swingline Lender.
1.130. "Swingline Commitment" is defined in Section 2.3.
--------------------
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<PAGE>
1.131. "Swingline Lender" means The First National Bank of Boston in its
----------------
capacity as swingline lender hereunder.
1.132. "Swingline Loan" is defined in Section 2.3.1.
--------------
1.133. "Swingline Loan Account" is defined in Section 2.3.1.
----------------------
1.134. "Swingline Loan Closing Date" is defined in Section 2.3.
---------------------------
1.135. "Swingline Rate" means the sum of (a) the rate per annum agreed
--------------
from time to time between the Swingline Lender and the Swingline Borrower 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 Borrowers 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.
1.136. "Syndication Agent" means The Bank of New York in its capacity as
-----------------
syndication agent for the Lenders hereunder, as well as successors and assigns
in such capacity.
1.137. "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 withheld or
deducted from any payment otherwise required hereby to be made by any Borrower
to any Lender, other than taxes imposed upon or measured by the net income of
such Lender.
1.138. "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.
1.139. "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.
1.140. "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
Spreads of which each Lender shall have advised the Administrative Agent with
respect to such Eurodollar Pricing Option,
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<PAGE>
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 any Borrower may from time to time request by not fewer than one Banking
Day prior telephone notice to 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 Lenders will
severally lend to such Borrower, in accordance with their respective Revolving
Percentage Interests, such amounts (not less than $2,500,000 in the aggregate
and in integral multiples of $100,000 on behalf of all Borrowers on such date,
or in such greater amounts as required by Section 3.2.1 if a Eurodollar Pricing
Option is requested) as such Borrower shall have so requested. The
Administrative Agent shall debit the amount of such loans to the Revolving Loan
Accounts of such Borrower and credit the amount thereof to the general account
of such Borrower 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, such Borrower
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 5.3.1 and signed by such Borrower, 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 for
each Borrower (collectively, the "Revolving Loan Accounts"), each of which
shall reflect the loans made by such Lender to such Borrower 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 Borrower's 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 such Borrower pursuant to this Section 2.1, and (b)
the Administrative Agent shall credit each Borrower's 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 of the Borrower on whose behalf such payment is
made 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". Each
Borrower's obligation to pay each Lender's Revolving Percentage Interest in
the Revolving Loan to such Borrower shall be evidenced by a separate note
of such
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<PAGE>
Borrower 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.
2.2. Money Market Rate Credit. As provided in this Section 2.2, any
------------------------
Borrower (including, for purposes of this Section 2.2, a group of Borrowers
acting in concert) 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 such Borrower 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 $100,000,000; 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 Borrower. Subject to all the terms and
-----------------------
conditions hereof and so long as there shall exist no Default, any Borrower
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 to the Borrowers at any one time. Each
Borrower will pay to the Administrative Agent quarterly in arrears an
auction fee in respect of each request submitted by such Borrower 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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<PAGE>
2.2.2. Dissemination of Requests for Bids for Money Market Loans.
---------------------------------------------------------
Promptly upon receipt of each request submitted by a Borrower 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 such Borrower 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 such Borrower 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 such Borrower 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 such Borrower 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 such Borrower, 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 such Borrower, confirmed
in writing, forward to such Borrower in substantially the form of Exhibit
2.2.3B, all 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 such Borrower by telex or telecopy not later
than 8:45 a.m. (Boston time) on the proposed Money Market Loan Closing
Date.
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<PAGE>
2.2.4. Acceptance of Bids by the Borrower. Not later than 10:30
----------------------------------
a.m. (Boston time) on the applicable Money Market Loan Closing Date, the
Borrower requesting the bids for a Money Market Loan 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 such Borrower that the closing
conditions for such Money Market Loans contained in Section 5.3 (other than
the delivery of an officer's certificate) have been satisfied. Such
Borrower 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 such
Borrower fails to provide such notice to the Administrative Agent by 10:30
a.m. (Boston time) on the Money Market Loan Closing Date, the
Administrative Agent may conclusively presume that all such offers have
been rejected by such Borrower 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 such Borrower 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 requesting Borrower 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
-22-
<PAGE>
crediting the amount thereof to the Revolving Loan Accounts of such
Borrower for the account of the Lenders in accordance with their respective
Revolving Percentage Interests or as such Borrower shall have otherwise
specified by written notice to the Administrative Agent. In conjunction
with each closing under this Section 2.2, such Borrower 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 5.3.1 and signed by such
Borrower, 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
to a Borrower 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 to such Borrower and (b)
the Administrative Agent shall credit to the pertinent Money Market
Loan Account of the Borrower on whose behalf payment is made, 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
appropriate Borrower will pay interest on 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 Borrowers 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 such
Borrower 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.
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<PAGE>
2.2.6. Funding; Legal Requirements. Each Lender extending a Money
---------------------------
Market Loan to any Borrower 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 such Borrower 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 such Borrower and other customers which have arrangements with
such Lender similarly funded, if done in 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 such
-------- -------
Borrower such Lender shall demonstrate the basis for such determination or
provide an explanation, reasonably satisfactory to such Borrower, why such
determination may not be demonstrated. Each Lender agrees that if, after
the payment by such Borrower 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 such Borrower 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
-------- -------
such Borrower, such Lender shall demonstrate the basis for such recovery or
utilization or provide an explanation, reasonably satisfactory to such
Borrower, why such basis may not be demonstrated.
2.2.7. Prepayments in Respect of Money Market Loans. If any Money
--------------------------------------------
Market Loan is prepaid by a Borrower prior to the applicable Money Market
Loan Maturity Date (including as a result of acceleration), such Borrower
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
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<PAGE>
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 Borrower to which such Money Market Loan was to have been
made 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 Swingline Borrower 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 Swingline Borrower such amount, which shall not be less than $100,000 and
shall be in an integral multiple of $50,000, as the Swingline Borrower shall
have so requested. The Administrative Agent shall debit the amount of such loan
to the Swingline Loan Account and credit the amount thereof to the general
account of the Swingline Borrower 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
$15,000,000 (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 Swingline Borrower 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 5.3.1 and signed by the
Swingline Borrower, 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 Swingline Borrower (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 Swingline Borrower 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.
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<PAGE>
2.4. Maximum Amount of Credit. The combined aggregate principal amount of
------------------------
all loans 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) the Available Funds in effect as of the
date of determination reduced by the percentage of such Available
Funds specified opposite the period during which the date of
determination occurs in the table below :
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
Initial Closing Date through December 30, 1998 0.00%
December 31, 1998 through December 30, 1999 6.00%
December 31, 1999 through December 30, 2000 16.00%
December 31, 2000 through December 30, 2001 30.00%
December 31, 2001 through December 30, 2002 46.00%
December 31, 2002 through December 30, 2003 64.00%
December 31, 2003 through September 29, 2004 82.00%
Final Maturity Date 100.00%
</TABLE>
and (B) the amount (being an integral multiple of $2,500,000 unless
the Borrowers terminate the entire Maximum Amount of Credit)
irrevocably specified from time to time by at least three Banking
Days prior written notice from the Borrowers to the Administrative
Agent;
minus (ii)(A) 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, and (B) the net
cash proceeds (after deducting underwriting discounts and other
expenses of the Borrowers specifically related to the incurrence of
the applicable Indebtedness) of the first $100,000,000 in aggregate
principal amount of Indebtedness incurred by the Borrowers in
accordance with Section 7.7.7 and/or 7.7.10 and (C) the amount of
any cash dividends paid (other than dividends permitted by Section
7.12.4) or capital stock redeemed for cash or Indebtedness by the
Borrowers (the amount
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<PAGE>
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. Representations, Etc. From time to time prior to the Final
---------------------
Maturity Date, so long as no Default shall exist, any Borrower 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) representations by any Obligor to a governmental authority to
which such Obligor is applying for an FCC License or Franchise; or
(b) representations by any Obligor to any other Person for any
other lawful corporate purpose.
Such designation shall be made by the Borrowers 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 Borrowers may borrow hereunder (i) the aggregate
outstanding principal amount then evidenced by the Revolving Loan Accounts,
plus (ii) all unborrowed amounts for which designations are already in
----
effect under this Section 2.5.1, plus (iii) the amount to be designated.
----
Upon receipt of such a designation the Administrative Agent shall, if so
requested by the Borrowers, inform the 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 authority or other
Person shall include an express disclaimer of any third party beneficiary
rights of such authority or other Person hereunder. Amounts designated
hereunder may be borrowed only for the purpose so designated. The Borrowers
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 Borrowers shall have, as
-------- -------
shall be appropriate under the circumstances in the reasonable judgment of
the Administrative Agent, (A) sold the assets or cable television system to
which such designation related and the purchaser thereof shall have assumed
the Borrowers' obligations related to such designation, (B) satisfied the
obligation related to such designation or (C) advised the governmental
authority or other Person for which such designation was made of such
termination or reduction, and in each such case the Borrowers shall have
provided satisfactory evidence thereof to the Administrative Agent.
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<PAGE>
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 credit
available relating to an Asset Sale Designation may only be borrowed for a
subsequent Qualifying Reinvestment in respect of such Asset Sale; provided,
--------
however, that the Borrowers 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 Borrowers from time to time by written notice
from the Borrowers 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. Each
-------------------------------------------------------------
Borrower covenants that the proceeds of the loans made pursuant to this
Agreement will be applied only to lawful corporate purposes of each Borrower,
which purposes may include the Providence Journal Cable Acquisition, the N-Com
Acquisition and the Columbia Cable Acquisition. In addition, the Borrowers 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.
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 and shall terminate if the Initial Closing Date has not
occurred on or prior to December 31, 1995. If on the Initial Closing Date
or any other 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 to make such loans. The other Lenders not so
failing may, if they so desire, assume in such
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<PAGE>
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, each Borrower
will, on each Payment Date, beginning on the first Payment Date after the
Initial Closing Date, pay the accrued and unpaid interest on the Indebtedness
evidenced by its 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, each Borrower will pay the
accrued and unpaid interest on the portion of the Indebtedness evidenced by its
Revolving Loan Accounts 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, each Borrower will also pay on each
Payment Date in such Eurodollar Interest Period the amount of accrued and unpaid
interest on its 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 each Borrower 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 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.
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<PAGE>
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, any Borrower
(including, for purposes of this Section 3.2, a group of Borrowers acting
in concert) 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 such Borrower 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 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
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<PAGE>
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 Borrower electing the Eurodollar Pricing
Option 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. Simultaneous elections by all Borrowers
with respect to Eurodollar Pricing Options pursuant to this Section 3.2.1
shall be deemed to be a single election.
3.2.2. Notices Relating to Eurodollar Pricing Options. The
----------------------------------------------
Administrative Agent will promptly inform each Lender of each notice from
any Borrower 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 such Borrower 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 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 such Borrower, the Administrative Agent will promptly
inform each Lender of the Eurodollar Rate so determined or, if applicable,
the reason why such Borrower's election will not become effective;
provided, however, that if such Borrower's election will not become
-------- -------
effective because the Eurodollar Rate determined by the Administrative
Agent exceeds the maximum Eurodollar Rate specified by such Borrower 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 such Borrower's election will not become effective.
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<PAGE>
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 Payments 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), each Borrower 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 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 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 payable under this Section 3.3.2 shall, in
the absence of manifest error, be conclusive; provided, however, that at
-------- -------
the request of any Borrower or any Lender the Administrative Agent shall
demonstrate the basis for such determination or provide an explanation,
reasonably satisfactory to such Borrower 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 Borrower requesting such
Eurodollar Pricing Option 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
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<PAGE>
Eurodollar Pricing Option or otherwise from giving effect to its
obligations as contemplated hereby, (a) the Administrative Agent may by
notice thereof to the Borrowers 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 Borrowers shall indemnify such
Lender as provided in Section 3.3.2.
3.3.4. Funding Procedure. The Lenders have indicated that, if a
-----------------
Borrower 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 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 a Borrower 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 Borrowers and the
Administrative Agent.
3.4. Interest on Money Market Loans. Each Borrower will pay its portion
------------------------------
of the 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
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<PAGE>
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 Swingline Borrower will on each Payment
Date, beginning on the first Payment Date after the Initial Closing Date, 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 Swingline Borrower 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 Borrowers shall pay the Administrative
Agent for the Lenders' accounts on each Payment Date and on the Final
Maturity Date (or the date of any earlier termination of this Agreement),
commencing on the first Payment Date after the Initial Closing Date and
ending on the earlier of the Final Maturity Date or 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 of
payment 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
period minus the Swingline Commitment exceeded (b) the average daily
-----
Revolving Loan during such period. In addition, the Borrowers shall also
pay the Administrative Agent for the Lenders' accounts (i) on each
Acquisition Date, an amount equal to daily interest, computed on the basis
of a year of 365 days, for the period commencing on the date hereof and
ending on such Acquisition Date at the rate of 1/8% per annum on the
portion of Available Funds which became available on such date and was not
previously available and (ii) on December 31, 1995, an amount equal to
daily interest, computed on the basis of a year of 365 days, for the period
commencing on the date hereof and ending on such date of payment at the
rate of 1/8% per annum on the excess of the Lenders' total Commitments over
the Available Funds on such date; provided, however, that if, on or prior
-------- -------
to December 31, 1995, the Initial Closing Date has not occurred and this
Agreement is terminated, then on the date of termination of this Agreement
the Borrowers shall pay to the Administrative Agent for the account of the
Lenders an amount equal to a fee calculated in accordance with this
sentence for a period of 180 days. 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 Swingline Borrower shall pay the
Administrative Agent for the Swingline Lender's account on each Payment
Date, commencing on the
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<PAGE>
first Payment Date after the Initial Closing Date and ending on the earlier
of the Final Maturity Date or 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 of payment, 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 period
from and after the Initial Closing Date, exceeded (b) the average daily
Swingline Loan during such period. 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 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
Borrowers 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, or the making of, 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; provided, however, that for purposes of this Section 3.7, a
-------- -------
Lender's unfunded commitments to extend credit hereunder shall in no event
include commitments to extend credit in excess of such Lender's Revolving
Percentage Interest (or, in the case of the Swingline Lender, Voting
Percentage Interest) of the Available Funds as then in effect. 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 any Borrower, such
-------- -------
Lender shall demonstrate the basis for such determination. Each Lender
agrees that if, after the payment by any Borrower 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 such
Borrower 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,
--------
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<PAGE>
however, that at the request of any Borrower, such Lender shall demonstrate
-------
the basis for such calculation or provide an explanation, reasonably
satisfactory to such Borrower, why such calculation may not be
demonstrated.
(b) The Administrative Agent may include in the charges to the
account of any Borrower 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 such Borrower 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 such Borrower 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 manifest error, be conclusive; provided, however,
-------- -------
that at the request of any Borrower, the Lender shall demonstrate the basis
for such determination.
(c) Each Lender will use its best efforts to inform the Borrowers
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 any or all of the Borrowers or
the Administrative Agent of any such event shall not affect any of the
obligations of the Borrowers hereunder.
3.8. Taxes.
-----
(a) If (i) any Lender shall be subject to any Tax or (ii) any
Borrower shall be required to withhold or deduct any Tax, each Borrower
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 in respect of such Borrower's portion
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 any Borrower
-36-
<PAGE>
such Lender shall demonstrate the basis for such determination. Each Lender
agrees that if, after the payment by any Borrower 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 such
Borrower 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 any Borrower such Lender shall demonstrate the basis for such
calculation or provide an explanation, reasonably satisfactory to the
Borrowers, why such calculation may not be demonstrated.
(b) The Administrative Agent may include in the charges to the
account of any Borrower for interest under this Agreement amounts owed
under this Section 3.8 as a result of Legal Requirements to the 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
such Borrower 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 such Borrower 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 any Borrower such Lender shall demonstrate the basis for such
determination or provide an explanation, reasonably satisfactory to such
Borrower, why such determination may not be demonstrated.
(c) Each Lender will use its best efforts to inform the Borrowers
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 Borrowers
or the Administrative Agent shall not affect any of the obligations of the
Borrowers 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, each Borrower will pay to the Administrative
Agent for credit to the applicable Money Market Loan Account the outstanding
principal amount of its Money Market Loan maturing on such date, together with
all accrued and unpaid interest with respect thereto. On the Final Maturity
Date, each Borrower shall pay to the Administrative Agent for credit to its
Revolving 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. On the
Final Maturity Date, the Swingline Borrower shall pay to the Administrative
Agent for credit to its Swingline Loan Account the entire outstanding principal
amount of Indebtedness evidenced thereby, together with all accrued and unpaid
interest with respect thereto. On any
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<PAGE>
accelerated maturity of the Indebtedness evidenced by any Loan Account, each
Borrower shall pay to the Administrative Agent for credit to its 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.
4.2. Contingent Required Prepayments.
-------------------------------
4.2.1. Excess Credit Exposure. If at any time the Revolving Loan
----------------------
exceeds the Maximum Amount of Credit, the Borrowers 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 any Borrower or
any Designated Obligor which is a Subsidiary of such Borrower of a sale,
disposition or exchange of assets permitted by Section 7.10.2, 7.10.3 or
7.10.4 (the "Asset Sale"), such Borrower shall pay to the Administrative
Agent for the account of the Lenders as a repayment of its Revolving Loan
an amount equal to 50% of the Net Cash Proceeds received by such Borrower
or such Designated Obligor from the Asset Sale and, if the amount of such
required payment exceeds such Borrower's Revolving Loan, the excess shall
be allocated among the other Borrowers' Revolving Loans on a pro rata
basis; 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 described in clause (a) of the definition of Qualifying
Reinvestment; 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)(A).
4.2.3. Allocation of Payments. Contingent prepayments required to
----------------------
be made by any Borrower 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), each Borrower 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 its Revolving Loan or any Money
Market Loan in such amounts as are not less than $2,500,000 and in integral
-38-
<PAGE>
multiples of $100,000 in the aggregate for payments made by all Borrowers on
such date, unless such payment is equal to the entire outstanding principal
amount of the Revolving Loan or the Money Market Loan, as the 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 Swingline Borrower shall have the right to
prepay, without premium or penalty of any type, all or any part of the
outstanding principal amount of its 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 any Borrower shall fail to make
payment thereof) interest thereon shall cease to accrue. Unless otherwise
specified by any Borrower, (a) all prepayments of its 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 its 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 5.3:
5.1.1. Notes and Lender Agreements. Contemporaneously with the
---------------------------
Providence Journal Cable Acquisition, Colony shall execute and deliver to
the Documentation Agent a Note for each Lender and a joinder to the Credit
Agreement and each other Lender Agreement such that after giving effect to
the consummation of the Providence Journal Acquisition, Colony shall have
become party to this Agreement and each other Lender Agreement as a
Borrower and Guarantor.
5.1.2. Acquisition of Providence Journal Cable Assets.
----------------------------------------------
Contemporaneously with the extension of credit on the Initial Closing Date,
the Providence Journal Cable Acquisition shall be completed.
5.1.3. Guarantors' Contribution Agreement. The Guarantors shall
----------------------------------
have delivered to the Administrative Agent a copy of a guarantors'
contribution agreement (the "Guarantors' Contribution Agreement") among the
Guarantors (only in their capacity as Guarantors, and in no event in their
capacity as Borrowers) pursuant to
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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.
5.1.4. CCI Subordination Agreement. Each of the Company and its
---------------------------
Subsidiaries loaning funds to, or generating Accrued Programming Costs or
Accrued Management Fees with, the Obligors, the Borrowers and the
Guarantors shall have duly authorized, executed and delivered to the
Managing Agents, a subordination agreement in substantially the form of
Exhibit 5.1.4 (the "CCI Subordination Agreement").
5.1.5. Payment of Fees. The Borrowers 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 (on behalf of the
Borrowers) 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 (on behalf of the Borrowers), the Administrative Agent
and the Managing Agents and (b) the reasonable fees and disbursements of
the Documentation Agent's counsel for which statements have been rendered
on or prior to the Initial Closing Date.
5.1.6. 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:
(a) Sullivan & Worcester, counsel for the Company, the Borrowers
and the Guarantors.
(b) Counsel for Colony and its Subsidiaries.
(c) Ropes & Gray, special counsel for the Documentation Agent.
The Borrowers authorize and direct Sullivan & Worcester to furnish
the foregoing opinion and Colony authorizes and directs its counsel to
furnish the foregoing opinion.
5.2. Conditions to Making Acquisition Advances. The Lenders' several
-----------------------------------------
obligations to make any loan contemplated by Section 2.1, 2.2 and 2.3, the
proceeds of which shall be applied to the N-Com Acquisition or the Columbia
Cable Acquisition, shall be subject to the satisfaction, on or before the date
of the N-Com Acquisition or the Columbia Cable Acquisition, as the case may be,
of the following conditions, as well as the conditions set forth in Section 5.3:
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5.2.1. Acquisition Advances. On the Closing Date when Available
--------------------
Funds first includes the $170,000,000 contemplated by clause (b) of the
definition thereof, the Columbia Cable Acquisition shall have been
consummated. On the Closing Date when Available Funds first includes the
$120,000,000 contemplated by clause (c) of the definition thereof, the N-
Com Acquisition shall have been consummated.
5.2.2. Notes and Lender Agreements. Contemporaneously with the
---------------------------
Columbia Cable Acquisition, Columbia shall execute and deliver to the
Documentation Agent a Note for each Lender and a joinder to the Credit
Agreement and each other Lender Agreement such that after giving effect to
the consummation of the Columbia Cable Acquisition, Columbia shall have
become party to this Agreement and each other Lender Agreement as a
Borrower and Guarantor.
5.2.3. Payment of Fees. The Borrowers shall have paid to the
---------------
Administrative Agent for the respective accounts of the Lenders certain
closing fees as previously agreed among the Company (on behalf of the
Borrowers) and such Lenders.
5.2.4. Legal Opinions. On the date of the Columbia Cable
--------------
Acquisition, the Lenders shall have received from the following counsel
their respective opinions with respect to the addition of Columbia as a
Borrower and a Guarantor under this Agreement and the other Lender
Agreements, which opinions shall be in form and substance reasonably
satisfactory to the Managing Agents:
(a) Sullivan & Worcester, counsel for the Company, the Borrowers
and the Guarantors.
(b) Ropes & Gray, special counsel for the Documentation Agent.
The Borrowers authorize and direct Sullivan & Worcester to furnish the
foregoing opinion.
5.3. 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 :
5.3.1. Borrowers' Officer's Certificates. 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
December 31, 1994 and such Closing Date, neither the business, operations,
assets
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nor the condition, financial or otherwise, of the Obligors on a Combined
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 from each Borrower to these effects and indicating
any change in such Borrower's charter, by-laws or signing officers in
substantially the form of Exhibit 5.3.1 dated such Closing Date and signed
by a Financial Officer.
5.3.2. Proper Proceedings. All proper corporate or partnership
------------------
proceedings shall have been taken by each Borrower 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.
5.3.3. 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 Borrowers pursuant to Section 3.8) or (b) be
prohibited by, or violate, any law or governmental order or regulation
applicable to any Lender, any Borrower or any Guarantor.
5.3.4. 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 any Borrower, any
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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 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.
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 Borrowers' 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 Borrowers or any
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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 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 any Borrower,
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 any Borrower 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, any Borrower 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 any Borrower 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 Obligors (including such Guarantor), and
reasonably necessary and 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 Borrowers 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
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<PAGE>
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 any Borrower 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
(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 Borrowers (financial or otherwise on an
individual or Combined basis) may have deteriorated since the date hereof.
6.5. Information Regarding the Borrowers, 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
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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 Obligors or their respective 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
Obligors all information concerning this Agreement and all other Lender
Agreements and all other information as to the Obligors 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) until all Credit Obligations have been paid in full and the
Lenders' Commitment to extend credit under the Lender Agreements have
terminated, 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 Borrowers, and (b)
all Indebtedness, claims and liabilities now or hereafter owing by the Borrowers
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 Borrowers or
any of their 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 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. Each Borrower and each Guarantor shall from time to time cause any
of the Borrowers' present or future wholly owned Subsidiaries (within 30 days
after any such future wholly owned Subsidiary becomes a wholly owned Subsidiary)
that are not Guarantors to guarantee the payment and performance of the Credit
Obligations in accordance with this Section 6. Each Borrower and each Guarantor
shall use reasonable efforts to obtain all outside stockholder consents for any
of its future Subsidiaries that are not wholly owned by the Borrower 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 Subsidiary to
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guarantee the payment and performance of the Credit Obligations in accordance
with this Section 6.
6.8. Release of Guarantors. If the stock, partnership interests or other
---------------------
beneficial interests of a Guarantor (other than a Borrower) are sold or
exchanged in accordance with Section 7.10 so that it is no longer a Subsidiary
of a Borrower, 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 any
Borrower, such Guarantor or the Lenders.
7. COVENANTS. Each of the Borrowers and the Guarantors covenants that,
commencing on the Initial Closing Date, it will comply and will cause each of
its Subsidiaries to comply with the following provisions:
7.1. Corporate Existence; Conduct of Business. Each Obligor will take the
----------------------------------------
necessary steps to preserve its corporate existence and will conduct its
business so as to derive its 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 Subsidiary of any Borrower if in the good faith
judgment of such Borrower's board of directors such liquidation is in the best
interests of such Borrower and is not materially disadvantageous to the holders
of the Credit Obligations.
7.2. Financial Statements, etc. Each of the Obligors will maintain a
-------------------------
system of accounting in which full and correct entries will be made of all
dealings and transactions in relation to its business 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 Borrowers will furnish to
each Lender copies of the balance sheet of the Obligors as of the end of
such quarter and the statements of income and cash flows of the Obligors
for the portion of the fiscal year then ended, all in reasonable detail,
which statements shall be Combined, shall have been prepared without audit
and shall be certified by a Financial Officer of each Borrower as
presenting fairly the financial condition and results of operations of the
Obligors on a Combined basis 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
signed by each 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
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and conditions of the Obligors 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 Borrowers
have taken, are taking or propose to take with respect thereto;
(c) stating, when appropriate, the effects on such financial
statements of any change in any Borrower'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;
(e) demonstrating as at the end of such accounting period in
reasonable detail compliance with Sections 7.7.2, 7.7.5, 7.7.8,
7.7.9, 7.10.2, 7.10.3, 7.10.4, 7.12.3, 7.13 and 7.16(g) (and, if at
the end of such accounting period there were in effect any
designations of amounts under Section 2.5.1(a) or 2.5.1(b),
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 aggregate 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 Obligors;
(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
(i) the Obligors and (ii) the Obligors, on the one hand, and the
Company and its Subsidiaries (other than the Obligors), on the other
hand; and
(i) stating the amount of any cash payments made by any
Obligor during such quarter in respect of any amount for which such
Obligor has established regulatory reserves.
7.2.2. Annual Reports. Within 90 days after the end of each fiscal
--------------
year, the Borrowers will furnish to each Lender copies of the balance sheet
and supplemental schedules of the Obligors as at the end of such year and
the statements of income and
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cash flows and supplemental schedules of the Obligors for such year, all in
reasonable detail, which statements shall be Combined, 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 Borrowers 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 Obligors on
a Combined basis in accordance with generally accepted accounting
principles, applied on a basis consistent with that of prior years;
(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
Borrowers described in clause (d) below and that in the course of
their audit of the Borrowers 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 Borrowers 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 Borrowers demonstrating, as of the
close of such fiscal year, compliance with Sections 7.7.2, 7.7.5,
7.7.8, 7.7.9, 7.10.2, 7.10.3, 7.10.4, 7.12.3, 7.13 and 7.16(g) (and,
if at the close of such fiscal year there were in effect any
designations of amounts under Section 2.5.1(a) or 2.5.1(b),
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 Borrowers setting forth the aggregate
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 Obligors;
(f) supplements to Exhibit 8.1 showing any changes in the
information set forth therein during the last fiscal quarter of such
fiscal year;
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(g) a schedule of intercompany Indebtedness among (i) the
Obligors and (ii) the Obligors on the one hand, and the Company and
its Subsidiaries (other than the Obligors), on the other hand; and
(h) stating the amount of any cash payments made by any
Obligor during the last fiscal quarter of such fiscal year in
respect of any amount for which such Obligor has established
regulatory reserves.
7.2.3. Audits. Promptly upon receipt thereof, each Borrower shall
------
deliver to each Managing Agent copies of all other reports submitted to
such Borrower by independent public accountants in connection with any
annual, interim or special audit of the books of such Borrower or any of
its Subsidiaries made by such accountants.
7.2.4. ERISA Reports. Each of the Obligors 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 it 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
any Obligor 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, such Obligor 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.
7.2.5. Public Reports. Promptly upon their becoming available,
--------------
each Borrower shall deliver to each Lender copies of all financial
statements sent by such Borrower 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 such Borrower to its shareholders
(other than the Company or any of its Subsidiaries), and all regular and
periodic reports (without exhibits) and effective registration statements
(without exhibits) filed by such Borrower with any securities exchange or
with the Securities and Exchange Commission or its successor, and each
Borrower shall deliver to the Managing Agents copies of all press releases
and other statements made available generally by such Borrower to the
public concerning material developments in the business of such Borrower
and its Subsidiaries.
7.2.6. Defaults. Immediately upon becoming aware of the existence
--------
of any Default, the Borrowers shall deliver to the Lenders written notice
specifying the
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nature and period of existence thereof and what action the Borrowers have
taken, are taking or propose 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 any Obligor has given notice or taken
any other action with respect to a claimed default, such Borrower 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 such Borrower has taken, is taking or proposes to take with respect
thereto.
(b) Promptly upon any of the Borrowers' Financial Officers
obtaining knowledge thereof, the Borrowers shall promptly notify the
Administrative Agent of (i) the receipt by any Obligor 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 such Obligor and (ii) any abandonment or expiration of a Franchise
now or hereafter held by such Obligor.
7.2.8 Requested Information. Each Borrower 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 any mandatory redemption obligation
comparable to redemptions on the Put Option Redemption Dates (as defined in
the 1989 Indenture), Control Redemption Dates (as defined in the 1989
Indenture) and Preferred Event Redemption Dates (as defined in the 1992
Indenture), the Borrower making such payment shall give notice of such
proposed payment, together with the certificate referred to below, to the
Administrative Agent no later than the date specified in the applicable
paragraph below:
(a) 20 days prior to the date that such Borrower shall give
notice of a proposed mandatory redemption obligation comparable to a
Put Option Stock Repurchase or Put Option Borrowing (each as defined
in the Indentures) or request the trustee under any indentures to
give such a notice;
(b) the later of (i) 20 days prior to the occurrence of any
transaction which would constitute an event comparable to a Change
of Control Event (as defined in the 1989 Indenture) or (ii) one day
after the first date that such
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<PAGE>
Borrower knows or reasonably should have known of any such
transaction or proposed transaction; or
(c) five Banking Days prior to an irrevocable election by
such Borrower to make a payment comparable to the Preferred Stock
Redemption Payment (as defined in the 1992 Indenture).
Together with the delivery of notice to the Administrative Agent required
by this Section 7.2.9, such Borrower will deliver to the Administrative
Agent a certificate executed by a Financial Officer either (A)(1) stating
that no Default exists and that either (x) such Borrower has adequate
available funds on hand which are dedicated to pay the Redemption Amount or
(y) assuming that such Borrower 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 such Borrower and its
Subsidiaries, no Default would exist after giving effect to the incurrence
of such additional Indebtedness, and (2) 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 (B) setting forth the nature of the present
Default or the Default anticipated upon payment of the Redemption Amount.
7.2.10. 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 or syndication Affiliates which are wholly owned by the same
corporate parent as such Lender, (b) to other financial institutions which
are creditors of any Borrower, 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 any Borrower, (c) with the prior
written consent of the Borrowers, (d) to Credit Participants, prospective
Credit Participants and prospective Lenders who agree to maintain the
confidentiality of such information in accordance with this Section 7.2.10,
and (e) in litigation between such Lender and any Borrower or Guarantor
with respect to this Agreement or any other Credit Document. The provisions
of this Section 7.2.10 shall survive the termination of this Agreement.
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<PAGE>
7.3. Insurance. Each Obligor will maintain or cause to be maintained,
---------
with financially sound and reputable insurers, insurance with respect to its
properties and business 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 such Obligor's management.
7.4. Taxes; Claims. Each Obligor will 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 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 such Obligor shall have created
adequate reserves on its books with respect thereto.
7.5. Maintenance of Properties. Each Obligor shall maintain and keep the
-------------------------
properties used or, in the good faith judgment of such Obligor'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 such Obligor's management to be necessary or appropriate.
7.6. Statutory Compliance. Each Obligor 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. None of the Obligors 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 exceeding $25,000,000 in the
aggregate 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 owing to any Obligor, which Indebtedness shall
be unsecured and, if owing by a Borrower to an Obligor that is not a
Borrower or by a Guarantor to an Obligor that is not a Borrower or a
Guarantor, shall be subordinate to the Credit Obligations pursuant to the
CCI Subordination Agreement.
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<PAGE>
7.7.4. Intentionally Omitted.
7.7.5. Indebtedness of the Borrowers not in excess of $100,000,000
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 7.7.5.
7.7.6. Other Indebtedness of the Borrowers 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.
7.7.7. Indebtedness of the Borrowers not in excess of $500,000,000:
(a) which 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 applicable Borrower's then-current credit ratings;
(b) which 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 the applicable Borrower and its Subsidiaries than the terms of
this Agreement; provided, however, that to the extent certain terms of such
-------- -------
Indebtedness relate to such Borrower's mandatory redemption obligations in
respect of such Indebtedness, such terms shall be no more restrictive or
burdensome in any material respect on such Borrower and its Subsidiaries
than the most restrictive and burdensome terms relating to the Company's
mandatory redemption obligations in respect of the 1989 Subordinated Debt
and the 1992 Subordinated Debt;
(c) which 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 applicable Borrower and its Subsidiaries than the most restrictive
and burdensome applicable terms with respect to the Company under the 1989
Subordinated Debt or the 1992 Subordinated Debt and (ii) subordination
terms at least as favorable to the Lenders as the most favorable
subordination terms of the 1989 Subordinated Debt or the 1992 Subordinated
Debt;
(d) which shall have no scheduled principal payments on or prior to
December 31, 2004; and
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<PAGE>
(e) in respect of which the Stated Maximum has been reduced
pursuant to Section 2.4(a)(ii)(B) to the extent required thereby.
7.7.8. Guarantees by the Obligors of Indebtedness of other Persons
in an aggregate principal amount not to exceed $25,000,000 at any time
outstanding.
7.7.9. Letters of credit issued on behalf of the Obligors in an
aggregate amount not to exceed $25,000,000 at any time outstanding.
7.7.10. Indebtedness of the Borrowers to the Company or to other
Subsidiaries of the Company in an aggregate principal amount not to exceed
$300,000,000 at any time outstanding that is unsecured and subordinated to
the Credit Obligations pursuant to the CCI Subordination Agreement and in
respect of which the Stated Maximum has been reduced pursuant to Section
2.4(a)(ii)(B) to the extent required thereby; provided, however, that the
-------- -------
interest rate of any Indebtedness permitted pursuant to this Section 7.7.10
must be reasonably acceptable to the Managing Agents.
7.7.11. Long-Term Subordinated Debt.
7.8. Liens. None of the Obligors will mortgage, pledge or otherwise
-----
encumber any of its property, or permit any lien or security interest to exist
thereon, except the following:
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
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<PAGE>
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 any Obligor is a party and other similar encumbrances, none
of which in the reasonable opinion of such Obligor interferes with the use
of the property by such Obligor 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. 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 Obligors, taken as a whole.
7.8.9. Encumbrances in the form of rights of first refusal or other
transfer restrictions as reflected on Exhibit 8.1.
7.9. Investments. None of the Obligors 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
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<PAGE>
(d) repurchase agreements with any of the banks or trust companies
referred to in clause (a) hereof.
7.9.2. Investments in any Obligor; provided, however, that any
-------- -------
Investments made by a Borrower in any Guarantor, or by a Borrower or a
Guarantor in any Obligor that is neither a Borrower nor a Guarantor, which
are not made in cash shall be permitted under this Section 7.9.2 only if
such Investment would also be permitted under (a) Section 7.10.4 (after
giving effect to the last sentence of Section 7.10.4) or (b) Section
7.10.5.
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 consisting of a loan in the principal amount of
approximately $755,000,000 by PJC Financing Corp. to Providence Journal
Company and its Subsidiaries immediately prior to, and solely in connection
with, the consummation of the Providence Journal Cable Acquisition, which
loan will be assumed by the Company as part of the Providence Journal Cable
Acquisition after which the Company will be released of its obligations
thereunder in accordance with Section 7.16(f).
7.9.5. Investments constituting the acquisition of capital stock,
equity, partnership or other beneficial interests in, or assets of, any
Person that conducts its business (a) within the United States of America
and (b) so as to derive substantially all of its revenues from the cable
television and/or telecommunications business and related activities;
provided, however, that immediately following such Investment:
-------- -------
(i) no Default shall exist; and
(ii) in the event that the amount of any Investment (other
than the purchase of less than 50% of the outstanding capital stock,
equity, partnership or other beneficial interests of any Person)
pursuant to this Section 7.9.5 which is made in cash exceeds
$50,000,000, the Borrowers shall provide such information concerning
such Investment as is then available and reasonably requested by the
Managing Agents.
7.10. Sales of Assets; etc. None of the Obligors will sell any of its
---------------------
assets (including Investments in Subsidiaries) and no Obligor will issue any
shares of its capital stock, or rights or options to acquire such stock, to any
Person other than the Borrowers 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.
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7.10.2. Sales of assets (including Investments in Subsidiaries) by
any Obligor 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 such Obligor 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 Combined
Operating Income, calculated in accordance with clause (d) below,
for all assets sold pursuant to this Section 7.10.2 by such Obligor
during the period commencing on the later of the Initial Closing
Date and the date which is twelve months 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 Section 7.10), together with all Operating Asset exchange
shortfalls during such period deemed asset sales pursuant to Section
7.10.3 or 7.10.4, shall not exceed 15%; and
(c) the sum of the respective contributions to Combined
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 7.10.2 by the Obligors during the period
commencing on the later of the Initial Closing Date 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 Section 7.10),
together with all Operating Asset exchange shortfalls during such
period deemed asset sales pursuant to Section 7.10.3 or 7.10.4,
shall not exceed 30%.
(d) For purposes of calculating the foregoing clause (b) and
clause (b) of each of Sections 7.10.3 and 7.10.4, subject to clause
(f) below in the case of Asset Sales during the Phase-In Period, the
percentage accounted for by each asset so sold is that percentage of
Combined 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, if the asset is
sold during the Phase-In Period, in the fiscal quarter during which
such Asset Sale occurred and any earlier fiscal quarters during the
Phase-In Period) which was contributed by such asset.
(e) For purposes of calculating the foregoing clause (c):
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<PAGE>
(i) subject to clause (f) below in the case of
Qualifying Reinvestments during the Phase-In Period, for each
group of Operating Assets acquired in a Qualifying
Reinvestment, the percentage of Combined Operating Income
contributed by such Operating Assets shall be determined by
measuring (A) the Combined 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 (or, if
such Qualifying Reinvestment occurs in the Phase-In Period,
during the fiscal quarter in which such Qualifying
Reinvestment occurs and any earlier fiscal quarters during
the Phase-In Period) against (B) Combined Operating Income
during such period, and
(ii) the aggregate percentage of Combined Operating
Income for all assets so sold equals (A) the sum of the
historical percentages calculated in accordance with the
foregoing clause (d) in respect of assets sold 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.
(f) For purposes of calculating the percentage of Combined
Operating Income contributed by assets sold or by Operating Assets
acquired in a Qualifying Reinvestment during the Phase-In Period,
Combined Operating Income during the Phase-In Period (or portion
thereof) shall be adjusted on a pro forma basis to give effect to
the N-Com Acquisition and the Columbia Cable Acquisition, as the
case may be, as if such transactions had occurred on the first day
of the fiscal quarter in which the Initial Closing Date occurs,
provided the N-Com Acquisition or the Columbia Cable Acquisition or
both, as the case may be, shall have occurred as of the time of the
foregoing calculation.
7.10.3. Any Obligor may exchange Operating Assets for Operating
Assets of another Person (other than the Company and its Subsidiaries);
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 Combined
Operating Income, calculated in accordance with clause (d) of
Section 7.10.2, for all Operating Assets so exchanged by the
Obligors during the period commencing on the later of the
Initial Closing Date and the
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date which is twelve months prior to the date of such
exchange and ending on 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%.
7.10.4. Any Obligor may exchange Operating Assets for Operating
Assets of the Company and its Subsidiaries; provided, however, that
-------- -------
immediately after giving effect to any such exchange:
(a) no Default shall exist;
(b) the sum of the respective contributions to Combined
Operating Income, calculated in accordance with clause (d) of
Section 7.10.2, for all Operating Assets so exchanged by the
Obligors 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 25%; and
(c) the sum of the respective contributions to Combined
Operating Income, calculated in accordance with clause (e) of
Section 7.10.2 and netted against certain amounts in the event of a
Qualifying Reinvestment as provided in such clause (e), for all
Operating Assets so exchanged by the Obligors during the period
commencing on the later of the Initial Closing Date and the date
which is five years prior to the date of such exchange and ending on
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 50%.
In the event that any Operating Assets acquired by any Obligor in any
exchange pursuant to Section 7.10.3 or this Section 7.10.4 contribute less
Combined Operating Income (on a pro forma basis) than the Operating Assets
transferred by such Obligor in such exchange (in each case calculated in
accordance with clause (d) of Section 7.10.2), the amount of such shortfall
in Combined Operating Income shall be considered an asset sale under
Section 7.10.2. In connection with an exchange of Operating Assets
permitted by Section 7.10.3 or this Section 7.10.4, any Obligor, 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.
Non-cash Investments made by a Borrower in a Guarantor, or by a Guarantor
in an Obligor that is not a Borrower or a Guarantor, under Section 7.9.2
shall be deemed assets exchanged by such Borrower or such Guarantor for
purposes of this Section 7.10.4 (unless such Investments would have been
permitted by Section 7.10.5).
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7.10.5. So long as immediately after giving effect thereto no
Default exists, (a) any Subsidiary of a Borrower may transfer assets to any
Borrower or any Guarantor, (b) any Borrower may transfer assets to another
Borrower and (c) Colony may transfer assets to any of its Subsidiaries
which are Guarantors; provided, however, that the sum of the historical
-------- -------
percentages (calculated in accordance with clause (d) of Section 7.10.2) of
contributions to Combined Operating Income for Colony and its Subsidiaries
of the assets so transferred by Colony to its Subsidiaries shall not exceed
30%; and provided, further, that for purposes of such calculation under the
-------- -------
immediately preceding provison, only the results of Colony and its
Subsidiaries which are Designated Obligors will be included.
7.11. Mergers. None of the Obligors will enter into any merger or
-------
consolidation, except the following:
7.11.1. Any Obligor may merge into any Borrower and any Obligor
other than a Borrower may consolidate with or merge into any Guarantor.
7.11.2. Any Person may merge into any Obligor, or any Subsidiary of
a Borrower may consolidate with or merge into another Person, if:
(a) a Borrower or a Subsidiary of a Borrower, as the case
may be, shall be the surviving Person (except that if a Guarantor is
party to such consolidation or merger, a Borrower or a Guarantor
must be the surviving Person),
(b) prior to such merger, such other Person had conducted
its business so as to derive substantially all of 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 Subsidiary of a Borrower may consolidate with or merge
into any other Person in connection with the sale of the assets of such
Subsidiary to the extent permitted by Section 7.10.
7.12. Distributions. None of the Obligors shall make any Distribution,
-------------
except that:
7.12.1. Any Subsidiary of a Borrower may make Distributions to such
Borrower or any Guarantor and, so long as after giving effect thereto no
Default exists, any other Subsidiary of a Borrower that is not a Guarantor.
7.12.2. So long as immediately after giving effect thereto no Event
of Default exists, the Obligors may make payments of principal of and
premium, if any, and interest on, and may redeem, defease or otherwise
acquire for value, Subordinated
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Debt, except that (a) no payment of principal of Subordinated Debt
permitted by Section 7.7.10 may be made within two years of the incurrence
of such Subordinated Debt and (b) no payments shall be made with respect to
Long-Term Subordinated Debt.
7.12.3. So long as immediately after giving effect thereto no
Default exists, (a) any Subsidiary of a Borrower 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, capital stock,
equity, partnership or other beneficial interests owned by minority
investors; provided, however, that immediately after giving effect thereto,
-------- -------
the aggregate amount of all Distributions made pursuant to this Section
7.12.3 may not exceed $10,000,000; and (b) the Obligors may redeem or
purchase stock or partnership interests of an Obligor owned by a minority
stockholder or partner, as the case may be, for fair value (as determined
in good faith by the Borrowers); provided, however, that such minority
-------- -------
stockholder or partner, as the case may be, may not be the Company or a
Subsidiary of the Company.
7.12.4. So long as immediately after giving effect thereto no
Default exists, Colony may declare and pay a cash dividend to the Company
in connection with the Columbia Cable Acquisition.
7.12.5. So long as immediately after giving effect thereto (a) no
Event of Default exists and (b) Combined Total Debt is less than 500% of
Combined Annualized Operating Income, any Borrower may pay dividends on, or
make other Distributions to the holders of, its capital stock and may
redeem such capital stock.
7.13. Certain Financial Tests.
-----------------------
7.13.1. Combined Total Debt to Combined Annualized Operating
----------------------------------------------------
Income. On the last day of each fiscal quarter of the Borrowers specified
------
in the table below, Combined Total Debt shall not exceed the percentage
specified in such table of Combined Annualized Operating Income for such
fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Percentage
--------------------- ----------
<S> <C>
Initial Closing Date through
March 31, 1996 690%
June 30, 1996 through
September 30, 1996 675%
December 31, 1996 through
March 31, 1997 650%
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
June 30, 1997 through
December 31, 1997 625%
March 31, 1998 through
September 30, 1998 600%
December 31, 1998 through
June 30, 1999 550%
September 30, 1999 through
March 31, 2000 500%
June 30, 2000 and
thereafter 450%
</TABLE>
7.13.2. Combined Annualized Operating Cash Flow to Pro Forma
----------------------------------------------------
Interest Payments. On the last day of each fiscal quarter of the Borrowers
-----------------
specified in the table below, Combined Annualized 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 Borrowers commencing immediately after such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Percentage
--------------------- ----------
<S> <C>
Initial Closing Date through
December 31, 1997 150%
March 31, 1998 through
December 31, 1998 175%
March 31, 1999 and
thereafter 200%
</TABLE>
7.13.3. Combined Annualized Operating Cash Flow to Pro Forma Total
----------------------------------------------------------
Debt Service. On the last day of each fiscal quarter of the Borrowers
------------
commencing with the fiscal quarter in which the Initial Closing Date
occurs, Combined Annualized 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 Borrowers commencing immediately after
such date.
7.14. ERISA. Each of the Obligors 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
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<PAGE>
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 aggregate net assets of the Plans by more than
$5,000,000. None of the Obligors 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 any Obligor.
7.15. Intentionally Omitted.
---------------------
7.16. Transactions with Affiliates. None of the Obligors shall effect any
----------------------------
transaction with any Affiliate (other than with another Obligor) on a basis less
favorable to such Obligor 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 and
determined by such disinterested majority to be in the best interests of
such Obligor;
(b) any transactions permitted by Sections 7.7 or 7.9;
(c) the provision of goods and services to the Company or any of
its Subsidiaries if such goods and services are billed to the Company or
such 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;
(f) the transactions contemplated by the Providence Journal Cable
Acquisition (including, without limitation, the release of the Company of
its obligation to pay to PJC Financing Corp. Indebtedness in the principal
amount of approximately $755,000,000, together with all interest accrued
thereon, incurred solely in connection with the Providence Journal Cable
Acquisition);
(g) payments to the Company or any Subsidiary of the Company (or
the accrual of all or any portion of such payment, in which case the
accrued amount shall be considered Accrued Management Fees) by any Borrower
in respect of the Company's overhead expenses relating to the Company's
corporate headquarters (including, without limitation, the costs associated
with owning or leasing, as the case may be, maintaining and operating such
headquarters and the Company's staff
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<PAGE>
employed at such headquarters) in an aggregate amount for all Borrowers not
to exceed 5% of the Combined total revenues of the Borrowers, so long as
immediately after giving effect thereto no Event of Default exists;
(h) payments to the Company or any Subsidiary of the Company by any
Obligor (i) to pay its share of any federal or state consolidated tax
payments required to be made by the Company or any of its Subsidiaries and
(ii) in respect of goods and services provided to any Obligor by the
Company and its Subsidiaries (other than the Obligors), including without
limitation payments in respect of programming and marketing services and
insurance, if such goods and services are billed to the Obligor on the
basis of the provider's cost therefor (except that the obligations of the
Obligors to pay the Company and its other Subsidiaries for such programming
services may equal the cost thereof to the Company and such other
Subsidiaries plus Accrued Programming Costs subject to the CCI
----
Subordination Agreement); and
(i) any other transaction with an Affiliate of any Obligor (other
than a Person owning beneficially or of record 5% or more of the Company's
common stock), 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 such Obligor, 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 after the date which is 120
------------------------
days following the Initial Closing Date when Combined 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 Combined Annualized Operating Income for such
fiscal quarter, the Borrowers 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 Combined Total Debt.
8. REPRESENTATIONS AND WARRANTIES. To induce each Lender to enter into this
Agreement, each Borrower and each Guarantor represents and warrants that:
8.1. Organization, Qualification and Standing.
----------------------------------------
8.1.1. The Borrowers. Each Borrower (a) is a corporation duly
-------------
organized, validly existing and in good standing under the laws of its
state of incorporation, (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
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<PAGE>
effect on the business or assets or on the condition, financial or
otherwise, of the Obligors on a Combined basis.
8.1.2. Subsidiaries. Each of the Subsidiaries of the respective
------------
Borrowers, 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 Obligors on a Combined 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 such representation or
warranty is made, correctly sets forth, as to each such Subsidiary its
name, the jurisdiction of its organization, 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 any
Borrower or any 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
any Borrower or any 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. Each of the Obligors owns 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, 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. There are no outstanding rights, options, warrants, conversion rights
or agreements for the purchase or acquisition by third parties from any
Obligor of any shares of its capital stock, equity, partnership or other
beneficial interests except as set forth on Exhibit 8.1.
