<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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A. H. BELO CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE
(State or Other Jurisdiction 2711 75-0135890
of Incorporation or (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification No.)
MICHAEL J. MCCARTHY
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
A. H. BELO CORPORATION
400 SOUTH RECORD STREET P.O. BOX 655237
DALLAS, TEXAS 75202 DALLAS, TEXAS 75265-5237
(214) 977-6606 (214) 977-6606
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Telephone
Including Area Code, of Registrant's Number, Including Area Code, of Agent For
Principal Executive Offices) Service)
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Copies to:
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E. MICHAEL GREANEY, ESQ. DANIEL A. NEFF, ESQ. LAURA N. WILKINSON, ESQ.
GIBSON, DUNN & CRUTCHER LLP WACHTELL, LIPTON, ROSEN & KATZ EDWARDS & ANGELL
4 PARK PLAZA 51 WEST 52ND STREET 2700 HOSPITAL TRUST TOWER
IRVINE, CALIFORNIA 92614 NEW YORK, NEW YORK 10019 PROVIDENCE, RHODE ISLAND 02903
(714) 451-3800 (212) 403-1000 (401) 274-9200
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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 (the "Merger") of The Providence Journal Company with
and into a wholly owned Subsidiary of the Registrant, as described in the
Amended and Restated Agreement and Plan of Merger, dated as of September 26,
1996, described in the enclosed 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
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE(1)
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Series A Common Stock, par value 25,600,000
$1.67(2)........................ shares $8.83 $434,684,399 $0.00(3)
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(1) These figures are estimates made solely for the purpose of calculating
the registration fee pursuant to Rule 457 under the Securities Act of
1933, as amended. The registration fee has been calculated in
accordance with Sections (f)(1), (f)(2) and (f)(3) of Rule 457 based
upon the market value of the securities which are publicly traded and
the book value of the securities which are not publicly traded to be
cancelled in the Merger, less $590,000,000, the approximate aggregate
amount of cash to be paid by the Registrant in the Merger. On January
3, 1997, there were 29,112,177 shares of Class A Common Stock of The
Providence Journal Company ("Providence Journal") outstanding
(including shares issuable upon exercise of outstanding options) and
the average of the high and low prices of such stock on the New York
Stock Exchange was $29.81, and there were 20,109,026 shares of
Providence Journal Class B Common Stock outstanding with a book value
per share of $7.80, resulting in an aggregate value of
$1,024,684,399.17.
(2) Each share of Series A Common Stock includes a right (a "Right") to
purchase one one-hundredth of a share of the Registrant's Series A
Junior Participating Preferred Stock pursuant to the terms of an
Amended and Restated Rights Agreement, dated as of February 28, 1996,
between the Registrant and The First National Bank of Boston, as Rights
Agent, as amended. The Rights trade together with the Series A Common
Stock and the value attributable to the Rights, if any, is reflected in
the market price of the Series A Common Stock.
(3) As set forth in Rule 457(b), the fee shown has been reduced by
$201,951.70, the amount of the fee already paid upon filing of
preliminary proxy material pursuant to Section 14(g) of the Securities
Exchange Act of 1934, as amended.
---------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
A. H. BELO CORPORATION
CROSS-REFERENCE SHEET PURSUANT TO REGULATION S-K,
SHOWING LOCATIONS IN THE PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
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FORM S-4 CAPTION CAPTION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside Front
Cover of Prospectus....................................... Forepart of Registration Statement;
Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of Prospectus..... Inside Front Cover Page; Available
Information; Incorporation of
Certain Information by Reference;
Table of Contents.
3. Risk Factors, Ratio of Earnings to Fixed Charges, and Other
Information............................................... Summary; Risk Factors.
4. Terms of the Transaction.................................... Summary; Introduction; The Special
Meetings; The Merger; The Merger
Agreement.
5. Pro Forma Financial Information............................. Summary; Capitalization; Unaudited
Pro Forma Combined Condensed
Financial Statements.
6. Material Contacts With the Company Being Acquired........... The Merger.
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to Be Underwriters..................... Not applicable.
8. Interests of Named Experts and Counsel...................... Experts; Legal Matters.
9. Disclosure of Commission Position on Indemnification For
Securities Act Liabilities................................ Not applicable.
10. Information With Respect to S-3 Registrants................. Summary; Business of Belo;
Capitalization; Unaudited Pro Forma
Combined Condensed Financial
Statements.
11. Incorporation of Certain Information by Reference........... Incorporation of Certain Information
by Reference.
12. Information With Respect to S-2 or S-3 Registrants.......... Not applicable.
13. Incorporation of Certain Information by Reference........... Not applicable.
14. Information With Respect to Registrants Other Than S-3 or
S-2 Registration.......................................... Not applicable.
15. Information With Respect to S-3 Companies................... Not applicable.
16. Information With Respect to S-2 or S-3 Companies............ Not applicable.
17. Information With Respect to Companies Other Than S-2 or S-3
Companies................................................. Summary; Business of Providence
Journal; Selected Financial Data of
Providence Journal; Providence
Journal Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Principal
Stockholders of Providence Journal;
Capitalization; Unaudited Pro Forma
Combined Condensed Financial
Statements; Consolidated Financial
Statements of Providence Journal.
18. Information if Proxies, Consents or Authorizations Are to Be
Solicited................................................. Summary; Introduction; Risk Factors;
The Special Meetings; The Merger; The
Merger Agreement; Management of
Belo and Providence Journal
Newspaper Co. After the Merger;
Description of Belo Capital Stock;
Comparison of Stockholders' Rights;
Significant Regulations Affecting
Broadcasting Services.
19. Information if Proxies, Consents or Authorizations Are Not
to Be Solicited or in an Exchange Offer................... Not applicable.
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<PAGE> 3
A. H. BELO CORPORATION
400 SOUTH RECORD STREET
DALLAS, TEXAS 75202
January __, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Belo Stockholders Meeting") of A. H. Belo Corporation, a Delaware corporation
("Belo"), to be held on February 19, 1997, in the lobby of The Belo Building at
400 South Record Street, Dallas, Texas, starting at 10:00 a.m. (local time).
At the Belo Stockholders Meeting, you will be asked to approve the issuance
by Belo of up to 25,600,000 shares of Series A Common Stock (the "Share
Issuance") in connection with Belo's acquisition of The Providence Journal
Company ("Providence Journal") to be accomplished by a merger (the "Merger") of
Providence Journal with and into A H Finance Company, a Delaware corporation and
direct, wholly owned subsidiary of Belo ("Finance"), pursuant to an Amended and
Restated Agreement and Plan of Merger, dated as of September 26, 1996, among
Belo, Providence Journal and Finance (the "Merger Agreement").
Upon completion of this acquisition:
- Finance will succeed to the assets, liabilities and businesses of
Providence Journal and be renamed "Belo Holdings, Inc.," except that
promptly following the Merger the newspaper assets of Providence Journal
will be transferred to a new wholly owned subsidiary of Finance to be
named "The Providence Journal Company"; and
- All outstanding shares of Providence Journal's Class A Common Stock and
Class B Common Stock will be converted into the right to receive shares
of Belo's Series A Common Stock, par value $1.67 per share ("Belo Series
A Common Stock"), cash or a combination of Belo Series A Common Stock and
cash. Providence Journal stockholders may, subject to certain allocation
and proration provisions, elect to receive solely stock, solely cash or
both stock and cash. However, the aggregate number of shares of Belo
Series A Common Stock issued in the Merger will not exceed 25,600,000
(and will likely be less since this number assumes exercise of all
exercisable options to purchase Providence Journal common stock and the
Merger Agreement provides for Belo to cash out all outstanding options
that have not been exercised at the time the Merger is consummated) and
the aggregate amount of cash paid by Belo to Providence Journal
stockholders will not exceed $590 million (plus cash in lieu of
fractional shares). See also "THE MERGER AGREEMENT -- Merger
Consideration" in the accompanying Joint Proxy Statement/Prospectus.
A detailed description of the Merger Agreement and the proposed acquisition
of Providence Journal is set forth in the enclosed Joint Proxy
Statement/Prospectus, which you should read carefully. A Notice of Special
Meeting of Stockholders is also enclosed herewith. Holders of record of shares
of Series A and Series B Common Stock at the close of business on December 27,
1996, the record date for the Belo Stockholders Meeting, are entitled to notice
of, and to vote at, the Belo Stockholders Meeting and at any adjournments or
postponements thereof.
The Board of Directors believes that this acquisition offers significant
strategic benefits for Belo and its stockholders. The addition of Providence
Journal's nine television stations (five NBC affiliates, one ABC affiliate, one
CBS affiliate and two Fox affiliates) to Belo's existing seven station
television group (comprised of three ABC affiliates, three CBS affiliates and
one UPN affiliate) will more evenly balance Belo's network affiliations among
the major television networks and will extend Belo's broadcast reach from
approximately eight percent of U.S. households to 12.33 percent. The result will
be a well-balanced portfolio of network-affiliated television stations which
should offset the cyclical popularity of network programming. In addition,
<PAGE> 4
the combination creates a geographically diverse television broadcasting group
and strengthens Belo's concentration of stations in high-growth markets in the
Southwest and Northwest.
This transaction extends and complements Belo's presence in newspaper
publishing. The Providence Journal-Bulletin and The Dallas Morning News
represent two of America's most distinguished newspaper traditions. With an
uninterrupted 167-year history, the Providence Journal-Bulletin is Rhode
Island's leading newspaper in terms of both circulation and advertising compared
to all newspapers based in the Rhode Island and southeastern Massachusetts
market. Like The Dallas Morning News, the Journal is committed to journalistic
excellence, having won four Pulitzer Prizes; The Dallas Morning News has earned
six Pulitzers in the past decade.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE SHARE ISSUANCE
PURSUANT TO THE MERGER AGREEMENT UPON CONSUMMATION OF THE MERGER.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE BELO STOCKHOLDERS
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND. AN ABSTENTION WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE SHARE ISSUANCE AND CONSEQUENTLY AGAINST THE
ACQUISITION OF PROVIDENCE JOURNAL. ACCORDINGLY, YOU ARE REQUESTED TO COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE BELO
STOCKHOLDERS MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED
AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY
CARD.
I strongly support Belo's acquisition of Providence Journal and join with
the other members of the Board in enthusiastically recommending this transaction
to you. We urge you to vote to approve the Share Issuance. If you should have
any questions about the Share Issuance or need assistance in completing your
proxy card, please contact Mr. Harold Gaar, Vice President/Public Affairs at
(214) 977-6606.
Very truly yours,
ROBERT W. DECHERD
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 5
THE PROVIDENCE JOURNAL COMPANY
75 FOUNTAIN STREET
PROVIDENCE, RHODE ISLAND 02902
January __ , 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Providence Journal Stockholders Meeting") of The Providence Journal Company, a
Delaware corporation ("Providence Journal"), to be held on February 19, 1997 at
4 p.m., local time, at the offices of Providence Journal at 75 Fountain Street,
Providence, Rhode Island.
At the Providence Journal Stockholders Meeting, you will be asked to
consider and vote upon a proposal to approve and adopt an Amended and Restated
Agreement and Plan of Merger, dated as of September 26, 1996 (the "Merger
Agreement"), among Providence Journal, A. H. Belo Corporation, a Delaware
corporation ("Belo"), and A H Finance Company, a Delaware corporation and
direct, wholly owned subsidiary of Belo ("Finance"), pursuant to which
Providence Journal will be merged with and into Finance (the "Merger") with
Finance as the surviving corporation. Promptly following the consummation of the
Merger, Finance will transfer to a new, wholly owned subsidiary named "The
Providence Journal Company" all the assets and liabilities of the newspaper
operations formerly held by Providence Journal. A copy of the Merger Agreement
is attached to the accompanying Joint Proxy Statement/Prospectus as Appendix A.
Under the terms of the Merger Agreement, upon consummation of the Merger,
each outstanding share of Providence Journal's Class A Common Stock, $1.00 par
value per share ("Providence Journal Class A Common Stock"), and Class B Common
Stock, $1.00 par value per share ("Providence Journal Class B Common Stock"),
will automatically be converted into the right to receive, at the holder's
election (subject to certain allocation and proration rules), (i) a number of
shares of Belo Series A Common Stock, par value $1.67 per share ("Belo Series A
Common Stock"), equal to the sum of (A) 0.5333 and (B) the quotient of $12.33
divided by the average of the closing sale prices for Belo Series A Common Stock
for the ten consecutive trading-day period ending on the tenth day before the
closing date of the Merger (the "Valuation Period Stock Price"), (ii) in cash,
without interest, the sum of (A) $12.33 and (B) the product of 0.5333 and the
Valuation Period Stock Price; (iii) 0.5333 shares of Belo Series A Common Stock
and $12.33 in cash, without interest; or (iv) a combination of shares of Belo
Series A Common Stock and cash determined in accordance with the allocation
provisions of the Merger Agreement. Regardless of whether Providence Journal
stockholders elect to receive all Belo Series A Common Stock, all cash or a
combination of Belo Series A Common Stock and cash for each share of Providence
Journal Class A Common Stock or Providence Journal Class B Common Stock held,
the election mechanism is designed to provide that, as of the date of
determination thereof, each Providence Journal stockholder will receive the same
value per share of Providence Journal Class A Common Stock or Class B Common
Stock based on the Valuation Period Stock Price of Belo Series A Common Stock.
However, the ultimate value received by each stockholder who receives Belo
Series A Common Stock in the Merger may be greater or less than the value
calculated based on the Valuation Period Stock Price because of fluctuations in
the market value of Belo Series A Common Stock. For your convenience, an
illustrative example of the election options is included on page __ in the
accompanying Joint Proxy Statement/Prospectus under "SUMMARY -- The Merger
Agreement -- Consideration to be Received by Providence Journal Stockholders." A
more detailed description may also be found under the caption "THE MERGER
AGREEMENT -- Merger Consideration" in the accompanying Joint Proxy
Statement/Prospectus.
The merger of Providence Journal with Belo provides an opportunity for
stockholders of Providence Journal to share in the growth potential of one of
the nation's leading media companies following the Merger, with a diversified
group of television broadcasting, cable network, newspaper publishing and
electronic media assets. This transaction will make Belo the eighth largest
television group in the United States in terms of revenues and the tenth largest
in audience reach. At the same time, the Providence Journal-Bulletin and The
<PAGE> 6
Providence Sunday Journal will continue as independent Rhode Island newspapers
with a separate board of directors. After the Merger, I will continue to serve
as Chairman and Chief Executive Officer of The Providence Journal Company and as
Publisher of the Providence Journal newspapers.
Enclosed are a Notice of Special Meeting of Stockholders and a Joint Proxy
Statement/Prospectus which describe the Merger and the background of the
transaction. You are urged to read all of these materials carefully. The Board
of Directors has fixed the close of business on December 27, 1996 as the record
date for the Providence Journal Stockholders Meeting. Accordingly, only
stockholders of record on that date will be entitled to notice of, and to vote
at, the Providence Journal Stockholders Meeting and any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS OF PROVIDENCE JOURNAL HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE
AND ADOPT THE MERGER AGREEMENT.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE PROVIDENCE JOURNAL
STOCKHOLDERS MEETING, WHETHER OR NOT YOU PLAN TO ATTEND. AN ABSTENTION OR
FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT
AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY. ACCORDINGLY, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE PROVIDENCE JOURNAL STOCKHOLDERS MEETING, YOU MAY REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
I strongly support the merger of Providence Journal with Belo and join with
the other members of the Board in enthusiastically recommending the Merger to
you. We urge you to vote in favor of approval and adoption of the Merger
Agreement. If you should have any questions about the Merger or need assistance
in completing your proxy card, please contact Mr. Harry Dyson, Treasurer and
Secretary, at (401) 277-7000.
Very truly yours,
STEPHEN HAMBLETT
Chairman of the Board and
Chief Executive Officer
<PAGE> 7
A. H. BELO CORPORATION
400 SOUTH RECORD STREET
DALLAS, TEXAS 75202
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders (the "Belo Stockholders Meeting") of A.
H. Belo Corporation, a Delaware corporation ("Belo"), will be held starting at
10:00 a.m., local time, on February 19, 1997, in the lobby of The Belo Building
at 400 South Record Street, Dallas, Texas. Attendance at the Belo Stockholders
Meeting and any adjournments or postponements thereof will be limited to
stockholders of record on December 27, 1996 (the "Record Date") or their
proxies, beneficial owners having evidence of ownership on that date and invited
guests of Belo.
The purposes of the Belo Stockholders Meeting are:
1. To consider and vote upon a proposal (the "Proposal") to approve
the issuance of up to 25,600,000 shares of Belo's Series A Common Stock to
the holders of outstanding shares of common stock, par value $1.00 per
share ("Providence Journal Common Stock"), of The Providence Journal
Company, a Delaware corporation ("Providence Journal"), in connection with
the merger (the "Merger") of Providence Journal with and into A H Finance
Company, a Delaware corporation and direct, wholly owned subsidiary of Belo
("Finance"), pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of September 26, 1996 (the "Merger Agreement"), among
Belo, Providence Journal and Finance. The Merger Agreement contemplates,
among other things, that (a) Providence Journal will be merged with and
into Finance, with Finance as the surviving corporation to be renamed "Belo
Holdings, Inc." and (b) all outstanding shares of Providence Journal Common
Stock will be converted into the right to receive shares of Belo's Series A
Common Stock, par value $1.67 per share ("Belo Series A Common Stock"),
cash or a combination of Belo Series A Common Stock and cash. Providence
Journal stockholders may, subject to certain allocation and proration
provisions, elect to receive solely stock, solely cash or both stock and
cash. However, the aggregate number of shares of Belo Series A Common Stock
issued in the Merger will not exceed 25,600,000 (and will likely be less
since this number assumes exercise of all exercisable options to purchase
Providence Journal Common Stock and the Merger Agreement provides for Belo
to cash out all outstanding options that have not been exercised at the
time the Merger is consummated) and the aggregate amount of cash paid by
Belo to Providence Journal stockholders will not exceed $590 million (plus
cash payable in lieu of fractional shares). See "THE MERGER
AGREEMENT -- Merger Consideration" in the accompanying Joint Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Belo Stockholders Meeting and any adjournments or postponements thereof.
Holders of record of shares of Belo Series A Common Stock and Belo's Series
B Common Stock, par value $1.67 per share ("Belo Series B Common Stock"), at the
close of business on the Record Date, are entitled to notice of, and to vote at,
the Belo Stockholders Meeting and at any postponements or adjournments thereof.
The affirmative vote of the holders of a majority of the votes represented by
the outstanding shares of Belo Series A Common Stock and Belo Series B Common
Stock present at the Belo Stockholders Meeting in person or by proxy and
entitled to vote is required to approve the Proposal. New York Stock Exchange
rules also require that the total votes cast on the Proposal represent over 50%
in interest of all securities entitled to vote thereon. A list of holders of
record of shares of Belo Series A Common Stock and Belo Series B Common Stock at
the close of business on the Record Date will be available for inspection at
Belo's headquarters during ordinary business hours for the ten-day period prior
to the Belo Stockholders Meeting. Belo's transfer books will not be closed.
<PAGE> 8
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE PROPOSAL.
By Order of the Board of Directors
MICHAEL J. MCCARTHY
Secretary
January __, 1997
Dallas, Texas
WHETHER OR NOT YOU PLAN TO ATTEND THE BELO STOCKHOLDERS MEETING IN PERSON,
YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE BELO STOCKHOLDERS MEETING, YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 9
THE PROVIDENCE JOURNAL COMPANY
75 FOUNTAIN STREET
PROVIDENCE, RHODE ISLAND 02902
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders (the
"Providence Journal Stockholders Meeting") of The Providence Journal Company, a
Delaware corporation ("Providence Journal"), will be held at 4 p.m., local time,
on February 19, 1997, at the offices of Providence Journal, 75 Fountain Street,
Providence, Rhode Island, for the purposes of:
1. Considering and voting upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger, dated as of September
26, 1996 (the "Merger Agreement"), among Providence Journal, A. H. Belo
Corporation, a Delaware corporation ("Belo"), and A H Finance Company, a
Delaware corporation and direct, wholly owned subsidiary of Belo
("Finance"), pursuant to which Providence Journal will be merged with and
into Finance, with Finance as the surviving corporation (the "Merger"),
upon the terms and subject to the conditions set forth in the Merger
Agreement, as are more fully described in the enclosed Joint Proxy
Statement/Prospectus. A copy of the Merger Agreement is attached as
Appendix A to the accompanying Joint Proxy Statement/Prospectus.
2. Transacting such other business as may properly be brought before
the Providence Journal Stockholders Meeting and any adjournments or
postponements thereof.
Each holder of shares of Class A Common Stock, par value $1.00 per share,
of Providence Journal ("Providence Journal Class A Common Stock") shall have the
right to one vote for each share held on all matters to be considered at the
meeting. Each holder of shares of Class B Common Stock, par value $1.00 per
share, of Providence Journal ("Providence Journal Class B Common Stock") shall
have the right to four votes for each share held on all matters to be considered
at the meeting.
The Board of Directors has fixed the close of business on December 27, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the Providence Journal Stockholders Meeting and any adjournments
or postponements thereof. Only stockholders of record on such date are entitled
to notice of and to vote at the Providence Journal Stockholders Meeting and any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at Providence Journal's headquarters during ordinary
business hours for the ten-day period prior to the Providence Journal
Stockholders Meeting. Providence Journal's transfer books will not be closed.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If the Merger is consummated, holders of Providence Journal Class A Common
Stock and Providence Journal Class B Common Stock who have complied with the
requirements of Section 262 of the Delaware General Corporation Law will have
certain appraisal rights under Delaware law. See "THE MERGER -- Dissenters'
Rights" in the accompanying Joint Proxy Statement/Prospectus.
By Order of the Board of Directors,
HARRY DYSON
Secretary
January __, 1997
Providence, Rhode Island
WHETHER OR NOT YOU PLAN TO ATTEND THE PROVIDENCE JOURNAL STOCKHOLDERS
MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE PROVIDENCE JOURNAL STOCKHOLDERS
MEETING, YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AND VOTE IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 10
A. H. BELO CORPORATION
AND
THE PROVIDENCE JOURNAL COMPANY
JOINT PROXY STATEMENT FOR THEIR RESPECTIVE
SPECIAL MEETINGS OF STOCKHOLDERS TO BE HELD ON
FEBRUARY 19, 1997
---------------------------------
A. H. BELO CORPORATION
PROSPECTUS
---------------------------------
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
A. H. Belo Corporation, a Delaware corporation ("Belo"), and to stockholders of
The Providence Journal Company, a Delaware corporation ("Providence Journal"),
in connection with the solicitation by their respective Boards of Directors of
proxies for use at their special meetings of stockholders (the "Belo
Stockholders Meeting" and the "Providence Journal Stockholders Meeting,"
respectively, and together, the "Special Meetings") and any adjournments or
postponements thereof. The Belo Stockholders Meeting will be held on February
19, 1997 at 10:00 a.m., Central Standard Time, and the Providence Journal
Stockholders Meeting will be held on February 19, 1997 at 4 p.m., Eastern
Standard Time. This Joint Proxy Statement/Prospectus is first being mailed to
stockholders of Belo and stockholders of Providence Journal on or about January
__, 1997.
At the Providence Journal Stockholders Meeting, stockholders of Providence
Journal will vote upon a proposal (the "Providence Journal Proposal") to approve
the Amended and Restated Agreement and Plan of Merger, dated as of September 26,
1996 (the "Merger Agreement"), among Belo, Providence Journal, and A H Finance
Company, a Delaware corporation and direct, wholly owned subsidiary of Belo
("Finance"), pursuant to which Providence Journal will merge with and into
Finance (the "Merger"), with Finance as the surviving corporation in the Merger
to be renamed "Belo Holdings, Inc." ("Belo Holdings"). At the Belo Stockholders
Meeting, stockholders of Belo will vote upon a proposal (the "Belo Proposal")
that Belo issue up to 25,600,000 shares of its Series A Common Stock, par value
$1.67 per share (the "Belo Series A Common Stock"), to Providence Journal
stockholders upon consummation of the Merger.
In the Merger Providence Journal stockholders will be entitled to receive
aggregate consideration based on a fixed exchange ratio of 0.5333 of a share of
Belo Series A Common Stock plus $12.33 in cash for each outstanding share of
Providence Journal Common Stock (defined below). Assuming the Merger had been
consummated on the record date for the Special Meetings, the former stockholders
of Providence Journal would hold in the aggregate approximately 48% of the
outstanding shares of Belo Series A Common Stock, representing in the aggregate
approximately 18% of the voting power represented by all outstanding shares of
Belo Common Stock (defined below).
On January 3, 1997, the latest practicable date prior to the printing of
this Joint Proxy Statement/ Prospectus, the closing sales prices of Belo Series
A Common Stock and Providence Journal Class A Common Stock on the New York Stock
Exchange, Inc. ("NYSE") (as reported in The Wall Street Journal), were $33.88
per share and $29.75 per share, respectively. If the Merger had been consummated
on January 3, 1997, the value of the consideration received in respect of each
share of Providence Journal Common Stock would be $30.40 (equal to (i) 0.5333
times such closing sales price of the Belo Series A Common Stock plus (ii)
$12.33).
Belo has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
shares of Belo Series A Common Stock to be issued in the Merger. This Joint
Proxy Statement/Prospectus constitutes the Prospectus of Belo filed as part of
the Registration Statement relating to up to 25,600,000 shares of Belo Series A
Common Stock, each accompanied by one right (a "Belo Right") to purchase one
one-hundredth of a share of Belo's Series A Junior Participating Preferred Stock
pursuant to the terms of an Amended and Restated Rights Agreement, dated as of
February 28, 1996, as amended (the "Belo Rights Agreement"), between Belo and
The First National Bank of Boston, as Rights Agent, expected to be issued to
Providence Journal stockholders in the Merger. Hereinafter, references to Belo
Series A Common Stock will also include the associated Belo Rights.
SEE "RISK FACTORS" COMMENCING ON PAGE 29 FOR CERTAIN INFORMATION WHICH
SHOULD BE CAREFULLY CONSIDERED BEFORE VOTING UPON THE MATTERS DESCRIBED HEREIN.
THE SHARES OF BELO SERIES A COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is January __, 1997.
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION............................ 2
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE...................................... 2
SUMMARY.......................................... 4
Introduction................................... 4
The Companies.................................. 4
The Special Meetings; Voting Requirements;
Voting Power of Officers and Directors;
Agreement with Respect to Vote............... 4
Risk Factors................................... 6
The Merger Agreement........................... 6
The Merger..................................... 18
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION....... 22
COMPARATIVE PER SHARE DATA....................... 26
Comparative Market Prices and Dividends........ 27
Listing of Belo Series A Common Stock.......... 28
Stockholders Agreements........................ 28
RISK FACTORS..................................... 29
Risk Factors Applicable to Providence
Journal...................................... 29
Risk Factors Applicable to Each of Belo and
Providence Journal and to Belo Following the
Merger....................................... 30
Risk Factors Applicable to the Merger.......... 32
THE SPECIAL MEETINGS............................. 33
Times and Places; Purposes..................... 33
Voting Rights; Votes Required for Approval..... 34
Proxies........................................ 35
THE MERGER....................................... 37
Background..................................... 37
Recommendation of Belo Board; Belo's Reasons
for the Merger............................... 39
Recommendation of Providence Journal Board;
Providence Journal's Reasons for the
Merger....................................... 40
Fairness Opinions.............................. 42
Cautionary Statement Concerning Forward-Looking
Statements................................... 57
Interests of Certain Persons in the Merger..... 58
Accounting Treatment........................... 60
Certain Federal Income Tax Consequences........ 60
Regulatory Approvals........................... 63
Stock Exchange Listing; Delisting of Providence
Journal Class A Common Stock................. 65
Certain Federal Securities Laws Consequences... 65
Dissenters' Rights............................. 65
Financing the Merger........................... 67
THE MERGER AGREEMENT............................. 69
The Merger..................................... 69
Merger Consideration........................... 69
Election Procedure............................. 72
Certain Representations and Warranties......... 73
Certain Covenants.............................. 73
Conditions to the Merger....................... 78
Termination of the Merger Agreement............ 80
Termination Fee................................ 80
Stockholders Agreements........................ 81
BUSINESS OF BELO................................. 83
Television Broadcasting........................ 83
Newspaper Publishing........................... 84
BUSINESS OF FINANCE.............................. 85
BUSINESS OF PROVIDENCE JOURNAL................... 85
General........................................ 85
<CAPTION>
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<S> <C>
Background; Reorganization..................... 85
Broadcasting................................... 86
Publishing..................................... 92
Programming and Electronic Media............... 94
Licensing and Regulation....................... 98
Seasonality of Businesses...................... 98
Employees...................................... 98
Properties..................................... 99
Legal Proceedings.............................. 99
Restrictions in Certain Agreements............. 100
Certain Transactions........................... 100
SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL.... 101
PROVIDENCE JOURNAL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 111
PRINCIPAL STOCKHOLDERS OF PROVIDENCE JOURNAL..... 129
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION.................................... 132
CAPITALIZATION................................... 134
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS..................................... 135
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS........................... 139
MANAGEMENT OF BELO AND PROVIDENCE JOURNAL
NEWSPAPER CO. AFTER THE MERGER................. 141
Belo Board..................................... 141
Belo Management................................ 141
Belo Holdings Board and Management............. 141
Providence Journal Newspaper Co. Board......... 141
Providence Journal Newspaper Co. and Other
Subsidiary Management........................ 143
DESCRIPTION OF BELO CAPITAL STOCK................ 143
Belo Common Stock.............................. 143
Belo Preferred Stock........................... 144
Foreign Ownership.............................. 144
Certain Anti-Takeover Matters.................. 144
Certificate of Incorporation; Bylaws........... 145
Stockholders Rights Plan....................... 146
Transfer Agent and Registrar................... 147
COMPARISON OF STOCKHOLDERS' RIGHTS............... 147
SIGNIFICANT REGULATIONS APPLICABLE TO
BROADCASTING SERVICES, PROGRAMMING AND
ELECTRONIC MEDIA............................... 151
LEGAL MATTERS.................................... 158
EXPERTS.......................................... 158
STOCKHOLDER PROPOSALS............................ 159
INDEX OF SELECTED DEFINED TERMS.................. 160
INDEX TO PROVIDENCE JOURNAL FINANCIAL
STATEMENTS..................................... F-1
APPENDICES....................................... A-1
Appendix A -- Merger Agreement
Appendix B -- Form of Fairness Opinion of
Furman Selz LLC
Appendix C -- Form of Fairness Opinion of Bear,
Stearns & Co. Inc.
Appendix D -- Section 262 of the Delaware
General Corporation Law (Appraisal Rights)
</TABLE>
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<PAGE> 12
This Joint Proxy Statement/Prospectus does not contain all the information
contained in the Registration Statement filed with the Commission by Belo in
connection with the issuance of the shares of Belo Series A Common Stock in the
Merger, certain parts of which are omitted in accordance with the Commission's
rules and regulations. All information in this Joint Proxy Statement/Prospectus
concerning Belo has been furnished by Belo and all information in this Joint
Proxy Statement/Prospectus concerning Providence Journal has been furnished by
Providence Journal.
AVAILABLE INFORMATION
Each of Belo and Providence Journal is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Commission's Public Reference
Section, Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549, where copies may be obtained at prescribed rates, as well as at the
following regional offices: 7 World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a web site that contains
reports, proxy and other information filed electronically with the Commission,
the address of which is http://www.sec.gov. In addition, this material may also
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, where copies may be obtained at prescribed rates.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF BELO OR PROVIDENCE JOURNAL SINCE THE DATE HEREOF OR
THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATES THEREOF. IF ANY MATERIAL CHANGE OCCURS DURING THE PERIOD IN WHICH
THIS JOINT PROXY STATEMENT/PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS JOINT
PROXY STATEMENT/PROSPECTUS WILL BE AMENDED AND SUPPLEMENTED ACCORDINGLY.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by Belo (collectively,
the "Belo Reports") are incorporated in this Joint Proxy Statement/Prospectus by
reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended by Annual Report on Form 10-K/A (the "Belo 1995 10-K").
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1996, June 30, 1996 and September 30, 1996.
3. Current Report on Form 8-K dated September 27, 1996.
All reports and other documents filed by Belo after the date of this Joint
Proxy Statement/Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act and prior to the Election Deadline (defined below) shall be deemed
to be incorporated by reference herein and to be a part hereof.
In each case, the material terms of all contracts or other documents filed
as exhibits to this Joint Proxy Statement/Prospectus are described herein or in
the filings incorporated by reference. However, statements contained in this
Joint Proxy Statement/Prospectus as to the contents of any contract or document
are not
2
<PAGE> 13
necessarily complete and in each instance such statements are qualified in their
entireties by reference to the copy of such contract or other document filed as
an exhibit to the Registration Statement or incorporated by reference therein.
Any statement contained in a document incorporated or deemed to be incorporated
in this Joint Proxy Statement/Prospectus by reference shall be deemed to be
modified or superseded for the purpose of this Joint Proxy Statement/Prospectus
to the extent that a statement contained in this Joint Proxy
Statement/Prospectus or in any other subsequently filed document which also is
or is deemed to be incorporated in this Joint Proxy Statement/Prospectus by
reference modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE BELO REPORTS (OTHER
THAN EXHIBITS TO BELO REPORTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
FROM ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, TO A. H. BELO CORPORATION, 400 SOUTH RECORD
STREET, DALLAS, TEXAS 75202, ATTENTION: CORPORATE SECRETARY (TEL. (214)
977-6606). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY FEBRUARY 11, 1997. THE COMMISSION FILE NUMBER FOR BELO IS
1-8598.
ALL REPORTS AND OTHER DOCUMENTS FILED BY PROVIDENCE JOURNAL WITH THE
COMMISSION PURSUANT TO SECTION 13(A), 13(C), 14 OR 15(D) OF THE EXCHANGE ACT ARE
AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST FROM ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, TO THE PROVIDENCE JOURNAL COMPANY, 75 FOUNTAIN STREET, PROVIDENCE,
RHODE ISLAND 02903, ATTENTION: CORPORATE SECRETARY (401) 277-7000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY
11, 1997. THE COMMISSION FILE NUMBER FOR PROVIDENCE JOURNAL IS 1-11813.
All dollar amounts included in this Joint Proxy Statement/Prospectus are in
U.S. dollars unless otherwise indicated.
3
<PAGE> 14
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Joint Proxy Statement/Prospectus or incorporated by
reference herein. Unless the context otherwise requires, all references to
"Belo" are to A. H. Belo Corporation and its consolidated subsidiaries and all
references to "Providence Journal" are to The Providence Journal Company and its
consolidated subsidiaries. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Joint Proxy Statement/Prospectus, the Appendices hereto and the
documents incorporated by reference or otherwise referred to herein.
Stockholders of Belo and Providence Journal are urged to review this entire
Joint Proxy Statement/Prospectus carefully, including the Appendices hereto and
such other documents incorporated by reference or otherwise referred to herein.
INTRODUCTION
Pursuant to the Merger Agreement, Belo and Providence Journal have agreed
that Providence Journal will merge with and into a direct, wholly owned
subsidiary of Belo. In the Merger, Providence Journal stockholders will be
entitled to receive aggregate consideration based on a fixed exchange ratio of
0.5333 of a share of Belo Series A Common Stock plus $12.33 cash for each
outstanding share of Providence Journal Common Stock. Providence Journal
stockholders will be entitled to elect to receive all stock, all cash or a
combination of stock and cash, subject to allocation and proration procedures
described in this Joint Proxy Statement/Prospectus. Since the exchange ratio is
fixed, the value of the stock portion of the consideration paid in the Merger
will fluctuate with the trading price of Belo Series A Common Stock. On January
3, 1997, the closing sales price of Belo Series A Common Stock as reported on
the NYSE (as reported in The Wall Street Journal) was $33.88.
THE COMPANIES
Belo. Belo, founded in 1842 and incorporated in the State of Delaware, owns
and operates seven network-affiliated VHF television stations and several
newspapers, including The Dallas Morning News, which is the largest daily
newspaper in the Dallas-Fort Worth metropolitan area in terms of advertising and
circulation. Belo is headquartered at 400 South Record Street, Dallas, Texas
75202; its telephone number is (214) 977-6606. See "BUSINESS OF BELO."
Providence Journal. Providence Journal, founded in 1829, is a diversified
media company incorporated in the State of Delaware. Providence Journal owns and
operates nine network television stations and provides or will provide
programming and marketing services to four television stations under local
marketing agreements, publishes the largest daily newspaper in terms of
advertising and circulation compared to all newspapers based in the Rhode Island
and southeastern Massachusetts market, and produces diversified programming and
interactive electronic media services. Providence Journal is headquartered at 75
Fountain Street, Providence, Rhode Island 02902; its telephone number is (401)
277-7000. See "BUSINESS OF PROVIDENCE JOURNAL."
Finance. Finance is a wholly owned subsidiary of Belo that was incorporated
in the State of Delaware in 1996 and has not conducted any substantial business
activities to date. As a result of the Merger, Providence Journal will be merged
with and into Finance. Finance will be the surviving corporation of the Merger
and will be renamed Belo Holdings, Inc. The business of Belo Holdings will be
the business currently conducted by Providence Journal. After the Merger,
Providence Journal's newspapers will continue to operate with independent
editorial policies in a direct subsidiary of Belo Holdings named "The Providence
Journal Company." Finance is headquartered at 400 South Record Street, Dallas,
Texas 75202; its telephone number is (214) 977-6606.
THE SPECIAL MEETINGS; VOTING REQUIREMENTS; VOTING POWER OF OFFICERS AND
DIRECTORS; AGREEMENT WITH RESPECT TO VOTE
Belo. The Belo Stockholders Meeting will be held in the lobby of The Belo
Building at 400 South Record Street, Dallas, Texas on February 19, 1997,
starting at 10:00 a.m., local time. See "THE SPECIAL
4
<PAGE> 15
MEETINGS." At the Belo Stockholders Meeting, holders of Belo Series A Common
Stock and Belo's Series B Common Stock, par value $1.67 per share (the "Belo
Series B Common Stock" and together with the Belo Series A Common Stock, the
"Belo Common Stock"), will be asked to approve the Belo Proposal. The Merger
Agreement is attached hereto as Appendix A. See "THE MERGER" and "THE MERGER
AGREEMENT."
Holders of record of Belo Common Stock at the close of business on December
27, 1996 (the "Belo Record Date") have the right to receive notice of and to
vote at the Belo Stockholders Meeting and any adjournments or postponements
thereof. As of the Belo Record Date, there were 27,083,150 shares of Belo Series
A Common Stock and 9,168,908 shares of Belo Series B Common Stock outstanding
and entitled to vote. Each share of Belo Series A Common Stock is entitled to
one vote and each share of Belo Series B Common Stock is entitled to ten votes
on each matter that is properly presented to stockholders for a vote at the Belo
Stockholders Meeting. NYSE rules require that Belo stockholders approve the Belo
Proposal because the 25,600,000 shares of Belo Series A Common Stock to be
issued in the Merger constitute greater than 20% of the number of shares of Belo
Series A Common Stock outstanding prior to such issuance. Belo's Bylaws, as
amended (the "Belo Bylaws"), provide that the affirmative vote of the holders of
a majority of the votes represented by the outstanding shares of Belo Common
Stock present in person or by proxy and entitled to vote at a meeting of
stockholders at which a quorum is present is needed to approve and adopt the
Belo Proposal. In addition, NYSE rules require that the total votes cast on the
Belo Proposal represent over 50% in interest of the shares of Belo Common Stock
entitled to vote thereon. As of the Belo Record Date, directors and executive
officers of Belo, its subsidiaries and their respective affiliates as a group
beneficially owned 2,542,773 shares of Belo Series A Common Stock, or
approximately 9.4% of the outstanding shares of Belo Series A Common Stock, and
4,656,804 shares of Belo Series B Common Stock, or approximately 50.8% of the
outstanding shares of Belo Series B Common Stock, which represented, in the
aggregate, 41.4% of the total voting power of the outstanding shares of Belo
Common Stock as of the Belo Record Date. Pursuant to the terms of the Belo
Stockholders Agreement (defined below), certain officers and directors of Belo,
who owned directly in their individual capacities an aggregate of 2,337,984
shares of Belo Series A Common Stock as of the Belo Record Date, or
approximately 8.6% of the shares of Belo Series A Common Stock outstanding as of
such date, and an aggregate of 3,622,474 shares of Belo Series B Common Stock as
of the Belo Record Date, or approximately 39.5% of the shares of Belo Series B
Common Stock outstanding as of such date, have agreed to vote all of their
shares of Belo Common Stock in favor of the Belo Proposal. The aggregate number
of shares of Belo Common Stock held by such officers and directors represented
approximately 32.5% of the total voting power of the outstanding Belo Common
Stock as of the Belo Record Date. See "THE MERGER AGREEMENT -- Stockholders
Agreements."
Belo believes that, as of January 3, 1997, none of its officers and
directors owned any shares of Providence Journal Common Stock.
Providence Journal. The Providence Journal Stockholders Meeting will be
held at the offices of Providence Journal, 75 Fountain Street, Providence, Rhode
Island on February 19, 1997, starting at 4 p.m., local time. See "THE SPECIAL
MEETINGS." At the Providence Journal Stockholders Meeting, holders of Providence
Journal's Class A Common Stock, par value $1.00 per share (the "Providence
Journal Class A Common Stock"), and Providence Journal's Class B Common Stock,
par value $1.00 per share (the "Providence Journal Class B Common Stock" and
together with the Providence Journal Class A Common Stock, the "Providence
Journal Common Stock"), will be asked to approve the Providence Journal
Proposal. The Merger Agreement is attached hereto as Appendix A. See "THE
MERGER" and "THE MERGER AGREEMENT."