8.2. Authorization, etc. The execution, delivery and performance (a) by
------------------
each Borrower 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 such Borrower 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
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<PAGE>
body or authority to which any Borrower 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 any Borrower 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 any Borrower
hereunder. No Obligor owns any Margin Stock. Each of this Agreement, the Notes
and the other Lender Agreements as of the date furnished to the Lenders is the
valid and binding obligation of each Borrower and each Guarantor and is
enforceable against each such Person in accordance with its terms.
8.3. Litigation. Except as set forth on Exhibit 8.3, there is no
----------
litigation, at law or in equity, or any proceeding involving any Obligor before
any federal, state or municipal board or other governmental or administrative
agency or instrumentality pending, or to the knowledge of any Borrower 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 Obligors on a Combined 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 any Obligor which has, or will have a material adverse
effect on the business, operations or assets or on the condition, financial or
otherwise, of the Obligors on a Combined basis.
8.4. Financial Statements. All balance sheets, earnings statements and
--------------------
other financial data which have been furnished by any Borrower 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 such
Borrower and its Subsidiaries on a Combined basis, and all other information,
reports and other papers and data furnished to the Lenders by or on behalf of
any Borrower 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 Borrowers and their respective Subsidiaries required to be set forth on
Exhibit 7.7 pursuant to Section 7.7.4 is referred to in Exhibit 7.7 as of the
dates specified therein.
8.5. Title to Properties. None of the assets of any Obligor is subject to
-------------------
any security agreement, mortgage, pledge, lien or encumbrance, except liens or
security interests permitted by Section 7.8 and encumbrances reflected on
Exhibit 8.1.
8.6. No Adverse Developments. Since December 31, 1994, neither the
-----------------------
financial condition, business, operations, affairs, prospects, properties nor
assets of the Obligors,
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<PAGE>
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. Except as set forth on Exhibit 8.3, none of the Obligors
--------
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 Obligors on a Combined basis.
8.8. Pension Plans. Each Plan maintained by any Obligor 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 date
hereof, no Obligor 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. Each Obligor and
any Control Group Person have since 1980 maintained, contributed to or
participated in no "multiemployer plan" as defined in ERISA. Each Obligor 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.
8.9. Disclosure. Neither this Agreement nor any agreement, document,
----------
certificate or statement furnished pursuant hereto to any Lender by or on behalf
of any Obligor 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 any Obligor 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. Any Borrower 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
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<PAGE>
or (b) any principal of any Credit Obligation and such failure shall
continue for two days.
9.1.2. Any Obligor shall fail to perform or observe any of the
provisions of Sections 7.2.9, 7.7, 7.8, 7.10, 7.11, 7.12 or 7.13.
9.1.3. Any Obligor 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 Borrowers
from the Administrative Agent or (b) any Borrower's officers or directors
obtains knowledge of any such failure.
9.1.4. Any Obligor 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 Borrowers or (b) any Borrower'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 not have been corrected within five days after a
Financial Officer of any Borrower has actual knowledge thereof.
9.1.6. (a) Any event of default with respect to any Indebtedness of
any Obligor 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 any Obligor outstanding
in an aggregate principal amount exceeding $25,000,000, (c) the failure of
any Obligor 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 that includes a certification as
to Defaults or anticipated Defaults under Section 7.2.9(B).
9.1.7. The Management Group shall fail to own, directly or
indirectly, the lesser of (a) at least 25% of the voting power of the
Company's capital stock or (b) 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.
9.1.8. The Company shall fail to own, directly or indirectly, at
least 80% of the voting power of each Borrower's capital stock.
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<PAGE>
9.1.9. Franchises covering 25% (or 15% in the event that Combined
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
Combined Annualized Operating Income for such fiscal quarter) of the
subscribers of the Obligors (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.
9.1.10. Any Obligor 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;
(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, except as provided in Section 9.3, 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
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<PAGE>
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 the Credit Obligations shall
become automatically and 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
Borrowers 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 any
Borrower 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 (a) 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 or (b) the incurrence or designation of Cure Provision Junior
Subordinated Debt during the time period specified in the definition of
"Combined Annualized Operating Cash Flow" with respect to the fiscal quarter
during which the Default or Event of Default would otherwise be deemed to have
occurred and, if necessary, the application of any proceeds thereof cures the
conditions otherwise constituting such Default or Event of Default.
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<PAGE>
9.4. Waivers. Each Borrower 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 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 any Borrower, 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 Borrowers will bear (a) all expenses of the
Managing Agents (including the reasonable fees and disbursements of the special
counsel of the Administrative Agent and Documentation Agent) 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. Each Borrower 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
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<PAGE>
involving any Borrower, 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 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 any Borrower 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 any Borrower against any
Lender. Each Borrower will also indemnify the Lenders against and hold them
harmless from any liability, loss or damage resulting from the violation by any
Borrower 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 any Borrower hereunder, such indemnified party shall notify
such Borrower 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 such Borrower that such failure to provide
notice does not prejudice such Borrower in its defense of such claim. Such
Borrower 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 such Borrower
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 such Borrower, (ii) such
Borrower 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 such Borrower and its
Affiliates, then such Borrower shall not have the right to assume the defense of
such matter with respect to such indemnified party. No Borrower shall be liable
for any compromise or settlement of any such matter effected without the written
consent of such Borrower, which consent may not be unreasonably delayed. No
Borrower shall 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 indemnified party or any injunctive relief or factual
findings or stipulations binding on the indemnified party.
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
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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 any Borrower or any of its Subsidiaries, to it in care of such
Borrower 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. Borrowers to Pay Administrative Agent. The Borrowers shall be fully
-------------------------------------
protected in making all payments in respect of the Credit Obligations to the
Administrative Agent notwithstanding 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
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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 Borrowers 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
Administrative Agent, the Borrowers 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 Borrowers 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 Borrowers
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.
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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 any
Borrower or any Guarantor other than such Borrower's or such Guarantor's
Indebtedness with respect to the Revolving Loan. Each Lender 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 any Borrower 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 Borrowers. If no successor Administrative Agent shall have
been so appointed and shall have accepted such appointment
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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 Borrowers, 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 Borrowers. Upon the
appointment of a new Administrative Agent hereunder, the term "Administrative
Agent" shall for all purposes of this Agreement thereafter mean such 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 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;
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(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 Subsidiary permitted by Sections 7.10
and 7.11; and
(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 Section 9.1.1 or 9.1.10, (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 any Borrower 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
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to any 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 Borrowers as to the fulfillment by the
Borrowers 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
Borrowers 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
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.
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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 Borrowers or the Guarantors (without limiting their obligation to make
such reimbursement): (a) for which the Administrative Agent is entitled to
reimbursement by the Borrowers 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 any Borrower and any
of its Affiliates and any Person who may do business with or own an equity
interest in any Borrower 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 Borrowers 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 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 any Obligor, 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
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information concerning the business, operations, property, condition, financial
or otherwise, or creditworthiness of any Obligor 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
Borrowers 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 12.1, 12.2, 12.3, 12.4, 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 Borrowers;
provided, however, that notice of any such amendment that has been made shall be
-------- -------
given to the Borrowers. Sections 12.1, 12.2, 12.3, 12.4, 12.6, 12.7 and 12.12
may be amended only with the consent of all the Lenders and the Borrowers.
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 Borrowers, 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 Borrowers 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 Borrowers if the
proposed assignee is
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already a Lender hereunder or an Affiliate of a Lender hereunder or (b)
otherwise with the consents of the Administrative Agent and the Borrowers
(which consents will not be unreasonably withheld, delayed or conditioned),
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) $5,000,000 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 $5,000,000 (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 Borrowers an Assignment and Acceptance
(the "Assignment and Acceptance") substantially in the form of Exhibit
13.1.1, together with the Note subject to such assignment, any documents
required by Section 14 and a processing and recordation fee of $3,500
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 Borrowers):
(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).
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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 any
Borrower and its Subsidiaries or the performance or observance by any
Borrower 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;
(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 7.2.1 and 7.2.2 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
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absence of manifest error, and the Borrowers, 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 any Borrower 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 Borrowers 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 Borrowers. Within
five Banking Days after receipt of notice, each Borrower, at the assigning
Lender's or the Assignee's 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 Obligors shall sign such documents
------------------
and take such other actions from time to time reasonably requested by an
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
-------------------
Borrowers 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;
-84-
<PAGE>
(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
(d) the Borrowers, 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
Borrowers 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 Borrower 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 each Borrower 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 7.2.10;
(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 Borrowers deem
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 Section 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);
-85-
<PAGE>
then, so long as no Event of Default exists, the Borrowers 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 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 Borrowers, the Administrative Agent and the Affected Lender
shall make appropriate arrangements so that a new Note is issued to the
Replacement Lender. The Borrowers 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 Borrowers 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 Borrowers 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 Borrowers 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 Borrowers 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 occurrence of any event requiring a change in the
most recent
-86-
<PAGE>
form previously delivered by it to the Borrowers and the Administrative Agent,
and such extensions or renewals thereof as may reasonably be requested by the
Borrowers 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 Borrowers 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 Borrowers 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 Borrowers shall withhold taxes from such payments at the
applicable statutory rate.
15. REPLACEMENT NOTES. Upon receipt of evidence reasonably satisfactory to any
Borrower of the loss, theft, destruction or mutilation of any Note issued by
such Borrower and, in the case of loss, theft or destruction, upon delivery of
an unsecured indemnity of any Lender in form reasonably satisfactory to such
Borrower and, in the case of mutilation, upon surrender and cancellation of such
Note, such Borrower 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,
7.2.10, 10, 12.8.7 and 12.10 shall survive the termination of this Agreement.
17. VENUE; SERVICE OF PROCESS. Each of the Borrowers 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 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
-87-
<PAGE>
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 Borrowers 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 BORROWERS, 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 BORROWERS, 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
Borrowers 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, any
Borrower 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 Borrowers,
the Guarantors, 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. 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.
-88-
<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.
PJC FINANCING CORPORATION
By: /s/______________________________
Title:
N-COM ACQUISITION CORPORATION
By: /s/______________________________
Title:
-89-
<PAGE>
MANAGING AGENTS:
THE TORONTO-DOMINION BANK THE FIRST NATIONAL BANK
OF BOSTON
By: /s/____________________________ By: /s/___________________________
Title: Title:
THE BANK OF NEW YORK
By: /s/____________________________
Title:
AGENTS:
CHEMICAL BANK CIBC INC.
By: /s/____________________________ By: /s/____________________________
Title: Title:
CITIBANK, N.A. MELLON BANK, N.A.
By: /s/____________________________ By: /s/____________________________
Title: Title:
NATIONSBANK OF TEXAS, N.A.
By: /s/____________________________
Title:
-90-
<PAGE>
CO-AGENTS:
BANK OF MONTREAL THE BANK OF TOKYO
TRUST COMPANY
By: /s/____________________________ By: /s/____________________________
Title: Title:
BANQUE NATIONALE DE BANQUE PARIBAS
PARIS
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________ By: /s/____________________________
Title: Title:
COMPAGNIE FINANCIERE DE CIC CREDIT LYONNAIS CAYMAN
ET DE L'UNION EUROPEENNE ISLAND BRANCH
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________
Title:
DEUSTCHE BANK AG, NEW YORK THE FIRST NATIONAL BANK
AND/OR CAYMAN ISLAND OF CHICAGO
BRANCHES
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________
Title:
THE FUJI BANK, LIMITED LTCB TRUST COMPANY
By: /s/____________________________ By /s/____________________________
Title: Title:
-91-
<PAGE>
MORGAN GUARANTY TRUST NATWEST BANK N.A.
COMPANY OF NEW YORK
By: /s/____________________________ By: /s/____________________________
Title: Title:
ROYAL BANK OF CANADA SHAWMUT BANK
CONNECTICUT, N.A.
By: /s/____________________________ By: /s/____________________________
Title: Title:
SOCIETE GENERALE SWISS BANK CORPORATION,
NEW YORK BRANCH
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________
Title:
UNION BANK
By: /s/____________________________
Title:
OTHER LENDERS:
THE DAI-ICHI KANGYO BANK, THE DAIWA BANK, LIMITED
LIMITED, NEW YORK BRANCH
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________
Title:
-92-
<PAGE>
DRESDNER BANK AG FIRST HAWAIIAN BANK
NEW YORK AND GRAND
CAYMAN BRANCHES
By: /s/____________________________ By: /s/____________________________
Title: Title:
By: /s/____________________________
Title:
MIDLANTIC BANK, N.A. THE MITSUBISHI TRUST AND
BANKING CORPORATION
By: /s/____________________________ By: /s/____________________________
Title: Title:
NATIONAL CITY BANK NBD BANK
By: /s/____________________________ By: /s/_____________________________
Title: Title:
THE SANWA BANK, LIMITED THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By: /s/____________________________ By: /s/____________________________
Title: Title:
TORONTO DOMINION UNITED JERSEY BANK
(NEW YORK) INC.
By: /s/____________________________ By: /s/____________________________
Title: Title:
-93-
<PAGE>
EXHIBIT 1A
----------
COMPUTATION OF POST-ACQUISITION COST SAVINGS
[Draft to be Provided by the Borrowers]
<PAGE>
EXHIBIT 2.1.1
-------------
REVOLVING LOAN NOTE
No. ___ ___________________, 199_
$_______________ Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned PJC FINANCING CORPORATION, a Delaware
corporation, (the "Borrower") hereby promises to pay to ____________________
(the "Holder") or order, on September 30, 2004,
___________________________________ DOLLARS ($_______________) or, if less, the
aggregate unpaid Revolving Loan made to the Borrower 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 the Revolving Loan under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement dated as of July 18, 1995, as from time to time in effect (the "Credit
Agreement"), among PJC Financing Corporation, Colony Communications, Inc. (at
such time as it shall become a party to the Credit Agreement), N-Com Acquisition
Corporation, Columbia Cable of Michigan, Inc. (at such time as it shall become a
party to the Credit Agreement), certain of their respective 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
Borrower 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.
PJC FINANCING CORPORATION
By________________________
Title:
<PAGE>
REVOLVING LOAN NOTE
No. ___ __________________, 199_
$_______________ Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned COLONY COMMUNICATIONS, INC., a Rhode
Island corporation, (the "Borrower") hereby promises to pay to
____________________ (the "Holder") or order, on September 30, 2004,
___________________________________ DOLLARS ($_______________) or, if less, the
aggregate unpaid Revolving Loan made to the Borrower 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 the Revolving Loan under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement dated as of July 18, 1995, as from time to time in effect (the "Credit
Agreement"), among PJC Financing Corporation, Colony Communications, Inc., N-Com
Acquisition Corporation, Columbia Cable of Michigan, Inc. (at such time as it
shall become a party to the Credit Agreement), certain of their respective
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 Borrower 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.
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.
<PAGE>
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.
COLONY COMMUNICATIONS, INC.
By_________________________
Title:
<PAGE>
REVOLVING LOAN NOTE
No. ___ ___________________, 199_
$_______________ Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned N-COM ACQUISITION CORPORATION, a
Michigan corporation, (the "Borrower") hereby promises to pay to
____________________ (the "Holder") or order, on September 30, 2004,
___________________________________ DOLLARS ($_______________) or, if less, the
aggregate unpaid Revolving Loan made to the Borrower 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 the Revolving Loan under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement dated as of July 18, 1995, as from time to time in effect (the "Credit
Agreement"), among PJC Financing Corporation, Colony Communications, Inc. (at
such time as it shall become a party to the Credit Agreement), N-Com Acquisition
Corporation, Columbia Cable of Michigan, Inc. (at such time as it shall become a
party to the Credit Agreement), certain of their respective 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
Borrower 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.
N-COM ACQUISITION CORPORATION
By___________________________
Title:
<PAGE>
REVOLVING LOAN NOTE
No. ___ __________________, 199_
$_______________ Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned COLUMBIA CABLE OF MICHIGAN, INC., a
Delaware corporation, (the "Borrower") hereby promises to pay to
____________________ (the "Holder") or order, on September 30, 2004,
___________________________________ DOLLARS ($_______________) or, if less, the
aggregate unpaid Revolving Loan made to the Borrower 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 the Revolving Loan under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement dated as of July 18, 1995, as from time to time in effect (the "Credit
Agreement"), among PJC Financing Corporation, Colony Communications, Inc., N-Com
Acquisition Corporation, Columbia Cable of Michigan, Inc., certain of their
respective 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 Borrower 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.
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.
<PAGE>
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.
COLUMBIA CABLE OF MICHIGAN, INC.
By______________________________
Title:
<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: Credit Agreement dated as of July 18, 1995, as from time to time in effect
(the "Credit Agreement"), among PJC Financing Corporation, Colony
Communications, Inc. (at such time as it shall become a party to the
Credit Agreement), N-Com Acquisition Corporation, Columbia Cable of
Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), certain of their respective 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 Money Market Loan(s):
Money Market Loan Closing
Date/1/ (Date of Borrowing): ____________________
Principal Amount(s)/2/ Money Market Loan
of Requested Interest Payment Money Market Loan
Money Market Loan(s) Dates (if any) Maturity Date(s)
---------------------- ----------------- -----------------
Such Money Market Loan bids should offer a Money Market Rate.
The aggregate principal amount of Money Market Loans outstanding, after giving
effect to the Money Market Loans requested hereby, will be $________./3/
________________________
/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 $1,000,000,000.
/3/ Must not exceed $100,000,000.
<PAGE>
Terms defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings so defined.
Very truly yours,
[NAME OF BORROWER]
By____________________
Title:
<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
Credit Agreement
Re: Invitation to Bid on Money Market Loan
--------------------------------------
Pursuant to Section 2.2.2 of the Credit Agreement dated as of July 18, 1995, as
from time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc. (at such time as it shall become a
party to the Credit Agreement), N-Com Acquisition Corporation, Columbia Cable of
Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), certain of their respective 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 [Name of Borrower]
to invite you to submit bids with respect to the following Money Market Loan(s):
Money Market Loan Closing
Date (Date of borrowing): ____________________
Principal Amount(s) Money Market Loan
of Requested Interest Payment Money Market Loan
Money Market Loan(s) Dates (if any) Maturity Date(s)
-------------------- -------------------- -------------------
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.
<PAGE>
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: [Borrower]
In response to your invitation on behalf of [Name of Borrower] (the
"Borrower") 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 Borrower, on the Money
Market Loan Closing Date specified above, the following Money Market
Loan(s):
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/
-------------
The undersigned understands and agrees that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the
Credit Agreement dated as of July 18,
________________________
/1/ Principal amount bids may not exceed principal amount requested.
Bids $1,000,000, and if larger, in intergral of $1,000,000.
/2/ Specify rate of interest per annum (each rounded to the nearest
1/100%).
<PAGE>
1995, as from time to time in effect (the "Credit Agreement"), among PJC
Financing Corporation, Colony Communications, Inc., N-Com Acquisition
Corporation, Columbia Cable of Michigan, Inc. (at such time as it shall become a
party to the Credit Agreement), certain of their respective subsidiaries from
time to time party thereto and certain Lenders for which The 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 Borrower.
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:
<PAGE>
EXHIBIT 2.2.3B
--------------
LIST OF MONEY MARKET LOAN BIDS
Date:
[Name of Borrower]
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Treasurer's Office
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of July 18, 1995, as
from time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc., (at such time as it shall become
a party to the Credit Agreement), N-Com Acquisition Corporation, Columbia
Cable of Michigan, Inc. (at such time as it shall become a party to the
Credit Agreement), certain of their respective 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 [Name of Borrower]
on ____________________, the following Money Market Loan(s) in the
amount(s) and at the rate(s) specified below:
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)
--------- -------------- ------------- ------------ -------
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 Credit Agreement dated as of July 18, 1995, as
from time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc. (at such time as it shall become a
party to the Credit Agreement), N-Com Acquisition Corporation, Columbia Cable of
Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), certain of their respective 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, [Name of Borrower]
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): ____________________
<PAGE>
Money Market Loan
Interest Payment
Dates (if any): ____________________]
[repeat for each accepted bid]
[Except as provided above,] all offers to make Money Market Loans described
in the Bid Notices are hereby rejected.
Very truly yours,
[NAME OF BORROWER]
By__________________________
Title:
<PAGE>
EXHIBIT 2.2.4B
--------------
ACCEPTANCE OF MONEY MARKET LOAN BIDS
Date:
To: Lenders Participating in the Money Market Loan Bid Auction under the
Credit Agreement
Reference is made to the Credit Agreement dated as of July 18, 1995, as
from time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc., (at such time as it shall become
a party to the Credit Agreement), N-Com Acquisition Corporation, Columbia
Cable of Michigan, Inc. (at such time as it shall become a party to the
Credit Agreement), certain of their respective 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 [Name of Borrower] that it has accepted the following
bids:
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)
--------- -------------- -------------- ------------- -------
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:
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)
--------- -------------- ------------- ------------- -------
<PAGE>
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
Credit Agreement
Reference is made to the Credit Agreement dated as of July 18, 1995, as
from time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc., (at such time as it shall become
a party to the Credit Agreement), N-Com Acquisition Corporation, Columbia
Cable of Michigan, Inc. (at such time as it shall become a party to the
Credit Agreement), certain of their respective 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:
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)
--------- -------------- ------------- ------------ -------
Following are the Money Market Loan bids which were submitted by the
Lenders in today's auction:
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)
--------- -------------- ------------- ------------ -------
<PAGE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By_______________________________
Title:
<PAGE>
EXHIBIT 2.2.4D
--------------
NOTICE OF MONEY MARKET LOAN
Date:
[Name of Borrower]
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Attention: Treasurer
[Each Lender]
[Address]
Attention:
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of July 18, 1995, as from
time to time in effect (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc. (at such time as it shall become a
party to the Credit Agreement), N-Com Acquisition Corporation, Columbia Cable of
Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), certain of their respective 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:
Principal Amount of Money Market Loan
Money Market Loan(s) Maturity Date(s)
-------------------- -----------------
<PAGE>
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON,
as Administrative Agent under
the Credit Agreement
By________________________________
Title:
<PAGE>
EXHIBIT 5.3.1
-------------
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 5.3.1 of the Credit Agreement dated as of July 18,
1995, as from time to time in effect (the "Credit Agreement"), among PJC
Financing Corporation, Colony Communications, Inc. (at such time as it shall
become a party to the Credit Agreement), N-Com Acquisition Corporation, Columbia
Cable of Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), certain of their respective subsidiaries from time to time party
thereto, you and the other Lenders party thereto, [Name of Borrower] (the
"Borrower") 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 Borrower 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 December 31, 1994 and the date hereof, neither the business,
operations, assets nor the condition, financial or otherwise, of the Borrower
and its Subsidiaries on a combined 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 Borrower and its
Subsidiaries heretofore certified to you, or (ii) the incumbency of the officers
of the Borrower and its Subsidiaries whose signatures have been heretofore
certified to you.
<PAGE>
(e) After giving effect to the loan requested hereby, the principal amount
of the Revolving Loan shall not exceed an amount 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 2.5 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_.
[NAME OF APPLICABLE BORROWER]
By___________________________
Title:
<PAGE>
EXHIBIT 8.1
-----------
THE BORROWERS AND THEIR RESPECTIVE SUBSIDIARIES
[To Be Provided by the Borrowers]
<PAGE>
EXHIBIT 8.3
-----------
CERTAIN LITIGATION
[To Be Provided by the Borrowers]
<PAGE>
EXHIBIT 12.1
------------
LENDERS AND THEIR RESPECTIVE REVOLVING PERCENTAGE INTERESTS
The respective Revolving 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>
Maximum
Commitment
----------
<S> <C>
MANAGING AGENTS:
---------------
THE FIRST NATIONAL BANK OF BOSTON $50,000,000.00/1/
100 Federal Street, 8th Floor
Boston, Massachusetts 02110
Attention: Media & Communications
---------
Department
THE BANK OF NEW YORK $65,000,000.00
One Wall Street, 16th Floor
New York, New York 10286
Attention: Communications Division
---------
TORONTO DOMINION (NEW YORK) INC./2/ $65,000,000.00
31 West 52nd Street
New York, New York 10019
AGENTS:
------
CHEMICAL BANK $53,000,000.00
270 Park Avenue, 9th Floor
New York, New York 10172
</TABLE>
_____________________
/1/ The Voting Percentage Interest of The First National Bank of Boston
equals the sum of (a) their Revolving Percentage Interest and (b) its Swingline
Commitment of $15,000,000.
/2/ The Toronto-Dominion Bank is serving as Managing Agent and
Documentation Agent and its affiliate, Toronto Dominion Bank (New York) Inc., is
serving as Lender.
<PAGE>
<TABLE>
<CAPTION>
Maximum
Commitment
----------
<S> <C>
CIBC INC. $53,000,000.00
425 Lexington Avenue
New York, New York 10017
Attention: Media Group
---------
CITIBANK, N.A. $53,000,000.00
399 Park Avenue
New York, New York 10043
MELLON BANK, N.A. $53,000,000.00
One Mellon Bank Center, Room 4440
Pittsburgh, Pennsylvania 15258
Attention: Media Group
---------
NATIONSBANK OF TEXAS, N.A. $53,000,000.00
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Communications Finance Division
---------
CO-AGENTS:
---------
THE BANK OF TOKYO TRUST COMPANY $17,500,000.00
1251 Avenue of the Americas
New York, New York 10116
BANK OF MONTREAL $35,000,000.00
430 Park Avenue, 16th Floor
New York, New York 10022
Attention: Communication/Media Group
---------
BANQUE NATIONALE DE PARIS $35,000,000.00
725 South Figueroa, Suite 2090
Los Angeles, California 90017
BANQUE PARIBAS $35,000,000.00
787 7th Avenue, 32nd Floor
New York, New York 10019
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maximum
Commitment
----------
<S>
COMPAGNIE FINANCIERE DE CIC ET <C>
DE L'UNION EUROPEENNE $35,000,000.00
520 Madison Avenue, 37th Floor
New York, New York 10022
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
1301 Avenue of the Americas $35,000,000.00
New York, New York 10019
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLAND BRANCHES $35,000,000.00
31 West 52nd Street
New York, New York 10019
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza $35,000,000.00
Mail Suite 0629
Chicago, Illinois 60670
Attention: Communication Companies Division
---------
THE FUJI BANK, LIMITED
New York Branch $35,000,000.00
Two World Trade Center, 79th Floor
New York, New York 10048
LTCB TRUST COMPANY
165 Broadway, 49th Floor $35,000,000.00
New York, New York 10006
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK $35,000,000.00
60 Wall Street
New York, New York 10260-0060
NATWEST BANK N.A.
175 Water Street $35,000,000.00
New York, New York 10038
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maximum
Commitment
----------
<S> <C>
ROYAL BANK OF CANADA $35,000,000.00
One Financial Square, 23rd Floor
New York, New York 10005-3531
SHAWMUT BANK CONNECTICUT, N.A. $35,000,000.00
Specialized Lending, MSN 397
777 Main Street
Hartford, Connecticut 06115
SOCIETE GENERALE $35,000,000.00
1221 Avenue of the Americas
New York, New York 10020
SWISS BANK CORPORATION, NEW YORK BRANCH $35,000,000.00
222 Broadway, 4th Floor
New York, New York 10038
UNION BANK $17,500,000.00
445 South Figueroa Street
Los Angeles, California 90071
Attention: Communications/Media Group
---------
OTHER LENDERS:
-------------
THE DAI-ICHI KANGYO BANK, LIMITED, $15,000,000.00
NEW YORK BRANCH
Corporate Finance Department
One World Trade Center, Suite 4911
New York, New York 10048
THE DAIWA BANK, LIMITED $15,000,000.00
One Post Office Square, Suite 3820
Boston, Massachusetts 02109
DRESDNER BANK AG NEW YORK AND $25,000,000.00
GRAND CAYMAN BRANCHES
75 Wall Street
New York, New York 10005-2889
FIRST HAWAIIAN BANK $10,000,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Maximum
Commitment
----------
<S> <C>
1132 Bishop Street, 19th Floor
Honolulu, Hawaii 96813
MIDLANTIC BANK, N.A. $15,000,000.00
1500 Market Street
Philadelphia, Pennsylvania 19102
THE MITSUBISHI TRUST AND $25,000,000.00
BANKING CORPORATION
520 Madison Avenue, 26th Floor
New York, New York 10022
NATIONAL CITY BANK $15,000,000.00
1900 E. 9th Street
Cleveland, Ohio 44114
NBD BANK $15,000,000.00
611 Woodward
Detroit, Michigan 48226
THE SANWA BANK, LIMITED $15,000,000.00
55 East 52nd Street
Park Avenue Plaza
New York, New York 10055
THE SUMITOMO BANK, LIMITED, $15,000,000.00
CHICAGO BRANCH
Sears Tower, Suite 4800
233 South Wacker Drive
Chicago, Illinois 60606-6448
UNITED JERSEY BANK $15,000,000.00
300 Berwyn Park, Suite 211
Berwyn, Pennsylvania 19312
-----------------
$1,200,000,000.00
</TABLE>
<PAGE>
EXHIBIT 13.1.1
--------------
ASSIGNMENT AND ACCEPTANCE
[Assignor's Letterhead]
[Date]
[Name and Address of Assignee]
Re: Subsidiaries of Continental Cablevision, Inc.
--------------------------------------------
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of July 18, 1995, as in
effect from time to time (the "Credit Agreement"), among PJC Financing
Corporation, Colony Communications, Inc., (at such time as it shall become a
party to the Credit Agreement), N-Com Acquisition Corporation, Columbia Cable of
Michigan, Inc. (at such time as it shall become a party to the Credit
Agreement), (the "Borrowers"), certain of their respective 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:
<PAGE>
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.
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
Borrowers 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 Borrowers 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 7.2.10), 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 Borrowers 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 Borrowers 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 Sections 13.1.1 and 13.1.4 of the Credit Agreement.
<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.
<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, each Borrower 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:
PJC FINANCING CORPORATION
By_________________________________
Title:
N-COM ACQUISITION CORPORATION
By__________________________________
Title:
THE FIRST NATIONAL BANK
OF BOSTON, as Administrative Agent
By__________________________________
Title:
<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 $____________
<PAGE>
Schedule B
----------
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>
Exhibit 5
[LETTERHEAD OF ACQUIROR'S COUNSEL]
August , 1995
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, MA 02109
Ladies and Gentlemen:
Continental Cablevision, Inc. (the "Company") entered into an Amended and
Restated Agreement and Plan of Merger dated as of November 18, 1994 with
Providence Journal Company ("Providence Journal"), The Providence Journal
Company (a newly formed subsidiary of Providence Journal), King Holding
Corporation and King Broadcasting Corporation (the "Merger Agreement") providing
for the merger of a subsidiary of Providence Journal, which, following an
internal corporate restructuring of Providence Journal and its subsidiaries,
will own all of Providence Journal's cable television businesses, with and into
the Company (the "Merger"). The Company is required to register securities
which are to be issued to the current stockholders of Providence Journal
pursuant to the Merger in the amount set forth herein. In connection with the
registration on Form S-4 under the Securities Act of 1933, as amended, of the
30,725,207 shares (the "Class A Common Stock") of Class A Common Stock of the
Company to be issued in the Merger, the following opinion is furnished to you to
be filed with the Securities and Exchange Commission as Exhibit 5 to your
registration statement on Form S-4, Registration No. 33- 57471 (the
"Registration Statement").
We have acted as counsel for the Company in connection with the
Registration Statement, and we have examined originals or copies of corporate
records, certificates and statements of officers and accountants of the Company
and of public officials, and such other documents which we have considered
relevant and necessary, and we have made such examination of law as we have
considered necessary in order to furnish the opinion hereafter set forth. In
making such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to the originals of all documents
submitted to us as copies, which facts we have not independently verified.
Based on and subject to the foregoing, we are of the opinion that the
shares of Class A Common Stock have been duly authorized and, when issued and
delivered in accordance
<PAGE>
Continental Cablevision, Inc.
August , 1995
Page 2
with the terms of the Merger Agreement, will be validly issued, fully paid and
non- assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
forming a part of the Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Sullivan & Worcester
SULLIVAN & WORCESTER
<PAGE>
Exhibit 7
[LETTERHEAD OF RICHARDS, LAYTON & FINGER APPEARS HERE]
August , 1995
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02111
Ladies and Gentlemen:
We have acted as special Delaware counsel to Continental Cablevision,
Inc., a Delaware corporation (the "Company"), in connection with the
registration by the Company on Form S-4 of 30,725,207 shares of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"). In this
connection, you have requested our opinion whether there will exist any
restriction upon the surplus of the Company available for the payment of
dividends on stock of the Company by reason of the fact that the liquidation
preference of the Series A Participating Convertible Preferred Stock, par value
$.01 per share, of the Company (the "Series A Preferred Stock") will exceed the
par value of such stock, and whether any remedy would be available to the
holders of the Series A Preferred Stock before or after payment of any dividend
which would reduce or reduces the surplus of the Company to an amount less than
the amount of such excess.
For the purpose of rendering our opinions as expressed herein, we have
examined and have relied upon the following documents:
(i) the Restated Certificate of Incorporation of the Company (the
"Restated Certificate") filed with the Secretary of State of the State of
Delaware (the "Secretary") on May 14, 1992, and the Certificate of Designations
of the Series A Preferred Stock filed with the Secretary on June 16, 1992 (the
"Series A Certificate of Designations") (collectively, the "Certificate"); and
(ii) the Registration Statement on Form S-4 (No. 33-57471) with
respect to the Class A Common Stock as filed with the Securities and Exchange
Commission (the
<PAGE>
Continental Cablevision, Inc.
August , 1995
Page 2
"Commission") on January 27, 1995, Amendment No. 1 thereto as filed with the
Commission on April 5, 1995 and Amendment No. 2 thereto as filed with the
Commission on May 31, 1995 (collectively, the "Registration Statement").
With respect to the foregoing documents, we have assumed: (i) the
authenticity of all documents submitted to us as originals, the conformity with
the authentic original documents of all documents submitted to us as copies or
forms, the genuineness of all signatures and the legal capacity of natural
persons, and (ii) that the foregoing documents, in the forms thereof submitted
for our review have not been and will not be altered, amended or repealed in any
respect material to our opinions as stated herein. We have not reviewed any
documents other than the documents listed above for purposes of rendering our
opinions as expressed herein, and we assume that there exists no provision of
any such other document that bears upon or is inconsistent with our opinions as
expressed herein. We have conducted no independent factual investigation of our
own but rather have relied solely upon the foregoing documents, the statements
and information set forth therein and the additional matters recited or assumed
herein, all of which we assume to be true, complete and accurate in all material
respects.
In summary, Section 7 of the Series A Certificate of Designations
provides that if the Company 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
Company 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 Company shall be entered by a court having jurisdiction in 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 Company 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 Company shall liquidate,
dissolve or wind up, or if the Company shall otherwise liquidate, dissolve or
wind up, no distribution shall be made (i) to the holders of shares of Common
Stock (as defined in the Series A Certificate of Designations) of the Company
(hereinafter, the "Common Stock") or of any shares of other capital stock of the
Company 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 shall have received, with respect to each share, a liquidation
preference (the "Series A Liquidation Preference") equal to the greater of (a)
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 and including the date of issue of the
Series A Preferred Stock, reduced
<PAGE>
Continental Cablevision, Inc.
August , 1995
Page 3
by the Fair Market Value (as defined in the Series A Certificate of
Designations) at such date of any dividends or distributions which have been
previously paid on such share of Series A Preferred Stock, 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, or (ii) to the holders of shares of capital stock of
the Company 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 Company 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 Company and the Series A Preferred Stock are entitled upon
such liquidation, dissolution or winding up.
Section 170 of the General Corporation Law of the State of Delaware
(the "General Corporation Law") authorizes a Delaware corporation to pay
dividends out of its surplus. Surplus is defined by Section 154 of the General
Corporation Law as the amount by which the net assets of a corporation exceed
its capital. Both net assets, as defined in Section 154, and capital, as
defined in and determined in accordance with Sections 154 and 244 of the General
Corporation Law, are determined without reference to the amount of any
liquidation preference of any class of the corporation's stock. Accordingly,
the authorization in Section 170 of the General Corporation Law for payment of
dividends out of surplus is not in any way limited or restricted solely by
reason of the fact that a series or class of stock of a corporation, such as the
Series A Preferred Stock, has a liquidation preference in excess of the par
value of the stock.
We are aware of no controlling decision of any court of this State
that addresses the question presented for our consideration, but we believe that
our courts would adopt the reasoning set forth herein should the question be
litigated. We note in addition that our opinions as stated herein are supported
by the discussion of the Court in Bailey v. Tubize Rayon Corporation, 56 F.
----------------------------------
Supp. 418, 423 (D. Del. 1944) (applying Delaware law).
Based upon and subject to the foregoing, and subject to the
limitations stated hereinbelow, it is our opinion that, solely as a matter of
law, under the General Corporation Law as in effect on the date hereof: (1)
prior to a liquidation, dissolution or winding up of the affairs of the Company,
there will be no restriction upon the surplus of the Company available for the
payment of dividends on stock of the Company solely by reason of the fact that
the Series A Liquidation Preference exceeds the par value of the Series A
Preferred Stock; and (2) no remedy would be available to holders of the Series A
Preferred Stock either before or after payment of any dividend, prior to a
liquidation, dissolution or winding up of the affairs of the Company, solely by
reason of the fact that payment of such dividend would reduce or reduces the
surplus
<PAGE>
Continental Cablevision, Inc.
August , 1995
Page 4
of the Company to an amount less than the difference between the Series A
Liquidation Preference and the par value of the Series A Preferred Stock.
The foregoing opinions are limited to the General Corporation Law, and
we have not considered and express no opinion on the effect of any other laws or
the laws of any other state or jurisdiction, including federal laws regulating
securities or other federal laws, or the rules and regulations of stock
exchanges or of any other regulatory body.
We hereby consent to the use and filing of this opinion as an exhibit
to the Registration Statement provided, however, that in giving such consent we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the Rules and
Regulations of the Commission thereunder. Except as provided for hereinabove,
without our prior written consent, this opinion may not be furnished or quoted
to, or relied upon by, any other person or entity for any purpose.
Very truly yours,
/s/Richards, Layton & Finger
<PAGE>
TABLE OF CONTENTS
Clause Page No.
1. DEFINITIONS..................................................... 1
2. CONDITIONS PRECEDENT............................................ 18
3. THE JOINT VENTURE............................................... 20
4. FORMATION OF VISION............................................. 22
5. INITIAL APPOINTMENTS............................................ 23
6. THE BOARD AND SHAREHOLDERS MEETINGS............................. 23
7. ACCESS TO INFORMATION........................................... 28
8. DECISIONS REQUIRING PARTICULAR MAJORITIES...................... 30
9. MANAGEMENT...................................................... 31
10. MANAGEMENT PLANS, DIVIDEND POLICY AND ACCOUNTING
PRACTICES....................................................... 32
11. VISION EMPLOYEES................................................ 33
12. FUNDING OBLIGATIONS............................................. 34
13. DILUTION FOR FAILURE TO FUND.................................... 46
14. SHAREHOLDER OBLIGATIONS AND RIGHTS.............................. 49
15. AGREEMENTS BETWEEN VISION AND SHAREHOLDERS...................... 50
16 ................................................................ 51
17. CONFIDENTIAL INFORMATION........................................ 51
18. STANDSTILL...................................................... 55
19. PRE-EMPTIVE RIGHTS AND DEEMED TRANSFERS......................... 56
20. GENERAL PROVISIONS APPLYING TO TRANSFERS OF EQUITY
SECURITIES...................................................... 66
21. LISTING......................................................... 68
<PAGE>
(ii)
Clause Page No
22. TERM OF AGREEMENT................................................ 71
23. DEFAULT.......................................................... 72
24. DETERMINATION OF THE VALUE OF EQUITY SECURITIES OR
OWNERSHIP INTERESTS.............................................. 77
25. SHAREHOLDING OF OPTUS AND OPTUS WITHDRAWAL....................... 83
26. SEVEN OPTION..................................................... 83
27. NINE OPTION...................................................... 86
28. OPTIONS GENERALLY................................................ 88
29. DISPUTE RESOLUTION............................................... 91
30. PUBLICITY........................................................ 91
31. NOTICES.......................................................... 91
33. EXCLUSION OF IMPLIED RELATIONSHIPS............................... 113
34. CONFLICT WITH ARTICLES OF ASSOCIATION............................ 113
35. ASSIGNMENT....................................................... 113
36. EXERCISE OF RIGHTS............................................... 114
37. WAIVER AND VARIATION............................................. 114
38. APPROVALS AND CONSENTS........................................... 114
39. REMEDIES CUMULATIVE.............................................. 114
40. FURTHER ASSURANCES............................................... 114
41. REPRESENTATIONS AND WARRANTIES................................... 114
42. SEVERABILITY..................................................... 117
43. ENTIRE AGREEMENT AND MODIFICATION................................. 117
44. COUNTERPARTS...................................................... 117
<PAGE>
(iii)
Clause Page No
45. GOVERNING LAW AND JURISDICTION.................................... 118
46. NON MERGER........................................................ 118
47. EXECUTION BY ALL PARTIES.......................................... 118
SCHEDULE 1............................................................ 119
SCHEDULE 2............................................................ 120
SCHEDULE 3............................................................ 121
SCHEDULE 4............................................................ 122
SCHEDULE 5............................................................ 126
SCHEDULE 6............................................................ 135
SCHEDULE 7............................................................ 137
SCHEDULE 8............................................................ 139
SCHEDULE 9............................................................ 141
SCHEDULE 10........................................................... 142
SCHEDULE 11........................................................... 147
SCHEDULE 11A
SCHEDULE 11B
<PAGE>
AGREEMENT dated 19 May 1995
BETWEEN: CONTINENTAL CABLEVISION OF AUSTRALIA INC. of The Pilot House, Lewis
Wharf, Boston, Massachusetts, United States of America ('Continental')
AND: OPTUS COMMUNICATIONS PTY LIMITED ACN 052 833 208 of Level 29, 101
Miller Street, North Sydney, New South Wales, Australia ('Optus')
AND: PAY TV HOLDINGS PTY LIMITED ACN 058 558 857 of 24 Artarmon Road,
Willoughby, New South Wales, Australia ('Nine')
AND: TALLGLEN PTY LIMITED ACN 058 439 786 of Level 14, 1 Pacific Highway,
North Sydney, Australia ('Seven')
AND: OPTUS VISION PTY LIMITED ACN 066 518 821 of Level 13, 141 Walker
Street, North Sydney, New South Wales, Australia ('Vision')
AND: OPTUS NETWORKS PTY LIMITED ACN 008 570 330 of Level 29, 101 Miller
Street, North Sydney, New South Wales, Australia ('Optus Networks')
AND: OPTUS ADMINISTRATION PTY LIMITED ACN 055 136 804 of Level 29, 101
Miller Street, North Sydney, New South Wales, Australia ('Optus
Administration')
RECITALS
A. Vision has been incorporated to establish and conduct the Vision Business.
B. LicenceCo will be incorporated to establish and conduct the LicenceCo
Business.
C. The Shareholders intend initially to own the issued capital of Vision in
the proportions specified in this Agreement.
D. The Shareholders have, subject to satisfaction of the Conditions Precedent,
agreed that the Vision Business and the affairs and management of Vision
including the exercise of its rights as a shareholder in SportsCo and
MovieCo will be conducted in accordance with, and their respective rights
and obligations as shareholders of Vision will be governed by, the terms
and conditions of this Agreement.
OPERATIVE PROVISIONS
1. DEFINITIONS
1.1 In this Agreement (including the Recitals) the following words and
expressions have the meanings stated in this clause unless the context
otherwise requires.
<PAGE>
'Acceptance Period' in respect of any Round 1 Offer means, for all
Recipients of, or Non-Diluting Shareholders in respect of, that round, from
the date of the offer the sum of:
(a) 10 Business Days; and
(b) if section 26 of FATA would apply to the acceptance of the offer by
any Recipient or Non-Diluting Shareholder, the period of 40 days (or
such other period as may be provided for the purposes of section
26(2)(b)(i) of FATA),
provided that if the Treasurer issues an order under section 22 of FATA in
respect of a Recipient's or Non-Diluting Shareholder's proposed acceptance
of an offer the Acceptance Period will be extended by a number of days
equal to the period for which that order has effect.
'Accepting Shareholder' has in clause 19 the meaning specified in clause
19.6(a) and has in clause 13 the meaning specified in clause 13.3.
'Accounting Standards' means the accounting standards (as that term is
defined in the Corporations Law) from time to time and if and to the extent
that any matter is not covered by such an accounting standard, generally
accepted accounting standards and principles applied from time to time in
Australia.
'Additional Amount' has the meaning specified in clause 12.13.
'Additional Loan' means a loan referred to in clause 12.13.
'Adjusted Cost Incurred Value' has the meaning specified in clause 24.5.
'Approved Purpose' has the meaning specified in clause 17.1.
'Articles' means the articles of association of Vision adopted on the
Commencement Date, as amended from time to time.
'Associate' has the meaning given to that term in section 6 of the BSA as
at the date of this Agreement.
'Auditor' means the auditor of Vision from time to time.
'Base Rate' means the sum of 2% and:
(a) the rate of interest per annum which is the rate published in the
Australian Financial Review as at the relevant date as the "Bank Bill
Swap Reference Rate - 30 days";
<PAGE>
(b) where there is for any reason no "Bank Bill Swap Reference Rate - 30
days" rate published in the Australian Financial Review, the average
bid rate displayed at or about 10.30am (Sydney time) on the relevant
day on the Reuters screen BBSY page by reference to a date 30 days (or
a comparable period) after the relevant date;
(c) if for any reason there is no rate displayed on Reuters screen BBSY
page which is described in paragraph (b), then the rate determined by
Commonwealth Bank of Australia to be the average of the buying rates
quoted to Commonwealth Bank of Australia by each of three Australian
banks authorised to quote on the Reuters screen BBSW page selected by
Commonwealth Bank of Australia, at or about that time on that date for
bills of exchange which are accepted by an Australian bank with a face
value equal to the principal amount of the Additional Loan or Option
Price (as applicable) and which have a term of 30 days (or a
comparable period); or
(d) if for any reason less than three such Australian banks provide such
quotes to Commonwealth Bank of Australia the buying rate quoted by
Commonwealth Bank of Australia at or about that time on that date for
bills of exchange which are accepted by an Australian bank with a face
value equal to the principal amount of the Additional Loan or Option
Price (as applicable) which have a term of 30 days (or a comparable
period).
'Benchmark Notice' means a notice given in accordance with clause 5 of
Schedule 8 and in the form specified in Schedule 8.
'Blocking Shareholder' in clause 21.2 has the meaning specified in that
clause.
'Board' means the board of Directors from time to time.
'Bridging Contributions' means funding for Vision during the Standstill
Period agreed pursuant to clause 12.17(a) in temporary substitution for
Shareholder Contributions.
'BSA' means the Broadcasting Services Act 1992 (Cth).
'Business Case' means the business case for Vision and the Joint Venture
Companies dated 7 December 1994.
'Business Day' means a day (not being a Saturday or Sunday) on which
trading banks are open for business in Sydney.
'Chairman' means the chairman of the Board from time to time appointed
under clause 6.6.
'Chief Executive Officer' means the chief executive officer of Vision from
time to time appointed in accordance with clause 8.
<PAGE>
'Commencement Date' means the first Business Day after the satisfaction of
the Conditions Precedent or such later date as the parties may agree.
'Competing Shareholder' has the meaning specified in clause 19.17(b).
'Condition Precedent' means a condition precedent specified in clause 2.1.
'Confidential Information' has the meaning given to it in clauses 17.1,
17.5 and 17.9.
'Control' means control within the meaning of section 6 and Schedule 1 of
the BSA as at the date of this Agreement except that:
(a) references in the BSA to "company interests" will be taken to be
references to "Ownership Interests"; and
(b) clauses 6 and 7 of Part 3 of Schedule 1 will not apply.
'Corporations Law' means the Corporations Law in force throughout Australia
as set out in section 82 of the Corporations Act 1989 (Cth).
'Cost Incurred Value' of an Equity Security or Ownership Interest in
MovieCo or SportsCo means the value of that Equity Security or Ownership
Interest determined in accordance with clause 24.4.
'Customer' of a service provider in relation to a Communications Service
means a person who has contracted with that service provider for the supply
of that Communications Service to that person.
'Deed of Accession' means, in the case of a transfer of Equity Securities,
a deed of accession in the form of Part A of Schedule 4, and in the case of
a transfer of an Option, a deed of accession in the form of Part B of
Schedule 4.
'Default' has the meaning specified in clause 23.1.
'Default Acquisition Notice' has the meaning specified in clause 23.5.
'Default Notice' has the meaning specified in clause 23.2.
'Defaulting Shareholder' has the meaning specified in clause 23.2.
'Diluting Shareholder' has the meaning given to that term in clause 13.1.
'Dilution Interest' has the meaning specified in clause 13.1.
'Director' means a director of Vision from time to time appointed in
accordance with clauses 5 and 6.2 and, while he or she remains a director
under clause 6.4, the Chief Executive Officer and references to a
'Director' include references to an alternate director.
<PAGE>
'Dispute' has the meaning specified in clause 29.1.
'Downstream Shareholder' has the meaning specified in clause 19.16(a)(i).
'Encumber' means to create or allow to exist any mortgage, charge, bill of
sale, lien, pledge, hypothecation, title retention arrangement, trust,
power or other arrangement, as or in effect as security for the payment of
a monetary obligation or the observance of any other obligation and
"Encumbrance" has a corresponding meaning.
'Equity Proportion' at any time means the proportion (expressed as a
percentage) which the number of Shares held by a Shareholder bears to the
total number of all issued Shares, assuming the conversion into Shares at
that time of all Equity Securities which are not Shares.
'Equity Securities' means:
(a) a Share; or
(b) any non-voting share, or other share, in the capital of Vision of a
class other than a Share; or
(c) any other security issued by Vision, of whatever class, which is
convertible into Shares or a share referred to in paragraph (b)
including without limitation, convertible loans, convertible
preference shares and converting preference shares
but excluding any option (including but not limited to an Option) to
acquire any share or other security referred to in paragraphs (a) to (c).