Holders of record of Providence Journal Common Stock at the close of
business on December 27, 1996 (the "Providence Journal Record Date") have the
right to receive notice of and to vote at the Providence Journal Stockholders
Meeting and any adjournments or postponements thereof. As of the Providence
Journal Record Date, there were 27,506,127 shares of Providence Journal Class A
Common Stock and 20,109,026 shares of Providence Journal Class B Common Stock
outstanding and entitled to vote. Each share of Providence Journal Class A
Common Stock is entitled to one vote and each share of Providence Journal Class
B Common Stock is entitled to four votes on each matter that is properly
presented to stockholders for a
5
<PAGE> 16
vote at the Providence Journal Stockholders Meeting. Under the Delaware General
Corporation Law (the "DGCL") and Providence Journal's Bylaws (the "Providence
Journal Bylaws"), the affirmative vote of the holders of a majority of the votes
represented by the outstanding shares of Providence Journal Common Stock is
required to approve and adopt the Providence Journal Proposal. As of the
Providence Journal Record Date, directors and executive officers of Providence
Journal, its subsidiaries and their respective affiliates as a group
beneficially owned 3,785,065 shares of Providence Journal Class A Common Stock,
or approximately 13.8% of the outstanding shares of Providence Journal Class A
Common Stock, and 3,334,950 shares of Providence Journal Class B Common Stock,
or approximately 16.6% of the outstanding shares of Providence Journal Class B
Common Stock, which represented, in the aggregate, approximately 15.9% of the
total voting power of the outstanding shares of Providence Journal Common Stock
as of the Providence Journal Record Date. Pursuant to the terms of the
Providence Journal Stockholders Agreement (defined below), certain officers and
directors of Providence Journal, who owned directly in their individual
capacities an aggregate of 3,785,065 shares of Providence Journal Class A Common
Stock as of the Providence Journal Record Date, or approximately 13.8% of the
shares of Providence Journal Class A Common Stock outstanding as of such date,
and an aggregate of 3,334,950 shares of Providence Journal Class B Common Stock
as of the Providence Journal Record Date, or approximately 16.6% of the shares
of the Providence Journal Class B Common Stock outstanding as of such date, have
agreed to vote all of their shares of Providence Journal Common Stock in favor
of the Providence Journal Proposal. The aggregate number of shares of Providence
Journal Common Stock held by such officers and directors represents
approximately 15.9% of the total voting power of the outstanding Providence
Journal Common Stock as of the Providence Journal Record Date. See "THE MERGER
AGREEMENT -- Stockholders Agreements."
Providence Journal believes that, as of January 3, 1997, none of its
officers and directors owned any shares of Belo Common Stock.
RISK FACTORS
In determining whether to vote for the Belo Proposal or the Providence
Journal Proposal, as applicable, stockholders should carefully read and evaluate
certain risks associated with Providence Journal, Belo and the Merger. See "RISK
FACTORS."
THE MERGER AGREEMENT
General. The Merger Agreement provides, among other things, for the merger
of Providence Journal with and into Finance, with Finance as the surviving
corporation in the Merger. "Effective Time" means the time at which the
certificate of merger in respect of the Merger is filed with the Secretary of
State of the State of Delaware.
Conversion of Providence Journal Common Stock. Upon consummation of the
Merger, each outstanding share of Providence Journal Common Stock (other than
treasury shares, shares held directly or indirectly by Belo and shares held by a
Providence Journal stockholder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such shares in
accordance with the DGCL ("Dissenting Shares") and as to which appraisal rights
have been perfected under the DGCL) will, by virtue of the Merger and without
any action on the part of the holders of Providence Journal Common Stock, be
converted into the right to receive only the Merger Consideration (defined
below), and thereafter will no longer be outstanding and will automatically be
cancelled and cease to exist. See "THE MERGER AGREEMENT -- Merger
Consideration -- Conversion of Providence Journal Shares." For a summary of the
principal differences between the rights of holders of Providence Journal Common
Stock and Belo Common Stock, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF PROVIDENCE
JOURNAL COMMON STOCK (OTHER THAN TREASURY SHARES, SHARES HELD DIRECTLY OR
INDIRECTLY BY BELO AND DISSENTING SHARES AS TO WHICH APPRAISAL RIGHTS HAVE BEEN
PERFECTED UNDER THE DGCL) SHALL, WITHOUT ANY ACTION ON THE PART OF THE HOLDER
THEREOF, BE DEEMED TO REPRESENT ONLY A RIGHT TO RECEIVE THE MERGER
CONSIDERATION. THE MERGER CONSIDERATION WILL ONLY BE PAID TO HOLDERS OF RECORD
OF PROVIDENCE JOURNAL COMMON STOCK AT THE EFFECTIVE TIME AND WILL BE PAID ONLY
UPON SURRENDER TO THE EXCHANGE AGENT BY A PROVIDENCE JOURNAL STOCKHOLDER OF THE
CERTIFICATE(S) REPRESENTING HIS SHARES OF PROVIDENCE JOURNAL COMMON STOCK,
TOGETHER WITH A PROPERLY COMPLETED LETTER OF TRANSMITTAL
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<PAGE> 17
(DEFINED BELOW). BELO ANTICIPATES THAT THE EXCHANGE AGENT WILL MAIL THE MERGER
CONSIDERATION TO EACH PROVIDENCE JOURNAL STOCKHOLDER WHO HAS COMPLIED WITH THE
PRECEDING SENTENCE ON THE FIRST BUSINESS DAY AFTER THE EFFECTIVE TIME IF SUCH
COMPLIANCE OCCURS BEFORE THE CLOSING DATE (DEFINED BELOW) AND WITHIN SEVEN
BUSINESS DAYS AFTER SUCH COMPLIANCE IF SUCH COMPLIANCE OCCURS AFTER THE CLOSING
DATE.
Election Procedure. Election forms in such form as Belo and Providence
Journal shall agree (each a "Form of Election") and a letter of transmittal
(together with instructions as to effecting the exchange of Certificates
(defined below) for Merger Consideration, a "Letter of Transmittal"), will be
mailed 30 days prior to the anticipated Effective Time, or on such other date as
Belo and Providence Journal may agree (the "Mailing Date"), to each holder of
record of Providence Journal Common Stock as of five business days prior to the
Mailing Date (the "Election Form Record Date"). Each Form of Election will
permit the holder (or the beneficial owner through appropriate and customary
documentation and instructions) to choose to receive (subject to the allocation
and proration procedures described below) one of the following in exchange for
such holder's shares of Providence Journal Common Stock: (i) only cash (a "Cash
Election"), (ii) only Belo Series A Common Stock (a "Stock Election") or (iii)
the Mixed Consideration (defined below) (a "Mixed Election"). Alternatively,
each Form of Election will permit the holder to indicate that such holder has no
preference as to the receipt of cash or Belo Series A Common Stock for such
holder's shares of Providence Journal Common Stock (a "Non-Election"). The
election deadline, as set forth in the Form of Election, will be 5:00 p.m., New
York City time, on the 25th calendar day following the Mailing Date (or such
other time as Belo and Providence Journal may agree) (the "Election Deadline").
Any shares of Providence Journal Common Stock (excluding any treasury shares,
shares held directly or indirectly by Belo and Dissenting Shares as to which
appraisal rights have been perfected under the DGCL) with respect to which the
holder (or beneficial owner, as the case may be) has not submitted to the
Exchange Agent an effective, properly completed Form of Election on or before
the Election Deadline will be deemed to be shares as to which a Non-Election has
been made. The Exchange Agent is The First National Bank of Boston. See "THE
MERGER AGREEMENT -- Election Procedure."
TO MAKE AN EFFECTIVE ELECTION, A PROVIDENCE JOURNAL STOCKHOLDER MUST SUBMIT
A PROPERLY COMPLETED FORM OF ELECTION SO THAT IT IS ACTUALLY RECEIVED BY THE
EXCHANGE AGENT AT OR PRIOR TO THE ELECTION DEADLINE IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE FORM OF ELECTION. A FORM OF ELECTION WILL BE PROPERLY
COMPLETED ONLY IF ACCOMPANIED BY CERTIFICATE(S) REPRESENTING ALL SHARES OF
PROVIDENCE JOURNAL COMMON STOCK COVERED THEREBY. THE ELECTION DEADLINE IS 5:00
P.M. ON THE 25TH CALENDAR DAY FOLLOWING THE MAILING DATE OR SUCH OTHER DATE UPON
WHICH BELO AND PROVIDENCE JOURNAL MUTUALLY AGREE.
PROVIDENCE JOURNAL STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING PROVIDENCE JOURNAL COMMON STOCK WITH THE ENCLOSED PROXY CARD. A
LETTER OF TRANSMITTAL AND FORM OF ELECTION WILL BE MAILED PRIOR TO THE EFFECTIVE
TIME TO EACH PERSON WHO IS A HOLDER OF OUTSTANDING PROVIDENCE JOURNAL COMMON
STOCK AS OF THE ELECTION FORM RECORD DATE, AND UPON REQUEST TO THE EXCHANGE
AGENT, TO EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL OWNER OF PROVIDENCE
JOURNAL COMMON STOCK BETWEEN THE ELECTION FORM RECORD DATE AND THE BUSINESS DAY
PRIOR TO THE ELECTION DEADLINE. PROVIDENCE JOURNAL STOCKHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING PROVIDENCE JOURNAL COMMON STOCK TO THE EXCHANGE AGENT
ONLY AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED
IN THE LETTER OF TRANSMITTAL.
Consideration to be Received by Providence Journal Stockholders. Upon
consummation of the Merger, each share of Providence Journal Common Stock (other
than treasury shares, shares held directly or indirectly by Belo and Dissenting
Shares as to which appraisal rights have been perfected under the DGCL), will be
converted into the right to receive cash, shares of Belo Series A Common Stock
or a combination of cash and Belo Series A Common Stock. See "THE MERGER
AGREEMENT -- Merger Consideration" and "DESCRIPTION OF BELO CAPITAL STOCK."
Because the aggregate number of shares of Belo Series A Common Stock to be
issued in the Merger and the aggregate amount of cash (other than cash paid in
lieu of fractional shares of Belo Series A Common Stock) to be paid in the
Merger are fixed, a Providence Journal stockholder may not receive exactly the
consideration elected by him on the Form of Election. The determination of
whether cash or stock has been oversubscribed and the exact composition of the
Merger Consideration to be received by each Providence Journal stockholder will
be made on a date that is within five days before the anticipated Closing Date.
The amount of cash and/or the number of shares of Belo Series A Common Stock
that a Providence Journal stockholder will receive will depend on (i) the stated
preferences of
7
<PAGE> 18
all Providence Journal stockholders on the Forms of Election and (ii) the
allocation and proration procedures to be applied if the Stock Election Shares
exceed the Stock Election Number or the Cash Election Shares exceed the Cash
Election Number (each defined below). Providence Journal stockholders will know
the exact composition of the Merger Consideration paid for their shares of
Providence Journal Common Stock only upon receipt of the Merger Consideration
payable to them, which payment will be accompanied by a brief explanation of the
application of the allocation and proration mechanisms provided in the Merger
Agreement. Regardless of whether Providence Journal stockholders elect to
receive all Belo Series A Common Stock, all cash or a combination of Belo Series
A Common Stock and cash for each share of Providence Journal Common Stock held,
the election mechanism is designed to provide that, as of the date of
determination thereof, each Providence Journal stockholder will receive the same
value per share of Providence Journal Common Stock based on the Valuation Period
Stock Price for the Belo Series A Common Stock. However, the ultimate value
received by each stockholder who receives Belo Series A Common Stock in the
Merger may be greater or less than the value calculated based on the Valuation
Period Stock Price because of fluctuations in the market value of Belo Series A
Common Stock.
At the Effective Time, by virtue of the Merger and without any action on
the part of Belo, Finance, Providence Journal or the holders of any of the
following securities, and subject to the allocation and proration provisions
described below, each share of Providence Journal Common Stock issued and
outstanding immediately prior to the Effective Time (excluding any treasury
shares, shares held directly or indirectly by Belo and Dissenting Shares as to
which appraisal rights have been perfected under the DGCL) will be converted
into: (i) the right to receive a number of shares of Belo Series A Common Stock
equal to the sum of (A) 0.5333 and (B) the quotient (calculated to the nearest
0.0001) of $12.33 divided by the Valuation Period Stock Price (the sum of (i)(A)
and (B), the "Exchange Ratio"); (ii) the right to receive in cash, without
interest, the sum of (A) $12.33 and (B) the product of 0.5333 and the Valuation
Period Stock Price (the sum of (ii)(A) and (B), the "Per Share Cash Amount");
(iii) the right to receive 0.5333 shares of Belo Series A Common Stock and
$12.33 in cash, without interest (the "Mixed Consideration"); or (iv) the right
to receive a combination of shares of Belo Series A Common Stock and cash
determined in accordance with the allocation provisions of the Merger Agreement
described below ("Non-Election Consideration"). The exact composition of the
Non-Election Consideration will only be determined after the Election Deadline
and will depend on the elections made by those Providence Journal stockholders
making Cash Elections, Stock Elections and Mixed Elections. If the aggregate
number of shares of Providence Journal Common Stock for which Cash Elections are
made ("Cash Election Shares") exceeds the number of shares of Providence Journal
Common Stock that can be converted into cash, Providence Journal stockholders
making a Non-Election will receive a number of shares of Belo Series A Common
Stock that is greater than the number of such shares (and an amount of cash that
is less than the amount of cash) received by Providence Journal stockholders
making Mixed Elections. By contrast, if the aggregate number of shares of
Providence Journal Common Stock for which Stock Elections are made ("Stock
Election Shares") exceeds the number of shares of Providence Journal Common
Stock that can be converted into shares of Belo Series A Common Stock,
Providence Journal stockholders making a Non-Election will receive a number of
shares of Belo Series A Common Stock that is less than the number of such shares
(and an amount of cash that is greater than the amount of cash) received by
Providence Journal stockholders making Mixed Elections.
The consideration described in the preceding paragraph to be provided in
exchange for each share of Providence Journal Common Stock is referred to as the
"Merger Consideration" and the aggregate of such consideration provided in
exchange for all shares of Providence Journal Common Stock is referred to as the
"Aggregate Merger Consideration." The "Valuation Period Stock Price" means the
average of the NYSE closing sale prices for the Belo Series A Common Stock (as
reported in The Wall Street Journal or, in the absence thereof, by another
authoritative source) for the ten consecutive trading-day period ending on the
tenth calendar day immediately preceding the anticipated Closing Date.
At the Effective Time, the holders of certificates evidencing shares of
Providence Journal Common Stock (other than treasury shares, shares held
directly or indirectly by Belo and Dissenting Shares as to which appraisal
rights have been perfected under the DGCL) ("Certificates") will cease to have
any rights with respect to the shares of Providence Journal Common Stock
previously represented thereby, except as
8
<PAGE> 19
otherwise provided in the Merger Agreement or by law. Such Certificates will be
exchanged for (A) certificates evidencing that number of whole shares of Belo
Series A Common Stock equal to the Exchange Ratio multiplied by the number of
shares previously evidenced by the cancelled Certificate and cash in lieu of any
fractional share of Belo Series A Common Stock or (B) the Per Share Cash Amount
multiplied by the number of shares previously evidenced by the cancelled
Certificate or (C) a combination of such certificates and cash, without
interest, in each case in accordance with the allocation and proration
procedures described below and upon the surrender of such Certificates in the
manner described in "-- Election Procedure." See "THE MERGER AGREEMENT -- Merger
Consideration" and "THE MERGER AGREEMENT -- Election Procedure."
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES OF RECEIVING DIFFERENT FORMS OF
MERGER CONSIDERATION WILL DIFFER, PROVIDENCE JOURNAL STOCKHOLDERS ARE URGED TO
READ CAREFULLY THE INFORMATION SET FORTH UNDER "THE MERGER -- CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
Allocation and Proration. The Merger Agreement provides for a fixed number
of shares of Belo Series A Common Stock to be issued in the Merger (not to
exceed 25,600,000 shares of Belo Series A Common Stock) and a fixed amount of
cash (other than cash paid in lieu of fractional shares of Belo Series A Common
Stock) to be paid in the Merger (not to exceed $590 million). Accordingly, the
number of shares of Providence Journal Common Stock to be converted into Belo
Series A Common Stock and the number of shares of Providence Journal Common
Stock to be converted into the right to receive cash in the Merger are fixed. In
addition to the Aggregate Merger Consideration, Belo expects to pay on or about
the Closing Date approximately $99.5 million to (a) cash out all Providence
Journal Employee Stock Options (defined below); (b) satisfy stock-based
compensation plans pertaining primarily to the US West Merger; (c) settle
obligations under Providence Journal severance agreements; and (d) satisfy
miscellaneous expenses in connection with the Merger. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT -- Certain Covenants -- Providence Journal Employee Stock Options and
Incentive Unit Plan."
The aggregate number of shares of Providence Journal Common Stock to be
converted into the right to receive cash in the Merger (the "Cash Election
Number") will be equal to:
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Number = Providence Journal Common Stock Number X $12.33
--------------------
Per Share Cash Amount
</TABLE>
where the Providence Journal Common Stock Number is the number of shares of
Providence Journal Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any treasury shares and shares held directly or
indirectly by Belo) and the Per Share Cash Amount is defined above under
"-- Consideration to be Received by Providence Journal Stockholders."
The aggregate number of shares of Providence Journal Common Stock to be
converted into the right to receive Belo Series A Common Stock in the Merger
(the "Stock Election Number") will be equal to:
<TABLE>
<S> <C> <C> <C> <C>
Stock Election Number = Providence Journal Common Stock Number - Cash Election Number
</TABLE>
Following the Election Deadline, the Exchange Agent will determine whether
there is an oversubscription by Providence Journal stockholders for cash, an
oversubscription by Providence Journal stockholders for Belo Series A Common
Stock or no oversubscription for either cash or stock. Set forth below are a
description and examples of the allocation and proration procedures for each
such scenario, as well as a list of formulae and defined terms used to determine
such allocation and proration of the Aggregate Merger Consideration:
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Number = Providence Journal Common Stock Number X $12.33
---------------------
Per Share Cash Amount
Cash Election Shares = Aggregate number of shares of Providence Journal Common Stock covered by
Cash Elections
Cash Fraction = Cash Election Number - Mixed Election Cash Shares
---------------------------------------------------
Cash Election Shares
</TABLE>
9
<PAGE> 20
<TABLE>
<S> <C> <C>
Exchange Ratio = 0.5333 + $12.33
-------------------------
Valuation Period Stock Price
Mixed Election Cash Fraction = $12.33
---------------------
Per Share Cash Amount
Mixed Election Cash Shares = Mixed Election Shares X Mixed Election Cash Fraction
Mixed Election Shares = Aggregate number of shares of Providence Journal Common Stock covered by
Mixed Elections
Mixed Election Stock Shares = Mixed Election Shares X (1 - Mixed Election Cash Fraction)
Non-Election Fraction = Cash Election Number - (Cash Election Shares + Mixed Election Cash Shares)
-----------------------------------------------------------------------------
Providence Journal Common - (Cash Election Shares + Stock
Stock Number Election Shares + Mixed Election Shares)
Non-Election Shares = Aggregate number of shares of Providence Journal Common Stock covered by
Non-Elections
Stock Election Number = Providence Journal Common Stock Number - Cash Election Number
Stock Election Shares = Aggregate number of shares of Providence Journal Common Stock covered by
Stock Elections
Stock Fraction = Stock Election Number - Mixed Election Stock Shares
-----------------------------------------------------------
Stock Election Shares
</TABLE>
Cash Oversubscription. If cash is oversubscribed because the sum of (A) the
aggregate number of Cash Election Shares and (B) the aggregate number of Mixed
Election Cash Shares exceeds the Cash Election Number, then: (i) each Stock
Election Share and each Non-Election Share will be converted into the right to
receive Belo Series A Common Stock; (ii) each Mixed Election Share will be
converted into the right to receive the Mixed Consideration; (iii) each Cash
Election Share will be converted into the right to receive (a) an amount of
cash, without interest, equal to:
Per Share Cash Amount X Cash Fraction
and (b) a number of shares of Belo Series A Common Stock equal to:
Exchange Ratio X (1 - Cash Fraction)
Stock Oversubscription. If Belo Series A Common Stock is oversubscribed
because the sum of (A) the aggregate number of Stock Election Shares and (B) the
aggregate number of Mixed Election Stock Shares exceeds the Stock Election
Number, then: (i) each Cash Election Share and each Non-Election Share will be
converted into the right to receive cash; (ii) each Mixed Election Share will be
converted into the right to receive the Mixed Consideration; and (iii) each
Stock Election Share will be converted into the right to receive (a) a number of
shares of Belo Series A Common Stock equal to:
Exchange Ratio X Stock Fraction
and (b) an amount of cash, without interest, equal to:
Per Share Cash Amount X (1 - Stock Fraction)
No Oversubscription. If neither cash nor stock is oversubscribed, then: (i)
each Cash Election Share will be converted into the right to receive cash; (ii)
each Stock Election Share will be converted into the right to receive Belo
Series A Common Stock; (iii) each Mixed Election Share will be converted into
the right to receive the Mixed Consideration; and (iv) each Non-Election Share
will be converted into the right to receive (a) an amount in cash, without
interest, equal to:
Per Share Cash Amount X Non-Election Fraction
and (b) a number of shares of Belo Series A Common Stock equal to:
Exchange Ratio X (1-Non-Election Fraction)
10
<PAGE> 21
BECAUSE THE AGGREGATE NUMBER OF SHARES OF BELO SERIES A COMMON STOCK TO BE
ISSUED IN THE MERGER AND THE AGGREGATE AMOUNT OF CASH TO BE PAID IN THE MERGER
ARE FIXED (OTHER THAN CASH PAID IN LIEU OF FRACTIONAL SHARES OF BELO SERIES A
COMMON STOCK), NO ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN
PROVIDENCE JOURNAL STOCKHOLDER OTHER THAN AN ELECTION TO RECEIVE THE MIXED
CONSIDERATION WILL BE HONORED. THEREFORE, PROVIDENCE JOURNAL STOCKHOLDERS
ELECTING ALL BELO SERIES A COMMON STOCK OR ALL CASH MAY NOT RECEIVE PRECISELY
THE FORM OF CONSIDERATION REQUESTED. SEE "THE MERGER AGREEMENT -- PRORATION AND
ALLOCATION." FOR A DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
RECEIPT OF THE MERGER CONSIDERATION, SEE "THE MERGER -- CERTAIN FEDERAL INCOME
TAX CONSEQUENCES."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT MARKET VALUE OF BELO SERIES A
COMMON STOCK OR THE VALUATION PERIOD STOCK PRICE USED IN THE PRORATION AND
ALLOCATION PROCEDURES DESCRIBED ABOVE WILL BE EQUIVALENT TO THE MARKET VALUE OF
BELO SERIES A COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A PROVIDENCE
JOURNAL STOCKHOLDER OR AT ANY OTHER TIME. SUCH MARKET VALUE MAY BE GREATER OR
LESS THAN THE CURRENT MARKET VALUE OR THE VALUATION PERIOD STOCK PRICE OF BELO
SERIES A COMMON STOCK DUE TO NUMEROUS FACTORS. AS OF JANUARY 3, 1997, THE
CLOSING SALES PRICE OF BELO SERIES A COMMON STOCK ON THE NYSE (AS REPORTED IN
THE WALL STREET JOURNAL) WAS $33.88 PER SHARE WHICH, IF THE VALUE OF THE MERGER
CONSIDERATION WERE DETERMINED AS OF SUCH DATE, WOULD RESULT IN EACH PROVIDENCE
JOURNAL STOCKHOLDER BEING ENTITLED TO RECEIVE CONSIDERATION PER SHARE OF
PROVIDENCE JOURNAL COMMON STOCK IN THE MERGER EQUAL IN VALUE TO $30.40.
PROVIDENCE JOURNAL STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE BELO SERIES A COMMON STOCK PRIOR TO MAKING AN ELECTION IN ORDER TO MAKE
AN INFORMED DECISION AS TO WHETHER TO MAKE A CASH ELECTION, STOCK ELECTION OR
MIXED ELECTION.
Illustrations of Merger Consideration Calculation: The following
illustrations and chart set forth the type and amount of Merger Consideration
that a holder of 100 shares of Providence Journal Common Stock (the
"Illustrative Holder") would receive in connection with the Merger, assuming in
each case (i) a Valuation Period Stock Price of $35 per share based upon the
average of the NYSE closing sale prices for Belo Series A Common Stock (as
reported in The Wall Street Journal) for the ten consecutive trading-day period
ending on January 3, 1997, rounded to the nearest whole dollar for purposes of
the following illustrations only, (ii) 47,612,000 shares of Providence Journal
Common Stock outstanding immediately prior to the Effective Time (excluding any
treasury shares and shares held directly or indirectly by Belo, and assuming the
cash-out of all options and that there are no Dissenting Shares), (iii) a Cash
Election Number of 18,940,038, which is the maximum number of shares of
Providence Journal Common Stock that can be converted into cash (all figures
have been rounded to correspond with specific decimal presentations):
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Number = Providence Journal Common Stock Number X $12.33
--------------------
Per Share Cash Amount
18,940,038 = 47,612,000 X $12.33
------------------------
$12.33 + (0.5333 X $35.00)
</TABLE>
and (iv) a Stock Election Number of 29,601,607 (the maximum number of shares of
Providence Journal Common Stock that can be converted into shares of Belo Series
A Common Stock):
<TABLE>
<S> <C> <C> <C> <C>
$12.33
Stock Election Number = Providence Journal Common Stock Number X (1 - ---------------------)
Per Share Cash Amount
$12.33
28,671,962 = 47,612,000 X (1 - --------------------------)
($12.33 + 0.5333 X $35.00)
</TABLE>
Illustration A -- Holders of 80%, or 38,089,600 shares, of Providence
Journal Common Stock elect to receive only cash; the holders of 10%, or
4,761,200 shares, of Providence Journal Common Stock elect to receive only Belo
Series A Common Stock; the holders of 5%, or 2,380,600 shares, of Providence
Journal Common Stock elect to receive Mixed Consideration, of which 947,002
shares are Mixed Election Cash Shares (shares which would be converted into
cash) and 1,433,598 are Mixed Election Stock Shares (shares which would be
converted into Belo Series A Common Stock); and the holders of the remaining 5%,
or
11
<PAGE> 22
2,380,600 shares, of Providence Journal Common Stock make no election or have no
preference. The following formulae were used to determine the number of Mixed
Election Cash Shares and the Mixed Election Stock Shares in this Illustration A:
<TABLE>
<S> <C> <C> <C> <C>
Mixed Election Cash Shares = Mixed Election Shares X Mixed Election Cash Fraction
$12.33
947,002 = 2,380,600 X -------
$30.9955
Mixed Election Stock Shares = Mixed Election Shares X (1 - Mixed Election Cash Fraction)
$12.33
1,433,598 = 2,380,600 X (1 - --------)
$30.9955
</TABLE>
Under this scenario, the aggregate number of shares of Providence Journal
Common Stock electing to receive cash plus the number of Mixed Election Cash
Shares exceed the Cash Election Number, as shown below:
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Shares + Mixed Election Cash Shares Exceeds Cash Election Number
38,089,600 + 947,002 Exceeds 18,940,038
</TABLE>
Therefore, because there is a cash oversubscription, pursuant to the
allocation and proration procedures of the Merger Agreement, (i) all shares of
Providence Journal Common Stock electing to receive Belo Series A Common Stock
will be converted into the right to receive shares of Belo Series A Common
Stock, (ii) all Non-Election Shares will be converted into the right to receive
shares of Belo Series A Common Stock, (iii) all shares of Providence Journal
Common Stock electing to receive the Mixed Consideration will be converted into
the right to receive the Mixed Consideration of cash and Belo Series A Common
Stock and (iv) all shares of Providence Journal Common Stock electing to receive
cash will be converted into the right to receive their pro rata share of the
remaining cash available for distribution in the Merger after the conversion
into cash of the Mixed Election Cash Shares plus the remaining portion of their
Merger Consideration in shares of Belo Series A Common Stock. Accordingly, each
share of Providence Journal Common Stock electing to receive cash will receive
the following:
<TABLE>
<S> <C> <C> <C> <C>
Pro rata share of remaining cash
available for distribution = Per Share Cash Amount X Cash Fraction
18,940,038 - 947,002
$14.6419 = $30.9955 X --------------------
38,089,600
Remaining portion of Merger
Consideration in shares of Belo
Series A Common Stock = Exchange Ratio X (1 - Cash Fraction)
18,940,038 - 947,002
0.4672 = 0.8856 X (1 - -------------------- )
38,089,600
</TABLE>
Based on the assumptions stated above, the Illustrative Holder would
receive the following type and amount of Merger Consideration:
<TABLE>
<S> <C> <C> <C> <C>
Stock Election Shares = 100 X Exchange Ratio
= 100 X 0.8856 = 88.6 shares
Non-Election Shares = 100 X Exchange Ratio
= 100 X 0.8856 = 88.6 shares
Mixed Election Shares = 100 X $12.33 = $1,233
= 100 X 0.5333 = 53.3 shares
Cash Election Shares = 100 X $14.6419 = $1,464
= 100 X 0.4672 = 46.7 shares
</TABLE>
Illustration B -- Holders of 10%, or 4,761,200 shares, of Providence
Journal Common Stock elect to receive only cash; the holders of 80%, or
38,089,600 shares, of Providence Journal Common Stock elect to receive only Belo
Series A Common Stock; the holders of 5%, or 2,380,600 shares, of Providence
Journal
12
<PAGE> 23
Common Stock elect to receive Mixed Consideration, of which 947,002 shares are
Mixed Election Cash Shares and 1,433,598 shares are Mixed Election Stock Shares;
and the holders of the remaining 5%, or 2,380,600 shares, of Providence Journal
Common Stock make no election or have no preference. The following formulae were
used to determine the number of Mixed Election Cash Shares and the Mixed
Election Stock Shares in this Illustration B:
<TABLE>
<S> <C> <C> <C> <C>
Mixed Election Cash Shares = Mixed Election Shares X Mixed Election Cash Fraction
$12.33
947,002 = 2,380,600 X -------
$30.9955
Mixed Election Stock Shares = Mixed Election Shares X (1 - Mixed Election Cash Fraction)
$12.33
1,433,598 = 2,380,600 X (1 - --------)
$30.9955
</TABLE>
Under this scenario, the aggregate number of shares of Providence Journal
Common Stock electing to receive only Belo Series A Common Stock plus the number
of Mixed Election Stock Shares exceed the Stock Election Number, as shown below:
<TABLE>
<S> <C> <C> <C> <C>
Stock Election Shares + Mixed Election Stock Shares Exceeds Stock Election Number
38,089,600 + 1,433,598 Exceeds 28,671,962
</TABLE>
Therefore, because there is a stock oversubscription, pursuant to the
allocation and proration procedures of the Merger Agreement, (i) all shares of
Providence Journal Common Stock electing to receive cash will be converted into
the right to receive cash, (ii) all Non-Election Shares will be converted into
the right to receive cash, (iii) all shares of Providence Journal Common Stock
electing to receive the Mixed Consideration will be converted into the right to
receive the Mixed Consideration of cash and Belo Series A Common Stock and (iv)
all shares of Providence Journal Common Stock electing to receive Belo Series A
Common Stock will be converted into the right to receive their pro rata share of
the remaining shares of Belo Series A Common Stock available for issuance in the
Merger after the conversion into Belo Series A Common Stock of the Mixed
Election Stock Shares plus the remaining portion of their Merger Consideration
in cash. Accordingly, each share of Providence Journal Common Stock electing to
receive stock will receive the following:
<TABLE>
<S> <C> <C> <C> <C>
Pro rata share of remaining
shares of Belo
Series A Common Stock = Exchange Ratio X Stock Fraction
0.6333 = 0.8856 X 28,671,962 - 1,433,598
----------------------
38,089,600
Remaining portion of Merger = Per Share Cash Amount X (1 - Stock Fraction)
Consideration in cash
28,671,962 - 1,433,598
$8.83 = $30.9955 X (1 - ----------------------)
38,089,600
</TABLE>
Based on the assumptions stated above, the Illustrative Holder would
receive the following type and amount of Merger Consideration:
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Shares = 100 X $30.9955 = $3,100
Non-Election Shares = 100 X $30.9955 = $3,100
Mixed Election Shares = 100 X $12.33 = $1,233
100 X 0.5333 = 53.3 shares
Stock Election Shares = 100 X 0.6333 = 63.3 shares
100 X $8.83 = $883
</TABLE>
Illustration C -- Holders of 20%, or 9,522,400 shares, of Providence
Journal Common Stock elect to receive only cash; holders of 50%, or 23,806,000
shares, of Providence Journal Common Stock elect to receive only Belo Series A
Common Stock; the holders of 10%, or 4,761,200 shares, of Providence Journal
Common
13
<PAGE> 24
Stock elect to receive Mixed Consideration, of which 1,894,004 shares are Mixed
Election Cash Shares, and 2,867,196 shares are Mixed Election Stock Shares; and
the holders of the remaining 20%, or 9,522,400 shares, of Providence Journal
Common Stock make no election or have no preference. The following formulae were
used to determine the number of Mixed Election Cash Shares and the Mixed
Election Stock Shares in this Illustration C:
<TABLE>
<S> <C> <C> <C> <C>
Mixed Election Cash Shares = Mixed Election Shares X Mixed Election Cash Fraction
$12.33
1,894,004 = 4,761,200 X -------
$30.9955
Mixed Election Stock Shares = Mixed Election Shares X (1 - Mixed Election Cash Fraction)
$12.33)
2,867,196 = 4,761,200 X (1 - --------)
$30.9955
</TABLE>
Under this scenario, the aggregate number of shares of Providence Journal
Common Stock electing to receive cash plus the number of Mixed Election Cash
Shares do not exceed the Cash Election Number and the aggregate number of shares
of Providence Journal Common Stock electing to receive Belo Series A Common
Stock plus the Mixed Election Stock Shares do not exceed the Stock Election
Number, as shown below:
<TABLE>
<S> <C> <C> <C> <C>
Cash Election Shares + Mixed Election Cash Shares Does not exceed Cash Election Number
9,522,400 + 1,894,004 Does not exceed 18,940,038
Stock Election Shares + Mixed Election Stock Shares Does not exceed Stock Election Number
23,806,000 + 2,867,196 Does not exceed 28,671,962
</TABLE>
Therefore, because there is no oversubscription for either cash or stock,
pursuant to the allocation and proration procedures of the Merger Agreement, (i)
all shares of Providence Journal Common Stock electing to receive cash will be
converted into the right to receive cash, (ii) all shares of Providence Journal
Common Stock electing to receive shares of Belo Series A Common Stock will be
converted into the right to receive shares of Belo Series A Common Stock, (iii)
all shares of Providence Journal Common Stock electing to receive the Mixed
Consideration will be converted into the right to receive the Mixed
Consideration of cash and Belo Series A Common Stock and (iv) all Non-Election
Shares will be converted into the right to receive the remaining cash and Belo
Series A Common Stock. In this example, the Merger Consideration paid to holders
of Non-Election Shares will consist primarily of cash because there were more
Stock Elections than Cash Elections. Accordingly, each share of Providence
Journal Common Stock making no election will receive the following:
<TABLE>
<S> <C> <C> <C> <C>
Remaining portion of Merger
Consideration in cash = Per Share Cash Amount X Non-Election Fraction
18,940,038 - (9,522,400 + 1,894,004)
$24.49 = $30.9955 X -----------------------------------------------
47,612,000 - (9,522,400 + 23,806,000 + 4,761,200)
Remaining portion of Merger
Consideration in Belo
Series A Common Stock = Exchange Ratio X (1 - Non-Election Fraction)
18,940,038 - (9,522,400 + 1,894,004)
0.1859 = 0.8856 X (1 - -------------------------------------------------)
47,612,000 - (9,522,400 + 23,806,000 + 4,761,200)
</TABLE>
14
<PAGE> 25
Based on the assumptions stated above, the Illustrative Holder would
receive the following type and amount of Merger Consideration:
Cash Election Shares = 100 X $30.9955 = $3,100
Stock Election Shares = 100 X 0.8856 = 88.6 shares
Mixed Election Shares = 100 X $12.33 = $1,233
= 100 X 0.5333 = 53.3 shares
Non-Election Shares = 100 X $24.49 = $2,449
= 100 X 0.1859 = 18.6 shares
The following table sets forth on a comparative basis the type and amount
of Merger Consideration that the Illustrative Holder would receive in connection
with the Merger under various assumptions.
SUMMARY OF ILLUSTRATIONS
ALLOCATION OF CASH AND STOCK PORTIONS
OF MERGER CONSIDERATION
(PER 100 PROVIDENCE JOURNAL SHARES)(1)
<TABLE>
<CAPTION>
ILLUSTRATION A: ILLUSTRATION B: ILLUSTRATION C:
CASH OVERSUBSCRIBED STOCK OVERSUBSCRIBED NO OVERSUBSCRIPTIONS
--------------------------------- --------------------------------- ---------------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF
BELO SERIES A ILLUSTRATIVE BELO SERIES A ILLUSTRATIVE BELO SERIES A ILLUSTRATIVE
COMMON STOCK(1)(2) VALUE COMMON STOCK(1)(2) VALUE COMMON STOCK(1)(2) VALUE
------------------ ------------ ------------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stock Election
Cash Portion.... -- $ -- -- $ 883 -- $ --
Stock Portion... 88.6 3,100 63.3 2,217 88.6 3,100
---- ------ ---- ------ ---- ------
Total..... 88.6 $3,100 63.3 $3,100 88.6 $3,100
==== ====== ==== ====== ==== ======
Cash Election
Cash Portion.... -- $1,464 -- $3,100 -- $3,100
Stock Portion... 46.7 1,636 -- -- -- --
---- ------ ---- ------ ---- ------
Total..... 46.7 $3,100 -- $3,100 -- $3,100
==== ====== ==== ====== ==== ======
Mixed Election
Cash Portion.... -- $1,233 -- $1,233 -- $1,233
Stock Portion... 53.3 1,867 53.3 1,867 53.3 1,867
---- ------ ---- ------ ---- ------
Total..... 53.3 $3,100 53.3 $3,100 53.3 $3,100
==== ====== ==== ====== ==== ======
Non-Election
Cash Portion.... -- $ -- -- $3,100 -- $2,449
Stock Portion... 88.6 3,100 -- -- 18.6 651
---- ------ ---- ------ ---- ------
Total..... 88.6 $3,100 -- $3,100 18.6 $3,100
==== ====== ==== ====== ==== ======
</TABLE>
- ---------------
(1) Assumes (i) a Valuation Period Stock Price of $35, (ii) 47,612,000 shares of
Providence Journal Common Stock outstanding immediately prior to the
Effective Time, excluding any treasury shares and shares held directly or
indirectly by Belo, and assuming the cashout of all options and that there
are no Dissenting Shares, (iii) a Cash Election Number of 18,940,038 and
(iv) a Stock Election Number of 28,671,962.
(2) Fractional shares are included in the above table for illustrative purposes
only. Because no fractional shares will be issued in the Merger, holders of
Providence Journal Common Stock will receive cash in lieu of fractional
shares. See "THE MERGER AGREEMENT -- Fractional Shares."
15
<PAGE> 26
Illustrative Value of Merger Consideration at Assumed Valuation Period
Stock Prices:
The following table shows (i) the total value of the consideration paid per
share of Providence Journal Common Stock under a Stock Election, a Cash
Election, a Mixed Election or a Non-Election at various assumed Valuation Period
Stock Prices, and (ii) the breakout of Merger Consideration for those Providence
Journal Stockholders receiving Mixed Consideration at various assumed Valuation
Period Stock Prices.
THE RANGE OF VALUATION PERIOD STOCK PRICES PRESENTED IN THE FOLLOWING TABLE
IS FOR ILLUSTRATIVE PURPOSES ONLY AND THERE CAN BE NO ASSURANCE THAT THE ACTUAL
VALUATION PERIOD STOCK PRICE WILL RESULT IN A VALUATION SHOWN IN THE TABLE. NO
ASSURANCE CAN BE GIVEN THAT THE CURRENT MARKET VALUE OF BELO SERIES A COMMON
STOCK OR THE VALUATION PERIOD STOCK PRICE USED IN THE ILLUSTRATION BELOW WILL BE
EQUIVALENT TO THE MARKET VALUE OF BELO SERIES A COMMON STOCK ON THE DATE SUCH
STOCK IS RECEIVED BY A PROVIDENCE JOURNAL STOCKHOLDER OR AT ANY OTHER TIME. THE
MARKET VALUE OF BELO SERIES A COMMON STOCK RECEIVED BY A PROVIDENCE JOURNAL
STOCKHOLDER MAY BE GREATER OR LESS THAN THE CURRENT MARKET VALUE OF BELO SERIES
A COMMON STOCK OR THE VALUATION PERIOD STOCK PRICE DUE TO NUMEROUS FACTORS.
PROVIDENCE JOURNAL STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE BELO SERIES A COMMON STOCK PRIOR TO MAKING AN ELECTION.
ILLUSTRATION
ILLUSTRATIVE VALUE OF MERGER CONSIDERATION
BASED ON RANGE OF ASSUMED VALUATION PERIOD STOCK PRICES
<TABLE>
<CAPTION>
BREAKOUT OF MERGER
CONSIDERATION FOR THOSE
PROVIDENCE
JOURNAL STOCKHOLDERS RECEIVING
ASSUMED MIXED CONSIDERATION
VALUATION TOTAL --------------------------------
PERIOD STOCK CONSIDERATION VALUE OF
PRICE PER SHARE(1) CASH PER SHARE STOCK PORTION
- ------------ ------------- -------------- -------------
<S> <C> <C> <C>
$40.00 $ 33.6620 $12.33 $ 21.3320
39.50 33.3954 12.33 21.0654
39.00 33.1287 12.33 20.7987
38.50 32.8621 12.33 20.5321
38.00 32.5954 12.33 20.2654
37.50 32.3288 12.33 19.9988
37.00 32.0621 12.33 19.7321
36.50 31.7955 12.33 19.4655
36.00 31.5288 12.33 19.1988
35.50 31.2622 12.33 18.9322
35.00 30.9955 12.33 18.6655
34.50 30.7289 12.33 18.3989
34.00 30.4622 12.33 18.1322
33.50 30.1956 12.33 17.8656
33.00 29.9289 12.33 17.5989
32.50 29.6623 12.33 17.3323
32.00 29.3956 12.33 17.0656
31.50 29.1290 12.33 16.7990
31.00 28.8623 12.33 16.5323
30.50 28.5957 12.33 16.2657
30.00 28.3290 12.33 15.9990
</TABLE>
- ---------------
(1) Total consideration per share represents the total value of the
consideration paid per share of Providence Journal Common Stock under a
Stock Election, a Cash Election, a Mixed Election or a Non-Election at
various assumed Valuation Period Stock Prices.