'Exercise Notice' means a notice given under clauses 26 and 27 and in the
form specified in Part A of Schedule 7.
'Expiry Date' in respect of an Option means the expiry date for exercise of
that Option.
'FATA' means the Foreign Acquisitions and Takeovers Act 1975 (Cth).
'Financier' means a bank or financial institution a substantial part of
whose ordinary business constitutes the lending of money to third parties.
'Financial Year' means a period of 12 consecutive months ending on 30 June
or on another day adopted by Special Resolution of the Board or such other
period of not more than 18 months as the Directors resolve, beginning:
(a) if there has been no previous financial year on the date of
incorporation of Vision; or
(b) otherwise at the end of the previous financial year.
<PAGE>
'First Phase Shareholder Contribution' means an instalment of funds that
must be paid by a Shareholder to Vision and which comprises a part of the
Initial Funding Program.
'Funding Program' means in respect of the Standstill Period the Initial
Funding Program, and thereafter a program forming part of the most recently
adopted Management Plan that sets out the financing arrangements for the
period to which that Management Plan relates including the:
(a) amount of each funding instalment required by Vision during the period
to which that Management Plan relates that must be provided from a
source other than any retained Profits;
(b) means of obtaining each such funding instalment including whether it
will be:
(i) contributed by the Shareholders or a Third Party;
(ii) in the form of debt or equity, partly debt or partly equity or a
debt/equity hybrid; and
(c) terms and conditions on which that funding instalment is to be
provided.
'Further Accepting Shareholder' has in clause 13 the meaning specified in
clause 13.7(a) and in clause 19 has the meaning specified in clause
19.9(a).
'Government Consent' means the notice referred to in clause 2.1(a) from the
Treasurer in the terms set out in clause 2.1(a).
'Guarantee' means a guarantee of the obligations of a Shareholder in the
form of Schedule 5.
'Guarantor' means a person who has given a Guarantee.
'Guarantor Parent Company' of a Shareholder means a Holding Company of that
Shareholder that has given a Guarantee in accordance with this Agreement in
respect of that Shareholder and in respect of:
(a) Continental or any permitted transferee of it under clause 18.3, means
Continental Cablevision Inc. of The Pilot House, Lewis Wharf, Boston,
Massachusetts, United States of America;
(b) Nine or any permitted transferee of it under clause 18.3, means
Publishing and Broadcasting Limited ACN 009 071 167 of 24 Artarmon
Road, Willoughby, New South Wales, Australia; and
<PAGE>
(c) Seven or any permitted transferee of it under clause 18.3, means Seven
Network Limited ACN 052 816 789 of Level 14, 1 Pacific Highway, North
Sydney, Australia.
'Holding Company' has the meaning given to that term by section 9 of the
Corporations Law, as at the date of this Agreement.
'Initial Management Plan' means the Management Plan for the period
beginning on 1 July 1994 and ending on 30 June 1997 as agreed between the
parties on the date of this Agreement.
'Initial Funding Program' means the amount and timing of the aggregate
funds that must be paid by the Shareholders to Vision as specified in
Schedule 3 and as varied in accordance with clause 8 during the Standstill
Period.
'Interposed Company' has the meaning given to it by clause 19.16(a).
'Interposed Equity Securities' has the meaning specified in clause
19.16(b).
'Joint Venture' means the joint venture described in clause 3.1 and the
establishment and operation of LicenceCo, MovieCo and SportsCo and
otherwise contemplated by the Transaction Agreements in relation to Vision,
LicenceCo, SportsCo, MovieCo and such other companies as the Shareholders
may establish under this Agreement.
'Joint Venture Company' means each of Vision, LicenceCo and such other
companies as Vision establishes or acquires under this Agreement or
LicenceCo establishes or acquires under the LicenceCo Articles or the
Shareholders may establish or acquire for the purpose of the Joint Venture.
'LicenceCo' means a company to be incorporated for the purpose of the Joint
Venture.
'LicenceCo Articles' means the Articles of Association of LicenceCo to be
adopted before the Commencement Date, as amended from time to time.
'LicenceCo Broadcasting Service' means a Vision Service, for so long as the
provision of which by Vision or the holding of a licence by Vision to
provide, would result, under the BSA or any other applicable legislation,
in a contravention of any foreign ownership and/or foreign control
provisions of that legislation.
'LicenceCo Business' means the business of LicenceCo described in and
otherwise contemplated by the Transaction Agreements.
<PAGE>
'Listing' means the first quotation of Equity Securities on, and admission
of Vision to the official list of, the stock market conducted by the
Australian Stock Exchange Limited.
'Listing Notice' has the meaning specified in clause 21.3.
'Long Option' has the meaning specified in Schedule 11B.
'Long Option Interest' has the meaning specified in Schedule 11B.
'Majority Call Option Notice' has the meaning specified in clause
19.18(a)(ii).
'Majority Shareholder' has the meaning specified in clause 19.18(a).
'Management Plan' means for the period to 30 June 1995 and the Financial
Year to 30 June 1996 (and the following Financial Year if no management
plan is adopted by the Board under clause 10 in respect of that Financial
Year) the Initial Management Plan and in respect of each Financial Year
thereafter a management plan of Vision for carrying on the Vision Business
during a period of 3 successive Financial Years that has been adopted by
the Board under clause 10 and as may from time to time be amended in
accordance with clause 8 and which will include (unless the Board otherwise
resolves by Super Resolution):
(a) a detailed description of Vision's proposed and\or existing services
and products, marketing activities, expenditure, financing and other
activities in implementing and carrying on the Vision Business for
each Financial Year to which it applies;
(b) a budget containing an estimate of the income to be received and the
expenses and capital expenditure to be incurred in implementing and
carrying on the Vision Business for each Financial Year to which it
applies;
(c) a Funding Program;
(d) the objectives of the Vision Business for the first Financial Year to
which it applies;
(e) a summary of the achievements of the Vision Business for the Financial
Year immediately prior to the first Financial Year to which it
applies;
(f) a cashflow forecast for each Financial Year to which it applies,
including a schedule of assumptions made in preparing the cashflow
forecast; and
(g) details of the estimated staffing requirements of the Vision Business
for each Financial Year to which it applies.
'Market Value' of an Equity Security or Ownership Interest in MovieCo or
SportsCo means the value of that Equity Security or Ownership Interest in
MovieCo or SportsCo (as the case may be) determined under clause 24.3.
'Market Value Determination Date' has the meaning given to that term in
clause 24.3(i).
'Margin' means 3%.
<PAGE>
'Memorandum' means the memorandum of association of Vision from time to
time.
'Minority Shareholder' has the meaning specified in clause 19.17(a).
'MovieCo' means the company, partnership or venture established or to be
established between Vision and other persons for the purpose of acquiring
and licensing within Australia the Pay Television Service broadcasting
rights for movie programming (including movie content owned by or under the
control of Warner Bros., Disney, MGM and/or Village Roadshow Limited).
'MovieCo Shareholders Agreement' means the agreement which is anticipated
to be entered into between, among others, the participants in MovieCo
concerning their rights and obligations as participants in MovieCo.
'Network Shareholders' has the meaning specified in clause 31A.
'New Shareholder' has the meaning specified in clause 12.15.
'Non-Defaulting Shareholder has the meaning specified in clause 23.2.
'Nominee' in clause 12.8A has the meaning specified in clause 12.8A(a), in
clause 23 has the meaning specified in clause 23.6(g), in clause 31A has
the meaning specified in clause 31A(na) and in clause 32 has the meaning
specified in clause 32.1(f).
'Non-Diluting Shareholder' has the meaning specified in clause 13.1.
'Non-Transferring Shareholder' has the meaning specified in clause 20.3.
'Offer' has the meaning specified in clause 19.1.
'Offer Notice' has in clause 19 the meaning specified in clause 19.2 .
'Offeror' has in clause 19 the meaning specified in clause 19.2.
'Option' means an option granted to Nine or Seven respectively as set out
in clauses 26 and 27, and any option granted under clause 31A.
'Optionholder' has in clauses 26 and 27 the meaning specified in each of
those clauses respectively and in clauses 12.15, 17 and 24.2(a)(vi) means a
party that holds an Option for which the Option Period has not expired.
'Option Period' in respect of an Option means the period between the date
that Option is granted and the Expiry Date.
'Option Price' in respect of an Option, has the meaning specified in the
clause under which the Option is granted.
'Option Termination Notice' means a notice in the form of Part B of
Schedule 7.
<PAGE>
'Optus Competitor' means a Mobile Carrier or a General Carrier that is a
material or substantial competitor of Optus in Australia.
'Optus Exit' means the first date on which none of Optus or its Related
Corporations holds any Equity Securities otherwise than as a result of a
breach of clause 25.1.
'Optus Mobile' means Optus Mobile Pty Limited ACN 054 365 898.
'Other Shareholder' has the meaning specified in clause 19.18(a)(i) except
in clause 32 where it has the meaning specified in clause 32.1(g).
'Ownership Interest' means:
(a) a voting share; or
(b) any non-voting share, or
(c) any other security of whatever class, which is convertible (at the
election of the issuer, holder or any other person) into shares
whether voting or non-voting including without limitation, convertible
loans, convertible preference shares and converting preference shares
assuming the conversion into shares at that time of all such
securities in accordance with their terms; or
(d) a "voting interest" as defined in section 6 of the BSA as at the date
of this Agreement; or
(e) interests or any rights or arrangements (other than solely by virtue
of owning shares) which have the effect of conferring a power to
appoint directors, and the percentage of the interest will be taken to
be the greatest percentage of the number of votes, (expressed as a
percentage of the total number of votes that could be cast at a
meeting of the directors of the relevant company on the assumption
that every director of the company was present and entitled to vote),
which those directors are in a position to cast at a meeting of the
directors of the company,
and the extent of that interest is to be calculated using the fractional
tracing method set out in Part 4 of Schedule 1 of the BSA as at the date of
this Agreement and for the purposes of applying that fractional tracing
method a person that has Ownership Interests in a company of 50% or greater
is to be deemed to have Ownership Interests of 100% in that company (see
the example in Schedule 9).
'party' means a party to this Agreement (and any other person that executes
a Deed of Accession) but except for the purposes of the clauses referred to
in clause 22.4 or for the purposes of clause 32A excludes a person that has
ceased to be a Shareholder unless it holds an Option and does not include
Optus Administration except in relation to clauses 7.3(c), 17, 22, 29, 31,
34, 40, 43, 45, 46 and 47.
<PAGE>
'Percentage Aggregate First Phase Shareholder Contributions' means, in
respect of each Shareholder, the percentage that the aggregate of all First
Phase Shareholder Contributions made by it bears to the aggregate of all
First Phase Shareholder Contributions to be made by all Shareholders
(ignoring any Benchmark Notice) under the Initial Funding Program.
'Piggy Back Shareholder' has the meaning given to that term in clause 21.6.
'Price Range' has the meaning specified in clause 21.3(f)(ii).
'Profits' means the profits of Vision that are available for distribution
determined by the Board in accordance with the Accounting Standards after
excluding any profits arising on the revaluation of Vision's assets from
time to time.
'Prohibited Disclosee' has the meaning specified in clause 17.6.
'Prohibited Shareholder' means any person that:
(a) is a Vision Competitor;
(b) directly or indirectly has in excess of 20% of the Ownership Interests
in a Vision Competitor;
(c) is an Optus Competitor;
(d) directly or indirectly has in excess of 20% of the Ownership Interests
in an Optus Competitor; or
(e) is a Related Corporation of any of the persons referred to in
paragraphs (a)-(d); or
(f) is a person who satisfies all of the following conditions:
(1) that person (or its Related Corporations) and another person (or
its Related Corporations) hold in aggregate Ownership Interests
of at least 20% in a Shareholder;
(2) that person (in aggregate with its Related Corporations) directly
or indirectly holds Ownership Interests of at least 10% in a
Vision Competitor or an Optus Competitor; and
(3) the other person (in aggregate with its Related Corporations)
directly or indirectly holds Ownership Interests of at least 10%
in the same Vision Competitor or Optus Competitor.
but does not include Nine or any of its Related Corporations (other than a
Relevant Entity.
<PAGE>
'Proportion Date' in clause 13 has the meaning specified in clause 13.1 and
in clause 19 has the meaning specified in clause 19.5.
'Proposed Transferee' has the meaning specified in clause 20.3.
'Put Option Notice' has the meaning specified in clause 19.18(a)(i).
'Recipient' has the meaning specified in clause 19.5.
'Related Corporation' in relation to a corporation means at any time:
(a) a 'related body corporate' of that corporation at that time as defined
in section 50 of the Corporations Law, as at the date of this
Agreement;
(b) a corporation that Controls the corporation or a corporation referred
to in paragraph (a); and
(c) a corporation Controlled by that corporation or by a corporation
referred to in paragraph (a) or (b).
'Related Party':
(a) in relation to a corporation or a natural person includes:
(i) any person in concert with whom that person is acting or
proposes to act or is or proposes to become associated, whether
informally or formally, in any way in respect of the matter to
which the reference relates;
(ii) any person under the Control of that person or any other person
or combination of persons each of whom is a Related Party of
that person by virtue of the application of any of the other
paragraphs of this definition; and
(iii) the trustee or trustees of any trust under which a person
described in paragraph (a)(i) or (ii) or paragraph (b) or (c)
will or may benefit;
(b) in relation to a corporation includes:
(i) a director or secretary of the corporation or a Related
Corporation of that corporation; and
(ii) a Related Corporation of that corporation; and
<PAGE>
(c) in relation to a natural person includes:
(i) the spouse (including a defacto spouse), brother, sister, lineal
ancestor and lineal descendant of that person; and
(ii) the spouse (including a defacto spouse), brother, sister, lineal
ancestor and lineal descendant of any of the persons referred to
in paragraph (c)(i).
'Release Date' has the meaning specified in clause 19.17(b).
'Release Notice' has the meaning specified in clause 19.17(b).
'Relevant Entity' means the entity or entities that the Shareholders may
from time to time agree are a relevant entity for the purposes of
particular provisions of the Transaction Agreements.
'Relevant Provision' means the provision or provisions that the
Shareholders may from time to time agree are a relevant provision for the
purposes of particular provisions of the Transaction Agreements.
'Remaining Dilution Interests' has the meaning specified in clause 13.4.
'Remaining Equity Securities' has the meaning specified in clause 23.6(g).
'Remaining Sale Securities' has the meaning specified in clause 19.7.
'Representative' has the meaning specified in clause 17.1.
'Resulting Entity' has the meaning specified in clause 19.16(c).
'Round 1 Dilution Notice' has the meaning specified in clause 13.2.
'Round 1 Offer' has the meaning specified in clause 19.5 or clause 13.1 (as
the case may be).
'Round 2 Dilution Notice' has the meaning specified in clause 13.5.
'Round 2 Offer' has the meaning specified in clause 19.7 or clause 13.4 (as
the case may be).
'Sale Price' has in clause 19 the meaning specified in clause 19.2.
'Sale Securities' has the meaning specified in clause 19.4.
<PAGE>
'Second Phase Shareholder Contribution' means an instalment of funds that
must be paid by a Shareholder to Vision under a Funding Program relating to
a period other than the Standstill Period.
'Secondary Offeror' has the meaning specified in clause 21.3(a).
'Secondary Offer Price' has the meaning specified in clause 21.3(d).
'Secondary Offer Securities' has the meaning specified in clause 21.3(a).
'Seller' has the meaning specified in clause 19.1.
'Shareholder Contribution' means a funding instalment other than a Bridging
Contribution that is or is to be contributed by the Shareholders to Vision
(including funds provided to Vision on exercise of any Option) and
includes:
(a) a First Phase Shareholder Contribution; and
(b) a Second Phase Shareholder Contribution.
'Shareholder Loan' means a loan made by a Shareholder to Vision pursuant to
clause 12.5 and for the avoidance of doubt does not include any Additional
Loans.
'Shareholders' means before the Commencement Date, each of Continental,
Optus, Seven and Nine and from the Commencement Date means each of:
(a) Continental, Optus, Seven, Nine; and
(b) any other person who has executed a Deed of Accession,
whilever such person holds Equity Securities.
'Shares' means ordinary shares of $1.00 each in the capital of Vision.
'Short Option' has the meaning specified in Schedule 11A.
'Simple Majority' means, in respect of a resolution, a majority of the
Board (or Shareholders) that together hold more than 50% of the total
voting rights of all Directors (or Shareholders) entitled to vote
(excluding Directors or Shareholders whose vote is not counted under
clause 6.23 and Directors or Shareholders who abstain from voting and whose
vote might not be counted under clause 6.23) on a poll if all Directors (or
Shareholders) were present but means in the case of a meeting to which
clause 6.13 or 6.20 applies, a majority of the Board (or Shareholders) that
together hold more than 50% of the total voting rights on a poll of all
Directors (or Shareholders) entitled to vote (excluding Directors or
Shareholders whose vote is not counted under clause 6.23 and Directors
or Shareholders who abstain from voting and whose vote might not be counted
under clause 6.23) on the poll and who are present at the meeting.
<PAGE>
'Simple Resolution' means a resolution of the Board (or Shareholders)
passed by or required to passed by Simple Majority.
'Special Majority' means, in respect of a resolution, a majority of the
Board (or Shareholders) that together hold not less than 75% of the total
voting rights of all Directors (or Shareholders) entitled to vote
(excluding Directors or Shareholders whose vote is not counted under
clause 6.23 and Directors or Shareholders who abstain from voting and whose
vote might not be counted under clause 6.23) on a poll if all Directors (or
Shareholders) were present but means, in the case of a meeting to which
clause 6.13 or 6.20 applies, a majority of the Board (or Shareholders) that
together hold more than 75% of the total voting rights on a poll of all
Directors (or Shareholders) entitled to vote (excluding Directors or
Shareholders whose vote is not be counted under clause 6.23 and Directors
or Shareholders who abstain from voting and whose vote might not be counted
under clause 6.23) on the poll and who are present at the meeting.
'Special Resolution' means a resolution of the Board (or Shareholders)
passed by or required to be passed by Special Majority.
'SportsCo' means the company or venture established or to be established
between Vision, Seven, Nine and ESPN International Inc. (or its Related
Corporation) for the purpose of acquiring and licensing within Australia
the Pay Television Service broadcasting rights for sports programming,
including but not limited to certain sports content under the control of
ESPN International, Inc, Nine or its Related Corporations and Seven or its
Related Corporations.
'SportsCo Shareholders Agreement' means the agreement dated on or about the
date of this Agreement between SportsCo and the shareholders in SportsCo
concerning, among other things, the shareholders' rights and obligations
as Shareholders in SportsCo.
'Staffing Administration Services Agreement' means the agreement between
Optus Administration and Vision in relation to staffing administration
services to be provided to Vision.
'Standstill Period' means the period commencing on the date of this
Agreement and ending on 31 December 1997.
'Subscriber' of a Telecommunications Network means a person whose premises
are directly connected to that Telecommunications Network for provision of
Communications Services to those premises over that network.
'Subsidiary' has the meaning given to that term by sections 46 to 49 of the
Corporations Law, as at the date of this Agreement.
'Super Majority' means, in respect of a resolution, a majority of the Board
(or Shareholders) that together hold not less than 90% of the total voting
rights of all Directors (or Shareholders) entitled to vote (excluding
Directors or Shareholders whose vote is not counted under clause 6.23
and Directors or Shareholders who abstain from voting and whose vote might
not be counted under clause 6.23) on a poll if all Directors (or
Shareholders) were present but means, in the case of a meeting to which
clause 6.13 or 6.20 applies, a majority of the Board (or Shareholders) that
together hold not less than 90% of the total voting rights on a poll of all
Directors (or Shareholders) entitled to vote (excluding Directors or
Shareholders whose vote is not counted under clause
<PAGE>
6.23 and Directors or Shareholders who abstain from voting and whose vote
might not be counted under clause 6.23) on the poll and who are present at
the meeting.
'Super Resolution' means a resolution of the Board (or Shareholders) passed
by or required to be passed by Super Majority.
'Tax Act' means the Income Tax Assessment Act 1936 (Cth).
'Telecommunications Act' means the Telecommunications Act 1991 (Cth).
'Territory' means Australia.
'Third Party' means a person that is not a party.
'TPC' means the Trade Practices Commission or any body exercising the
functions formerly exercised by the Trade Practices Commission under the
Trade Practices Act 1974 (Cth).
'Transaction Agreements' means the agreements that the Shareholders may
from time to time agree are transaction agreements for the purposes of
particular provisions of this Agreement and any guarantee given in the form
of the Guarantee.
'Transfer' means to sell, assign, transfer, convey or otherwise dispose of
or grant options or other rights over or in respect of (including but not
limited to the establishment of a trust).
'Treasurer' means the Treasurer of the Commonwealth of Australia.
'Ultimate Holding Company' has the meaning given to that term by section 9
of the Corporations Law, as at the date of this Agreement.
'Unanimous' means, in respect of a resolution, a majority of the Board (or
Shareholders) that together hold not less than 100% of the total voting
rights of all Directors (or Shareholders) entitled to vote (excluding
Directors or Shareholders whose vote is not counted under clause 6.23
and Directors or Shareholders who abstain from voting and whose vote might
not be counted under clause 6.23) on a poll if all Directors (or
Shareholders) were present but means, in the case of a meeting to which
clause 6.13 or 6.20 applies, a majority of the Board (or Shareholders) that
together hold not less than 100% of the total voting rights on a poll of
all Directors (or Shareholders) entitled to vote (excluding Directors or
Shareholders whose vote is not be counted under clause 6.23 and Directors
or Shareholders who abstain from voting and whose vote might not be counted
under clause 6.23) on the poll and who are present at the meeting.
'Unanimous Resolution' means a resolution of the Board (or Shareholders)
that is or is required to be passed Unanimously.
<PAGE>
'Vision Business' means the business of Vision contemplated by this
Agreement and the other Transaction Agreements including the LicenceCo
Business.
'Vision Competitor' means any person that conducts a material or
substantial Competitive Business.
'Withdrawal Notice' means a notice from Vision to Optus under clause 25.3.
1.2 In this Agreement unless the context otherwise requires:
(a) headings are for convenience only and do not affect the interpretation
of this Agreement;
(b) the singular includes the plural and vice versa;
(c) the word person includes a body corporate, an unincorporated
association or an authority;
(d) a reference to a party includes its successors and permitted assigns;
(e) a reference to a document, includes any amendment, replacement or
novation of it;
(f) a reference to a statute, ordinance or by-law includes regulations and
other instruments under it and consolidations, amendments, re-
enactments or replacements of any of them;
(g) an agreement, representation or warranty in favour of two or more
persons is for the benefit of them jointly and each of them severally;
(h) an agreement, representation or warranty by two or more persons binds
them jointly and each of them severally;
(i) if a period of time is specified and dates from a given day or the day
of an act or event, it is to be calculated exclusive of that day;
(j) a reference to a day is to be interpreted as the period of time
commencing at midnight and ending 24 hours later;
(k) if an act prescribed under this Agreement to be done by a party on or
by a given day is done after 5.00 pm on that day, it is taken to be
done on the next day;
(l) if an event must occur on a stipulated day which is not a Business Day
then the stipulated day will be taken to be the next Business Day;
<PAGE>
(m) all references to dollars, $, cost, value and price are to Australian
currency;
(n) where any word or phrase is given a definite meaning in this Agreement
any part of speech or other grammatical form of the word or phrase has
a corresponding meaning;
(o) reference to a time and date in connection with the performance of an
obligation by a party is a reference to the time and date in Sydney,
Australia, even if the obligation is to be performed elsewhere;
(p) where any word or phrase is given a definite meaning by reference to a
provision of any statute the reference is intended to adopt any
amendment to or corresponding definition in that statute or any
amendment, re-enactment or replacement of it;
(q) reference to a group of Shareholders or, the Shareholders excluding a
particular Shareholder, making a decision by Simple, Special, Super or
Unanimous Resolution means that group of Shareholders making that
decision in the same manner as the Shareholders or the Board would
pass such a resolution in accordance with this Agreement; and
(r) in the definitions of "Subsidiary", "Holding Company", "Related
Corporation" and "Related Party" each reference to each of those
expressions in this Agreement and in the Corporations Law (to the
extent that it is incorporated by reference into those definitions) is
to be interpreted on the basis that:
(i) a trust and a partnership will be taken to be a body corporate;
(ii) a trust or a partnership may be a subsidiary, for the purposes
of which any units or other beneficial interests will be deemed
shares;
(iii) a corporation or trust or partnership may be a subsidiary of a
trust or a partnership if it would have been a subsidiary if
that trust or partnership were a company; and
(iv) a natural person will be taken to be a body corporate;
(s) a reference to any gender includes all genders;
(t) a reference to any person includes that person's administrators,
substitutes, successors and permitted assigns; and
(u) a reference to a month is to a calendar month.
1.3 The terms "BNS Site", "Broadcasting Service", "CAN", "Communication",
"Communications Service", "Competitive Business", "Corporate Customer
Site", "Customer", "General Carrier", "install", "LicenceCo Broadcasting
Service", "Line Link",
<PAGE>
"maintain", "Mobile Carrier", "Optus Network", "Optus Services", "Optus
Backbone Fibre", "Network Facility", "Pay Television Service", "PMTS",
"Program", "Public Mobile Licence", "Telecommunications Network",
"Telecommunications Services", "Third Party Network", "Vision Network",
"Vision Non-Broadcasting Service", "Vision Reserved Services", "Vision
Services" and "Wireless CAN" have the meanings given to those terms in the
Transaction Agreements.
1.4 A person will be deemed to obtain or receive approval of an acquisition or
purchase under FATA if the Treasurer fails to make a response (and a
response will include, without limitation, making an order under section 22
of FATA) within the period referred to in section 26(2)(b)(i) of FATA.
2. CONDITIONS PRECEDENT
2.1 The rights and obligations of the parties under this Agreement (other than
the whole of this clause 2, clause 4.6, clause 17, clause 30, clause 31A
and clauses 41.4 and 41.7 to 41.9) are subject to the following conditions
precedent:
(a) the Treasurer notifying the relevant person that he approves or has no
objection (and such approval or notification of no objection is
subject to no conditions or only to those conditions that the
Shareholders consider reasonable in accordance with clause 2.3) and in
this regard a failure by the Treasurer to make a response (and a
response will include, without limitation, making an order under
section 22 of FATA) within the period referred to in Section
26(2)(b)(i) of FATA will be deemed to constitute notification of
approval:
(i) in terms of the foreign investment policy of the Commonwealth
of Australia or under FATA, to the conduct by LicenceCo of the
LicenceCo Business;
(ii) to the proposed investment in Vision by Continental in
accordance with the terms of this Agreement under FATA; and
(iii) to the proposed investment in LicenceCo by Vision under FATA;
(b) other conditions precedent, in the terms agreed in the Transaction
Side Letter executed by or on behalf of the parties on the date of
this Agreement.
2.2 Each Shareholder must do everything necessary or desirable (which is
reasonable and within its authority or power to do) to ensure that each
Condition Precedent is fulfilled as soon as reasonably practicable after
the date of this Agreement, including but not limited to in respect of
Continental, making application to the Treasurer under section 26 of FATA
within 10 Business Days of the date of this Agreement and promptly making
all appropriate applications and signing, executing and delivering all
appropriate documents, form, and instruments.
2.3 If the Treasurer indicates that he will only provide a Government Consent
if certain conditions are met and, in the reasonable opinion of a
Shareholder, any of those conditions will or may have a material adverse
effect on its participation in the Joint Venture:
<PAGE>
(a) that Shareholder must within 14 days of receipt by it of the
Treasurer's response, notify the other Shareholders that it considers
that a condition proposed by the Treasurer will or may have a material
adverse effect on its participation in the Joint Venture;
(b) as soon as practicable after receipt of the notice referred to in
paragraph (a) the Shareholders will meet and negotiate in good faith:
(i) to overcome any objection and meet any such condition; or
(ii) to agree to proceed with the Joint Venture despite such an
objection and any condition;
(c) if such a condition only materially adversely affects the rights or
obligations of one Shareholder and that Shareholder has given notice
under paragraph (a) then that Shareholder may unilaterally elect to
waive its rights to object to that condition and the Condition
Precedent will be deemed to be satisfied;
(d) if no Shareholder notifies the other Shareholders under paragraph (a)
that it considers a condition will or may have a material adverse
effect on its participation in the Joint Venture within the time
referred to in that paragraph, the Shareholders are taken to consider
the conditions imposed to be reasonable and must, to the extent
compliance with such conditions is reasonably within their control,
procure compliance with such conditions; and
(e) if by 1 August 1995 any condition of which the Shareholders have been
notified under paragraph (a) has not been waived by the relevant
Shareholder under paragraph (c) and the parties have not agreed a
method to overcome any objection and meet any condition in accordance
with paragraph (b)(i) or agreed to proceed with the Joint Venture
despite such an objection and any condition in accordance with
paragraph (b)(ii), the Condition Precedent referred to in clause
2.1(a) will not be satisfied and clause 2.5 will apply.
2.4 Subject to clause 2.3(c), a Condition Precedent and any right under clause
2.2 is waived if, and only if, the parties agree in writing to waive the
condition. The obligation imposed on a party by clause 2.2 does not
require a party to waive any Condition Precedent.
2.5 If a Condition Precedent is not satisfied or waived by 1 August 1995 a
Shareholder may terminate this Agreement by notice in writing to the other
Shareholders by 14 August 1995 and this Agreement will be at an end as to
its future operation except that:
(a) any right or claim which arises on, or has arisen before, termination
under this clause 2.5 and clauses 41.7 to 41.9; and
(b) the obligations of the parties under clauses 17 and 30;
<PAGE>
will survive termination of this Agreement.
2.6 On the date of this Agreement:
(a) Continental must give to each other Shareholder a Guarantee executed
by its Guarantor Parent Company;
(b) Nine must give to each other Shareholder a Guarantee executed by its
Guarantor Parent Company; and
(c) Seven must give to each other Shareholder a Guarantee executed by its
Guarantor Parent Company.
2.7 On execution by Seven of this Agreement and the Transaction Agreements to
which Seven is a party, Optus, Continental and Nine must pay the following
respective amounts to Seven in consideration of Seven agreeing to execute
and enter into this Agreement and the Transaction Agreements to which Seven
is a party:
(a) Optus - $4,744,898
(b) Continental - $4,744,898
(c) Nine - $510,204
3. THE JOINT VENTURE
3.1 Each Shareholder agrees that:
(a) the principal objectives of the Joint Venture are:
(i) the ownership and operation of the Vision Network; and
(ii) the supply of Vision Services in the Territory;
(b) Vision will:
(i) own and operate the Vision Network, (except to the extent that
the Transaction Agreements otherwise provide);
(ii) own all databases and operate all databases and software required
for the conduct of the Vision Business and the LicenceCo Business
(except to the extent that the Transaction Agreements otherwise
provide) or Vision otherwise agrees with any supplier (including
a Shareholder and its Related
<PAGE>
Corporations) in respect of a particular database or software in which
case Vision will have access to that database or software;
(iii) acquire Telecommunications Services and supplementary services
from Optus Networks in accordance with the Transaction
Agreements for the purpose of carrying Vision Services between
parts of the Vision Network and, if necessary, to Subscribers
of the Vision Network and Vision Customers;
(iv) supply Telecommunications Services and supplementary services
to Optus Networks or Optus Mobile in accordance with the
Transaction Agreements for the carriage of Optus Services to
Customers of Optus Networks or Optus Mobile;
(v) provide services to LicenceCo in accordance with the
Transaction Agreements;
(vi) promote Vision Services in the Territory;
(vii) supply Vision Non-Broadcasting Services in Australia and, if
the Board decides, in Papua New Guinea and New Zealand;
(viii) assess the opportunities to design, construct, own and operate
a broadband communications network in New Zealand and Papua New
Guinea;
(ix) develop software for the operation of the Vision Network and
the provision of Communications Services;
(x) subject to the BSA and the Telecommunications Act, establish
and operate a satellite network using satellite capacity for
the supply by direct broadcast within the whole or part of the
Territory of LicenceCo Broadcasting Services by LicenceCo and
Vision Non-Broadcasting Services by Vision;
(xi) assess the opportunities for selling Program content for
distribution outside Australia; and
(xii) do such other things as may be ancillary to the activities
referred to in this clause.
3.2 The parties acknowledge and agree that they will assess the possibility of
establishing further companies to acquire, produce and supply Program
content.
3.3 Each party acknowledges that:
<PAGE>
(a) (subject to clauses 3.1(b)(vii) and (viii)) it is not its intention
that Vision assess opportunities to take any form of active operating
role in the provision of Communications Services outside Australia;
and
(b) each Shareholder may pursue other opportunities (including but not
limited to entering into other joint ventures) in relation to the
provision of Communications Services outside Australia.
4. FORMATION OF VISION
4.1 On the Commencement Date:
(a) each Shareholder must apply and pay for and Vision must issue and
allot to each Shareholder fully paid Shares so that its Equity
Proportion is in accordance with Schedule 1; and
(b) the Shareholders must pass a Special Resolution adopting the Articles
in substitution for, and to the exclusion of, Vision's existing
articles of association.
4.2 Vision must endorse on each Share certificate or any certificate relating
to any other Equity Securities a notation to the effect that the Shares or
other Equity Securities are subject to and transferable only in accordance
with the Articles and this Agreement.
4.3 Each Shareholder must:
(a) subject to any decision of the Board to the contrary in accordance
with clause 8, ensure that Vision conducts the Vision Business in all
material respects in accordance with the applicable Management Plan
from time to time;
(b) make decisions, give approvals and take such actions that are required
of the Shareholder as soon as practicable in good faith; and
(c) use all reasonable efforts to procure that Vision is successfully
managed in accordance with each Management Plan.
4.4 Each Shareholder must not:
(a) Transfer any interest in all or part of its Equity Securities to any
person except in accordance with this Agreement;
(b) subject to clause 4.5 Encumber all or any part of its interest in its
Equity Securities; or
(c) in any way attempt to make any Third Party a party to this Agreement
or a participant in the Vision Business except in accordance with this
Agreement.
<PAGE>
4.5 After the Standstill Period a Shareholder may Encumber its Equity
Securities in favour of a Financier provided that:
(a) the Financier has acknowledged in writing to Vision and the other
Shareholders that any exercise by it or anyone acting on its behalf or
appointed by it of any power in relation to the Equity Securities
(including, without limitation, a power of sale) will be subject to
this Agreement as if the Financier or any person appointed by it was
the relevant Shareholder; and
(b) the terms of any agreement relating to the Encumbrance do not entitle
the Financier to control the manner in which the Shareholder exercises
its rights and obligations under this Agreement or its voting rights
attached to Equity Securities or the appointment by that Shareholder
of Directors.
4.6 From the date of this Agreement until the first to occur of the
Commencement Date and the date of termination under clause 2.5, Optus must
act and exercise its rights as a Shareholder in a manner that is consistent
with the conduct of the Vision Business contemplated by this Agreement in
respect of the period after the Commencement Date, including but not
limited to clause 8. Before making any decision or doing any other act or
thing contemplated by clause 8 or schedule 10 or 11, Optus must disclose to
the other parties Vision's proposal to make such decision or do such act or
thing.
4.7 Each of Nine, Optus, Continental and Seven acknowledge that they have
agreed to enter into the venture on the basis, amongst other things, of the
Business Case and agree, subject to this Agreement, and to resolutions of
the Board in accordance with this Agreement, to use reasonable endeavours
to ensure that the objectives and returns set out in the Business Case will
be achieved.
5. INITIAL APPOINTMENTS
On the Commencement Date:
(a) each Shareholder will appoint or confirm the appointment of its
respective nominees as Directors as set out in Schedule 2; and
(b) procure the consent of its respective nominees as Directors as set out
in Schedule 2 to their appointment as directors of LicenceCo.
6. THE BOARD AND SHAREHOLDERS MEETINGS
6.1 The Shareholders must ensure that:
(a) the Directors are appointed and Board and Shareholders' meetings are
convened in accordance with this Agreement and the Articles;
<PAGE>
(b) subject to paragraph (d) and a determination of the Board by Special
Resolution, a minimum of 8 Board meetings take place each year and are
held in Sydney;
(c) subject to paragraph (d) the time, date, location and agenda of all
Board meetings will be determined by the Chairman in consultation with
the Chief Executive Officer except that each Director may, by notice
(the period of which must in the circumstances be reasonable) to the
Chairman, require a matter be included on the agenda and a resolution
be put to the Board at a particular meeting; and
(d) subject to clause 6.2, any Board meetings in addition to those
referred to in paragraph (b) may be convened at the written request of
one or more Shareholders that have the power to appoint a Director and
that Shareholder or those Shareholders will determine the agenda for
that meeting.
6.2 (a) Subject to paragraphs (b) to (d) each Shareholder having an Equity
Proportion of 10.5% or more is entitled to appoint, to remove and to
replace from time to time, one Director for each whole multiple of
10.5% of Equity Proportion held by it up to a total of 3 Directors for
any one Shareholder.
(b) Subject to clause 19.17(b), Seven (or its permitted transferees under
clause 18.3) is entitled to appoint one Director and to remove and
replace that Director provided its Equity Proportion is equal to or
greater than 2%.
(c) Subject to clause 19.17(b), Nine (or its permitted transferees under
clause 18.3) is entitled to appoint one Director and to remove and
replace that Director provided its Equity Proportion is equal to or
greater than 5%.
(d) For so long as either of Optus (or its permitted transferees under
clause 18.3) or Continental (or its permitted transferees under clause
18.3) has an Equity Proportion equal to or greater than 30%, it will
be entitled to appoint, remove and replace at least 3 Directors.
6.3 On any reduction in the Equity Proportion of a Shareholder it will procure
the resignation of such a number of the Directors previously appointed by
it prior to the next Board meeting as is necessary to ensure that the
number of Directors appointed by it does not exceed the number permitted by
clause 6.2.
6.4 Subject to the Board having the power at any time by Simple Resolution to
remove him or her as a director, the Chief Executive Officer, by virtue of
being and while he or she remains the Chief Executive Officer, will be a
Director but will not be counted in a quorum of the Board or entitled to
vote on a poll. The chief operating officer will be entitled to attend and
participate in Board meetings to provide advice to the Board but will not
enjoy the rights of a Director.
6.5 Each Director other than the Chief Executive Officer may, in accordance
with the Articles, appoint any person as his or her alternate. An
alternate director may only attend
<PAGE>
and vote at a Board meeting if the Director that appointed that alternate
director is not present at that Board meeting. If a person ceases to be a
Director then his or her alternate director immediately ceases to be an
alternate director.
6.6 The Chairman will be appointed as follows:
(a) each chairman must be a Director and will be appointed for a term of 2
years and will remain chairman during that period unless replaced in
accordance with this Agreement;
(b) the right to appoint, remove (subject to paragraph (c)) and replace
the chairman will rest with the Shareholder with the largest Equity
Proportion, excluding the Shareholder who had the right to appoint the
chairman for the immediately preceding term, provided that if only one
Shareholder has an Equity Proportion in excess of 25% that Shareholder
may appoint the chairman until another Shareholder's Equity Proportion
exceeds 25% and the first chairman will be appointed by Optus; and
(c) the Board may by Simple Resolution remove a chairman and in that event
the Shareholder that appointed that chairman will appoint a
replacement chairman for the remainder of the period of 2 years
referred to in paragraph (a).
6.7 The Shareholders acknowledge that:
(a) unless the Shareholders otherwise determine by Special Resolution, no
non-executive Director will be entitled to payment by Vision of any
Directors' fees or other remuneration. Each Shareholder must bear all
travelling and other expenses incurred by any Director appointed by it
(and alternate director appointed by him or her) in attending and
returning from Board meetings or otherwise in connection with the
Vision Business; but
(b) paragraph (a) does not prevent a non-executive Director being
remunerated by Vision for providing services to Vision (other than
services involving carrying out his or her duties as a Director).
6.8 A resolution (whether or not required to be passed by Unanimous Resolution,
Super Resolution or Special Resolution) put to the vote at a Board meeting
will be decided by a simple resolution on a show of hands unless a poll is
demanded by any Director before or on the declaration of the show of hands.
If a resolution on a show of hands would be carried or would not be carried
only if the vote of the Chief Executive Officer were counted then that vote
will not be counted.
6.9 If, at a Board meeting, a poll is demanded in respect of a resolution
before or on the declaration of a vote on a show of hands then on that poll
all of the Directors appointed by a particular Shareholder (and the
respective alternate directors appointed by those Directors) must between
them exercise one vote only, but that vote will carry voting rights
<PAGE>
equal to the proportion that the Equity Proportion of that Shareholder
bears to the total Equity Proportions of those Shareholders who have
appointed at least one Director who is present and entitled to vote on the
resolution.
6.10 The Chairman will not have an additional or casting vote on a show of hands
or on a poll at Board meetings or Shareholder meetings.
6.11 The number of Directors will be the number from time to time appointed in
accordance with this clause 6.
6.12 Subject to clause 6.13, a quorum for a Board meeting is constituted by the
attendance of one Director appointed by each Shareholder entitled to
appoint a Director (excluding a Shareholder whose Directors are not
entitled to vote on the resolutions to be put to that meeting).
6.13 (a) If a notice of a Board meeting has been given in accordance with
clause 6.14 and within 30 minutes after the time appointed for that
Board meeting a quorum is not constituted, the meeting will be
dissolved and, provided clause 6.13(b) is complied with, stand
adjourned to the Business Day two Business Days later at the same time
and place and any Directors present at that adjourned meeting will
constitute a quorum.
(b) Notice of the adjourned meeting will be given to all Directors (other
than alternate directors) on the same day as the day appointed for the
original meeting and must be accompanied by a copy of the original
notice of meeting. At any adjourned meeting no matter may be
considered which was not on the agenda of the original meeting.
6.14 A Board meeting will require at least 10 Business Days prior written notice
to be given to all Directors (other than alternate directors) unless a
shorter period of notice is agreed by one Director appointed by each
Shareholder (or his or her alternate). That notice must include an agenda
and, unless such Directors (or their alternates) otherwise agree, a Board
meeting may only resolve matters referred to in that agenda.
6.15 Board meetings may take place by telephone conference, video conference or
similar telecommunications device and a resolution in writing signed by all
of the Directors entitled to receive notice of the meeting will have the
same effect as a resolution passed at a meeting.
6.16 Subject to clause 6.17, to the extent permitted by law having regard to
this clause, a Director may make a decision in the interests of the
Shareholder appointing him or her, without being required to have regard to
the interests of the other Shareholders individually.
6.17 Without prejudice to section 231 of the Corporations Law, a Director must
disclose the fact of his or her appointor's interest in, and (except where
the appointing Shareholder's
<PAGE>
interest is materially similar to the interest of each other Shareholder)
is not entitled to vote in respect of any resolution in relation to:
(a) an agreement between Vision and the Shareholder that appointed that
Director or a Related Party of that Shareholder; and
(b) any of the following matters where there is a material conflict or a
potential material conflict between the interests of Vision and the
interests of the Shareholder that appointed that Director or a Related
Party of that Shareholder:
(i) the supply of a Vision Service in accordance with the
Transaction Agreements except that in the case of the supply of
a Vision Reserved Service each of Nine (or its permitted
transferees under clause 18.3) and Seven (or its permitted
transferees under clause 18.3) will be taken only to be in
material conflict or only to have a potential material conflict
if it (or its Related Corporations) is at the time the
resolution is proposed supplying an identical or substantially
similar service to the service the subject of the resolution,
but will not be taken to be materially in conflict or
potentially materially in conflict by reason only of the nature
or content of programming included in its primary free to air
television broadcast schedule; or
(ii) any decision by Vision to waive its right to build CAN in an
area in favour of Optus building a Wireless CAN in that area;
or
(iii) the capital expenditure and other activities that are required
to effect a decision referred in subparagraphs (i) and (iv); or
(iv) a variation in the architecture of the Vision Network, as
described in the Transaction Agreements, in accordance with
this Agreement; or
(v) any decisions of the Board to cause Vision to give a Withdrawal
Notice; or
(vi) any decision by Vision to agree or determine a value for Equity
Securities or Ownership Interests under clause 24 or to
appoint a valuer to determine the value of such interests; or
(vii) any decision of Vision to sue a party; or
(viii) any decision in relation to a Guarantee referred to in clause
13.3, 19.3, 19.6 or 19.16(c)(ii); or
(ix) a resolution referred to in clause 17.8 in respect of
disclosure by that Shareholder or its Ultimate Holding Company
of Confidential Information of Vision; or
(x) any decision by Vision to exercise the Call Option in clause
32A; and
<PAGE>
(c) an agreement only between SportsCo or MovieCo and the Shareholder or
its Related Corporations that appointed that Director.
6.18 Subject to the law, each Shareholder is responsible for ensuring to the
extent within its power that each Director appointed by it (or his or her
alternates) does all things necessary or desirable within his or her
capacity as a Director to ensure compliance by Vision with the provisions
of this Agreement applicable to it. This clause does not impose on a
Shareholder the obligation to incur any additional expenses.
6.19 Subject to clause 6.20 a quorum for a Shareholders' meeting is constituted
by the attendance of each Shareholder who is entitled under clause 6.2 to
appoint a Director.
6.20 (a) If within 30 minutes after the time appointed for a Shareholders'
meeting a quorum is not constituted, the meeting will be dissolved
and, provided clause 6.20(b) is complied with, stand adjourned to the
Business Day two Business Days later at the same time and place and
any Shareholders present at that adjourned meeting will constitute a
quorum.
(b) Notice of the adjourned meeting must be given to all Shareholders on
the same day as the day appointed for the original meeting and must
attach a copy of the original notice of meeting. At any adjourned
meeting no matter may be considered which was not on the agenda of the
original meeting.
6.21 On any proposed resolution of Shareholders each Shareholder will have
voting rights equivalent to the percentage that the Equity Proportion of
that Shareholder represents of the combined total of the Equity Proportions
of the Shareholders present and entitled to vote on that resolution.
6.22 If the Directors appointed by a Shareholder would not be entitled to vote
in respect of a resolution of the Board under clause 6.17 or otherwise at
law as a result of that Shareholder's interest in that resolution, then
that Shareholder must disclose its interest in and is not entitled to vote
in respect of that resolution at any meeting of Shareholders.
6.23 If a Prohibited Shareholder at any time directly or indirectly holds in
excess of 35% of the Ownership Interests in a Shareholder that Shareholder
and the Directors appointed by it will be entitled among other things and
without limitation to vote (unless otherwise precluded by this Agreement)
but any vote of that Shareholder or those Directors appointed by it will
not be counted in any resolution of the Shareholders or Board if the
resolution would only not be passed if the vote of that Shareholder or the
Directors appointed by it or their alternate was counted.
7. ACCESS TO INFORMATION
7.1 Without limiting a Director's right to information under general law,
Vision must ensure that the Directors (but not alternate directors unless
requested in writing by an appointing
<PAGE>
Shareholder) receive from Vision sufficient management and financial
information and reports to allow them to monitor and control the carrying
on of the Vision Business, including but not limited to the following:
(a) a monthly unaudited profit and loss statement, monthly unaudited
balance sheet and monthly unaudited cashflow statement (with
projections for the balance of the then current Financial Year) for
the preceding calendar month and for the current Financial Year to
date which:
(i) are prepared in reasonable detail using, to the extent reasonably
practicable, the Accounting Standards; and
(ii) include comparisons of the actual results for the month with the
projections set out in the current Management Plan for that month
and the actual results (if any) for the corresponding month of
the preceding Financial Year,
as soon as practicable after, and in any event within 21 days after
the end of each calendar month; and
(b) a profit and loss statement for the preceding Financial Year and
balance sheet to the end of that Financial Year which has been audited
by the Auditors, as soon as practicable after, and in any event within
60 days after, the end of each Financial Year.
7.2 Subject to clauses 17.6, 17.7, 19.17(b)(i) and 23.8 and without limiting s.
319 of the Corporations Law, Vision must permit, after receiving reasonable
notice, a Representative of:
(a) each of Continental, Optus, Nine or Seven (or its permitted transferee
under clause 18.3) (so long as it is at the time a Shareholder) and
its Ultimate Holding Company (during the same period); and
(b) any Shareholder that has an Equity Proportion of at least 5%
at reasonable times:
(c) to visit and inspect the premises of Vision and any property of
Vision;
(d) to inspect and take copies of documents relating to the Vision
Business and Vision's affairs including its books of account; and
(e) to discuss Vision's affairs, finances and accounts with Vision's
officers, employees and the Auditors;
for the purpose of any one or more of the following:
<PAGE>
(f) each Director appointed by that Shareholder being able to fulfil his
or her duties as a Director;
(g) the Shareholder giving reasonable consideration to any resolution that
is proposed to be put to the Board or Shareholders;
(h) the preparation of the accounts of the Shareholder or its Ultimate
Holding Company; and
(i) the review by a Shareholder or its Ultimate Holding Company of
material information for inclusion in a prospectus or information
memorandum to be prepared by that Shareholder or its Ultimate Holding
Company for an issue of securities by that Shareholder or its Ultimate
Holding Company or for obtaining or considering a bona fide offer from
a Third Party to acquire the Shareholder's Equity Securities for the
purpose of clause 19.1(a)(i).
7.3 Each Shareholder:
(a) acknowledges that before a Representative of a Shareholder or its
Ultimate Holding Company (other than a Director) is entitled to access
to Vision's premises or information under clause 7.2 that
Representative must (unless it is a Director) sign a confidentiality
agreement that is reasonably acceptable to Vision; and
(b) must ensure that when its or its Ultimate Holding Company's
Representatives conduct any inspection under clause 7.2 they complete
that inspection as soon as reasonably possible and minimise any
disruption to the Vision Business; and
(c) must indemnify and keep indemnified each other party for any damage,
loss, claim or action arising from a breach of the agreement referred
to in paragraph (a) by its or its Ultimate Holding Company's
Representatives.