Treasury Stock and Stock Owned by Belo. Each share of Providence Journal
Common Stock held in the treasury of Providence Journal and each share of
Providence Journal Common Stock owned by Belo or any direct or indirect wholly
owned subsidiary of Belo or of Providence Journal immediately prior to the
Effective Time will be cancelled and extinguished without any conversion thereof
and no payment will be made with respect thereto.
16
<PAGE> 27
Fractional Shares. No fractional shares of Belo Series A Common Stock will
be issued in the Merger. In lieu of the issuance of any fractional shares of
Belo Series A Common Stock, cash equal to the product of such fractional share
amount and the closing sale price of one share of Belo Series A Common Stock on
the NYSE (as reported by The Wall Street Journal or, if not reported thereby,
any other authoritative source) on the trading day immediately preceding the
Closing Date will be paid to holders in respect of any fractional share of Belo
Series A Common Stock that would otherwise be issuable.
Conditions to the Merger. The obligations of Belo and Providence Journal to
consummate the Merger are subject to the fulfillment or waiver of various
conditions, including, among others: (i) the effectiveness of the Registration
Statement and the absence of any stop order suspending the effectiveness thereof
and no proceeding for that purpose having been initiated by the Commission; (ii)
approval by the stockholders of Belo and Providence Journal of the Belo Proposal
and the Providence Journal Proposal, respectively; (iii) expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (iv) approval by
the Federal Communications Commission ("FCC") of the FCC Application (defined
below) without any condition that would have a material adverse effect on Belo
(except that any such approval that is subject to a condition that Belo divest
KIRO-TV or other assets having a value of $50 million or less will not be deemed
to have a material adverse effect on Belo), provided that there is not a
significant risk that such approval will not become final (i.e., no longer
subject to administrative or judicial review); (v) the receipt of all consents,
authorizations, orders and approvals of (or filings or registrations with) any
Federal, state or local government or any court, administrative or regulatory
agency or commission or other governmental authority or agency (each a
"Governmental Entity") (other than in respect of the FCC and under the HSR Act)
required in connection with the Merger Agreement (except for those documents
required to be filed after the Effective Time and except where the failure to
obtain such approval or order would not have a material adverse effect on Belo
after the Effective Time); (vi) there is not in effect any (a) decree, temporary
restraining order, preliminary or permanent injunction or other order entered,
issued or enforced by any court of competent jurisdiction or (b) Federal
statute, rule or regulation enacted or promulgated, in either case that
prohibits the consummation of the Merger, and there is not in effect any state
or local statute, rule or regulation enacted or promulgated that prohibits the
consummation of the Merger and which would have a material adverse effect on
Belo after the Effective Time; (vii) the listing of the Belo Series A Common
Stock on the NYSE, subject to official notice of issuance; (viii) the receipt of
certain tax opinions; and (ix) the receipt of consents, as and to the extent
required, from each television network with which each of the Providence Journal
Stations (defined below) is affiliated consenting to the Merger and the
transferred Providence Journal Network Agreements (defined below) are on terms
reasonably satisfactory to Belo. See "THE MERGER AGREEMENT -- Conditions to the
Merger." Whether Belo and Finance or Providence Journal would be willing to
waive any particular condition, if it were to become evident that any such
condition could not be satisfied, would depend on all of the facts and
circumstances pertaining to such event.
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after the approval by
Belo's or Providence Journal's stockholders of the Belo Proposal or Providence
Journal Proposal, as applicable: (i) by mutual written consent of Belo, Finance
and Providence Journal; or (ii) by either Belo or Providence Journal under the
following circumstances: (w) if the Providence Journal Stockholders Meeting
(including as it may be adjourned from time to time) concludes without the
approval of the Merger Agreement by Providence Journal's stockholders having
been obtained; (x) if the Merger is not consummated on or before September 30,
1997 (the "Termination Date"), provided that the party seeking termination is
not otherwise in material breach of the Merger Agreement; (y) if any
Governmental Authority issues an order, injunction, decree or ruling or takes
any other action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, injunction, decree, ruling or other action becomes final
and nonappealable; or (z) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement which (A) would give rise to the failure to be satisfied of a
condition relating to the accuracy of such other party's representations and
warranties and (B) cannot be cured by the Termination Date (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained in the Merger Agreement). In
addition, the Merger Agreement may be terminated at any time prior
17
<PAGE> 28
to the Effective Time, whether before or after the approval by Belo's or
Providence Journal's stockholders of the Belo Proposal or Providence Journal
Proposal, as applicable, (i) by Belo if the Board of Directors of Providence
Journal (the "Providence Journal Board") approves or recommends a superior
proposal (defined below) or by Providence Journal if the Providence Journal
Board approves or recommends a superior proposal pursuant to its right to so
terminate as described in "THE MERGER AGREEMENT -- Certain Covenants -- No
Solicitation;" or (ii) by Belo or Providence Journal if the Belo Stockholders
Meeting (including as it may be adjourned from time to time) concludes without
the approval of the Belo Proposal having been obtained. See "THE MERGER
AGREEMENT -- Termination of the Merger Agreement."
Termination Fee. Pursuant to the Merger Agreement, Providence Journal is
required to pay, or cause to be paid, in same day funds to Belo $50 million (the
"Termination Fee") upon demand if (i) Belo terminates the Merger Agreement
because the Providence Journal Board has approved or recommended a superior
proposal, (ii) Providence Journal terminates the Merger Agreement because the
Providence Journal Board has approved or recommended a superior proposal
pursuant to its right to so terminate as described in "THE MERGER
AGREEMENT -- Certain Covenants -- No Solicitation," or (iii) Belo or Providence
Journal terminates the Merger Agreement because the Providence Journal
Stockholders Meeting (including as it may be adjourned from time to time)
concludes without the approval of the Providence Journal Proposal having been
obtained; provided, however, that in the event the Merger Agreement is
terminated in the manner described in clause (iii) of this sentence, the
Termination Fee shall not be payable unless and until (x) any person (other than
Belo) (an "Acquiring Party") has acquired, by purchase, merger, consolidation,
sale, assignment, lease, transfer or otherwise, in one transaction or any
related series of transactions within 12 months after such termination, a
majority of the voting power of the outstanding securities of Providence Journal
or all or substantially all of the assets of Providence Journal or (y) there has
been consummated within 12 months after such termination a consolidation, merger
or similar business combination between Providence Journal and an Acquiring
Party in which stockholders of Providence Journal immediately prior to such
consolidation, merger or similar transaction do not own securities representing
at least 50% of the outstanding voting power of the surviving entity (or, if
applicable, any entity in control of such Acquiring Party) of such
consolidation, merger or similar transaction immediately following the
consummation thereof, in either of cases (x) or (y) involving a consideration
for Providence Journal Common Stock (including the value of any stub equity) in
excess of the Aggregate Merger Consideration; and provided further, that no such
Termination Fee shall be payable as a result of a termination of the Merger
Agreement described in clause (iii) of this sentence unless there shall have
been made public prior to the Providence Journal Stockholders Meeting a takeover
proposal (defined below) involving consideration for the Providence Journal
Common Stock (including the value of any stub equity) in excess of the Aggregate
Merger Consideration. See "THE MERGER AGREEMENT -- Termination Fee."
Providence Journal Newspaper Co. Promptly following the consummation of the
Merger, Belo Holdings will transfer to a new, wholly owned subsidiary to be
named "The Providence Journal Company" ("Providence Journal Newspaper Co.") all
the assets and liabilities of the newspaper operations formerly held by
Providence Journal.
THE MERGER
Ownership of Belo After the Merger. If the Merger had been consummated on
January 3, 1997, immediately following the Merger, (i) the existing holders of
Belo Common Stock would have collectively held approximately 52% and 59% of the
issued and outstanding shares of Belo Series A Common Stock and all Belo Common
Stock, respectively, (ii) the former holders of Providence Journal Common Stock
would have collectively held approximately 48% and 41% of the issued and
outstanding shares of Belo Series A Common Stock and all Belo Common Stock,
respectively, and (iii) the former holders of Providence Journal Common Stock
would have collectively held approximately 18% of the voting power represented
by the outstanding shares of Belo Common Stock. No shares of Belo Series B
Common Stock will be issued in the Merger.
Recommendation of the Belo Board; Belo's Reasons for the Merger. The Board
of Directors of Belo (the "Belo Board"), by unanimous vote, has determined that
the Merger is in the best interests of the holders of Belo Common Stock and
recommends that holders of Belo Common Stock vote in favor of the Belo Proposal.
18
<PAGE> 29
The decision of the Belo Board to enter into the Merger Agreement and to
recommend that Belo stockholders vote in favor of the Belo Proposal is based
upon its evaluation of a number of factors including, among others, (i) the
substantial benefits believed to be available from the increased size of Belo's
television broadcasting business, (ii) the establishment of a well-balanced,
diversified group of network affiliates, (iii) the opportunity to realize value
from the divestiture of KIRO-TV while maintaining a presence in the
Seattle-Tacoma television market, (iv) the strong cultural fit between Belo and
Providence Journal and (v) the oral opinion (subsequently confirmed in a written
opinion dated as of September 26, 1996) of Furman Selz LLC ("Furman Selz"),
Belo's financial advisor in connection with the Merger, that based upon and
subject to the matters set forth in its written opinion, as of such date, the
Aggregate Merger Consideration to be offered in the Merger to holders of
Providence Journal Common Stock is fair, from a financial point of view, to the
holders of Belo Common Stock. See "THE MERGER -- Recommendation of the Belo
Board; Belo's Reasons for the Merger" and "THE MERGER -- Fairness
Opinions -- Opinion of Belo's Financial Advisor."
Recommendation of Providence Journal Board; Providence Journal's Reasons
for the Merger. The Providence Journal Board, by unanimous vote, has determined
that the Merger is in the best interests of the holders of Providence Journal
Common Stock and recommends that holders of Providence Journal Common Stock vote
in favor of the Providence Journal Proposal. The decision of the Providence
Journal Board to enter into the Merger Agreement and to recommend that
Providence Journal stockholders vote in favor of the Providence Journal Proposal
is based upon its evaluation of a number of factors including, among others, (i)
the financial terms of the Merger Agreement; (ii) Providence Journal's business,
operations, operating results and future prospects; (iii) the business,
operations, earnings and financial condition of Belo; (iv) the diversified
television network affiliate relationships and the anticipated cost savings and
operating efficiencies of the combined company; (v) the significant increase in
dividends to Providence Journal stockholders which could result from the Merger;
and (vi) the oral opinion (subsequently confirmed in a written opinion dated as
of September 26, 1996) of Bear, Stearns & Co. Inc. ("Bear Stearns"), Providence
Journal's financial advisor in connection with the Merger, that the Merger was
fair, from a financial point of view, to the stockholders of Providence Journal.
See "THE MERGER -- Recommendation of the Providence Journal Board; Providence
Journal's Reasons for the Merger" and "THE MERGER -- Fairness
Opinions -- Opinion of Providence Journal's Financial Advisor."
Interests of Certain Persons in the Merger; Management of Belo, Belo
Holdings and Providence Journal Newspaper Co. After the Merger. Certain members
of Providence Journal's management and the Providence Journal Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as stockholders of Providence Journal generally. Certain directors and
executive officers of Providence Journal will be directors of Belo and directors
and/or executive officers of Providence Journal Newspaper Co. following the
Merger. Belo Holdings has also agreed to honor, and Belo has agreed to cause
Belo Holdings to honor, the existing employment and severance arrangements of
certain officers of Providence Journal and to indemnify, and maintain directors
and officers insurance covering, Providence Journal's directors and officers
following the Merger. In addition, certain restrictions on certain benefits
payable to the directors and executive officers of Providence Journal will
lapse, and such benefits will vest, in connection with the Merger. Based on an
assumed Valuation Period Stock Price of $34.75 (the average of the NYSE closing
sales prices for Belo Series A Common Stock (as reported in The Wall Street
Journal) for the ten consecutive trading day period ending on January 3, 1997),
the aggregate benefit which will be received by directors and executive officers
of Providence Journal as a result of the vesting of such benefits and lapse of
such restrictions upon consummation of the Merger is expected to be
approximately $24,465,240. The Providence Journal Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby. No member of the Belo Board
has any interest in the Merger other than as a Belo stockholder. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "MANAGEMENT OF BELO
AND PROVIDENCE JOURNAL NEWSPAPER CO. AFTER THE MERGER."
Regulatory Approvals. The Merger is subject to the requirements of the HSR
Act, which provide that certain transactions may not be consummated until
required information and materials are furnished to the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and the requisite waiting period has expired or is
terminated. Belo and Providence Journal
19
<PAGE> 30
filed the required information and materials with the Antitrust Division and the
FTC on October 18, 1996. The waiting period for each of these filings expired at
11:59 p.m. (Eastern Standard Time) on November 18, 1996. See "THE
MERGER -- Regulatory Approvals -- Antitrust."
The Merger is also subject to the requirements of the Communications Act of
1934, and the rules and regulations thereunder (the "Communications Act"), which
provide that the transfer of control of an entity that directly or indirectly
holds radio broadcast, television and certain other communications licenses,
requires the prior approval of the FCC. Belo and Providence Journal filed the
required applications for transfer of control with the FCC on October 18, 1996.
The principal application for transfer of control also include a request for a
temporary waiver of the FCC's television ownership rules. See "THE
MERGER -- Regulatory Approvals -- FCC Regulation of Broadcast Stations; FCC
Approval Process."
Accounting Treatment. The Merger will be accounted for under the "purchase"
method of accounting, in accordance with generally accepted accounting
principles. See "THE MERGER -- Accounting Treatment."
Opinions of Financial Advisors. On September 26, 1996, Furman Selz rendered
to the Belo Board its oral opinion (subsequently confirmed in writing) to the
effect that, based upon and subject to the matters set forth in its written
opinion, as of such date, the Aggregate Merger Consideration to be offered in
the Merger to holders of Providence Journal Common Stock was fair, from a
financial point of view, to the holders of Belo Common Stock. On January 6,
1997, Furman Selz updated its written opinion. The full text of the written
opinion of Furman Selz, which sets forth assumptions made, factors considered
and limitations on the review undertaken by Furman Selz, is included as Appendix
B to this Joint Proxy Statement/Prospectus. Belo stockholders are urged to read
such opinion carefully and in its entirety. The maximum fee payable to Furman
Selz for its role as Belo's financial advisor is $8,000,000. See "THE
MERGER -- Fairness Opinions -- Opinion of Belo's Financial Advisor."
On January 6, 1997, Bear Stearns delivered to the Providence Journal Board
its written opinion that, as of the date thereof, and subject to the assumptions
and qualifications set forth therein, the Merger was fair, from a financial
point of view, to the stockholders of Providence Journal (the "Bear Stearns'
Opinion"). On September 26, 1996, Bear Stearns had previously rendered to the
Providence Journal Board its oral opinion (subsequently confirmed in a written
opinion dated as of such date) to the effect that, as of such date, the Merger
was fair, from a financial point of view, to the stockholders of Providence
Journal. The full text of Bear Stearns' Opinion, which sets forth assumptions
made, factors considered and limitations on the review undertaken by Bear
Stearns, is included as Appendix C to this Joint Proxy Statement/Prospectus.
Providence Journal stockholders are urged to read such opinion carefully and in
its entirety. Pursuant to the terms of its engagement letter, dated September 3,
1996, Providence Journal has paid Bear Stearns an initial cash retainer fee of
$100,000 and has further agreed to pay Bear Stearns 0.472% of the total
consideration to be received by the holders of Providence Journal Common Stock
plus net debt assumed in connection with the Merger upon its consummation. Based
on the closing price for Belo Series A Common Stock on January 3, 1997 (the
latest date practicable prior to the printing of this Joint Proxy
Statement/Prospectus), the total amount of such Advisory Fee would be
$7,693,558. See "THE MERGER -- Fairness Opinions -- Opinion of Providence
Journal's Financial Advisor."
Certain Federal Income Tax Consequences. Belo and Providence Journal have
received opinions, and consummation of the Merger is conditioned upon Belo and
Providence Journal receiving opinions dated as of the Closing Date, from counsel
to the effect that the Merger will be treated for Federal income tax purposes as
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that Belo, Finance and Providence
Journal will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. Accordingly, a holder of shares of Providence
Journal Common Stock who exchanges such shares solely for shares of Belo Series
A Common Stock would recognize neither gain nor loss on such exchange. Gain, if
any, realized by a holder of shares of Providence Journal Common Stock upon the
exchange of such shares for a combination of shares of Belo Series A Common
Stock and cash would be recognized to the extent of the lesser of the amount of
gain realized and the amount of cash received, but no loss would be recognized
by such holder on such exchange. A holder of shares of
20
<PAGE> 31
Providence Journal Common Stock who receives only cash in the Merger would
recognize any gain realized, and, depending on the particular circumstances of
such holder, likely would be permitted to recognize any loss realized. Any gain
required to be recognized may be treated as a dividend. No gain or loss will be
recognized by Belo, Providence Journal or Finance in connection with the Merger.
See "THE MERGER -- Certain Federal Income Tax Consequences."
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES OF RECEIVING DIFFERENT FORMS OF
MERGER CONSIDERATION WILL DIFFER, PROVIDENCE JOURNAL STOCKHOLDERS ARE URGED TO
READ CAREFULLY THE INFORMATION SET FORTH UNDER "THE MERGER -- CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
Dissenters' Rights. Holders of Belo Common Stock are not entitled to
dissenters' or appraisal rights in connection with the Merger. Holders of
Providence Journal Common Stock who comply with the requirements of Section 262
of the DGCL will be entitled to appraisal rights in connection with the Merger.
A copy of Section 262 is attached to this Joint Proxy Statement/Prospectus as
Appendix D. See "THE MERGER -- Dissenters' Rights."
21
<PAGE> 32
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
Belo Historical Consolidated Financial Information
The following table sets forth summary historical consolidated financial
information of Belo and has been derived from and should be read in conjunction
with Belo's audited consolidated financial statements and unaudited interim
condensed consolidated financial statements, including the notes thereto, which
are incorporated by reference in this Joint Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Interim data reflects, in the
opinion of Belo's management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of results
for such interim periods. Results of operations for interim periods are not
necessarily indicative of results which may be expected for any other interim or
annual periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OR AS OF
SEPTEMBER 30, YEAR ENDED OR AS OF DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net Operating Revenues(1):
Broadcasting.................................. $240,795 $236,643 $322,642 $258,040 $209,083 $201,241 $181,848
Newspaper Publishing.......................... 359,128 296,899 409,099 369,366 335,651 314,701 249,737
Other......................................... 2,287 1,717 3,602 719 101 -- --
-------- -------- -------- -------- -------- -------- --------
Total Net Operating Revenues............ 602,210 535,259 735,343 628,125 544,835 515,942 431,585
-------- -------- -------- -------- -------- -------- --------
Earnings From Operations...................... 110,399 93,280 136,563 130,999 89,474 81,626 47,857
Earnings Before Cumulative Effect of Change in
Accounting.................................. 57,146 45,433 66,576 68,867 44,478 37,170 12,392
Earnings Per Common and Common Equivalent
Share(2):
Earnings Before Cumulative Effect of Change in
Accounting.................................. 1.36 1.14 1.68 1.70 1.10 0.95 0.32
OTHER DATA:
Cash Dividends Declared Per Share(2)............ $ 0.41 $ 0.315 $ 0.315 $ 0.30 $ 0.28 $ 0.27 $ 0.26
Operating Cash Flow(3):
Broadcasting.................................. 84,020 87,241 121,716 106,396 83,356 75,921 60,610
Newspaper Publishing.......................... 92,520 64,909 90,915 87,284 61,667 59,221 36,057
Other......................................... (976) (3,028) (3,941) (872) (77) -- --
CONSOLIDATED BALANCE SHEET DATA(4)(5):
Total Assets............................... $1,209,589 $1,084,810 $1,154,022 $913,791 $796,156 $758,527 $746,384
Long-Term Debt............................. 361,657 508,400 557,400 330,400 277,400 302,151 337,100
Shareholders' Equity....................... 637,689 379,573 388,464 382,535 346,099 281,242 230,057
Book Value Per Share(2).................... 14.39 9.83 10.16 9.63 8.56 7.18 6.10
</TABLE>
- ---------------
(1) Revenues for 1995 include 11 months of KIRO-TV, which was purchased by Belo
on February 1, 1995. Revenues for 1994 include seven months of WWL-TV, which
was purchased by Belo on June 1, 1994. In December 1991, Belo purchased
substantially all the operating assets of the Dallas Times Herald newspaper.
(2) Per share amounts have been adjusted to reflect the two-for-one Belo Common
Stock split effected as a stock dividend on June 9, 1995.
(3) Operating Cash Flow is defined as segment earnings from operations plus
depreciation and amortization. Operating Cash Flow is used in the
broadcasting and newspaper publishing industries to analyze and compare
companies on the basis of operating performance, leverage and liquidity.
However, Operating Cash Flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
(4) In May 1996, Belo completed an offering of 5,750,000 shares of Belo Series A
Common Stock for net proceeds of approximately $198,500,000. The proceeds
were used to pay down debt.
(5) Subsequent to September 30, 1996, Belo repurchased 8,322,000 shares of its
Series A Common Stock for an aggregate cost of approximately $306,146,000,
funded through borrowings under its revolving credit facility.
22
<PAGE> 33
Providence Journal Historical Consolidated Financial Information
The following table sets forth summary historical consolidated financial
information of Providence Journal and has been derived from and should be read
in conjunction with Providence Journal's audited consolidated financial
statements and interim unaudited consolidated financial statements, including
the notes thereto, which are included elsewhere in this Joint Proxy
Statement/Prospectus. Interim unaudited data reflects, in the opinion of
Providence Journal management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of results
for such interim periods. Results of operations for interim periods are not
necessarily indicative of results which may be expected for any other interim or
annual periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OR AS OF
SEPTEMBER 30, YEAR ENDED OR AS OF DECEMBER 31,
-------------------- --------------------------------------------------------
1996(3) 1995(4) 1995(4) 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Broadcasting........................... $149,819 $128,557 $180,547 $ 54,024 $ 45,506 $ 43,281 $ 39,381
Publishing............................. 95,176 92,967 128,491 127,893 124,914 120,516 118,169
Programming and Electronic Media....... 9,412 2,209 3,468 2,300 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Revenues........................... 254,407 223,733 312,506 184,217 170,420 163,797 157,550
Operating Income (Loss).................. (14,571) 8,036 13,386 (11,576) (13,209) (9,126) (23,901)
Income (Loss) From Continuing
Operations............................. (26,853) (3,487) (5,003) (23,229) (16,271) 6,002 (6,547)
Income (Loss) Per Common and Common
Equivalent Share(1):
Income (Loss) From Continuing
Operations........................... (0.65) (0.09) (0.13) (0.61) (0.42) 0.16 (0.17)
OTHER DATA:
Cash Dividends Declared Per Share(1)..... $ 0.25 $ 0.19 $ 0.25 $ 0.25 $ 0.23 $ 0.21 $ 0.20
Operating Cash Flow(2):
Broadcasting........................... 55,315 42,313 64,419 14,075 7,210 5,397 2,784
Newspaper Publishing................... 13,224 2,470 586 20,468 21,317 20,977 12,999
Programming and Electronic Media....... (25,983) (749) (1,664) (282) -- -- --
BALANCE SHEET DATA:
Total Assets............................. $733,885 $754,735 $707,230 $724,713 $775,685 $793,433 $594,098
Long-Term Debt (including current
installments).......................... 159,800 337,400 244,098 260,761 280,106 263,609 73,112
Stockholders' Equity..................... 362,376 277,745 263,239 285,887 359,575 391,967 399,938
Book Value Per Share(1).................. 7.61 7.23 6.86 7.50 9.38 10.18 10.23
</TABLE>
- ---------------
(1) Amounts reflect the 450-for-one split of Providence Journal Common Stock,
effected as a stock dividend on June 18, 1996.
(2) Operating Cash Flow is defined as segment operating income (loss) plus
depreciation and amortization. Operating Cash Flow is used in the
broadcasting and newspaper publishing industries to analyze and compare
companies on the basis of operating performance, leverage and liquidity.
However, Operating Cash Flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
(3) Effective January 1, 1996 and May 1, 1996, Providence Journal obtained a
controlling interest in America's Health Network, LLC and AHN Partners, L.P.
(together, "AHN") and Television Food Network, G.P. ("TVFN"), respectively.
Accordingly, the results of operations of AHN and TVFN have been
consolidated, effective January 1, 1996 and May 1, 1996, respectively. See
"BUSINESS OF PROVIDENCE JOURNAL -- Providence Journal Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(4) On October 5, 1995, Providence Journal disposed of its cable operations and
completed the Kelso Buyout (defined below). Results of operations for 1995
include the results of operations of KHC (defined below) since January 1,
1995 with adjustments for consolidation effective October 5, 1995. See
"BUSINESS OF PROVIDENCE JOURNAL -- Background; Reorganization."
23
<PAGE> 34
Belo Unaudited Pro Forma Combined Condensed Financial Information
The summary unaudited pro forma combined condensed financial information of
Belo, giving effect to the Merger, has been derived from, or prepared on a basis
consistent with, the unaudited pro forma combined condensed financial statements
included elsewhere in this Joint Proxy Statement/Prospectus, and should be read
in conjunction with the historical consolidated financial statements of Belo and
Providence Journal, including the respective notes thereto, which are
incorporated by reference or are included elsewhere in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS." This data is
presented for illustrative purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the Merger had occurred at the beginning of each period presented or
on the dates indicated, nor is it necessarily indicative of future operating
results or the financial position of Belo after the Merger. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OR AS OF YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA(1)(2):
Net Operating Revenues:
Broadcasting............................................... $ 355,005 $ 463,296
Newspaper Publishing....................................... 454,304 537,590
Programming and Electronic Media........................... 15,376 12,227
-------------- ------------
Total Net Operating Revenues.......................... 824,685 1,013,113
Earnings From Operations...................................... 71,526 94,740
Earnings From Continuing Operations After Minority Interest... 12,693 6,211
Earnings From Continuing Operations After Minority Interest
Per Common and Common Equivalent Share..................... 0.19 0.10
OTHER DATA:
Cash Dividends Declared Per Share(3).......................... $ 0.41 $ 0.315
Operating Cash Flow(1)(4):
Broadcasting............................................... 133,746 182,227
Newspaper Publishing....................................... 105,744 91,501
Programming and Electronic Media........................... (31,717) (29,572)
BALANCE SHEET DATA(1)(5):
Total Assets.................................................. $3,195,598
Long-Term Debt................................................ 1,339,405
Shareholders' Equity.......................................... 1,213,872
Book Value Per Share.......................................... 19.78
</TABLE>
- ---------------
(1) The pro forma combined condensed financial data reflects the Merger and the
following transactions, in each case as if such transactions had occurred at
the beginning of the periods presented:
(a) Issuance of 25,391,000 shares of Belo Series A Common Stock at an
assumed price of $34.75 per share and the payment of $587,000,000 in
cash to acquire all of the issued and outstanding shares of Providence
Journal Common Stock;
(b) Assumed divestiture, following the Merger, of KIRO-TV as required by
FCC regulations;
(c) Acquisition by Providence Journal of controlling interests in KHC, AHN
and TVFN prior to execution of the Merger Agreement;
(2) The Pro Forma Combined Condensed Statements of Operations include historical
stock-based compensation expense of Providence Journal ($14.9 million and
$2.4 million for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively). The underlying compensation plans will be
settled and terminated prior to the Merger; therefore, there will be no such
expense from these plans in future periods. Belo believes that synergies
from the Merger could result in other cost
24
<PAGE> 35
savings, including an estimated reduction in corporate expenses of
approximately $8 million on an annual basis, primarily due to the
elimination of duplicate corporate staff positions after the Merger. The
full extent of such savings are not currently quantifiable.
(3) Pro forma cash dividends per share are assumed to be the same as those
historically declared by Belo. However, any decision to increase or decrease
the cash dividend per share is at the discretion of the Belo Board, subject
to restrictions that may be imposed by law or contract.
(4) Operating Cash Flow is defined as segment earnings from operations plus
depreciation and amortization. Operating Cash Flow is used in the
broadcasting and newspaper publishing industries to analyze and compare
companies on the basis of operating performance, leverage and liquidity.
However, Operating Cash Flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
(5) The pro forma balance sheet data also reflects the repurchase by Belo of
8,322,000 shares of Belo Series A Common Stock, subsequent to September 30,
1996, for approximately $306,146,000, using borrowings under its revolving
credit facility.
25
<PAGE> 36
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share, cash dividends per share
and book value per share data of Belo and Providence Journal, unaudited pro
forma combined per share data of Belo and unaudited pro forma equivalent per
share data of Providence Journal. The data set forth below are based on and
should be read in conjunction with the Belo and Providence Journal audited
consolidated financial statements and unaudited interim consolidated financial
statements, including the notes thereto, which are incorporated by reference or
included elsewhere in this Joint Proxy Statement/Prospectus. The data should
also be read in conjunction with the unaudited pro forma combined condensed
financial statements, including the notes thereto, included elsewhere in this
Joint Proxy Statement/Prospectus. This data is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations or financial position that would have occurred if the Merger had
occurred at the beginning of each period presented or on the dates indicated,
nor is it necessarily indicative of future operating results or the financial
position of Belo after the Merger. See "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
BELO PROVIDENCE JOURNAL
----------------------------- -----------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
OR AS OF OR AS OF OR AS OF OR AS OF
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
HISTORICAL:
Earnings (Loss) From Continuing Operations
After Minority Interest Per Common and
Common Equivalent Share.................. $ 1.36 $ 1.68 $(0.49) $(0.20)
Cash Dividends Declared Per Share........... 0.41 0.315 0.25 0.25
Book Value Per Share(1)..................... 14.39 10.16 $ 7.61 $ 6.86
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OR AS OF YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ------------
(UNAUDITED)
<S> <C> <C>
PRO FORMA COMBINED(2)(3):
Earnings From Continuing Operations After Minority Interest
Per Common and Common Equivalent Share................................... $ 0.19 $ 0.10
Cash Dividends Declared Per Share(4)........................................ 0.41 0.315
Book Value Per Share(5)..................................................... 19.78
PROVIDENCE JOURNAL PRO FORMA EQUIVALENTS(6):
Earnings From Continuing Operations After Minority Interest
Per Common and Common Equivalent Share................................... $ 0.10 $ 0.05
Cash Dividends Declared Per Share........................................... 0.22 0.17
Book Value Per Share........................................................ 10.55 --
</TABLE>
- ---------------
(1) In May 1996, Belo completed an offering of 5,750,000 shares of Belo Series A
Common Stock for net proceeds of approximately $198,500,000. In June 1996,
Providence Journal completed an offering of 8,643,750 shares of its Class A
Common Stock for net proceeds of approximately $121,300,000. In each case,
the proceeds were used to pay down debt.
(2) The pro forma combined per share data reflects the Merger and the following
transactions, in each case as if such transactions had occurred at the
beginning of the periods presented:
(a) Issuance of 25,391,000 shares of Belo Series A Common Stock at an
assumed price of $34.75 per share and the payment of $587,000,000 in
cash to acquire all of the issued and outstanding shares of Providence
Journal Common Stock;
(b) Assumed divestiture, following the Merger, of KIRO-TV as required by
FCC regulations;
(c) Acquisition by Providence Journal of controlling interests in KHC, AHN
and TVFN prior to execution of the Merger Agreement;
26
<PAGE> 37
(3) The Pro Forma Combined Condensed Statements of Operations include historical
stock-based compensation expense of Providence Journal ($14.9 million and
$2.4 million for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively). The underlying compensation plans will be
settled and terminated prior to the Merger; therefore, there will be no such
expense from these plans in future periods. Belo believes that synergies
from the Merger could result in other cost savings, including an estimated
reduction in corporate expenses of approximately $8 million on an annual
basis, primarily due to the elimination of duplicate corporate staff
positions after the Merger. The full extent of such savings are not
currently quantifiable.
(4) Pro forma cash dividends per share are assumed to be the same as those
historically declared by Belo. However, any decision to increase or decrease
the cash dividend per share is at the discretion of the Belo Board, subject
to restrictions that may be imposed by law or contract. Providence Journal
has no intention of paying cash dividends on the Providence Journal Common
Stock for the foreseeable future.
(5) Book value per share also reflects the repurchase by Belo of 8,322,000
shares of Belo Series A Common Stock, subsequent to September 30, 1996, for
approximately $306,146,000, using borrowings under its revolving credit
facility.
(6) Providence Journal pro forma equivalents represent the unaudited pro forma
combined earnings per share, cash dividends per share and book value per
share calculated on the basis of a 0.5333 to 1.00 exchange ratio (does not
include the cash consideration assumed received of $12.33 per share).
COMPARATIVE MARKET PRICES AND DIVIDENDS
Belo Series A Common Stock is listed on the NYSE under the symbol BLC.
Providence Journal Class A Common Stock is listed on the NYSE under the symbol
PRJ. Neither the Belo Series B Common Stock nor the Providence Journal Class B
Common Stock is publicly traded. The table below sets forth, for the calendar
quarters indicated, the high and low sales prices of Belo Series A Common Stock
and Providence Journal Class A Common Stock as reported on the NYSE Composite
Tape, in each case based on published financial sources, and the dividends
declared on such stock. Belo Series A Common Stock market prices and dividends
and Providence Journal Class A Common Stock dividends have been adjusted for a
two-for-one stock split effected as a stock dividend on June 9, 1995, in the
case of Belo, and a 450-for-one stock split effective June 18, 1996, in the case
of Providence Journal. Providence Journal Class A Common Stock was not publicly
traded until the completion of its initial public offering on June 24, 1996.
<TABLE>
<CAPTION>
BELO SERIES A PROVIDENCE JOURNAL
COMMON STOCK CLASS A COMMON STOCK
----------------------------- -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter.......................... $27 1/2 $23 7/8 $ 0.075 -- -- $0.0636
Second Quarter......................... 253/16 219/16 0.075 -- -- 0.0636
Third Quarter.......................... 26 1/8 2111/16 0.075 -- -- 0.0636
Fourth Quarter......................... 28 5/8 23 3/4 0.075 -- -- 0.0636
1995
First Quarter.......................... 30 1/4 2713/16 0.075 -- -- 0.0636
Second Quarter......................... 32 5/8 283/16 0.08 -- -- 0.0636
Third Quarter.......................... 36 3/4 29 0.08 -- -- 0.0636
Fourth Quarter......................... 36 3/4 32 1/2 0.08 -- -- 0.0636
1996
First Quarter.......................... 37 3/8 31 0.08 -- -- 0.0636
Second Quarter......................... 39 7/8 32 5/8 0.11 16 1/4 15 1/4 0.1907
Third Quarter.......................... 41 3/4 33 5/8 0.11 29 7/8 14 1/2 --
Fourth Quarter......................... 40 33 3/4 0.11 32 1/2 29 1/8 --
1997
First Quarter (through January 3,
1997)............................... 35 33 1/4 -- 30 1/4 29 5/8 --
</TABLE>
On September 25, 1996, the last full trading day preceding public
announcement of the proposed Merger, the closing price per share of Belo Series
A Common Stock on the NYSE (as reported in The Wall Street Journal) was $37.88
and the closing price per share of Providence Journal Class A Common Stock on
the NYSE Composite Tape was $20.375. On January 3, 1997, the most recent
practicable date prior to the printing of this Joint Proxy Statement/Prospectus,
the closing price per share of Belo Series A Common Stock on the NYSE (as
reported in The Wall Street Journal) was $33.88 and the closing price per share
of Providence Journal Class A Common Stock on the NYSE (as reported in The Wall
Street Journal) was
27
<PAGE> 38
$29.75. In September 1996, the Belo Board increased Belo's current stock
repurchase authorization from 3,600,000 shares to 13,600,000 shares. In
addition, Belo has in place a repurchase program authorizing the purchase of up
to $2,500,000 of Belo stock annually. As of September 30, 1996, no shares had
been repurchased in 1996. Belo repurchased 8,322,000 shares of Belo Series A
Common Stock for an aggregate cost of approximately $306,146,000 from October 1,
1996 through January 3, 1997, funded through borrowings under its revolving
credit facility. See "COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION."
Belo and Providence Journal stockholders are urged to obtain current market
quotations for the Belo Series A Common Stock and Providence Journal Class A
Common Stock prior to making any decision with respect to the Belo Proposal and
Providence Journal Proposal, respectively, and as to Providence Journal
stockholders, prior to making their election as to the type of Merger
Consideration they wish to receive.
Historically, Belo has paid a quarterly cash dividend to holders of Belo
Common Stock. For the fourth quarter of 1996, the quarterly dividend paid was
$0.11 per share of Belo Common Stock. However, the payment of future dividends
on Belo Common Stock, if any, will be a business decision to be made by the Belo
Board from time to time based upon the results of operations and financial
condition of Belo and such other factors as the Belo Board considers relevant.
See "COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION."
LISTING OF BELO SERIES A COMMON STOCK
Belo will apply for the listing of Belo Series A Common Stock to be issued
in the Merger on the NYSE, and such shares will trade on such exchange upon
official notice of issuance under the symbol BLC. It is a condition to
consummation of the Merger that the shares of Belo Series A Common Stock to be
issued in the Merger shall have been approved for listing on the NYSE, subject
to official notice of issuance. See "THE MERGER -- Stock Exchange Listing;
Delisting of Providence Journal Class A Common Stock."
STOCKHOLDERS AGREEMENTS
Concurrently with or shortly after the execution and delivery by Belo and
Providence Journal of the Merger Agreement, certain officers and directors of
Providence Journal and certain officers and directors of Belo entered into
stockholders agreements with Belo and Providence Journal, respectively, relating
to their shares owned directly in their individual capacities of Providence
Journal Common Stock and Belo Common Stock, respectively. Pursuant to these
agreements, among other matters, such officers and directors of Providence
Journal have agreed to vote their shares of Providence Journal Common Stock in
favor of the Providence Journal Proposal and such officers and directors of Belo
have agreed to vote their shares of Belo Common Stock in favor of the Belo
Proposal. These agreements cover approximately 13.8% and 16.6% of the issued and
outstanding shares of Providence Journal Class A Common Stock and Providence
Journal Class B Common Stock, respectively (or approximately 15.9% of the total
voting power of the shares of Providence Journal Common Stock outstanding on the
Providence Journal Record Date), and approximately 8.6% and 39.5% of the issued
and outstanding shares of Belo Series A Common Stock and Belo Series B Common
Stock, respectively (or approximately 32.5% of the total voting power of the
shares of Belo Common Stock outstanding on the Belo Record Date). In addition,
certain Providence Journal stockholders, controlling in the aggregate
approximately 6.2% of the total voting power of the outstanding shares of
Providence Journal Common Stock, have entered into certain stockholder
agreements with Belo agreeing to vote their shares in favor of the Providence
Journal Proposal. See "THE MERGER AGREEMENT -- Stockholders Agreements."
28
<PAGE> 39
RISK FACTORS
The following risk factors should be considered by Belo stockholders and
Providence Journal stockholders in evaluating whether to approve the Belo
Proposal and the Providence Journal Proposal, respectively. These factors should
be considered in conjunction with the other information included and
incorporated by reference in this Joint Proxy Statement/Prospectus. See "THE
MERGER -- Cautionary Statement Concerning Forward-Looking Statements."
RISK FACTORS APPLICABLE TO PROVIDENCE JOURNAL
Losses from Continuing Operations. Providence Journal experienced losses
from continuing operations of $16.3 million, $23.2 million and $5.0 million in
1993, 1994 and 1995, respectively, and $3.5 million and $26.9 million for the
nine months ended September 30, 1995 and 1996, respectively. These losses
include certain newspaper consolidation and restructuring costs as well as
certain non-cash charges attributable to amortization of intangibles resulting
from the acquisition of its television broadcast stations, costs associated with
stock-based compensation expense and equity in losses from its affiliated
companies. Providence Journal expects to incur losses from continuing operations
during the next few years primarily due to amortization charges attributable to
its acquisitions and costs associated with the development of its programming
and electronic media business.
Indemnification and Tax Liabilities. The Agreement and Plan of Merger,
dated as of November 18, 1994, as amended and restated as of August 1, 1995 (the
"Continental Merger Agreement"), by and among Continental Cablevision, Inc.
("Continental"), Providence Journal Company, a Rhode Island corporation ("Old
PJC"), Providence Journal, King Holding Corp. ("KHC") and King Broadcasting
Company ("KBC") provides that Providence Journal will, with certain exceptions,
hold Continental, as successor by merger to Old PJC, harmless from all of Old
PJC's liabilities arising from its non-cable businesses. Providence Journal's
indemnification obligations include responsibility for all Federal and state
income tax liabilities of Old PJC and its subsidiaries for periods ending on or
before the closing of the transactions contemplated by the Continental Merger
Agreement (the "Continental Closing Date"), including any income tax liabilities
resulting from the failure of the Spin-Off (defined below) and the Continental
Merger (defined below) to qualify as tax free under Sections 355 and 368 of the
Code, unless such failure to qualify is attributable to certain actions by
Continental taken without the consent of Providence Journal. See "THE MERGER --
Certain Federal Income Tax Consequences -- Effects on the Spin-Off" and
"BUSINESS OF PROVIDENCE JOURNAL -- Background; Reorganization."
The above-described liabilities will be assumed by Belo Holdings by virtue
of the Merger.