7.4 If a Shareholder or its Ultimate Holding Company requires access to
Vision's premises or documentation for the purpose specified in clauses
7.2(h) and 7.2(i) that Shareholder must pay Vision's reasonable costs and
expenses incurred in relation to the provision of such access or any
information provided as a result of that access.
7.5 A Director appointed by either Seven or Nine must not disclose to the
Shareholder who appointed him or her any information in respect of
Programming (including, without limitation, in respect of the acquisition
or scheduling of such Programming) of which that Director becomes aware by
virtue of his or her position as a Director.
8. DECISIONS REQUIRING PARTICULAR MAJORITIES
8.1 Subject to this Agreement and the law, all decisions of the Board or the
Shareholders will be made by Simple Resolution.
<PAGE>
8.2 During the Standstill Period a resolution of the Board or Shareholders
specified in Schedule 10 or elsewhere in this Agreement must be passed by
the majority specified in Schedule 10 or elsewhere in this Agreement in
respect of that resolution.
8.3 After the Standstill Period a resolution of the Board or Shareholders
specified in Schedule 11 or elsewhere in this Agreement must be passed by
the majority specified in Schedule 11 or elsewhere in this Agreement in
respect of that resolution.
8.4 Subject to clause 8.6, and where an item is not already dealt with in
clause 8.2 or 8.3, each item of expenditure in excess of $15,000,000 must
be approved by the Board by Simple Resolution, whether or not that
expenditure item is authorised by a Management Plan.
8.5 The Shareholders must ensure that, unless the Board otherwise determines
in accordance with clause 8.2 or 8.3, the composition of the board of, and
the decision-making process for, LicenceCo or any Subsidiary of Vision
(other than SportsCo) will be the same as for Vision.
8.6 If a resolution of the Board on any matter is required to be passed by
different majorities in accordance with clauses 8.2, 8.3, 8.4 and 8.5 then
that resolution must be passed by the greater of those majorities.
8.7 Unless any applicable law or this Agreement requires that a resolution
relating to Vision be passed by the Shareholders, all resolutions relating
to Vision will be passed by the Board.
9. MANAGEMENT
9.1 Management of Vision is vested in the Board.
9.2 Vision will be managed on a day-to-day basis by the Chief Executive Officer
who will report and be responsible to the Board for Vision's activities and
operations which will be conducted in all material respects in accordance
with the Management Plan and the Board's directions from time to time.
9.3 (a) Subject to clause 8, the term of office, powers, duties and
remuneration of the Chief Executive Officer will be determined by the
Board by Simple Resolution.
(b) The Shareholders will procure that the Board delegates to the Chief
Executive Officer the power to enter into and to vary any agreements,
arrangements or commitments specified in the Management Plan involving
expenditure of up to the lower of $15,000,000 and the thresholds
referred to in:
(i) paragraphs 1.21, 2.6 and 2.8 of Schedule 10 during the Standstill
Period; and
(ii) paragraphs 2.6, 2.17 and 2.19 of Schedule 11 after the Standstill
Period.
This sub-clause (b) will not prevent the Directors from delegating, in
accordance with clause 8, authority to the Chief Executive Officer
pursuant to the Management
<PAGE>
Plan for a specific agreement, arrangement or commitment of any
monetary amount.
9.4 The Chief Executive Officer will be responsible for:
(a) the management of all activities of Vision and any Subsidiary of
Vision in the conduct of the Vision Business in compliance in all
material respects with the Management Plan;
(b) the general administration of Vision;
(c) implementation of and compliance with, in all material respects, the
Management Plan; and
(d) subject to clause 23.8, provision to the Board of full information
relating to all major activities of Vision and any of its
Subsidiaries,
subject to lawful directions and delegations from, and supervision by, the
Board.
9.5 The chief financial officer will be:
(a) responsible for the day-to-day management of the financial affairs of
Vision; and
(b) subject to the directions of, and report to, the Chief Executive
Officer.
9.6 The chief operating officer will be:
(a) responsible for the day to day management of the operational affairs
of Vision; and
(b) subject to the directions of, and report to, the Chief Executive
Officer.
10. MANAGEMENT PLANS, DIVIDEND POLICY AND ACCOUNTING PRACTICES
10.1 The Shareholders will ensure that the Board considers and, subject to
clause 8, adopts a Management Plan using the following procedure:
(a) at least 2 months before commencement of each Financial Year (other
than for the Financial Year ending on 30 June 1996), the Chief
Executive Officer will submit to each Director (but not alternate
Directors) a draft management plan for the following 3 Financial
Years; and
(b) the Board will consider the draft management plan and adopt a
Management Plan before commencement of the relevant Financial Year.
<PAGE>
10.2 Subject to clause 8, the Board may amend a Management Plan adopted by the
Board before or during the period to which it relates.
10.3 Except for the Financial Year ending on 30 June 1996, if the Board fails to
adopt a Management Plan before the commencement of a Financial Year then:
(a) the Management Plan for that Financial Year will consist of:
(i) that part of the existing Management Plan for the previous
Financial Year that applies to the current Financial Year; and
(ii) to the extent they are not inconsistent with subparagraph (i), a
continuation of the general business and activities contemplated
by the Management Plan for the previous Financial Year; and
(b) the Shareholders will ensure that the Board continues to use its best
efforts to adopt a Management Plan for the Financial Year.
10.4 The Shareholders must ensure that the Board adopts a policy of declaring
dividends at the highest possible level of Profits after taking into
account and consistent with the following guidelines:
(a) the Board must exercise prudent financial management and take into
account the applicable Management Plan, working capital, financing
arrangements and operational requirements of Vision;
(b) no dividends will be paid during the Standstill Period; and
(c) the Board must frank dividends in accordance with section 160AQF of the
Tax Act to the extent of the required franking amount determined
under section 160AQE of the Tax Act.
10.5 Vision will, and each Shareholder must use that Shareholder's reasonable
endeavours to ensure that Vision does, keep and maintain books and records
using the Accounting Standards which satisfy the requirements of all
relevant legislation, including, but not limited to, the Corporations Law
and the Tax Act.
10.6 Where relevant laws, rules of a relevant stock exchange or securities
exchange and accounting principles applying to a Shareholder require it,
Vision will, and the Shareholders must use their reasonable endeavours to
ensure that Vision does, at the cost of the relevant Shareholder, keep or
maintain adequate records to enable the Shareholder to incorporate Vision's
financial results in the books of account of the Shareholder.
11. VISION EMPLOYEES
<PAGE>
11.1 The Chief Executive Officer on behalf of Vision may, on such commercially
reasonable terms and conditions as he or she may determine:
(a) engage such persons as employees of Vision that are not required to be
appointed by the Board under this Agreement; and
(b) subject to the Transaction Agreements and any other agreement between
a Shareholder and Vision approved by the Board in accordance with
clause 8, accept an offer from any Shareholder (or a Related
Corporation of it) to second to Vision skilled employees of any
Shareholder or any of its Related Corporations which does not involve
any payment or profit to that Shareholder or any of its Related
Corporations in excess of the salary of those employees and on costs.
11.2 Each Shareholder must subject to the Transaction Agreements use its
reasonable efforts to ensure that each officer and employee of Vision
appointed or seconded by it or its Related Corporations does not:
(a) during that person's employment by or association with Vision, do any
of the things that a Shareholder is prohibited from doing under a
Relevant Provision; or
(b) during or after that person's employment by or association with
Vision, disclose any Confidential Information of a Joint Venture
Company or a Shareholder except as may be expressly authorised by the
person whose Confidential Information is to be disclosed.
12. FUNDING OBLIGATIONS
12.1 Subject to clauses 12.8, 12.10 and 12.13 each Shareholder must:
(a) pay to Vision that Shareholder's Equity Proportion of each Shareholder
Contribution on the due date for payment of that Shareholder
Contribution, the due date or amount being as specified in the
applicable Funding Program or as varied by the Board under clause 8
provided that the Shareholder has been given not less than:
(i) during the Standstill Period, 30 days notice; and
(ii) after the Standstill Period, 80 days notice,
of the varied due date or amount; and
(b) if the Shareholder Contribution must be satisfied by:
(i) issuing and allotting fully paid Shares to each Shareholder,
subscribe and pay for those Shares; and
<PAGE>
(ii) issuing Equity Securities other than Shares to each Shareholder,
subscribe and pay for those Equity Securities.
12.2 Subject to clause 12.13, unless the Board otherwise determines in
accordance with clause 8 or 12.5 each Shareholder must pay to Vision its
Equity Proportion of each Shareholder Contribution:
(a) during the Standstill Period, by subscribing and paying for fully paid
Shares; and
(b) after the Standstill Period, in the manner and on the terms specified
in the applicable Funding Program.
12.3 Unless the Board otherwise determines in accordance with clause 8 or 12.5,
if a Funding Program or this Agreement does not specify:
(a) part or all of the method of making the relevant Shareholder
Contribution it must be satisfied by each Shareholder subscribing for
and Vision issuing and allotting fully paid Shares to each
Shareholder; or
(b) the terms on which any Shareholder Contribution by way of Equity
Securities (other than Shares) is to be made, then they will be
determined by the Board in accordance with clause 8.
12.4 Unless the Board otherwise determines in accordance with clause 8, both
before and after the Standstill Period, Shares other than those issued
pursuant to an Option or under clause 28.7 will be issued at a par value of
$1.00 and at a premium of $4.00 per Share.
12.5 Shareholder Loans (other than Additional Loans) must be:
(a) made in accordance with a Unanimous Resolution of the Board;
(b) made by each Shareholder on identical terms and conditions (except for
the amount) and each Shareholder Loan must be at the same interest
rate as all other Shareholder Loans made in that series;
(c) unsecured;
(d) at a rate of interest of to be determined by the Board in accordance
with clause 8;
(e) non assignable; and
(f) subject to clauses 12.8 and 13, made in the same proportion as the
respective Equity Proportion of each Shareholder.
12.6 The parties acknowledge that the needs of the Vision Business may be such
that a Shareholder Contribution is not required precisely on the date or in
the amount specified
<PAGE>
in the Initial Funding Program or in a Funding Program and accordingly the
Board will give prompt consideration to any proposal by the Chief Executive
Officer to vary the date on which a Shareholder Contribution is to be made
during the period of that Funding Program, the amount of the Shareholder
Contribution or the manner in which it is to be made but any variation will
only be effected by a resolution of the Board in accordance with clause 8
or 12.5.
12.7 Subject to clauses 12.8 and 12.13 a failure of a Shareholder to pay to
Vision that Shareholder's Equity Proportion of a First Phase Shareholder
Contribution will constitute a Default in accordance with clause 23.
12.8 Any Shareholder may give a Benchmark Notice to Vision and the other
Shareholders and if a Shareholder gives a Benchmark Notice to them, subject
to clause 12.17(d):
(a) the failure of:
(i) that Shareholder, or
(ii) any other Shareholder that gives a notice to Vision and the other
Shareholders stating that it relies upon the Benchmark Notice
within 10 Business Days of receipt of the Benchmark Notice;
to pay its Equity Proportion of a First Phase Shareholder Contribution
due between the date of the Benchmark Notice and the end of the
Standstill Period will not constitute a breach of this Agreement or a
Default;
(b) clause 13 will apply to the Equity Proportion of a Shareholder
referred to in paragraph (a) in respect of each First Phase
Shareholder Contribution due between the date of the Benchmark Notice
and the end of the Standstill Period; and
(c) unless those Shareholders who have not failed to pay their Equity
Proportion of First Phase Shareholder Contributions agree by Unanimous
Resolution, each of the Shareholders who gives a Benchmark Notice or
other notice referred to in (a) will not be entitled to make any First
Phase Shareholder Contribution due between the date of the Benchmark
Notice and the end of the Standstill Period.
12.8A (a) For the purpose of this clause:
"Application Period" means the period which commences on the Benchmark
Notice Date and which is the sum of:
(i) 10 Business Days; and
(ii) if section 26 of FATA would apply to the purchase of any of
Seven's Equity Securities under the Benchmark Put Option, the
period of 40 days (or such
<PAGE>
other period as may be provided for the purposes of section
26(2)(b)(i) of FATA),
provided that if the Treasurer issues an order under section 22 of
FATA in respect of a Buying Shareholder's proposed acquisition of
Equity Securities pursuant to the Benchmark Put Option, the
Application Period will be extended by a number of days equal to the
period for which that order has effect.
"Benchmark Notice Date" means the date which is the last date on which
a Buying Shareholder receives or is deemed to receive a Benchmark Put
Option Notice.
"Benchmark Put Option" means the option granted under clause 12.8A(e);
"Benchmark Put Option Notice" means a notice given under clause
12.8A(j).
"Benchmark Option Price" means, in respect of each Buying Shareholder
or a Buying Shareholder's Nominee:
(a) its Shareholder Proportion multiplied by the aggregate of:
A. the Cost Incurred Value of Seven's Equity Securities
calculated as at; and
B. interest at the rate of Seven's Cost of Debt on each
Shareholder Contribution to Vision and each payment to
another person for Equity Securities made by Seven used in
calculating the amount referred to in subparagraph (A) from
the date each was respectively made until,
the date of the Benchmark Put Option Notice less:
(i) in the case of Nine, $510,204.00 (subject to (iv));
(ii) in the case of Optus, $4,744,898 (subject to (iv));
(iii) in the case of Continental $4,744,898 (subject to (iv);
and
(iv) in the case of a permitted transferee from, or any Nominee
of, any of the parties referred to in (i), (ii) or (iii)
(including one of these parties) that proportion of the
relevant amount referred to in (i), (ii) or (iii) above
which the Equity Securities to be acquired by the
transferee or Nominee under this clause 12.8A bears to the
number of Equity Securities that Nine, Optus or
Continental, as the case may be, would have acquired under
this clause 12.8A in the absence
<PAGE>
of the transfer or nomination, and the relevant amount
referred to in (i), (ii) or (iii) above will be reduced by
the same amount, plus:
(b) interest at the rate of Seven's Cost of Debt on the amount
calculated under paragraph (a) from the date of the Benchmark Put
Option Notice until completion as notified to the Buying
Shareholders 2 Business Days before completion.
"Buying Shareholders" means the Shareholders other than Seven.
"Shareholder Proportion" means, in respect of each Buying Shareholder
(or its Nominee), the proportion which the Buying Shareholder's Equity
Proportion bears to the aggregate of all Buying Shareholders' Equity
Proportions calculated as at the date of the Benchmark Put Option
Notice and for the purpose of clause 12.8A(m) and the definition of
"Benchmark Option Price", as if the Nominee had acquired from the
Shareholder that nominated it, such number of Equity Securities as
imposed on the relevant Shareholder the obligation to acquire the
proportion of Seven's Equity Securities the relevant Nominee has
agreed to acquire.
"Seven's Cost of Debt" means the rate expressed as a rate per centum
per annum representing the average direct cost of third party
borrowings (including all interest and fees (including line fees)) of
Seven's Guarantor Parent Company and its subsidiaries relating to the
relevant financial year or part of a financial year of Seven's
Guarantor Parent Company in respect of which the rate will be applied
to determine the Benchmark Option Price and in the absence of manifest
error, will be in relation to the relevant period the rate for each
period certified to the Buying Shareholders by the auditor of Seven's
Guarantor Parent Company and for the purpose of determining the rate
for the period referred to in paragraph (b) of the definition of
Benchmark Option Price the relevant period is the period from the date
of the Benchmark Put Option Notice until the date 2 Business Days
prior to completion.
"Nominee" means the person that a Buying Shareholder procures, in
accordance with clause 12.8A(g), to purchase some or all of the Equity
Securities the subject of the option granted by the Buying Shareholder
under clause 12.8A(e).
The expressions:
(i) Capex Per Passing;
(ii) Operating Income Per Passing; and
(iii) Sites Passed,
have the meaning assigned to them in clause 1 of Schedule 8 of this
Agreement.
(b) Within 30 days of 1 January 1997, Vision must notify the Shareholders
of:
(i) the Capex Per Passing; and
<PAGE>
(ii) the Operating Income per Passing; and
(iii) Sites Passed,
as at 1 January 1997.
(c) Within 30 days of 1 July 1998, Vision must notify the Shareholders of:
(i) the Capex Per Passing; and
(ii) the Operating Income per Passing; and
(iii) Sites Passed,
as at 1 July 1998.
(d) The condition precedent is that:
(i) the Capex Per Passing is more than 25% greater than the Forecast
Capex Per Passing; or
(ii) the Operating Income Per Passing is more than 33% below the
Forecast Operating Income Per Passing; or
(iii) the Sites Passed being less than or equal to 750,000 at 1
January 1997 or 2,000,000 at 1 July 1998; or
(iv) both of the following apply:
A. the Capex Per Passing is more than 10% greater than the
Forecast Capex Per Passing; and
B. the Operating Income Per Passing is more than 15% below the
Forecast Operating Income Per Passing,
as at either 1 January 1997 or 1 July 1998, as the case may be, and
the forecasts referred to above are as set out in the Initial
Management Plan or in the case where such forecasts are not set out as
notified by Vision to Seven.
(e) Subject to the satisfaction of the condition precedent, each Buying
Shareholder grants to Seven an option to require the Shareholder to
purchase or procure the purchase of its Shareholder Proportion of
Seven's Equity Securities for the Benchmark Option Price and subject
to the terms and conditions set out in this clause 12.8A.
<PAGE>
(f) If section 26 of FATA would apply to the acquisition by a Buying
Shareholder of Seven's Equity Securities pursuant to this clause 12.8A
then that Buying Shareholder must make application to the Treasurer
under section 26 of FATA within 10 Business Days of receipt of a
Benchmark Put Option Notice and do everything necessary or desirable
(which is reasonable and within its authority or power to do) to
obtain the requisite approval, and in such circumstances, clause
12.8A(g) will apply if such approval is not obtained without
conditions or is not deemed to have been obtained within the
Application Period.
(g) Subject to clause 12.8A(f), if the giving of a Benchmark Put Option
Notice would be contrary to clause 14.2 or any acquisition pursuant to
any such notice would cause any Buying Shareholder to be in breach of
clause 14.2 then the Buying Shareholder must do everything necessary
or desirable (which is reasonable and within its authority or power to
do) to obtain any necessary consents or approvals required but if it
is unable to do so by the last day of the Application Period (if
clause 12.8A(f) applies) or within 20 Business Days of receipt of a
Benchmark Put Option Notice (in any other case), then it must procure
another person or persons nominated in writing by it to Seven in
accordance with clause 12.8A(h) to purchase the Equity Securities that
it would otherwise be required to purchase.
(h) A Buying Shareholder may only nominate a person for the purposes of
clause 12.8A(g) if:
(i) the nominee is not a Prohibited Shareholder;
(ii) the acquisition of Equity Securities by the nominee under this
clause would not be in breach of clause 14.2;
(iii) the nominee has entered into a Deed of Accession; and
(iv) any Guarantee required in respect of the nominee has been given,
and must make such nomination within 60 Business Days of the
expiration of the Application Period or the expiration of the 20
Business Days referred to in clause 12.8A(g), as the case may be.
(i) The parties will take all action reasonably necessary to determine
within 10 Business Days of a request by a Buying Shareholder the
matters referred to in clause 19.3 in respect of any person which the
Buying Shareholder proposes to nominate for the purposes of clause
12.8A(g).
(j) The Benchmark Put Option is exercisable by Seven by it giving a
Benchmark Put Option Notice to each Buying Shareholder within 30 days
of the earlier of:
(i) Seven receiving a notice from Vision under clause 12.8A(b) or (c)
as the case may be to the effect; or
<PAGE>
(ii) after the relevant date in respect of which Vision must give
notice of the Capex per Passing, the Sites Passed and the
Operating Income per Passing, Seven being or becoming aware,
that the condition precedent has been satisfied.
(k) Completion of the purchase of Seven's Equity Securities pursuant to
the exercise of the Benchmark Put Option granted under this clause
must take place within 20 Business Days of:
(i) receipt by the Buying Shareholder of the Benchmark Put Option
Notice; or
(ii) if clause 12.8A(f) applies (but clause 12.8A(g) does not apply)
the expiry of the Application Period; or
(iii) if clause 12.8A(g) applies, the date of the nomination of the
Nominee made under clause 12.8A(g),
in accordance with clause 12.8A(l) at a time and place to be agreed or
failing agreement at 2.00pm at Vision's registered office on the last
day of the 20 Business Day Period referred to in this paragraph.
(l) On the day appointed for completion under clause 12.8A(k) the Buying
Shareholder must itself or must procure that its Nominee or both as
the case may be must give to Seven a bank cheque in payment of the
Benchmark Option Price and Seven must upon receipt of the cheque give
to each Buying Shareholder or its Nominee or both all documentation to
establish Seven's title to and to effect a transfer of the relevant
Equity Securities including an executed transfer and share certificate
in respect of the Equity Securities to be sold.
(m) If the condition precedent is satisfied, within 10 Business Days after
the Benchmark Notice Date:
(i) Seven must calculate and notify Vision of the Cost Incurred Value
of Seven's Equity Securities as at the date of the Benchmark Put
Option Notice; and
(ii) Seven must cause the auditor of its Guarantor Parent Company to
give notice to Vision of Seven's Cost of Debt for all periods
from the Commencement Date until the date of the Benchmark Put
Option Notice.
(n) Nothing in this clause 12.8A derogates from Seven's rights under
clause 12.8.
(o) Each of the Buying Shareholders must notify Vision forthwith upon
becoming aware:
<PAGE>
(i) that the Application Period is longer than 10 Business Days and
of any extension to it; and
(ii) that its purchase of Seven's Equity Securities would be precluded
under clause 14.2 and if so, when and if it would subsequently
not be so precluded.
(p) Vision must keep the Shareholders informed of information provided or
received by it and the progress of procedures undertaken under this
clause including, without limitation, information it receives under
clauses 12.8A(m) and 12.8A(o) and must give notice of the date on
which the Application Period will end.
12.9 Subject to clause 12.10 a failure of a Shareholder to pay to Vision that
Shareholder's Equity Proportion of a Second Phase Shareholder Contribution
will constitute a breach of this Agreement but not a Default.
12.10 If after the Standstill Period a resolution is passed that a particular
Second Phase Shareholder Contribution be paid and a Shareholder votes
against that resolution and notifies Vision at least 60 days before that
Second Phase Shareholder Contribution is due that it elects not to pay its
Equity Proportion of that Second Phase Shareholder Contribution:
(a) the failure to pay its Equity Proportion of that Second Phase
Shareholder Contribution will not constitute a breach of this
Agreement or a Default;
(b) another party will not be entitled to make a claim for damages
against that Shareholder in respect of that Shareholder's failure to
pay its Equity Proportion of that Second Phase Shareholder
Contribution;
(c) clause 13 will apply to that Shareholder's Equity Proportion of that
Second Phase Shareholder Contribution; and
(d) the failure of a Shareholder to pay its Equity Proportion of a Second
Phase Shareholder Contribution and any consequent dilution of that
Shareholder's Equity Proportion in accordance with clause 13 will not
affect that Shareholder's right to participate in later Second Phase
Shareholder Contributions.
12.11 The Shareholders must ensure that Vision:
(a) issues and allots all Equity Securities subscribed for by a
Shareholder in accordance with this clause 12; and
(b) enters into all necessary agreements in respect of any Shareholder
Loans to be made by a Shareholder in accordance with this clause 12.
12.12 Unless the Board determines to the contrary in accordance with clause 8
no Equity Securities will be issued or allotted by Vision:
<PAGE>
(a) during the Standstill Period, except in accordance with the Initial
Funding Program or this Agreement; and
(b) after the Standstill Period, except in accordance with a Funding
Program or this Agreement.
12.13 (a) If a resolution of the Board is passed:
(i) that specifically increases, or by amendment to or adoption by
a Management Plan increases, Shareholder Contributions to be
made during the Standstill Period in excess of $1.3 billion by
any amount and the Shareholder is notified of that fact before
the resolution is passed; or
(ii) which, not being within (a)(i), has the consequence that the
aggregate amount of Shareholder Contributions comprised in the
Initial Funding Program would exceed $1.3 billion by any
amount,
(the "Additional Amount"), then:
(iii) if the Board passed the resolution referred to in paragraph
(a)(i), a Shareholder whose nominated Directors did not vote in
favour of the resolution may, by notice to the other
Shareholders within 10 Business Days of the resolution being
passed; or
(iv) if the Board passed the resolution referred to in paragraph
(a)(ii), any Shareholder may, by notice to the other
Shareholders within a period of 10 Business Days after it
receives notice of a requirement to contribute to Vision any
part of the Additional Amount,
elect not to pay its Equity Proportion of the Additional Amount to
Vision. If any Shareholder gives such a notice the other Shareholders
may only pay any part of the Additional Amount by way of loan on the
terms set out in clause 12.14 ("Additional Loan"). Each Shareholder
who does not give a notice under paragraph (a)(iii) or (iv) must pay
to Vision its Equity Proportion of the Additional Amount on the date
determined by the Board.
(b) Notwithstanding any other provision of this Agreement except paragraph
(a), during the Standstill Period no Shareholder is obliged to pay to
Vision at any time its Equity Proportion of a Shareholder Contribution
or any amount under clause 12.17 if the amount of that payment would
cause the aggregate of amounts paid to Vision for Equity Securities
held by the Shareholder to exceed its Equity Proportion of $1.3
billion nor will, during the Standstill Period, its Equity Proportion
be reduced or diluted as a result of not making such payment.
12.14 The terms of any loan to be made under clause 12.13 will be:
<PAGE>
(a) it is repayable on the earlier of:
(i) 90 days after the end of the Standstill Period; and
(ii) the date on which any of the following events occurs;
A. Vision failing to pay interest in accordance with the terms
of the Additional Loan on or before two Business Days after
the due date for payment of that interest;
B. any of the events described in clauses 23.1(g), (h) or (i)
occurring in relation to Vision assuming that each reference
to a "Shareholder" or "it" in those clauses is replaced with
"Vision"; or
C. Vision breaching any of its obligations under a Relevant
Provision,
(b) the benefit of the loan is transferable to any person other than a
Prohibited Shareholder without the consent of Vision; and
(c) interest will be payable as follows:
(i) the interest rate will be set initially on the first day from
which interest is payable and thereafter on the first day of
each subsequent calendar month;
(ii) the interest rate will be the Base Rate plus the Margin; and
(iii) interest is payable on the last day of each calendar month
monthly in arrears.
12.15 Optus and Continental may at any time during the Standstill Period by
joint notice in writing to Vision and the other Shareholders introduce
one or more new shareholders in Vision (each a "New Shareholder") subject
to the following:
(a) The notice referred to in this clause must specify the proposed
Equity Proportion of the New Shareholder and the Equity Securities
proposed to be offered to the New Shareholder.
(b) The Equity Proportion of an Optionholder may not thereby be reduced.
(c) The rights of a party in respect of an Option must not be affected.
(d) The introduction of a New Shareholder must not result in the Equity
Proportion of either Optus or Continental being less than 30%
(assuming for this purpose that any Option held at that time by an
Optionholder has been exercised).
<PAGE>
(e) The introduction of the New Shareholder in the manner contemplated
must not have the effect or likely effect that any party would be in
breach of clause 14.2.
(f) The New Shareholder must satisfy clauses 20.1(b), (c) and (d) (which
shall apply as if Optus and Continental were Transferring Equity
Securities to the New Shareholder).
(g) (i) If Seven and Nine or any of their respective permitted
transferees under clause 18.3 are Optionholders and they do not
both hold Long Options the consent of Seven and Nine or any of
their respective permitted transferees under clause 18.3 must be
obtained to the introduction of a New Shareholder unless:
A. the New Shareholder is an institutional investor;
B. no New Shareholder other than institutional investors have
previously been introduced under this clause 12.15; or
C. the aggregate Equity Proportions of Seven and Nine or their
respective permitted transferees under clause 18.3 including
for this purpose any Option (assuming for this purpose that
any Option held at that time by an Optionholder has been
exercised) is less than 35%.
(ii) If only one of Nine or Seven or any of their respective permitted
transferees under clause 18.3 is an Optionholder ("Remaining
Network") the consent of the Remaining Network or any of its
permitted transferees under clause 18.3 or they both hold Long
Options the consent of each of them must be obtained to the
introduction of a New Shareholder unless:
A. the New Shareholder is an institutional investor; or
B. no New Shareholders other than an institutional investor has
previously been introduced under this clause 12.15.
12.16 Subject to clause 12.15, the introduction of the New Shareholder in
respect of the Equity Securities referred to in the notice in clause
12.15(a) will be achieved by the Transfer of existing Equity Securities
by Optus or Continental or the issue by Vision of the Equity Securities
or a combination of the two at the joint election of Optus and
Continental provided that in the case of an issue of Equity Securities by
Vision the terms of the Equity Securities (including the subscription
price) must be no more favourable than those applicable to the Equity
Securities issued to the other Shareholders and where there are two or
more classes of Equity Securities on issue, issue Equity Securities of
those classes in the same proportion as held by the Shareholders and
Continental and Optus must elect that the New Shareholder will pay
Shareholder Contributions to Vision in substitution for
<PAGE>
Optus and Continental until the necessary number of Equity Securities has
been issued to the New Shareholder.
12.17 (a) Once the Percentage Aggregate First Phase Shareholder Contributions
of either of Optus or Continental (or any permitted transferee of
either of them under clause 18.3) reaches 25% the Shareholders will
negotiate in good faith to seek to reach agreement on the basis on
which Bridging Contributions are to be made after the Percentage
Aggregate First Phase Shareholder Contributions of Optus or
Continental (or any permitted transferee of either of them under
clause 18.3) reaches 30%.
(b) Those negotiations will be without prejudice to the obligations of
each Shareholder to contribute Shareholder Contributions if no
agreement to the contrary is reached pursuant to the negotiations.
(c) Bridging Contributions may take the form of any one or more of the
following:
(i) external debt;
(ii) Shareholder Loans;
(iii) redeemable preference shares (which may be convertible); or
(iv) such other form as the Shareholders may agree.
(d) At least one month prior to the expiration of the Standstill Period
the Shareholders will, subject to clauses 12.17(e) and (f), make
such Shareholder Contributions as are necessary to ensure that the
aggregate of all Shareholder Contributions is, subject to clauses
12.8 and 12.13, not less than the amount of funds to be paid under
the Initial Funding Program (excluding any Additional Loans) and the
proceeds will first be used to repay Bridging Contributions.
(e) The respective obligation of each Shareholder under clause 12.17(d)
will be ascertained prior to the application of clause 12.17(f) and,
subject to clause 12.17(f), will be pro rata to its Equity
Proportion on the date on which the Shareholder Contributions are to
be made under clause 12.17(d).
(f) The obligation of a Shareholder who has given a Benchmark Notice or
other notice referred to in clause 12.8(a) to make contributions
under clause 12.17(d) will be calculated as if the reference in
clause 12.17(d) to the amount of funds to be paid under the Initial
Funding Program was a reference to the aggregate of Shareholder
Contributions (excluding any Additional Loans) and Bridging
Contributions to be made on or before the date of the Benchmark
Notice.
<PAGE>
12.18 No payment is to be made under clause 12.1 prior to the Commencement Date
but any payment that would otherwise have been due prior to that date
will be paid on the date 5 Business Days after the Commencement Date.
13. DILUTION FOR FAILURE TO FUND
13.1 If a Shareholder ("Diluting Shareholder") fails to subscribe for Equity
Securities in accordance with clause 12 whether:
(a) in breach of this Agreement or which constitutes a Default; or
(b) as a result of a Benchmark Notice having been given; or
(c) as a result of having made an election under clause 12.10;
the Board will, within a period of 10 Business Days after the due date
for subscription by the Diluting Shareholder, offer ("Round 1 Offer") to
each Shareholder (other than any Diluting Shareholder) ("Non-Diluting
Shareholder"), the opportunity to subscribe for the relevant Equity
Securities ("Dilution Interest"), in the proportion which that Non-
Diluting Shareholder's Equity Proportion bears to the aggregate of all
the Equity Proportions of all the Non-Diluting Shareholders calculated as
at the date, as relevant, of the breach, on which the Benchmark Notice
was given or of notification of the relevant election under paragraph
(a), (b) or (c) ("Proportion Date").
13.2 The Board must make each Round 1 Offer in writing to each Non-Diluting
Shareholder ("Round 1 Dilution Notice") specifying:
(a) the number and principal amount of the Equity Securities comprising
the Dilution Interest and the number and principal amount which the
Non-Diluting Shareholder has the opportunity to subscribe for; and
(b) the terms and conditions of the subscription for Equity Securities
comprising the Dilution Interest, which will be the same as for the
other Equity Securities offered for subscription in accordance with
that Shareholder Contribution in respect of which the offer is made.
13.3 Each Non-Diluting Shareholder must notify the Board as soon as it becomes
aware that the Acceptance Period is longer than 10 Business Days and of
any extension to it, and must notify the Board within the Acceptance
Period whether it accepts or rejects in whole or in part its Round 1
Offer. If a Non-Diluting Shareholder accepts part or all of its Round 1
Offer ("Accepting Shareholder"), that Accepting Shareholder is bound to
subscribe for the total number of Equity Securities comprising the
Dilution Interest accepted in its Round 1 Offer on the terms specified in
the Round 1 Dilution Notice. If the acceptance of a Round 1 Offer by a
Non-Diluting Shareholder would be contrary to clause 14.2 at the end of
the Acceptance Period then that Non-Diluting Shareholder must notify the
Board that it
<PAGE>
rejects its Round 1 Offer and any purported acceptance of that Round 1
Offer will be of no effect. If a Non-Diluting Shareholder is prohibited
by any statute or regulation from acquiring some or all of its Dilution
Interest then that Shareholder may nominate a Third Party and that Third
Party will be offered that part of the Dilution Interest which that
Shareholder is unable to acquire, and will receive all further offers as
if it were that Shareholder, if:
(a) that Third Party is not a Prohibited Shareholder;
(b) that Third Party agrees to enter into this Agreement by executing a
Deed of Accession; and
(c) any Guarantee is given in respect of that Third Party which has been
reasonably requested by the Board as determined by a Simple
Resolution (the resolution on which the Directors appointed by the
Shareholder which nominated the Third Party not being entitled to
vote).
For the purpose of calculating the number of Remaining Dilution Interests
to be offered to any Third Party as a Non-Diluting Shareholder, the Third
Party will be deemed to be an Accepting Shareholder and to have an Equity
Proportion based on a holding of the Equity Securities accepted by the
Third Party under the Round 1 Offer aggregated with those of the
Shareholder which is prohibited from acquiring the Dilution Interest.
13.4 If all of the Dilution Interests are not accepted under the Round 1
Offers ("Remaining Dilution Interests"), the Board must re-offer ("Round
2 Offer") to each Accepting Shareholder within 5 Business Days after the
expiry of the Acceptance Period for the Round 1 Offers the opportunity to
subscribe for the Equity Securities comprising the Remaining Dilution
Interests in the proportion which that Accepting Shareholder's Equity
Proportion as at the Proportion Date bears to the aggregate of all the
Equity Proportions of all the Accepting Shareholders calculated as at the
Proportion Date (assuming that all Dilution Interests accepted in the
Round 1 Offer were held by the Accepting Shareholders at that date).
13.5 The Board will make each Round 2 Offer in writing to each Accepting
Shareholder ("Round 2 Dilution Notice") specifying:
(a) the number and principal amount of the Equity Securities comprising
the Remaining Dilution Interest which the Shareholder has the
opportunity to subscribe for or make;
(b) the number and principal amount of the Equity Securities comprising
the Dilution Interest accepted by each Shareholder under the Round 1
Offers and the number and principal amount of the Equity Securities
comprising the Remaining Dilution Interests being offered to each
Accepting Shareholder under the Round 2 Offers; and
<PAGE>
(c) the terms and conditions of the subscription for Equity Securities
comprising the Remaining Dilution Interests, which will be the same
as those contained in the Round 1 Dilution Notices.
13.6 On or within 5 Business Days after receipt of its Round 2 Dilution
Notice, each Accepting Shareholder must notify the Board whether it
accepts or rejects in whole or in part its Round 2 Offer. An Accepting
Shareholder accepting part or all of its Round 2 Offer is bound to
subscribe for the total number of Equity Securities comprising the
Remaining Dilution Interest accepted in its Round 2 Offer on the terms
specified in the Round 2 Dilution Notices.
13.7 If some but not all of the Round 2 Offers or further offers made under
this clause are not fully accepted:
(a) the Board must, within 5 Business Days after the expiry of the
period for acceptance of the Round 2 Offer or whichever round is the
immediately preceding round of offers, repeat the procedure set out
in clauses 13.4 and 13.5 by offering to each person that accepted
all the Remaining Dilution Interests offered to it under the
preceding round of offers, a number of the still Remaining Dilution
Interests calculated in accordance with clause 13.4 except that for
each round of offers after the Round 2 Offers, references to the
"Accepting Shareholder" are replaced with "Further Accepting
Shareholder" and the Equity Proportions of each Further Accepting
Shareholder will be calculated as at the Proportion Date (assuming
that all Dilution Interests accepted in all preceding rounds of
offers were held by the Further Accepting Shareholders at that date)
and the Board must continue repeating that procedure until all of
the Remaining Dilution Interests have been accepted or rejected in
one round; and
(b) the procedure set out in clause 13.6 will apply to acceptance of any
offer made under clause 13.7(a).
13.8 The Board must keep the Shareholders informed of the progress of
procedures undertaken in accordance with this clause 13 including without
limitation information it receives under clause 13.3 and must give notice
of the date by which offers for the Equity Securities comprising the
Dilution Interest are accepted. Following receipt of a Round 1 Offer any
Non-Diluting Shareholder which would be precluded by section 26 of FATA
from immediately accepting that offer must:
(a) if it intends to accept its Round 1 Offer in part or in whole as
soon as practicable and in any event within 10 Business Days make a
notification under section 26 of FATA in respect of the Equity
Securities it proposes to subscribe for;
(b) within 10 Business Days notify the Board if it does not intend to
accept its Round 1 Offer in part or in whole; and
<PAGE>
(c) as soon as it becomes aware, notify the Board if the Treasurer gives
notice that he or she does or does not object to the proposed
acquisition under section 26 of FATA either in whole or in part or
if the Treasurer fails to give any notice within the time period in
which such notice could be given.
13.9 As soon as practicable after the expiry of the period for acceptance for
a round in respect of which there have been no acceptances or only
partial acceptances the Board must, contemporaneously, give notice to
that effect in writing to each Shareholder.
13.10 Completion of the subscription for Equity Securities accepted under
clauses 13.3, 13.6 and 13.7 will take place within 5 Business Days after
the date that the Board gives the notice referred to in clause 13.9 to
all Shareholders.
13.11 The Board may only withdraw offers under this clause 13 with the prior
written approval of all Non-Diluting Shareholders.
14. SHAREHOLDER OBLIGATIONS AND RIGHTS
14.1 The Shareholders must use their best efforts to ensure that Vision adopts
prudent business practices and policies.
14.2 Each party must comply with the requirements of:
(a) all Commonwealth and State legislation and law including but not
limited to the:
(i) BSA;
(ii) Telecommunications Act;
(iii) Tax Act;
(iv) Corporations Law;
(v) Trade Practices Act 1974 (Cth); and
(vi) FATA;
(b) all binding regulations, by-laws, orders, proclamations or codes
made or issued under or referred to in any legislation referred to
in paragraph (a); and
(c) a government or semi-government authority or agency that must be
complied with under any legislation referred to in paragraph (a) or
an instrument referred to in paragraph (b);
<PAGE>
that apply to or in respect of the Joint Venture, the Vision Business, the
transfer of Equity Securities or the performance of this Agreement, to the
extent that such a requirement applies to that party.
14.3 Each Shareholder agrees that for the purposes of section 619(1)(b) of the
Corporations Law:
(a) it shall consent in writing to the provisions of Chapter 6 of the
Corporations Law not applying with respect to any disposal or
acquisition of a relevant interest (as defined under the Corporations
Law) in Equity Securities which is permitted or required under this
Agreement; and
(b) it hereby consents to the provisions of Chapter 6 of the Corporations
Law not applying with respect to any acquisition by any Shareholder of
a relevant interest (as defined under the Corporations Law) in Equity
Securities arising by reason of this Agreement.
15. AGREEMENTS BETWEEN VISION AND SHAREHOLDERS
Each Shareholder acknowledges that Vision or any Subsidiary of Vision may
wish to enter into or vary agreements or arrangements with a Shareholder or
Related Party of a Shareholder and agrees that those agreements or
arrangements must unless all the Shareholders otherwise agree, subject to
clause 11.1:
(a) be in writing;
(b) be negotiated on an arm's length basis;
(c) be on normal commercial terms; and
(d) not be performed unless an agreement has been entered into in
accordance with this clause and clause 8.
16. [Not used]
17. CONFIDENTIAL INFORMATION
17.1 In this clause:
"Approved Purpose" means the bona fide purpose of:
(a) the operation of the Vision Business;
(b) in the case of a Shareholder, or a Holding Company of a Shareholder,
the purpose of that Shareholder exercising its rights as a
shareholder, considering the exercise of
<PAGE>
those rights or seeking a loan or other financial accommodation from a
Financier or complying with any agreement with that Financier;
(c) in the case of a Guarantor, the purpose of that Guarantor exercising
its rights or discharging its obligations as a guarantor;
(d) in the case of the holder of an Option, the purpose of that
optionholder considering the exercise of its rights under the option
or seeking a loan or other financial accommodation from a Financier in
connection with the payment of the exercise price for that Option;
(e) in the case of a professional adviser of a Shareholder, Optionholder,
Guarantor or a Holding Company of a Shareholder or Optionholder the
provision of advice to that person in relation to any of the matters
referred to in paragraphs (a), (b), (c) or (d);
(f) for the purpose of preparing books of account in the circumstances
referred to in clause 10.6; or
(g) for the purpose of a financier determining whether to make available
or continue to make available financial accommodation to a Shareholder
or Optionholder.
"Confidential Information" of a party means:
(a) all confidential information of that party or any of its Related
Corporations (whether or not in a material form) disclosed by that
party or one of its Representatives (including but not limited to all
trade secrets, confidential know-how and information regarding its
proposed business plans and any part of its business);
(b) that part of all records (on any media) prepared by another party
incorporating the information referred to in paragraph (a) (whether in
the same or a modified form) or information derived from that
information;
and
(c) all copies of the information referred to in paragraph (a) and the
parts of the records referred to in paragraph (b).
"Representative" of a person means an employee, officer or professional or
financial adviser of that person.
17.2 Each party and an Optionholder must:
(a) use Confidential Information of each other party solely for an
Approved Purpose;
<PAGE>
(b) keep Confidential Information of each other party confidential
(subject to disclosure authorised under clause 17.3 or 17.8);
(c) ensure that each person to whom it discloses Confidential Information
of another party under clause 17.3 complies with paragraphs (a) and
(b);
(d) if it becomes aware of any breach of paragraph (a) or (b) by any
Representative referred to in clause 17.3 in relation to the
Confidential Information of another party or has reason to suspect
that such a breach has occurred, immediately:
(i) notify that other party of that suspected or actual breach; and
(ii) take all available steps to prevent or stop that suspected or
actual breach;
(e) implement effective security measures to safeguard Confidential
Information of each other party from access or use not authorised by
this Agreement;
(f) provide any assistance reasonably requested by another party (at that
party's cost), in relation to any proceedings that the other party may
take against any person for use, copying or disclosure of Confidential
Information of that party that is not authorised by this Agreement;
and
(g) on ceasing to be a party or on termination of this Agreement:
(i) continue to keep confidential all Confidential Information of
each other party; and
(ii) at each other party's option, return to that party or destroy and
certify the destruction of that party's Confidential Information.
17.3 Subject to clause 17.6 each party and Optionholder may, provided the party
or Optionholder is doing so for an Approved Purpose, disclose Confidential
Information of:
(a) each other party to Representatives of it or its Related Corporations
who:
(i) have a need to know that information for an Approved Purpose (and
only to the extent that each has a need to know that information
for an Approved Purpose); and
(ii) have been directed by that party to keep confidential the
Confidential Information; and
(b) Vision to Representatives of a Financier who:
(i) have a need to know that information (but only to the extent that
each has a need to know that information); and
<PAGE>
(ii) have been directed by that party or Optionholder to keep
confidential the Confidential Information;
(c) Vision to Representatives of a potential transferee of the rights in
respect of, or, a Long Option who:
(i) have a need to know that information (but only to the extent that
each has a need to know that information); and
(ii) have been directed by that party or Optionholder to keep
confidential the Confidential Information.
17.4 The obligations of confidentiality of each party under this clause do not
extend to information that (whether before or after this Agreement is
executed):
(a) is known to that party if that party is not subject to an obligation
of confidentiality in respect of that information;
(b) is public knowledge (other than as a result of a breach of this
Agreement); or
(c) is required in the circumstances to be disclosed by law or by the
rules of a stock exchange on which the shares of a party or the
Holding Company of a party are quoted provided that the party has
taken all reasonable steps to prevent that disclosure and to limit the
extent of that disclosure.
17.5 The parties and Optionholders agree that:
(a) the Initial Management Plan is deemed to be the Confidential
Information of Vision; and
(b) paragraph (a) does not affect the rights of a party in relation to any
of its Confidential Information from which parts of the Initial
Management Plan have been derived.
17.6 Each party and Optionholder must ensure that Confidential Information of
Vision including any that may be disclosed under clause 17.3 is not
disclosed by it, any of its Related Corporations or Representatives to:
(a) a Prohibited Shareholder or a Related Corporation of a person referred
to in paragraph (f) of the definition of Prohibited Shareholder; or
(b) an employee, officer, director of any of the persons referred to in
clause 17.6(a)
<PAGE>
regardless of the capacity in which such a person ("Prohibited Disclosee")
is acting at the time of the disclosure.
17.6A Clause 17.6 does not preclude disclosure of Confidential Information of
Vision to a Shareholder or a Guarantor Parent Company of that Shareholder
or their employees, officers and directors for an Approved Purpose
providing the relevant employer, officer or director is not also an
employee, officer or director of a Prohibited Shareholder.
17.7 Accordingly each Shareholder (and, to the extent relevant, Optionholder)
must:
(a) not appoint as a Director (or an alternate Director) of Vision or as
Representative any Prohibited Disclosee; and
(b) ensure that, if a Prohibited Disclosee is a director or alternate of
that Shareholder or Optionholder or any Related Corporation of that
Shareholder or Optionholder, the Prohibited Disclosee:
(i) is excluded from any meeting of the Board of that Shareholder or
Optionholder or the Related Corporation during the disclosure
and any discussion of any Confidential Information of Vision or
other information regarding the Vision Business; and
(ii) does not receive any Confidential Information of a party or
board papers or materials containing information about Vision or
other information about Vision.
17.8 If a Shareholder or its Ultimate Holding Company wishes to disclose
Confidential Information of Vision:
(a) in a prospectus for the purpose of issuing its securities;
(b) to the public in a prospectus for the purpose of selling Equity
Securities of that Shareholder to the public in accordance with
clause 21; or
(c) to a third party in an information memorandum to obtain a bona fide
offer for the Shareholder's Equity Securities for the purpose of
clause 19.1(a)(i),
<PAGE>
then that Shareholder will notify the other Shareholders of the
Confidential Information of Vision that the Shareholder or its Ultimate
Holding Company wishes to disclose and the Shareholders will give prompt
consideration to whether the disclosure of that Confidential Information
is required by law and would be materially detrimental to Vision and will
authorise that disclosure by Special Resolution if:
(d) the disclosure is not required by law, but in their reasonable
opinion the disclosure of that Confidential Information will not be
materially detrimental to Vision; or
(e) in the reasonable opinion of that Shareholder the disclosure of that
Confidential Information is required by law.
17.9 Each party must keep the terms of this Agreement confidential in
accordance with this clause as if the terms of this Agreement were the
Confidential Information of another party.
17.10 If Seven wishes to disclose any Confidential Information to a Prohibited
Disclosee it may do so provided that it has obtained the prior written
consent of each Shareholder and Vision, the consent of each of which may
be withheld in its absolute discretion.
18. STANDSTILL
18.1 During the Standstill Period a Shareholder must not Transfer any interest
in all or any part of its Equity Securities to any person except by a
Transfer:
(a) in accordance with clause 12.16, 12.8A, 18.3, 19.17, 31Aor 32; or
(b) to another person under clause 23.
18.2 After the Standstill Period a Shareholder must not Transfer any interest
in all or any part of any of its Equity Securities except in accordance
with clauses 12.8A, 18.3, 19.12, 19.13, 19.16(b), 19.17, 19.18, 20, 21,
23, 31Aor 32.
18.3 Each Shareholder may, provided that if a Default Notice has been served on
it no Default Acquisition Notice has been given to it within the period
referred to in clause 23.5 or if a Default Acquisition Notice has been
given, 10 Business Days have elapsed after the period for acceptance of
all offers under clause 23.6 has expired if not all the Defaulting
Shareholder's Equity Securities have been agreed to be acquired, Transfer
all but not part of its Equity Securities at any time to:
(a) a wholly owned Subsidiary of that Shareholder, provided that the
Shareholder:
(i) simultaneously Transfers all Options and rights in respect of
Options held by it to the same wholly owned Subsidiary to which
it proposes to Transfer its Equity Securities; and
<PAGE>
(ii) first executes and provides to each other Shareholder a
Guarantee in respect of that wholly owned Subsidiary and the
wholly owned Subsidiary executes appropriate Deeds of
Accession; or
(b) if the Shareholder is a wholly owned Subsidiary of a Guarantor Parent
Company, the Guarantor Parent Company or another wholly owned
Subsidiary of that Guarantor Parent Company provided that:
(i) the Shareholder simultaneously Transfers all Options and rights
in respect of Options held by it to the same person to which it
proposes to transfer its Equity Securities; and
(ii) in the case of a transfer to another wholly owned Subsidiary:
A. the Guarantor Parent Company first executes and provides
to each other Shareholder a Guarantee in respect of that
other Subsidiary; and
B. that other Subsidiary executes appropriate Deeds of
Accession; and
(iii) in the case of a transfer to the Guarantor Parent Company, it
executes a Deed of Accession.
19. PRE-EMPTIVE RIGHTS AND DEEMED TRANSFERS
19.1 Subject to clause 20, after the Standstill Period a Shareholder ('Seller')
may Transfer or agree to Transfer any interest in all or some of the
Seller's Equity Securities if:
(a) the Seller:
(i) has received a bona fide offer to acquire; or
(ii) wishes to make an offer to Transfer to the other Shareholders;
('Offer') its interest in all or some of its Equity Securities;
(b) the procedures set out in clauses 19.1 to 19.15 have been complied
with; and
(c) in the circumstances where a Default Notice has been served on the
Seller and no Default Acquisition Notice has been given to it within
the period referred to in clause 23.5 or if a Default Acquisition
Notice has been given 10 Business Days have elapsed after the period
for acceptances of all offers under clause 23.6 has expired if not all
the Defaulting Shareholder's Equity Securities have been agreed to be
acquired.
<PAGE>
19.2 The Seller must notify the Board of any Offer which it wishes to accept or
make. That notice ('Offer Notice') must include particulars of the terms
of the Offer (including the price per Equity Security to be offered for
sale and the total price for all Equity Securities to be offered for sale
('Sale Price')) and, if the Offer is under clause 19.1(a)(i):
(a) the identity of any offeror ('Offeror'); and
(b) such financial and other details as are available to the Seller
regarding the Offeror and its Related Corporations as the other
Shareholders reasonably require for the purpose of clause 19.3.
19.3 Within 30 Business Days after receipt of the Offer Notice in respect of an
Offer under clause 19.1(a)(i) the Board must determine by Simple Resolution
whether:
(a) by itself, the Offeror is of sufficient financial standing to meet its
obligations as a Shareholder under this Agreement or if it is not; and
(b) if a Related Corporation proposes to give a Guarantee in relation to
the Offeror, that Related Corporation is of sufficient financial
standing to meet its obligations under the Guarantee.
The Seller's nominees on the Board may not be present at any Board meeting
considering, or any discussions in relation to, this issue. In making the
determination under (b) the Board will separately consider, in the order
(if any) nominated by the Offeror, each Related Corporation of the Offeror
proposed as a Guarantor by the Offeror and will only consider other persons
if none of those is acceptable to the Board. If the Board makes a negative
determination in respect of either (a) or (b) or a determination that a
Guarantee is required and it has not first been given, the Seller must not
accept the Offer or Transfer or agree to Transfer all or any part of the
Seller's Equity Securities to the Offeror in accordance with clause 19.13.
19.4 The Offer Notice will constitute the Board as the Seller's agent for the
sale of the entire interest of the Seller in the Equity Securities the
subject of the Offer Notice ('Sale Securities') in accordance with this
clause 19.
19.5 On or within 10 Business Days after the Offer Notice is received the Board
must offer for sale ('Round 1 Offer') to each Shareholder (other than the
Seller) ('Recipient'), the Sale Securities in the proportion which that
Recipient's Equity Proportion bears to the aggregate of all Recipients'
Equity Proportions calculated as at the date of the Round 1 Offer
('Proportion Date') on the terms set out in the Offer Notice including that
Recipient's proportion of the Sale Price and the Board will have discretion
in relation to rounding of fractions of Equity Securities.
(See Example 1 in Schedule 6.)
<PAGE>
19.6 (a) Each Recipient must notify the Board as soon as it becomes aware that
the Acceptance Period is longer than 10 Business Days and of any
extension to it, and must notify the Board within the Acceptance
Period for the Round 1 Offer whether it accepts or rejects its Round 1
Offer. An acceptance must state whether the Recipient accepts the
total number of the Sale Securities contained in the Round 1 Offer, or
some of the Sale Securities offered, in which case the acceptance must
specify the number of the Sale Securities accepted. An acceptance
which does not specify the number of the Sale Securities accepted will
be deemed to be an acceptance for all the Sale Securities contained in
the Round 1 Offer to the Recipient. If the acceptance of a Round 1
Offer by a Recipient, or a Transfer resulting from such acceptance,
would be contrary to clause 14.2 at the end of the Acceptance Period
then that Recipient must notify the Board that it rejects its Round 1
Offer and any purported acceptance of that Round 1 Offer will be of no
effect. Subject to clause 19.10(a), if a Recipient accepts its Round
1 Offer the Seller is bound to sell and that Recipient ('Accepting
Shareholder') is bound to purchase those Sale Securities accepted in
response to its Round 1 Offer at the Sale Price and otherwise on the
terms specified in the Round 1 Offer.
(b) If a Shareholder is prohibited by any statute or regulation from
acquiring some or all of the Sale Securities comprised in its Round 1
Offer then that Shareholder may, within 5 Business Days of the end of
the Acceptance Period for its Round 1 Offer, nominate a Third Party
and if:
(i) that Third Party is not a Prohibited Shareholder;
(ii) within that 5 Business Day period that Third Party agrees to
enter into this Agreement by executing a Deed of Accession; and
(iii) either a determination was made under paragraph (c) that no
Guarantee is required or any Guarantee required under paragraph
(c) is given in respect of that Third Party within 5 Business
Days of notice of a determination that a Guarantee is required,
that Third Party will be deemed to have accepted in full the Round 1
Offer which that Shareholder is unable to accept, and will receive
each subsequent offer, as if it were that Shareholder.
(c) Vision will cause the Chief Executive Officer or, in his or her
absence the chief financial officer of Vision, to determine within 5
Business Days of the nomination of the Third Party and on the basis of
the information then available to him or her, the matters referred to
in clause 19.3 as if the Third Party was the Offeror.
19.7 If some but not all of the Recipients accepted in full the Round 1 Offers,
any of the Sale Securities which are not accepted under the Round 1 Offers
('Remaining Sale Securities') must be re-offered for sale by the Board
('Round 2 Offer') within 10 Business Days of the expiry of the Acceptance
Period for the Round 1 Offers to each Accepting Shareholder
<PAGE>
which accepted all the Sale Securities contained in its Round 1 Offer on
the terms set out in the Offer Notice and at the Sale Price, each Accepting
Shareholder to be re-offered the Remaining Sale Securities in the
proportion that the Accepting Shareholder's Equity Proportion bears to the
aggregate Equity Proportions of all Accepting Shareholders which accepted
all the Sale Securities in the previous round of Offers as at the
Proportion Date (including any Equity Securities accepted by the Accepting
Shareholder under the Round 1 Offer) and the Board will have discretion in
relation to rounding of fractions of Equity Securities. For the purpose of
calculating the number of Remaining Sale Securities to be offered to any
Third Party as an Accepting Shareholder if it accepted for all the Sale
Securities offered to it under the Round 1 Offer, the Third Party will be
deemed to be an Accepting Shareholder and to have an Equity Proportion
based on a holding of the Equity Securities accepted by the Third Party
under the Round 1 Offer aggregated with those of the Shareholder which is
prohibited from acquiring the Equity Securities.
(See Example 2 in Schedule 6.)
19.8 Each recipient of an offer under clause 19.7 must notify the Board within
the period of 5 Business Days commencing on receipt of the Round 2 Offers
whether it accepts or rejects its Round 2 Offer. An acceptance must state
whether the recipient accepts all Remaining Sale Securities contained in
the Round 2 Offer, or only some of the Remaining Sale Securities offered,
in which case the acceptance must specify the number of the Remaining Sale
Securities accepted. An acceptance which does not specify the number of
Remaining Sale Securities accepted will be deemed to be an acceptance for
all the Remaining Sale Securities contained in the Round 2 Offer to the
recipient. If the acceptance of a Round 2 Offer, or a Transfer resulting
from such acceptance, would be contrary to clause 14.2 at the end of the
period for acceptance then the relevant recipient of the offer must notify
the Board that it rejects its Round 2 Offer and any purported acceptance of
that Round 2 Offer will be of no effect. Subject to clause 19.10(a), if a
recipient of a Round 2 Offer accepts its Round 2 Offer the Seller is bound
to sell and that recipient is bound to purchase that number of the
Remaining Sale Securities accepted in response to its Round 2 Offer at the
Sale Price and otherwise on the terms specified in the Round 2 Offers.
19.9 If not all of the Round 2 Offers, or any further offers made under this
clause, are accepted in full:
(a) the Board must within 5 Business Days after the expiry of the period
for acceptance of the immediately preceding round of offers repeat the
procedure set out in clause 19.7 by offering to each recipient of an
offer under clause 19.7 that accepted all of the Remaining Sale
Securities offered to it under the preceding round of offers ("Further
Accepting Shareholder"), a proportion of the still Remaining Sale
Securities calculated in accordance with clause 19.7, except that for
the purposes of applying the procedure set out in clause 19.8 and the
calculation set out in clause 19.7 for each round of offers after the
Round 2 Offer references to "Accepting Shareholder" are replaced with
"Further Accepting Shareholder" and the Further Accepting
Shareholders' Equity Proportions will be calculated at the Proportion
<PAGE>
Date but will include all Equity Securities accepted in all previous
rounds and the Board must continue repeating that procedure until all
of the Remaining Sale Securities have been accepted or following a
Round of Offers there are no Further Accepting Shareholders; and
(b) the procedure and obligations set out in clause 19.8 will apply to
acceptance of any offer made under clause 19.9(a).
19.10 As soon as practicable after the expiry of the period for acceptance for
a round in respect of which there have been no acceptances or only partial
acceptances the Board must give notice in writing to the Seller in
accordance with this clause 19.10 of the number of the Sale Securities not
accepted, and the Seller must within 7 Business Days of receipt of the
notification under this clause 19.10:
(a) withdraw the Offer Notice; or
(b) confirm that the Transfer of some only of the Sale Securities is to
proceed,
by giving notice of that fact to the Board and if the Seller fails to give
any notice to the Board within that period it will be deemed to have given
a notice under clause 19.10(b) on the expiration of that 7 Business Day
period.
19.11 The Board must keep the Shareholders informed of the progress of
procedures undertaken in accordance with this clause 19 including without
limitation information it receives under clause 19.6 and must give notice
of the date by which offers for all of the Sale Securities must be
accepted. Following receipt of a Round 1 Offer any Recipient which would
be precluded by section 26 of FATA from immediately accepting that offer
must:
(a) if it intends to accept its Round 1 Offer in part or in whole, as
soon as practicable, and in any event within 10 Business Days make a
notification under section 26 of FATA in respect of those Sale
Securities it proposes to or may acquire;
(b) within 5 Business Days notify the Board if it does not intend to
accept its Round 1 Offer in part or in whole; and
(c) as soon as it becomes aware, notify the Board whether the Treasurer
has given notice that he or she does or does not object to the
proposed acquisition under section 26 of FATA either in whole or in
part or that the time period within which the Treasurer may give such
a notice has expired.
19.12 If offers for all of the Sale Securities are accepted or if the Seller
does not withdraw the Offer Notice under clause 19.10(a), completion of
the sale of the Sale Securities accepted under clauses 19.6, 19.8 and 19.9
will take place within 5 Business Days after the date that the offers for
all of the Sale Securities are accepted or the date immediately following
the last date on which the Seller may withdraw the Offer Notice under
clause 19.10(a), at a time and place to be agreed by the Seller and the
Accepting Shareholders or failing
<PAGE>
agreement at Vision's registered office at 10 am on the day on which the
relevant 5 Business Day period expires.
19.13 If:
(a) (i) the Seller has withdrawn the Offer Notice under clause 19.10(a);
or
(ii) there were no Accepting Shareholders; and
(b) the Offer was under clause 19.1(a)(i)
the Seller may, subject to clause 20, at any time within 6 months after
the expiration of the 7 Business Day period referred to in clause 19.10
Transfer to the Offeror the Sale Securities on the terms of the Offer.
19.14 At completion of the sale of the Sale Securities contemplated by clause
19.12:
(a) each Accepting Shareholder must pay the price referred to in the
Offer Notice for each of the Sale Securities that it or its nominee
referred to in clause 19.6(b) has agreed to purchase; and
(b) the Seller must deliver to each Accepting Shareholder all
documentation to establish the Seller's title to and to effect a
transfer of the relevant number of the Sale Securities including the
certificates relating to the relevant number of the Sale Securities
and a transfer of the relevant Sale Securities duly executed by the
Seller.
19.15 The Shareholders must procure that at the Board meeting immediately
following the completion of any sale under clause 19.12 the Board
resolves that the transfers of any Equity Securities are approved for
registration subject to payment of applicable stamp duty.
19.16 Transfers of Shares in Interposed Companies
(a) Clause 19.16 applies to all Transfers of Ownership Interests in:
(i) a Shareholder that has a Guarantor Parent Company ("Downstream
Shareholder"); and
(ii) all Subsidiaries of that Guarantor Parent Company in the chain
of ownership between the Guarantor Parent Company and the
Downstream Shareholder;
("Interposed Companies").
<PAGE>
(b) After the Standstill Period, if (subject to clause 19.16(c)) any
Ownership Interests ("Interposed Equity Securities") in an Interposed
Company of a Downstream Shareholder are Transferred to a person other
than a wholly owned Subsidiary of the Guarantor Parent Company or the
Guarantor Parent Company of that Downstream Shareholder:
(i) the Downstream Shareholder must immediately notify the other
Shareholders of that Transfer;
(ii) on the earlier of the date of that notification and the date any
other Shareholder becomes aware of the Transfer, the
Shareholders must commence the determination of the Market Value
of the Downstream Shareholder's Equity Securities under clause
24.3 (at the cost of the Downstream Shareholder);
(iii) on the Market Value Determination Date the Downstream
Shareholder is deemed to have issued an irrevocable Offer Notice
to the Board under clause 19.2 in respect of an Offer under
clause 19.1(a)(ii);
(iv) the number of the Sale Securities the subject of the Offer
Notice will be all the Equity Securities of that Downstream
Shareholder;
(v) the Sale Price of the Sale Securities will be the Market Value
of the Sale Securities as at the earlier of the date of
notification under paragraph (i) and the date on which such
notification should have been made;
(vi) clauses 19.1 to 19.15 will apply to the offer, acceptance and
sale of the Sale Securities other than clauses 19.3, 19.10,
19.12 and 19.13 and as if:
A. the words "subject to clause 19.10(a)" are deleted from
clauses 19.6 and 19.8; and
B. references in clauses 19.14 and 19.15 to clause 19.12 are
taken to be references to clause 19.16(b)(vii); and
(vii) completion of the sale of the Sale Securities must take place
within 5 Business Days after the expiry of the period for
acceptance of all offers under this clause at a time and place
to be agreed by the Downstream Shareholder and the Accepting
Shareholders or, failing agreement in that period, on the day 6
Business Days after the expiry of the period for acceptance of
all offers under this clause at 10.00 am at Vision's registered
office.
<PAGE>
19.16 (b)A (i) Subject to paragraph (ii), each Shareholder must ensure that
its Ultimate Holding Company and each Interposed Company in
respect of that Shareholder does not:
(a) Transfer any interest in all or part of its Interposed
Equity Securities except in accordance with clause
19.16(b) or (c); or
(b) Encumber all or any part of its interest in its
Interposed Equity Securities.
(ii) After the Standstill Period the Shareholder may allow its
Ultimate Holding Company and any Interposed Company to
Encumber its Interposed Equity Securities to a Financier
provided that:
(a) the Financier has acknowledged in writing to Vision that
an exercise by it or anyone acting on its behalf or
appointed by it of any power in relation to the
Interposed Equity Securities (including, without
limitation, a power of sale) will be subject to this
Agreement as if the Financier was the Shareholder; and
(b) the terms of any agreement relating to that Encumbrance
do not entitle the Financier to control the manner in
which the Shareholder exercises its rights and
obligations under this Agreement or the shareholder's
voting rights attached to Interposed Equity Securities or
the appointment by the Shareholder of Directors.
(c) If at any time during the term of this Agreement:
(i) a Guarantor Parent Company wishes to enter into a bona fide
scheme of solvent reconstruction, amalgamation or merger that
would, if implemented, except for the application of this
clause, result in a Default under clause 23.1(e) or result in
a deemed offer under clause 19.16 (b); and
(ii) that reconstruction, amalgamation or merger:
A. would result in an entity which holds more than 50% of
the Ownership Interests in and Controls the Shareholder
("Resulting Entity") that:
1. has net assets of a value not less than the value of
the net assets of the Guarantor Parent Company as at
the date of the merger and is otherwise of no less
financial standing than the Guarantor Parent
Company;
2. is not a Prohibited Shareholder; and
<PAGE>
3. provides a Guarantee;
and does not directly or indirectly result in the
disposal by the Guarantor Parent Company, any Interposed
Companies or the Shareholder of any assets (other than to
the Resulting Entity); or
B. would not, in the reasonable opinion of the Shareholders
(other than the Shareholder of the Guarantor Parent
Company referred to in paragraph (a)), taking into
account any guarantee or undertaking obtained or provided
by the Guarantor Parent Company, result in the position
of the Shareholders or Vision being adversely affected;
then:
(i) during the Standstill Period that reconstruction, amalgamation
or merger will not be a breach of this Agreement or a Default;
(ii) at any time the Shareholders are deemed to have waived their
rights under clause 19.16(b) in relation to any Transfer of
Interposed Equity Securities resulting from such
reconstruction, amalgamation or merger.
19.17 Take-Out of Minority Shareholder
(a) If the Equity Proportion of a Shareholder (other than Continental,
Optus, Nine or Seven or any of its permitted transferees under
clause 18.3) ("Minority Shareholder") is 5% or less then any other
Shareholder may notify a Minority Shareholder that it requires it to
offer all of its Equity Securities to the other Shareholders in
accordance with this clause 19.17(a) provided that no Shareholder
has previously given such a notice to that Minority Shareholder and:
(i) on the date of that notification the Shareholders must
commence the determination of the Market Value of the Minority
Shareholder's Equity Securities under clause 24.3;
(ii) on the Market Value Determination Date the Minority
Shareholder is deemed to have issued an Offer Notice to the
Board under clause 19.2 in respect of an Offer under clause
19.1(a)(ii);
(iii) the Sale Securities the subject of the Offer Notice will be
all the Minority Shareholder's Equity Securities;
(iv) the Sale Price of the Sale Securities will be the Market Value
of the Sale Securities as at the date of notification by the
other Shareholder;
<PAGE>
(v) clauses 19.1 to 19.15 will apply to the offer, acceptance and
sale of the Sale Securities other than clauses 19.3, 19.10,
19.12 and 19.13 and as if:
A. references in clauses 19.6 and 19.8 to clause 19.10(a)
are taken as references to clause 19.17(a)(vii);
B. references in clauses 19.14 and 19.15 to clause 19.12 are
taken to be references to clause 19.17(a)(vi); and
C. in clause 19.1 the reference to "after the Standstill
Period" is deleted;
(vi) subject to paragraph (vii), completion of the sale of the Sale
Securities must take place within 10 Business Days after the
expiry of the period for acceptance of all offers under this
clause at a time and place to be agreed by the Minority
Shareholder and Accepting Shareholders or, failing agreement
in that period, on the day 10 Business Days after the expiry
of the period for acceptance of all offers under this clause
at 10.00 am at Vision's registered office;
(vii) if not all the Sale Securities have been agreed to be acquired
under the preceding paragraphs then the Minority Shareholder
may serve a notice on each other Shareholder within 7 Business
Days of the end of the final period during which the offers
may be accepted declaring the acceptances to be of no effect
in which case the Minority Shareholder will be under no
obligation to Transfer any of the Sale Securities to the other
Shareholders and the other Shareholders will be under no
obligation to acquire those Sale Securities.
(b) If at any time a party ('Competing Shareholder') being Continental
or Optus or its permitted transferee under clause 18.3, or in the
case of Nine or Seven or its permitted transferee under clause 18.3
or 28.2, after the expiry of the Option Period for its Option, has
an Equity Proportion of 5.5% or less (as a consequence other than as
a result of a breach of this Agreement) and gives a notice ('Release
Notice') in writing to the other Shareholders stating that it no
longer wishes to be bound to comply with a Relevant Provision then
on and from the date which is 6 months from the date of service of
the Release Notice ('Release Date') on the other Shareholders by the
Competing Shareholder the Competing Shareholder will be released
from its obligation to comply with a Relevant Provision and from the
Release Date:
(i) the Competing Shareholder will no longer be entitled to the
benefit of clause 7.2 except as it may be entitled to receive
by law as a Shareholder;
<PAGE>
(ii) any right of the Competing Shareholder to appoint a Director
is terminated and it must procure the immediate resignation of
all Directors appointed by it;
(iii) any Director appointed by the Competing Shareholder will not
be entitled to vote in respect of any resolution of the Board,
and
(iv) clause 19.17(a) and 19.17(c) will apply to that Competing
Shareholder as if it were a Minority Shareholder.
(c) No Shareholder may require a Minority Shareholder (including a
Shareholder which is such by application of clause 19.17(b)) to sell
its Equity Securities in accordance with clause 19.17(a) if any
Shareholder has previously given that Minority Shareholder a notice
under that clause 19.17(a).
19.18 Majority Shareholder Put and Call
(a) If at any time after the Standstill Period a Shareholder ("Majority
Shareholder") has an Equity Proportion in excess of 75%:
(i) subject to clause 19.18(b), each other Shareholder ("Other
Shareholder") may by giving a notice ("Put Option Notice") to
the Majority Shareholder require the Majority Shareholder to
buy all (but not some) of the Other Shareholder's Equity
Securities for the Market Value of those Equity Securities as
at the date the Put Option Notice is given;
(ii) subject to clause 19.18(b), the Majority Shareholder may by
giving a notice to one or more Other Shareholders ("Majority
Call Option Notice") require that those Other Shareholders to
sell all (but not some) of their Equity Securities to the
Majority Shareholder for the Market Value of the Equity
Securities as at the date the Majority Call Option Notice is
given;
(iii) immediately after a Put Option Notice or Majority Call Option
Notice is given the Majority Shareholder and Other
Shareholders must commence the determination of the Market
Value of the relevant Equity Securities in accordance with
clause 24; and
(iv) a binding contract for the sale and acquisition of the Equity
Securities is deemed to exist on the Market Value
Determination Date and completion of the sale of the other
Shareholders' Equity Securities will take place within 20
Business Days after that date.
(b) If the giving of any Put Option Notice or Majority Call Option
Notice would be contrary to clause 14.2 or any acquisition pursuant
to any such notice would cause
<PAGE>
any party to be in breach of clause 14.2 then that notice will be
deemed not to have been given and shall be of no effect.
20. GENERAL PROVISIONS APPLYING TO TRANSFERS OF EQUITY SECURITIES
20.1 A Shareholder must not Transfer any interest in all or some of its Equity
Securities to a Third Party unless:
(a) clauses 19.1 to 19.15 have been fully complied with by that
Shareholder;
(b) the Third Party enters into this Agreement by executing a Deed of
Accession;
(c) the Third Party is not a Prohibited Shareholder; and
(d) any Guarantee required by clause 19.3 has been given, or
the Transfer is to a Third Party under and in accordance with clause 12.8A,
12.16, 18.3, 23, 31A or 32.
20.2 If any Shareholder purports to Transfer any interest in all or some of its
Equity Securities without complying with the terms of this Agreement Vision
must refuse to register the transfer of those Equity Securities.
20.3 If any Shareholder ("Non-Transferring Shareholder") that is obliged to
Transfer an interest in all or some of its Equity Securities to any person
under this Agreement fails to execute or deliver an appropriate instrument
of transfer in respect of the Transfer of its Equity Securities under this
Agreement, then Vision will on written direction from the proposed
transferee ("Proposed Transferee"):
(a) receive the purchase price from the Proposed Transferee on behalf of
the Non-Transferring Shareholder;
(b) give to the Proposed Transferee a valid receipt for the purchase price
on behalf of the Non-Transferring Shareholder;
(c) execute transfers of the relevant number of the Non-Transferring
Shareholder's Equity Securities in favour of the Proposed Transferee;
(d) ensure that the Proposed Transferee's name is entered in Vision's
register of members as the holder of the Non-Transferring
Shareholder's Equity Securities;
(e) cancel any certificates or other instruments relating to the Non-
Transferring Shareholder's prior ownership of the Equity Securities;
and
<PAGE>
(f) take all further action necessary to effect and complete the transfer
of the Non-Transferring Shareholder's Equity Securities as required
under this Agreement.
20.4 Each Shareholder irrevocably appoints Vision as its attorney for the
purposes of executing and delivering transfers and doing such other things
as may be required in the exercise of its powers under this clause 20.1 to
20.3.
20.5 For the avoidance of doubt, where this Agreement provides that a
Shareholder or Shareholders may nominate a Third Party or Nominee to
acquire Equity Securities, Sale Securities or Ownership Interests of
another Shareholder, the Shareholder or Shareholders which nominate that
party agree with the other Shareholders:
(1) to procure the payment by that Third Party or Nominee of any monies
payable for or in respect of the transfer of those Equity Securities,
Sale Securities or Ownership Interests to that Third Party or Nominee:
and
(2) to indemnify and keep indemnified the other Shareholders against any
loss, claim, damage, cost or expense incurred by those Shareholders in
connection with a failure by that Nominee or Third Party to make any
payment for the acquisition of those Equity Securities, Sale
Securities or Ownership Interests.
20.6 The parties agree to negotiate in good faith in relation to amending
the form of the relevant Transaction Agreements to apply to any
person who enters into a Deed of Accession in connection with the
transfer of Equity Securities to it.
21. LISTING
21.1 After the Standstill Period the Shareholders and Vision must review at the
request of any Shareholder having power to appoint a Director whether it is
appropriate for:
(a) Vision or the Shareholders to offer Equity Securities for subscription
or purchase to the public; and
(b) Vision to apply to be admitted to the official list of, and for the
quoting of its Equity Securities on the market conducted by,
Australian Stock Exchange Limited.
21.2 If Nine or its permitted transferees under clause 18.3 or Seven or its
permitted transferees under clause 18.3 is:
(a) a Shareholder; and
(b) an Optionholder,
('Blocking Shareholder') any resolution of the Board in the terms of
paragraph 1.16 of Schedule 10 will only be taken to be passed if the
Blocking Shareholder votes in favour of that resolution. In exercising any
such vote the Blocking Shareholder must act reasonably. The Blocking
Shareholder will be taken not to have acted reasonably and its vote will be
taken to have been of no effect if it fails to have regard at the time it
exercises its vote to:
(a) Vision's cash flow requirements and level of external debt;
(b) Vision's capital expenditure plans;
(c) any opinion obtained by Vision from a reputable securities dealer (as
defined in the Corporations Law) in Australia advising Vision that:
(i) suitable market conditions do or do not exist for the offer of
Equity Securities to the public and Listing;
(ii) that the dealer would or would not be prepared to underwrite an
offer of Equity Securities on normal terms and conditions; and
<PAGE>
(d) any statement by a Shareholder that it is unwilling or unable to
provide funding in addition to that required to be provided by that
Shareholder under this Agreement which may be required by Vision.
21.3 If 2 years after the expiration of the Standstill Period:
(a) a Shareholder ("Secondary Offeror") wishes to make a secondary offer
to the public of some or all of its Equity Securities in Vision
("Secondary Offer Securities");
(b) the Secondary Offer Securities comprise at least 15% of the total
Equity Securities of all Shareholders;
(c) the Secondary Offeror has used its bona fide reasonable efforts for a
period of 6 months (which may be the period of 6 months immediately
prior to the date 2 years after the end of the Standstill Period) to
obtain a bona fide offer from a Third Party to acquire the Equity
Securities;
(d) the Secondary Offeror has offered the Secondary Offer Securities to
the other Shareholders for a price per Equity Security ("Secondary
Offer Price") in accordance with clause 19 under:
(i) clause 19.1(a)(i), if the Secondary Offeror has been able to
obtain an offer from a Third Party in accordance with paragraph
(c); or
(ii) clause 19.1(a)(ii), if the Secondary Offeror has not been able to
obtain an offer from a Third Party in accordance with paragraph
(c),
and has informed them that if they do not accept it intends to issue a
Listing Notice;
(e) if at the end of the process referred to in the preceding paragraph
not all of the Secondary Offer Securities have been acquired in
accordance with clauses 19 and 20;
(f) following the procedure referred to in paragraph (d), the Secondary
Offeror obtains and provides to each Shareholder a written opinion
from 2 reputable securities dealers (as defined in the Corporations
Law) in Australia advising it:
(i) that suitable stock market conditions exist for the secondary
offer of the Secondary Offer Securities to the public in
Australia and Listing;
(ii) of the prospective price range per Equity Security within which
the Secondary Offeror may expect to receive acceptances from the
public for an offer of all the Secondary Offer Securities to the
public after deducting all proposed underwriting and other costs
associated with the issue ("Price Range"); and
<PAGE>
(iii) that the dealer would be prepared to underwrite the offer on
normal terms and conditions at a price not less than the
Secondary Offer Price;
(g) the Secondary Offer Price is not more than the lowest price in the
Price Range; and
(h) the Secondary Offeror consults with the other Shareholders in a bona
fide manner regarding the appropriateness of the Secondary Offeror
offering the Secondary Offer Securities to the public in view of the
prevailing economic and political conditions and has regard to such
views as the other Shareholders may express,
the Secondary Offeror may give a notice ("Listing Notice") to the other
Shareholders.
21.4 If a Secondary Offeror gives a Listing Notice to the other Shareholders in
accordance with clause 21.3 then:
(a) Vision must give such reasonable assistance to the Secondary Offeror
and any Piggy Back Shareholder as the Secondary Offeror or Piggy Back
Shareholder may require for the purpose of it conducting all due
diligence investigations it reasonably considers necessary in relation
to that secondary offer (including in the preparation of a
prospectus);
(b) before the date determined by the Secondary Offeror for the secondary
offer (which must not be less than 6 months after the date of the
Listing Notice) each other Shareholder and Vision must do all things
reasonably necessary to comply with:
(i) any requirement under the Corporations Law in relation to
anything that is reasonably necessary or desirable for the
purposes of the secondary offer (including but not limited to
converting Vision to a public company); and
(ii) the rules of the Australian Stock Exchange Limited for the
admission of Vision to the official list of Australian Stock
Exchange Limited and the quotation of the Secondary Offer
Securities on the market conducted by Australian Stock Exchange
Limited (including but not limited to amending the Articles and
this Agreement); and
(c) Vision must apply for and, subject to the shareholdings in Vision
after the secondary offer complying with the requirements of the
listing rules of the Australian Stock Exchange Limited, use its best
endeavours to obtain the admission of Vision to the official list of
Australian Stock Exchange Limited and the quotation of the Secondary
Offer Securities on the market conducted by the Australian Stock
Exchange Limited before any date that any sale of the Secondary Offer
Securities pursuant to the prospectus for the secondary offer may be
deemed void under the Corporations Law; and
<PAGE>
(d) the Secondary Offeror may offer some or all of the Secondary Offer
Securities to the public provided that the number of Secondary Offer
Securities offered is not less than 15% of the total Equity Securities
of all Shareholders at a price not less than the lowest price in the
Price Range.
21.5 If a Shareholder exercises its rights under clause 21.3 or 21.4 no other
Shareholder will be under any obligation to offer any of its Equity
Securities to the public at that time or any other time but may, in its
discretion, elect to participate in the secondary offer with respect to
some or all of its Equity Securities.
21.6 If Vision or any Shareholder other than the Secondary Offeror or any
Shareholder who elects to participate in the secondary offer pursuant to
clause 21.5 ('Piggy Back Shareholder') incurs any cost or expense in
providing any information to the Secondary Offeror or Piggy Back
Shareholder under this clause or otherwise in connection with the Listing
of the Secondary Offer Securities then the Secondary Offeror and Piggy Back
Shareholder must in the proportion that the number of Equity Securities of
each of them comprised in the secondary offer bears to the total number of
Equity Securities comprised in the secondary offer reimburse that cost or
expense within 21 days of receiving notification of the particulars of that
cost or expense together with any reasonable supporting documentation which
is reasonably required by the Secondary Offeror or any Piggy Back
Shareholder.
22. TERM OF AGREEMENT
22.1 This Agreement will continue in force and effect until:
(a) terminated by written agreement between all the then current
Shareholders; or
(b) one Shareholder holds all of the Equity Securities.
22.2 On the date a Shareholder completes the transfer of all of its legal and
equitable interest in all of its Equity Securities in accordance with the
terms of this Agreement and no longer holds any Option that Shareholder
(and in the case of Optus, each of Optus, Optus Networks and Optus
Administration):
(a) is released from all obligations to the other parties arising under
this Agreement after that date (except obligations expressed to
survive termination of this Agreement); and
(b) releases the other parties from all obligations to it under this
Agreement arising after that date (except obligations expressed to
survive termination of this Agreement) except under clause 32A if
relevant.
<PAGE>
22.3 Termination of this Agreement under clause 22.1 and the release of
obligations under clause 22.2 will not extinguish or otherwise affect any
rights of any party against another party which:
(a) accrued before the time at which termination or release occurred; or
(b) otherwise relate to, or may arise at any future time from any breach
or non-observance of obligations under this Agreement which arose
before the time at which such termination or release occurred.
22.4 The following clauses will survive termination of this Agreement:
(a) clause 17;
(b) clause 31A;
(c) clause 32A; and
(d) clauses 41.7 to 41.9.
23. DEFAULT
23.1 A Shareholder is in Default if:
(a) the Shareholder fails to pay to Vision any First Phase Shareholder
Contribution in accordance with its obligations under clause 12 within
5 Business Days of the due date for payment;
(b) the Shareholder commits a breach, or attempts to commit a breach, of
clause 4.4 or 25.1 of this Agreement;
(c) the Shareholder deliberately and materially breaches in any material
respect a covenant under a Relevant Provision and fails to rectify
that breach within 21 days after receiving notice from another party
requiring rectification of that breach provided that if any relevant
obligation was to be performed by a particular date the breach will
for the purposes of this provision be deemed to have been rectified if
the obligation is performed prior to the expiration of the 21 day
period referred to in this paragraph;
(d) in the case of a Shareholder other than Seven or any permitted
transferee of Seven under clause 18.3, a Prohibited Shareholder at any
time:
(i) directly or indirectly holds in excess of 50% of the Ownership
Interests (but for the purposes of this provision paragraph (e)
of the definition of "Ownership Interest" will be disregarded) in
the Shareholder; or
(ii) controls or is able to control, directly or indirectly, alone or
together with an Associate:
<PAGE>
A. the appointment of 50% or more of the directors to the board
of the Shareholder, or
B. 50% of the votes able to be cast at a meeting of directors
of Shareholder assuming every director is entitled to vote.
(e) any Ownership Interests in an Interposed Company are Transferred to
another person other than in accordance with the procedure set out in
clause 19.16(b) or 19.16(c) or such Ownership Interests are Encumbered
other than as permitted under clause 19.16(b)A;
(f) a Financier:
(i) performs any act in accordance with the exercise of a right under
any agreement relating to an Encumbrance in respect of an Equity
Security that would constitute a default under this clause if
performed by the Shareholder; or
(ii) exercises any right that is inconsistent with clause 4.5(b) or
19.16(b)A(ii);
(g) an application is made against it (that is not discharged or withdrawn
within 10 Business Days of its presentation) or an order is made (and
not withdrawn or dismissed within 10 Business Days) for its winding
up, an effective resolution is passed or a meeting is summoned or
convened (and not cancelled or dissolved within 28 days) for the
purpose of considering a resolution for its winding up;
(h) a receiver or receiver and manager, trustee, provisional liquidator,
administrator or similar officer is appointed (and not removed or
dismissed within 10 Business Days) over all or a substantial part of
the assets or undertaking of that Shareholder or the holder of any
Encumbrance over the property or any substantial part of the property
of a Shareholder takes (or appoints an agent to take) possession of
the whole or a substantial part of the property of that Shareholder;
(i) the Shareholder enters into or resolves to enter into an arrangement,
composition or compromise with or assignment for the benefit of its
creditors generally or any class of creditors or proceedings are
commenced (and not withdrawn or discontinued within 10 Business Days)
to sanction such an arrangement, composition or compromise or the
Shareholder enters into any deed of company arrangement other than for
the purposes of a bona fide scheme of solvent reconstruction or
amalgamation; or
(j) if the Shareholder has a Guarantor Parent Company and any of the
events referred to in paragraphs (g) to (i) occur in relation to that
Guarantor Parent Company (assuming that each reference to the
Shareholder is replaced with a reference to the Guarantor Parent
Company).
<PAGE>
23.2 If a Shareholder ('Defaulting Shareholder') is in Default then any other
Shareholder ("Non-Defaulting Shareholder") may within 20 Business Days of
becoming aware of the Default give to the Defaulting Shareholder a notice
in writing specifying the Default ('Default Notice') and must
contemporaneously serve a copy of the Default Notice on each other
Shareholder.
23.3 If on conclusion of the procedure specified in clause 23.6 all of the
Defaulting Shareholder's Equity Securities have been acquired, the Non-
Defaulting Shareholders and Vision will have no rights at law or in equity
against the Defaulting Shareholder in connection with the Default specified
in the Default Notice.
23.4 Within 5 Business Days after the service of a Default Notice:
(a) if the Default is under clause 23.1(a), (b), (c), (e) or (f), the Non-
Defaulting Shareholders must decide (as determined by a number of them
which between them have Equity Proportions representing more than 50%
of the Equity Proportions of them) if they wish to determine the
Market Value of the Equity Securities or only determine the Cost
Incurred Value and the Non-Defaulting Shareholders must initiate the
determination of the Cost Incurred Value by giving notice as soon as
practicable to Vision and, if they elect to do so, the Market Value of
the Defaulting Shareholder's Equity Securities in accordance with
clause 24.4 and 24.3 respectively;
(b) otherwise, the Non-Defaulting Shareholders must initiate the
determination of the Market Value of the Defaulting Shareholder's
Equity Securities in accordance with clause 24.3.
23.5 Within 10 Business Days after the determination of the Cost Incurred Value
(where applicable) and, if applicable, the Market Value Determination Date,
a Non-Defaulting Shareholder may give the Defaulting Shareholder a notice
("Default Acquisition Notice") requiring the Defaulting Shareholder to
offer all of its Equity Securities to the Non-Defaulting Shareholders and,
if relevant, other persons in accordance with clause 23.6.
23.6 If a Non-Defaulting Shareholder gives the Defaulting Shareholder a Default
Acquisition Notice:
(a) on the date the Default Acquisition Notice is given the Defaulting
Shareholder is deemed to have issued an irrevocable Offer Notice to
the Board under clause 19.2 in respect of an Offer under clause
19.1(a)(ii);
(b) the Sale Securities the subject of the Offer Notice will be all the
Equity Securities of the Defaulting Shareholder;
(c) the Sale Price of the Sale Securities will be determined by reference
to the date the Default Notice is given and will be in the case of a
Default under:
<PAGE>
(i) clause 23.1(a), (b), (c), (e) or (f):
A. if the Default occurs at any time during the period which
ends on 30 June 1997, an amount equal to 85% of the lesser
of the Market Value (if determined pursuant to clause
23.4(a)) and the Cost Incurred Value (which if the Market
Value is not determined will be deemed to be the lower) of
the Equity Securities of the Defaulting Shareholder;
B. if the Default occurs at any time during the period
commencing on 1 July 1997 and ending on the last day of the
Standstill Period, an amount equal to 90% of the lesser of
the Market Value (if determined pursuant to clause 23.4(a))
and the Cost Incurred Value (which if the Market Value is
not determined will be deemed to be the lower) of the Equity
Securities of the Defaulting Shareholder; and
C. otherwise, an amount equal to the lesser of the Market Value
(if determined pursuant to clause 23.4(a)) and the Cost
Incurred Value (which if the Market Value is not determined
will be deemed to be the lower) of the Equity Securities of
the Defaulting Shareholder; and
(ii) clause 23.1(d), or (g) to (j), an amount equal to the Market
Value;
(d) clauses 19.1 to 19.15 will apply to the offer, acceptance and sale of
the Defaulting Shareholder's Equity Securities to the Non-Defaulting
Shareholders except that:
(i) in clause 19.1 the reference to "after the Standstill Period" is
deleted, paragraph (c) does not apply and the offer is as
specified in clause 23.6(a) to (c);
(ii) clauses 19.2, 19.3, 19.10, 19.12, 19.13 and 19.14(a) do not
apply and the remainder of clauses 19.1 to 19.15 shall apply as
if:
A. references in clauses 19.6 and 19.8 to clause 19.10(a) are
taken as references to clause 23.6(d)(v); and
B. references in clauses 19.14 and 19.15 to clause 19.12 are
taken to be references to clauses 23.6(d)(iv);
(iii) any reference to the Seller is to the Defaulting Shareholder;
(iv) subject to paragraph (v), completion of the Transfer of the
Defaulting Shareholder's Equity Securities must take place
within 10 Business Days after the last date on which offers are
open for acceptance under paragraph (d) at
<PAGE>
a time and place to be agreed or failing agreement at 2.00 pm at
Vision's registered office on the day being 10 Business Days
after the last date on which offers are open for acceptance;
(v) if at the end of the process referred to in this clause 23.6
(including under clause 23.6(g)) not all the Defaulting
Shareholder's Equity Securities have either been agreed to be
acquired or have been acquired then the Defaulting Shareholder
cannot require the Non-Defaulting Shareholders to acquire and the
Non-Defaulting Shareholders cannot require the Defaulting
Shareholder to sell any Equity Securities and any contract in
relation to such sale and purchase will be of no effect; and
(vi) each offer in each round of offers may only be accepted in whole
and not in part,
(e) each Non-Defaulting Shareholder must pay to the Defaulting Shareholder
the total price referred to in the Offer Notice for the aggregate of
the Sale Securities it has agreed to purchase less:
(i) the proportion of the Sale Securities it has acquired multiplied
by all costs incurred by the Non-Defaulting Shareholders in
valuing the Sale Securities (including but not limited to the
costs of any valuer) unless the Defaulting Shareholder has
already paid these costs under clause 24.3(j); and
(ii) all stamp duty payable in respect of the Transfer of the Sale
Securities to it;
(f) the amount calculated under sub-paragraph (e) will be paid on the day
which is 12 calendar months from the date of completion of the
Transfer of the Sale Securities;
(g) if not all of the Equity Securities of the Defaulting Shareholder have
been agreed to be acquired after the procedure referred to in clause
23.6(d) has been concluded the Non-Defaulting Shareholders may by
unanimous resolution nominate a Third Party ('Nominee') to acquire
such of the Equity Securities as they have not agreed to acquire
('Remaining Equity Securities") and upon the Non-Defaulting
Shareholders notifying the Defaulting Shareholder in writing of the
identity of such a Third Party that Third Party will be entitled to
acquire the Remaining Equity Securities within a period of 10 Business
Days after the last date on which offers were open for acceptance
under clause 23.6(d) so long as the Third Party:
(i) is not a Prohibited Shareholder;
(ii) complies with clauses 28.6(d)(iv) and 23.6(e) as if it were a
Non-Defaulting Shareholder; and
<PAGE>
(iii) within that 10 Business Day Period, agrees to enter into this
Agreement by executing a Deed of Accession;
(iv) either a determination is made under paragraph (h) that no
Guarantee is required or any Guarantee required under paragraph
(h) is given within 5 Business Days of notice of a
determination that a Guarantee is required in respect of that
Nominee.
(h) Vision will cause the Chief Executive Officer or, in his or her
absence the chief financial officer of Vision, to determine within 5
Business Days of the nomination of the Nominee and on the basis of the
information then available to him or her, the matters referred to in
clause 19.3 as if the Nominee was the Offeror.
23.7 The Shareholders acknowledge and agree that if all of the Defaulting
Shareholder's Equity Securities are acquired under clause 23.6:
(a) the difference between the market value of the Sale Securities and the
Sale Price determined under clause 23.6 less valuation and stamp duty
costs is a genuine pre-estimate of the loss which will be suffered by
the Non-Defaulting Shareholders;
(b) the Transfer of the Sale Securities at the Sale Price and the
forfeiture of rights under clause 23.8:
(i) is the sole and exclusive remedy against the Defaulting
Shareholder for the Default and that no claim for damages or any
other remedy may be made whether under this Agreement or under
any other cause of action at law or in equity; and
(ii) will not constitute a penalty against the Defaulting Shareholder
or forfeiture of the Defaulting Shareholder's Sale Securities,
and
(c) each Shareholder waives any rights it may have against the other
Shareholders to claim relief from forfeiture or to claim that the
operation of this clause is a penalty.
23.8 All rights attaching to the Equity Securities of a Defaulting Shareholder,
its rights of access to information under this Agreement and all rights of
Directors appointed by the Defaulting Shareholder and the alternates of
those directors (including but not limited to rights to information, voting
rights and the right to attend meetings) are suspended from the date a
Default Notice is given until the earlier of:
(a) Transferring all of its Equity Securities to other persons in
accordance with this Agreement (other than clause 18.3); or
(b) if no Default Acquisition Notice has been given to it within the
period referred to in clause 23.5, the date after the date on which
the period referred to in that clause expires and if a Default
Acquisition Notice has been given to it, the date 10 Business Days
after the date on which the period for acceptance of all offers under
clause 23.6 has expired if not all the Defaulting Shareholder's Equity
Securities have been agreed to be acquired.
23.9 If not all the Equity Securities of the Defaulting Shareholder in respect
of a particular Default are acquired by other persons under clause 23.6
then any Non-Defaulting Shareholder and Vision may pursue any other remedy
that may be available to it at law or equity in respect of that Default.
<PAGE>
23.10 If not all of the Defaulting Shareholder's Equity Securities are acquired
by other persons under clause 23.6 the Defaulting Shareholder's rights to
retain its Equity Securities or Transfer its Equity Securities to other
persons under this Agreement are unaffected.
23.11 If more than one Shareholder has committed a Default only those
Shareholders who are not in Default may exercise the rights referred to
in clauses 23.1 to 23.6.
24. DETERMINATION OF THE VALUE OF EQUITY SECURITIES OR OWNERSHIP INTERESTS
24.1 If this Agreement requires the determination of the Market Value, or Cost
Incurred Value, or Adjusted Cost Incurred Value, then the value must be
determined in accordance with this clause.
24.2 (a) Where a determination of the Market Value under this clause 24 is
required for the purposes of the clause listed below, the Buyers and
the Other Party in this clause are:
(i) Clause 12.8A 'Other Party' is Seven or its permitted
transferees under clause 18.3 and 'Buyer' is the
Shareholders other than Seven or its permitted transferees
under clause 18.3.
(ii) Clause 19.16: 'Other Party' is the Downstream Shareholder
and 'Buyer' is the other Shareholders.
(iii) Clause 19.17(a): 'Other Party' is the Minority Shareholder
and 'Buyer' is the other Shareholders.
(iv) Clause 19.18(a): 'Other Party' is the Other Shareholder and
'Buyer' is the Majority Shareholder and for the purpose of
clause 19.18(a)(ii) this clause will be applied separately
to each individual Other Shareholder and the Majority
Shareholder in each case.
(v) Clause 23.4: 'Buyer' is the Non-Defaulting Shareholders and
'Other Party' is the Defaulting Shareholder.
(vi) Clause 26.7(a), 27.7(a), Schedule 11A, Schedule 11B:
'Buyer' is the Optionholder and 'Other Party' is Vision.
(vii) Clause 31A 'Buyer' means the Shareholders in Vision other
than the Network Shareholder and the Network Shareholder is
the 'Other Party'.
(viii) Clause 32 'Buyer' is the Other Shareholders and 'Other
Party' is Seven.
<PAGE>
(ix) Clause 32A 'Buyer' is Vision and 'Other Party' is the relevant
Shareholder owning Ownership Interests in SportsCo.
(b) If there is more than one person constituting the Buyer decisions
which must be made by them under this clause will be made jointly as
determined by a number of them which between them have Equity
Proportions representing more than 50% of the Equity Proportions of
those persons as the case may be, or if they cannot so agree by the
person with the largest Equity Proportion among them.
(c) If Vision is the Buyer or Other Party any action or making of any
decision will be determined by the Board by Super Resolution.
24.3 The Market Value of the Equity Securities or Ownership Interests in MovieCo
or SportsCo will be the price agreed between the Buyer and the Other Party
and if the Buyer and the Other Party are unable or unwilling to agree to a
price for the Equity Securities or Ownership Interests in MovieCo or
SportsCo as relevant within 15 Business Days from the date the Buyer and
the Other Party must commence the determination of the Market Value, then
the Market Value of the Equity Securities or Ownership Interests in MovieCo
or SportsCo must be determined as follows:
(a) The Buyer and the Other Party will use their best efforts to agree to
jointly appoint a valuer within 5 Business Days after that 15 Business
Day period.
(b) If the Buyer and the Other Party cannot agree on a valuer within the
period of 5 Business Days referred to in paragraph (a) each of the
Buyer and the Other Party must within a further 5 Business Days
nominate a valuer who must:
(i) have international standing as an expert valuer and be suitably
qualified and experienced to provide an expert valuation of the
Equity Securities or Ownership Interests;
(ii) be independent of the Buyer, the Other Party and Vision; and
(iii) not be the Auditor or the auditor of the Buyer or the Other
Party.
(c) Each valuer must be instructed to determine the Market Value of the
Equity Securities or Ownership Interests in MovieCo or SportsCo as
relevant in accordance with this clause 24.3 within 15 Business Days
of the end of the 5 Business Day Period referred to in paragraph (b)
or such longer period as the Buyer and Other Party agree.
(d) Vision must make available to each valuer all information reasonably
requested by the valuer to conduct the valuation and must provide a
copy to any other valuer contemporaneously.
(e) Each of the Buyer and the Other Party:
<PAGE>
(i) may make submissions and supply materials and information to a
valuer that is relevant to the conduct of the valuation;
(ii) must supply to the other valuer and to the Other Party or Buyer
as the case may be, copies of all submissions, material and
information supplied to a valuer, contemporaneously with that
supply to the valuer;
(iii) may respond to or comment on information, materials or
submissions supplied to a valuer by the other; and
(iv) must supply to the other valuer and to the Other Party or
Buyer, as the case may be, copies of all responses to or
comments on the information, materials or submissions supplied
to that valuer contemporaneously with that supply to the
valuer.