Risks Associated with New Business. Providence Journal has invested
approximately $106.6 million through September 30, 1996 in start-up cable
network business ventures, including the Television Food Network and America's
Health Network. These ventures involve the considerable risks frequently
encountered in the establishment of a new business in an evolving industry
characterized by new market entrants, intense competition, new and rapidly
changing technology and new marketing concepts. In addition, these ventures are
highly dependent upon the negotiation of contracts with cable television
multi-system operators for distribution of network programming in an environment
which is currently characterized by a scarcity of channel capacity. Providence
Journal believes that substantial additional funding will be necessary to
finance expected operating losses of these businesses through at least 1997.
Belo is currently evaluating alternatives that may be available to Belo
following consummation of the Merger to reduce the impact that the continuing
cash needs and operating losses of the three cable network business ventures
would have on Belo's operating performance. These alternatives may include
external debt or equity financing from new or existing strategic or financial
investors and potential joint venture partners, as well as possible divestiture
of part or all of Providence Journal's interests in one or more of these
ventures. No commitments or agreements have been entered into for any such
transaction, and no assurance can be given that Belo's efforts in this regard
will be successful.
29
<PAGE> 40
Reliance on NBC Television Network. Providence Journal owns five television
broadcast stations affiliated with National Broadcasting Company Incorporated
("NBC"). Since a majority of Providence Journal's television stations are
currently affiliated with NBC and a substantial portion of Providence Journal's
1995 revenues was derived from such stations, a material decline in NBC's
ratings or the termination or non-renewal of Providence Journal's network
affiliation agreements with NBC could have an adverse effect on Providence
Journal. See "BUSINESS OF PROVIDENCE JOURNAL -- Broadcasting" and "THE
MERGER -- Regulatory Approvals -- License Grant and Renewal."
Newspaper Circulation. Providence Journal's daily newspaper, the Providence
Journal-Bulletin, has experienced a steady decline in circulation from 1990 to
1995, attributable to a number of factors, including increased prices, a
lackluster economy and, more recently, the consolidation of Providence Journal's
morning and afternoon newspapers. While in recent years Providence Journal has
been able to offset the effect on revenues of this decline with periodic price
increases, there can be no assurance that Providence Journal will be able to
continue to raise prices sufficiently to offset any future declines in
circulation.
Uncertainty as to Market Price of Providence Journal Class A Common Stock.
If the Merger is not consummated, the Providence Journal Class A Common Stock
will continue to be publicly traded. The market price of the Providence Journal
Class A Common Stock may fluctuate significantly based on a number of factors,
including actual or anticipated business performance, investor perceptions of
Providence Journal and the television broadcasting and newspaper industries
generally, announcements by Providence Journal, possible future changes in
regulation of the television broadcast industry and general economic and market
conditions. There can be no assurance that shares of Providence Journal Class A
Common Stock will trade at current prices or prices at which such shares have
traded in the past.
RISK FACTORS APPLICABLE TO EACH OF BELO AND PROVIDENCE JOURNAL AND TO BELO
FOLLOWING THE MERGER
Reliance on Network Programming; Dependence on Network Affiliation. Of
Providence Journal's nine owned television broadcast stations, five are
affiliated with NBC, two with the Fox Broadcasting Network ("Fox"), one with
American Broadcasting Company ("ABC") and one with CBS, Inc. ("CBS")
(collectively, the "Providence Journal Stations"). Of Belo's seven television
broadcast stations, three are affiliated with ABC, three with CBS and one with
United Paramount Network ("UPN") (collectively, the "Belo Stations"). The
television viewership levels for each of the Providence Journal Stations and the
Belo Stations are materially dependent upon programming provided by the network
with which each station is affiliated. There can be no assurance that such
programming will achieve or maintain satisfactory viewership levels in the
future. Each of the Providence Journal Stations and Belo Stations is a party to
a network affiliation agreement giving such station the right to rebroadcast
programs transmitted by the network (in the case of Providence Journal, a
"Providence Journal Network Agreement"). The Providence Journal Network
Agreement for each of Providence Journal's NBC affiliated stations expires in
2001 (except for the affiliation agreement for KHNL-TV (Honolulu) which expires
in 2002), while such agreements for each of Providence Journal's ABC, CBS and
Fox affiliated stations expire in 2000, 1998 and 1998, respectively. The
affiliation agreements for each of Belo's ABC and CBS affiliated stations expire
in 2004 and 2011, respectively. The affiliation agreement for KIRO-TV, Belo's
UPN affiliated station, expires in 1998. Final documentation of Belo's current
affiliation agreements with ABC has not been completed, although Belo is
receiving its increased compensation under such agreements. Each network has the
right to terminate its respective affiliation agreement in the event of a
material breach of such agreement by a station and in certain other
circumstances. Although Providence Journal and Belo expect to continue to be
able to renew their respective network affiliation agreements, no assurance can
be given that such renewals will be obtained. The non-renewal or termination of
one or more of such stations' network affiliation agreements could have a
material adverse effect on Providence Journal's, Belo's or, after the Merger,
the combined company's results of operations. See "THE MERGER -- Regulatory
Approvals -- License Grant and Renewal."
Dependence on Advertising Revenues; Effect of Economic Conditions. Since
Belo and Providence Journal are significantly dependent upon sales of
advertising for their revenues (approximately 85% of Providence Journal's and
93% of Belo's revenues during 1995), operating results of Belo, Providence
Journal and, after the Merger, the combined company are and will be affected by
the national economy as well as by regional
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economic conditions in each of the markets in which they operate. As a result,
Providence Journal's, Belo's and, after the Merger, the combined company's
results of operations are highly dependent on the economies in these geographic
regions, particularly as they may affect advertising expenditures and, to a
lesser extent, circulation of their respective newspapers.
Television Industry Competition and Technology. The television broadcast
industry is highly competitive. Some of the stations which compete with the Belo
Stations or Providence Journal Stations are subsidiaries of large national or
regional companies that have greater resources, including financial resources,
than Belo, Providence Journal or Belo and Providence Journal combined.
Technological innovation, and the resulting proliferation of programming
alternatives such as cable, direct satellite-to-home services and home video
rentals have fractionalized television viewing audiences and subjected
television broadcast stations to new types of competition. Over the past decade,
cable television has captured an increasing market share, while the overall
viewership of the major networks has generally declined. In addition, the
expansion of cable television and other industry changes have increased, and may
continue to increase, competitive demand for programming. Such increased demand,
together with rising production costs, may in the future increase Providence
Journal's, Belo's or, after the Merger, the combined company's programming costs
or impair their ability to acquire programming. In addition, new television
networks such as UPN and Warner Brothers Network ("WB"), have created additional
competition. The FCC has proposed the adoption of rules for implementing
advanced (including high-definition) television ("ATV") service in the United
States. Implementation of ATV is expected to improve the technical quality of
television. Under certain circumstances, however, conversion to ATV operations
may reduce a station's geographical coverage area. Implementation of ATV is
expected to impose additional costs on television stations providing the new
service, due to increased equipment costs and possible spectrum-related fees.
Some leaders in Congress have proposed various plans that might require
broadcasters to bid at auction for ATV channels, or which might require that the
current conventional channels be returned to the government on an expedited
schedule. While Belo and Providence Journal believe the FCC will eventually
authorize the implementation of ATV, they cannot predict when such authorization
might occur or whether an auction might be required, the implementation costs of
ATV or the effect such authorization might have on their respective businesses
or, after the Merger, the business of the combined company. See "SIGNIFICANT
REGULATIONS APPLICABLE TO BROADCASTING SERVICES."
In addition to competing with other media outlets for audience share, the
Belo Stations and the Providence Journal Stations also compete for advertising
revenue, their primary source of revenue. The stations compete for such
advertising revenue 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. The stations are located in highly
competitive markets. Accordingly, Belo's, Providence Journal's and, after the
Merger, the combined company's results of operations will be dependent upon the
ability of each of their stations to compete successfully for advertising
revenue in its market, and there can be no assurance that any one of their
respective stations will be able to maintain or increase its current audience
share or revenue share. To the extent that certain of Belo's or Providence
Journal's competitors have, or may in the future obtain, greater resources than
Belo, Providence Journal or, after the Merger, the combined company, their
ability to compete successfully in their respective broadcasting markets after
the Merger may be impeded.
Newsprint Cost. Newsprint is a major component of expense of the publishing
business of both Belo and Providence Journal. In recent years, newsprint prices
have fluctuated based on global supply and demand forces. Newsprint prices
escalated throughout 1995, but have steadily declined since the second quarter
of 1996. Future price increases could have an adverse effect on Belo's and
Providence Journal's and, after the Merger, the combined company's results of
operations. Following the Merger, Belo expects that a greater percentage of its
total consolidated revenues will be derived from newspaper publishing than is
currently the case for Providence Journal.
Regulatory Matters. Providence Journal's and Belo's television operations
are subject to significant regulation by the FCC under the Communications Act,
most recently amended by the Telecommunications Act of 1996 (the
"Telecommunications Act"). Approval of the FCC is required for the issuance,
renewal and
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transfer of television station operating licenses. In particular, Providence
Journal's and Belo's businesses are dependent upon their continuing to hold
broadcasting licenses from the FCC. License renewals filed after 1996 will be
customarily granted for terms of eight years. While broadcast licenses are
typically renewed by the FCC, there can be no assurance that Providence
Journal's and Belo's licenses or the licenses of the owner-operators of the four
television broadcast stations to which Providence Journal provides or will
provide programming and marketing services under local marketing agreements
("LMAs") will be renewed at their expiration dates, or, if renewed, that the
renewal terms will be for eight-year periods. The non-renewal or revocation of
one or more of Providence Journal's or Belo's FCC licenses could have a material
adverse effect on their respective operations or the operations of the combined
company following the Merger. LMAs may also be subject to further regulation by
the FCC. The Telecommunications Act grandfathers existing LMAs and permits
future LMAs that are in compliance with FCC rules. The FCC is considering the
adoption of new restrictions on television LMAs, including the treatment of an
LMA as an "attributable" interest (and therefore subject to various multiple
ownership restrictions) in the future. Further, the Communications Act and FCC
rules restrict alien ownership and voting of the capital stock of, and
participation in the affairs of, Providence Journal and Belo. See "SIGNIFICANT
REGULATIONS APPLICABLE TO BROADCASTING SERVICES, PROGRAMMING AND ELECTRONIC
MEDIA."
The United States Congress and the FCC currently have under consideration,
and may in the future adopt, new laws, regulations and policies regarding a wide
variety of matters which could, directly or indirectly, materially adversely
affect the operation and ownership of Providence Journal's and Belo's broadcast
properties. The FCC has not yet fully implemented the Telecommunications Act.
Belo and Providence Journal are unable to predict the outcome of future Federal
legislation or the impact of any such laws or regulations on its operations. See
"SIGNIFICANT REGULATIONS APPLICABLE TO BROADCASTING SERVICES, PROGRAMMING AND
ELECTRONIC MEDIA."
RISK FACTORS APPLICABLE TO THE MERGER
Uncertainty as to Market Price of Belo Series A Common Stock. Because the
number of shares of Belo Series A Common Stock to be issued in the Merger is
fixed (i.e., will not be adjusted to reflect changes in the relative prices of
the Providence Journal Class A Common Stock and the Belo Series A Common Stock
between the date of the Merger Agreement and the Effective Time) and because the
market price of Belo Series A Common Stock is subject to fluctuation, the market
value of the shares of Belo Series A Common Stock that holders of Providence
Journal Common Stock may receive in the Merger, and therefore the value of the
Aggregate Merger Consideration, may increase or decrease prior to and following
the Merger. There can be no assurance that at or after the Effective Time the
shares of Belo Series A Common Stock will trade at or near the price upon which
the Exchange Ratio is based or the prices at which such shares have traded in
the past. The prices at which shares of Belo Series A Common Stock trade may be
influenced by many factors, including the liquidity of Belo Series A Common
Stock, the dilutive effect of the Belo Series A Common Stock issued in the
Merger, investor perceptions of Belo and the newspaper and television
broadcasting industries, Belo's operating results, Belo's dividend policy,
possible future changes in regulation of the television broadcasting industry
and general economic and market conditions. A significant portion of the
Aggregate Merger Consideration will be paid in shares of Belo Series A Common
Stock.
Substantial Increase in Outstanding Shares of Belo Series A Common Stock;
Voting Power; and Dilution. As a result of the Merger, Belo will issue a maximum
of 25,600,000 shares of Belo Series A Common Stock. Accordingly, if the Merger
had been consummated on January 3, 1997, the former Providence Journal
stockholders would have owned approximately 40% of the outstanding shares of
Belo Common Stock and the holders of Belo Common Stock immediately prior to the
Merger will own approximately 60% of the outstanding shares of Belo Common
Stock. However, each share of Belo Series A Common Stock (including the shares
issued to former holders of Providence Journal Class B Common Stock) has one
vote on all matters submitted to a vote of the holders of Belo Common Stock,
whereas each share of Belo Series B Common Stock has ten votes. Therefore, as of
January 3, 1997, the shares of Belo Series A Common Stock issued to the former
Providence Journal stockholders in the Merger would have represented only
approximately 18% of the voting power represented by all outstanding shares of
Belo Common Stock immediately after the Effective
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Time. The Merger will be dilutive to Belo's earnings primarily due to the
amortization of intangible assets resulting therefrom and start-up losses from
early stage cable programming investments. See "COMPARATIVE PER SHARE MARKET
PRICE AND DIVIDEND INFORMATION."
Risks Associated with Belo's Expansion; Integration of the Combined
Companies; Significant Uncertainties. Upon consummation of the Merger, Belo will
experience significant expansion, including expansion into nine new markets in
which Belo does not presently operate. As a result, Belo's management will be
required to manage a substantially larger television station and newspaper group
than historically has been the case. There can be no assurance that Belo will be
able to implement effectively the organizational and operational systems
necessary for optimal management and integration of its newly expanded portfolio
of television stations, newspapers and cable and satellite networks. In
addition, the managements of Belo and Providence Journal are performing an
ongoing evaluation regarding the nature and scope of their operations and
various short- and long-term strategic considerations in the process of
assessing whether, and to what extent, integration, consolidation or other
modification of the two separate businesses is appropriate following the Merger.
Many operational and strategic decisions with respect to the combined companies
have not yet been made. Significant uncertainties and risks relating to the
Merger and the integration of the companies' operations may exist and therefore
it is difficult to quantify with precision the impact of such decisions on the
results of operations and financial condition of the combined companies.
Uncertainty of Composition of Merger Consideration. Because the aggregate
number of shares of Belo Series A Common Stock to be issued in the Merger and
the aggregate amount of cash to be paid in the Merger are fixed, and the Merger
Agreement contains certain allocation and proration provisions to be applied in
the event there are either too many Cash Election Shares or Stock Election
Shares, Providence Journal stockholders making Cash Elections or Stock Elections
may not receive all cash or all stock as elected. See "SUMMARY -- The Merger
Agreement" and "THE MERGER AGREEMENT -- Merger Consideration -- Allocation and
Proration."
Certain Federal Income Tax Consequences. A holder of shares of Providence
Journal Common Stock receiving a combination of shares of Belo Series A Common
Stock and cash in the Merger would be required to recognize any gain realized on
such exchange to the extent of the amount of cash received, but would not be
permitted to recognize any loss realized on such exchange. A holder of shares of
Providence Journal Common Stock receiving only cash in the Merger would be
required to recognize any gain realized on such exchange and, depending on the
particular circumstances of such holder, likely would be permitted to recognize
any loss realized. In either case, any gain recognized may be treated as a
dividend. See "THE MERGER -- Certain Federal Income Tax Consequences."
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Belo Common Stock by the Belo
Board for use at the Belo Stockholders Meeting and (ii) from the holders of
Providence Journal Common Stock by the Providence Journal Board for use at the
Providence Journal Stockholders Meeting.
TIMES AND PLACES; PURPOSES
Belo. The Belo Stockholders Meeting will be held in the lobby of The Belo
Building at 400 South Record Street, Dallas, Texas 75202, on February 19, 1997,
starting at 10:00 a.m., local time. At the Belo Stockholders Meeting, the
stockholders of Belo will be asked to consider and vote upon the Belo Proposal
and such other matters as may properly come before the Belo Stockholders
Meeting. A copy of the Merger Agreement is included as Appendix A to this Joint
Proxy Statement/Prospectus.
Providence Journal. The Providence Journal Stockholders Meeting will be
held at the offices of Providence Journal, 75 Fountain Street, Providence, Rhode
Island 02902, on February 19, 1997, starting at 4 p.m., local time. At the
Providence Journal Stockholders Meeting, the stockholders of Providence Journal
will be asked to consider and vote upon the Providence Journal Proposal and such
other matters as may
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properly come before the Providence Journal Stockholders Meeting. A copy of the
Merger Agreement is included as Appendix A to this Joint Proxy
Statement/Prospectus.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Belo. The Belo Board has fixed the close of business on December 27, 1996,
as the Belo Record Date. Only holders of record of shares of Belo Common Stock
on the Belo Record Date are entitled to notice of and to vote at the Belo
Stockholders Meeting and any adjournments or postponements thereof. As of the
Belo Record Date, there were 27,083,150 shares of Belo Series A Common Stock
outstanding and entitled to vote at the Belo Stockholders Meeting held by
approximately 677 stockholders of record and 9,168,908 shares of Belo Series B
Common Stock outstanding and entitled to vote at the Belo Stockholders Meeting
held by approximately 521 stockholders of record.
Each holder of record, as of the Belo Record Date, of Belo Common Stock is
entitled to vote in accordance with the terms of Belo's Certificate of
Incorporation, as amended (the "Belo Certificate"), which provides that holders
of Belo Series A Common Stock will be entitled to one vote per share of Series A
Common Stock and holders of Belo Series B Common Stock will be entitled to ten
votes per share of Belo Series B Common Stock.
NYSE rules require that Belo stockholders approve the Belo Proposal because
the maximum 25,600,000 shares of Belo Series A Common Stock which could be
issued in the Merger constitute greater than 20% of the number of shares of Belo
Series A Common Stock outstanding prior to such issuance. Under the Belo Bylaws,
the presence, in person or by proxy, of the holders of a majority of the voting
power represented by the outstanding shares of Belo Common Stock, but in no
event less than one-third of the shares entitled to vote and thus represented at
such a meeting, is necessary to constitute a quorum at the Belo Stockholders
Meeting. Under NYSE rules, in order to approve the Belo Proposal, the number of
votes cast at the Belo Stockholders Meeting must represent more than 50% in
interest of the shares of Belo Common Stock entitled to vote thereon. Therefore,
assuming compliance with NYSE rules, the affirmative vote of a majority of the
voting power of the shares of Belo Common Stock present, in person or by proxy,
at the Belo Stockholders Meeting and entitled to vote thereon is required to
approve the Belo Proposal.
As of the Belo Record Date, directors and executive officers of Belo, its
subsidiaries and their respective affiliates as a group beneficially owned
2,542,773 shares of Belo Series A Common Stock, or approximately 9.4% of the
outstanding shares of Belo Series A Common Stock, and 4,656,804 shares of Belo
Series B Common Stock, or approximately 50.8% of the shares of Belo Series B
Common Stock, representing in the aggregate 41.4% of the total voting power of
the outstanding shares of Belo Common Stock.
If fewer shares of Belo Common Stock are voted in favor of the Belo
Proposal than the number required for approval, it is expected that the Belo
Stockholders Meeting will be postponed or adjourned for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes, and,
at any subsequent reconvening of the Belo Stockholders Meeting, all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the Belo Stockholders Meeting, except for any proxies that
have theretofore effectively been revoked or withdrawn.
Providence Journal. The Providence Journal Board has fixed the close of
business on December 27, 1996, as the Providence Journal Record Date. Only
holders of record of shares of Providence Journal Common Stock on the Providence
Journal Record Date are entitled to notice of and to vote at the Providence
Journal Stockholders Meeting and any adjournments or postponements thereof. On
the Providence Journal Record Date, there were 27,506,127 shares of Providence
Journal Class A Common Stock outstanding and entitled to vote at the Providence
Journal Stockholders Meeting held by approximately 411 stockholders of record
and 20,109,026 shares of Providence Journal Class B Common Stock outstanding and
entitled to vote at the Providence Journal Stockholders Meeting held by
approximately 243 stockholders of record.
Each holder of record, as of the Providence Journal Record Date, of
Providence Journal Common Stock is entitled to vote in accordance with the terms
of Providence Journal's Certificate of Incorporation (the "Providence Journal
Certificate"), which provides that holders of Providence Journal Class A Common
Stock
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will be entitled to one vote per share of Class A Common Stock and holders of
Providence Journal Class B Common Stock will be entitled to four votes per share
of Class B Common Stock. The presence, in person or by proxy, of the holders of
a majority of the voting power represented by the outstanding shares of
Providence Journal Common Stock entitled to vote is necessary to constitute a
quorum at the Providence Journal Meeting.
Under the Providence Journal Certificate, the affirmative vote, in person
or by proxy, of the holders of a majority of the votes represented by the shares
of Providence Journal Common Stock outstanding on the Providence Journal Record
Date and entitled to vote on the Providence Journal Proposal is required to
approve and adopt the Providence Journal Proposal.
As of the Providence Journal Record Date, directors and executive officers
of Providence Journal, its subsidiaries and their respective affiliates as a
group beneficially owned 3,785,065 shares of Providence Journal Class A Common
Stock, or approximately 13.8% of the shares of the outstanding Providence
Journal Class A Common Stock, and 3,334,950 shares of Providence Journal Class B
Common Stock, or approximately 16.6% of the shares of the outstanding Providence
Journal Class B Common Stock, representing in the aggregate approximately 15.9%
of the total voting power of the outstanding shares of Providence Journal Common
Stock.
If fewer shares of Providence Journal Common Stock are voted in favor of
the Providence Journal Proposal than the number required for approval, it is
expected that the Providence Journal Stockholders Meeting will be postponed or
adjourned for the purpose of allowing additional time for soliciting and
obtaining additional proxies or votes, and, at any subsequent reconvening of the
Providence Journal Stockholders Meeting, all proxies will be voted in the same
manner as such proxies would have been voted at the original convening of the
Providence Journal Stockholders Meeting, except for any proxies that have
theretofore effectively been revoked or terminated.
PROXIES
Belo. All shares of Belo Common Stock represented by properly executed
proxies received prior to or at the Belo Stockholders Meeting and not revoked,
will be voted in accordance with the instructions indicated in such proxies. If
no instructions are indicated on a properly executed returned proxy, such proxy
will be voted "FOR" the Belo Proposal. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum, will not be voted. In accordance with NYSE rules, brokers and nominees
are precluded from exercising their voting discretion on the Belo Proposal and
thus, absent specific instructions from the beneficial owner of such shares, are
not empowered to vote shares of Belo Common Stock held by them on the Belo
Proposal. Therefore, since NYSE rules require that the Belo Proposal be approved
in a vote in which the votes cast represent more than 50% of the voting power of
the shares of Belo Common Stock entitled to vote thereon, a proxy marked
"ABSTAIN" or a broker non-vote could have the effect of a vote against the Belo
Proposal if such abstention or non-vote, either alone or with others, is to
cause a failure to comply with NYSE rules.
Providence Journal. All shares of Providence Journal Common Stock
represented by properly executed proxies received prior to or at the Providence
Journal Stockholders Meeting and not revoked will be voted in accordance with
the instructions indicated in such proxies. If no instructions are indicated on
a properly executed returned proxy, such proxy will be voted "FOR" the
Providence Journal Proposal. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum, will not
be voted. Accordingly, since the affirmative vote of a majority of the votes
represented by the shares of Providence Journal Common Stock outstanding on the
Providence Journal Record Date is required for approval of the Providence
Journal Proposal, a proxy marked "ABSTAIN" will have the effect of a vote
against the Providence Journal Proposal. In accordance with NYSE rules, brokers
and nominees are precluded from exercising their voting discretion on the
Providence Journal Proposal and thus, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares on the
Providence Journal Proposal. Therefore, because the affirmative vote of a
majority of the votes represented by the shares of Providence Journal Common
Stock outstanding on the Providence Journal Record Date is required for approval
of the Providence Journal Proposal, a broker non-vote with respect to the
Providence
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Journal Proposal will have the effect of a vote against the Providence Journal
Proposal. Shares represented by broker non-votes will, however, be counted for
purposes of determining whether there is a quorum at the Providence Journal
Stockholders Meeting.
General. It is not expected that any matter not referred to herein will be
presented for action at either of the Special Meetings. If any other matters are
properly brought before the Belo Stockholders Meeting or the Providence Journal
Stockholders Meeting and any adjournments or postponements thereof, the persons
named in the proxies will have discretion to vote on such matters in accordance
with their best judgment. The grant of a proxy will also confer discretionary
authority on the persons named in the proxy as proxy appointees to vote in
accordance with their best judgment on matters incident to the conduct of the
Special Meetings, including (except as stated in the following sentence)
postponement or adjournment for the purpose of soliciting additional votes.
However, shares represented by proxies that have been voted "AGAINST" the Belo
Proposal or the Providence Journal Proposal, as the case may be, will not be
used to vote "FOR" postponement or adjournment of the Belo Stockholders Meeting
or the Providence Journal Stockholders Meeting, as the case may be, for the
purpose of allowing additional time for soliciting additional votes "FOR" the
Belo Proposal or the Providence Journal Proposal, as the case may be.
A Belo or Providence Journal stockholder may revoke his proxy at any time
prior to its use by delivering to the Secretary of Belo or the Secretary of
Providence Journal, as the case may be, a signed notice of revocation or a later
dated signed proxy or by attending the Belo Stockholders Meeting or the
Providence Journal Stockholders Meeting, as the case may be, and voting in
person. Attendance at the Belo Stockholders Meeting or the Providence Journal
Stockholders Meeting will not in itself constitute the revocation of a proxy.
Belo and Providence Journal will each bear one-half of the cost of mailing
this Joint Proxy Statement/Prospectus. The cost of solicitation of proxies will
be paid by Belo for the Belo proxies and by Providence Journal for the
Providence Journal proxies. In addition to solicitation by mail, proxies may be
solicited in person by directors, officers and employees of Belo or Providence
Journal, as the case may be, without additional compensation, and by telephone,
telegram, facsimile or similar method. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy material to
beneficial owners; and Belo and Providence Journal, as the case may be, will,
upon request, reimburse them for their reasonable expenses in so doing. Belo has
retained Morrow & Co., Inc. to aid in the solicitation of proxies at a fee of
$10,000 plus expenses. Providence Journal has retained Corporate Investor
Communications, Inc. to aid in the solicitation of proxies at a fee of $3,500
plus expenses. To the extent necessary in order to ensure sufficient
representation at the Belo Stockholders Meeting and the Providence Journal
Stockholders Meeting, Belo or Providence Journal, respectively, may request by
telephone or telegram the return of proxies. The extent to which this will be
necessary depends entirely upon how promptly proxies are returned.
PROVIDENCE JOURNAL STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING PROVIDENCE JOURNAL COMMON STOCK WITH THE ENCLOSED PROXY CARD. A
LETTER OF TRANSMITTAL AND FORM OF ELECTION WILL BE MAILED PRIOR TO THE EFFECTIVE
TIME TO EACH PERSON WHO IS A HOLDER OF OUTSTANDING PROVIDENCE JOURNAL COMMON
STOCK AS OF THE ELECTION FORM RECORD DATE AND UPON REQUEST TO THE EXCHANGE
AGENT, TO EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL OWNER OF PROVIDENCE
JOURNAL COMMON STOCK BETWEEN THE ELECTION FORM RECORD DATE AND THE BUSINESS DAY
PRIOR TO THE ELECTION DEADLINE. PROVIDENCE JOURNAL STOCKHOLDERS SHOULD SEND
CERTIFICATES REPRESENTING PROVIDENCE JOURNAL COMMON STOCK TO THE EXCHANGE AGENT
ONLY AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED
IN THE LETTER OF TRANSMITTAL.
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THE MERGER
BACKGROUND
In March 1996, at an internal meeting of senior management of Belo to
discuss a variety of possible strategic acquisitions, one of the issues raised
was whether Providence Journal might have any interest in selling any of its
television stations. As a result of this discussion, Burl Osborne, an executive
officer of Belo, contacted Stephen Hamblett, the Chairman and Chief Executive
Officer of Providence Journal, to ask if one or more of Providence Journal's
television stations were available for acquisition. Mr. Hamblett responded that
Providence Journal's stations were not for sale.
In the last week of April 1996, at an industry conference attended by
members of senior management of Belo and Providence Journal, Mr. Osborne, Mr.
Hamblett and Robert W. Decherd, the Chairman, President and Chief Executive
Officer of Belo, met and held discussions about the publishing and broadcasting
business generally. In these discussions, the possibility of some form of
business combination involving Belo and Providence Journal was discussed
broadly. The Belo participants in this meeting suggested such a transaction as
an alternative to what they understood to be Providence Journal's plans to
proceed with an equity offering. The discussions did not involve any financial
proposal or analysis or any proposal regarding a possible structure for such a
transaction.
In early May, Providence Journal advised Belo that Providence Journal was
not interested in pursuing, and would not participate in, discussions concerning
a business combination with Belo. Thereafter, Providence Journal proceeded with
its equity offering.
Following its equity offering, Providence Journal intended to pursue a
strategy which included significant growth for its broadcasting business
principally through acquisitions and investments. During the Spring and Summer
of 1996, senior management of Providence Journal was unable to identify
broadcast stations in growth markets which could be acquired at attractive
prices. In addition, the broadcast industry began to consolidate at an
accelerated pace, causing management to consider whether a broadcast group of
Providence Journal's size would be able to compete for programming and network
affiliations on favorable terms.
On the evening of August 19, Providence Journal contacted Belo and, as a
result of such contact, it was agreed that a meeting would be set up to explore
whether, under then current circumstances, Belo and Providence Journal would be
interested in a possible business combination.
On August 22, Messrs. Decherd, Osborne and other Belo executive officers
met with Mr. Hamblett and another executive officer of Providence Journal. At
this meeting, the Providence Journal representatives asked the Belo
representatives whether Belo might still be interested in a business combination
with Providence Journal and a discussion of the desirability of such a
transaction took place. The participants at this meeting also discussed Belo's
willingness to maintain the independence of the newspaper business of Providence
Journal if a business combination of Belo and Providence Journal were to occur.
The meeting concluded without any agreements or specific proposals.
On August 23, Mr. Decherd sent a letter to Mr. Hamblett expressing interest
in pursuing merger talks and noting that the issue of valuation was still to be
addressed.
On August 26, Mr. Hamblett called Mr. Decherd to indicate an interest on
Providence Journal's part in commencing more detailed discussions.
On August 27, the parties executed a confidentiality agreement to
facilitate diligence efforts by each company.
On August 28 and 29, the respective chief financial officers of Belo and
Providence Journal met to conduct financial diligence in preparation for
prospective valuation negotiations concerning a possible merger.
Between September 3 and 8, the parties and certain of their representatives
communicated by telephone regarding a Belo merger proposal in which Providence
Journal stockholders would receive shares of Belo stock based on an exchange
ratio still under discussion and negotiation. On September 9, the respective
chief
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executive officers of the two companies determined that the parties had reached
an impasse over the exchange ratio.
Over the next several days, representatives of the two companies explored
potential solutions to the impasse, including adding a significant cash portion
to the proposed merger consideration. These discussions ultimately led to a
merger proposal from Belo in which Providence Journal stockholders would receive
a combination of cash and Belo stock. On September 13, Messrs. Decherd and
Hamblett each determined that this merger proposal was, in principle,
acceptable, subject to, among other things, completion of more detailed
diligence, successful negotiation of a mutually agreeable definitive merger
agreement, and a full presentation to and approval by each company's Board of
Directors in consultation with financial and legal advisors.
From September 16 through September 25, extensive negotiations took place
concerning the terms of the definitive merger agreement and additional diligence
was conducted.
On September 23, at a dinner which preceded a September 24 Providence
Journal Board meeting, Mr. Decherd made a presentation to the Providence Journal
Board members concerning Belo, Belo's rationale for the proposed merger and
Belo's operating philosophy for the combined businesses if the proposed merger
were to go forward.
The status of the merger negotiations was discussed at special meetings of
the Belo Board on August 30, September 4 and September 17. At another special
Belo Board meeting held on September 24, members of senior management of Belo,
together with Gibson, Dunn & Crutcher LLP, Belo's legal counsel, and Furman
Selz, Belo's financial advisor, reviewed in detail with the Belo Board the
status of the merger proposal, including, among other things, financial and
valuation analyses of the proposal, a summary of the principal terms of the
latest draft of the definitive merger agreement, and a presentation and
discussion of Belo's strategic interest in pursuing the merger proposal.
The Executive Committee of the Providence Journal Board met on August 28 to
discuss the possibility of a business combination with Belo and authorized
senior management to continue discussions with Belo. The Executive Committee met
again on August 30 to keep apprised of the discussions with Belo. The status of
the merger negotiations was also discussed at special meetings of the Providence
Journal Board on September 2 and September 19 and at the Board's regularly
scheduled September 24 meeting. At each of these meetings, members of senior
management of Providence Journal, together with Providence Journal's legal
advisors, Edwards & Angell and Wachtell, Lipton, Rosen & Katz, and Providence
Journal's financial advisor, Bear Stearns, reviewed in detail with the Board the
status of the merger negotiations, including among other things, financial and
valuation analyses, the strategic alternatives available to Providence Journal
(including the possibility of (a) remaining independent (and continuing with no
acquisitions, acquisitions of smaller media properties or a "merger of equals"),
(b) selling certain assets or spinning off certain business divisions, or (c)
soliciting competing proposals to Belo's proposal), the potential value to the
holders of Providence Journal Common Stock of becoming stockholders in the
combined company and a summary of the principal terms of the proposed merger.
On the evening of September 25, Mr. Decherd met with Mr. Hamblett to review
and discuss the merger proposal and concluded that all significant issues had
been satisfactorily resolved and that the merger proposal would be presented to
each Board the next day for final review.
On September 26, the Belo Board held a special meeting to consider the
Merger Agreement. Senior management of Belo, as well as Belo's legal and
financial advisors, updated their earlier presentations. In addition, Furman
Selz delivered its oral opinion (subsequently confirmed in writing) to the Belo
Board that, based upon and subject to the matters set forth in its written
opinion, the Aggregate Merger Consideration to be offered in the Merger to
holders of Providence Journal Common Stock is fair, from a financial point of
view, to the holders of Belo Common Stock. After further discussion and
consideration, the Belo Board unanimously approved the Merger Agreement and the
transactions contemplated thereby and authorized execution of the Merger
Agreement.
On September 26, the Providence Journal Board held a special meeting to
consider the Merger Agreement. Providence Journal's financial advisors updated
their earlier presentations and delivered their oral
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<PAGE> 49
opinion (subsequently confirmed in writing) to the Providence Journal Board
that, based upon and subject to the matters set forth in its written opinion,
the Merger is fair, from a financial point of view, to the stockholders of
Providence Journal. Providence Journal's legal advisors then reviewed the Merger
Agreement in detail. After further discussions and consideration, the Providence
Journal Board unanimously approved the Merger Agreement and the transactions
contemplated thereby and authorized execution of the Merger Agreement.
The Merger Agreement was executed and announced on September 26, 1996.
The Aggregate Merger Consideration agreed to by the parties was the result
of arm's-length negotiation.
RECOMMENDATION OF BELO BOARD; BELO'S REASONS FOR THE MERGER
THE BELO BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, BELO AND ITS STOCKHOLDERS. THE BELO BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE BELO PROPOSAL.
In reaching its determination to approve the Merger Agreement and to
recommend approval of the Belo Proposal, the Belo Board consulted with Belo
management, as well as its legal counsel and financial advisor, and considered a
number of factors. The Belo Board considered the nature and scope of the
business of Providence Journal, the quality and breadth of its assets, and its
financial condition, competitive position and prospects for further development.
The Belo Board also considered the following factors (which include all material
factors):
(i) the substantial benefits believed to be available to Belo due to
the increase in size of its television broadcasting business resulting from
the Merger, including opportunities to improve its operating leverage in
the television broadcasting business through the substantial increase in
market coverage, thereby enabling Belo to compete more effectively for
syndicated programming and to obtain other services and equipment on more
favorable terms;
(ii) the establishment of a well-balanced, diversified group of
television network affiliations with ABC, NBC, CBS, Fox and UPN, providing
Belo with enhanced nationwide stature, as well as geographic expansion into
important television markets in the Southwest and Northwest;
(iii) the opportunity to add to Belo's publishing business the
Providence Journal-Bulletin, a newspaper with a well-deserved reputation
for journalistic excellence and a long track record of leadership in its
market;
(iv) the potential opportunity to realize the significant value of
Belo's Seattle-Tacoma station (KIRO-TV) through an exchange or other
transaction which is expected to result in the acquisition of additional
television broadcast assets, while continuing to maintain a presence in the
Seattle-Tacoma television market through Providence Journal's station
(KING-TV);
(v) the close and strong cultural fit between the Belo and Providence
Journal organizations, each of which believes that it has successfully
fostered a strong commitment to excellence in journalism and to community
service; Belo believes that the similarity of the two organizations and
their operating philosophy should facilitate the post-closing integration
of the two companies;
(vi) the current and prospective environment in which Belo and
Providence Journal operate, including competitive conditions and industry
consolidations, the impact of regulatory matters on the broadcasting
industry and prospects for regulatory change and the related uncertainties,
all of which Belo believes favor larger newspaper and television broadcast
operations;
(vii) the Belo Board's belief that, in comparison to other acquisition
and investment opportunities that have been available (which were generally
smaller opportunities primarily through private negotiation or formal
bidding procedures) and may in the future become available to Belo to grow
its television broadcasting and newspaper publishing businesses, the Merger
offers more potential for promoting Belo stockholder value;
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<PAGE> 50
(viii) the various financial and other presentations by Furman Selz
relating to the opinion of Furman Selz that the Aggregate Merger
Consideration to be offered in the Merger to holders of Providence Journal
Common Stock is fair, from a financial point of view, to the holders of
Belo Common Stock (see "-- Fairness Opinions -- Opinion of Belo's Financial
Advisor");
(ix) the structure and the tax treatment of the Merger; and
(x) the terms of the Merger Agreement.
Belo management also discussed with the Belo Board, and the Belo Board
considered in evaluating the Merger proposal, the following risk factors which
were believed by Belo management to be presented by the Merger proposal: (i) the
risk that the businesses of Providence Journal would perform significantly below
expectations, (ii) the risk that positive market trends, including favorable
valuations of television stations, in the television industry in general would
turn adverse, and (iii) the risk that the expected benefits of the Merger as
described above will not, in the aggregate, be sufficiently realized to offset
the substantial dilution resulting from the Merger, which could adversely affect
the trading value of Belo Series A Common Stock. The Belo Board concluded that
the substantial potential benefits believed to be available to Belo through the
Merger clearly outweighed these potential risks.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Belo Board did not quantify or otherwise attempt
to assign relative weights to the specific factors considered in reaching its
determination.
No member of the Belo Board has any interest in the Merger other than as a
Belo stockholder.
RECOMMENDATION OF PROVIDENCE JOURNAL BOARD; PROVIDENCE JOURNAL'S REASONS FOR THE
MERGER
THE PROVIDENCE JOURNAL BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTERESTS OF, PROVIDENCE JOURNAL AND ITS STOCKHOLDERS. THE PROVIDENCE
JOURNAL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE PROVIDENCE JOURNAL
PROPOSAL.
In the course of reaching its decision to approve the Merger Agreement and
the transactions contemplated thereby, including the Merger, the Providence
Journal Board consulted with its legal advisors regarding the legal terms of the
Merger Agreement and the Providence Journal Board's obligations in its
consideration thereof, its financial advisor regarding the financial terms and
fairness, from a financial point of view, of the Merger to the Providence
Journal stockholders and the management of Providence Journal. Set forth below
are the material factors, without assigning any relative or specific weights
thereto, the Providence Journal Board considered and believed relevant to
reaching its determination:
(i) the Providence Journal Board's familiarity with and review of
Providence Journal's business, operations, financial condition and
operating results;
(ii) the Providence Journal Board's familiarity with and review, based
in part on the advice of Bear Stearns and Providence Journal management, of
Providence Journal's future prospects which indicated to the Providence
Journal Board the difficulty for a company the size of Providence Journal
to remain competitive and the desirability of expanding newspaper and
broadcast television operations (See "-- Fairness Opinions -- Opinion of
Providence Journal's Financial Advisor");
(iii) the current and prospective environment in which Providence
Journal and Belo operate, including recent regulatory matters affecting the
broadcasting industry, national and local economic conditions, the
competitive environment for media generally and the trend toward
consolidation in the media industry (all of which the Providence Journal
Board believes favors larger corporations with greater financial resources
than Providence Journal);
(iv) the Providence Journal Board's review, based in part on the
advice of Bear Stearns and Providence Journal management, of the strategic
alternatives available to Providence Journal (including the possibility of
(a) remaining independent (and continuing with no acquisitions,
acquisitions of smaller
40
<PAGE> 51
media properties or a "merger-of-equals"), (b) selling certain assets or
spinning off certain business divisions; or (c) soliciting competing
proposals to Belo's proposal), before concluding, for the reasons discussed
herein, that the Merger represented the best alternative to enhance
stockholder value;
(v) the historical dividends paid on Providence Journal Common Stock
and Belo Common Stock, respectively, and the significant increase in
dividends to holders of Providence Journal Common Stock which could result
from the Merger and benefit the holders of Providence Journal Common Stock;
(vi) the various financial presentations by Bear Stearns and the
September 26, 1996 written opinion of Bear Stearns that the Merger was
fair, from a financial point of view, to the stockholders of Providence
Journal thereby providing the Providence Journal Board some assurance that
the Aggregate Merger Consideration reflects the anticipated benefits to
Providence Journal and its stockholders of the Merger (See "-- Fairness
Opinions -- Opinion of Providence Journal's Financial Advisor");
(vii) the expectation that the majority of the consideration received
by the holders of Providence Journal Common Stock would be Belo Series A
Common Stock, which receipt would be tax-free (if no other consideration
were received) or partially tax-free (to the extent that the amount of gain
realized by a holder exceeded the amount of cash received) under the Code,
permitting such holders to: (a) avoid in whole or in part the immediate
payment of Federal income taxes and (b) allow holders who had planned on
holding their Providence Journal Common Stock through death as an estate
planning vehicle substantially to achieve that result through participation
in a tax-free reorganization;
(viii) the Providence Journal Board's review, based in part on
presentations by Bear Stearns and Providence Journal management, of (a) the
business, operations, earnings and financial condition of Belo on both an
historical and a prospective basis and (b) the historical market price and
potential future value of Belo Series A Common Stock and the possible
effect of the Merger on such historical price and potential value and the
resulting benefits to the holders of Providence Journal Common Stock;
(ix) the anticipated cost savings and operating efficiencies available
to the combined company;
(x) the Providence Journal Board's belief that the terms of the Merger
Agreement are attractive in that the agreement allows holders of Providence
Journal Common Stock to become stockholders in a combined company which
would be able to provide such stockholders with the benefits of ownership
in a larger, more diversified media company which would (a) rank as the
third largest non-network station group in the United States in terms of
national audience coverage, (b) have diversified television network
affiliate relationships with each of ABC, NBC and CBS, and (c) continue the
tradition of journalistic excellence of Providence Journal;
(xi) the terms and conditions of the Merger Agreement as reviewed by
the Providence Journal Board with its legal advisors (including the
proposed arrangements with respect to the Belo Board) which the Providence
Journal Board believes will ensure the continued journalistic integrity and
independence of the Providence Journal-Bulletin following the Closing Date;
(xii) Belo's stated intention to respect the independence of the
Providence Journal-Bulletin by holding the newspaper in a separate
operating subsidiary which will continue to have (a) substantially the same
Board of Directors as the existing Providence Journal Board which will be
charged with determining the overall business philosophy of the Providence
Journal-Bulletin and its relationship to the Rhode Island and southeastern
Massachusetts community and (b) Mr. Hamblett as Chairman and Chief
Executive Officer of such subsidiary and Publisher of the Providence
Journal-Bulletin; and
(xiii) the effect of the Merger on Providence Journal's other
constituencies, including its employees and the communities served by the
Providence Journal-Bulletin and its various television stations, and other
considerations required to be considered pursuant to the Providence Journal
Certificate.