(f) In making a valuation of the Equity Securities or Ownership Interests
in MovieCo or SportsCo as relevant, a valuer must:
(i) determine the value as at the date specified in the relevant
clause of this Agreement in accordance with which the Market
Value is to be determined;
(ii) assume that a reasonable time is available in which to obtain a
purchaser of those Equity Securities or Ownership Interests in
MovieCo or SportsCo as relevant in the open market and for that
purpose 6 months will be deemed a reasonable time;
(iii) assume that the Buyer is a willing but not anxious buyer of the
Equity Securities or Ownership Interests in MovieCo or SportsCo
as relevant and that if it is a sale to the Buyer, the Other
Party is a willing but not anxious seller and that if Vision is
issuing the Equity Securities, Vision is a willing but not
anxious issuer;
(iv) value the Equity Securities or Ownership Interests on the basis
that Vision or MovieCo or SportsCo as relevant is an on-going
concern and in the case of an issue of Equity Securities, on a
pre-dilution basis;
(v) have regard to such international benchmarks and factors as the
valuer believes should properly be taken into account based on
the best information available at the time including, without
limitation, (but only as relevant to the circumstances and the
basis of the valuation) the impact that the proposed acquisition
or disposal of the Equity Securities would have on the:
(1) value of the shareholding of Vision in MovieCo or SportsCo;
(2) arrangements between Vision and MovieCo or SportsCo;
<PAGE>
(3) arrangements between the Other Party (or its Related
Parties) and MovieCo or SportsCo; and
(4) arrangements between the Other Party (or its Related
Parties) and any Joint Venture Company;
by reason of the exercise of rights thereby conferred on the
Other Party (or its Related Parties) and Vision and unless the
Other Party (or its relevant Related Parties) has given legally
binding commitments not to so exercise those rights, it is to be
assumed that rights of the Other Party (or its Related Parties)
will be exercised in the manner most detrimental to Vision); and
(vi) act as an expert and not as an arbitrator.
(g) On the completion of:
(i) in the case of the appointment of 1 valuer, that valuer's
valuation; and
(ii) in the case of the appointment of 2 valuers, the valuation of
each valuer;
the Buyer and the Other Party will procure that the valuer will
simultaneously serve a copy of its valuation on the Buyer and the
Other Party and certify to the Buyer and the Other Party that the
valuer's valuation is a true and fair view of the value of the Equity
Securities or Ownership Interests in MovieCo or SportsCo.
(h) The Market Value will be:
(i) in the case of the joint appointment by the Buyer and the Other
Party of one valuer, the value of the Equity Securities or
Ownership Interests in MovieCo or SportsCo as relevant determined
by that independent valuer; and
(ii) in the case of the separate appointment of 2 independent valuers,
the average of the 2 certified valuations of the Equity
Securities or Ownership Interests in MovieCo or SportsCo as
relevant
and, where any valuer determines a range of values, the valuation of
that valuer will be the average of the upper and lower values in that
range.
(i) The Market Value will be deemed to have been determined on ("MARKET
VALUE DETERMINATION DATE"):
(i) in the case where the Buyer and the Other Party agree on the
Market Value, the date on which they reach that agreement; or
<PAGE>
(ii) in the case of the joint appointment by the Buyer and Other Party
of one valuer, and in the case of the appointment of 2 valuers,
the date on which the last of the copies of the valuations is
served in accordance with clause 24.3(g).
(j) unless otherwise specified in this Agreement:
(i) in the case where Vision is the Buyer, each of Vision and the
Other Party will bear the costs of the valuer it selects or in
the case of one agreed valuer will share its costs equally;
(ii) in the case of a proposed sale to a Buyer where the Buyer is not
Vision:
A. in the case where there are two valuers:
(I) each Buyer to whom the Equity Securities is sold will
bear the costs of the valuer selected by the Buyers in
the proportion that the Equity Securities bought by
each Buyer bears to the total of the Equity Securities
bought by the Buyers and failing any sale to a Buyer,
each Buyer will bear the costs of the valuer selected
by the Buyers in the proportion that its Equity
Proportion bears to the total of the Buyers' Equity
Proportions;
(II) the Other Party will bear the costs of the valuer
selected by it;
B. in the case where there is one agreed valuer:
(I) each Buyer to whom the Equity Securities is sold will
bear half the costs of the valuer in the proportion
that the Equity Securities bought by it bears to the
total of the Equity Securities bought by the Buyers and
failing any sale to a Buyer, each Buyer will bear half
the costs of the valuer in the proportion that its
Equity Proportion bears to the total of the Buyers'
Equity Proportions; and
(II) the Other Party will bear half of the cost of the
valuer;
(iii) in the case of a Buyer who has the right to subscribe for
Equity Securities, where there is one agreed valuer the Buyer
will bear the costs of the valuer and, where there are two
valuers the Buyer will bear the costs of the valuer appointed
by it and each Shareholder (other than the Buyer) will bear the
costs of the valuer appointed by Vision in the proportion that
its Equity Proportion bears to the total of the Equity
Proportions of the other Shareholders.
<PAGE>
(k) The determination of the Market Value will be binding on the Buyer and
the Other Party in the absence of manifest error or the apparent
failure to adhere to the requirements of paragraph (f). The
Shareholders agree that each valuer acts as an expert and not as an
arbitrator.
24.4 The Cost Incurred Value of an Equity Security or Ownership Interest in
MovieCo or SportsCo as relevant:
(a) will be:
(i) if the Equity Security or Ownership Interest in MovieCo or
SportsCo as relevant, has been acquired by the Other Party from
Vision or MovieCo or SportsCo as relevant, the amount paid to
Vision or MovieCo or SportsCo by the Other Party for that Equity
Security or Ownership Interest;
(ii) if the Equity Security or Ownership Interests (as relevant) has
been acquired by the Other Party from another person, the amount
paid to the other person for that Equity Security or Ownership
Interests (as relevant); and
(b) excludes, for the avoidance of doubt, all financing costs relating to
the amounts referred to in paragraph (a).
24.5 The Adjusted Cost Incurred Value of Equity Securities will be an amount
equal to:-
(a) the aggregate of all Shareholder Contributions made or required to be
made prior to the date at which the Adjusted Cost Incurred Value is to
be determined; and
(b) interest at the rate of 18% per annum on each Shareholder Contribution
from the date it was made (or was required to be made if earlier),
capitalising at the end of each year until the date at which the
Adjusted Cost Incurred Value is to be determined,
(c) in the case where the Buyer acquires existing Equity Securities from
the other party, the Equity Proportion that those Equity Securities
comprise; and
(d) in the case where the Buyer subscribes for Equity Securities,
multiplied by the Equity Proportion that will be represented by the
relevant Equity Securities immediately after their issue.
24.6 Vision must calculate the Cost Incurred Value of a Defaulting Shareholder's
Equity Securities as soon as practicable after it receives a notice under
clause 23.4.
25. SHAREHOLDING OF OPTUS AND OPTUS WITHDRAWAL
25.1 Subject to clause 19.18 Optus and its wholly owned Subsidiaries may not
seek to Transfer or agree to Transfer any interest in all or some of their
Equity Securities or do any other act or thing or suffer any act or thing
to be done if the effect or result of the Transfer or any other act or
thing would cause their aggregate Equity Proportion to be less than 10%
until:
<PAGE>
(a) the first date on which none of Nine, Seven, Continental (including
permitted transferees of those parties under clause 18.3), or any
person to which they Transfer any Equity Securities, holds more than
or equal to 2% of the total Equity Securities; or
(b) if there has been a Listing of Equity Securities in the period up
until the date referred to in paragraph (a), the later of the date
referred to in paragraph (a) and the date being 5 years after the date
on which Equity Securities are first listed for official quotation on
the stock market conducted by Australian Stock Exchange Limited.
25.2 Clause 25.1 is a limitation on the right of Optus to dispose of its Equity
Securities and in no way affects the rights of the Shareholders other than
Optus to acquire the Equity Securities of Optus in the circumstances
contemplated by this Agreement including if Optus commits a Default.
25.3 (a) The Equity Proportion of Optus may not be less than 10% until the
expiration of the period referred to in clause 25.1; and
(b) if the Equity Proportion of Optus is less than 10% prior to expiry of
the period referred to in clause 25.1, without limiting any other
rights a party may have, Vision may give Optus a notice in writing
stating that Optus' Equity Proportion is less than 10%.
26. SEVEN OPTION
26.1 For the purposes of this clause:
(a) "Exercise Period" means each period of one month following the Market
Value Determination Date or the date Vision gives notice of the
Adjusted Cost Incurred Value under clause 26.7(b), as the case may be,
for the purposes of this clause.
(b) "Expiry Date" means the first to occur of the following dates:
(i) the later of:
A. 1 July 1997; and
B. if the Optionholder gives notice under clause 26.5(b)
before 1 July 1997 but the date one month after the relevant
Market Value Determination Date is after 1 July 1997, the
date one month after the Market Value Determination Date;
(ii) the date which is the date on which Seven (or any permitted
transferee under clause 18.3) ceases to be a Shareholder;
<PAGE>
(iii) the date on which the Optionholder gives Vision an Option
Termination Notice relating to the Seven Option;
(iv) the date on which an option is granted to Seven under Clause
31A.
(c) "Optionholder" means Seven or any person to whom the Seven Option has
been transferred under clause 18.3.
(d) "Option Price" means the higher of the aggregate of the par values of
shares of any kind comprising the Equity Securities comprising the
Seven Option Interest and the aggregate of:
(i) the amount which is the lesser of the Market Value and the
Adjusted Cost Incurred Value of the Seven Option Interest as at
the date on which the Optionholder gives notice under clause
26.5 unless Seven does not request determination of the Market
Value, in which case the amount will be the Adjusted Cost
Incurred Value; or
(ii) an amount equivalent to interest at the Base Rate on 1 July
1997 for the period (if any) commencing on 1 July 1997 and
ending on the day that the Optionholder completes the
acquisition of the Seven Option Interest.
(e) "Seven Option" means the option granted under clause 26.2 conferring
on the Optionholder the rights described in this clause and clause 17.
(f) "Seven Option Interest" means the Equity Securities the number of
which when acquired by the Optionholder immediately following the
exercise of the Seven Option would result in the Optionholder holding
15% of the issued Equity Securities taking into account the operation
of clause 28.4.
26.2 Vision grants to Seven an option to subscribe for all (but not some) of the
Seven Option Interest for the Option Price and with the rights and subject
to the conditions set out in clauses 26.3 to 26.7 and in clauses 17 and 28.
26.3 The Optionholder may exercise the Seven Option only:
(a) if it reasonably believes that the acquisition of the Seven Option
Interest will at the time of exercise not be contrary to clause 14.2;
(b) if, in the case that to determine the Option Price requires
determination of the Market Value, it has given notice under clause
26.5(b) to each of the Shareholders and Vision requesting
determination of the Market Value under clause 24.3;
(c) during an Exercise Period and by the Expiry Date;
<PAGE>
(d) while Seven or any permitted transferee under clause 18.3 continues to
hold Equity Securities; and
(e) by giving to Vision an Exercise Notice duly completed and executed by
the Optionholder.
26.4 The Seven Option lapses on the Expiry Date.
26.5 The Optionholder may for the purposes of determining whether to exercise
the Seven Option:
(a) conduct a due diligence investigation of Vision, SportsCo and MovieCo
and/or any Subsidiary of Vision at the cost of the Optionholder and
for that purpose the Optionholder will have access to the information
referred to in clause 7.2;
(b) subject to clause 26.6, give written notice to each of the
Shareholders and Vision requesting determination of the Market Value
or the Adjusted Cost Incurred Value and the Market Value or only the
Adjusted Cost Incurred Value, as the case may be, under clause 24.
26.6 The Optionholder may only exercise the rights under clause 26.5(b) on a
maximum of 3 occasions and in each case no less than 9 months after the
last time it gave notice under that clause.
26.7 (a) The Shareholders must by the end of the Business Day following the
date on which the last of the Shareholders receives notice under
clause 26.5, commence the determination of the Market Value where
relevant; and
(b) Vision must as soon as practicable after receiving a request to
determine the Adjusted Cost Incurred Value under clause 26.5,
determine the Adjusted Cost Incurred Value and as soon as it is
determined, give notice of that value to the Optionholder and the
other Shareholders.
27. NINE OPTION
27.1 For the purposes of this clause:
(a) "Exercise Period" means each period of one month following the Market
Value Determination Date or the date Vision gives notice of the
Adjusted Cost Incurred Value under clause 27.7(b), as the case may be,
for the purposes of this clause;
(b) "Expiry Date" means the first to occur of the following dates:
(i) the later of:
<PAGE>
A. 1 July 1997; and
** B. if the Optionholder gives notice under clause 27.5(b) before
1 July 1997 but the date one month after the relevant Market
Value Determination Date is after 1 July 1997, the date one
month after the Market Value Determination Date;
(ii) the date which is the date on which Nine (or any permitted
transferee under clause 18.3) ceases to be a Shareholder;
(iii) the date on which the Optionholder gives Vision an Option
Termination Notice in relation to the Nine Option;
(iv) the date on which an option is granted to Nine under Clause
31.A.
(c) "Optionholder" means Nine or any person to whom the Nine Option has
been transferred under clause 18.3.
(d) "Option Price" means the higher of the aggregate of the par values of
any shares of any kind comprising the Equity Securities comprising the
Nine Option Interest and the aggregate of:
(i) A. in relation to exercise of the Nine Option within 30 days
after the Commencement Date, the Adjusted Cost Incurred
Value of the Nine Option Interest as at the date on which
the Optionholder gives notice under clause 27.5(b); or
B. at any time after the period referred to in paragraph (A),
the Market Value of the Nine Option Interest as at the
date on which the Optionholder gives notice under clause
27.5(b); and
(ii) an amount equivalent to interest at the Base Rate on 1 July
1997 for the period (if any) commencing on 1 July 1997 and
ending on the day that the Optionholder completes the
acquisition of the Nine Option Interest.
(e) "Nine Option" means the option granted under clause 27.2, conferring
on the Optionholder the rights described in this clause and clause 17.
(f) "Nine Option Interest" means the Equity Securities the number of which
when acquired by the Optionholder immediately following the exercise
of the Nine Option would result in the Optionholder holding 20% of the
issued Equity Securities taking into account the operation of clause
28.4.
<PAGE>
27.2 Vision grants to Nine an option to subscribe for all (but not some) of the
Nine Option Interest for the Option Price and with the rights and subject
to the conditions set out in clauses 27.3 to 27.7 and in clauses 17 and 28.
27.3 The Optionholder may exercise the Nine Option only:
(a) if it reasonably believes that the acquisition of the Nine Option
Interest will at the time of exercise not be contrary to clause 14.2;
(b) if, in the case that the Option Price is the Market Value, it has
given notice under clause 27.5(b) to each of the Shareholders and
Vision requesting determination of the Market Value under clause 24.3;
(c) during an Exercise Period and by the Expiry Date;
(d) while Nine or any permitted transferee under clause 18.3 continues to
hold Equity Securities; and
(e) by giving to Vision an Exercise Notice duly completed and executed by
the Optionholder.
27.4 The Nine Option lapses at the end of the Expiry Date.
27.5 The Optionholder may for the purposes of determining whether to exercise
the Nine Option:
(a) conduct a due diligence investigation of Vision, SportsCo and MovieCo
and/or any subsidiary of Vision at the cost of the Optionholder and
for that purpose the Optionholder will have access to the information
referred to in clause 7.2;
(b) subject to clause 27.6, give written notice to each of the
Shareholders and Vision requesting determination of the Market Value
or the Adjusted Cost Incurred Value, as the case may be, under clause
24.
27.6 The Optionholder may only exercise the rights under clause 27.5(b) on a
maximum of 3 occasions and in each case no less than 9 months after the
last time it gave notice under that clause.
27.7 (a) The Shareholders must by the end of the Business Day following the
date on which the last of the Shareholders receives notice under
clause 27.5, commence the determination of the Market Value where
relevant; and
(b) Vision must as soon as practicable after receiving a request to
determine the Adjusted Cost Incurred Value under clause 27.5,
determine the Adjusted Cost Incurred Value and as soon as it is
determined, give notice of that value to the Optionholder and the
other Shareholders.
<PAGE>
28. OPTIONS GENERALLY
28.1 Each Optionholder may not Transfer any interest in all or any part of its
Option to any person except by a Transfer in accordance with clause 18.3 or
28.2 or in the case of the Long Option as specified in Schedule 11B.
28.2 If an Optionholder has no Equity Securities, the Optionholder may, Transfer
all of its interest in (including its rights in respect of) a Long or Short
Option to:
(a) a wholly owned Subsidiary of that Optionholder, provided that the
Optionholder first executes and provides to each Shareholder a
guarantee which will operate on and from the exercise of any Option in
terms identical to a Guarantee in respect of that wholly owned
Subsidiary and the wholly owned Subsidiary executes a Deed of
Accession; or
(b) if the Optionholder is a wholly owned Subsidiary of a Guarantor Parent
Company, another wholly owned Subsidiary of that Guarantor Parent
Company provided that the Guarantor Parent Company first executes and
provides to each Shareholder a guarantee which will operate on and
from the exercise of any Option in terms identical to a Guarantee in
respect of that other wholly owned Subsidiary and the wholly owned
Subsidiary executes a Deed of Accession.
Anti-dilution
28.3 (a) "Anti Dilution Interest" means the Equity Securities the number of
which when added to the number of Equity Securities held by the Non-
Exerciser immediately before exercise by the Exerciser of its Option
would result in the Non-Exerciser having the same Equity Proportion
immediately after exercise by the Exerciser of the Option that it had
immediately before exercise of that Option.
(b) "Anti-Dilution Price" means, in respect of an Anti-Dilution Interest,
the number of Equity Securities comprising that Anti-Dilution Interest
multiplied by:
(i) if the Non-Exerciser has previously exercised an Option, the
price per Equity Security paid by the Non-Exerciser on exercise
of that Option; or
(ii) if the Non-Exerciser has not previously exercised an Option, the
price per Equity Security paid by the Exerciser on exercise of
its Option.
(c) "Exerciser" means an Optionholder which exercises an Option.
(d) "Non-Exerciser" means a Shareholder who at any time was or is an
Optionholder or had rights in respect of an Option.
<PAGE>
28.4 If at the time of exercise of an Option during the Standstill Period by an
Exerciser, there is a Non-Exerciser, the Non-Exerciser must, subject to
clause 28.6, subscribe for the Anti-Dilution Interest for the Anti-
Dilution Price and otherwise on the terms set out in this clause 28.
28.5 Vision must as soon as practicable and in any event within 10 Business Days
of the date of the determination of the Option Price of the Exerciser,
notify the Non-Exerciser of:
(a) the Equity Securities comprising the Anti-Dilution Interest;
(b) the Anti-Dilution Price; and
(c) the aggregate of the par values of each Equity Security comprising the
Anti-Dilution Interest.
28.6 The Non-Exerciser:
(a) must not subscribe for the Anti-Dilution Interest if its acquisition
of the Anti-Dilution Interest will at the time of acquisition under
clause 28.7 be contrary to clause 14.2;
(b) has the right, exercisable by notice to Vision within 5 Business Days
of a notice under clause 28.5, not to comply with clause 28.4 in
respect of an Anti-Dilution Interest if the Anti-Dilution Price is
less than the aggregate of the par values of each Equity Security
comprising the Anti-Dilution Interest; and
(c) is not obliged to comply with clause 28.4 if it has exercised its own
Option within 5 Business Days of the Exerciser exercising its Option.
28.7 Completion of the subscription for the Anti-Dilution Interest under clause
28.4 must occur on the date 10 Business Days after the date of the Non-
Exerciser receiving notice under clause 28.4. The Non-Exerciser must give
to Vision:
(a) an application for any Equity Securities included in the Anti-Dilution
Interest; and
(b) a cheque for the Anti-Dilution Price; and
upon receipt of the application and cheque, Vision must issue to the Non-
Exerciser the Equity Securities comprising the Anti-Dilution Interest.
Exercise of Options and Anti-Dilution
28.8 Where there are two or more classes of Equity Securities on issue;
(a) each Option confers on the Optionholder the right to Equity Securities
of such classes in the same proportions as held by the Shareholders;
and
<PAGE>
(b) the Anti-Dilution Interest will comprise Equity Securities of the
same classes and in the same proportions as held by the
Shareholders.
28.9 If an Optionholder exercises an Option completion of exercise of the
Option must occur on the date:
(a) 2 Business Days after the date of exercise; or
(b) where the Optionholder makes an election under paragraph 3(d) of
Schedule 11B on the date nominated by the Optionholder which must be
within one month of the Market Value Determination Date or the date
of determination of the Adjusted Cost Incurred Value as the case may
be,
and on that date for completion the Optionholder referred to in the
relevant clause must give to Vision:
(a) an application for any Equity Securities the subject of the Option;
and
(b) a bank cheque for the amount of the Option Price; and
upon receipt of the application and cheque, Vision must issue to the
Optionholder the Equity Securities the subject of the Option.
28.10 If a Default Notice has been served on an Optionholder then the
Optionholder may not exercise any Option until the earlier of:
(a) the period within which a Default Acquisition Notice may be served
has expired and no Default Acquisition Notice has been served; and
(b) if a Default Acquisition Notice has been served, the period for
acceptance of all offers under clause 23.6 has expired.
29. DISPUTE RESOLUTION
29.1 If a party to this Agreement claims a dispute has arisen between itself
and any other or all parties to this Agreement in relation to this
Agreement or any of its provisions including, without limitation, any
dispute as to the breach, termination, validity or subject matter
thereof, or as to any claim in tort, equity or pursuant to any domestic
or international statute or law ('Dispute'), no party to this Agreement
may take any legal or other action in respect of the Dispute (except
legal action for urgent interlocutory relief) until it has complied with
this clause 29.
29.2 A party claiming a Dispute has arisen must give written notice to all
other parties specifying the nature of the Dispute.
29.3 The chief executive officer (or other senior employee) of each party to
the Dispute will negotiate in good faith to resolve the Dispute for a
period of 14 Business Days from the date of receipt of a notice under
clause 29.2 (or such longer period as may be agreed between the parties).
<PAGE>
30. PUBLICITY
30.1 Subject always to clauses 17 and 30.2 no party may, and each party must
procure that none of its Related Corporations will, make any public
announcement or issue any press release concerning Vision, a party or any
of their respective shareholders or Related Corporations (other than one
concerning only the party making the public announcement or issuing the
press release and/or its Related Corporations and not containing any
details or information specifically referable to any other party) unless it
has first used its best efforts to consult with each of the other parties
and incorporated in that public announcement or press releases all
reasonable comments made by any party.
30.2 A party:
(a) may make any announcement to a securities exchange on which its shares
are listed that is required by the rules of that securities exchange
or may disclose information to any government authority or body which
under the laws to which that party is subject it is obliged to so
disclose; and
(b) must provide a copy of each such announcement to each other party.
31. NOTICES
31.1 A notice, consent or any other communication under this Agreement:
(a) must be in writing;
(b) must be addressed as set out below; and
(c) must be left at the address of the addressee, or sent by prepaid post
(airmail if posted to or from a place outside Australia) to the
address of the addressee or sent by facsimile to the facsimile number
of the addressee specified below or any other substituted address or
facsimile number the addressee has specified by notice in writing to
the other parties.
The initial address and facsimile number of each party is:
Continental
Attention: The Executive Director
Address: Unit 8
372 Eastern Valley Way
Chatswood NSW
Facsimile: 417 8182
Mr W Spain
Gilbert & Tobin
<PAGE>
Level 4
50 Carrington Street
Sydney NSW 2000
Facsimile: 367 3111
Optus
Attention: The Chief Executive Officer
Address: Level 29
101 Miller Street
NORTH SYDNEY NSW 2060
Facsimile: 342 7000
Seven
Attention: The Chief Executive Officer
Address: 14th Floor
1 Pacific Highway
NORTH SYDNEY NSW 2060
Facsimile: 967 7191
Nine
Attention: The Chief Executive Officer
Address: 24 Artarmon Road
WILLOUGHBY NSW 2068
Facsimile: 965 2153
Vision
Attention: The Chief Executive Officer
Address: Tower B, Level 16
The Zenith Centre
841 Pacific Highway
CHATSWOOD NSW 2067
Facsimile: 775 9000
Optus Networks
Attention: The Chief Executive Officer
Address: Level 29
101 Miller Street
NORTH SYDNEY NSW 2060
Facsimile: 342 7000
Optus Administration
<PAGE>
Attention: The Chief Executive Officer
Address: Level 29
101 Miller Street
NORTH SYDNEY NSW 2060
Facsimile: 342 7000
31.2 A notice, consent or any other communication takes effect from the time
it is or is deemed to have been received unless a later time is specified
in it.
31.3 A letter is deemed to be received 3 days after posting (7, if posted to
or from a place outside Australia).
31.4 A facsimile is deemed to be received at the time of dispatch if the
sender receives a transmission report which confirms that the facsimile
was sent in its entirety to the facsimile number of the recipient.
31.A PROCESS
31.A1 Definitions
For the purposes of this clause and Schedules 11A and 11B:
(aa) "Application Period" means the period which commences on the date
determined under Clause 31.A4(a) and which is the sum of:
(i) 10 Business Days; and
(ii) if section 26 of FATA would apply to the purchase of any of the
Equity Securities or Ownership Interests under this clause the
period of 40 days (or such other period as may be provided for
the purposes of section 26(2)(b)(i) of FATA),
provided that if the Treasurer issues an order under section 22 of
FATA in respect of a Shareholder's or Vision's proposed acquisition
of Equity Securities or Ownership Interests pursuant to this clause,
the Application Period will be extended by a number of days equal to
the period for which that order has effect.
(a) "Court Order" means an order made by a Court under section 81 of the
Trade Practices Act for the disposal by either or both of Seven and
Nine to dispose of either or both of Equity Securities and Ownership
Interests in one or more Joint Venture Entities after all appeals
have been exhausted;
(b) "Decision" means a decision referred to in paragraphs 31A.1(d), (h),
(i), (l), (m) or (n);
<PAGE>
(c) "Exiting Shareholder" means a Network Shareholder who ceases to
participate as a result of the circumstances referred to in clause
31A.3(a), (b) or (c);
(d) "Favourable Equity Decision" means communication of the:
(i) outcome of the determination of any Proceedings; or
(ii) the discontinuation, dismissal or settlement of Proceedings
including, without limitation, in the case of the TPC, the TPC in
substance and effect informing Vision or any Shareholder that it
is no longer making inquiries or will not bring Proceedings,
which is consistent with both of Nine and Seven acquiring or owning
Equity Securities and Ownership Interests in Joint Venture Entities
and holding any rights in respect of Options over Equity Securities
and Ownership Interests in any Joint Venture Entity;
(e) "Joint Venture Entity" means Vision, MovieCo, SportsCo and such other
corporations or entities as the parties may establish under this
Agreement;
(f) "Network Shareholder" means each of Nine and Seven;
(g) "Option Premium" has the meaning assigned to it in Schedule 11B;
(h) "Nine Favourable Rights Decision" means communication of the:
(i) outcome of the determination of Proceedings and all appeals
therefrom; or
(ii) the discontinuation, dismissal or settlement of Proceedings
including, without limitation, in the case of the TPC, the TPC in
substance and effect informing Vision or any Shareholder that it
is no longer making inquiries or will not bring Proceedings,
which is consistent with Nine or a Related Corporation exclusively
supplying its Rights to SportsCo or Vision;
(i) "Nine Unfavourable Rights Decision" means communication of the:
(i) outcome of the determination of any Court Proceedings and all
appeals therefrom; or
(ii) the discontinuation or settlement of Court Proceedings, with the
consent of Vision, such consent not to be unreasonably withheld,
<PAGE>
which is inconsistent with Nine or any Related Corporation exclusively
supplying Rights to SportsCo or Vision;
(j) "Proceedings" means:
(i) the TPC deciding, or informing Vision or any Shareholder to the
effect that it intends, to make inquiries of Vision or any
Shareholder or making any such inquiries; or
(ii) proceedings commenced by any person under or in respect of the
Trade Practices Act (including without limitation seeking
declaratory relief);
in relation to participation in the Joint Venture or in relation to
arrangements relating to Rights and "Court Proceedings" means those
proceedings described in paragraph (j)(ii);
(k) "Rights" means rights granted under an agreement referred to in clause
31.A2(b)(i)(B), (C) or (D);
(l) "Seven Favourable Rights Decision" means communication of the:
(i) outcome of the determination of Proceedings and all appeals
therefrom; or
(ii) the discontinuation, dismissal or settlement of Proceedings
including, without limitation, in the case of the TPC, the TPC in
substance and effect informing Vision or any Shareholder that it
is no longer making inquiries or will not bring Proceedings,
which is consistent with Seven or any Related Corporation exclusively
supplying its Rights to SportsCo;
(m) "Seven Unfavourable Rights Decision" means communication of the:
(i) outcome of the determination of any Court Proceedings and all
appeals therefrom; or
(ii) the discontinuation or settlement of Court Proceedings with the
consent of Vision, such consent not to be unreasonably withheld,
which is inconsistent with Seven or any Related Corporation
exclusively supplying its Rights to SportsCo;
(n) "Unfavourable Equity Decision" means:
(i) either:
<PAGE>
A. communication of the outcome of the determination of any
Court Proceedings and all appeals; or
B. the discontinuation or settlement of Court Proceedings,
which is inconsistent with either or both of Nine and Seven
acquiring or owning Equity Securities or Ownership Interests in
one or more Joint Venture Entities or holding any rights in
respect of Options in one or more Joint Venture Entities on the
terms of any relevant venture agreements; or
(ii) following consultation with Seven and Nine, the Shareholders
other than Seven and Nine resolving by Simple Majority to
discontinue or settle such Proceedings, provided that:
A. Vision has received written advice from a Senior or Queens
Counsel that the Proceedings do not have a reasonable
prospect of success or there is not a reasonable prospect
of successfully defending the Proceedings; and
B. Nine or Seven does not, without 15 Business days of
receiving notice from Vision that it has received the
advice described in clause 31.A1(n)(ii)A. (together with
a copy of that advice), provide Vision with a copy of
advice that it has received from a Senior or Queens
Counsel that the Proceedings do have a reasonable prospect
of success or there is a reasonable prospect of
successfully defending such Proceedings;
(o) A reference in this clause to:
(i) a "Shareholder" includes a reference to the relevant person's
permitted transferees under clause 18.3;
(ii) "Options" means the options referred to in clause 26 and 27
and Clauses 32 and 32A and clause 8.1A of the SportsCo
Shareholders Agreement and also includes any options granted
in respect of any Joint Venture Entity; and
(iii) a term defined in any of Schedules 11A and 11B and used in
this clause and not defined in this clause has the meaning
assigned to it in the relevant Schedule.
31.A2 Commencement or Defence of Proceedings
If Proceedings are commenced:
(a) Vision or any such Shareholder must immediately notify each other
party; and
<PAGE>
(b) from the date that Proceedings are commenced until a Decision is
made:
(i) Vision must, subject to clause 31A.2(d) at Vision's cost, take
all reasonable actions in response to any such Proceedings to
ensure:
A. that each of Nine and Seven may acquire and own Equity
Securities and Ownership Interests in any Joint Venture
Entity or be granted or hold Options in Vision and any
Joint Venture Entity, on the terms and conditions of the
relevant joint venture agreement.
B. Seven or its Related Corporations may supply to SportsCo
exclusively certain Program rights on the terms and
conditions of any agreement between Seven or any Related
Corporation and SportsCo;
C. Nine or its Related Corporations may supply to either or
both SportsCo or Vision exclusively certain Program rights
on the terms and conditions of any agreement between Nine
or any Related Corporation and SportsCo and/or Vision;
D. SportsCo may supply to Vision exclusively rights to its
channels on the terms and conditions of any agreement
between SportsCo and Vision;
(ii) the Shareholders must, subject to clause 31A.2(d) at Vision's
cost, take all reasonable steps to assist Vision to effect and
implement the actions and achieve the objectives referred to in
clause 31A.2(b)(i) including without limitation providing the
TPC with information reasonably required by it.
(c) The actions referred to in clause 31A.2(b)(i) include but are not
limited to preparing responses and submissions to, and negotiating
with, the TPC and, initiating or defending any Proceedings and
maintaining such Proceedings in a court or forum of competent
jurisdiction.
(d) Vision will have no obligation to make any payment under clause
31A.2(b) if the Corporations Law would preclude Vision from agreeing
to pay or paying such costs and in that case the shareholders argee
to bear the costs in their equal proportion.
31.A3 Unfavourable Equity Decision
(a) Negotiation
If an Unfavourable Equity Decision is made the parties will
negotiate in good faith for a period of 30 days from the date of the
making of the Unfavourable Equity Decision to endeavour to agree
alternative arrangements acceptable to all the Shareholders, Vision
and the TPC for the participation of Seven (or its Related
Corporations) and Nine (or its Related Corporations) in the Joint
Venture in a manner not in contravention of those provisions of the
Trade Practices Act which gave rise to the Unfavorable Equity
Decision, including any restructuring of Equity Securities,
Ownership Interests and Options and the transfer or issue to Nine or
Seven or both of Ownership Interests or Equity Securities in one
or more Joint Venture
Entities.
<PAGE>
(b) Both Ceasing to Participate
If an Unfavourable Equity Decision is made and so as not to be in
contravention of those provisions of the Trade Practices Act which
gave rise to the Unfavourable Equity Decision, both of Seven and
Nine must cease to participate in one or more of Vision or another
Joint Venture Entity the parties acknowledge that both of Seven and
Nine will in those circumstances cease such participation.
(c) Divestment Order
If a Court Order is made in relation to either or both of Seven and
Nine, clause 31.A4 will apply. If the Court Order relates to either
or both of Seven or Nine, clause 31.A5(a) will also apply.
(d) Subject to any agreement to the contrary pursuant to clause 31A.3(a)
if Nine or Seven or both, as the case may be, cease to participate
pursuant to clause 31A.3(a) or (b), clause 31A.5(d) will apply.
31.A4 Exit
(a) Within 5 Business Days of the earlier to occur of:
(i) the date of the Unfavourable Equity Decision referred to in
clause 31.A3(b); or
(ii) the date on which all Shareholders agree, as a result of
negotiations under clause 31.A3(a), Seven is to cease
participation or Nine is to cease participation; or
(iii) the date on which a Court Order referred to in clause
31A.3(c) is made,
and unless another price for the Equity Securities or Ownership
Interests is agreed within that 5 Business Days the Shareholders
must, commence the determination under clause 24.3 of the Market
Value and if clause 31A.4(b)(iii) applies, Vision must commence the
determination under clause 24.5 of the Adjusted Cost Incurred Value
of the Equity Securities or Ownership Interests of one or both of
Seven and Nine as the case may be in whichever of Vision or the
Other Joint Venture Entity in which participation is to cease such
value to be determined as at the date of the Unfavourable Equity
Decision.
(b) Within 5 Business Days of the later to occur of, the date on which
Vision calculates the Adjusted Cost Incurred Value, the Market Value
Determination Date (if applicable) or the date of agreement to the
other price within the 5 Business Day period:
(i) If participation is to cease in Vision the Shareholders in
Vision (other than the Exiting Shareholder or Shareholders)
must acquire or procure the acquisition of in the same
proportions as each of their Equity Proportions
<PAGE>
bears to the total of their Equity Proportions the Equity
Securities of the Exiting Shareholder or Shareholders; and
(ii) If participation is to cease in one or more of the Joint
Venture Entities other than Vision, Vision must acquire or
procure the acquisition of the Ownership Interests of the
Exiting Shareholder or Shareholders in whichever of the Joint
Venture Entities the Exiting Shareholder or Shareholders
cease to participate in,
for:
(iii) where the Unfavourable Equity Decision was made before 1 July
1997 and was of the type referred to in Clause 31.A3(c), the
higher of the Market Value and the Adjusted Cost Incurred
Value; and
(iv) subject to the Transaction Agreements, in all other cases,
the Market Value.
(c) If section 26 of FATA would apply to the acquisition by a
Shareholder or Vision of the Equity Securities or Ownership
Interests pursuant to this clause then that Shareholder or Vision
must make application to the Treasurer under section 26 of FATA
within 10 Business Days of the date referred to in clause 31.A4(a)
and do everything necessary or desirable (which is reasonable and
within its authority or power to do) to obtain the requisite
approval, and in such circumstances, clause 31.A4(d) will apply if
such approval is not obtained without conditions or is not deemed to
have been obtained within the Application Period.
(d) Subject to clause 31.A4(c), if the acquisition of the Equity
Securities or Ownership Interests pursuant to this clause would
cause any Shareholder or Vision to be in breach of clause 14.2 then
the Shareholder or Vision must do everything necessary or desirable
(which is reasonable and within its authority or power to do) to
obtain any necessary consents or approvals required but if it is
unable to do so by the last day of the Application Period (if clause
31.A4(c) applies) or within 20 Business Days of the date referred to
in clause 31.A4(a) (in any other case), then it must procure another
person or persons nominated in writing by it to the Exiting
Shareholder in accordance with clause 31.A4(e) to purchase the
Equity Securities or Ownership Interests that it would otherwise be
required to purchase.
(e) A Shareholder or Vision may only nominate a person for the purposes
of clause 31A.4(d) if:
(i) the nominee is not a Prohibited Shareholder;
(ii) the acquisition of Equity Securities or Ownership Interests
by the nominee under this clause would not be in breach of
clause 14.2;
(iii) the nominee has entered into a Deed of Accession; and
<PAGE>
(iv) any Guarantee required in respect of the nominee has been given,
and must make such nomination within 60 Business Days of the
expiration of the Application Period or the expiration of the 20
Business Days referred to in clause 31.A4(d), as the case may be.
(f) The parties will take all action reasonably necessary to determine
within 10 Business Days of a request by a Shareholder or Vision the
matters referred to in clause 19.3 in respect of any person which the
Shareholder or Vision proposes to nominate for the purposes of clause
31.A4(d).
(g) Completion of the purchase of Equity Securities or Ownership Interests
pursuant to this clause must take place within 5 Business Days of:
(i) the last date referred to in clause 31A.4(b); or
(ii) if clause 31.A4(c) applies (but clause 31.A4(d) does not apply)
the expiry of the Application Period; or
(iii) if clause 31.A4(d) applies, the date of the nomination of the
Nominee made under clause 31.A4(d),
in accordance with clause 31.A4(h) at a time and place to be agreed or
failing agreement at 2:00pm at Vision's registered office on last day
of the 5 Business Day period referred to in this paragraph.
(h) On the day appointed for completion under clause 31.A4(d) the
Shareholder or Vision or their respective Nominee or both as the case
may be must give to the Exiting Shareholder a bank cheque in payment
of the price determined by reference to clause 31A.4(b) and the
Exiting Shareholder must upon receipt of the cheque give to each
Shareholder or Vision or their respective Nominee or both all
documentation to establish its title to and to effect a transfer of
the relevant Equity Securities or Ownership Interests including an
executed transfer and share certificate or other documents of title in
respect of the Equity Securities or Ownership Interests to be sold. If
the Exiting Shareholder is transferring its Ownership Interests in
SportsCo to Vision or its Nominee Vision must give the Exiting
Shareholder or procure its Nominee to give to the Exiting Shareholder
a bank cheque for the aggregate of the principal amounts of the Loans
made by the Exiting Shareholder to SportsCo and the Exiting
Shareholder must give any documentation necessary to effect a transfer
or novation of the loans to Vision.
31.A5 Options
(a) Subject to clause 31.A5(b) and (c) Vision must grant to the Network
Shareholder:
(i) if its Equity Securities in Vision are transferred by reason of
clause 31.A3(c) and in consideration for the Network
Shareholder's payment of the Option Premium to Vision an option
to subscribe for all (and not only some) of the Long Option
Interest in Vision;
<PAGE>
(ii) if its Ownership Interests in MovieCo are transferred by reason
of clause 31.A3(c) an option to purchase from Vision all (and
not only some) of the Long Option Interest in MovieCo; and
(iii) if its Ownership Interests in SportsCo are transferred by
reason of clause 31.A3(c) an option to purchase from Vision all
(and not only some) of the Long Option Interest in SportsCo,
in each case on the terms of Schedule 11B.
(b) The Network Shareholder has the right, exercisable during the 5
Business Day period following completion of the transfer referred to
in clause 31A.4(g), to acquire the Long Options in respect of
whichever of Vision, MovieCo and SportsCo it has ceased to participate
in.
(c) The Network Shareholder may exercise its right to acquire the Long
Options by giving notice to Vision to that effect which must, if the
Long Options to be granted include a Long Option in respect of Equity
Securities, be accompanied by payment of the Option Premium.
(d) If the Network Shareholder has not exercised its right to acquire the
Long Options within the period specified in clause 31.A5(b), or if
this clause otherwise applies, Vision grants to the Network
Shareholder:
(i) if its Equity Securities in Vision are transferred under clause
31A.4(b), an option to subscribe for all (and not only some) of
the Short Option Interest in Vision;
(ii) if its Ownership Interests in MovieCo are transferred under
clause 31A.4(b), an option to purchase from Vision all (and not
only some) of the Short Option Interest in MovieCo; and
(iii) if its Ownership Interests in SportsCo are transferred under
clause 31A.4(b), an option to purchase from Vision all (and not
only some) of the Short Option Interest in SportsCo,
in each case on the terms set out in Schedule 11A.
31.A6 More than one Proceeding and/or Decision
The parties acknowledge that one or more Proceedings may be commenced at
or about the same time or at different times, and that one or more
Decisions may be made at or about the same time or at different times. If
so, this clause 31.A will apply to each such Proceedings and Decision.
31.A7 Equal Treatment
<PAGE>
Without limiting clause 31.A3(a) the parties must, in carrying out any
negotiations referred to in clause 31.A3(a) and in agreeing to any
alternative arrangements or restructuring, afford equal treatment to
Seven and Nine and not favour either of Seven or Nine over the other of
them. The equal treatment referred to in this clause would include but
not be limited to:
(a) affording both of Seven and Nine the opportunity to participate in
any negotiations, suggested by any party, or opportunity relating to
any such arrangements or restructuring;
(b) not entering into any agreement, arrangement or understanding with
either Nine or Seven without having given the other of them the
opportunity to engage in discussions with negotiations relating to
that agreement, arrangement or understanding and without having
first obtained the consent of the other of them to the agreement,
arrangement or understanding.
32. CONTROL PUT AND CALL OPTIONS
32.1 In this clause 32:
(a) "Call Option" means the rights granted to the Other Shareholders under
clause 32.2(b).
(b) "Call Option Notice" means the notice to be given under clause
32.6(b).
(c) "Control Option Price" means, in respect of each Other Shareholder (or
its Nominee) its Shareholder Proportion of the Market Value of Seven's
Equity Securities determined as at the date of the Exercise Condition
Notice.
(d) "Exercise Condition" is that a Prohibited Shareholder at any time:
(i) directly or indirectly holds in excess of 50% of the Ownership
Interests (other than by reason of paragraph (e) of the
definition of "Ownership Interests") in Seven; or
(ii) controls or is able to control, directly or indirectly, alone or
together with an Associate:
A. the appointment of, 50% or more of the directors to the
board of Seven; or
B. 50% of the votes able to be cast at a meeting of directors
of Seven assuming every director of Seven is entitled to
vote.
<PAGE>
(e) "Exercise Condition Notice" means a notice given under clause 32.3.
(f) "Nominee" means the person that an Other Shareholder procures, in
accordance with clause 32.7(b) or clause 32.8 to purchase some or all
of the Equity Securities the subject of the Put Option or the Call
Option respectively.
(g) "Other Shareholders" means the Shareholders other than Seven.
(h) "Put Option" means the option granted to Seven under clause 32.2(a).
(i) "Put Option Notice" means a notice given under clause 32.6(a).
(j) "Seven" means Seven or its permitted transferees under clause 18.3.
(k) "Shareholder Proportion" means, in respect of each Other Shareholder
(or its Nominee), the proportion which the Other Shareholder's Equity
Proportion bears to the aggregate of all Other Shareholders' Equity
Proportions calculated as at the date of the Exercise Condition Notice
and for the purposes of clause 32.7(e) and the definition of "Control
Option Price" as if the Nominee had acquired from the Shareholder that
nominated it, such number of Equity Securities as conferred on the
relevant Shareholders the right to acquire the proportion of Seven's
Equity Securities the relevant Nominee agrees to acquire.
32.2 Grant of Put Option and Call Option
(a) Each Other Shareholder grants to Seven an option, on satisfaction of
the Exercise Condition, to require it to purchase or procure the
purchase of its Shareholder Proportion of all (and not some) of
Seven's Equity Securities for the Control Option Price subject to and
in accordance with the terms and conditions set out in this clause 32.
(b) Seven grants to the Other Shareholders an option, on satisfaction of
the Exercise Condition, to require Seven to sell all (and not some) of
Seven's Equity Securities to the Other Shareholders or their
respective Nominees subject to and in accordance with the terms and
conditions set out in this clause 32.
32.3 Exercise Condition Notice
If a Shareholder becomes aware that the Exercise Condition is satisfied, it
may within 20 Business Days of becoming aware of the Exercise Condition
being satisfied give to Seven and all the Other Shareholders and Vision (or
if the Shareholder is Seven, to Vision and all of the Other Shareholders) a
notice in writing specifying that the Exercise Condition has been satisfied
and details of the basis for satisfaction of the Exercise Condition.
32.4 Valuation
<PAGE>
Within 5 Business Days after receipt by Seven (or Vision, if the Exercise
Condition Notice is given by Seven) of an Exercise Condition Notice the
Shareholders must initiate the determination of the Market Value of Seven's
Equity Securities as at the date the Exercise Condition Notice is given in
accordance with clause 24.3.
32.5 Necessary Approvals
(a) If section 26 of FATA would apply to the acquisition of an Other
Shareholder of Seven's Equity Securities pursuant to the Call Option
or the Put Option then that Other Shareholder must make application to
the Treasurer under section 26 of FATA within 10 Business Days after
receipt of an Exercise Condition Notice and the Other Shareholder must
further do everything necessary or desirable (which is reasonable and
within its authority or power to do) to obtain the requisite approval;
and
(b) subject to (a) if the giving of a Put Option Notice or Call Option
Notice would be contrary to clause 14.2 or any acquisition or sale
pursuant to any such notice would cause any Other Shareholder to be in
breach of clause 14.2 then the other Shareholders must do everything
necessary or desirable (which is reasonable and within its authority
or power to do) to obtain any necessary consents or approvals required
within 20 Business Days after receipt of an Exercise Condition Notice.
32.6 Exercise of Options
(a) Within 30 Business Days of the Market Value Determination Date of
Seven's Equity Securities Seven may exercise the Put Option by giving
a notice to the Other Shareholders requiring the Other Shareholders to
acquire or procure the acquisition of all of its Equity Securities in
accordance with clause 32.7; and
(b) if Seven does not give the Other Shareholders a Put Option Notice
within that time Seven loses the right to give a Put Option Notice in
relation to that Exercise Condition Notice and any Other Shareholder
may exercise the Call Option by giving Seven a notice within a further
30 Business Days requiring Seven to offer all of its Equity Securities
to the Other Shareholders and, if relevant, other persons in
accordance with clause 32.8.
32.7 Put Option
(a) If an Exercise Condition Notice is given and:
(i) section 26 of FATA would apply to the acquisition by an Other
Shareholder of Seven's Equity Securities pursuant to the Put
Option and the requisite
<PAGE>
approval is not obtained without conditions or is not deemed to
have been obtained within the sum of:
A. 10 Business Days from the date of the Exercise Condition
Notice; and
B. the period of 40 days (or such other period as may be
provided for the purposes of section 26(2)(b)(i) of FATA)
unless the Treasurer issues an order under section 22 of
FATA in which case the period will be extended by the number
of days equal to the period for which that order has effect;
or
(ii) otherwise than by reason of FATA, any acquisition by an Other
Shareholder under the Put Option would be contrary to clause 14.2
or would cause any Other Shareholder to be in breach of clause
14.2 at the date 20 Business Days after receipt of the Exercise
Condition Notice,
then if Seven gives the Other Shareholders a Put Option Notice, the
relevant Other Shareholder must procure another person or persons
nominated in writing by it to Seven in accordance with clause 32.7(b)
to purchase the Equity Securities that it would otherwise be required
to purchase under this clause;
(b) An Other Shareholder may only nominate a person for the purposes of
clause 32.7(a) if:
(i) the nominee is not a Prohibited Shareholder;
(ii) the acquisition of Equity Securities by the nominee under this
clause would not be in breach of clause 14.2;
(iii) the nominee has entered into a Deed of Accession; and
(iv) any Guarantee required in respect of the nominee has been
given,
and the Other Shareholder must make such nomination by the date which
is the later of the day 30 Business Days after the expiration of the
period referred to in clause 32.7(a)(i) and the day which is 20
Business Days after receipt of the Put Option Notice;
(c) The parties will take all action reasonably necessary to determine
within 10 Business Days of a request by an Other Shareholder the
matters referred to in clause 19.3 in respect of any person which the
Other Shareholder proposes to nominate for the purposes of clause
32.7(b);
(d) Completion of the purchase of Seven's Equity Securities pursuant to
the exercise of the Put Option must take place within 10 Business Days
of:
<PAGE>
(i) receipt by the Other Shareholder of the Put Option Notice; or
(ii) where approval has been sought and is granted under FATA in
accordance with paragraph (a)(i), the date on which the Other
Shareholder receives or is deemed to receive approval under
section 26 of FATA; or
(iii) where the Other Shareholder must nominate another person in
accordance with paragraph (a), the last date on which all
nominations must be made,
in accordance with clause 32.7(e) at a time and place to be agreed by
failing agreement at 2.00pm at Vision's registered office on last day
of the 10 Business Day period; and
(e) On the day appointed for completion under clause 32.7(d) each Other
Shareholder must give to Seven or procure its nominee to give to Seven
a bank cheque in payment of the purchase monies for its Shareholder
Proportion of Seven's Equity Securities less:
(i) the proportion of the Equity Securities it is to acquire
multiplied by all costs incurred by that Other Shareholder in
valuing Seven's Equity Securities (including but not limited
to the cost of any valuer); and
(ii) all stamp duty payable in respect of the Transfer of the
relevant Equity Securities to it;
and Seven must upon receipt of the cheque give to the Other
Shareholder (or its Nominee) an executed transfer and share
certificates in respect of the Equity Securities to be sold.