Providence Journal management also discussed with the Providence Journal
Board, and the Providence Journal Board considered in evaluating the Merger
proposal, the following risk factors which were believed by Providence Journal
management to be presented by the Merger proposal: (i) the risk that the
combined
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company would perform significantly below expectations; and (ii) the risk that
the positive market trends, including favorable valuations of television
stations, in the television industry in general would turn adverse.
The Providence Journal Board was aware that certain members of Providence
Journal management and the Providence Journal Board may be deemed to have
certain interests in the Merger that are in addition to their interests as
Providence Journal stockholders generally and Providence Journal considered
these interests in approving the Merger. Such interests did not weigh either in
favor of or against approving the Merger. See "THE MERGER -- Interests of
Certain Persons in the Merger."
If the holders of Providence Journal Common Stock do not approve and adopt
the Merger Agreement, or the Merger is not consummated for any other reason, the
Providence Journal Board expects to continue to operate Providence Journal as an
ongoing business.
FAIRNESS OPINIONS
Opinion of Belo's Financial Advisor
Furman Selz was retained by Belo as its financial advisor to assist Belo in
the Merger negotiations and to render a fairness opinion in respect of the
Merger because of Furman Selz's familiarity with Belo and Belo's component
businesses and Furman Selz's qualifications and expertise in providing advice to
companies in the media industries, as well as its reputation as an
internationally recognized investment banking firm. Belo had previously retained
Furman Selz to perform general strategic and financial advisory services.
Pursuant to a letter agreement dated September 24, 1996, the maximum fee payable
to Furman Selz for its role as Belo's financial advisor is $8,000,000.
At the request of Belo, on September 26, 1996, Furman Selz delivered an
oral opinion to the Belo Board, which was subsequently confirmed in writing,
that, based upon and subject to the matters set forth in its written opinion, as
of such date, the Aggregate Merger Consideration to be paid in the Merger to the
holders of Providence Journal Common Stock was fair, from a financial point of
view, to the holders of Belo Common Stock. On January 6, 1997, Furman Selz
updated its written opinion. Furman Selz's analyses did not differ from each
other in any material respect. The full text of the written opinion of Furman
Selz, dated as of January 6, 1997, is set forth as Appendix B to this Joint
Proxy Statement/Prospectus and describes the assumptions made, matters
considered and limits on the review undertaken. Belo stockholders are urged to
read the opinion in its entirety.
Furman Selz's opinion addresses only the fairness of the Aggregate Merger
Consideration to be offered in the Merger, from a financial point of view, to
the stockholders of Belo and does not constitute a recommendation to any
stockholder of Belo or Providence Journal as to how such stockholder should vote
with respect to the approval of the Belo Proposal. Such opinion is not directed
to Providence Journal stockholders and, therefore, does not address whether the
Aggregate Merger Consideration to be offered in the Merger to the holders of
Providence Journal Common Stock is fair to Providence Journal or its
stockholders. The consideration to be received by Providence Journal
stockholders as a result of the Merger was determined by negotiation between
Providence Journal and Belo.
In connection with rendering its opinion dated as of January 6, 1997,
Furman Selz: (i) reviewed the Merger Agreement and certain related documents and
the financial terms of the Merger set forth therein; (ii) reviewed the
Providence Journal Annual Report on Form 10-K for the fiscal year ended December
31, 1995, Quarterly Report on Form 10-Q for the quarters ended June 30, 1996 and
September 30, 1996 and certain other filings with the Commission made by
Providence Journal, including Proxy Statements, Current Reports on Form 8-K, and
the Prospectus dated June 24, 1996 relating to the initial public offering of
Providence Journal Class A Common Stock; (iii) reviewed Belo's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, Quarterly Report on Form
10-Q for the quarters ended June 30, 1996 and September 30, 1996 and certain
other filings with the Commission made by Belo, including Proxy Statements,
Current Reports on Form 8-K, and the Prospectus dated May 1, 1996 relating to
the public offering of Belo Series A Common Stock; (iv) reviewed certain other
publicly available information concerning Belo and the trading market for Belo
Series A Common Stock; (v) reviewed certain other publicly available information
concerning Providence Journal and the trading market for Providence Journal
Class A Common Stock; (vi) reviewed certain non-public information relating to
Belo and Providence Journal, including financial
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<PAGE> 53
forecasts and projections for each as well as pro forma financial forecasts and
projections, furnished to Furman Selz by Belo and Providence Journal; (vii)
reviewed certain publicly available information, including research reports,
concerning certain other companies engaged in businesses which Furman Selz
believed to be comparable to Belo and Providence Journal and the trading markets
for certain of such companies' securities; (viii) reviewed the financial terms
of certain recent mergers and acquisitions which Furman Selz believed to be
relevant; (ix) conducted discussions with certain members of senior management
of Belo and Providence Journal concerning their respective businesses and
operations, assets, present condition and future prospects; and (x) performed
such other analyses, examinations and procedures, reviewed such other agreements
and documents, and considered such other factors, as Furman Selz deemed, in its
sole judgment, to be necessary, appropriate or relevant to render its opinion.
In rendering its opinion, Furman Selz has not assumed any responsibility
for independent verification of any of the foregoing information and relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, projections and other data of Belo and Providence Journal
used in its analysis, the management of Belo or Providence Journal, as the case
may be, has advised Furman Selz that such forecasts, projections and other data
had been reasonably prepared on bases reflecting their best currently available
estimates and judgments as to their future financial performance. In addition,
Furman Selz did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Belo or Providence Journal, nor had it
been furnished with any such evaluations or appraisals. For purposes of its
opinion, Furman Selz was not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of Providence Journal.
Furman Selz has further assumed that the Merger will qualify as a reorganization
under the provisions of Section 368(a) of the Code, and that the Merger will not
result in the incurrence by Providence Journal of any future tax payments
relating to the Merger of Old PJC with Continental pursuant to the Continental
Merger Agreement. Furman Selz has not determined what impact the incurrence by
Providence Journal of any future tax payments relating to the Merger of Old PJC
with Continental pursuant to the Continental Merger agreement would have on
Furman Selz's opinion. See "THE MERGER -- Certain Federal Income Tax
Consequences."
In arriving at its opinion, Furman Selz also took into account its
assessment of general economic, market and financial conditions and its
experience in similar transactions, as well as its experience in securities
valuation in general. Furman Selz's opinion necessarily is based upon market,
business and other conditions as of January 6, 1997 and can only be evaluated on
such date, and does not represent an opinion as to the value of the Belo Common
Stock or the impact of the Merger or its announcement on the trading price of
the Belo Series A Common Stock.
In connection with Furman Selz's opinion, Furman Selz confirmed the
appropriateness of its reliance on the financial and valuation analyses used to
render its opinion dated September 26, 1996 by performing procedures to update
certain of such financial and valuation analyses. The following is a summary of
the material aspects of the analyses performed by Furman Selz in connection with
its opinion dated January 6, 1997.
Transaction Overview
Furman Selz calculated the nominal Merger Consideration to be received by
the holders of Providence Journal Common Stock based on the assumption that the
holders of Providence Journal Common Stock received 0.5333 shares of Belo Series
A Common Stock and $12.33 in cash for each share of Providence Journal Common
Stock owned. Based on the closing stock price for Belo Series A Common Stock on
January 3, 1997 of $33.88, the nominal Merger Consideration to be received by
the holders of Providence Journal Common Stock was $30.40. Furman Selz
calculated the Aggregate Merger Consideration based on the $33.88 closing price
for Belo Series A Common Stock on January 3, 1997, and the Total Enterprise
Value, defined as the market value of equity, which, in the case of this
transaction, was assumed to be the Aggregate Merger Consideration, plus net debt
and adjusted for other non-operating items of Providence Journal. Furman Selz
then considered the Total Enterprise Value less an adjustment for the estimated
value of Providence Journal's programming and electronic media assets ("Adjusted
Total Enterprise Value") as a multiple of current (1996 projected) and forward
(1997) year earnings before interest, taxes, depreciation and amortization
("Base EBITDA"), (i) excluding the results of Providence Journal's programming
and
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electronic media operations ("Adjusted EBITDA") and (ii) excluding the results
of Providence Journal's programming and electronic media operations and
corporate expenses ("Pre-Corporate Adjusted EBITDA"). Pre-Corporate EBITDA
(defined below) was used in Furman Selz's analyses because Furman Selz believes
that Pre-Corporate EBITDA is a commonly used operating statistic with which to
analyze broadcasting companies. Furman Selz excluded the value and operating
results of the programming and electronic media segment from Adjusted Total
Enterprise Value and Adjusted EBITDA and Pre-Corporate Adjusted EBITDA,
respectively, due to the development stage nature of the programming and
electronic media business and its significant operating losses. Furman Selz
relied, at the request of Belo's management, without independent verification,
upon forecasted financial information for Providence Journal provided by Belo's
and Providence Journal's managements. The following table summarizes Total
Enterprise Value multiples associated with the proposed transaction and Total
Enterprise Value multiples derived from Furman Selz's comparable transaction
analysis and comparable company trading analysis.
TOTAL ENTERPRISE VALUE MULTIPLES
<TABLE>
<CAPTION>
CURRENT FORWARD
(1996 PROJECTED) (1997)
---------------- -------
<S> <C> <C>
Transaction Overview
Pre-Corporate Adjusted EBITDA.............. 12.4x 12.2x
Adjusted EBITDA............................ 13.1x 12.7x
</TABLE>
<TABLE>
<CAPTION>
CURRENT FORWARD
--------------------------------- --------------------------------
HIGH LOW MEDIAN MEAN HIGH LOW MEDIAN MEAN
----- ----- ------ ----- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comparable Transaction Analysis
Selected Television Broadcasting Transactions
Pre-Corporate EBITDA........................ 16.7x 10.5x 13.3x 13.6x 15.5x 9.6x 13.2x 12.7x
Selected Publishing Transactions
Base EBITDA................................. 14.0x 8.5x 11.8x 11.5x 12.0x 8.7x 10.4x 10.4x
Comparable Company Trading Analysis
Selected Television Broadcasting Companies
Pre-Corporate EBITDA........................ 20.3x 5.3x 10.6x 10.4x 15.3x 4.8x 8.4x 8.8x
Base EBITDA................................. 21.5x 5.9x 11.8x 11.5x 16.0x 5.3x 9.1x 9.4x
Selected Publishing Companies
Pre-Corporate EBITDA........................ 10.5x 5.9x 8.2x 8.4x 9.3x 5.4x 6.9x 7.1x
Base EBITDA................................. 11.8x 6.1x 8.7x 8.7x 10.1x 5.6x 7.3x 7.4x
</TABLE>
Comparable Transaction Analysis
Furman Selz prepared a comparable transaction analysis that consisted of
reviewing financial aspects of selected acquisitions of assets, businesses or
interests in businesses in the television broadcasting and publishing industries
("Selected Television Broadcasting Transactions" and "Selected Publishing
Transactions," respectively) which were considered comparable to the Merger.
Furman Selz noted that no such transactions took place under directly comparable
market conditions or competitive conditions or circumstances and that,
accordingly, qualitative judgments must be made concerning the differences
between the characteristics of these transactions and other factors and issues
which would affect the price an acquiror is willing to pay in an acquisition.
Selected Television Broadcasting Transactions included (acquiror/target):
Granite Broadcasting Corporation/WXON-T.V., Inc. (WXON-TV); Raycom Media, Inc.
/AFLAC (KFVS-TV, WAFF-TV, KWWL-TV, WAFB-TV, WTOC-TV, WITN-TV and WTVM-TV); News
Corp./New World Communications Group Incorporated; Tribune Company/Renaissance
Communications Corp.; Retirement Systems of Alabama/Federal Enterprises, Inc.;
The National Broadcasting Company/New World Communications Group Incorporated
(KNSD-TV and WVTM-TV); Retirement Systems of Alabama/Ellis Communications Inc.;
Young Broadcasting Inc./The Walt Disney Company (KCAL-TV); Sinclair Broadcast
Group, Inc./River City Broadcasting; The National Broadcasting Company/Outlet
Communications, Inc. and ABRY Broadcast Partners II, L.P./ACT III Broadcasting,
Inc. The analysis of Selected Television Broadcasting Transactions yielded a
range of Total Enterprise Value multiples of (i) current year Base EBITDA before
corporate expenses ("Pre-Corporate EBITDA") of 10.5x to 16.7x, with
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a median of 13.3x and a mean of 13.6x, and (ii) forward year Pre-Corporate
EBITDA of 9.6x to 15.5x, with a median of 13.2x and a mean of 12.7x. Selected
Publishing Transactions included (acquiror/target): Media General, Inc./Park
Communications, Inc.; Pulitzer Publishing Company/Scripps League Newspapers;
Media General, Inc./Worrell Enterprises, Inc. (several newspapers located in the
State of Virginia); Knight-Ridder, Inc./Lesher Communications, Inc.; Gannett
Co., Inc./Multimedia, Inc.; McClatchy Newspapers, Inc./The News and Observer
Publishing Company; Hearst Corp./Consolidated Newspapers Inc. (Houston Post);
Park Acquisitions, Inc./Park Communications, Inc.; Morris Communications
Corp./Stauffer Communications Inc. and The New York Times Company/Affiliated
Publications, Inc. The analysis of Selected Publishing Transactions yielded a
range of Total Enterprise Value multiples of (i) current year Base EBITDA of
8.5x to 14.0x, with a median of 11.8x and a mean of 11.5x, and (ii) forward year
Base EBITDA of 8.7x to 12.0x, with a median of 10.4x and a mean of 10.4x. In
performing the comparable transaction analysis, Furman Selz used Total
Enterprise Value multiples of Pre-Corporate EBITDA for the Selected Television
Broadcasting Transactions rather than Total Enterprise Value multiples of Base
EBITDA which were used for the Selected Publishing Transactions. The Total
Enterprise Value multiples of Pre-Corporate EBITDA are a commonly used statistic
in comparing broadcasting companies and are more readily available. Furman Selz
noted that the Adjusted Total Enterprise Value multiples calculated for the
Merger (see "--Transaction Overview") compared favorably with both the multiples
derived in the comparable transaction analysis for Selected Television
Broadcasting Transactions and the multiples derived in the comparable
transaction analysis for Selected Publishing Transactions.
Comparable Company Trading Analysis
Furman Selz prepared a comparable company trading analysis that consisted
of comparing financial market and operating performances of selected publicly
traded television broadcasting and publishing companies ("Selected Television
Broadcasting Companies" and "Selected Publishing Companies," respectively) with
Providence Journal. Furman Selz noted that each of the selected companies is
distinguishable from Providence Journal, and that, accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in the financial and operating characteristics
of the companies and other factors to which they are being compared. The
multiples and ratios for each of the selected companies were based on the most
recent publicly available information and published estimates of research
analysts. The Selected Television Broadcasting Companies included: BHC
Communications, Inc.; Clear Channel Communications, Inc.; Granite Broadcasting
Corporation; Gray Communications Systems, Inc.; LIN Television Corporation;
Paxson Communications Corporation; Sinclair Broadcast Group, Inc.; Telemundo
Group, Inc.; United Television, Inc. and Young Broadcasting Inc. With respect to
the Selected Television Broadcasting Companies, Furman Selz considered Total
Enterprise Value as a multiple of estimated current (1996 projected) and forward
(1997) year Pre-Corporate EBITDA and Base EBITDA. Furman Selz's analysis of the
Selected Television Broadcasting Companies indicated Total Enterprise Value
multiples of current and forward year (i) Pre-Corporate EBITDA ranging from 5.3x
to 20.3x, with a median of 10.6x and a mean of 10.4x, and 4.8x to 15.3x, with a
median of 8.4x and a mean of 8.8x, respectively, and (ii) Base EBITDA ranging
from 5.9x to 21.5x, with a median of 11.8x and a mean of 11.5x, and 5.3x to
16.0x, with a median of 9.1x and a mean of 9.4x, respectively. The Selected
Publishing Companies included: The New York Times Company; Knight-Ridder, Inc.;
Gannett Co., Inc.; Times Mirror Company; The Washington Post Company; Dow Jones
& Company, Inc.; Central Newspapers, Inc.; McClatchy Newspapers, Inc.; Hollinger
International Inc.; Lee Enterprises, Incorporated; Media General, Inc.; The E.W.
Scripps Company and Tribune Company. With respect to the Selected Publishing
Companies, Furman Selz considered Total Enterprise Value as a multiple of
estimated current (1996) and forward (1997) year Pre-Corporate EBITDA and Base
EBITDA. Furman Selz's analysis of the Selected Publishing Companies indicated
Total Enterprise Value multiples of current and forward year (i) Pre-Corporate
EBITDA ranging from 5.9x to 10.5x, with a median of 8.2x and a mean of 8.4x, and
5.4x to 9.3x, with a median of 6.9x and a mean of 7.1x, respectively, and (ii)
Base EBITDA ranging from 6.1x to 11.8x, with a median of 8.7x and a mean of
8.7x, and 5.6x to 10.1x, with a median of 7.3x and a mean of 7.4x, respectively.
Furman Selz noted that the Adjusted Total Enterprise Value multiples calculated
for the merger (see "--Transaction Overview") compared favorably with both the
multiples derived in the trading analysis for Selected Television Broadcasting
Companies and the multiples derived in the trading analysis for Selected
Publishing Companies.
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<PAGE> 56
Segment Valuation Analysis
In order to estimate, based on Furman Selz's reasonable judgment, an
overall implied pre-tax value per share at which Providence Journal could be
valued, Furman Selz prepared three segment valuation analyses based on the
following: (i) discounted cash flow analysis, (ii) comparable transaction
analysis and (iii) comparable company trading analysis. Furman Selz relied, at
the request of Belo's management, without independent verification, upon
forecasted financial information for Providence Journal provided by Belo's and
Providence Journal's managements. The following table summarizes the range of
implied equity values per share derived by Furman Selz in each of its segment
valuation analyses:
<TABLE>
<CAPTION>
RANGE OF IMPLIED EQUITY NOMINAL MERGER CONSIDERATION
VALUES PER SHARE AS OF JANUARY 3, 1997
----------------------- ----------------------------
<S> <C> <C>
Discounted Cash Flow Analysis.................... $20.34 - $33.49 $30.40
Comparable Transaction Analysis.................. 26.25 - 33.94 30.40
Comparable Company Trading Analysis with No
Control Premium................................ 16.65 - 26.24 30.40
With 15% Control Premium....................... 19.15 - 30.17 30.40
With 30% Control Premium....................... 21.65 - 34.11 30.40
</TABLE>
Discounted Cash Flow Analysis. The discounted cash flow analysis, based on
information provided by Belo's and Providence Journal's managements, consisted
of (i) calculating a range of net present values for the projected unleveraged
free cash flows in the forecast for each segment of Providence Journal using
various discount rates reflecting weighted average costs of capital which Furman
Selz deemed appropriate in its reasonable judgment and (ii) combining such
values with terminal values for each segment calculated by multiplying each
segment's projected Pre-Corporate EBITDA in 2001 by a range of Pre-Corporate
EBITDA terminal value multiples, which Furman Selz deemed appropriate in its
reasonable judgment, and discounting the values using the same discount rates
utilized for the unleveraged free cash flows of the respective segment. Furman
Selz applied (i) discount rates ranging from 7.5% to 11.5% and Pre-Corporate
EBITDA terminal value multiples ranging from 10.5x to 13.5x to the television
broadcasting segment, (ii) discount rates ranging from 9.5% to 13.5% and
Pre-Corporate EBITDA terminal value multiples ranging from 8.0x to 10.0x to the
publishing segment and (iii) discount rates ranging from 10.0% to 20.0% and
Pre-Corporate EBITDA terminal value multiples ranging from 12.0x to 18.0x,
representing an implied future terminal value per subscriber of $5.74 to $8.62,
to the principal business (Television Food Network) within the programming and
electronic media segment. The aggregate of each segment's net present value of
projected free cash flows combined with the terminal values yielded a range of
implied Total Enterprise Values. In order to derive a range of implied equity
values per share for Providence Journal, Furman Selz subtracted from the range
of implied Total Enterprise Values an estimated value of corporate expenses and
net debt, adjusted for other non-operating items and divided the result by the
number of fully diluted shares of Providence Journal Common Stock outstanding.
Based on such analysis, Furman Selz derived a range of implied equity values per
share of Providence Journal of $20.34 to $33.49.
In conjunction with the discounted cash flow analysis, as it related to
Providence Journal's programming and electronic media segment, which, as noted,
is in the development stage and currently operating on a negative Pre-Corporate
EBITDA basis, Furman Selz reviewed the financial aspects of selected
acquisitions of assets, businesses or interests in businesses in the cable
programming industry ("Selected Cable Programming Transactions"). Furman Selz
noted that no such transactions took place under market conditions or
competitive conditions or circumstances that are directly comparable to the
Merger as of the date of Furman Selz's opinion and that, accordingly,
qualitative judgments must be made concerning the differences between the
characteristics of these transactions and other factors and issues which would
affect the price an acquiror is willing to pay in an acquisition. Selected Cable
Programming Transactions included (acquiror/target): Silver King/Home Shopping
Network; Providence Journal/Television Food Network (20.5%); News Corporation-
Liberty Media/fX; TCI Communications, Inc./Faith & Values (49.0%); The National
Broadcasting Company/Court TV (16.7%); ITT Corporation-Cablevision Systems
Corporation/Madison Square Garden Network; Comcast Corporation-TCI
Communications, Inc./QVC, Inc.; Capital Cities/ABC-Hearst Corporation/Lifetime
(33.3%); Cablevision Systems Corporation/American Movie Classics (50.0%);
Capital
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<PAGE> 57
Cities/ABC, Inc. -- Hearst Corporation -- The Natural Broadcasting
Corporation/A&E Network (12.5%); Liberty Media/Home Shopping Network, Inc.
(41.5%); USA Network/Sci-Fi Channel; Landmark Communications/Travel Channel;
Viacom Inc./MTV Europe; CNBC/FNN; Liberty Broadcasting/Family Network; Discovery
Channel/The Learning Channel; Hearst Corporation/ESPN (20.0%); TCI
Communications, Inc./Video Jukebox; Opryland USA Inc./Country Music TV;
Cerullo/Inspirational Network; Marcovsky/The Nostalgia Network, Inc. (24.0%);
TCI Communications, Inc. -- International Family Entertainment, Inc./Family
Channel; and Cox Communications, Inc. -- NewChannels -- TCI Communications,
Inc./Discovery Channel (40.0%). The review of Selected Cable Programming
Transactions yielded a range of Total Enterprise Value multiples of current year
operating cash flow of 6.2x to 35.8x, with a median of 12.5x and a mean of
15.0x. The review of Selected Cable Programming Transactions also yielded a
range of per subscriber values of $0.84 to $215.00, with a median of $7.10 and a
mean of $19.55.
In addition to its review of Selected Cable Programming Transactions,
Furman Selz reviewed financial market and operating performances of selected
cable programming companies ("Selected Cable Programming Companies") which were
considered comparable to the operations of Providence Journal's programming and
electronic media segment. Furman Selz noted that each of the selected companies
is distinguishable from the operations of Providence Journal's programming and
electronic media segment and that, accordingly, an analysis of the results of
the foregoing necessarily involves complex considerations and judgments
concerning differences in the financial and operating characteristics of the
companies and other factors to which they are being compared. The multiples and
ratios for each of the selected companies were based on the most recent publicly
available information and published estimates of research analysts. The Selected
Cable Programming Companies included: Gaylord Entertainment Company;
International Family Entertainment, Inc.; BET Holdings, Inc.; Shop at Home,
Inc.; Graff Pay-Per-View Inc.; ValueVision International, Inc. and The Nostalgia
Network, Inc. The review of Selected Cable Programming Companies indicated Total
Enterprise Value multiples of current (1996 projected) and forward (1997) year
Base EBITDA ranging from 8.5x to 13.9x, with a median of 9.3x and a mean of
10.6x, and 7.6x to 12.4x, with a median of 9.0x and a mean of 9.7x,
respectively. The review of Selected Cable Programming Companies also indicated
a range of per subscriber values of $1.00 to $12.10, with a median of $5.85 and
a mean of $6.61.
Comparable Transaction Analysis. With respect to the television
broadcasting and publishing segments, Furman Selz prepared a segment valuation
analysis that consisted of reviewing the Selected Television Broadcasting
Transactions and Selected Publishing Transactions and applying a range of Total
Enterprise Value to current year Pre-Corporate EBITDA multiples to Providence
Journal's 1996 Pre-Corporate EBITDA forecast for its television broadcasting and
publishing segments. See "-- Comparable Transaction Analysis." The product of
the Pre-Corporate EBITDA multiples and Providence Journal's 1996 Pre-Corporate
EBITDA forecast yielded an implied valuation range for each segment. The range
of 1996 Pre-Corporate EBITDA multiples, which Furman Selz deemed appropriate in
its reasonable judgment, applied to Providence Journal's 1996 Pre-Corporate
EBITDA forecast for the television broadcasting and publishing segments was
12.0x to 14.0x and 10.5x to 12.5x, respectively. As part of the comparable
transaction analysis, Furman Selz deemed it appropriate to use the implied
valuation range for Providence Journal's programming and electronic media
segment derived through the discounted cash flow analysis. See "-- Segment
Valuation Analysis -- Discounted Cash Flow Analysis." The aggregate of each
segment's implied valuation range yielded a range of implied Total Enterprise
Values. In order to derive a range of implied equity values per share of
Providence Journal Common Stock, Furman Selz subtracted from the range of
implied Total Enterprise Values an estimated value of corporate expenses and net
debt, adjusted for other non-operating items and divided the result by the
number of fully diluted shares of Providence Journal Common Stock outstanding.
Based on such analysis, Furman Selz derived a range of implied equity values per
share of Providence Journal Common Stock of $26.25 to $33.94.
Comparable Company Trading Analysis. With respect to the television
broadcasting and publishing segments, Furman Selz prepared a segment valuation
analysis that consisted of reviewing Selected Television Broadcasting Companies
and Selected Publishing Companies and applying a range of Total Enterprise Value
to Pre-Corporate EBITDA multiples to Providence Journal's 1996 Pre-Corporate
EBITDA forecast for its television broadcasting and publishing segments. See
"-- Comparable Company Trading Analysis." The product of the Pre-Corporate
EBITDA multiples and Providence Journal's 1996 Pre-Corporate EBITDA
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<PAGE> 58
forecast yielded an implied valuation range for each segment. The range of 1996
Pre-Corporate EBITDA multiples, which Furman Selz deemed appropriate in its
reasonable judgment applied to Providence Journal's 1996 Pre-Corporate EBITDA
forecast for the television broadcasting and publishing segments, was 8.0x to
11.0x and 7.0x to 9.0x, respectively. As part of the trading analysis, Furman
Selz deemed it appropriate to use the implied valuation range for Providence
Journal's programming and electronic media segment derived through the
discounted cash flow analysis. See "-- Segment Valuation Analysis -- Discounted
Cash Flow Analysis." The aggregate of each segment's implied valuation range
yielded a range of implied Total Enterprise Values. In order to derive a range
of implied equity values per share for Providence Journal, Furman Selz
subtracted from the range of implied Total Enterprise Values an estimated value
of corporate expenses and net debt, adjusted for other non-operating items, and
divided the result by the fully diluted shares of Providence Journal Common
Stock outstanding. Based on such analysis, Furman Selz derived a range of
implied equity values per share of Providence Journal Common Stock of $16.65 to
$26.24.
In order to determine a range of implied equity values per share of
Providence Journal Common Stock based on the trading analysis adjusted to
reflect a control premium, Furman Selz reviewed premiums paid on target
companies' stock prices one day, one week and one month prior to the
announcement of an acquisition. Furman Selz reviewed transactions that met the
following criteria: (i) transaction value was in excess of $250 million, (ii)
acquiror acquired a 50% or greater interest in the target and (iii) the
announcement occurred between January 1, 1995 and January 3, 1997. The review
resulted in a range of premiums (discounts) paid (i) one day prior to
announcement of (10.7%) to 178.3%, with a median of 25.4% and a mean of 31.3%,
(ii) one week prior to announcement of (86.4%) to 392.3%, with a median of 28.5%
and a mean of 35.6%, and (iii) one month prior to announcement of (17.7%) to
131.3%, with a median of 39.1% and a mean of 42.0%. Based on this premiums paid
analysis, Furman Selz applied a 15.0% and 30.0% premium to the range of implied
equity values per share derived in the trading analysis, which yielded an
adjusted range of implied equity values per share of Providence Journal Common
Stock of $19.15 to $30.17 and $21.65 to $34.11, respectively.
Furman Selz calculated the nominal Merger Consideration to be received by
the holders of Providence Journal Common Stock based on the assumption that the
holders of Providence Journal Common Stock received 0.5333 shares of Belo Series
A Common Stock and $12.33 in cash for each share of Providence Journal Common
Stock owned. Based on the closing sale price of Belo Series A Common Stock on
the NYSE on January 3, 1997 of $33.88, the nominal Merger Consideration to be
received by the holders of Providence Journal Common Stock would have been
$30.40. In addition, based on the closing sale price of Belo Series A Common
Stock on the NYSE on September 24, 1996 of $37.75, the nominal Merger
Consideration to be received by the holders of Providence Journal Common Stock
would have been $32.46. Based on an illustrative range of closing sale prices of
Belo Series A Common Stock of $30.00 to $42.00, the nominal Merger Consideration
to be received by holders of Providence Journal Common Stock would have been
$28.33 to $34.73. Furman Selz noted that the nominal Merger Consideration to be
received by the holders of Providence Journal Common Stock based on the closing
sale prices of Belo Series A Common Stock on the NYSE on January 3, 1997 and
September 24, 1996 and the illustrative range of closing sale prices compared
favorably with the range of implied equity values per share of Providence
Journal Common Stock derived in the segment valuation analysis.
The foregoing is a summary of the material aspects of the financial
analyses used by Furman Selz in connection with rendering its opinion. 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 analyses
as a whole, could create an incomplete view of the processes underlying Furman
Selz's opinion. In arriving at its opinion, Furman Selz considered the results
of all such analyses. The analyses were prepared solely for the purposes of
Furman Selz providing its opinion as to the fairness of Aggregate Merger
Consideration to be offered in the Merger to the holders of Providence Journal
Common Stock, from a financial point of view, to the holders of Belo Common
Stock and do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Any analysis of the
fairness of the Aggregate Merger Consideration to be offered in the Merger to
the holders of Providence Journal Common Stock, from a financial point of view,
to the stockholders of Belo involves complex considerations and judgments
concerning differences in the potential financial and operating
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<PAGE> 59
characteristics of the comparable companies and transactions and other factors
in relation to the trading and acquisition values of the comparable companies.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
those suggested by such analyses. The estimates utilized by Furman Selz were
developed solely for purposes of its analysis and the presentations to the Belo
Board and reflected computations of the potential values through the application
of various generally accepted valuation techniques. Such estimates may not
reflect actual market values, and do not necessarily reflect values which may be
realized if any other assets of Belo or Providence Journal are sold. Furman Selz
has not appraised or undertaken any valuation of any assets or property nor has
it made any solvency analysis of Belo or Providence Journal. Furman Selz's
opinion and the related presentation to the Belo Board on September 26, 1996 was
one of many factors taken into consideration by the Belo Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analyses performed by Furman Selz.
Furman Selz's opinion is for the use and benefit of the Belo Board in its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Belo Proposal. Because such opinion was not directed to
Providence Journal or its stockholders, such opinion does not address whether
such stockholders should accept the consideration to be offered to such
stockholders in the proposed Merger. Furman Selz was not requested to opine as
to, and its opinion does not in any manner address, Belo's underlying business
decision to proceed with or effect the Merger, or the relative merits of the
Merger as compared to any alternative business strategies which might exist for
Belo or the effect of any other transaction in which Belo might engage or any
agreements which might be concluded between Belo and Providence Journal after
the date of Furman Selz's opinion.
Furman Selz has performed various investment banking services for Belo in
the past, including financial advisory and investment banking services
concerning the strategic development of Belo's business, including advice with
respect to potential acquisitions, divestitures, joint ventures, capital markets
transactions or other potential corporate transactions or any combination of
such transactions, and has received customary fees for such services. In the
ordinary course of its business, Furman Selz may actively trade the securities
of Belo and Providence Journal for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement dated September 24, 1996, Belo paid to
Furman Selz (i) an initial cash retainer fee of $1,000,000 upon execution of the
letter agreement and (ii) an additional cash fee of $1,000,000 when Furman Selz
delivered its opinion to the Belo Board on September 26, 1996. Belo further
agreed to pay to Furman Selz (i) a cash fee of $5,000,000 upon the consummation
of the proposed transaction and (ii) a cash fee of $1,000,000 upon the
consummation of any transaction regarding the potential sale or exchange of the
business, stock or assets of KIRO-TV. In addition, if the Merger is not
consummated and Belo receives consideration from Providence Journal or any
affiliate by reason of the failure to consummate such transaction, Belo will pay
Furman Selz a cash fee equal to $2,500,000 payable upon receipt by Belo of such
consideration.
Belo has agreed to reimburse Furman Selz for all of its reasonable
out-of-pocket expenses, including legal fees and disbursements, in connection
with this engagement without regard to whether the transaction is consummated.
Furthermore, Belo has agreed to indemnify and hold Furman Selz harmless from and
against any losses, claims, damages or liabilities (or actions, including
security holder actions in respect thereof) related to or arising out of Furman
Selz's engagement or its role in connection with the transaction.
Opinion of Providence Journal's Financial Advisor
On January 6, 1997, Bear Stearns delivered to the Providence Journal Board
Bear Stearns' Opinion that, as of the date thereof, and subject to the
assumptions and qualifications set forth therein, the Merger was fair, from a
financial point of view, to the stockholders of Providence Journal. At the
September 26, 1996 telephonic meeting of the Providence Journal Board, Bear
Stearns had previously delivered its oral opinion (which was subsequently
confirmed in writing) to the effect that, as of the date thereof, and subject to
the
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assumptions and qualifications set forth therein, the Merger was fair, from a
financial point of view, to the stockholders of Providence Journal.
THE FULL TEXT OF BEAR STEARNS' OPINION IS SET FORTH AS APPENDIX C TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. PROVIDENCE JOURNAL STOCKHOLDERS
ARE URGED TO READ THE OPINION IN ITS ENTIRETY. 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.
Bear Stearns' Opinion is intended for the benefit and use of the Providence
Journal Board, does not constitute a recommendation of the Merger over other
courses of action that may be available to Providence Journal and does not
constitute a recommendation to any holder of Providence Journal Common Stock as
to how to vote shares in connection with the Merger. In rendering its opinion,
Bear Stearns did not solicit, and was not authorized to solicit, third party
acquisition interest in Providence Journal. In addition, Bear Stearns is not
expressing any opinion as to the price or range of prices at which shares of
Belo Common Stock may trade subsequent to the consummation of the Merger. Bear
Stearns' Opinion does not constitute a recommendation with respect to whether
any stockholder of Providence Journal should elect to receive cash or Belo
Series A Common Stock pursuant to the Merger Agreement. Bear Stearns did not
specifically analyze the impact of any individual stockholder's election to
receive all stock, all cash or a mix of consideration because it believed that
holders of Providence Journal Common Stock would make such election only after
appropriate consultation with their respective financial consultants and tax
planning advisors.
The form and amount of consideration to be paid by Belo pursuant to the
Merger Agreement were determined by arm's-length negotiations between Providence
Journal and Belo and were not based on any recommendation by Bear Stearns,
although Bear Stearns provided advice to Providence Journal from time to time
with respect thereto. Except as noted above, no limitations were imposed by
Providence Journal on Bear Stearns with respect to the investigations made or
the procedures followed by Bear Stearns in rendering its opinion.
In the course of performing its reviews and analyses for rendering its
opinion, Bear Stearns: (i) reviewed the Merger Agreement; (ii) reviewed
Providence Journal's Annual Report to Shareholders and Annual Report on Form
10-K for the year ended December 31, 1995, its Quarterly Reports on Form 10-Q
for the periods ended March 31, 1996, June 30, 1996 and September 30, 1996 and
its registration statement on Form S-1 dated June 21, 1996 (the "Providence
Journal S-1"); (iii) reviewed Belo's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the years ended December 31, 1993 through 1995 and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996, June 30,
1996 and September 30, 1996; (iv) reviewed certain operating and financial
information, including estimates and projections, provided to Bear Stearns by
the senior managements of Providence Journal and Belo relating to Providence
Journal's and Belo's businesses and prospects, respectively; (v) met with
certain members of Providence Journal's and Belo's senior management to discuss
each company's operations, historical financial statements and future prospects;
(vi) reviewed the historical prices, trading volumes and valuation parameters of
the shares of Providence Journal Common Stock and Belo Common Stock; (vii)
reviewed publicly available financial data, stock market performance data and
valuation parameters of companies which Bear Stearns deemed generally comparable
to Providence Journal and Belo; (viii) reviewed the terms of recent mergers and
acquisitions involving companies which Bear Stearns deemed generally comparable
to Providence Journal and the Merger; and (ix) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Providence Journal and Belo. With respect to
Providence Journal's and Belo's projected financial results and potential
synergies that could be achieved upon consummation of the Merger, Bear Stearns
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior managements of
Providence Journal and Belo as to the expected future performance of Providence
Journal and Belo, respectively. Bear Stearns did not assume any responsibility
for the independent verification of any such
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information or of the projections provided to it and Bear Stearns further relied
upon the assurances of the senior managements of Providence Journal and Belo
that they were unaware of any facts that would make the information or
projections provided to Bear Stearns incomplete or misleading. In arriving at
its opinion, Bear Stearns did not perform or obtain any independent appraisal of
the assets or liabilities of Providence Journal and Belo, nor was it furnished
with any such appraisals. Bear Stearns assumed with Providence Journal's consent
that the Merger will qualify as a "reorganization" within the meaning of Section
368(a) of the Code. Bear Stearns' Opinion did not address Providence Journal's
underlying business decision to pursue the Merger. Bear Stearns' Opinion was
necessarily based on economic, market and other conditions, and the information
made available to it, as of the date of such opinion.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of such analyses, as set forth below, does not purport to be a complete
description of the analyses underlying Bear Stearns' Opinion. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
summary description. Bear Stearns believes that its analyses must be considered
as a whole, and that selecting portions of its analyses and the factors
considered by it, without considering all such factors and analyses, could
create an incomplete view of the processes underlying Bear Stearns' Opinion.
Moreover, the estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by such analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Accordingly, such estimates are inherently
subject to substantial uncertainties.
The following is a summary of the material valuation, financial and
comparative analyses presented by Bear Stearns to the Providence Journal Board
on September 26, 1996 in connection with its opinion as of such date. In
connection with the Bear Stearns' Opinion, which was rendered to the Providence
Journal Board on January 6, 1997, Bear Stearns confirmed the appropriateness of
its reliance on the financial and valuation analyses used to render its opinion
dated September 26, 1996 by performing procedures to update certain of such
financial and valuation analyses. For purposes herein, the term "New Belo" is
used by Bear Stearns to refer to Belo pro forma after giving effect to the
Merger.
Nominal Transaction Value and Transaction Valuation Matrix. To exemplify
the nominal value of the Merger Consideration (the "Nominal Transaction Value"),
Bear Stearns assumed that holders of Providence Journal Common Stock would elect
to receive the Mixed Consideration (i.e., 0.5333 shares of Belo Series A Common
Stock plus $12.33 per share in cash). Based on the closing price for Belo Series
A Common Stock of $38.25 on September 23, 1996 and the average price for Belo
Series A Common Stock for the twenty trading days then ended, Bear Stearns
calculated Nominal Transaction Values of $32.73 and $33.83, respectively. Bear
Stearns noted that the actual value of the consideration to be received by
holders of Providence Journal Common Stock would depend on various factors,
including the elections made by each stockholder and all stockholders pursuant
to the Merger Agreement and the future prices for the shares of New Belo Series
A Common Stock.