32.8 Call Option
If an Other Shareholder gives Seven a Call Option Notice:
(a) on the date the Call Option Notice is given, Seven is deemed to have
issued an irrevocable Offer Notice to the Board under clause 19.2 in
respect of an Offer under clause 19.1(a)(ii);
(b) the Sale Securities the subject of the Offer Notice will be all the
Equity Securities of Seven;
(c) the Sale Price of the Sale Securities will be the Control Option
Price;
(d) clauses 19.1 to 19.15 will apply to the offer, acceptance and sale of
Seven's Equity Securities to the Other Shareholders except that:
<PAGE>
(i) in clause 19.1 the reference to "after the Standstill Period"
is deleted, paragraph (c) does not apply and the offer is of
all of Seven's Equity Securities for the Market Value at the
date the Exercise Condition Notice is given;
(ii) clauses 19.2, 19.3, 19.10, 19.12, 19.13 and 19.14(a) do not
apply and the remainder of clauses 19.1 to 19.15 shall apply as
if:
A. references in clauses 19.6 and 19.8 to clause 19.10(a) are
taken as references to clause 32.8(d)(v); and
B. references in clauses 19.14 and 19.15 to clause 19.12 are
taken to be references to clauses 32.8(d)(iv);
(iii) any reference to the Seller is to Seven;
(iv) subject to paragraph (v), completion of the transfer of Seven's
Equity Securities must take place within 10 Business Days after
the last date on which offers are open for acceptance under
paragraph (d) at a time and place to be agreed or failing
agreement at 2.00pm at Vision's registered office on the day
being 10 Business Days after the last date on which offers are
open for acceptance;
(v) if at the end of the process referred to in this clause 32.8
(including under clause 32.8(f)) not all of Seven's Equity
Securities have been agreed to be acquired or have been
acquired, then Seven cannot require the Other Shareholders to
acquire under this clause 32.8(d) and the Other Shareholders
cannot require Seven to sell any Equity Securities and any
contract in relation to such sale and purchase will be of no
effect;
(vi) each offer in each round of offers may only be accepted in
whole and not in part; and
(vii) the other shareholders will be liable for all costs incurred in
valuing Seven's Equity Securities in the same proportions that
the Equity Proportion of each bears to the aggregate of their
Equity Proportions and each Other Shareholder or Nominee will
be liable for stamp duty on the transfer of Equity Securities
purchased by it;
(e) each Other Shareholder or its nominee must pay to Seven the Control
Option Price 12 months after completion of the transfer of the Equity
Securities to the Other Shareholders or their nominees;
(f) if not all of the Equity Securities of Seven have been agreed to be
acquired after the procedure referred to in clause 32.8(d) has been
concluded the Other Shareholders may by unanimous resolution nominate
a Third Party ("Nominee") to acquire such of the Equity Securities as
they have not agreed to acquire ("Remaining Equity Securities") and
upon the Other Shareholders notifying Seven in writing of the identity
of such a Third Party that Third Party will be entitled to acquire the
Remaining Equity Securities within a period of 10 Business Days after
the last date
<PAGE>
on which a person could accept an offer under clause
32.8(d) so long as the Third Party:
(i) is not a Prohibited Shareholder;
(ii) complies with clauses 32.8(d)(iv) and 32.8(e) as if it were an
Other Shareholder; and
(iii) complies with clause 20.1(b) and 20.1(d) (clause 20.1(d) being
modified in its operation so as to apply to a Third Party).
32.9 Rights
(a) All rights attaching to the Equity Securities of Seven, its (and its
Ultimate Holding Company) rights of access to information under this
Agreement and all rights of Directors appointed by Seven and the
alternates of those Directors (including but not limited to rights to
information, voting rights and the right to attend meetings) are
suspended from the date an Exercise Condition Notice is given until
the earlier of:
(i) Seven transferring all of its Equity Securities to other
persons in accordance with this Agreement (other than clause
18.3); or
(ii) if no Put Option Notice or Call Option Notice has been given
within the period referred to in clause 32.6(a) or 32.6(b), the
day after the date on which the period referred to in clause
32.6(b) expires and if a Call Option Notice has been given to
it, the day after the date on which the period for acceptance
of all offers or nomination under clause 32.8 has expired if
not all Seven's Equity Securities have been acquired or agreed
to be acquired.
(b) If not all of Seven's Equity Securities are acquired by other persons
under clause 32.8, Seven's rights to retain its Equity Securities or
Transfer its Equity Securities to other persons in accordance with the
terms of this Agreement are unaffected.
32A. SPORTSCO PUT AND CALL OPTIONS
32A.1 In this clause 32:
(a) "Adjusted Cost Incurred Value" in relation to Ownership Interests in
SportsCo means an amount equal to:
(i) the aggregate of all amounts paid or required to be paid to
SportsCo in the nature of shareholder contributiions and in
respect of Ownership Interests, prior to the date at which the
Adjusted Cost Incurred Value is to be determined,and
<PAGE>
(ii) interest at the rate of 18% per annum on each such amount from
the date it was paid capitalising at the end of each year until
the date at which the Adjusted Cost Incurred Value is to be
determined, multiplied by the proportion that the Ownership
Interests the subject of the option comprise of all Ownership
Interests in SportsCo.
(b) "Call Option" means the rights granted to Vision under clause
32A.2(b).
(c) "Call Option Notice" means the notice to be given under clause
32A.6(b).
(d) "Control Option Price" means the higher of the Market Value of the
SportsCo Shareholder's Ownership Interests determined as at the date
of the Exercise Condition Notice and the Adjusted Cost Incurred Value
of the SportsCo Shareholder's Ownership Interests.
(e) "Exercise Condition" is that:
(i) a Prohibited Shareholder at any time:
A. directly or indirectly holds in excess of 50% of the
Ownership Interests (other than by reason of paragraph (e)
of the definition of "Ownership Interests") in the SportsCo
Shareholder; or
B. controls or is able to control, directly or indirectly,
alone or together with an Associate:
(1) the appointment of, 50% or more of the directors to the
board of the SportsCo Shareholder; or
(2) 50% of the votes able to be cast at a meeting of
directors of the SportsCo Shareholder assuming every
director of the SportsCo Shareholder is entitled to
vote.
(e) "Exercise Condition Notice" means a notice given under clause 32A.3.
(f) "Nominee" means the person that Vision procures, in accordance with
clause 32A.7(b) or clause 32A.8 to purchase some or all of the
Ownership Interests the subject of the Put Option or the Call Option
respectively.
(g) "Prohibited Shareholder" has the same meaning as defined in clause 1.1
except that paragraphs (c), (d) and (e) of that definition will be
disregarded.
(h) "Put Option" means the option granted to the SportsCo Shareholder
under clause 32A.2(a).
<PAGE>
(i) "Put Option Notice" means a notice given under clause 32A.6(a).
(j) "SportsCo Shareholder" means Nine or Seven or any permitted
transferee while it holds any Ownership Interests in SportsCo.
32A.2 Grant of Put Option and Call Option
(a) Vision grants to the SportsCo Shareholder an option, on satisfaction
of the Exercise Condition, to require it to purchase or procure the
purchase of all (and not some) of the SportsCo Shareholder's
Ownership Interests in SportsCo for the Control Option Price subject
to and in accordance with the terms and conditions set out in this
clause 32A.
(b) The SportsCo Shareholder grants to Vision an option, on satisfaction
of the Exercise Condition, to require the SportsCo Shareholder to
sell all (and not some) of the SportsCo Shareholder's Ownership
Interests in SportsCo to Vision or its Nominees subject to and in
accordance with the terms and conditions set out in this clause 32A.
32A.3 Exercise Condition Notice
If Vision (or the SportsCo Shareholder) becomes aware that the Exercise
Condition is satisfied, it may within 20 Business Days of becoming aware
of the Exercise Condition being satisfied give to the SportsCo
Shareholder (or Vision) a notice in writing specifying that the Exercise
Condition has been satisfied and details of the basis for satisfaction of
the Exercise Condition.
32A.4 Valuation
Within 5 Business Days after receipt by the SportsCo Shareholder (or
Vision if the Exercise Condition Notice is given by the SportsCo
Shareholder) of an Exercise Condition Notice, Vision must initiate the
determination of the Market Value of the SportsCo Shareholder's Ownership
Interests in SportsCo as at the date the Exercise Condition Notice is
given in accordance with clause 24.3 and the Adjusted Cost Incurred
Value.
32A.5 Necessary Approvals
(a) If section 26 of FATA would apply to the acquisition by Vision of
the SportsCo Shareholder's Ownership Interests pursuant to the Put
Option then Vision must make application to the Treasurer under
section 26 of FATA within 10 Business Days after receipt of an
Exercise Condition Notice and must further do everything necessary
or desirable (which is reasonable and within its authority or power
to do) to obtain the requisite approval; and
(b) subject to (a) if the giving of a Put Option Notice or Call Option
Notice would be contrary to clause 14.2 or any acquisition or sale
pursuant to any such notice would
<PAGE>
cause Vision to be in breach of clause 14.2 then Vision must do
everything necessary or desirable (which is reasonable and within
its authority or power to do) to obtain any necessary consents or
approvals required within 20 Business Days after receipt of an
Exercise Condition Notice.
32A.6 Exercise of Options
(a) Within 30 Business Days of the Market Value Determination Date of
the SportsCo Shareholder's Ownership Interests in SportsCo, the
SportsCo Shareholder may exercise the Put Option by giving a notice
to Vision requiring it to acquire or procure the acquisition of all
of its Ownership Interests in accordance with clause 32A.7; and
(b) if the SportsCo Shareholder does not give Vision a Put Option Notice
within that time, the SportsCo Shareholder loses the right to give a
Put Option Notice in relation to that Exercise Condition Notice and
Vision may exercise the Call Option by giving the SportsCo
Shareholder a notice subject to clause 32A.9 within a further 30
Business Days requiring the SportsCo Shareholder to offer all of its
Ownership Interests to Vision and, if relevant, other persons in
accordance with clause 32A.8.
32A.7 Put Option
(a) If an Exercise Condition Notice is given and:
(i) section 26 of FATA would apply to the acquisition by Vision of
the Ownership Interests of the SportsCo Shareholder pursuant to
the Put Option and the requisite approval is not obtained
without conditions or is not deemed to have been obtained
within the sum of:
A. 10 Business Days from the date of the Exercise Condition
Notice; and
B. the period of 40 days (or such other period as may be
provided for the purposes of section 26(2)(b)(i) of FATA)
unless the Treasurer issues an order under section 22 of
FATA in which case the period will be extended by the number
of days equal to the period for which that order has effect;
or
(ii) otherwise than by reason of FATA, any acquisition by Vision
under the Put Option would be contrary to clause 14.2 or would
cause Vision to be in breach of clause 14.2 at the date 20
Business Days after receipt of the Exercise Condition Notice,
then if the SportsCo Shareholder gives Vision a Put Option Notice,
Vision must procure another person or persons nominated in writing
by it to the SportsCo
<PAGE>
Shareholder in accordance with clause 32A.7(b)
to purchase the Ownership Interests that it would otherwise be
required to purchase under this clause;
(b) Vision may only nominate a person for the purposes of clause
32A.7(a) if:
(i) the nominee is not a Prohibited Shareholder;
(ii) the acquisition of the Ownership Interests by the nominee
under this clause would not be in breach of clause 14.2;
(iii) the nominee has entered into a deed of accession in favour of
Vision and SportsCo in respect of SportsCo;
and Vision must make such nomination by the date which is the later
of the day 30 Business Days after the expiration of the period
referred to in clause 32A.7(a)(i) and the day which is 20 Business
Days after receipt of the Put Option Notice;
(c) Completion of the purchase of the SportsCo Shareholder's Ownership
Interests pursuant to the exercise of the Put Option must take place
within 10 Business Days of:
(i) receipt by Vision of the Put Option Notice; or
(ii) where approval has been sought and is granted under FATA in
accordance with paragraph (a)(i), the date on which Vision
receives or is deemed to receive approval under section 26 of
FATA; or
(iii) where Vision must nominate another person in accordance with
paragraph (a), the last date on which all nominations must be
made,
in accordance with clause 32A.7(d) at a time and place to be agreed
by or failing agreement at 2.00pm at Vision's registered office on
the last day of the 10 Business Day period; and
(d) On the day appointed for completion under clause 32A.7(c) Vision
must give to the SportsCo Shareholder or procure its nominee to give
to the SportsCo Shareholder a bank cheque for the aggregate of the
principle amounts of the loans made by the SportCo Shareholder to
SportCo and a bank cheque in payment of the purchase monies less:
(i) the costs incurred by Vision in valuing the Ownership Interests
of the SportsCo Shareholder (including but not limited to the
costs of any valuer); and
(ii) all stamp duty payable in respect of the transfer of the
Ownership Interests to it,
<PAGE>
and the SportsCo Shareholder must upon receipt of the cheque give to
Vision (or its Nominee) an executed transfer and share certificates
or other documents of title in respect of the Ownership Interests to
be sold and any necessary documentation to effect a transfer or
novation of all loans made by the SportsCo Shareholder to SportsCo.
32A.8 Call Option
If Vision gives a Call Option Notice on the date the Call Option Notice
is given, the SportsCo Shareholder is bound to sell the SportsCo
Shareholders Ownership Interests to Vision for the Control Option Price
and transfer or prerate the remainder of all loans made by the SportsCo
Shareholder to SportsCo.
32.A9 If an Exercise Condition Notice is given and section 26 of FATA
would apply to the acquisition by Vision of the Ownership Interests
pursuant to the Call Option the date by which Vision may exercise
the Call Option pursuant to clause 32A.6 is extended by 10 Business
Days and the aggregate of:
(a) 10 Business Days from the date of the Exercise Condition
Notice; and
(b) the period of 40 days (or such other period as may be provided
for the purposes of section 26(2)(b)(i) of FATA) unless the
Treasurer issues an order under section 22 of FATA in which
case the period will be extended by the number of days equal
to the period for which that order has effect.
32A.10 Completion of the purchase of the SportsCo Shareholder's Ownership
Interests in SportsCo pursuant to the exercise of the Call Option must
take place within 10 Business Days of receipt by the SportsCo
Shareholder of the Call Option Notice at a time and place to be agreed
by or failing agreement at 2.00pm at Vision's registered office on the
last day of the 10 Business Day period.
32A.11 On the day appointed for completion under clause 32A10 the SportsCo
Shareholder must give to Vision (or its Nominee) an executed transfer
and share certificates or other documents of title in respect of the
Ownership Interests to be sold and any necessary documentation to effect
a transfer or novation of all loans made by the SportsCo Shareholder to
SportsCo.
32A.12 Vision must pay to the SportsCo Shareholder the Control
Option Price for the SportsCo Shareholder's Ownership Interests and an
amount equivalent to the aggregate of the principal amounts of the loans
made by the SportsCo Shareholder to SportsCo 12 months after completion
of the transfer of the Ownership Interests to Vision referred to in
clause 32A.10
32A.13 Vision will be liable for all costs incurred in valuing the SportsCo
Shareholder's Ownership Interests to be purchased pursuant to exercise
of the Call Option under clause 32A.8 and will also be liable for stamp
duty on the transfer to it of the Ownership Interests purchased by it.
33. EXCLUSION OF IMPLIED RELATIONSHIPS
The parties agree that:
(a) the rights, duties and obligations and liabilities of the parties
under this Agreement are several and not joint or joint and
several;
<PAGE>
(b) nothing expressed or implied in this Agreement will constitute or be
construed to constitute a party as the partner, agent, employee or
representative of another party or place a party in a fiduciary
relationship with another party; and
(c) a party has no authority to act for or to create or assume any
responsibility for or obligation of another party.
34. CONFLICT WITH ARTICLES OF ASSOCIATION
Subject to the Corporations Law, if there is any conflict between the
provisions of this Agreement and the Articles, the provisions of this
Agreement will prevail and on written request by a party to the
Shareholders, the Shareholders must cause the Articles to be amended in
order to resolve that conflict.
35. ASSIGNMENT
A party may not assign its rights under this Agreement except:
(a) with the prior written consent of the other parties which each party
may withhold in its sole discretion; or
(b) as expressly permitted by this Agreement.
36. EXERCISE OF RIGHTS
A party may exercise a right, power or remedy in its discretion, and
separately or concurrently with another right, power or remedy. A single
or partial exercise of a right, power or remedy by a party does not prevent
a further exercise of that or of any other right, power or remedy. Failure
by a party to exercise or delay in exercising a right, power or remedy does
not prevent its exercise.
37. WAIVER AND VARIATION
37.1 The failure, delay or omission by a party to exercise any power or right
conferred upon that party by this Agreement will not operate as a waiver of
that power or right, nor will any single exercise of any such power or
right preclude any other or future exercise of the power, or the exercise
of any other power or right under this Agreement.
37.2 A waiver of any provision of this Agreement, or consent to any departure by
a party from any provision of this Agreement, shall be in writing and
signed by or on behalf of all parties and is effective only to the extent
for which it is given.
<PAGE>
38. APPROVALS AND CONSENTS
A Shareholder may give conditionally or unconditionally or withhold its
approval or consent in its discretion unless this Agreement states
otherwise.
39. REMEDIES CUMULATIVE
Subject to clauses 12.10 and 23.7(b)(i), the rights, powers and remedies
provided in this Agreement are cumulative with the rights, powers or
remedies provided by law independently of this Agreement.
40. FURTHER ASSURANCES
Each party must, at its own expense, do everything reasonably necessary to
give full effect to this Agreement and refrain from doing anything that may
hinder the performance of this Agreement.
41. REPRESENTATIONS AND WARRANTIES
41.1 Notwithstanding any other provision of any other Transaction Agreement,
each of the parties severally represents and warrants to each other that it
is a corporation duly constituted and validly existing under the laws of
the country of its organisation and has all requisite powers to own
property and, subject to clause 41.2, has the necessary power to bind
itself in relation to each of the Transaction Agreements in the manner
contemplated by each of the Transaction Agreements and to execute, deliver
and perform each of the Transaction Agreements and to become bound thereby.
41.2 Each of the parties severally represents and warrants to each other that
each Transaction Agreement has been validly executed by it or a Related
Corporation or on its behalf and constitutes the valid, binding and
enforceable obligations of it in accordance with its terms, subject to a
court granting equitable remedies declaring the agreement as invalid or
void or enjoining performance of the agreement or declaring as valid the
decision of any relevant authority requiring one or more of the Transaction
Agreements (or obligations thereunder) to be cancelled or terminated.
41.3 Each of the Shareholders severally represents and warrants to each other
party that it is the beneficial owner of all Equity Securities which are or
are to be registered in its name and will continue to be the beneficial
owner, subject to the terms of this Agreement and any Equity Securities or
Ownership Interests the subject of a Transfer to be effected by it in
accordance with the Agreement will be free of any Encumbrance.
41.4 Optus warrants that as at the date of this Agreement and the Commencement
Date:
(a) it is the legal and beneficial owner of all the issued Shares which
are free of all Encumbrances and other third party interests or
rights;
<PAGE>
(b) it is able to sell and transfer the Shares without the consent of any
other person and free of any pre-emptive rights or rights of first
refusal;
(c) Vision is not under any obligation to issue or allot, and has not
granted any person the right to call for the issue or allotment, of
any Equity Securities at any time; and
(d) Vision has not granted or created, or agreed to grant or create, any
Encumbrances in respect of the assets of Vision.
41.5 Each of the parties severally agrees that it shall not exercise its rights
or powers granted under this Agreement in such a manner as to cause Vision
(or any Subsidiary) to breach:
(a) BSA;
(b) the Corporations Law;
(c) the Telecommunications Act;
(d) FATA; or
(e) Trade Practices Act 1974 (Cth).
41.6 Each of the parties severally agrees that no party makes any representation
or warranty to any other party other than as expressly referred to in this
Agreement and each party enters into this Agreement and (where applicable)
becomes a Shareholder or acquires Equity Securities entirely on the basis
of its own investigations and decisions and not in reliance on any act or
representation made by any other party.
41.7 Each Shareholder will, subject to clause 41.8, severally indemnify Optus
Administration rateably:
(a) until a Shareholder is issued Shares in accordance with clause 4.1, in
accordance with its Equity Proportion specified in Schedule 1 (and for
this purpose that Shareholder shall be deemed to have that Equity
Proportion); and
(b) thereafter in accordance with its Equity Proportion (calculated as at
the date that the relevant payment was due by Vision),
against all losses, costs and expenses Optus Administration suffers or
incurs as a direct result of:
(c) any failure by Vision for any reason (including, without limitation,
the occurrence of a default under clause 23.1(g), (h) or (i) (but with
each express or implied reference in those paragraphs to a Shareholder
being taken to be a reference to Vision )) to duly and punctually pay
any money, debts or liabilities payable from time to time by
<PAGE>
Vision to Optus Administration under the Staffing Administration
Services Agreement; and
(d) any failure by a person for any reason (including, without limitation,
the occurrence of an event of default under clause 23.1(g), (h) or
(i) (but with each express or implied reference in those paragraphs to
a Shareholder being taken to be a reference to Vision)) to duly and
punctually pay any money, debts or liabilities payable from time to
time by that person to Optus Administration under an agreement which
all the Shareholders agree is to be covered by this indemnity.
41.8 Each Shareholder must as a principal debtor pay to Optus Administration
within 15 Business Days of any demand its share of the amount of all
losses, costs and expenses referred to in clause 41.7.
41.9 The indemnity in clause 41.7 is a continuing indemnity and will continue to
bind each Shareholder:
(a) after it has ceased to be a Shareholder in relation to its share of
any amounts demanded by Optus Administration under clause 41.8 prior
to the date it ceased to be a Shareholder; and
(b) notwithstanding any dealing, matter or thing not specified in clauses
41.7 to 41.9(a) which, but for this paragraph (b), could or might
operate to affect or discharge the liability of a Shareholder under
clauses 41.7 and 41.8.
42. SEVERABILITY
42.1 Notwithstanding any other provision of any other Transaction Agreement, if
all or any part of a provision of any of the Transaction Agreements are:
(a) invalid or unenforceable in a jurisdiction then all or that part of
that provision is to be read down for the purposes of that
jurisdiction, if possible so as to be valid and enforceable and
otherwise is severed to the extent of the invalidity or
unenforceability for that jurisdiction. The remainder of the
Transaction Agreements have full force and effect and the validity or
enforceability of that provision in other jurisdictions is not
affected; or
(b) declared or ordered to be unenforceable or void or performance thereof
is enjoined by a Court of competent jurisdiction then, subject
thereto, the remainder, if any, of the Transaction Agreements, has
full force and effect and the validity or enforceability thereof is
not affected.
42.2 If any proceedings are commenced by any person against a party seeking
remedies ordering or declaring any Transaction Agreement to be invalid or
unenforceable or void or
<PAGE>
enjoining performance of any Transaction Agreement, the party must take all
reasonable actions in respect of the proceedings to ensure that the
proceedings are unsuccessful. For the purposes of clause 41.2, a court does
not grant equitable remedies declaring a Transaction Agreement as invalid
or void or enjoining performance of the agreement, and for the purposes of
clause 42.1(b), a court does not declare or order to be unenforceable or
void or enjoin performance of all or any part of a Transaction Agreement,
unless and until all appeals against the decision of the court are
prosecuted by the party with all due care and skill and are exhausted
without the decision being substantially overturned.
43. ENTIRE AGREEMENT AND MODIFICATION
43.1 Subject to any agreement to the contrary the Transaction Agreements
constitute the entire agreement of the Shareholders about their subject
matter and any previous understandings or agreements on that subject matter
cease to have any effect. Without limiting the previous sentence, the
terms of the agreement made between Seven Network Limited, Optus,
Continental Cablevision Inc and Publishing and Broadcasting Limited
pursuant to the letters of 27 and 28 April 1995 are superseded by and
merged in the Transaction Agreements and are not to be used to construe any
of the provisions of the Transaction Agreements.
43.2 This Agreement may only be modified by written agreement of all the
parties.
44. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all those
counterparts taken together will be regarded as one instrument.
45. GOVERNING LAW AND JURISDICTION
45.1 This Agreement is governed by the law of New South Wales.
45.2 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales.
45.3 Continental appoints William Robert Spain of Level 4, 50 Carrington Street,
Sydney, New South Wales or such other person as it may from time to time
nominate in writing to the other parties to receive service of process in
connection with any proceedings and any process served on him is taken to
be served on Continental.
<PAGE>
46. NON MERGER
None of the terms or conditions of this Agreement, or any act, matter or
thing done under or by virtue of this Agreement or any other agreement,
instrument or document, or judgment or order of any court or judicial
proceeding, will operate as a merger of any of the rights and remedies of
the parties under this Agreement, and those rights and remedies will at all
times continue in force.
47. EXECUTION BY ALL PARTIES
This Agreement will not be binding on any party until it is executed by all
the parties.
<PAGE>
SCHEDULE 1
INITIAL CAPITAL STRUCTURE
Shareholder Equity
Proportion
Continental 46.5%
Optus 46.5%
Nine 5%
Seven 2%
<PAGE>
SCHEDULE 2
APPOINTMENTS - DIRECTORS
The Shareholders agree that they will appoint the following persons as the
initial Directors of Vision:
Name Appointing Shareholder
Robert Mansfield Optus
John Greaves
Terry Clontz
Martin Hannes Continental
William Schleyer
Nancy Hawthorne
James Packer Nine
Sean O'Halloran Seven
<PAGE>
SCHEDULE 3
Initial Funding Program
Date Contribution
<TABLE>
<CAPTION>
<S> <C> <C>
May 1995 $165,000,000
June 1995 $ 25,000,000
July 1995 $ 25,000,000
August 1995 $ 15,000,000
September 1995 $ 25,000,000
October 1995 $ 20,000,000
November 1995 $ 30,000,000
December 1995 $ 50,000,000
January 1996 $ 55,000,000
February 1996 $ 60,000,000
March 1996 $ 60,000,000
April 1996 $ 60,000,000
May 1996 $ 70,000,000
June 1996 $ 70,000,000
July 1996 $ 60,000,000
August 1996 $ 55,000,000
September 1996 $ 50,000,000
October 1996 $ 55,000,000
November 1996 $ 55,000,000
December 1996 $ 50,000,000
January 1997 $ 60,000,000
February 1997 $ 55,000,000
March 1997 $ 45,000,000
April 1997 $ 45,000,000
May 1997 $ 40,000,000
------------
$1,300,000,000
</TABLE>
<PAGE>
SCHEDULE 4
DEED OF ACCESSION
THIS DEED is made the day of
by
of
('Acceding Party')
RECITAL
This Deed is supplemental to a shareholders' agreement dated 19 May 1995 between
Continental Cablevision of Australia, Inc., Optus Communications Pty Limited ACN
052 833 208, Pay TV Holdings Pty Limited ACN 058 558 857, Tallglen Pty Limited
ACN 058 439 786, Optus Networks Pty Limited ACN 058 439 786, Optus
Administration Pty Limited ACN 055 136 804 and Optus Vision Pty Limited ACN 066
518 821 ('Company') ('Shareholders Agreement') and words used in this Deed have
the same meaning as in the Shareholders Agreement unless the context otherwise
requires.
OPERATIVE PART
1. The Acceding Party confirms that it has been supplied with a copy of the
Transaction Agreements.
2. The Acceding Party covenants with all present parties to the Shareholders
Agreement (whether original or by accession) ("Parties") to observe,
perform and be bound by all the terms of such of the Transaction
Agreements as have been agreed for the purposes of the Transaction
Agreements applicable to it as a party if, and to the intent and effect
that the Acceding Party shall be deemed with effect from the date on
which the Acceding Party is registered as a member of the Company to be a
party to the relevant Transaction Agreements and a Shareholder (as
defined in the Shareholders Agreement).
3. The Acceding Party represents and warrants to the Parties that, if it is
a company it is duly constituted and validly existing under the laws of
the country of its organisation and has all the requisite powers to own
property and, it has the necessary power to bind itself in the manner
contemplated by this Deed and to execute, deliver and perform this Deed
and to be bound by it and upon it becoming a Shareholder, it will not be
in breach of any of the Transaction Agreements and will not cause a party
to be in breach of clause 14.2 of the Shareholders Agreement.
4. The address of the Acceding Party for the purposes of clause 31 of the
Shareholders Agreement shall, until substituted in accordance therewith,
be as follows:
[ ]
<PAGE>
5. The Acceding Party warrants to each Party that it will acquire and
continue to hold all Equity Securities beneficially.
6. This Deed shall be governed by and construed in accordance with the laws
of the State of New South Wales.
7. The Acceding Party irrevocably and unconditionally submits to the non-
exclusive jurisdiction of the courts of New South Wales and appoints [ ]
or such other person as it may from time to time nominate in writing to
the Parties to receive service of process in connection with any
proceedings and any process served on him or her.
EXECUTED as a deed.
THE COMMON SEAL of [ ]
is affixed in accordance with
its articles of association
in the presence of: .............................................
...........................
[or other execution clauses as may be appropriate to bind it if it does not have
a common seal]
<PAGE>
SCHEDULE 4 - PART B
OPTION DEED OF ACCESSION
THIS DEED is made the day of
by
of
('Acceding Party')
RECITAL
This Deed is supplemental to a shareholders' agreement dated 19 May 1995 between
Continental Cablevision of Australia, Inc., Optus Communications Pty Limited ACN
052 833 208, Pay TV Holdings Pty Limited ACN 058 558 857, Tallglen Pty Limited
ACN 058 439 786, Optus Networks Pty Limited ACN 008 570 330, Optus
Administration Pty Limited ACN 055 136 804 and Optus Vision Pty Limited ACN 066
518 821 ('Company') ('Shareholders Agreement') and words used in this Deed have
the same meaning as in the Shareholders Agreement unless the context otherwise
requires.
OPERATIVE PART
1. The Acceding Party confirms that it has been supplied with a copy of the
Shareholders Agreement.
2. The Acceding Party covenants with all present parties to the Shareholders
Agreement (whether original or by accession) ('Parties') to observe,
perform and be bound by all the terms of the Shareholders Agreement
applicable to it as an Optionholder (as defined in the Shareholders
Agreement) to the intent and effect that the Acceding Party shall be
deemed with effect from the date of completion of the purchase of the
Option or it acquires any rights in respect of the Option (as the case
may be) to be an Optionholder.
3. The Acceding Party represents and warrants to the Parties that, if it is
a company it is duly constituted and validly existing under the laws of
the country of its organisation and has all the requisite powers to own
property and, it has the necessary power to bind itself in the manner
contemplated by this Deed and to execute, deliver and perform this Deed
and to be bound by it and upon it becoming an Optionholder, it will not
be in breach of the Shareholders Agreement and will not cause a party to
be in breach of clause 14.2 of the Shareholders Agreement.
4. This address of the Acceding Party for the purposes of clause 31 of the
Shareholders Agreement shall, until substituted in accordance therewith,
be as follows:
<PAGE>
[ ]
5. This Deed shall be governed by and construed in accordance with the laws
of the State of New South Wales.
6. The Acceding Party irrevocably and unconditionally submits to the non-
exclusive jurisdiction of the courts of New South Wales and appoints [ ]
or such other person as it may from time to time nominate in writing to
the Parties to receive service of process in connection with any
proceedings and any process serviced on him or her.
EXECUTED as a deed.
THE COMMON SEAL of [ ]
is affixed in accordance with
its articles of association
in the presence of: .............................................
...........................
<PAGE>
SCHEDULE 5
GUARANTEE
Deed Poll dated ________________________________________________________ 199
BY: [ ] ("Guarantor")
RECITALS
A. The Guaranteed Shareholder is or will be a party to the Shareholders
Agreement.
B. It is a requirement of the Shareholders Agreement that the Guarantor
guarantees the performance by the Guaranteed Shareholder of each
Obligation.
C. The Guarantor is a Holding Company of the Guaranteed Shareholder and agrees
to guarantee the performance by the Guaranteed Shareholder of each
Obligation in accordance with this Guarantee.
D. The Guarantor has agreed to perform or procure the performance of those
obligations which the Shareholders Agreement or a Guaranteed Transaction
Agreement expresses to be required to be performed by the Guarantor or
Related Corporations of the Guaranteed Shareholder.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATION
1.1 In this Guarantee (including the Recitals) the following words and
expressions have the meanings stated in this clause unless the context
otherwise requires.
"Guarantee" means this Deed Poll, including the recitals.
"Guaranteed Transaction Agreement" means a Transaction Agreement that the
Shareholders and the Guaranteed Shareholder agree or have agreed is a
Guaranteed Transaction Agreement for the purposes of this Guarantee.
"Failed Obligation" means an Obligation that the Guaranteed Shareholder
fails to perform or observe on or by the due date for performance or
observance of that
<PAGE>
Obligation in accordance with the Shareholders Agreement or any Guaranteed
Transaction Agreement.
"Insolvency Event" means, in relation to a corporation, any of the events
described in paragraphs 23.1(g), (h) or (i) of the Shareholders Agreement.
"Guaranteed Shareholder" means [insert details] or any permitted transferee
of it or of any subsequent Guaranteed Shareholder under clause 18.3.
"Shareholder" has the meaning given to that term in the Shareholders
Agreement but does not include the Guaranteed Shareholder.
"Obligation" means an obligation that the Guaranteed Shareholder must
perform or observe in accordance with the Shareholders Agreement or any
Guaranteed Transaction Agreement, including continuing obligations that are
expressed to survive either or both of termination of the Shareholders
Agreement or the Guaranteed Transaction Agreement, or release in accordance
with clause 22.2 of the Shareholders Agreement or a clause of the
Guaranteed Transaction Agreement agreed for the purposes of this
definition.
"Shareholders Agreement" means the Optus Vision Shareholders Agreement
which includes, amongst other things, details regarding the affairs and
management of Vision and the respective rights and obligations of the
Shareholders and the Guaranteed Shareholder in relation to Vision.
"Vision" means Optus Vision Pty Limited ACN 006 518 821 of Level 13, 141
Walker Street, North Sydney, New South Wales, Australia.
Terms used and not defined in this Guarantee have the meaning given to them
in the Shareholders Agreement.
1.2 In this Guarantee unless the context otherwise requires:
(a) headings are for convenience only and do not affect the interpretation
of this Guarantee;
(b) the singular includes plural and vice versa;
(c) the word "person" includes a body corporate, an unincorporated
association or an authority;
(d) a reference to a party includes its successors and permitted assigns;
(e) a reference to a document includes any amendment, replacement or
novation of it;
<PAGE>
(f) an agreement, representation or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
(g) a reference to any matters agreed between two or more parties is a
reference to an agreement in writing signed by a duly appointed
attorney or an authorised representative of each of those parties;
(h) where any word or phrase is given a definite meaning in this Guarantee
any part of speech or other grammatical form of the word or phrase has
a corresponding meaning; and
(i) a reference to a statute includes a reference to a regulation,
proclamation, ordinance or by-law and to a statute, regulation,
proclamation, ordinance or by-law amending, consolidating or replacing
it.
2 GUARANTEE AND INDEMNITY
2.1 The Guarantor guarantees to each Shareholder as at the date of this Deed
Poll, Optus Administration and Vision and each other Shareholder the due
and punctual observance and performance by the Guaranteed Shareholder of
each Obligation.
2.2 If the Guaranteed Shareholder fails to perform or observe an Obligation,
the Guarantor must, within 5 Business Days after a demand is received by a
Shareholder, Optus Administration or Vision in accordance with clause 2.5,
perform or procure the performance or observance of that Obligation where
that Obligation is capable of being rectified.
2.3 Subject to clause 4, the Guarantor indemnifies and must keep indemnified
each Shareholder, Optus Administration and Vision for all costs, loss,
damage or expense suffered or incurred by that Shareholder, Optus
Administration or Vision, as the case may be, as a result of any failure or
inability of the Guarantor or Guaranteed Shareholder to perform or observe
or procure the performance or observance of a Failed Obligation.
2.4 The Guarantor's obligations under this Guarantee are principal obligations
and are not ancillary or collateral to any other obligations. A
Shareholder, Optus Administration or Vision may enforce its rights against
the Guarantor under clauses 2.1 to 2.3 without first having recourse to any
other remedy against the Guaranteed Shareholder.
2.5 In order to make a claim under this Guarantee the Shareholders, Optus
Administration or Vision must give the Guarantor notice of any Failed
Obligation and must include particulars of that Failed Obligation and any
demand made under this Guarantee.
2.6 Other than in relation to the Obligations in clause 2.6 of the Shareholders
Agreement this Guarantee is of no force or effect until each of the
Conditions Precedent have been satisfied or waived.
<PAGE>
3 NATURE OF GUARANTEE
3.1 Subject to clause 4, the Guarantor's obligations under this Guarantee are
absolute and unconditional and the liability of the Guarantor under this
Guarantee extends to and is not affected by any act, omission, matter or
thing which, but for this provision might operate to exonerate it from the
Guarantor's obligations in whole or in part including, without limitation,
any one or more of the following (whether occurring with or without the
consent of any person):
(a) the grant to the Guaranteed Shareholder, the Guarantor or any other
person of any time, waiver or other indulgence or concession or any
whole or partial discharge or release of the Guaranteed Shareholder,
the Guarantor or any other person;
(b) any transaction or arrangement that may take place between any of the
Shareholders, Vision, the Guaranteed Shareholder, the Guarantor or any
other person;
(c) the occurrence of an Insolvency Event in relation to the Guaranteed
Shareholder, the Guarantor or any other person;
(d) the fact that a Shareholder or Vision or any other person takes or
fails to take any other Guarantee or Encumbrance;
(e) the fact that a Shareholder or Vision or any other person exercises or
refrains from exercising any other guarantee or Encumbrance or any of
the rights, powers or remedies conferred on it by law or by any
agreement, or fails to enforce, by exercise of any such rights, any
obligations owing to the Shareholder or Vision by the Guaranteed
Shareholder;
(f) the variation (including a variation which increases the extent of the
Obligations), replacement, extinguishment, loss, release, discharge,
abandonment or transfer either in whole or in part of any agreement or
document relating to the Obligations including any other guarantee or
Encumbrance now or in the future held by a Shareholder or Vision from
any person;
(g) the Obligations or the obligations of the Guarantor or the obligations
of any other person under any agreement or document relating to the
Obligations or the obligations of the Guarantor, including any other
guarantee or Encumbrance, being or becoming wholly or partially
illegal, void, voidable or unenforceable;
(h) the failure by a Shareholder or Vision to give notice to the Guarantor
of any default by the Guaranteed Shareholder or any other person;
<PAGE>
(i) any legal limitation, disability, incapacity or other circumstance
related to the Guaranteed Shareholder, the Guarantor or any other
person;
(j) the fact that any person who was intended to be bound as a guarantor
or surety in respect of the Obligations does not become bound or,
having done so, ceases to be so bound;
(k) any laches, acquiescence, delay, acts, omissions or mistake on the
part of, or suffered by the Guarantor, a Shareholder or Vision or any
other person, in relation to this Guarantee or any other guarantee,
Encumbrance, agreement or negotiable instrument;
(l) a Shareholder or Vision becoming a party to any compromise or scheme
or assignment of property by or relating to the Guaranteed Shareholder
or the Guarantor or the acceptance by a Shareholder or Vision of any
dividend or sum of money under such a compromise, scheme or
assignment;
(m) any judgment or rights which a Shareholder or Vision may have or
exercise against the Guarantor or any other person.
3.2 If an Insolvency Event occurs in relation to the Guaranteed Shareholder
("Liquidation") the Guarantor will not prove in the Liquidation or in
competition with the Shareholders or Vision unless there is no unsatisfied
liability under this Guarantee or the Guarantor has obtained the prior
consent of the Shareholders and Vision.
3.3 The Guarantor may not hold a Shareholder or Vision liable for any loss of
any kind suffered by the Guarantor as a result (either direct or indirect)
of a release or dealing with any other guarantee or Encumbrance including,
without limitation, any prejudice to, or loss of the Guarantor's rights of
subrogation.
3.4 Until the Obligations have been irrevocably discharged in full, the
Guarantor may not, without the consent of the Shareholders and Vision:
(a) share in any guarantee or Encumbrance held or money received by a
Shareholder or Vision in respect of the Obligations, or stand in the
place of a Shareholder or Vision in respect of any guarantee or
Encumbrance or right to receive money;
(b) take any steps to enforce a right or claim against the Guaranteed
Shareholder in respect of any money paid by the Guarantor to the
Guaranteed Shareholder under this Guarantee; or
(c) have or exercise any rights as surety in competition with a
Shareholder or Vision.
4 EXCEPTIONS AND LIMITATIONS TO OBLIGATIONS AND LIABILITY
<PAGE>
4.1 The Guarantor's obligations under this Guarantee (including but not limited
to those under clause 2.3) and its Liabilities in respect of any breach of this
Guarantee are subject to the following:
(i) if rights granted under clauses 23.2 to 23.7 of the Shareholders
Agreement are exercised in respect of a Failed Obligation and all
Equity Securities are acquired from the Guaranteed Shareholder then
the Guarantor is not bound by any obligations contained in this
Guarantee in respect of that Failed Obligation;
(ii) the Guarantor will not be liable under this Guarantee in respect of
a breach of clause of this Guarantee in circumstances
where the Guaranteed Shareholder commits an Event of Default which
results in the Guaranteed Shareholder's Equity Securities being
acquired in accordance with clause 2 of the Shareholders Agreement;
(iii) the Guarantor will not be liable under this Guarantee to a
Shareholder or Vision in respect of an Obligation if that person has
relieved the Guaranteed Shareholder from performance or the
Guaranteed Shareholder is relieved from the performance of that
obligation by statute or by a decision of a court or tribunal of
competent jurisdiction; and
(iv) if Vision receives damages from the Guaranteed Shareholder and/or
Guarantor in respect of any Failed Obligation a Shareholder's Equity
Proportion of those damages will be taken into account in
determining whether it has recovered all of its damages under the
Shareholders Agreement in respect of that Failed Obligation.
5 RELATED CORPORATION OBLIGATIONS
5.1 Subject to clause 4 where the Shareholders Agreement or a Guaranteed
Transaction Agreement:
(a) provides that the Guaranteed Shareholder or a Related Corporation of
the Guaranteed Shareholder must perform or observe an obligation; or
(b) requires the Guaranteed Shareholder to ensure that each of its Related
Corporations perform or observe an obligation;
the Guarantor must itself and must ensure that its Subsidiaries that are
Related Corporations of the Guaranteed Shareholder and its Ultimate Holding
Company perform or observe that obligation as if the Guarantor was the
Guaranteed Shareholder or Related Corporation.
6 [Not used]
7 [Not used]
<PAGE>
8 EXTENSION OF GUARANTEE
8.1 The Guarantor will be bound, in the same terms as this Guarantee, to any
person who becomes a Shareholder, provided that:
(a) the person executes a Deed of Accession; and
(b) the Guarantor Parent Company of that person enters into a deed in the
same form as this Guarantee, if required in accordance with the
Shareholders Agreement and the term "Guaranteed Shareholder" is deemed
to include that Shareholder.
8.2 If the Guaranteed Shareholder Transfers part or all of its Equity
Securities to a Subsidiary of the Guarantor in accordance with clause 18.3
of the Shareholders Agreement, the Guarantor guarantees the obligations of
that Subsidiary to the Shareholders on the terms and conditions of this
Guarantee.
9 TERMINATION OF GUARANTEE
This Guarantee is an irrevocable and a continuing obligation of the
Guarantor and will remain in full force and effect until the Guaranteed
Shareholder no longer has any Obligations or is released by the
Shareholders and Vision.
10 NOTICES
10.1 A notice, consent or any other communication under this Guarantee:
(a) must be in writing;
(b) must be addressed as set out below; and
(c) must be left at the address of the addressee, or sent by prepaid post
(airmail if posted to or from a place outside Australia) to the
address of the addressee or sent by facsimile to the facsimile number
of the addressee specified below or any other substituted address or
facsimile number the addressee has specified by notice in writing to
the other parties.
The initial address and facsimile number of each party is:
Continental
Attention: The Executive Director
Address: Unit 8
<PAGE>
372 Eastern Valley Way
Chatswood NSW
Facsimile: 417 8182
Gilbert & Tobin
Level 4
50 Carrington Street
Sydney NSW 2000
Facsimile: 367 3111
Mr P Miehe
Sullivan & Worcester
1 Post Office Square
Boston Massachusetts 02109
USA
Facsimile: 617 338 2880
Optus
Attention: The Chief Executive Officer
Address: Level 29
101 Miller Street
NORTH SYDNEY NSW 2060
Facsimile: 342 7000
Seven
Attention: The Chief Executive Officer
Address: 14th Floor
1 Pacific Highway
NORTH SYDNEY NSW 2060
Facsimile: 967 7191
Nine
Attention: The Chief Executive Officer
Address: 24 Artarmon Road
WILLOUGHBY NSW 2068
Facsimile: 965 2153
Vision
Attention: The Chief Executive Officer
Address: Tower B, Level 16
<PAGE>
The Zenith Centre
841 Pacific Highway
CHATSWOOD NSW 2067
Facsimile: 775 9000
Optus Networks
Attention: The Chief Executive Officer
Address: Level 29
101 Miller Street
NORTH SYDNEY NSW 2060
Facsimile: 342 7000
10.2 A notice, consent or any other communication takes effect from the time it
is or is deemed to have been received unless a later time is specified in
it.
10.3 A letter is deemed to be received 3 days after posting, or 7 days after
posting, if posted to or from a place outside Australia.
10.4 A facsimile is deemed to be received at the time of dispatch if the sender
receives a transmission report which confirms that the facsimile was sent
in its entirety to the facsimile number of the recipient.
10.5 The Guarantor appoints [*] as its agent to receive service of notices in
Australia given under this Guarantee and any process served on that person
is taken to be served on the Guarantor.
11 COSTS AND STAMP DUTY
The Guarantor shall bear or reimburse to Vision and the Shareholders on
demand all stamp duty or other duties payable under the provisions of any
legislation in respect of this Guarantee.
12 GENERAL
12.1 If any part or a provision of this Guarantee is invalid or unenforceable in
a jurisdiction it is severed for that jurisdiction and the remainder of
this Guarantee will continue to operate.
12.2 This Guarantee constitutes the entire agreement of the parties about its
subject matter and supersedes any previous understandings or agreements on
that subject matter.
<PAGE>
12.3 This Guarantee is governed by the law of New South Wales. Each party
irrevocably and unconditionally submits to the non-exclusive jurisdiction
of the Courts exercising jurisdiction there.
12.4 The Guarantor must when reasonably requested by a Shareholder or Vision do
or cause to be done all things and execute all further documents which are
necessary to give full effect to this Guarantee.
EXECUTED as a Deed.
Execution clause for Guarantor
<PAGE>
SCHEDULE 6
WORKED EXAMPLES
ASSUMPTIONS
Assume 1,000,000,000 issued Shares held by four Shareholders as follows:
<TABLE>
<S> <C>
Shareholder 1: 100,000,000
Shareholder 2: 200,000,000
Shareholder 3: 300,000,000
Shareholder 4: 400,000,000
-------------
1,000,000,000
</TABLE>
EXAMPLE 1 (Round 1 - Clause 19.5)
Assume Shareholder 1 wishes to sell its 100,000,000 Shares.
Those Shares become Sale Securities, the other Shareholders are "Recipients" and
the Sale Securities are offered to each Recipient under clause 19.5 as follows:
Shareholder 2: 20% X 100,000,000
---
20% + 30% + 40%
= 22,222,222 (rounded down)
Shareholder 3: 30% X 100,000,000
---
20% + 30% + 40%
= 33,333,333 (rounded down)
Shareholder 4: 40% X 100,000,000
---
20% + 30% + 40%
= 44,444,445 (rounded up)
EXAMPLE 2 (Round 2 - Clause 19.7)
Assume Shareholder 2 rejects the Round 10 offer of 22,222,222 Sale Securities
under clause 19.5, but Shareholders 3 and 4 accept their Round 1 offers.
<PAGE>
The Sale Securities of Shareholder 2 become "Remaining Sale Securities" and are
offered to each of Shareholders 3 and 4. Each of Shareholders 3 and 4 is offered
a proportion of the Remaining Sale Securities which that Shareholder's Equity
Proportion bears to the aggregate Equity Proportions of Shareholders 3 and 4 but
including Shares accepted under Round 1:
Shareholder 3: 30% + 3.33% X 22,222,222
----------------
33.33% + 44.44%
= 9,523,809 (rounded down)
Shareholder 4: 40% + 4.44% X 22,222,222
----------------
33.33% + 44.44%
= 12,698,413 (rounded up)
<PAGE>
SCHEDULE 7
PART A
EXERCISE NOTICE
OPTUS VISION SHAREHOLDERS AGREEMENT BETWEEN
[INSERT PARTIES] ("SHAREHOLDERS AGREEMENT")
To:.............................................................................
................................................................................
(tick whichever is appropriate)
[_] .............................(ACN )
exercises the option granted to it under clause 26 of the Shareholders
Agreement.
Date
[_] ............................ (ACN )
exercises the option granted to it under clause 27 of the Shareholders
Agreement.
Date
This notice is dated:
THE COMMON SEAL
of
was affixed to this
document in the presence
of:
----------------------------- -----------------------------------
Secretary Director
----------------------------- -----------------------------------
Name (please print) Name (please print)
<PAGE>
PART B
OPTION TERMINATION NOTICE
To: Optus Vision Pty Limited
..........................
..........................
..........................
* ............................. as Optionholder notifies the cancellation of the
Option granted to it under:
(Tick whichever is appropriate)
[_] Clause 26 (Seven Option)
[_] Clause 27 (Nine Option)
[_] Long Option
[_] Vision
[_] SportsCo
[_] MovieCo
[_] Short Option
[_] Vision
[_] SportsCo
[_] MovieCo
This notice is dated:
Signed for and on behalf of
the Optionholder by its representative:
........................ .................................................
Witness Director/Secretary
........................ .................................................
Name (Please print) Name (Please print)
<PAGE>
SCHEDULE 8
BENCHMARK NOTICES
1. In this Schedule the following words and expressions will have the meanings
stated in this paragraph:
"Capex Per Passing" means all Vision's cumulative capital expenditure
relating to cable development excluding capitalised expenditure divided by
the number of sites passed.
"Sites Passed" means the number of potential Vision Network Subscriber
sites (excluding BNS Sites and Corporate Customer Sites) that are passed by
a Line Link in the Vision Network such that the potential Subscriber site
may be connected to the Vision Network by the installation of a subscriber
drop from that site to that Line Link.
"Operating Income Per Passing" means Vision's cumulative operating income
or loss (excluding depreciation, interest and taxes) before any
capitalisation of expenditure divided by number of Sites Passed and
excluding SkyVision gross margin being SkyVision revenue less SkyVision
programming and other direct costs for satellite.
2. The Shareholders acknowledge that the Initial Management Plan specifies
that:
(a) Capex Per Passing as at 1 January 1997 ("Forecast Capex Per Passing")
is $788; and
(b) Operating Income Per Passing as at 1 January 1997 ("Forecast Operating
Income Per Passing") is negative ($201);
and the Shareholders acknowledge that:
(c) Capex Per Passing as at 30 June 1998 ("Forecast Capex Per Passing") is
$642; and
(d) Operating Income Per Passing as at 30 June 1998 ("Forecast Operating
Income Per Passing") is negative ($71).
3. Within 60 days after 1 January 1997 a Shareholder may by notice to Vision
("Benchmark Calculation Notice") require Vision to calculate the:
(a) Capex Per Passing as at 1 January 1997 ("Actual Capex Per Passing");
and
(b) Operating Income Per Passing as at 1 January 1997 ("Actual Operating
Income Per Passing").
4. Within 30 days of receiving a Benchmark Calculation Notice from a
Shareholder under paragraph 3 Vision must calculate the Actual Capex Per
Passing and Actual Operating
<PAGE>
Income Per Passing as at 1 January 1997 and notify each Shareholder of the
results of those calculations.
5. A Shareholder may give a Benchmark Notice within 30 days of receiving the
results of the calculations referred to in paragraph 4 if:
(a) the Actual Capex Per Passing is more than 25% greater than the
Forecast Capex Per Passing; or
(b) the Actual Operating Income Per Passing is more than 33% below the
Forecast Operating Income Per Passing; or
(c) both of the following apply:
(i) the Actual Capex Per Passing is more than 10% greater than the
Forecast Capex Per Passing; and
(ii) the Actual Operating Income Per Passing is more than 15% below
the Forecast Operating Income Per Passing.
6. The service of a Benchmark Notice by a Shareholder is an irrevocable and
final election not to participate in further First Phase Shareholder
Contributions from the date the Benchmark Notice is given to the end of the
Standstill Period.
7. The form of a Benchmark Notice will be as follows:
BENCHMARK NOTICE
To: The Chief Executive Officer
Optus Vision Pty Limited ("Vision")
Address: [Insert details]
Date: [insert details]
Terms in this notice have the same meaning as in the Shareholders Agreement
dated [date] ("Shareholders Agreement")
Take notice that [identify Shareholder] hereby exercises its rights under clause
12.8 of the Shareholders Agreement and elects not to pay any further Shareholder
Contributions during the Standstill Period.
[Identify Shareholder] exercises its rights in reliance on the following
financial details relating to Vision.
[Insert justification for notice in compliance with this Schedule]
<PAGE>
[Insert corporate seal provision]
<PAGE>
SCHEDULE 9
TRACING OF OWNERSHIP INTERESTS
Tracing of Ownership
Ownership Interests can be traced through a chain of companies using a method
known as the fractional tracing method. This method applies a formula to
decide what Ownership Interest a person has.
This method is best demonstrated by examples. These examples contain graphic
material which are connected with arrows directed as indicated.
Example 1:
Example 1 is applicable where less than 50% of the Ownership Interests in a
company are held by a preceding person or company in the chain of companies.
Ownership Interest 1 Ownership Interest 2
30% 10%
Person (arrow to right) Co A (arrow to right) Co B
The person's Ownership Interest in Company B is calculated using the formula:
Ownership Interest 1 X Ownership Interest 2
In this case, the formula produces: 3/10x1/10, which means that the person has a
3% ownership interest in Company B.
Example 2:
Example 2 applies where a person or company ("First Person") in the chain holds
50% or more of the Ownership Interests in the following company either directly
or indirectly ("Second Person"). In that case the First Person is deemed to
hold 100% of the Ownership Interests in the Second Person.
Example
Ownership Interest 1 Ownership Interest 2
60% 10%
Person (arrow to right) Co A (arrow to right) Co B
In this case the formula produces 1x1/10 which means that the person has a 10%
Ownership Interest in Company B
Interests traced in this way can be added as is demonstrated by example 3.
Example 3:
PERSON
80% 45%
(Down Arrow)
(Arrow (Arrow
pointing 30% pointing
down and down and
left) right)
COMPANY C COMPANY A COMPANY D
(Arrow (Down Arrow) (Arrow
pointing pointing
down and down and
right) left)
10%
10% 10%
COMPANY B
In this example, the person has a 17.5% ownership interests in Company B. This
is made up of 3% (through Company A), 10% (through Company C) and 4.5% (through
Company D).
<PAGE>
SCHEDULE 10
VOTING MAJORITIES DURING THE STANDSTILL PERIOD
1. A resolution of the Board or Shareholders on any of the following matters
must be passed by Super Resolution:
1.1 Other than or in respect of any Option or an issue of Equity
Securities pursuant to clause 28.9, 12.15 or 21:
(a) issuing any Equity Securities to any person, other than to each
Shareholder in proportion to its Equity Proportion in accordance
with the Initial Funding Program;
(b) allowing any Shareholder to make a Shareholder Loan to Vision,
other than allowing each Shareholder to make a Shareholder Loan
to Vision in the same proportion as its Equity Proportion in
accordance with the Initial Funding Program.
1.2 amending Vision's dividend policy;
1.3 declaring any dividends (whether interim or final) including those
contemplated by clause 10.4 of this Agreement;
1.4 approving Vision's accounts;
1.5 determining the composition of the board of, and the decision making
process for, LicenceCo or any Subsidiary of Vision if that composition
of the board or decision making process is different from that
applying to Vision;
1.6 appointing and in each year either:
(a) not taking any steps to remove an Auditor that is the auditor of
a Shareholder or Guarantor or one of its Holding Companies; or
(b) confirming the appointment of an Auditor that is an auditor of a
Shareholder or Guarantor or one of its Holding Companies;
1.7 any of the following other than to each Shareholder in proportion to
its Equity Proportion:
(a) determining the interest rate for Shareholder Loans (other than
Additional Loans); and
<PAGE>
(b) reorganising, reclassifying or reconstructing Vision's share
capital; or acquiring any Equity Securities by way of a buy-back.
1.8 amending any provision of the Memorandum or Articles that is
equivalent to or in the nature of making or amending a decision
referred to in paragraphs 1.1 to 1.7;
1.9 delegating the power of the Board or Shareholders to make any of the
decisions referred to in paragraphs 1.1 to 1.7;
1.10 amending or adopting any part of a Management Plan if that amendment
is equivalent to or in the nature of making or amending any of the
decisions referred to in paragraph 1.1 to 1.7;
1.11 entering into or amending any agreement or arrangement (including a
Transaction Agreement) if that agreement, arrangement or amendment is
equivalent to or in the nature of making or amending any of the
decisions referred to in paragraphs 1.1 to 1.8;
1.12 the appointment of the initial and each subsequent Chief Executive
Officer, chief financial officer and chief operating officer;
1.13 commencing any material new business outside the scope of the Vision
Business;
1.14 appointing a liquidator or administrator under the Corporations Law
in respect of Vision or a Subsidiary of Vision;
1.15 subscribing for, or acquiring or selling any securities in any
company (including without limitation, the formation, sale or
acquisition of any company that is or is proposed to be a Subsidiary
of Vision) where such securities have a value in excess of
$15,000,000;
1.16 subject to clause 21.2 offering Equity Securities (including the
number of Equity Securities) for subscription or purchase to the
public, application for Listing and any material decisions in relation
to Listing;
1.17 adopting a Management Plan;
1.18 approving the method of a Shareholder Contribution other than an
issue of Shares;
1.19 approving the terms of a Shareholder Contribution made by Equity
Securities or Shareholder Loans;
1.20 other than in respect of any Option or under clause 28.9, issuing
Shares other than at a par value of $1.00 and a premium of $4.00 per
Share;
1.21 providing loans or guarantees by Vision to any person for an amount
in excess of:
<PAGE>
(a) $5,000,000 in aggregate to any one person; and
(b) $50,000,000 in aggregate for all such persons;
except trade debts, loans provided to LicenceCo or loans provided to
wholly owned Subsidiaries of Vision;
1.22 acquiring or selling any asset or series of related assets of an
aggregate value of more than $50,000,000 that is not authorised under
the Management Plan;
1.23 obtaining external borrowings of more than $50,000,000 that are not
authorised under the Management Plan;
1.24 Vision providing any Encumbrance in excess of $15,000,000 that is not
authorised under the Management Plan;
1.25 establishing a Subsidiary of Vision;
1.26 varying the amount or date for payment of a Shareholder Contribution
during the Standstill Period (to the extent it is not provided for in
the Initial Funding Program);
1.27 executing any contract or entering into any commitment of a value of,
or executing a series of related contracts or entering into
commitments of a value of, $50,000,000 or more that is not authorised
under the Management Plan;
1.28 incurring any capital expenditure or liability of greater than
$50,000,000 for individual transactions or for a series of related
transactions that is not authorised under the Management Plan;
1.29 increasing the aggregate amount of the Initial Funding Program (to
the extent not provided for in a Management Plan);
1.30 Vision exercising any right or power which it derives as a
shareholder or partner in MovieCo or SportsCo or as a party to the
SportsCo Shareholders Agreement or MovieCo Shareholders Agreement or
determining the way in which any director appointed by Vision to the
board of either SportsCo or MovieCo exercises any rights or powers of
that director or determining the persons to be nominated by Vision to
the board of either MovieCo or SportsCo or entering into or amending
any agreement or arrangement with MovieCo or SportsCo;
1.31 amending any provision of the Memorandum or Articles that is
equivalent or in the nature of to making or amending any of the
decisions referred to in paragraphs 1.13 to 1.30;
<PAGE>
1.32 delegating the power of the Board or Shareholders to make any of the
decisions referred to in paragraphs 1.12 to 1.30 to any person or
committee, including the Chief Executive Officer;
1.33 amending any part of the Management Plan if that amendment is
equivalent to or in the nature of making or amending any of the
decisions referred to in paragraphs 1.12 to 1.30; and
1.34 entering into or amending any agreement or arrangement (including a
Transaction Agreement) if that amendment, agreement or arrangement is
equivalent to or in the nature of making or amending any of the
decisions referred to in paragraphs 1.12 to 1.30.
2. A resolution of the Board or Shareholders on any of the following matters
must be passed by Special Resolution:
2.1 acquiring or selling any asset or series of related assets of an
aggregate value of between $15,000,000 and $50,000,000 that is not
authorised by the Management Plan;
2.2 executing any contract or entering into any commitment of a value of
between $15,000,000 and $50,000,000 that is not authorised by the
Management Plan;
2.3 incurring any capital expenditure or liability of between $15,000,000
and $50,000,000, for an individual transaction or for a series of
related transactions that is not authorised by the Management Plan;
2.4 obtaining external borrowings of between $15,000,000 and $50,000,000;
2.5 subscribing for, or acquiring or selling, any securities in any
company (including, without limitation, the formation, sale or
acquisition of any company that is or is proposed to be a Subsidiary
of Vision) where such securities have a value of less than
$15,000,000;
2.6 executing a contract or a series of related contracts involving the
receipt or payment by Vision of $5,000,000 or more per annum between
Vision and any Shareholder or any Related Party of a Shareholder
excluding the Transaction Agreements;
2.7 approving or amending Vision's policy in relation to Vision Reserved
Services programming and tiering;
2.8 executing any executive service, employment or executive consultancy
contract with a financial commitment of $500,000 or more per annum;
<PAGE>
2.9 materially amending any Management Plan including amending any Funding
Program (other than an amendment referred to in paragraphs 1.26 or
1.29 of this Schedule) including any amendment that is equivalent to
making or amending any of the decisions referred to in this paragraph
2;
2.10 entering into or materially amending a Transaction Agreement or any
agreement or arrangement referred to in this clause;
2.11 determining Vision's head office, and any change to its location;
2.12 Vision constructing and operating a CAN in the Territory using
technology that is materially different from that contemplated by this
Agreement;
2.13 determining the date on which the Financial Year of Vision or any
Subsidiary of Vision commences;
2.14 amending any provision of the Memorandum or Articles other than
making an amendment referred to in paragraph 1 of this Schedule;
2.15 delegating the Board's powers to make the resolutions referred to in
this paragraph 2 to any person or committee, including the Chief
Executive Officer; and
2.16 entering into or amending any agreement or arrangement (including a
Transaction Agreement) if that agreement, arrangement or amendment is
equivalent to or in the nature of making or materially amending any of
the decisions referred to in this paragraph 2; and
2.17 appointing and removing the Auditor.
3. For so long as:
3.1 Nine or any of its permitted transferees under clause 18.3 or 28.2; or
3.2 Seven or any of its permitted transferees under clause 18.3 or 28.2;
has an Equity Proportion of between 2% and 5% (inclusive) a resolution of
the Board on Shareholders in the terms of paragraphs 1.1 to 1.11 may only
be passed if the Director appointed by it votes in favour of the
resolution.
4. Where:
(a) Nine or any of its permitted transferees under clause 18.3 or 28.2
holds Equity Securities; or
(b) Seven or any of its permitted transferees under clause 18.3 or 28.2
holds Equity Securities,
<PAGE>
any resolution of the Board or Shareholders in the terms of paragraphs 1.18
to 1.20 or 1.26 or in terms of any of paragraphs 1.31 to 1.34 in relation
to a decision or amendment referred to in any of paragraphs 1.18 to 1.20 or
1.26 which would have the effect that not all Shareholders are treated in
the same manner, may only be passed if it votes in favour of the
resolution.
<PAGE>
SCHEDULE 11
VOTING MAJORITIES AFTER THE STANDSTILL PERIOD
1. A resolution of the Board or Shareholders on any of the following matters
must be passed by a Super Resolution:
1.1 amending Vision's dividend policy;
1.2 declaring any dividends (whether interim or final) including those
contemplated by clause 10.4;
1.3 approving Vision's accounts;
1.4 appointing and in each year either:
(a) not taking any steps to remove an Auditor that is the auditor of
a Shareholder or Guarantor or one or its Holding Companies; or
(b) confirming the appointment of an Auditor that is an auditor of a
Shareholder or Guarantor or one or its Holding Companies;
1.5 other than to each Shareholder in proportion to its Equity Proportion
reorganising, reclassifying or reconstructing Vision's share capital
or acquiring any Equity Securities by way of a buy-back;
1.6 Other than a resolution that is necessary to give effect to clause
12.15 or in respect of the Long Option or an issue of Equity
Securities pursuant to clause 28.9, 12.15, or 21:
(a) issuing any Equity Securities to any person, other than to each
Shareholder in proportion to its Equity Proportion; or
(b) allowing any Shareholder to make a Shareholder Loan to Vision,
other than allowing each Shareholder to make a Shareholder Loan
to Vision in proportion to its Equity Proportion;
1.7 the appointment of each Chief Executive Officer, chief financial
officer and chief operating officer;
1.8 commencing any material new business outside of the scope of the
Vision Business;
1.9 appointing a liquidator or administrator under the Corporations Law in
respect of Vision or any Subsidiary of Vision;
<PAGE>
1.10 determining the composition of the board of, and the decision making
process for LicenceCo or any Subsidiary of Vision if that composition
of the board or decision making process is different from that
applying to Vision.
1.11 subscribing for, or acquiring or selling any securities in any
company (including without limitation, the formation, sale or
acquisition of any company that is or is proposed to be a Subsidiary
of Vision) where such securities have a value in excess of
$50,000,000;
1.12 subject to clauses 21.2, 21.3 and 21.4, offering Equity Securities
(including the number of Equity Securities) for subscription or
purchase to the public, applying for Listing and any material
decisions in relation to Listing;
1.13 amending any provision of the Memorandum or Articles that is
equivalent to or in the nature of making or amending any of the
decisions referred to in this paragraph 1 (except those referred to in
paragraph 1.5);
1.14 delegating the power of the Board or Shareholders to make any of the
decisions referred to in this paragraph 1 to any person or committee,
including the Chief Executive Officer;
1.15 amending any part of the Management Plan if that amendment is
equivalent to or in the nature of making or amending any of the
decisions referred to in this paragraph 1; and
1.16 entering into or amending any agreement or arrangement (including a
Transaction Agreement) if that agreement, arrangement or amendment is
equivalent to making or amending any of the decisions referred to in
this paragraph 1.
2. A resolution of the Board or Shareholders on any of the following matters
must be passed by Special Resolution:
2.1 adopting a Management Plan;
2.2 approving the method of a Shareholder Contribution other than an issue
of Shares;
2.3 approving the terms of a Shareholder Contribution made by Equity
Securities or Shareholder Loans;
2.4 subject to clause 28.9 or in respect of the Long Option issuing
Shares other than at a par value of $1.00 and a premium of $4.00 per
Share;
2.5 determining the interest rate for a Shareholder Loan by Shareholders;
2.6 providing loans or guarantees by Vision to any person for an amount in
excess of:
<PAGE>
(a) $5,000,000 in aggregate to any one person; and
(b) $50,000,000 in aggregate for all such persons;
except trade debts, loans provided to LicenceCo or loans provided to
wholly owned Subsidiaries of Vision;
2.7 acquiring or selling any asset or series of related assets of an
aggregate value of more than $15,000,000 or more that is not
authorised under the Management Plan;
2.8 obtaining external borrowings of $15,000,000 or more that are not
authorised under the Management Plan;
2.9 Vision providing any Encumbrance in excess of $15,000,000 that is not
authorised under the Management Plan;
2.10 establishing a Subsidiary of Vision;
2.11 varying the date for payment or amount of a Shareholder Contribution;
2.12 executing any contract or entering into any commitment of a value of,
or a series of related contracts or entering into commitments of a
value of, $50,000,000 or more that is not authorised under the
Management Plan;
2.13 incurring any capital expenditure or liability of $15,000,000 or more
for individual transactions or for a series of related transactions
that is not authorised under the Management Plan;
2.14 subscribing for, or acquiring or selling any securities in any
company (including without limitation, the formation, sale or
acquisition of any company that is or is proposed to be a Subsidiary
of Vision ) where such securities have a value of less than
$50,000,000;
2.15 appointing and removing the Auditors;
2.16 executing any contract or entering into any commitment of a value of
between $15,000,000 and $50,000,000 that is not authorised by the
Management Plan;
2.17 executing a contract or a series of related contracts involving the
receipt or payment by Vision of $5,000,000 or more per annum between
Vision and any Shareholder or any Related Party of a Shareholder
excluding the Transaction Agreements;
2.18 approving or amending Vision's policy in relation to Broadcasting
Services programming and tiering;
<PAGE>
2.19 executing any executive service, employment or executive consultancy
contract with a financial commitment of $500,000 or more per annum;
2.20 materially amending any Management Plan including amending any
Funding Program and including any amendment that is equivalent to
making or amending any of the decisions referred to in this paragraph;
2.21 entering into or materially amending a Transaction Agreement or any
agreement or arrangement referred to in this paragraph;
2.22 determining Vision's head office, and any change to its location;
2.23 Vision constructing and operating a CAN in the Territory using
technology that is materially different from that contemplated by this
Agreement;
2.24 Vision exercising any right or power which it derives as a
shareholder or partner in MovieCo or SportsCo or as a party to the
SportsCo Shareholders Agreement or MovieCo Shareholders Agreement or
determining the way in which any director appointed by Vision to the
board of either SportsCo or MovieCo exercises any rights or powers of
that director or determining the persons to be nominated by Vision to
the board of either MovieCo or SportsCo or entering into or amending
any agreement or arrangement with MovieCo or SportsCo;
2.25 amending any provision of the Memorandum or Articles other than
making an amendment referred to in paragraph 1 of this Schedule;
2.26 delegating the power of the Board or Shareholders to make any of the
decisions referred to in this paragraph 2 to any person or committee,
including the Chief Executive Officer;
2.27 amending any part of a Management Plan if that amendment is
equivalent to or in the nature of making or amending any of the
decisions referred to in this paragraph 2;
2.28 amending any agreements or arrangements (including a Transaction
Agreement) if that amendment is equivalent to or in the nature of
making or amending any of the decisions referred to in this paragraph
2;
3. If Nine or any of its permitted transferees under clause 18.3 or Seven or
any of its permitted transferees under clause 18.3 hold Equity Securities
any resolution of the Board or Shareholders in the terms of paragraph 1.4
may only be passed for so long as:
(a) Nine or any of its permitted transferees under clause 18.3; or
(b) Seven or any of its permitted transferees under clause 18.3,
votes in favour of the resolution.
<PAGE>
4. Where:
(a) Nine or any of its permitted transferees under clause 18.3 or 20.3
holds Equity Securities; or
(b) Seven or any of its permitted transferees under clause 18.3 or 20.3
holds Equity Securities;
any resolution of the Board or Shareholders in the terms of any of
paragraphs 1.5, 1.6, 2.2, 2.3, 2.4, 2.5 or 2.20, or in terms of any of
paragraphs 1.13 to 1.16 or 2.25 to 2.28 in relation to a decision or
amendment referred to in paragraphs 1.5, 1.6, 2.2, 2.3, 2.4, 2.5 or 2.20
which would have the effect that not all Shareholders are treated in the
same manner, may only be passed if it votes in favour of the resolution.
<PAGE>
SCHEDULE 11A
SHORT OPTION
1. Definitions
For the purposes of this schedule:
(a) "Exercise Period" means each period of one month following the Market
Value Determination Date;
(b) "Expiry Date" means the first to occur of the following dates:
(i) the later of:
A. 1 July 1997; and
B. If the Optionholder gives notice under paragraph 5(b) of
this Schedule before 1 July 1997 but the date one month
after the relevant Market Value Determination Date is after
1 July 1997, the date one month after the Market Value
Determination Date; and
(ii) the date on which the Optionholder gives Vision an Option
Termination Notice relating to the Short Option.
(c) "Optionholder" means the Network Shareholder or any person to whom the
Short Options have been transferred under clause 18.3 or 28.2.
(d) "Option Price" means the higher of the aggregate of the par values of
any shares of any kind comprising the Short Option Interest and the
aggregate of:
(i) the Market Value of the Short Option Interest as at the date on
which the Optionholder gives notice under paragraph 2 of this
schedule; and
(ii) an amount equivalent to interest at the Base Rate for the period
(if any) commencing on 1 July 1997 and ending on the day that the
Optionholder completes the acquisition of the Short Option
Interest.
(e) "Ownership Value" means an amount equal to:
(i) the aggregate of all amounts paid made or required to be paid
made to MovieCo or SportsCo in the nature of Shareholder
Contributions and in respect of Equity Securities or Ownership
Interests, as the case may be prior to the date at which the
Ownership Value is to be determined; and
<PAGE>
(ii) interest at the rate of 18% per annum on each such amount
from the date it was paid made (or was required to be paid
made if earlier) capitalising at the end of each year until the
date at which the Ownership Value is to be determined,
multiplied by the Equity Proportion that will be represented by the
relevant Ownership Interests in SportsCo or MovieCo as the case may be
immediately after their issue.
(f) Other than in this paragraph a reference to the "Network Shareholder"
or to "Nine" or to "Seven" is in each case a reference to the relevant
transferee under clauses 18 or 28.2.
(g) "Short Options" means the options granted under clause 31.A5(d)
conferring on the Optionholder the rights described in this clause.
(h) "Short Option Interest" means:
(i) in the case of the Short Option over Equity Securities, the
Equity Securities the number of which when acquired by the
Optionholder immediately following exercise of that Short
Option would result in the Optionholder holding, if Seven is
the Optionholder, 15% and, if Nine is the Optionholder, 20% of
the issued Equity Securities taking into account the operation
of clause 28.7;
(ii) in the case of the Short Option over Ownership Interests in
SportsCo, the Ownership Interest, the number of which when
acquired by the Optionholder immediately following exercise of
that Short Option would result in the Optionholder holding that
percentage of the issued Ownership Interests in SportsCo that
it held or was entitled to hold at the time the Unfavourable
Equity Decision was made; and
(iii) in the case of the Short Option over Ownership Interests in
MovieCo, the Ownership Interest, the number of which when
acquired by the Optionholder immediately following exercise of
that Short Option would result in the Optionholder holding that
percentage of the issued Ownership Interests in MovieCo that it
held or was entitled to hold at the time the Unfavourable
Equity Decision was made.
2. Exercise of Short Option
The Optionholder may exercise each Short Option only:
(a) if it reasonably believes that the acquisition of the relevant Short
Option Interest will at the time of exercise not be contrary to clause
14.2;
<PAGE>
(b) if before such exercise it has given notice under paragraph 5(b) of
this schedule to each of the Shareholders and Vision requesting
determination of the Market Value under clause 24.3 of the Short
Option Interest;
(c) during an Exercise Period and by the Expiry Date;
(d) by giving to Vision an Exercise Notice duly completed and executed by
the Optionholder; and
(e) if at the time of exercise it is not a Prohibited Shareholder (other
than by reason of paragraph (e) of the definition of 'Prohibited
Shareholder');
(f) if at the time of exercise a Prohibited Shareholder as referred to in
paragraph 2(e) does not:
(i) directly or indirectly hold in excess of 50% of the Ownership
Interests (other than by reason of paragraph (e) of the
definition of 'Ownership Interests') in the Optionholder; or
(ii) control or is able to control, directly or indirectly, alone or
together with an Associate:
(A) the appointment of, 50% or more of the directors to the
board of the Optionholder; or
(B) 50% of the votes able to be cast at a meeting of directors
of the Shareholder assuming every director of the
Optionholder is entitled to vote; and
(g) if at the time of exercise it would not be in default of clause
23.1(c) except with the deletion of the words "deliberately and" from
clause 23.1(c).
3. Cancellation of Short Option
A Short Option is cancelled upon the Optionholder giving Vision an Option
Termination Notice relating to that Short Option.
4. Lapse of Short Option
Each Short Option lapses at the end of its Expiry Date.
5. Due Diligence
The Optionholder may, if it would not be precluded from exercising the
option by virtue of paragraph 2(e) or (f) of this Schedule, for the
purposes of determining whether to exercise a Short Option.
<PAGE>
(a) conduct a due diligence investigation of Vision, SportsCo and MovieCo
and of any other Related Corporation of Vision at the cost of the
Optionholder and if it does clause 17 applies to any confidential
Information it is provided pursuant to that due diligence;
(b) give written notice to each of the Shareholders and Vision requesting
determination of the Market Value under clause 24.3.
6. Market Value before Option Exercise
By the end of the Business Day following the date on which the last of the
Shareholders receives notice under clause 5(b) of this Schedule, the
Shareholders must commence the determination of the Market Value or the
Ownership Value as the case may be.
7. Not Transferable
The Short Option is not transferable except under clause 18.3 or 28.2.
8. No Frivolous Exercise
The Optionholder will not exercise any rights it has under clause 5(b) of
this schedule frivolously.
9. Opinion
Before the Optionholder commences a Market Value process by giving notice
under paragraph 5(b) of this Schedule it must have obtained a senior
counsel's opinion to the effect that the exercise of the Short Option by
the Optionholder would not constitute a breach of the Trade Practices Act.
<PAGE>
SCHEDULE 11B
LONG OPTION
1. Definitions
For the purposes of this Schedule:
(a) [not used]
(b) "Exercise Period" means each period of one month following the
completion of the determination of the Market Value, the Adjusted Cost
Incurred Value or the Ownership Value, as the case may be, for the
purposes of this clause.
(c) "Expiry Date" means in relation to a Long Option the first to occur of
the following dates:
(i) the date which is the 6th anniversary of the date of this
Agreement;
(ii) the date which is the 4th anniversary after:
A. in the case of the Long Option over Equity Securities, the
date the Network Shareholder ceases to be a Shareholder as a
result of clause 31A.3(c); or
B. in the case of the Long Option over Ownership Interests in
SportsCo or MovieCo, the date of disposal of all of its
shares as a result of clause 31A.3(c); and
(iii) the date of any cancellation under this Schedule;
(iv) the date 21 days after notice under paragraph 3(c) of this
Schedule in respect of Ownership Interests in MovieCo or
SportsCo if the Optionholder has not exercised the relevant
option within that period.
(d) "Long Options" means each of the options granted under clause 31A.5(a)
conferring on the Optionholder the rights described in this Schedule.
(e) "Long Option Interest" means:
(i) in the case of the Long Option over Equity Securities in
Vision, the Equity Securities the number of which when acquired
by the Optionholder immediately following the exercise of that
Long Option would result in
<PAGE>
the Optionholder holding, if Seven is the Optionholder, 15% and
if Nine is the Optionholder, 20% of the Equity Securities and
taking into account the operation of clause 28.7 provided
that if Long Options are granted to both Seven and Nine the
references to "15%" and "20%" are to be deleted and replaced
with references to "10%" in both cases,
(ii) in the case of the Long Option over Ownership Interests in
SportsCo, the Ownership Interests, the number of which when
acquired by the Optionholder immediately following exercise of
that Long Option would result in the Optionholder holding that
percentage of the Ownership Interests that it held or was
entitled to hold at the time the Court Order was made; and
(iii) in the case of the Long Option over Ownership Interests in
MovieCo, the Ownership Interests, the number of which when
acquired by the Optionholder immediately following exercise of
that Long Option would result in the Optionholder holding that
percentage of the Ownership Interests that it held at the time
the Court Order was made.
(f) "Optionholder" means the Network Shareholder in respect of whom a
Court Order under Clause 31.A3(c) is or has been made and who has
acquired the Long Option pursuant to clause 31A.5(a) or any person to
whom the Long Options have been transferred under clause 18.3, 28.2 or
paragraph 10 of this Schedule.
(g) "Option Premium" means $5,000,000.
(h) "Option Price" means:
(i) unless the Optionholder is a Network Shareholder the higher of
the aggregate of the par values of any shares of any kind
comprising the Long Option Interest and the Adjusted Cost
Incurred Value or Ownership Value, as the case may be, of the
Long Option Interest as at the date of notification under
paragraph 7(b) of this Schedule as the case may be;
(ii) if the Optionholder is a Network Shareholder, the higher of the
aggregate of the par values of the shares of any kind
comprising the Long Option Interest and:
A. Market Value of the Long Option Interest as at the date on
which the Optionholder gives notice under paragraph 7(b) of
this Schedule;
B. if the Long Option is exercised pursuant to an election
under paragraph 3 of this Schedule whichever of the Market
Value and the Adjusted Cost Incurred Value or Ownership
Value as the case may be elected by the Network Shareholder
under paragraph 3 of this Schedule,
<PAGE>
and in the case of exercise of the Long Option in respect of
Equity Securities in Vision, less the amount of the Option
Premium.
(i) "Ownership Value" means an amount equal to:
(i) the aggregate of all amounts paid or required to be paid to
MovieCo or SportsCo in the nature of Shareholder Contributions
and in respect of Equity Securities or Ownership Interests as
the case may be prior to the date at which the Ownership Value
is to be determined; and
(ii) interest at the rate of 18% per annum on each such amount from
the date it was paid (or was required to be paid if earlier)
capitalising at the end of each year until the date at which
the Ownership Value is to be determined,
multiplied by the Equity Proportion that will be represented by the
relevant Ownership Interests in SportsCo or MovieCo as the case may be
immediately after their issue.
(j) Other than in this paragraph, a reference to the "Network Shareholder"
or to "Nine" or to "Seven" is in each case a reference to a permitted
transferee under clauses 18.3 or 28.2.
2. Exercise of Long Option
Subject to paragraph 3 of this Schedule, the Optionholder may exercise each
Long Option only:
(a) if it reasonably believes that the acquisition of the relevant Long
Option Interest will at the time of exercise not be contrary to clause
14.2;
(b) if before such exercise, it has given notice under paragraph 6(b) of
this Schedule to each of the Shareholders and Vision requesting
determination of the Market Value under clause 24.3 or determination
of the Adjusted Cost Incurred Value or the Ownership Value;
(c) during an Exercise Period and by the Expiry Date and not after it is
cancelled under paragraph 4 of this Schedule;
(d) by giving to Vision an Exercise Notice duly completed and executed by
the Optionholder; and
(e) if at the time of exercise it is not a Prohibited Shareholder (other
than by reason of paragraph (e) of the definition of 'Prohibited
Shareholder');
<PAGE>
(f) if at the time of exercise a Prohibited Shareholder as referred to in
paragraph 2(e) does not:
(i) directly or indirectly hold in excess of 50% of the Ownership
Interests (other than by reason of paragraph (e) of the
definition of 'Ownership Interests') in the Optionholder or
(ii) control or is able to control, directly or indirectly, alone or
together with an Associate:
(A) the appointment of, 50% or more of the directors to the
board of the Shareholder; or
(B) 50% of the votes able to be cast at a meeting of directors
of the Shareholder assuming every director of the
Shareholder is entitled to vote; and
(g) if at the time of exercise it would not be in default of clause
23.1(c) except with the deletion of the words "deliberate and" from
clause 23.1(c).
3. Compulsion
If a Network Shareholder is the Optionholder and Vision receives:
(a) advice from a Senior Counsel that the exercise of all Long Options
held by the Optionholder would not contravene the Trade Practices
Act; and
(b) notice from the TPC that it will not object to the exercise by the
Network Shareholder of such Long Options in respect of Equity
Securities in Vision;
then:
(c) Vision may, following a resolution by Simple Majority of Optus and
Continental, serve a notice on the Network Shareholder requesting it
to exercise all such Long Options and requiring it to elect whether
the Option Price will be the Market Value or the Adjusted Cost
Incurred Value or Ownership Value of the relevant Long Option Interest
as the case may be; and
(d) the Network Shareholder must make each election referred to in
paragraph (c) by giving notice of its election to Vision within 21
days of receipt of notice from Vision under that paragraph and such
election will be deemed to constitute exercise of the relevant Long
Option in accordance with paragraph 2 of this Schedule.
4. Cancellation of Long Option
<PAGE>
(a) A Long Option is cancelled upon the occurrence of the Optionholder
giving to Vision an Option Termination Notice relating to that Long
Option;
(b) The Long Option is respect of Equity Securities in Vision is cancelled
on the expiry of the 21 day period referred to in paragraph 3 (d) of
this Schedule unless the Network Shareholder has made the election
referred to in paragraph 3(d).
5. Lapse of Long Option
Each of the Long Options lapses at the end of its Expiry Date.
6. Due Diligence
The Optionholder may, if it would not be precluded from exercising the
option by virtue of paragraph 2(e) or (f) of this Schedule, for the
purposes of determining whether to exercise a Long Option:
(a) conduct a due diligence investigation of Vision, SportsCo and MovieCo
and of any other Related Corporation of Vision at the cost of the
Optionholder;
(b) give written notice to each of the Shareholders and Vision requesting
determination of the Adjusted Cost Incurred Value or the Ownership
Value of a Long Option Interest, as the case may be, or that value
and the Market Value under clause 24,
provided that if the Network Shareholder is not the Optionholder the
Option holder may only exercise the rights under paragraph (b) no
less than 9 months after the last time it gave notice under paragraph (b).
7. Value
(a) By the end of the Business Day following the day on which Vision
receives notice under paragraph 3(c) of this Schedule of an election
that the Option Price will be Market Value or paragraph 6(b) of this
Schedule the Shareholders must commence the determination of the
Market Value if relevant;
(b) Vision must as soon as practicable after receiving:
(i) notice under paragraph 3(c) of this schedule of an election that
the Option Price will be Adjusted Cost Incurred Value or
Ownership Value; or
<PAGE>
(ii) a request for determination of the Adjusted Cost Incurred Value,
or the Ownership value, as the case may be, under paragraph 6(b)
of this Schedule,
determine the Cost Incurred Value, Adjusted Cost Incurred Value or
Ownership Value and as soon as it is determined, give notice of that
value to the Optionholder and the Shareholders.
8. No Frivolous Exercise
The Network Shareholder will not exercise any rights it has under paragraph
6(b) of this schedule frivolously.
9. Opinion
Before the Optionholder commences a Market Value process by giving a notice
under paragraph 6(b) of this Schedule it must have obtained a senior
counsel's opinion to the effect that the exercise of the Long Option by the
Optionholder would not constitute a breach of the Trade Practices Act.
10. Transfer of Long Option
10.1 The Optionholder may Transfer its interest in a Long Option only if the
following conditions are satisfied:
(a) the Optionholder is a Network Shareholder or any permitted transferee
under clause 18.3 or 28.2;
(b) more than 2 years have elapsed since the date the Network Shareholder
or any party to which it transferred its Equity Securities under
clause 18.3 has ceased to be a Shareholder;
(c) the Optionholder:
(i) has received a bona fide offer to acquire; or
(ii) wishes to dispose of its interest in the Long Option;
(d) the Transfer complies with the procedures described in paragraphs 10.2
to 10.4;
(e) the transferee of the Long Option enters into a Deed of Accession:
(f) the transferee of the Long Option is not a Prohibited Shareholder; and
(g) any Guarantee required by virtue of paragraph 10.3 has been given.
10.2 If the Optionholder wishes to Transfer its interest in the Long Option the
Optionholder must notify the Board of any Offer which it wishes to accept
to sell its Long Option to a Third Party or have its Long Option cancelled
by Vision. That notice ("Offer Notice") must include particulars of the
terms of the offer which it has received or wishes to make (including the
price for the Long Option ("Sale Price")) and, if the offer is under
paragraph 10.1(c)(i):
(a) the identity of any offeror ("Offeror"); and
(b) such financial and other details are as available to the Seller
regarding the Offeror and its Related Corporations as the other
Shareholders reasonably require for the purpose of paragraph 10.3(b).
10.3 Within 30 Business Days after receipt of the Offer Notice in respect of an
offer under paragraph 10.1(c)(i) the Board must determine:
(a) by Special Resolution whether to cancel the Long Option and pay to the
Optionholder the Sale Price; or
(b) by Simple Resolution whether:
(i) by itself, the Offeror is of sufficient financial standing to
meet its obligations as a Shareholder under this Agreement if it
exercises the Long Option or if it is not; and
(ii) if a Related Corporation proposes to give a guarantee which will
operate on and from the exercise of any Long Option in terms
identical to a Guarantee in relation to the Offer, that Related
Corporation is of sufficient financial standing to meet its
obligations under that guarantee if the Optionholder exercises
the Long Option:
10.4 Vision must give notice of its determination under clause 10.3(a) within 2
Business Days to the Optionholder and:
(a) if Vision has determined to cancel the Long Option:
(i) Vision must pay the Optionholder the Sale Price within 5 Business
Days after the date of its notice under this clause at a time and
place to be agreed by the Optionholder and Vision or failing
agreement as Visions's registered office at 10 am on the day on
which that 5 Business Day period expires; and
(ii) Vision must cancel the Long Option; and
(b) if Vision has determined not to cancel the Long Option and the Offer
was under clause 10.1(c)(i) the Optionholder may, subject to this
clause, at any time within six months after receipt of the notice
under this clause 10.4 Transfer to the Offeror the Long Option on the
terms of the offer including the Sale Price.
10.5 The provisions of this Agreement concerning the Transfer of an
Optionholder's interest in a Long Option over Ownership Interests in
MovieCo or SportsCo are subject to the consent of the shareholders in each
of those entities to such amendments to the agreements governing the
affairs of those entities as are necessary to permit any such Transfer to
occur. The Shareholders and Vision will endeavour to obtain the consent of
those persons to any such amendments as soon as possible after the date of
this Agreement.
<PAGE>
EXECUTED as an agreement.
Executed for and on behalf of )
CONTINENTAL CABLEVISION )
AUSTRALIA, INC. by its duly )
authorised attorney in ) /s/
the presence of: ) .............................
Attorney
/s/
.........................
Witness
EXECUTED FOR OPTUS )
COMMUNICATIONS PTY )
LIMITED was affixed in )
accordance with )
its Articles of Association ) /s/
in the presence of: ) .............................
Attorney
/s/
.........................
Witness
EXECUTED for and on behalf of )
PAY TV HOLDINGS PTY )
LIMITED by its duly authorised )
attorney ) /s/
) .............................
Attorney
/s/
.........................
Witness
THE COMMON SEAL of )
TALLGLEN PTY LIMITED )
was affixed in )
accordance with its Articles of ) /s/
Association in the presence of: ) .............................
Director
<PAGE>
/s/
.........................
Director
OPTUS VISION PTY LIMITED )
in accordance with power )
of attorney presence of: ) /s/
) .............................
Attorney
/s/
.........................
Witness
FOR OPTUS NETWORKS PTY )
LIMITED by its duly )
authorized attorney ) /s/
in the presence of: ) .............................
Attorney
/s/
.........................
Witness
FOR OPTUS ADMINISTRATION )
PTY LIMITED by its duly )
authorized attorney ) /s/
in the presence of: ) .............................
Attorney
/s/
.........................
Witness
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- ------------------
1990 1991 1992(1) 1993(1) 1994 1994 1995
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... $(195,451) $(161,642) $(102,960) $ (25,774) $ (68,576) $(23,621) $(33,067)
Extraordinary Item, Net
of Income Taxes........ -- -- -- (184,996) -- -- --
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- -- -- -- (18,265) -- --
--------- --------- --------- --------- --------- -------- --------
Net Loss................ (195,451) (161,642) (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred Stock
Preferences............ (61,102) (5,771) (16,861) (34,115) (36,800) (17,887) (19,347)
--------- --------- --------- --------- --------- -------- --------
Loss Applicable to
Common Shareholders.... $(256,553) $(167,413) $(119,821) $(244,885) $(123,641) $(41,508) $(52,414)
========= ========= ========= ========= ========= ======== ========
Loss Per Common Share
Before Extraordinary
Item and Cumulative
Effect of Change in
Accounting for Income
Taxes.................. $ (54.80) $ (35.61) $ (25.06) $ (13.13) $ (23.04) $ (9.10) $ (11.14)
Extraordinary Item Per
Common Share........... -- -- -- -- (3.99) -- --
Loss Per Common Share
from Cumulative Effect
of Change in Accounting
for Income Taxes....... -- -- -- (40.55) -- -- --
--------- --------- --------- --------- --------- -------- --------
Loss Per Common Share... $ (54.80) $ (35.61) $ (25.06) $ (53.68) $ (27.03) $ (9.10) $ (11.14)
========= ========= ========= ========= ========= ======== ========
Weighted Average Number
of Shares Outstanding
During the Period...... 4,682 4,701 4,782 4,562 4,573 4,563 4,705
========= ========= ========= ========= ========= ======== ========
</TABLE>
--------
(1) For purposes of calculating loss per common share for the year ended
December 31, 1992, 1993 and 1994 and six months ended June 30, 1994 and
1995, shares of the Series A Convertible Preferred Stock were not assumed
to be converted into shares of Common Stock since the result would be anti-
dilutive.
<PAGE>
EXHIBIT 11.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- ----------------
<S> <C> <C>
Pro Forma:
Net Loss.................................. $ (84,151) $(44,225)
Preferred Stock Preferences............... (36,800) (19,347)
--------- --------
Loss Applicable to Common Shareholders.... $(120,951) $(63,572)
========= ========
Loss Per Common Share..................... $ (.83) $ (.43)
========= ========
Weighted Average Number of Shares
Outstanding
During the Year.......................... 145,059 148,352
========= ========
</TABLE>
--------
(1) For purposes of calculating pro-forma loss per common share for the year
ended December 31, 1994 and six months ended June 30, 1995, 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 periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of Earnings:
Loss from Continuing
Operations
Before Income Taxes,
Extraordinary Item
and Cumulative Effect
of Change in
Accounting for Income
Taxes................ $(193,969) $(159,781) $(101,306) $(33,695) $(108,995) $(34,925) $(47,777)
Add:
Interest Expense(1)... 313,858 324,976 296,031 282,252 315,541 147,910 166,314
Interest Portion of
Rent Expense......... 5,235 5,445 5,899 6,065 6,840 3,278 3,596
Amortization of
Capitalized Interest. 2,030 2,067 2,106 2,162 2,271 1,136 1,204
Equity in Net Loss of
Affiliates........... 24 3,380 9,402 12,827 25,002 9,807 25,817
--------- --------- --------- -------- --------- -------- --------
Earnings as Adjusted.. $ 127,178 $ 176,087 $ 212,132 $269,611 $ 240,659 $127,206 $149,154
========= ========= ========= ======== ========= ======== ========
Computation of Fixed
Charges:
Interest Expense(1).... $ 313,858 $ 324,976 $ 296,031 $282,252 $ 315,541 $147,910 $166,314
Interest Portion of
Rent Expense.......... 5,235 5,445 5,899 6,065 6,840 3,278 3,596
Capitalized Interest... 718 396 766 908 2,377 836 1,709
Preferred Dividends.... 61,102 5,771 16,861 34,115 36,800 17,887 19,347
--------- --------- --------- -------- --------- -------- --------
Fixed Charges.......... $ 380,913 $ 336,588 $ 319,557 $323,340 $ 361,558 $169,911 $190,966
========= ========= ========= ======== ========= ======== ========
Ratio of Earnings to
Combined Fixed Charges
and Preferred
Dividends............. .33 .52 .66 .83 .67 .75 .78
========= ========= ========= ======== ========= ======== ========
Deficiency in Earnings
Required to Cover
Combined Fixed
Charges............... $ 253,735 $ 160,501 $ 107,425 $ 53,729 $ 120,899 $ 42,705 $ 41,812
========= ========= ========= ======== ========= ======== ========
</TABLE>
--------
(1)Interest Expense includes Amortization of Deferred Financing Costs.
<PAGE>
EXHIBIT 12.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA COMPUTATION OF RATIO OF EARNINGS TOCOMBINED FIXED CHARGES AND
PREFERRED DIVIDENDS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
The following table reflects the proforma computation of the ratio of
earnings to combined fixed charges and preferred dividends for the year and
period indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1994 1995
------------ ----------
<S> <C> <C>
Pro Forma:
Computation of Earnings:
Loss from Continuing Operations
Before Income Taxes, Extraordinary Item and
Cumulative Effect of Change in Accounting for
Income Taxes...................................... $(131,570) $(64,525)
Add:
Interest Expense(1)................................ 391,246 211,058
Interest Portion of Rent Expense................... 8,541 4,502
Amortization of Capitalized Interest............... 2,333 1,240
Equity in Net Loss of Affiliates................. 25,002 25,817
--------- --------
$ 295,552 $178,092
========= ========
Computation of Fixed Charges:
Interest Expense(1)................................ $ 391,246 211,058
Interest Portion of Rent Expense................... 8,541 4,502
Capitalized Interest............................... 2,677 1,709
Preferred Stock Preferences........................ 36,800 19,347
Preferred Dividends................................
--------- --------
$ 439,264 $236,616
========= ========
Ratio of Earnings to Combined Fixed Charges.......... .67 .75
========= ========
Deficiency in Earnings Required to Cover Combined
Fixed Charges and Preferred Dividends............... $ 143,712 $ 58,524
========= ========
</TABLE>
--------
(1) Interest expense includes amortization of deferred financing costs.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
33-57471 of Continental Cablevision, Inc. and its subsidiaries on Form S-4 of
our report dated February 10, 1995, (which contains an explanatory paragraph
regarding a change in accounting for income taxes and investments in 1993 and
1994, respectively), appearing in the Joint Proxy Statement-Prospectus, which
is part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Joint Proxy Statement-Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Continental Cablevision, Inc. and its subsidiaries listed in Item 21. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
August 8, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement File No. 33-57471.
Arthur Andersen LLP
Stamford, Connecticut
August 8, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to Registration Statement No. 33-57471 on Form S-4 of
Continental Cablevision, Inc. of our report dated March 31, 1995 relating to
the financial statements of Clay Cablevision (a Division of Rifkin Cable Income
Partners, L.P.), which appears in such Prospectus. We also consent to the
references to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Denver, Colorado
August 7, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 23, 1994, with respect to the financial
statements of N-Com Limited Partnership II included in Amendment No. 3 to the
Registration Statement (Form S-4 No. 33-57471) and related Prospectus of
Continental Cablevision, Inc.
Ernst & Young LLP
Detroit, Michigan
August 9, 1995
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
The Partners
Cablevision of Chicago:
We consent to the inclusion of our report dated March 3, 1995, with respect
to the balance sheets of Cablevision of Chicago as of December 31, 1993 and
1994 and the related statements of operations and partners' deficiency and cash
flows for the years then ended, which report appears in Amendment No. 3 to the
Form S-4 of Continental Cablevision and to the reference to our firm under the
heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Jericho, New York
August 9, 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994 JAN-01-1995 JAN-01-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994 JUN-30-1995 JUN-30-1994
<CASH> 11,223 0 15,342 0
<SECURITIES> 102,838 0 120,042 0
<RECEIVABLES> 51,827 0 60,203 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 70,453 0 76,542 0
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 1,412,132 0 1,482,638 0
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 2,556,758 0 2,693,894 0
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 3,601,804 0 3,728,101 0
<COMMON> 40 0 40 0
0 0 0 0
11 0 11 0
<OTHER-SE> (1,690,837) 0 (1,722,482) 0
<TOTAL-LIABILITY-AND-EQUITY> 2,556,758 0 2,693,894 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 318,576 290,764 650,048 589,390
<CGS> 0 0 0 0
<TOTAL-COSTS> 110,732 98,805 224,846 198,618
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 83,423 73,675 166,314 147,910
<INCOME-PRETAX> (10,900) (19,292) (47,777) (34,925)
<INCOME-TAX> (3,998) (5,652) (14,710) (11,304)
<INCOME-CONTINUING> (6,902) (13,640) (33,067) (23,621)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (6,902) (13,640) (33,067) (23,621)
<EPS-PRIMARY> (3.52) (4.93) (11.14) (9.10)
<EPS-DILUTED> 0 0 0 0
</TABLE>