Accordingly, Bear Stearns prepared a Transaction Valuation Matrix to
illustrate a range of hypothetical prices for New Belo Common Stock based on the
New Belo Segment Valuation Analysis (described below) and the trading parameters
for the Comparable Broadcasting Companies (described below) and the Comparable
Newspaper Companies (described below). Bear Stearns then used the Transaction
Valuation Matrix to demonstrate the range of transaction multiples being
received by holders of Providence Journal Common Stock based on the Providence
Journal Segment Valuation Analysis (described below) and compared such
transaction multiples to the Precedent Broadcasting Transactions (described
below), the Precedent Newspaper Transactions (described below) and the Precedent
Programming Transactions (described below). Bear Stearns analyzed the implied
operating cash flow multiples for New Belo's television broadcasting and
newspaper publishing operations at a range of assumed prices for New Belo Common
Stock after the Merger (beginning at $33.00 and increasing by one dollar
increments to $49.00, with the midpoint being $41.00 (which midpoint
approximated the average closing price for Belo Common Stock for the twenty
trading days ended September 18, 1996) (each such price hereafter referred to as
the "Assumed New Belo Stock Price")) (the "New Belo Segment Valuation
Analysis"). Bear Stearns also analyzed the imputed value
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of the Merger Consideration to be received by holders of Providence Journal
Common Stock at these Assumed New Belo Stock Prices for each of Providence
Journal's individual business segments based on the assumption that stockholders
of Providence Journal elect to receive the Mixed Consideration (i.e., 0.5333
shares of Belo Series A Common Stock plus $12.33 per share in cash) (the
"Providence Journal Segment Valuation Analysis"). For reference purposes, a
summary of the Transaction Valuation Matrix is presented in the table below:
SUMMARY OF TRANSACTION VALUATION MATRIX
<TABLE>
<CAPTION>
NEW BELO SEGMENT VALUATION ANALYSIS PROVIDENCE JOURNAL SEGMENT VALUATION ANALYSIS
- ----------------------------------------------- -----------------------------------------------------------------
PRO FORMA IMPLIED OPERATING BLENDED VALUE PREMIUM IMPLIED OPERATING
CASH FLOW MULTIPLES OF MERGER TO MARKET CASH FLOW MULTIPLES
------------------------------- CONSIDERATION STOCK -------------------------------
ASSUMED BROADCASTING NEWSPAPER TO PROVIDENCE PRICE OF BROADCASTING NEWSPAPER
NEW BELO ------------- ------------- JOURNAL $20.75 ON ------------- -------------
STOCK PRICE 1996 1997 1996 1997 STOCKHOLDERS(2) 9/23/96 1996 1997 1996 1997
- ----------- ---- ---- ---- ---- --------------- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 49.00 14.1x 12.8x 8.7 x 7.8 x $ 38.46 85.4% 17.5x 16.6x 15.9x 12.4x
45.00 13.2 12.0 8.2 7.3 36.33 75.1 16.7 15.7 15.1 11.7
41.00 12.3 11.2 7.7 6.8 34.20 64.8 15.8 14.9 14.3 11.1
38.25(1) 11.7 10.7 7.4 6.5 32.73 57.7 15.2 14.4 13.8 10.7
37.00 11.4 10.4 7.2 6.3 32.06 54.5 14.9 14.1 13.5 10.5
33.00 10.5 9.6 6.7 5.8 29.93 44.2 14.1 13.3 12.7 9.9
</TABLE>
- ---------------
(1) Represents the closing share price on September 23, 1996 for Belo Series A
Common Stock.
(2) Per share value to Providence Journal stockholders, assuming that such
holders elect to receive the Mixed Consideration (i.e., 0.5333 shares of
Belo Series A Common Stock valued at the Assumed New Belo Stock Price plus
$12.33 per share in cash).
The Providence Journal Segment Valuation Analysis was prepared by: (i)
multiplying the number of fully diluted shares of Providence Journal Common
Stock outstanding by the blended value of the consideration to be received by
the holders of Providence Journal Common Stock at each Assumed New Belo Stock
Price to determine Providence Journal's "Implied Equity Value" based on the
Merger Consideration; (ii) adding the $140 million of Providence Journal's
estimated "Net Debt" (defined as total long-term debt less cash and equivalents)
to its Implied Equity Value to determine its "Implied Enterprise Value"; and
(iii) adding an assumed value for corporate overhead of 8.0x Providence
Journal's projected 1996 corporate overhead expense of $12.2 million to
Providence Journal's Implied Enterprise Value to determine its "Implied Asset
Value." In order to then determine the implied value that holders of Providence
Journal Common Stock would thus receive for Providence Journal's television
broadcasting operations at each Assumed New Belo Stock Price, Bear Stearns
assumed an "Implied Programming Value" equal to $175 million, based upon the
Precedent Programming Transactions (described below), at the midpoint Assumed
New Belo Stock Price of $41.00. The Implied Programming Value equated to 9.2% of
Providence Journal's Implied Asset Value at the midpoint Assumed New Belo Stock
Price of $41.00; this percentage of Implied Asset Value was held constant at
each Assumed New Belo Stock Price, thereby allowing the implied value to be
received by the holders of Providence Journal Common Stock to fluctuate
accordingly. A similar methodology was applied to determine the Implied
Newspaper Value (equal to $400 million or 21.0% of Providence Journal's Implied
Asset Value, based upon the Precedent Newspaper Transactions (described below),
at the midpoint Assumed New Belo Stock Price of $41.00). The Implied Asset Value
was then reduced by the associated Implied Programming Value and Implied
Newspaper Value to determine Providence Journal's Implied Broadcasting Value.
Estimated 1996 and projected 1997 Broadcasting Cash Flow (i.e., operating income
plus depreciation and amortization, plus corporate overhead, non-cash
compensation and program amortization, less program cash payments) and Newspaper
Cash Flow (i.e., operating income plus depreciation and amortization and
corporate overhead) were then divided into the Implied Broadcasting Value and
Implied Newspaper Value, respectively, to determine the implied multiple of 1996
and 1997 operating cash flow for these business segments.
The New Belo Segment Valuation Analysis was prepared in a similar fashion
to the Providence Journal Segment Valuation Analysis, with the following changes
to the previously mentioned assumptions: (i) New Belo Net Debt was assumed to be
$1.1 billion (including approximately $600 million required to pay $12.33
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<PAGE> 63
per share in cash for each share of Providence Journal Common Stock and $10
million as a donation to the Providence Journal Charitable Foundation); (ii) the
midpoint of the New Belo Implied Newspaper Value (at the midpoint Assumed New
Belo Stock price of $41.00) for 1996 and 1997 had been set as the average
multiple of Newspaper Cash Flow currently indicated by the Comparable Newspaper
Companies (described below); (iii) New Belo's public market trading value for
its programming and other assets was assumed to be $175 million and $225 million
for 1996 and 1997, respectively; (iv) New Belo corporate overhead was valued at
8.0x estimated 1996 and 7.5x projected 1997 corporate overhead expense of $31.7
million and $32.8 million, respectively, less assumed synergies of $10 million
for each year; and (v) an assumed $10 million of synergies were added to
projected New Belo Broadcasting Cash Flow and an assumed $5 million of synergies
were added to projected New Belo Newspaper Cash Flow for each of 1996 and 1997
prior to determining the implied multiples of operating cash flow for these
business segments.
Stock Trading History. Bear Stearns reviewed the performance of the per
share stock market price and volume levels of Belo Series A Common Stock for
various time periods and the performance of the per share stock market price and
volume levels of Providence Journal Class A Common Stock since its initial
public offering ("IPO") on June 24, 1996. Bear Stearns also reviewed the
relative performance of the per share stock market price of Belo Series A Common
Stock and compared such per share market price movements to the relative market
price movements of selected publicly-traded television broadcasting and
newspaper publishing companies and the Standard & Poor's index of 400 industrial
companies (the "S&P 400"). Such television broadcasting companies included
Argyle Television, Inc., Granite Broadcasting Corporation, LIN Television
Corporation, New World Communications Group, Renaissance Communications Corp.,
Sinclair Broadcast Group, Inc. and Young Broadcasting, Inc. (collectively, the
"Broadcasting Index") and such newspaper publishing companies included Central
Newspapers, Inc., Dow Jones & Company, Inc., Gannett Co., Inc., Knight-Ridder,
Inc., McClatchy Newspapers, Inc., The New York Times Company, The Times Mirror
Company, Tribune Company and The Washington Post Company (collectively, the
"Newspaper Index"). Bear Stearns also reviewed the relative performance of the
per share stock market price of Providence Journal Class A Common Stock and Belo
Series A Common Stock versus the S&P 400. Bear Stearns noted that the price of
Providence Journal Class A Common Stock on September 23, 1996 of $20.75
reflected an approximate 38% premium to its IPO price of $15.00, and that the
Merger Consideration to be received by the holders of Providence Journal Common
Stock pursuant to the Merger would likely be valued at a substantial premium to
such September 23, 1996 closing stock price. Bear Stearns noted that these
factors were among the primary factors in assessing the fairness, from a
financial point of view, of the Merger.
Analysis of Selected Precedent M&A Transactions and Publicly Traded
Companies -- Television Broadcasting. Bear Stearns reviewed and analyzed the
publicly available financial terms of nine selected recent merger and
acquisition transactions in the television broadcasting industry which, in Bear
Stearns' judgment, were reasonably comparable to the Merger, and compared the
financial terms of such transactions to those of the Merger for purposes of this
analysis. These nine transactions included: (i) Media General, Inc.'s
acquisition of Park Communications, Inc.; (ii) News Corp.'s acquisition of New
World Communications Group; (iii) Tribune Company's acquisition of Renaissance
Communications Corp.; (iv) The New York Times Company's acquisition of Palmer
Communications; (v) Young Broadcasting, Inc.'s acquisition of KCAL-TV from The
Walt Disney Company; (vi) Sinclair Broadcast Group, Inc.'s acquisition of River
City Broadcasting L.P.; (vii) NBC's acquisition of Outlet Communications, Inc.;
(viii) Gannett Co., Inc.'s acquisition of Multimedia Inc.; and (ix) ABRY
Broadcast Partners II L.P.'s acquisition of Act III Broadcasting (collectively,
the "Precedent Broadcasting Transactions"). Bear Stearns reviewed the prices
paid in the Precedent Broadcasting Transactions and analyzed various operating
and financial information and imputed valuation multiples and ratios. Bear
Stearns noted that none of the Precedent Broadcasting Transactions was identical
to the Merger and that, accordingly, any analysis of the Precedent Broadcasting
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 Providence
Journal's broadcasting operations versus the acquisition values of the companies
to which Providence Journal's broadcasting operations were being compared. Bear
Stearns advised the Providence Journal Board that, in considering and analyzing
the Precedent Broadcasting Transactions, the Providence Journal Board should
consider the size, demographic, and economic characteristics of the markets of
each
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<PAGE> 64
broadcasting company, their network affiliations and the competitive environment
in which they operate. Bear Stearns' analysis of the Precedent Broadcasting
Transactions indicated that the range of Enterprise Value (defined as market
value of equity plus Net Debt) to Broadcasting Cash Flow multiples was 8.6x to
25.9x estimated current fiscal year Broadcasting Cash Flow, yielding an
arithmetic mean of 14.1x, and 7.9x to 14.6x projected next fiscal year
Broadcasting Cash Flow, yielding an arithmetic mean of 11.3x. Bear Stearns noted
that excluding News Corp.'s acquisition of New World Communications Group, the
arithmetic means of the current and next fiscal year Broadcasting Cash Flow for
the Precedent Broadcasting Transactions would have been 12.6x and 10.8x,
respectively. Bear Stearns compared such valuation multiples for the Precedent
Broadcasting Transactions to an imputed range of 14.1x to 17.5x estimated 1996
and 13.3x to 16.6x projected 1997 Broadcasting Cash Flow (at Assumed New Belo
Stock Prices of $33.00 to $49.00) as determined in the Providence Journal
Segment Valuation Analysis described above and noted that the imputed Providence
Journal transaction multiples compared favorably to the Precedent Broadcasting
Transactions. Bear Stearns indicated that this was one of the primary factors in
assessing the fairness, from a financial point of view, of the Merger.
Bear Stearns compared certain operating and financial information for
Providence Journal's and Belo's television broadcasting operations to certain
publicly available operating, financial, trading and valuation information of
four selected television broadcasting companies, which, in Bear Stearns'
judgment, were comparable to Providence Journal's broadcasting operations for
purposes of this analysis. These companies included Granite Broadcasting
Corporation, LIN Television Corporation, Sinclair Broadcast Group, Inc. and
Young Broadcasting, Inc. (collectively, the "Comparable Broadcasting
Companies"). Bear Stearns also reviewed and analyzed, but excluded from the
group of Comparable Broadcasting Companies, three additional publicly traded
television broadcasting companies due to either takeover speculation surrounding
the stock (Argyle Television, Inc.) or recently announced transactions that led
to their inclusion in the list of Precedent Broadcasting Transactions (New World
Communications Group and Renaissance Communications Corp.). Bear Stearns'
analysis of the Comparable Broadcasting Companies indicated that the Comparable
Broadcasting Companies were trading in a range of Enterprise Value to estimated
1996 and projected 1997 Broadcasting Cash Flow of 9.4x to 11.3x and 9.0x to
11.0x, respectively, with arithmetic means of 10.8x and 10.1x, respectively.
Bear Stearns noted that for purposes of estimating the range of Assumed New Belo
Stock Prices in the Transaction Valuation Matrix, it compared these valuation
multiples for the Comparable Broadcasting Companies to the segment multiples in
the New Belo Segment Valuation Analysis discussed above.
Analysis of Selected Precedent M&A Transactions and Publicly Traded
Companies -- Newspaper Publishing. Bear Stearns reviewed and analyzed the
publicly available financial terms of five selected recent merger and
acquisition transactions in the newspaper publishing industry which, in Bear
Stearns' judgment, were reasonably comparable to the Merger, and compared the
financial terms of such transactions to those of the Merger for purposes of this
analysis. These five transactions included: (i) Media General, Inc.'s
acquisition of Worrell Enterprises, Inc.; (ii) McClatchy Newspapers, Inc.'s
acquisition of Raleigh News & Observer; (iii) Knight-Ridder, Inc.'s acquisition
of Lesher Communications, Inc.; (iv) The New York Times Company's acquisition of
Affiliated Publications, Inc.; and (v) Gannett Co., Inc.'s acquisition of Persis
Group (collectively, the "Precedent Newspaper Transactions"). Bear Stearns
reviewed the prices paid in the Precedent Newspaper Transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Bear Stearns noted that none of the Precedent Newspaper Transactions was
identical to the Merger and that, accordingly, any analysis of the Precedent
Newspaper 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 Providence
Journal's newspaper operations versus the acquisition values of the companies to
which Providence Journal's newspaper operations were being compared. Bear
Stearns advised the Providence Journal Board that, in considering and analyzing
the Precedent Newspaper Transactions, the Providence Journal Board should
consider the size, demographic, and economic characteristics of the markets of
each newspaper company and the competitive environment in which they operate.
Bear Stearns' analysis of the Precedent Newspaper Transactions indicated that
the range of Enterprise Value to Newspaper Cash Flow multiples was 13.0x to
15.0x estimated current fiscal year Newspaper Cash Flow, yielding an arithmetic
mean of 14.1x, and 9.0x to 14.0x projected next fiscal year Newspaper Cash Flow,
yielding an arithmetic mean of 11.9x. Bear Stearns compared such valuation
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<PAGE> 65
multiples for the Precedent Newspaper Transactions to an imputed range of 12.7x
to 15.9x estimated 1996 and 9.9x to 12.4x projected 1997 Newspaper Cash Flow (at
Assumed Belo Prices of $33.00 to $49.00) as determined in the Providence Journal
Segment Valuation Analysis described above and noted that the imputed Providence
Journal transaction multiples compared favorably to the Precedent Newspaper
Transactions. Bear Stearns indicated that this was one of the primary factors in
assessing the fairness, from a financial point of view, of the Merger.
Bear Stearns compared certain operating and financial information for
Providence Journal's and Belo's newspaper publishing operations to certain
publicly available operating, financial, trading and valuation information of
seven selected newspaper publishing companies, which, in Bear Stearns' judgment,
were comparable to Providence Journal's newspaper publishing operations for
purposes of this analysis. These companies included Central Newspapers, Inc.,
Dow Jones & Company, Inc., Knight-Ridder, Inc., McClatchy Newspapers, Inc., The
New York Times Company, The Times Mirror Company and The Washington Post Company
(collectively, the "Comparable Newspaper Companies"). Bear Stearns also
identified two additional publicly traded newspaper companies that were excluded
from the group of Comparable Newspaper Companies due to the high amount of
broadcasting and other revenues as a percent of total revenues at those
companies (Gannett Co., Inc. and Tribune Company). Bear Stearns' analysis of the
Comparable Newspaper Companies indicated that the Comparable Newspaper Companies
were trading in a range of Enterprise Value to estimated 1996 and projected 1997
Newspaper Cash Flow of 6.9x to 8.6x and 5.9x to 7.5x, respectively, with
arithmetic means of 7.7x and 6.8x, respectively. Bear Stearns noted that for
purposes of estimating the range of Assumed New Belo Stock Prices in the
Transaction Valuation Matrix, it compared these valuation multiples for the
Comparable Newspaper Companies to the segment multiples in the New Belo Segment
Valuation Analysis discussed above.
Analysis of Selected Precedent M&A Transactions -- Cable Programming. Bear
Stearns reviewed and analyzed the publicly available financial terms of ten
selected recent merger and acquisition transactions in the cable programming
industry which, in Bear Stearns' judgment, were reasonably comparable to the
Merger, and compared the financial terms of such transactions to those of the
Merger for purposes of this analysis. These ten transactions included: (i)
Hearst Corporation's-CapCities/ABC, Inc.'s acquisition of 33% of Lifetime
Television; (ii) Cablevision Systems Corporation's acquisition of 50% of
American Movie Classics Company; (iii) Landmark Communications, Inc.'s
acquisition of The Travel Channel; (iv) USA Network's acquisition of Sci-Fi
Channel; (v) CNBC's acquisition of Financial News Network; (vi) Discovery
Communications, Inc.'s acquisition of The Learning Channel; (vii) Hearst
Corporation's acquisition of 20% of ESPN; (viii) Opryland USA's acquisition of
Country Music Television; (ix) International Family Entertainment, Inc.'s
acquisition of The Family Channel; and (x) Cox Enterprises,
Inc.'s-Newhouse's-Tele-Communications, Inc.'s acquisition of The Discovery
Channel (collectively, the "Precedent Programming Transactions"). Bear Stearns
reviewed the prices paid in the Precedent Programming Transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Bear Stearns noted that none of the Precedent Programming Transactions
were identical to the Merger and that, accordingly, any analysis of the
Precedent Programming 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
Providence Journal's programming operations versus the acquisition values of the
companies to which Providence Journal's programming operations were being
compared. Bear Stearns advised the Providence Journal Board that, in considering
and analyzing the Precedent Programming Transactions, the Providence Journal
Board should consider the genre, size, demographic and economic characteristics
of each programming company, their cable affiliations and the competitive
environment in which they operate. Bear Stearns' analysis of the Precedent
Programming Transactions indicated that the range of Enterprise Value to
subscriber multiples was $2.08 to $16.22, yielding an arithmetic mean of $7.75,
as compared to an imputed range of $13.19 to $16.47 per subscriber (at Assumed
Belo Stock Prices of $33.00 to $49.00) as determined in the Providence Journal
Segment Valuation Analysis described above. Bear Stearns noted that the imputed
Providence Journal transaction multiples compared favorably to the Precedent
Programming Transactions and indicated that this was one of the primary factors
in assessing the fairness, from a financial point of view, of the Merger.
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Relative Contribution Analysis. Bear Stearns calculated the relative
contribution by each of Providence Journal and Belo to the combined company with
respect to, among other things, market value of equity, Enterprise Value,
revenue, EBITDA (defined below), EBITDA excluding programming and other
operations (due to cash flow losses related to the start-up of Providence
Journal's programming businesses) and net income. Bear Stearns' relative
contribution analysis assumed the sale of KIRO-TV, which Belo expects to swap or
divest in order to consummate the Merger, and did not take into account any
potential synergies which could result from the Merger. The results of this
analysis indicated that Providence Journal would contribute 34.1% and 33.1% of
combined company's market value of equity and 33.8% and 33.0% of combined
company's Enterprise Value based on closing prices as of September 18, 1996 and
the average closing price over the 20 trading days ended September 18, 1996,
respectively. In addition, this analysis indicated that Providence Journal would
contribute a projected 20.9% and 25.6% of combined company's EBITDA and 28.1%
and 30.8% of combined company's EBITDA excluding programming and other
operations in 1996 and 1997, respectively. By way of comparison, Bear Stearns
observed that the consideration to be received by the holders of Providence
Journal Common Stock equates to a 35.4% economic interest and a 16.3% voting
interest in the combined company. Bear Stearns noted that the receipt by the
holders of Providence Journal Common Stock of a greater economic interest in the
combined company than their contribution to market value of equity, Enterprise
Value, EBITDA or EBITDA excluding programming and other operations, coupled with
the receipt of $12.33 in cash for each of their shares of Providence Journal
Common Stock, was one of the primary factors in assessing the fairness, from a
financial point of view, of the Merger.
Pro Forma Financial Analysis of the Merger. Bear Stearns reviewed and
analyzed certain pro forma financial impacts of the Merger on New Belo. Assuming
the sale of KIRO-TV for $200 million and $25 million of operating synergies
resulting from the Merger, combined 1997 revenue, EBITDA and Providence Journal
EBIT were projected to be $1.23 billion, $365.8 million and $274.0 million,
respectively. Excluding programming and other operations, these statistics were
projected to be $1.15 billion, $391.0 million and $305.2 million, respectively.
Applying these same assumptions, New Belo's total debt to total capitalization,
total debt to estimated 1996 EBITDA and projected 1997 EBITDA to projected 1997
interest expense were calculated to be 40.2%, 3.8x and 5.1x, respectively. Bear
Stearns calculated that the equivalent New Belo annual dividend per each
existing share of Providence Journal Common Stock would be $0.23 based on Belo's
existing dividend level of $0.44 per share of Belo Common Stock and the
assumption that stockholders of Providence Journal elect to receive the Mixed
Consideration (i.e., 0.5333 shares of Belo Series A Common Stock plus $12.33 per
share in cash).
Bear Stearns also analyzed the accretion/(dilution) to earnings per share
and after-tax cash flow per share, assuming the sale of KIRO-TV for $200 million
both with and without the assumed $25 million of synergies. Earnings per share
and after-tax cash flow per share accretion/(dilution), including the benefit of
the assumed $25 million of synergies, were respectively projected to be (48.7%)
and (13.9%) in 1997, (28.1%) and (1.1%) in 1998 and (15.3%) and 7.3% in 1999.
Earnings per share and after-tax cash flow per share accretion/(dilution),
excluding any potential synergies, were respectively projected to be (59.4%) and
(21.6%) in 1997, (37.8%) and (8.0%) in 1998 and (25.2%) and 0.0% in 1999. In
performing such accretion/(dilution) analyses, Bear Stearns did not take into
account any share repurchases which might be effected by Belo due to inherent
uncertainties as to the timing, amount and repurchase prices associated with
such share repurchases. With regard to the aforementioned accretion/(dilution)
analyses, Bear Stearns focused on the after-tax cash flow impact on New Belo due
to the fact that media companies tend to trade in the public equity markets more
so on the basis of operating cash flow than reported net income (which in the
case of New Belo would be significantly diluted by the creation of
transaction-related goodwill). Because of the near-term dilution of after-tax
cash flow per share and earnings per share, Bear Stearns noted that there might
be some downward pressure on the price of New Belo Common Stock relative to
prevailing market levels. Accordingly, in assessing the fairness of the Merger,
from a financial point of view, Bear Stearns included in its Transaction
Valuation Matrix various Assumed New Belo Stock Prices which were below the
closing price for Belo Series A Common Stock on September 23, 1996.
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and projected financial and operating
data for both Providence Journal and Belo and selected investment research
reports on each of Providence Journal and Belo, including information pertaining
to the
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<PAGE> 67
estimated revenues and operating cash flow for each of the operating segments,
and reviewing available information regarding the individual and institutional
holdings of Providence Journal Common Stock and Belo Common Stock.
Pursuant to the terms of its engagement letter, dated September 3, 1996,
Providence Journal has paid Bear Stearns an initial cash retainer fee of
$100,000 and has further agreed to pay Bear Stearns 0.472% of the total
consideration to be received by the holders of Providence Journal Common Stock
plus net debt assumed in connection with the Merger upon its consummation. Based
on the closing price for Belo Series A Common Stock on January 3, 1997 (the
latest date practicable prior to the printing of this Joint Proxy
Statement/Prospectus), the total amount of such Advisory Fee would be
$7,693,558. Pursuant to the terms of its engagement and in addition to the
$100,000 initial cash retainer fee, Bear Stearns earned $2,073,182 upon
providing its opinion to the Providence Journal Board on September 26, 1996. Of
such fees already received by Bear Stearns, $2,073,182 shall be credited against
the total Advisory Fee due to Bear Stearns upon consummation of the Merger.
Providence Journal also has agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses, including fees and expenses of its legal counsel, and to
indemnify Bear Stearns and certain related persons against certain liabilities,
including liabilities under the Federal securities laws, relating to or arising
out of its engagement.
Bear Stearns has been previously engaged by Providence Journal to provide
certain investment banking and financial advisory services in connection with
its IPO on June 24, 1996, and the Spin-Off and Continental Merger. During the
last two years, Bear Stearns earned compensation with respect to all such
services, other than the fees described in the preceding paragraph, of
approximately $8,500,000. In the ordinary course of business, Bear Stearns may
actively trade the equity securities of Providence Journal and/or Belo for its
own account and for the account of its customers and, accordingly, may at any
time hold a long or short position in such securities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to Providence Journal in connection with the
Merger and asked to assist Providence Journal in the Merger negotiations and
render its opinion in connection with the Merger 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 and Belo. As part of its investment banking business, Bear Stearns is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains forward-looking statements
that are subject to risks and uncertainties. Forward-looking statements include
the information concerning possible or assumed future results of operations of
Belo and Belo Holdings set forth under "RISK FACTORS," "-- Recommendation of
Belo Board; Belo's Reasons for the Merger," "-- Recommendation of Providence
Journal Board; Providence Journal's Reasons for the Merger," "-- Fairness
Opinions," "-- Regulatory Approvals," "BUSINESS OF BELO," "BUSINESS OF
PROVIDENCE JOURNAL" AND "PROVIDENCE JOURNAL MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and those preceded by,
followed by or that include the words "believes," "expects," "anticipates" or
similar expressions. For those statements, each of Belo and Providence Journal
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Stockholders
should understand that the following important factors, in addition to those
discussed elsewhere in this Joint Proxy Statement/Prospectus and in the
documents which are incorporated by reference, could affect the future results
of Belo, Providence Journal and Belo Holdings, and could cause those results to
differ materially from those expressed in each forward-looking statement:
material adverse changes in economic conditions in the markets served by the
companies; a significant delay in the expected closing of the Merger; future
regulatory actions and conditions in the companies' operating areas; the
possibility that currently unanticipated difficulties may arise in integrating
the operations of two major corporations; the risk that cost savings and
synergies expected from combining the operations of the two
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<PAGE> 68
companies may not be realized and competition from others in the newspaper and
broadcast television markets served by the companies.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Belo Board and the Providence
Journal Board with respect to the Merger Agreement and the transactions
contemplated thereby, stockholders of Belo and Providence Journal should be
aware that certain members of the management of Providence Journal and the
Providence Journal Board have certain interests in the Merger that are different
from, or in addition to, the interests of stockholders of Providence Journal
generally.
Directors and Officers. The Merger Agreement provides that, promptly
following the Effective Time, the Belo Board will elect Mr. Hamblett and three
other current members of the Providence Journal Board to be directors of Belo.
Two of the three as yet undetermined directors will be elected to serve as Class
I and Class III directors with their terms expiring at the annual meetings of
Belo stockholders in 1999 and 1998, respectively, with no obligation by the Belo
Board to renominate either person thereafter. Mr. Hamblett and the third
undetermined member will be included in Belo's slate of nominees for election as
long as each such person is willing and able to serve, subject to the
then-existing normal retirement age policy of the Belo Board. Replacements for
Mr. Hamblett and such member will be either current members of the Providence
Journal Board or other persons resident in New England who in each case are
familiar with Rhode Island and the Providence Journal-Bulletin and its history.
The Merger Agreement also provides that, from and after the Effective Time, the
Board of Directors of Providence Journal Newspaper Co. (the "Providence Journal
Newspaper Co. Board") will consist of the current members of the Providence
Journal Board, other than the three undetermined members of the Providence
Journal Board who will be elected to serve on the Belo Board and that Mr.
Hamblett will serve as Chairman and Chief Executive Officer of Providence
Journal Newspaper Co. and Publisher of the Providence Journal Newspapers
(defined below). For a period of one year after the Effective Time, members of
the Providence Journal Newspaper Co. Board will receive the same annual retainer
and meeting fees as they currently receive from Providence Journal with
appropriate consideration for the period thereafter to be determined. See
"MANAGEMENT OF BELO AND PROVIDENCE JOURNAL NEWSPAPER CO. AFTER THE MERGER."
Indemnification; Directors and Officers Insurance. The Merger Agreement
provides that all rights to indemnification for acts or omissions occurring at
or prior to the Effective Time now existing in favor of the current or former
directors, officers, employees or agents of Providence Journal and its
subsidiaries shall survive the Merger and shall continue for a period of not
less than six years following the Effective Time, provided that rights to
indemnification in respect of any claim asserted within such period shall
continue until final disposition of any and all such claims. Belo has guaranteed
the foregoing indemnification obligations of Belo Holdings. In addition, from
and after the Effective Time, Belo has agreed to indemnify all such persons to
the fullest extent permitted by applicable law against any liability or expense
incurred in connection with all acts and omissions arising out of such
individuals' services as officers, directors, employees or agents of Providence
Journal or any of its subsidiaries or as trustees or fiduciaries of any plan for
the benefit of employees or directors of, or otherwise on behalf of, Providence
Journal or any of its subsidiaries, occurring at or prior to the Effective Time,
including the transactions contemplated by the Merger Agreement. The Merger
Agreement further provides that Belo will cause to be maintained for a period of
not less than six years following the Effective Time Providence Journal's
current directors' and officers' liability insurance and indemnification policy
to the extent that it provides coverage for events occurring prior to or at the
Effective Time (or any equivalent substitute therefor), provided that Belo will
not be required to expend more than 200% of the last annual premium paid by
Providence Journal prior to September 26, 1996 to procure such insurance. See
"THE MERGER AGREEMENT -- Certain Covenants -- Indemnification and Insurance."
Existing Severance Agreements and Similar Arrangements. Messrs. Hamblett,
Clifford, Sutton, Hammond, Matlack, Bowers, Isaacs, McTear, Rawson, Stark, Dyson
and Colucci, all of whom are executive officers of Providence Journal, are
parties to severance agreements (the "Existing Severance Agreements") with
Providence Journal which provide that if termination of such executive's
employment occurs within a two-year period (with respect to Messrs. Isaacs,
McTear, Dyson, Colucci and Stark) or a three-year period (with respect to
Messrs. Hamblett, Clifford, Sutton, Hammond, Matlack, Bowers and Rawson)
following a
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change in control of Providence Journal and such termination is by Providence
Journal (or its successor) other than "for cause" (as defined in the Existing
Severance Agreements) or by the executive for "good reason" (as defined in the
Existing Severance Agreements), the executive will be entitled to receive, among
other things, a multiple equal to (i) three in the case of Messrs. Hamblett,
Clifford, Bowers, Matlack, Hammond and Sutton, (ii) two in the case of Mr.
Rawson and (iii) one and one-half in the case of Messrs. Isaacs, McTear, Dyson,
Colucci and Stark times the sum of such executive's highest annual base salary
in effect at any time during the three-year period immediately preceding his
termination (including any amount contributed by Providence Journal on his
behalf to The Providence Journal Qualified Compensation Deferral Plan) and (a)
the average cash bonus received from Providence Journal for the three most
recent full fiscal years preceding the year of termination or the target bonus
immediately preceding his termination, whichever is higher, in the case of
Messrs. Hamblett, Clifford, Bowers, Matlack, Hammond, Sutton and Rawson or (b)
the target bonus immediately preceding his termination in the case of Messrs.
Isaacs, McTear, Dyson, Colucci and Stark. In addition, the Existing Severance
Agreements provide that all amounts accrued by each executive under the terms of
The Providence Journal Company & Subsidiaries Deferred Compensation Plan, the
Management Incentive Compensation Plan, the Long Term Incentive Plan or any
similar compensation or benefit plans, will vest upon a change in control, and
will be paid to such executive in connection with such executive's termination
of employment. The Existing Severance Agreements also provide for the
continuation of health, medical and life insurance coverage and other employee
welfare plans and programs for each executive after termination of employment
until (i) the earlier of the first anniversary of the date of termination or his
eligibility for comparable benefits with another employer (with respect to
Messrs. Isaacs, McTear, Dyson, Colucci and Stark), (ii) the earlier of the
second anniversary of the date of termination or his eligibility for comparable
benefits with another employer (with respect to Mr. Rawson) or (iii) the earlier
of the third anniversary of the date of termination or his eligibility for
comparable benefits with another employer (with respect to Messrs. Hamblett,
Clifford, Sutton, Hammond, Matlack and Bowers). The Existing Severance
Agreements confer no benefits prior to a "change in control" (as defined
therein). In the event that any payments received by such executives in
connection with a change in control are subject to the excise tax imposed upon
certain change in control payments under Federal tax laws, the Existing
Severance Agreements for such executives provide for an additional payment
sufficient to restore the executive to the same after-tax position the executive
would have been in if the excise tax had not been imposed. Notwithstanding the
foregoing, if the sum of all payments does not exceed 110% of the greatest
amount that could be paid to the executive without giving rise to any excise
tax, then payments received in connection with a change in control will be
reduced to the extent necessary to avoid the imposition of any such excise tax.
Under all of the Existing Severance Agreements, the Merger will constitute a
change in control and, without limiting any executive's rights under the
Existing Severance Agreements, any change in certain conditions of employment,
including compensation, benefits, work location, location of corporate
headquarters, travel requirements, title, authorities or duties of such
executive following the Merger from those in effect prior to the Merger will
constitute "good reason" for such executive to terminate his Existing Severance
Agreement. Belo has agreed to cause Belo Holdings to assume and agree to perform
Providence Journal's obligations under all employment, severance, consulting and
other compensation contracts between Providence Journal or any of its
subsidiaries and any current or former director, officer or employee thereof,
including the Existing Severance Agreements. See "THE MERGER
AGREEMENT -- Certain Covenants -- Employment Benefits."
Other Providence Journal Plans. As described below, Providence Journal
maintains for the benefit of the members of the Providence Journal Board and its
executive officers certain benefit plans or arrangements containing provisions
that will become operative upon a change in control of Providence Journal.
As described herein under "THE MERGER AGREEMENT -- Certain
Covenants -- Providence Journal Employee Stock Options and Incentive Unit Plan,"
the Merger Agreement provides that all outstanding employee or director options
to purchase shares of Providence Journal Common Stock will be cancelled and, at
the Effective Time, Belo Holdings will pay to each holder of any such option,
whether or not then vested or exercisable, an amount in cash determined by
multiplying (i) the excess of the Per Share Cash Amount over the applicable
exercise price of such option by (ii) the number of shares of Providence Journal
Common Stock subject to such option. All directors and all executive officers
listed above have options under which they will receive the foregoing benefit.
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Under Providence Journal's Supplemental Retirement Plan, which is a
nonqualified defined benefit plan maintained for the purpose of providing income
to certain employees of Providence Journal, including most of the executive
officers listed above, all nonvested benefits accrued under such plan will
become fully vested upon a "change of control" (as defined therein). The
consummation of the Merger will constitute a change of control under such plan.
Value of Consideration to be Received. The amount of all such benefits
which may be received, in the aggregate for all directors and executive officers
as a group and on an individual basis for each director and executive officer
who may receive benefits greater than $100,000 in value in connection with the
Merger that are different from, or in addition to, the interest of Providence
Journal stockholders generally, including all termination, resignation, change
of control or other similar payments, insurance premiums and any options that
become exercisable as a result of the Merger, is, for Messrs. Hamblett,
Clifford, Sutton, Hammond, Matlack, Bowers, Rawson, Isaacs, McTear, Stark, Dyson
and Colucci, $7,049,705, $3,144,766, $1,804,203, $2,620,088, $2,585,664,
$1,993,659, $557,416, $532,227, $1,126,640, $686,106, $497,804 and $323,567,
respectively; for director and former executive officer Trygve Myhren, $758,217;
and for all directors and executive officers as a group, $24,465,240. The
amounts included in the above numbers in connection with the cancellation of all
outstanding employee and director stock options are based on an assumed
Valuation Period Stock Price of $34.75.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting,
in accordance with generally accepted accounting principles. Under the purchase
method of accounting, the purchase price of Providence Journal, including direct
costs of the Merger, will be allocated to the tangible assets acquired and
liabilities assumed based on their estimated relative fair market values, with
the excess purchase consideration allocated to intangible assets. The results of
Belo's operations will include the results of operations of Providence Journal
commencing at the Effective Time.
The Unaudited Pro Forma Combined Condensed Financial Statements appearing
elsewhere in this Joint Proxy Statement/Prospectus are based on certain
assumptions and allocate the purchase price to assets and liabilities based upon
preliminary estimates of their respective fair market values. The unaudited pro
forma adjustments and combined amounts are included for informational purposes
only. If the Merger is consummated, Belo's financial statements will reflect the
effects of acquisition adjustments only from the Effective Time. The actual
allocation of the purchase price may differ significantly from the allocation
reflected in the Unaudited Pro Forma Combined Condensed Financial Statements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In General
Belo and Providence Journal have received opinions dated as of the date of
this Joint Proxy Statement/Prospectus, and consummation of the Merger is
conditioned upon Belo and Providence Journal receiving opinions dated as of the
Closing Date, from Gibson, Dunn & Crutcher LLP, counsel to Belo, and Wachtell,
Lipton, Rosen & Katz, special counsel to Providence Journal, that the Merger
will be treated for Federal income tax purposes as a "reorganization" within the
meaning of Section 368(a) of the Code and that Belo, Finance and Providence
Journal will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. No rulings have been requested from the Internal
Revenue Service (the "Service") with respect to any of the matters discussed
herein, and the opinions of counsel described above are not binding on the
Service.
Consequences to Holders of Providence Journal Common Stock
Gain Recognition. Except as discussed below under "-- Fractional Shares," a
holder of shares of Providence Journal Common Stock who exchanges such shares
solely for shares of Belo Series A Common Stock would recognize neither gain nor
loss on such exchange. Gain, if any, realized by a holder of shares of
Providence Journal Common Stock upon the exchange of such shares for a
combination of shares of Belo
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Series A Common Stock and cash would be recognized to the extent of the lesser
of the amount of gain realized or the amount of cash received, but no loss would
be recognized by such holder on such exchange. A holder of shares of Providence
Journal Common Stock who receives only cash in the Merger would recognize any
gain realized and, as more fully described below, likely would be permitted to
recognize any loss realized.
Character of Gain. The treatment of the gain recognized upon the receipt of
cash depends on the particular facts and circumstances relating to each holder.
For Federal income tax purposes, a holder of shares of Providence Journal Common
Stock receiving shares of Belo Series A Common Stock and cash will be treated as
(i) having received solely shares of Belo Series A Common Stock in exchange for
such shares and (ii) having a portion of such shares of Belo Series A Common
Stock redeemed. Under Section 302 of the Code, if such redemption (i) is "not
essentially equivalent to a dividend" with respect to a holder or (ii) results
in a "substantially disproportionate" redemption of such holder's equity
interest in Belo, then the cash received by such holder will be treated as
having been received in an exchange of his shares of Providence Journal Common
Stock on which his gain would be recognized in substantially the same manner as
such gain would be on the sale or exchange of such shares of Providence Journal
Common Stock, i.e., such gain would be capital gain, provided that such shares
of Providence Journal Common Stock were held as a capital asset as of the
Effective Time, and would be long-term capital gain if such shares of Providence
Journal Common Stock were held for more than one year.
In applying these redemption tests to a holder of shares of Providence
Journal Common Stock who receives a combination of shares of Belo Series A
Common Stock and cash in exchange for such shares, certain attribution rules,
pursuant to which shares of Belo Series A Common Stock owned by certain family
members and certain related entities will be treated as owned by such holder,
apply to determine stock ownership. The deemed redemption will be "substantially
disproportionate" with respect to a holder if (i) the percentage of outstanding
shares of Belo Series A Common Stock owned by such holder immediately after the
deemed redemption is less than (ii) eighty percent of the percentage of the
outstanding shares of Belo Series A Common Stock deemed owned by such holder
immediately before the deemed redemption. If the deemed redemption from a holder
fails to satisfy the "substantially disproportionate" test, such holder may
nonetheless satisfy the "not essentially equivalent to a dividend" test. A
distribution to a holder will not be "essentially equivalent to a dividend" if
it results in a "meaningful reduction" in such holder's stock interest in Belo.
If a holder with a relatively minimal stock interest in Belo and no exercise of
control over corporate affairs suffers a reduction in his proportionate interest
in Belo as a result of the deemed redemption, that holder should be regarded as
having suffered a meaningful reduction of his interest in Belo.
If none of the tests under Section 302 of the Code giving rise to exchange
treatment is satisfied in respect of the deemed redemption, the holder of shares
of Providence Journal Common Stock who exchanges such shares for a combination
of shares of Belo Series A Common Stock and cash will be treated as having a
taxable distribution with respect to his shares of Belo Series A Common Stock.
Such distribution will be in an amount that generally will be equal to the
amount of cash received in the deemed redemption (but not in excess of the gain
realized on the exchange pursuant to the Merger), and will be treated as a
dividend to the extent of such holder's allocable portion of the accumulated
earnings and profits (as determined for Federal income tax purposes) of
Providence Journal. If the amount of such distribution exceeds such holder's
allocable portion of Providence Journal's accumulated earnings and profits, the
excess then will be treated as gain from the sale or exchange of such shares of
stock. If such distribution is taxable as a dividend to a corporate holder, it
may be subject to the "extraordinary dividend" provisions of Section 1059 of the
Code.
The character of gain recognized, as well as the ability to recognize any
loss realized, by a holder of shares of Providence Journal Common Stock who
receives only cash in the Merger may be determined under the redemption rules
discussed above, although the tests described may be applied as if the shares of
Providence Journal Common Stock were redeemed immediately before the Merger,
rather than as described above. In either case, provided that the redemption of
the holder's shares satisfies one of the tests described above, or such
redemption results in a "complete termination" of such holder's interest,
generally determined with reference to the attribution rules described above,
such holder would be permitted to recognize loss, as well as be required to
recognize any gain, realized on the exchange. Such gain or loss would be capital
gain or loss, provided that the shares of Providence Journal Common Stock were
held as a capital asset as of the Effective
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Time, and would be long-term capital gain or loss if such shares of Providence
Journal Common Stock were held for more than one year. If such tests were not
satisfied, the cash received by such holder could be treated as a dividend (to
the extent of such holder's allocable portion of current and accumulated
earnings and profits), and such holder may not be permitted to recognize any
loss although, in such event, a holder might nonetheless assert successfully
that such tests are inapplicable and that he is entitled to the sale or exchange
treatment described above. Holders of Providence Journal Common Stock are urged
to consult their own tax advisors regarding the receipt solely of cash in the
Merger.
Fractional Shares. Cash received by a holder of shares of Providence
Journal Common Stock in lieu of any fractional share interest in Belo Series A
Common Stock will result in the recognition of gain or loss for Federal income
tax purposes, measured by the difference between the amount of cash received and
the portion of the adjusted tax basis of Providence Journal Common Stock
allocable to such fractional share interest. Such gain or loss will be capital
gain or loss, provided that such Providence Journal Common Stock was held as a
capital asset as of the Effective Time, and will be long-term capital gain or
loss if such Providence Journal Common Stock was held for more than one year.
Tax Basis and Holding Period. The tax basis of the shares of Belo Series A
Common Stock received by holders of shares of Providence Journal Common Stock
upon the exchange of such shares pursuant to the Merger will be the same as the
tax basis of the shares of Providence Journal Common Stock exchanged (less any
portion of such basis allocable to any fractional share interest in any share of
Belo Series A Common Stock for which cash is received), increased by the amount
of any gain recognized (whether treated as capital gain or a dividend) and
decreased by the amount of any cash received. The holding period of such shares
of Belo Series A Common Stock will include the period that such shares of
Providence Journal Common Stock were held by the holder, provided that such
shares of Providence Journal Common Stock were held as a capital asset as of the
Effective Time.
Reporting Requirements. A holder of shares of Providence Journal Common
Stock who exchanges such shares for shares of Belo Series A Common Stock or a
combination of such stock and cash pursuant to the Merger will be required to
retain records and file with such holder's Federal income tax return a statement
setting forth all relevant facts in respect of the nonrecognition of gain or
loss upon such exchange. The statement is required to include (i) such holder's
basis in the shares of Providence Journal Common Stock surrendered and (ii) the
value of Belo Series Common A Stock (using fair market value as of the Effective
Date) and the amount of any cash received in the Merger.
Effects on the Spin-Off
Pursuant to the Continental Merger Agreement, Providence Journal is
required to indemnify Continental for all Federal income tax liabilities of Old
PJC and its subsidiaries for periods ending on or before the Continental Closing
Date, including any income tax liabilities resulting from the failure of the
Spin-Off and the Continental Merger to qualify as tax free under Sections 355
and 368 of the Code, unless such failure to qualify is attributable to certain
actions of Continental taken without the consent of Providence Journal.
Providence Journal has received an opinion from Wachtell, Lipton, Rosen & Katz,
and consummation of the Merger is conditioned on receipt of an opinion dated as
of the Effective Time, that the Merger will not have an adverse impact on such
qualification of the Spin-Off and the Continental Merger. Such opinions are not
binding on the Service. Were the Service to assert successfully a contrary
position, there would be a material adverse effect on Providence Journal or,
after the Merger, Belo.
Treatment of Providence Journal, Belo and Finance
Based upon the advice of their respective counsel, Providence Journal and
Belo believe that no gain or loss will be recognized by Providence Journal, Belo
or Finance as a result of the Merger.
THE DISCUSSION SET FORTH ABOVE OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT
ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN ADDITION, IT
DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE RELEVANT TO
CERTAIN PERSONS, INCLUDING HOLDERS OF OPTIONS OR WARRANTS, AND MAY NOT APPLY TO
CERTAIN HOLDERS SUBJECT TO SPECIAL TAX
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RULES, INCLUDING DEALERS IN SECURITIES, FOREIGN HOLDERS AND HOLDERS WHO ACQUIRED
THEIR SHARES OF PROVIDENCE JOURNAL COMMON STOCK PURSUANT TO THE EXERCISE OF
OPTIONS OR OTHERWISE AS COMPENSATION. THE DISCUSSION IS BASED UPON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING TREASURY REGULATIONS THEREUNDER AND
CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING IS
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION.
EACH PROVIDENCE JOURNAL STOCKHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
REGULATORY APPROVALS
FCC Regulation of Broadcast Stations; FCC Approval Process. Television
broadcast stations are subject to the jurisdiction of the FCC under the
Communications Act. The Communications Act prohibits the operation of television
broadcast stations except under licenses issued by the FCC. The Communications
Act further prohibits the assignment of a television broadcast station license
or the transfer of control of a television broadcast station licensee without
the prior approval of the FCC. Providence Journal (through its subsidiaries)
holds licenses for nine television broadcast stations and two satellite stations
and programs or will program substantially all of the broadcast time of four
other television broadcast stations pursuant to LMAs. Because the Merger will
result in the transfer of control for purposes of the Communications Act of the
licenses held by Providence Journal's subsidiaries, the prior approval of the
FCC is necessary before the Merger may be consummated.
Upon the filing of an application for consent to the transfer of control of
a broadcast station licensee, the FCC will issue an official public notice of
the filing of the application. Interested parties have a period of 30 days
following issuance of the public notice in which to petition to deny such
application. Applications for approval of the transfer of control of Providence
Journal to Belo on FCC Form 315 were filed with the FCC on October 18, 1996 (the
"FCC Application"). Public notice of the filing was released by the FCC on
November 1, 1996. Any petitions to deny the applications were required to be
filed with the FCC on or before December 2, 1996. To Belo's and Providence
Journal's knowledge, no petitions to deny the FCC Application have been filed
with the FCC as of the date of this Joint Proxy Statement/Prospectus.
Applications relating to the transfer of control of certain non-broadcast
licenses held by Providence Journal (through its subsidiaries) also have been
filed with the FCC.
In reviewing an application for its approval to a transfer of control, the
FCC considers whether such transfer will serve the public interest, convenience
and necessity, as well as whether the proposed transferee has the requisite
legal, financial, technical and other qualifications to operate the licensed
entities. Following the grant of FCC approval with respect to such a transfer,
the transaction may be consummated by the parties. Any "person who is aggrieved
or whose interests are adversely affected" (as such terms are defined in Section
402(b) of the Communications Act) may appeal the FCC's approval of the transfer
to the United States Court of Appeals for the District of Columbia Circuit. In
addition, under certain circumstances the FCC may reconsider such approval at
the request of a third party or on its own motion. In the event the parties to
the proposed transfer determine to consummate the transaction prior to the
deadline for the filing of an appeal or for reconsideration by the FCC on its
own motion or prior to the completion of any FCC or judicial review proceedings,
they assume the risk that the FCC's approval could be reversed or modified by
the FCC or a reviewing court.
Television Duopoly Rule. The FCC's rules include "multiple ownership rules"
that impose a variety of restrictions on the common ownership or control of
interests in television and radio broadcast stations, cable television systems
and English language daily newspapers. If an acquisition will result in an
acquiror having television broadcast holdings that conflict with applicable
ownership limits, the FCC may, in certain cases, grant permanent waivers of the
relevant rule or, alternatively, grant temporary waivers in order to afford the
acquiror a reasonable period of time following the consummation of the
acquisition to come into compliance with applicable law and regulations through
the disposition of properties or otherwise. Because the broadcast contours of
Providence Journal's KING-TV (Seattle-Tacoma) and Belo's KIRO-TV
(Seattle-Tacoma) overlap, the FCC's "television duopoly rule"-- which generally
proscribes the common ownership of two or
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more television stations with overlapping signal contours -- would prohibit
common ownership of these stations. Belo does not believe that the FCC would be
likely to grant it a permanent waiver of the television duopoly rule with
respect to KING-TV and KIRO-TV. However, Belo has requested that the FCC grant
it a temporary waiver not to exceed six months after the Effective Time in order
to divest KIRO-TV. There can be no assurance that the FCC will grant the
requested temporary waiver. Belo has agreed to hold separate, place in trust
and/or divest KIRO-TV if necessary to secure the grant by the FCC of the FCC
Application on or before the Termination Date. See "THE MERGER
AGREEMENT -- Certain Covenants -- Reasonable Efforts."
License Grant and Renewal. Currently, television broadcast licenses are
granted or renewed for a maximum period of five years. License renewals filed
after 1996 will be customarily granted for terms of eight years. At the time an
application is made for renewal of a television station license, parties in
interest may file petitions to deny the application, and such parties, including
members of the public, may comment upon the service the station has provided
during the preceding license term. Under the Telecommunications Act, broadcast
licenses are required to be renewed by the FCC if its finds that: (i) the
station has served the public interest, convenience and necessity; (ii) there
have been no serious violations of either the Communications Act or the FCC's
rules and regulations by the licensee; and (iii) there have been no violations
which, taken together, constitute a pattern of abuse. Pursuant to Section
307(c)(3) of the Communications Act, a station's license continues in effect
pending final action on the renewal application by the FCC. If a station's
application for license renewal is denied, other parties may thereafter file
applications for FCC authorization to operate a station on the same frequency.
In the vast majority of cases, broadcast licenses are renewed by the FCC
even when petitions to deny are filed against license renewal applications.
Currently, Providence Journal has pending an application for renewal of the
license of WCNC-TV in Charlotte, North Carolina, which was filed on or about
August 1, 1996. On November 1, 1996, a petition to deny the WCNC-TV renewal
application was filed by the Rainbow-PUSH Action Network, alleging that the
station violated the FCC's equal employment opportunity requirements. Providence
Journal filed its opposition to this petition on December 2, 1996. Providence
Journal is not required to file any other license renewal applications prior to
the Termination Date except a renewal application for WHAS-TV in Louisville,
Kentucky, which must be filed by April 1, 1997.
Under normal procedures, the FCC will not grant its consent to the transfer
of control of a licensee that is the subject of a pending application for
renewal of one or more of its licenses. Accordingly, the parties anticipate that
the FCC will act upon the WCNC-TV renewal application contemporaneously with the
FCC Applications. In addition, under certain circumstances, the FCC will permit
a multi-station transaction, such as the proposed Merger, to proceed while a
renewal application remains pending, provided the parties agree to accept the
consequences of any action the FCC may take on the renewal application.
Belo and Providence Journal believe that the FCC will approve the FCC
Application, together with Belo's request for a temporary waiver of the multiple
ownership rules with respect to KING-TV and KIRO-TV. However, there can be no
assurance that such approvals will be forthcoming. It is possible that the FCC
could deny the FCC Application, grant it subject to selective pre-Merger or
post-Merger divestiture requirements, or otherwise attach conditions to its
approval. Belo and Providence Journal cannot predict the timing or outcome of
the FCC approval process, including Belo's request for the six month temporary
waiver of the multiple ownership rules.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
FTC, the Merger may not be consummated until notifications have been given and
certain information has been furnished to the Antitrust Division and the FTC and
specified waiting period requirements have been satisfied. Belo and Providence
Journal each filed with the Antitrust Division and the FTC a Notification and
Report Form for certain Mergers and Acquisitions (the "Notification and Report
Form") with respect to the Merger on October 18, 1996. The initial waiting
period for each of these filings expired at 11:59 p.m. (Eastern Standard Time)
on November 18, 1996.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Special Meetings, the Antitrust Division or
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the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the Merger or
seeking the divestiture of substantial assets of Providence Journal or its
subsidiaries or Belo or its subsidiaries.
In addition, state antitrust authorities may also bring legal action under
state antitrust laws. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of certain assets of Belo or
Providence Journal. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances. There can be no assurance that a
challenge to the Merger on antitrust grounds will not be made or, if such a
challenge is made, of the result thereof.
STOCK EXCHANGE LISTING; DELISTING OF PROVIDENCE JOURNAL CLASS A COMMON STOCK
It is a condition to the Merger that the shares of Belo Series A Common
Stock to be issued to Providence Journal stockholders in the Merger shall have
been approved for listing on the NYSE, subject only to official notice of
issuance. If the Merger is consummated, the Providence Journal Class A Common
Stock will cease to be listed on the NYSE.
CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Belo Series A Common Stock received by Providence Journal
stockholders in the Merger will be freely transferable, except that (i) shares
of Belo Series A Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of Providence
Journal (the "Providence Journal Affiliates") at the time of the Providence
Journal Stockholders Meeting may be resold by them only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act or as otherwise permitted under the Securities Act, and (ii) shares of Belo
Series A Common Stock received by persons who are deemed to be affiliates of
Belo may be resold by them only in transactions permitted by Rule 144
promulgated under the Securities Act or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Providence Journal
and/or Belo, as the case may be, generally include individuals or entities that
control, are controlled by, or are under common control with, such person and
may include certain officers and directors of such person as well as principal
stockholders of such person. The Merger Agreement requires Providence Journal to
use reasonable efforts to deliver or cause to be delivered to Belo, prior to the
Closing Date, from each person identified by Providence Journal as an affiliate,
a letter agreement to the effect that such person will not offer or sell or
otherwise dispose of any of the shares of Belo Series A Common Stock issued to
such person in the Merger in violation of the Securities Act or the rules and
regulations promulgated by the Commission thereunder.
DISSENTERS' RIGHTS
If the Merger is consummated, a holder of record of Providence Journal
Common Stock on the date of making a demand for appraisal, as described below,
who (i) continues to hold such shares through the Effective Time, (ii) strictly
complies with the procedures set forth under Section 262 of the DGCL ("Section
262") and (iii) has not voted in favor of the Merger will be entitled to have
such shares appraised by the Delaware Court of Chancery under Section 262 and to
receive payment for the "fair value" of such shares in lieu of the consideration
provided for in the Merger Agreement. This Joint Proxy Statement/Prospectus is
being sent to all holders of record of Providence Journal Common Stock on the
Providence Journal Record Date and constitutes notice of the appraisal rights
available to such holders under Section 262. THE STATUTORY RIGHT OF APPRAISAL
GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH
IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A
TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER SECTION 262. The following is
a summary of certain of the provisions of Section 262 and is qualified in its
entirety by reference to the full text of Section 262, a copy of which is
attached to this Joint Proxy Statement/Prospectus as Appendix D.
A holder of Providence Journal Common Stock electing to exercise appraisal
rights under Section 262 must deliver a written demand for appraisal for such
stockholder's shares to Providence Journal prior to the
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vote on the Providence Journal Proposal. Such a written demand must reasonably
inform Providence Journal of the identity of the stockholder of record and of
such stockholder's intention to demand appraisal of his shares. All such demands
should be delivered to The Providence Journal Company, Attention: John L.
Hammond, Esq., Vice President, General Counsel and Chief Administrative Officer,
75 Fountain Street, Providence, Rhode Island 02902.
Only a holder of shares of Providence Journal Common Stock on the date of
making such written demand for appraisal who continuously holds such shares
through the Effective Time is entitled to seek appraisal. Demand for appraisal
must be executed by or for the holder of record, fully and correctly, as such
holder's name appears on the holder's stock certificates representing shares of
Providence Journal Common Stock. If Providence Journal Common Stock is owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian, the
demand should be made in that capacity, and if Providence Journal Common Stock
is owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be made by or for all owners of record. An authorized
agent, including one or more joint owners, may execute the demand for appraisal
for a holder of record; however, such agent must identify the record owner or
owners and expressly disclose in such demand that the agent is acting as agent
for the record owner or owners of such shares.
A record holder such as a broker who holds shares of Providence Journal
Common Stock as a nominee for beneficial owners, some of whom desire to demand
appraisal, must exercise appraisal rights on behalf of such beneficial owners
with respect to the shares of Providence Journal Common Stock held for such
beneficial owners. In such case, the written demand for appraisal should set
forth the number of shares of Providence Journal Common Stock covered by it.
Unless a demand for appraisal specifies a number of shares, such demand will be
presumed to cover all shares of Providence Journal Common Stock held in the name
of such record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF
THE PROVIDENCE JOURNAL STOCKHOLDERS MEETING.
Within ten days after the Effective Time, Belo Holdings is required to send
notice of the effectiveness of the Merger to each stockholder of Providence
Journal who prior to the Effective Time complied with the requirements of
Section 262.
Within 120 days after the Effective Time, Belo Holdings or any stockholder
who has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of Providence Journal Common Stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of such petition on Belo
Holdings. If no petition is filed by either Belo Holdings or any dissenting
stockholders within such 120 day period, the rights of all dissenting
stockholders to appraisal shall cease. Providence Journal stockholders seeking
to exercise appraisal rights should not assume that Belo Holdings will file a
petition with respect to the appraisal of the fair value of their shares or that
Belo Holdings will initiate any negotiations with respect to the fair value of
such shares. Belo Holdings is under no obligation to and has no present
intention to take any action in this regard. Accordingly, Providence Journal
stockholders who wish to seek appraisal of their shares should initiate all
necessary action with respect to the perfection of their appraisal rights within
the time periods and in the manner prescribed in Section 262. FAILURE TO FILE
THE PETITION ON A TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN
APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with subsections (a) and (d) of Section 262 is entitled, upon written request,
to receive from Belo Holdings a statement setting forth the aggregate number of
shares of Providence Journal Common Stock not voted in favor of the Merger with
respect to which demands for appraisal have been received by Providence Journal
and the number of holders of such shares. Such statement must be mailed within
ten days after the written request therefor has been received by Belo Holdings
or within ten days after expiration of the time for delivery of demands for
appraisal under subsection (d) of Section 262, whichever is later.
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If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of Providence Journal
Common 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, to be paid, if
any, upon the amount determined to be the fair value. In determining fair value,
the court is to take into account all relevant factors. The Delaware Supreme
Court has stated 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 in the appraisal proceedings. The
Delaware Supreme Court has stated that, in making this determination of fair
value, the court must consider "market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which were known or
which could be ascertained as of the date of the merger which throw any light on
future prospects of the merger corporation." The Delaware Supreme Court also
held 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." In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy.
Providence Journal stockholders considering seeking appraisal should
consider that the fair value of their shares determined under Section 262 could
be more, the same or less than the value of the Merger Consideration without the
exercise of appraisal rights, and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to fair
value as determined under Section 262. The cost of the appraisal proceeding may
be determined by the Court of Chancery and assessed against the parties as the
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder, the 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 attorneys' fees and the fees and
expenses of experts) be charged pro rata against the value of all shares of the
Providence Journal Common Stock entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any Providence Journal stockholder who has fully demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
receive payment of dividends or other distributions on the Providence Journal
Common Stock, except for dividends or distributions payable to stockholders of
record at a date prior to the Effective Time. Providence Journal has no
intention of declaring or paying any dividends on the Providence Journal Common
Stock prior to the consummation of the Merger.
A Providence Journal stockholder may withdraw a demand for appraisal and
accept the Merger Consideration at any time within 60 days after the Effective
Time, or thereafter may withdraw such demand with the written approval of Belo
Holdings. In the event an appraisal proceeding is properly instituted, such
proceeding may not be dismissed as to any stockholder without the approval of
the Delaware Court of Chancery, and any such approval may be conditioned on the
terms the Court of Chancery deems just. If after the Effective Time a holder of
Providence Journal Common Stock who had demanded appraisal for such shares fails
to perfect or loses his right to appraisal, such shares will be treated under
the Merger Agreement as if they had been converted as of the Effective Time into
the right to receive the Non-Election Consideration.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
PROVIDENCE JOURNAL STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS
SHOULD CONSULT HIS LEGAL ADVISOR.
See "-- Certain Federal Income Tax Consequences" for a brief description of
certain Federal income tax consequences resulting from the receipt of the fair
value of appraised shares.
Holders of Belo Common Stock are not entitled to dissenters' or appraisal
rights in connection with the Merger.
FINANCING THE MERGER
It is expected that the total cash to be paid to Providence Journal
stockholders in the Merger will be funded through the use of cash or cash
equivalents and short-term investments of Belo available at the time
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such cash is paid and through new borrowings. It is currently expected that any
new borrowings to fund the cash to be paid to Providence Journal stockholders in
the Merger will be made through borrowings in the commercial paper market, bank
borrowings, borrowings from private or public lenders, or through a combination
of the foregoing.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full and complete text of the
Merger Agreement.
THE MERGER
Pursuant to the Merger Agreement and subject to the terms and conditions
thereof, Providence Journal will be merged with and into Finance, with Finance
as the surviving corporation. As a result of the Merger, Belo Holdings will
succeed to the assets, liabilities and businesses of Providence Journal.
Promptly following the consummation of the Merger, Belo Holdings will
transfer to a new, wholly owned subsidiary to be named "The Providence Journal
Company" ("Providence Journal Newspaper Co.") all the assets and liabilities of
the newspaper operations formerly held by Providence Journal.
Subject to the terms and conditions of the Merger Agreement, the closing of
the transactions contemplated thereby will take place on a date specified by the
parties to the Merger Agreement, which will be no later than the second business
day after the day on which certain of the conditions set forth therein have been
satisfied or waived (assuming the prior satisfaction or waiver of all other
conditions set forth therein), unless another date is agreed to by the parties
(the "Closing Date"). The Merger will become effective upon the filing of a
certificate of merger with the Secretary of State of the State of Delaware.
MERGER CONSIDERATION
Conversion of Providence Journal Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of Belo, Finance, Providence
Journal or the holders of any of the following securities:
Subject to the limitations and the allocation provisions set forth
below, each share of Providence Journal Common Stock issued and outstanding
immediately prior to the Effective Time (excluding any treasury shares,
shares held directly or indirectly by Belo and Dissenting Shares as to
which appraisal rights have been perfected under the DGCL) will be
converted into:
(i) the right to receive a number of shares of Belo Series A
Common Stock equal to the sum of (A) 0.5333 and (B) the quotient
(calculated to the nearest 0.0001) of $12.33 divided by the Valuation
Period Stock Price (such sum, the "Exchange Ratio"),
(ii) the right to receive in cash, without interest, the sum of
(A) $12.33 and (B) the product of 0.5333 and the Valuation Period Stock
Price (such sum, the "Per Share Cash Amount"),
(iii) the right to receive 0.5333 shares of Belo Series A Common
Stock and $12.33 in cash, without interest (the "Mixed Consideration"),
or
(iv) the right to receive a combination of shares of Belo Series A
Common Stock and cash determined in accordance with the allocation and
proration provisions of the Merger Agreement described below;
provided, however, that, in any event, if between the date of the Merger
Agreement and the Effective Time the outstanding shares of Belo Series A
Common Stock or Providence Journal Common Stock shall have been 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, the Exchange Ratio, the Per Share Cash
Amount and the Mixed Consideration will be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares. The "Valuation
Period Stock Price" means the average of the NYSE closing sale prices for
the Belo Series A Common Stock (as reported in The Wall Street Journal or,
in the absence thereof, by another authoritative source) for the ten
consecutive trading-day period ending on the tenth day immediately prior to
the anticipated Closing Date. Each share of Providence Journal Common Stock
issued and outstanding immediately prior to the Effective Time (excluding
any treasury shares, shares
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held directly or indirectly by Belo and Dissenting Shares as to which
appraisal rights shall have been perfected under the DGCL) will at the
Effective Time no longer be outstanding and will automatically be cancelled
and retired and will cease to exist, and each Certificate previously
evidencing any such shares will thereafter represent the right to receive
only the Merger Consideration. The holders of Certificates will cease to
have any rights with respect to the shares of Providence Journal Common
Stock previously represented thereby, except as otherwise provided herein
or by law. Such Certificates shall be exchanged for (A) certificates
evidencing whole shares of Belo Series A Common Stock issued in
consideration therefor or (B) the Per Share Cash Amount multiplied by the
number of shares previously evidenced by the cancelled Certificate or (C) a
combination of such certificates and cash, in each case in accordance with
the allocation procedures described below and upon the surrender of such
Certificates in the manner described in "-- Election Procedure," without
interest. No fractional shares of Belo Series A Common Stock will be issued
and, in lieu thereof, a cash payment will be made as described below under
"-- Fractional Shares."
The number of shares of Providence Journal Common Stock to be
converted into the right to receive cash in the Merger (the "Cash Election
Number") will be equal to the product of (i) the aggregate number of shares
of Providence Journal Common Stock to be converted in the Merger, which
shall be the number of shares of Providence Journal Common Stock issued and
outstanding immediately prior to the Effective Time (excluding any treasury
shares and shares held directly or indirectly by Belo (the "Providence
Journal Common Stock Number")), and (ii) a fraction, the numerator of which
is $12.33 and the denominator of which is the Per Share Cash Amount. The
number of shares of Providence Journal Common Stock to be converted into
the right to receive Belo Series A Common Stock in the Merger (the "Stock
Election Number") will be equal to the difference between (i) the
Providence Journal Common Stock Number and (ii) the Cash Election Number.
The aggregate number of shares of Belo Series A Common Stock constituting
the portion of the Aggregate Merger Consideration payable in Belo Series A
Common Stock will equal 0.5333 times the Providence Journal Common Stock
Number. That portion of the Aggregate Merger Consideration to be paid in
cash will equal $12.33 times the Providence Journal Common Stock Number.
Allocation and Proration. If the sum of the aggregate number of shares
covered by Cash Elections (the "Cash Election Shares") and the aggregate
number of such shares covered by Mixed Elections (the "Mixed Election
Shares") to be acquired for cash (determined by multiplying the number of
Mixed Election Shares by a fraction (the "Mixed Election Cash Fraction"),
the numerator of which is $12.33 and the denominator of which is the Per
Share Cash Amount (such number of shares referred to as the "Mixed Election
Cash Shares")) exceeds the Cash Election Number, then:
(i) all shares of Providence Journal Common Stock covered by Stock
Elections (the "Stock Election Shares") and all shares of Providence
Journal Common Stock covered by Non-Elections (the "Non-Election
Shares") will be converted into the right to receive Belo Series A
Common Stock;
(ii) all Mixed Election Shares will be converted to a right to
receive the Mixed Consideration; and
(iii) each Cash Election Share will be converted into the right to
receive (A) an amount of cash, without interest, equal to the product of
(x) the Per Share Cash Amount and (y) a fraction (the "Cash Fraction"),
the numerator of which will be the Cash Election Number minus the number
of Mixed Election Cash Shares and the denominator of which will be the
total number of Cash Election Shares and (B) a number of shares of Belo
Series A Common Stock equal to the product of (x) the Exchange Ratio and
(y) a fraction equal to one minus the Cash Fraction.
If the sum of the aggregate number of Stock Election Shares and the
aggregate number of Mixed Election Shares to be acquired for stock
(determined by multiplying the number of Mixed Election Shares by one minus
the Mixed Election Cash Fraction (such shares referred to as the "Mixed
Election Stock Shares")) exceeds the Stock Election Number, then:
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(i) all Cash Election Shares and all Non-Election Shares will be
converted into the right to receive cash;
(ii) all Mixed Election Shares will be converted into a right to
receive the Mixed Consideration; and
(iii) each Stock Election Share will be converted into the right to
receive (A) a number of shares of Belo Series A Common Stock equal to
the product of (x) the Exchange Ratio and (y) a fraction (the "Stock
Fraction"), the numerator of which will be the Stock Election Number
minus the number of Mixed Election Stock Shares and the denominator of
which will be the total number of Stock Election Shares and (B) an
amount in cash, without interest, equal to the product of (x) the Per
Share Cash Amount and (y) a fraction equal to one minus the Stock
Fraction.
In the event that neither of the preceding two paragraphs is
applicable, then:
(i) all Cash Election Shares will be converted into the right to
receive cash;
(ii) all Stock Election Shares will be converted into the right to
receive Belo Series A Common Stock;
(iii) all Mixed Election Shares will be converted into a right to
receive the Mixed Consideration; and
(iv) each Non-Election Share will be converted into the right to
receive (A) an amount in cash, without interest, equal to the product of
(x) the Per Share Cash Amount and (y) a fraction (the "Non-Election
Fraction"), the numerator of which will be the excess of the Cash
Election Number over the sum of the total number of Cash Election Shares
and the total number of Mixed Election Cash Shares and the denominator
of which will be the excess of the Providence Journal Common Stock
Number over the sum of the total number of Cash Election Shares, the
total number of Mixed Election Shares and the total number of Stock
Election Shares and (B) a number of shares of Belo Series A Common Stock
equal to the product of (x) the Exchange Ratio and (y) a fraction equal
to one minus the Non-Election Fraction.
The Aggregate Merger Consideration will not exceed 25,600,000 shares of
Belo Series A Common Stock and $590 million in cash (plus cash paid in lieu of
fractional shares of Belo Series A Common Stock). In addition to the Aggregate
Merger Consideration, Belo expects to pay on or about the Closing Date
approximately $99.5 million to (a) cash out all Providence Journal Stock
Options; (b) satisfy stock-based compensation plans pertaining primarily to the
US West Merger; (c) settle obligations under Providence Journal severance
agreements; and (d) satisfy miscellaneous expenses in connection with the
Merger. See "THE MERGER -- Interests of Certain Persons in the Merger" and "THE
MERGER AGREEMENT -- Certain Covenants -- Providence Journal Employee Stock
Options and Incentive Unit Plan."
For a formulaic explanation of the allocation and proration provisions of
the Merger Agreement, see "SUMMARY -- The Merger Agreement -- Consideration to
be Received by Providence Journal Stockholders" and "-- Allocation and
Proration."
Treasury Stock, Stock Owned by Belo and Dissenting Shares. Each share of
Providence Journal Common Stock held in the treasury of Providence Journal and
each share of Providence Journal Common Stock owned by Belo or any direct or
indirect wholly owned subsidiary of Belo or of Providence Journal immediately
prior to the Effective Time will be cancelled and extinguished without any
conversion thereof and no payment will be made with respect thereto. If after
the Effective Time, a holder of Providence Journal Common Stock who had demanded
appraisal for such shares fails to perfect or loses his right to appraisal, such
shares will be treated under the Merger Agreement as if they had been converted
as of the Effective Time into the right to receive the Merger Consideration. See
"-- Dissenters' Rights."
Fractional Shares. No fractional shares of Belo Series A Common Stock will
be issued pursuant to the Merger. In lieu of the issuance of any fractional
shares of Belo Series A Common Stock, cash equal to the product of such
fractional amount and the closing sale price of one share of Belo Series A
Common Stock on
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the NYSE (as reported by The Wall Street Journal or, if not reported thereby,
any other authoritative source) on the trading day immediately preceding the
Closing Date will be paid to holders in respect of any fractional share of Belo
Series A Common Stock that would otherwise be issuable.
ELECTION PROCEDURE
A Form of Election and a Letter of Transmittal will be mailed on the
Mailing Date to each holder of record of Providence Journal Common Stock as of
the Election Form Record Date. Each Form of Election will permit the holder (or
the beneficial owner through appropriate and customary documentation and
instructions) to choose to receive (subject to the allocation and proration
procedures described above) one of the following in exchange for such holder's
shares of Providence Journal Common Stock: (i) only cash, (ii) only Belo Series
A Common Stock or (iii) the Mixed Consideration. Alternatively, each Form of
Election will permit the holder to indicate that such holder has no preference
as to the receipt of cash or Belo Series A Common Stock for such holder's shares
of Providence Journal Common Stock.
The Election Deadline will be 5:00 p.m., New York City time, on the 25th
day following the Mailing Date (or such other time and date as Belo and
Providence Journal may mutually agree). Any shares of Providence Journal Common
Stock (excluding any treasury shares, shares held directly or indirectly by Belo
and Dissenting Shares) with respect to which the holder (or the beneficial
owner, as the case may be) has not submitted to the Exchange Agent an effective,
properly completed Form of Election on or before 5:00 p.m. (New York City time)
on the Election Deadline will be deemed to be shares of Providence Journal
Common Stock with respect to which a Non-Election has been made.
Any such election will have been properly made only if the Exchange Agent
actually receives a properly completed Form of Election by the Election
Deadline. A Form of Election will be deemed properly completed only if
accompanied by one or more Certificates (or affidavits and indemnification
regarding the loss or destruction of such Certificates reasonably acceptable to
Belo or the guaranteed delivery of such Certificates) representing all shares of
Providence Journal Common Stock covered by such Form of Election, together with
a duly executed Letter of Transmittal. Any Form of Election may be revoked or
changed by the person submitting such Form of Election at or prior to the
Election Deadline. In the event a Form of Election is revoked prior to the
Election Deadline, the shares of Providence Journal Common Stock represented by
such Form of Election will be deemed to be shares covered by a Non-Election
(unless thereafter covered by a duly completed Form of Election) and Belo will
cause the Certificates to be promptly returned without charge to the person
submitting the Form of Election upon written request to that effect from such
person.
Belo will have the discretion, which it may delegate in whole or in part to
the Exchange Agent, to determine whether Forms of Election have been properly
completed, signed and submitted or revoked and to disregard immaterial defects
in Forms of Election. If Belo (or the Exchange Agent) determines that any
purported Cash Election or Stock Election was not properly made, such purported
Cash Election or Stock Election will have no force and effect and the holder
making such purported Cash Election or Stock Election will be deemed to have
made a Non-Election. The decision of Belo (or the Exchange Agent) in all such
matters will be conclusive and binding. Neither Belo nor the Exchange Agent will
be under any obligation to notify any person of any defect in a Form of Election
submitted to the Exchange Agent. The Exchange Agent will also make all
computations and all such computations will be conclusive and binding on the
holders of Providence Journal Common Stock.
No dividends or other distributions declared after the Effective Time on
Belo Series A Common Stock will be paid with respect to any shares of Providence
Journal Common Stock represented by a Certificate until such Certificate is
surrendered for exchange in accordance with the procedures described above.
HOLDERS OF PROVIDENCE JOURNAL COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING PROVIDENCE JOURNAL COMMON STOCK WITH THE ENCLOSED PROXY CARD. A
LETTER OF TRANSMITTAL AND FORM OF ELECTION WILL BE MAILED PRIOR TO THE EFFECTIVE
TIME TO EACH PERSON WHO IS A HOLDER OF OUTSTANDING PROVIDENCE JOURNAL COMMON
STOCK AS OF THE ELECTION FORM RECORD DATE, AND UPON REQUEST TO THE EXCHANGE
AGENT, TO EACH PERSON WHO BECOMES A HOLDER OR BENEFICIAL OWNER OF PROVIDENCE
JOURNAL COMMON STOCK BETWEEN THE ELECTION FORM RECORD DATE AND THE BUSINESS DAY
PRIOR TO THE ELECTION DEADLINE. PROVIDENCE JOURNAL STOCKHOLDERS
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SHOULD SEND CERTIFICATES REPRESENTING PROVIDENCE JOURNAL COMMON STOCK TO THE
EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND ONLY IN ACCORDANCE WITH, THE
INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
both Belo and Providence Journal as to, among other things: (i) due organization
and good standing and corporate power to operate their respective businesses;
(ii) ownership of significant subsidiaries and, in Providence Journal's case,
other equity investments in excess of $5 million; (iii) authorized, reserved and
issued capital stock, stock options and similar securities; (iv) corporate
authority to enter into the Merger Agreement and consummate the Merger and the
noncontravention of the Merger Agreement or the Merger with charters, bylaws,
other agreements, judgments or law; (v) required governmental authorizations and
consents; (vi) the filing of certain documents with the Commission, the accuracy
of information contained in such documents and the absence of undisclosed
liabilities; (vii) the accuracy of information supplied for inclusion in this
Joint Proxy Statement/Prospectus; (viii) the absence of certain material changes
or events; (ix) the absence of certain litigation; (x) the absence of material
liabilities under and compliance with employee benefit plans and other
compensation arrangements; (xi) voting requirements to approve the Merger; (xii)
the inapplicability of any state takeover statutes; (xiii) use of brokers,
investment bankers and financial advisors; (xiv) fairness opinions; (xv)
compliance with applicable laws; (xvi) tax matters; (xvii) amendments to
collective bargaining agreements and the absence of material labor disputes;
(xviii) the nonexercisability of rights issued under "poison pill" plans; (xix)
the absence of material environmental liabilities; (xx) holding and not
violating FCC licenses and other material licenses and permits; (xxi) ownership
or rights to use intellectual property; and (xxii) material agreements. In
addition, Belo has made certain representations and warranties in the Merger
Agreement relating to (i) the operations of Finance prior to the Merger, (ii)
Belo's ability to pay the cash portion of the Aggregate Merger Consideration;
(iii) Belo's and Finance's qualifications to hold the FCC licenses of Providence
Journal after the Merger; and (iv) no ownership of Providence Journal Common
Stock.
CERTAIN COVENANTS
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
Belo and Providence Journal have made various customary covenants relating to
the conduct of their respective businesses prior to the Merger. Providence
Journal has agreed that, prior to the Effective Time, it will carry on its
business in the usual, regular and ordinary course in substantially the same
manner as conducted prior to the date of the Merger Agreement and in compliance
in all material respects with all applicable laws and regulations and, to the
extent consistent therewith, will use all reasonable efforts to preserve intact
its current business organization, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers,
licensors, licensees and others having business dealings with it to the end that
its goodwill and ongoing business are not impaired at the Effective Time.
Specifically, Providence Journal has agreed, among other things, that prior to
the Effective Time it will not: (i)(x) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital stock, (y)
split, combine or reclassify any of its capital stock or issue any other
securities in respect of or in substitution for shares of its capital stock or
(z) purchase, redeem or otherwise acquire any shares of its capital stock or any
of its other securities or any rights, warrants or options to acquire any such
shares or other securities; (ii) issue, sell or pledge any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities (other than the issuance of Providence Journal Common
Stock upon the exercise of Providence Journal Employee Stock Options outstanding
on the date of the Merger Agreement in accordance with their present terms);
(iii) amend its certificate of incorporation, bylaws or other comparable charter
or organizational documents; (iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business organization or division thereof, or (y) any
assets that, individually or in the aggregate, are material to Providence
Journal; (v) sell, lease, license or mortgage or subject to any lien or
otherwise dispose of any of its properties, except, in any such case, in the
ordinary course of business consistent with past practice; (vi) incur any
indebtedness, except for borrowings (net of cash, cash equivalents and
marketable securities held by Providence Journal or any of its subsidiaries) not
in excess of
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$175 million at any one time outstanding incurred in the ordinary course of
business consistent with past practice; (vii) except in the ordinary course of
business consistent with past practice, make any loans, advances or capital
contributions to, or investments in, any other person; (viii) make or agree to
make any new capital expenditure, except in the ordinary course of business
consistent with past practice; (ix) make any material tax election or settle or
compromise any material tax liability; (x) except in the ordinary course of
business or except as would not have a material adverse effect on Providence
Journal, modify, amend or terminate any of its material contracts or agreements
or waive, release or assign any material rights or claims thereunder; (xi) make
any material change to its accounting methods, principles or practices, except
as may be required by generally accepted accounting principles; (xii) except as
contemplated in connection with the cash-out of the Providence Journal Employee
Stock Options in the Merger, (w) adopt, enter into, terminate or amend any of
Providence Journal's employee benefit plans or other arrangement for the benefit
or welfare of any current or former director, officer or employee, (x) increase
the employee compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee (except for normal increases, promotions or
bonuses in the ordinary course of business consistent with past practice), (y)
pay any benefit not provided for under any of Providence Journal's employee
compensation and benefit plans, or (z) except as permitted in clause (x)
immediately above, grant any awards under any of its bonus, incentive,
performance or other compensation plans or arrangements; or (xiii) enter into
any television program or newspaper publishing production or distribution
arrangements with a term in excess of one year. Notwithstanding any of the
foregoing covenants, Belo and Providence Journal have agreed that, prior to the
Effective Time, Providence Journal will continue to control its television
broadcast, publishing and other operations.
Belo has agreed that, prior to the Effective Time, it will not, among other
things: (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, its capital stock, other than quarterly dividends
paid in accordance with past practice; (ii) split, combine or reclassify its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for the Belo Series A Common Stock; or
(iii) acquire or agree to acquire another publicly held company, or another
person, by way of purchase, merger or consolidation, if, in connection with such
acquisition, merger or consolidation, Belo would issue shares of Belo Common
Stock in an aggregate amount exceeding 10% of the aggregate amount of shares of
Belo Common Stock outstanding on the date of consummation.
No Solicitation. Pursuant to the Merger Agreement, Providence Journal has
agreed that neither it nor any of its subsidiaries will permit any officer,
director or employee, or any investment banker, attorney or other advisor or
representative, of Providence Journal or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of any
proposal for a merger, consolidation or other business combination involving
Providence Journal or any of its significant subsidiaries with any person other
than Belo and Finance or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of, or a
substantial portion of the assets of, Providence Journal or any of its
significant subsidiaries by any person other than Belo and Finance (a "takeover
proposal"), (ii) enter into any agreement providing for any takeover proposal or
(iii) participate in any negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action knowingly to
facilitate the making of, any takeover proposal. Providence Journal has further
agreed that it will promptly inform Belo of any takeover proposal or any request
for information or other inquiry that could reasonably be expected to lead to a
takeover proposal which is either in writing or made to an executive officer or
director of Providence Journal and brought to the attention of its chief
executive officer. However, (i) neither Providence Journal nor the Providence
Journal Board is prohibited from (x) taking and disclosing to the Providence
Journal stockholders a position contemplated by Rule 14e-2 of the Exchange Act
expressing an opinion with respect to any bidder's tender offer proposal or (y)
making any disclosure to the Providence Journal stockholders that in the
judgment of the Providence Journal Board, as advised by its outside legal
counsel, is required under applicable law, and (ii) if, at any time prior to the
receipt of Providence Journal Stockholder Approval, the Providence Journal Board
determines in good faith that it is necessary to do so in order to comply with
its fiduciary duties to Providence Journal's stockholders under applicable law,
as advised by outside counsel, Providence Journal may, with respect to an actual
or potential unsolicited takeover proposal and subject to its obligation to keep
Belo fully informed with respect to such actual or potential takeover proposal,
(x) furnish non-public information with respect to Providence Journal to such
person making such actual or potential unsolicited
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takeover proposal and (y) participate in negotiations regarding such proposal.
Under the Merger Agreement, neither the Providence Journal Board nor any
committee thereof may (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Belo, the approval or recommendation by the Providence
Journal Board or any such committee of the Merger Agreement or the Merger, (ii)
approve or recommend or propose to approve or recommend, any takeover proposal
or (iii) enter into any agreement with respect to any takeover proposal.
However, the Providence Journal Board may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of the
Merger Agreement or the Merger) (x) a bona fide takeover proposal to acquire,
directly or indirectly, all or a substantial portion of the shares of Providence
Journal Common Stock then outstanding or all or substantially all the assets of
Providence Journal and (y) otherwise on terms which the Providence Journal Board
determines in its good faith judgment to be more favorable to the Providence
Journal's stockholders than the Merger after receipt of the written advice of
Providence Journal's independent financial advisor (a "superior proposal"), if
the Providence Journal Board shall have determined in good faith that it is
necessary, in order to comply with its fiduciary duties to the Providence
Journal's stockholders under applicable law, as advised by outside counsel, to
approve or recommend such superior proposal, and have given notice to Belo
advising Belo that Providence Journal has received such superior proposal from a
third party, specifying the material terms and conditions (including the
identity of the third party), and specifically stating that Providence Journal
intends to approve or recommend such superior proposal.
Providence Journal Employee Stock Options and Incentive Unit Plan. As
provided in the Merger Agreement, at or immediately prior to the Effective Time,
each outstanding employee or director stock option granted under any Providence
Journal employee or director stock option plan or compensation plan or
arrangement (a "Providence Journal Employee Stock Option") will be cancelled,
and at the Effective Time Belo Holdings will pay to each holder of any such
option, whether or not then vested or exercisable, for each such Providence
Journal Employee Stock Option an amount of cash determined by multiplying (i)
the excess, if any, of the Per Share Cash Amount over the applicable exercise
price of such Providence Journal Employee Stock Option by (ii) the number of
shares of Providence Journal Common Stock such holder could have purchased
(assuming full vesting of his Providence Journal Employee Stock Option) had such
holder exercised such Providence Journal Employee Stock Option in full
immediately prior to the Effective Time. However, if it is determined that
compliance with the preceding sentence may cause any individual subject to
Section 16 of the Exchange Act to become subject to the profit recovery
provisions thereof, any Providence Journal Employee Stock Options held by such
individual may, if such individual so agrees, be cancelled or purchased, as the
case may be, at the Effective Time or at such later time as may be necessary to
avoid application of such profit recovery provisions and such individual will be
entitled to receive from Belo Holdings an amount in cash in respect thereof
equal to the product of (i) the excess, if any, of the Per Share Cash Amount
over the per share exercise price of such Providence Journal Employee Stock
Option and (ii) the number of shares of Providence Journal Common Stock subject
thereto immediately prior to the Effective Time. Notwithstanding the preceding
sentence, Belo, Finance and Providence Journal have agreed to cooperate,
including by providing alternate arrangements to those described in the
preceding sentence, so as to achieve the intent of the foregoing without giving
rise to such profit recovery. Providence Journal has agreed to use all
reasonable efforts to obtain all consents from holders of Providence Journal
Employee Stock Options and make any amendments to the Providence Journal Stock
Plans as are necessary to permit the transactions described in this paragraph.
Notwithstanding the foregoing, Belo Holdings may withhold payment with respect
to any Providence Journal Employee Stock Options until necessary consents are
obtained. In addition, at the later of the Effective Time and the closing of the
merger (the "US West Merger") of Continental into US West Media Group ("US
West"), each unit (a "Unit") outstanding under Providence Journal's Incentive
Unit Plan ("IUP") will be cancelled, and Belo will pay to each such holder for
such Unit, whether or not then vested, an amount in cash equal to the value of
such Unit, as determined in accordance with the IUP. The US West Merger closed
on November 15, 1996. The amount payable under the IUP plan totaled $14.9
million, of which $3.9 million has been paid through the date of this Joint
Proxy Statement/Prospectus and the remainder of $11.0 million is expected to be
paid at the Effective Time. See "THE MERGER -- Interests of Certain Persons in
the Merger -- Other Providence Journal Plans."
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Employee Benefits. Promptly after the Effective Time, Belo has agreed to
cause Belo Holdings and its subsidiaries to provide Providence Journal employees
who are employees of Belo Holdings or any of its subsidiaries and not covered by
a collective bargaining agreement with compensation and employee benefit plans
that are in the aggregate similar to the compensation and employee benefit plans
provided to similarly situated employees of Belo or its subsidiaries who are not
employees of Providence Journal; however, employees of Providence Journal shall
not be required to satisfy any additional co-payment or other deductible
requirements in connection the foregoing. For the purpose of determining
eligibility to participate in such employee benefit plans, eligibility for
benefit forms and subsidies and the vesting of benefits under such employee
plans (including any pension, severance, 401(k), vacation and sick pay), and for
purposes of accrual of benefits under any severance, sick leave, vacation and
other similar employee benefit plans (other than defined benefit pension plans),
Belo will give effect to years of service (and for purposes of qualified and
nonqualified pension plans, prior earnings) with Providence Journal or its
subsidiaries, as the case may be, as if such employees were with Belo or one of
its subsidiaries. Belo has also agreed to cause Belo Holdings to assume and
agree to perform Providence Journal's obligations under all employment,
severance, consulting and other compensation contracts between Providence
Journal or any of its subsidiaries and any current or former director, officer
or employee thereof, including the Existing Severance Agreements. However,
nothing in the applicable provisions of the Merger Agreement shall be construed
or applied to restrict the ability of Belo Holdings to establish such types and
levels of employee compensation and benefits as it determines to be appropriate
or to modify or terminate the compensation or benefit programs described in the
first sentence of this paragraph.
Meetings of Stockholders. Pursuant to the Merger Agreement, both Belo and
Providence Journal have agreed to take all necessary action, in accordance with
applicable law and their respective certificates of incorporation and bylaws, to
duly call, give notice of, convene and hold the Special Meetings as soon as
practicable after the date of the Merger Agreement. The Belo Board and the
Providence Journal Board have agreed to recommend such approval and to take all
lawful action to solicit such approvals. However, the Providence Journal Board
may change its recommendation or withdraw its solicitation upon its approval of
a superior proposal in the manner described in "-- No Solicitation."
Indemnification and Insurance. The Merger Agreement provides that all
rights to indemnification for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors,
officers, employees or agents of Providence Journal and its subsidiaries (the
"Indemnified Parties") as provided in their respective certificates of
incorporation or bylaws (or comparable charter or organizational documents) or
otherwise will survive the Merger and continue in full force and effect in
accordance with their terms for a period of not less than six years from the
Effective Time. From and after the Effective Time, Belo has agreed to guarantee
the performance by Belo Holdings of its obligations described in the preceding
sentence, provided that, in the event any claim or claims are asserted or made
within such six-year period, all rights to indemnification in respect of any
such claim or claims, and Belo's guarantee with respect thereto, shall continue
until final disposition of any and all such claims. From and after the Effective
Time, Belo has also agreed to indemnify all Indemnified Parties to the fullest
extent permitted by applicable law with respect to all acts and omissions
arising out of such individuals' services as officers, directors, employees or
agents of Providence Journal or any of its subsidiaries or as trustees or
fiduciaries of any plan for the benefit of employees or directors of, or
otherwise on behalf of, Providence Journal or any of its subsidiaries, occurring
at or prior to the Effective Time, including the transactions contemplated by
the Merger Agreement. Belo has agreed to pay as incurred an Indemnified Party's
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection with any action, proceeding or investigation
in which such Indemnified Party becomes involved relating to any of such acts or
omissions. In addition, Belo will cause to be maintained, for a period of not
less than six years from the Effective Time, Providence Journal's current
directors' and officers' insurance and indemnification policy to the extent that
it provides coverage for events occurring prior to or at the Effective Time
("D&O Insurance"), provided that Belo is not obligated to pay annual premiums
for such D&O Insurance in excess of 200% of the last annual premium paid prior
to the date of the Merger Agreement (the amount equal to such percentage of such
last annual premium, the "Maximum Premium"). However, in lieu of maintaining
such existing D&O Insurance, Belo may cause coverage to be provided under any
policy maintained for the benefit of Belo or any of its subsidiaries, so long as
the terms
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thereof are no less advantageous to the intended beneficiaries thereof than the
existing D&O Insurance. If the existing D&O Insurance expires, is terminated or
cancelled or is not available during such six-year period, Belo will use all
reasonable efforts to cause to be obtained as much D&O Insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions not materially less
advantageous to the covered persons than the existing D&O Insurance.
Reasonable Efforts. Pursuant to the Merger Agreement, both Providence
Journal and Belo have agreed to use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, and to assist and
cooperate with each other in doing, all other things necessary, proper or
advisable to consummate and make effective in the most expeditious manner
practicable the Merger and the other transactions contemplated by the Merger
Agreement. Each of Belo, Finance and Providence Journal, to the extent
applicable, has agreed to file contemporaneously with the filing of the FCC
Application any requests for waivers of applicable FCC rules or rules or
regulations of other Governmental Entities as may be required, to expeditiously
prosecute such waiver requests and to diligently submit any additional
information or amendments for which the FCC or any other relevant Governmental
Entity may ask with respect to such waiver requests. Belo and Finance are
seeking a temporary waiver (not more than 6 months in duration) of the FCC's
mass media ownership rules (the "Temporary Waiver") to allow for the disposition
of the assets comprising KIRO-TV to the extent that, under the FCC's mass media
ownership rules, such assets could not be held in common control with any
Providence Journal Station following the Effective Time. Belo and Finance will
take all necessary and proper steps (excluding, however, agreeing to hold
separate, to place in trust and/or to divest any of the businesses, product
lines or assets ("Divestitures") of (1) Providence Journal or any of its
subsidiaries or affiliates at any time after the Effective Time or (2) Belo or
any of its subsidiaries or affiliates, except for the Divestiture of KIRO-TV
(pursuant to the Temporary Waiver, if necessary) or Divestitures involving
assets having a value of $50 million or less) as may be reasonably required (i)
for securing the termination of any applicable waiting period on or before the
Termination Date (as defined in "-- Termination of the Merger Agreement" or the
grant of the FCC Application on or before the Termination Date under any
antitrust, competition or trade regulatory laws, rules or regulations of any
Governmental Entity ("Antitrust Laws") or any laws, rules or regulations of the
FCC or other Governmental Entities relating to the broadcast, newspaper, mass
media or communications industries ("Communications Laws") or (ii) by any
domestic or foreign court or similar tribunal, in any suit brought by a private
party or Governmental Entity challenging the transactions contemplated by the
Merger Agreement as violative of any Antitrust Law or Communications Law, in
order to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order that has the effect of preventing the
consummation of any of such transactions. Belo and Finance have agreed that,
prior to the Effective Time, they will not acquire any new or increased
"attributable interest," as defined in the FCC rules, in any media property
("Further Media Interest"), which Further Media Interest could not be held in
common control with any Providence Journal Station by Belo or Finance following
the Effective Time (including by virtue of the FCC's multiple ownership limits),
without the prior written consent of the Providence Journal. Finally, Belo and
Finance have agreed to assume and become bound by the terms of any of the
Providence Journal Network Agreements if and to the extent required thereby in
connection with the transactions contemplated by the Merger Agreement. However,
the Merger Agreement further provides that no party is obligated to take any
action described in this paragraph (other than disposing of KIRO-TV) if the
taking of such action or the obtaining of any waiver, consent, approval or
exemption would have a material adverse effect on Providence Journal or Belo.
See "THE MERGER -- Regulatory Approvals -- FCC Regulation of Broadcast Stations;
FCC Approval Process" and "-- Television Duopoly Rule."
Certain Other Covenants. Both Belo and Providence Journal have also agreed:
(i) to use all reasonable efforts and to cooperate in promptly preparing and
filing as soon as practicable (and in any event within 15 business days after
executing the Merger Agreement) notifications under the HSR Act and the FCC
Application and use all reasonable efforts to obtain all other consents,
approvals or permits from the necessary Governmental Entities (including any
national securities exchange) prior to the Effective Time; (ii) to use all
reasonable efforts to consult with each other prior to issuing, and provide each
other the opportunity to review and comment on, any press release or public
statement with respect to any of the transactions contemplated by the Merger
Agreement; (iii) subject to the Confidentiality Agreement between Providence
Journal and Belo
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(the "Confidentiality Agreement"), to allow the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access to all its properties, books, contracts, commitments,
personnel and records and to cause its employees to provide requested
information; (iv) to cooperate in the filing of a registration statement on Form
S-4 and obtain all necessary state securities laws permits or approvals; (v)
that Belo will submit a listing application to the NYSE, and will use all
reasonable efforts to obtain the approval of such application prior to the
Effective Time; (vi) that Providence Journal will use all reasonable efforts to
deliver or cause to be delivered to Belo an affiliate letter, in the form
attached to the Merger Agreement, from each of the Providence Journal Affiliates
prior to the Closing Date; (vii) that Providence Journal will advise Belo of all
material developments in any stockholder litigation against Providence Journal
and its directors relating to the transactions contemplated by the Merger
Agreement and will not agree to any settlement of such litigation without Belo's
consent (not to be unreasonably withheld); and (viii) that Belo Holdings will
pay all real property transfer, gains and other similar taxes and all
documentary stamps, filing fees, recording fees and sales and use taxes, if any,
and any penalties or interest with respect thereto, payable in connection with
the consummation of the Merger, without any offset, deduction, counterclaim or
deferment of the payment of the Aggregate Merger Consideration.
Directorships; Corporate Governance; Charitable Contributions. Promptly
after the Effective Time, the Belo Board will, in accordance with its customary
nominating procedures, elect Stephen Hamblett and three other current members of
the Providence Journal Board to be directors of Belo. One of the undetermined
members will be elected as a Class III Director, although the Board of Directors
of Belo will be under no obligation to renominate such person thereafter. The
second undetermined member will be elected as a Class I Director, although the
Board of Directors of Belo will be under no obligation to renominate such person
thereafter. Replacements for Stephen Hamblett and the third undetermined member
will be either current members of the Providence Journal Board or other persons
resident in New England who in each case are familiar with Rhode Island and the
Providence Journal-Bulletin and its history. All three undetermined members will
resign from the Providence Journal Board upon election to the Belo Board (or, if
later, at the Effective Time). Through the Annual Meeting of Stockholders of
Belo in 2000, the Belo Board will cause James M. Moroney, Jr. to be included in
Belo's slate of nominees for election by the holders of Belo Common Stock, if he
is willing and able to serve. The Belo Board will cause Stephen Hamblett and the
third undetermined member and their respective successors to be included in
Belo's slate of nominees for election by the holders of Belo Common Stock as
long as each is willing and able to serve, subject to the then existing normal
retirement age policy of the Belo Board. In addition, from and after the
Effective Time, the Providence Journal Newspaper Co. Board shall consist of the
existing Providence Journal Board (except that any such directors other than
Stephen Hamblett who are elected to the Belo Board will resign from the
Providence Journal Newspaper Co. Board). Finally, shortly after the Effective
Time, Belo will (i) contribute $10,000,000 to the Providence Journal Charitable
Foundation and (ii) contribute an amount not to exceed $1,000,000 to the
University of Rhode Island as an endowment to the Institute for Reporting Marine
and Environmental Issues in memory of Michael P. Metcalf.
CONDITIONS TO THE MERGER
The obligations of Belo and Providence Journal to consummate the Merger are
conditioned on the satisfaction or waiver of the following: (i) the
effectiveness of the Registration Statement and the absence of any stop order
suspending the effectiveness thereof and no proceeding for that purpose having
been initiated; (ii) approval, in the manner required by the NYSE or by law, of
the stockholders of Belo and Providence Journal, of the Merger Agreement and all
transactions contemplated thereby; (iii) expiration or termination of the
applicable waiting period (and any extension thereof) applicable to the Merger
under the HSR Act; (iv) approval by the FCC of the FCC Application without any
condition that would have a material adverse effect on Belo (except that any
such approval that is subject to a condition that Belo or Finance divest KIRO-TV
or other assets having a value of $50 million or less will not be deemed to have
a material adverse effect on Belo), provided that there is not a significant
risk that such approval will not become final (i.e., no longer subject to
administrative or judicial review); (v) the receipt of all consents,
authorizations, orders and approvals of (or filings or registrations with) any
Governmental Entity (other than in respect of the FCC and under the HSR Act)
required in connection with the Merger Agreement (except for those documents
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required to be filed after the Effective Time and except where the failure to
obtain such approval or order would not have a material adverse effect on Belo
after the Effective Time); (vi) there is not in effect any (a) decree, temporary
restraining order, preliminary or permanent injunction or other order entered,
issued or enforced by any court of competent jurisdiction or (b) Federal
statute, rule or regulation enacted or promulgated, in either case that
prohibits the consummation of the Merger, and there is not in effect any state
or local statute, rule or regulation enacted or promulgated that prohibits the
consummation of the Merger and which would have a material adverse effect on
Belo after the Effective Time; (vii) the listing of the Belo Series A Common
Stock to be issued in the Merger on the NYSE, subject to official notice of
issuance; and (viii) Providence Journal and Belo shall have received from
Wachtell, Lipton, Rosen & Katz on the date of this Joint Proxy
Statement/Prospectus and on the Closing Date, opinions, in each case dated as of
such respective dates and stating that the Merger will not have an adverse
impact on the qualification of the transactions consummated pursuant to the
Contribution and Assumption Agreement between Providence Journal and Old PJC,
dated as of October 5, 1995, and the distribution of the Providence Journal
Common Stock to certain stockholders of Old PJC on October 5, 1995, as,
respectively, a reorganization within the meaning of Section 368(a) of the Code
and a tax-free distribution pursuant to the provisions of Section 355 of the
Code.
The obligation of Belo to consummate the Merger is conditioned on the
satisfaction or waiver of the following: (i) the performance by Providence
Journal, in all material respects, of its obligations required to be performed
on or prior to the Closing Date and contained in the Merger Agreement; (ii) the
representations and warranties of Providence Journal relating to (x) its
authorized, reserved and issued capital stock, options and other securities, (y)
its FCC licenses and (z) the absence of any material breach of any Providence
Journal Network Agreement are true and correct (except for de minimus
inaccuracies), in each case on the date of the Merger Agreement and as of the
Closing Date; (iii) other representations and warranties of Providence Journal
set forth in the Merger Agreement are true and correct, in each case as of the
date of the Merger Agreement and as of the Closing Date, except for (x)
representations and warranties that are made as of a specific date (in which
case such representations and warranties shall be true and correct on and as of
such date, subject to the following clause (y)) and (y) inaccuracies in such
representations and warranties that individually or in the aggregate do not have
a material adverse effect on Providence Journal; (iv) Belo has received from
Gibson, Dunn & Crutcher LLP on the date of this Joint Proxy Statement/Prospectus
and on the Closing Date, opinions, in each case dated as of such respective
dates and stating that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that Belo, Finance and Providence Journal will each be a party to that
reorganization within the meaning of Section 368(b) of the Code; and (v)
Providence Journal has received a written consent from each television network
with which each of the Providence Journal Stations is affiliated consenting to
the transactions contemplated by the Merger Agreement, as and to the extent
required by the terms of the applicable Providence Journal Network Agreements,
and the transferred Providence Journal Network Agreements are on terms
reasonably satisfactory to Belo (it being understood that terms not less
favorable than the current terms thereof will be satisfactory to Belo).
The obligation of Providence Journal to consummate the Merger is
conditioned on the satisfaction or waiver of the following: (i) the performance
by Belo, in all material respects, of its obligations required to be performed
on or prior to the Closing Date and contained in the Merger Agreement; (ii) the
representations and warranties of Belo and Finance relating to (x) its
authorized, reserved and issued capital stock, options and other securities and
(y) its FCC licenses are true and correct (except for de minimus inaccuracies),
in each case on the date of the Merger Agreement and as of the Closing Date;
(iii) all other representations and warranties of Belo and Finance set forth in
the Merger Agreement are true and correct, in each case as of the date of the
Merger Agreement and as of the Closing Date, except for (x) representations and
warranties that are made as of a specific date (in which case such
representations and warranties shall be true and correct on and as of such date,
subject to the following clause (y)) and (y) inaccuracies in such
representations and warranties that individually or in the aggregate do not have
a material adverse effect on Belo; and (iv) Providence Journal has received from
Wachtell, Lipton, Rosen & Katz, on the date of this Joint Proxy
Statement/Prospectus and on the Closing Date opinions, in each case dated as of
such respective dates and stating that the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning
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of Section 368(a) of the Code and that Belo, Finance and Providence Journal will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code. Whether Belo and Finance or Providence Journal would be willing to
waive any particular condition, if it were to become evident that any such
condition could not be satisfied, would depend on all of the facts and
circumstances pertaining to such event.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval by Belo's or Providence Journal's
stockholders of the Merger: (i) by mutual written consent of Belo, Finance and
Providence Journal; or (ii) by either Belo or Providence Journal under the
following circumstances: (w) if the Providence Journal Stockholders Meeting
(including as it may be adjourned from time to time) concludes without the
approval of the Merger by Providence Journal's stockholders having been
obtained; (x) if the Merger is not consummated on or before the Termination
Date, provided that the party seeking termination is not otherwise in material
breach of the Merger Agreement; (y) if any Governmental Entity issues an order,
injunction, decree or ruling or takes any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, injunction,
decree, ruling or other action becomes final and nonappealable; or (z) in the
event of a breach by the other party of any representation, warranty, covenant
or other agreement contained in the Merger Agreement which (A) would give rise
to the failure to be satisfied of a condition relating to the accuracy of such
other party's representations and warranties and (B) cannot be cured by the
Termination Date (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained in
the Merger Agreement). In addition, the Merger Agreement may be terminated at
any time prior to the Effective Time, whether before or after the approval by
Belo's or Providence Journal's stockholders of the Merger, (i) by Belo if the
Providence Journal Board approves or recommends a superior proposal or by
Providence Journal if the Providence Journal Board approves or recommends a
superior proposal; or (ii) by Belo or Providence Journal if the Belo
Stockholders Meeting (including as it may be adjourned from time to time)
concludes without the approval of the issuance of Belo Series A Common Stock in
the Merger having been obtained.
If the Merger Agreement is terminated by either Providence Journal or Belo,
it will thereafter become void and have no effect, without any liability or
obligation on the part of Belo, Finance or Providence Journal, (i) other than
liabilities and obligations relating to brokers, investment bankers or financial
advisors, the Confidentiality Agreement, payment of expenses relating to this
Joint Proxy Statement/Prospectus and the Termination Fee (as discussed in
"-- Termination Fee"), under the termination and certain other provisions of the
Merger Agreement; and (ii) except that no such termination will relieve any
party of any liability for damages resulting from any material breach by such
party of the Merger Agreement.
TERMINATION FEE
Pursuant to the Merger Agreement, Providence Journal is required to pay, or
cause to be paid, in same day funds to Belo the Termination Fee upon demand if
(i) Belo terminates the Merger Agreement because the Providence Journal Board
has approved or recommended a superior proposal, (ii) Providence Journal
terminates the Merger Agreement because the Providence Journal Board has
approved or recommended a superior proposal in the manner described in
"-- Certain Covenants -- No Solicitation," or (iii) Belo or Providence Journal
terminates the Merger Agreement because the Providence Journal Stockholders
Meeting (including as it may be adjourned from time to time) concludes without
the approval by the stockholders of Providence Journal of the Merger having been
obtained; provided, however, that in the event the Merger Agreement is
terminated in the manner described in clause (iii) of this sentence, the
Termination Fee shall not be payable unless and until (x) an Acquiring Party has
acquired, by purchase, merger, consolidation, sale, assignment, lease, transfer
or otherwise, in one transaction or any related series of transactions within 12
months after such termination, a majority of the voting power of the outstanding
securities of Providence Journal or all or substantially all of the assets of
Providence Journal or (y) there has been consummated within 12 months after such
termination a consolidation, merger or similar business combination between
Providence Journal and an Acquiring Party in which stockholders of Providence
Journal immediately prior to such consolidation, merger or similar transaction
do not own securities representing at least 50% of the
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outstanding voting power of the surviving entity (or, if applicable, any entity
in control of such Acquiring Party) of such consolidation, merger or similar
transaction immediately following the consummation thereof, in either of cases
(x) or (y) involving a consideration for Providence Journal Common Stock
(including the value of any stub equity) in excess of the Aggregate Merger
Consideration; and provided further, that no such Termination Fee shall be
payable as a result of a termination of the Merger Agreement described in clause
(iii) of this sentence unless there shall have been made public prior to the
Providence Journal Stockholders Meeting a takeover proposal involving
consideration for Providence Journal Common Stock (including the value of any
stub equity) in excess of the Aggregate Merger Consideration. Providence Journal
has agreed that if it fails promptly to pay the Termination Fee when due and, in
order to obtain such payment, Belo or Finance commences a suit which results in
a judgment against Providence Journal for the Termination Fee, Providence
Journal will pay to Belo or Finance its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank, N.A. in effect on the date such
payment was required to be made.
STOCKHOLDERS AGREEMENTS
Concurrently with or shortly after the execution and delivery of the Merger
Agreement, (i) the Providence Journal Board and certain of the officers and
directors of Providence Journal (the "Providence Journal Significant
Stockholders") entered into a Stockholders Agreement, dated as of September 26,
1996 (the "Providence Journal Stockholders Agreement"), with Belo covering an
aggregate of 3,785,065 shares of Providence Journal Class A Common Stock and
3,334,950 shares of Providence Journal Class B Common Stock (collectively with
other shares that have or will become subject thereto, the "Journal Covered
Shares") and (ii) certain officers and directors of Belo (the "Belo Significant
Stockholders") entered into a Stockholders Agreement, dated as of September 26,
1996 (the "Belo Stockholders Agreement"), with Providence Journal covering an
aggregate of 2,337,984 shares of Belo Series A Common Stock and 3,622,474 shares
of Belo Series B Common Stock (collectively with other shares that have or will
become subject thereto, the "Belo Covered Shares"). In addition, certain
Providence Journal stockholders, controlling in the aggregate 6.2% of the total
voting power of the outstanding shares of Providence Journal Common Stock have
entered into certain stockholder agreements with Belo agreeing to vote their
shares in favor of the Providence Journal Proposal.
Providence Journal Stockholders Agreement. Pursuant to the Providence
Journal Stockholders Agreement, each of the Providence Journal Significant
Stockholders has agreed to vote (or, in the case of joint ownership, use all
reasonable efforts to cause to be voted) his or her Journal Covered Shares, (i)
in favor of approval of the Merger Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach of any covenant, representation or warranty of Providence Journal under
the Merger Agreement; and (iii) against (x) any takeover proposal (other than
the Merger and the transactions contemplated by the Merger Agreement) or (y) any
changes in a majority of the persons who constitute the Providence Journal
Board.
In addition, pursuant to the Providence Journal Stockholders Agreement,
each Providence Journal Significant Stockholder has agreed not to: (i) except as
contemplated by the Merger Agreement, offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sell, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of his or her Journal Covered Shares or any interest
therein; (ii) grant any proxies or powers of attorney, deposit any Journal
Covered Shares into a voting trust or enter into a voting agreement with respect
to any Journal Covered Shares; or (iii) take any action that would make any of
his or her representations or warranties contained therein untrue or incorrect
or have the effect of preventing or disabling such Providence Journal
Significant Stockholder from performing his or her obligations under the
Providence Journal Stockholders Agreement. However, each Providence Journal
Significant Stockholder is permitted to (i) transfer any of his or her Journal
Covered Shares to a trust or similar entity for estate planning purposes so long
as such Providence Journal Significant Stockholder retains, or another
Providence Journal Significant Stockholder acquires, (a) sole power to vote such
Journal Covered Shares (and votes such Journal Covered Shares in accordance with
the Providence Journal Stockholders Agreement) and (b) investment power over
such Journal Covered Shares (and causes such trust or similar
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entity to retain such Journal Covered Shares until the termination of the
Providence Journal Stockholders Agreement); (ii) make one or more gifts or
charitable donations of his or her Journal Covered Shares up to such number of
Journal Covered Shares as represents no more than 10% of the voting power
represented by the aggregate number of such Providence Journal Significant
Stockholder's Journal Covered Shares on the date of the Providence Journal
Stockholders Agreement; and (iii) pledge or margin any of his or her Journal
Covered Shares so long as such Providence Journal Significant Stockholder
retains sole power to vote such Journal Covered Shares (and votes in accordance
with the Providence Journal Stockholders Agreement) for the term of the
Providence Journal Stockholders Agreement (provided that such pledge or margin
transaction is made only to or with a financial institution extending credit to
such Providence Journal Significant Stockholder in the ordinary course of such
financial institution's business and unrelated to any transaction or
transactions involving an attempt to acquire control of Providence Journal).
Pursuant to the Providence Journal Stockholders Agreement, each Providence
Journal Significant Stockholder has agreed (i) immediately to cease any existing
discussions or negotiations, if any, with any parties conducted prior to the
date of the Providence Journal Stockholders Agreement with respect to any
acquisition of all or any material portion of the assets of, or any equity
interest in, Providence Journal or its subsidiaries or any business combination
with Providence Journal or its subsidiaries, and (ii) unless and until
Providence Journal is permitted to take such actions in accordance with the
Merger Agreement, not to initiate, solicit or knowingly encourage (including by
way of furnishing non-public information or assistance), or take any other
action to facilitate knowingly, any inquiries or the making of any takeover
proposal.
Belo Stockholders Agreement. Pursuant to the Belo Stockholders Agreement,
each of the Belo Significant Stockholders has agreed to vote (or, in the case of
joint ownership, use all reasonable efforts to cause to be voted) his or her
Belo Covered Shares (i) in favor of the Belo Proposal and any actions required
in furtherance thereof; (ii) against any action or agreement that would result
in a breach in any respect of any covenant, representation or warranty of Belo
under the Merger Agreement; and (iii) against any changes in a majority of the
persons who constitute the Belo Board.
In addition, pursuant to the Belo Stockholders Agreement, each Belo
Significant Stockholder has agreed not to: (i) except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of his or her Belo Covered Shares or any interest therein; (ii) grant
any proxies or powers of attorney, deposit any Belo Covered Shares into a voting
trust or enter into a voting agreement with respect to any Belo Covered Shares;
or (iii) take any action that would make any of his or her representations or
warranties contained therein untrue or incorrect or have the effect of
preventing or disabling such Belo Significant Stockholder from performing his or
her obligations under the Belo Stockholders Agreement. However, each Belo
Significant Stockholder is permitted to (i) transfer any of his or her Belo
Covered Shares to a trust or similar entity for estate planning purposes so long
as such Belo Significant Stockholder retains, or another Belo Significant
Stockholder acquires, (a) sole power to vote such Belo Covered Shares (and votes
such Belo Covered Shares in accordance with the Belo Stockholders Agreement) and
(b) investment power over such Belo Covered Shares (and causes such trust or
similar entity to retain such Belo Covered Shares until the termination of the
Belo Stockholders Agreement); (ii) make one or more gifts or charitable
donations of such Belo Covered Shares up to such number of Belo Covered Shares
as represents no more than 10% of the voting power represented by the aggregate
number of such Belo Significant Stockholder's Belo Covered Shares on the date of
the Belo Stockholders Agreement; and (iii) pledge or margin any of his or her
Belo Covered Shares so long as such Belo Significant Stockholder retains sole
power to vote such Belo Covered Shares (and votes in accordance with the Belo
Stockholders Agreement) for the term of the Belo Stockholders Agreement
(provided that such pledge or margin transaction is made only to or with a
financial institution extending credit to such Belo Significant Stockholder in
the ordinary course of such financial institution's business and unrelated to
any transaction or transactions involving an attempt to acquire control of
Providence Journal).
The Providence Journal Stockholders Agreement and the Belo Stockholders
Agreement will both terminate at the earlier to occur of the termination of the
Merger Agreement and the Effective Time.
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Other Agreements. Pursuant to the Merger Agreement, subject to applicable
law, Providence Journal agreed to use all reasonable efforts to obtain, within
ten days after the date of the Merger Agreement, from all holders of shares
representing one percent or more of the outstanding Providence Journal Class B
Common Stock that have not executed the Providence Journal Stockholders
Agreement, stockholder agreements, in form and substance substantially similar
to the Providence Journal Stockholders Agreement, covering such holders' shares
of Providence Journal Common Stock. Accordingly, certain Providence Journal
stockholders, controlling in the aggregate 6.7% of the outstanding Class B
Common Stock have entered into such stockholders agreements.
BUSINESS OF BELO
Belo, founded in 1842, owns and operates seven network-affiliated VHF
television stations in the top 60 U.S. television markets and the largest daily
newspaper in the Dallas-Fort Worth metropolitan area. Belo's broadcast group
reaches approximately 8% of all U.S. television households and its principal
newspaper, The Dallas Morning News, has the country's seventh largest Sunday
circulation (approximately 800,147) and eighth largest daily circulation
(approximately 534,197).
The principal executive offices of Belo are located at 400 South Record
Street, Dallas, Texas 75202; its telephone number is (214) 977-6606.
At September 30, 1996, Belo had total assets of $1,209,589,000 and
shareholders' equity of $637,689,000. For the nine months ended September 30,
1996, Belo had consolidated net operating revenues of $602,210,000, of which
40.0% was derived from broadcasting, 59.6% was derived from newspaper publishing
and 0.4% was derived from its other operations.
Additional information concerning Belo is included in the Belo Reports
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
TELEVISION BROADCASTING
Belo's television broadcast operations began in 1950 with the acquisition
of WFAA in Dallas-Fort Worth shortly after the station commenced operations. In
1984, Belo significantly expanded its television broadcast operations with the
purchase of its four stations in Houston, Sacramento, Hampton-Norfolk and Tulsa.
In June 1994 and February 1995, Belo acquired its stations in New Orleans and
Seattle, respectively.
The following table sets forth information for each of the Belo Stations
and its market:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL STATION
STATIONS STATION AUDIENCE
MARKET YEAR NETWORK IN RANK IN SHARE IN
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL MARKET(2) MARKET(3) MARKET(4)
- ----------------------------------- ----- -------- ----------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas-Fort Worth........... 8 WFAA 1950 ABC 8 13 1 18%
Houston..................... 11 KHOU 1984 CBS 11 13 1* 15
Seattle-Tacoma.............. 12 KIRO 1995 UPN 7 8 3* 10
Sacramento.................. 21 KXTV 1984 ABC 10 9 2 12
Hampton-Norfolk............. 40 WVEC 1984 ABC 13 7 1* 18
New Orleans................. 41 WWL 1994 CBS 4 7 1 29
Tulsa....................... 59 KOTV 1984 CBS 6 7 1* 21
</TABLE>
- ---------------
* Tied with one or more other stations in the market.
(1) Market rank is based on the relative size of the television market or
Designated Market Area (defined by Nielsen as geographic markets for the
sale of national "spot" and local advertising time) ("DMA") among the 211
generally recognized DMAs in the United States, based on May 1996 A.C.
Nielsen Co. ("Nielsen") estimates. See "BUSINESS OF PROVIDENCE
JOURNAL -- Broadcasting -- The Providence Journal Stations -- Industry
Background."
(2) Represents the number of television stations (both VHF and UHF) broadcasting
in the market, excluding public stations and national cable channels. As
used in this Joint Proxy Statement/Prospectus, "VHF" refers to the very
high frequency band (channels 2-13) of the spectrum and "UHF" refers to the
ultra-high frequency band (channels above 13) of the spectrum.
(3) Station rank is derived from the station's rating which is based on May 1996
Nielsen estimates of the number of television households tuned to the Belo
Station for the Sunday-Saturday, 7:00 a.m. to
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1:00 a.m. period ("sign-on/sign-off") as a percentage of the number of
television households in the market.
(4) Station audience share is based on May 1996 Nielsen estimates of the number
of television households tuned to the Belo Station as a percentage of the
number of television households with sets in use in the market for the
sign-on/sign-off period.
The Belo Stations
WFAA-TV -- Dallas-Fort Worth, TX. WFAA operates in the Dallas-Fort Worth,
Texas market, the eighth largest television market in the United States, with
approximately 1.8 million television households. In 1995, the Dallas-Fort Worth
market totaled approximately $354 million in television advertising revenue.
There are thirteen licensed commercial television stations in Dallas-Fort Worth
and two public stations. WFAA is an ABC network affiliate.
KHOU-TV -- Houston, TX. KHOU operates in the Houston, Texas market, the
eleventh largest television market in the United States, with approximately 1.6
million television households. In 1995, the Houston market totaled approximately
$309 million in television advertising revenue. There are thirteen licensed
commercial television stations in Houston and one public station. KHOU is a CBS
network affiliate.
KIRO-TV -- Seattle-Tacoma, WA. KIRO operates in the Seattle-Tacoma,
Washington market, the twelfth largest television market in the United States,
with approximately 1.5 million television households. In 1995, the
Seattle-Tacoma market totaled approximately $269 million in television
advertising revenue. There are eight licensed commercial television stations in
Seattle-Tacoma and three public stations. KIRO is a UPN affiliate.
KXTV -- Sacramento, CA. KXTV operates in the Sacramento, California market,
the twenty-first largest television market in the United States, with
approximately 1.1 million television households. In 1995, the Sacramento market
totaled approximately $146 million in television advertising revenue. There are
nine licensed commercial television stations in the Sacramento market and one
public station. KXTV is an ABC network affiliate.
WVEC-TV -- Hampton-Norfolk, VA. WVEC operates in the Hampton-Norfolk,
Virginia market, the fortieth largest television market in the United States,
with approximately 620,000 television households. In 1995, the Hampton-Norfolk
market totaled approximately $68 million in television advertising revenue.
There are seven licensed commercial television stations in the Hampton-Norfolk
market and one public station. WVEC is an ABC network affiliate.
WWL-TV -- New Orleans, LA. WWL operates in the New Orleans, Louisiana
market, the forty-first largest television market in the United States, with
approximately 615,000 television households. In 1995, the New Orleans market
totaled approximately $78 million in television advertising revenue. There are
seven licensed commercial television stations in the New Orleans market and two
public stations. WWL is a CBS network affiliate.
KOTV -- Tulsa, OK. KOTV operates in the Tulsa, Oklahoma market, the
fifty-ninth largest television market in the United States, with approximately
460,000 television households. In 1995, the Tulsa market totaled approximately
$55 million in television advertising revenue. There are seven licensed
commercial television stations in the Tulsa market and two public stations. KOTV
is a CBS network affiliate.
NEWSPAPER PUBLISHING
The Dallas Morning News is one of the leading newspaper franchises in
America, in terms of circulation and advertising volume. The newspaper's
outstanding reporting and editorial initiatives have earned six Pulitzer Prizes
since 1986. Based on the most recently available industry information, The
Dallas Morning News runs more full run advertising than any other newspaper in
the United States. In late 1995 and early 1996, Belo expanded its publishing
division by acquiring two daily newspapers serving Bryan-College Station, Texas
and Owensboro, Kentucky. Belo also publishes nine other community newspapers in
the Dallas-Fort Worth suburban area and operates a commercial printing business.
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BUSINESS OF FINANCE
Finance, a wholly owned subsidiary of Belo, has not conducted any
substantial business activities to date, other than those incident to its
formation, its execution of the Merger Agreement and related agreements and its
participation in the preparation of this Joint Proxy Statement/Prospectus.
Immediately following the consummation of the Merger, Finance (which will be
renamed Belo Holdings, Inc.) will succeed to the assets, liabilities and
businesses of Providence Journal. Promptly following the consummation of the
Merger, Belo Holdings will transfer to its wholly owned subsidiary, Providence
Journal Newspaper Co., all the assets and liabilities of the Providence Journal
Newspapers. See "BUSINESS OF PROVIDENCE JOURNAL."
BUSINESS OF PROVIDENCE JOURNAL
GENERAL
Providence Journal, founded in 1829, is a diversified media company
organized under the laws of the State of Delaware. Providence Journal owns and
operates nine network affiliated television stations and provides or will
provide programming and marketing services to four television stations (the
"Providence Journal LMA Stations") under LMAs (the "Providence Journal
Broadcasting Business"), publishes the largest daily newspaper both in terms of
advertising and circulation compared to all newspapers based in the Rhode Island
and southeastern Massachusetts market (the "Providence Journal Publishing
Business"), and produces diversified programming and interactive electronic
media services (the "Providence Journal Programming and Electronic Media
Business"). Providence Journal was incorporated in the State of Delaware as the
successor to Old PJC. The principal executive offices of Providence Journal are
located at 75 Fountain Street, Providence, Rhode Island 02902; its telephone
number is (401) 277-7000.
Providence Journal's broadcasting operations are located in markets ranging
from the 12th to the 127th largest designated market areas in the United States.
Five of the Providence Journal Stations are network affiliates of NBC, two are
network affiliates of Fox, one is a network affiliate of ABC and one is a
network affiliate of CBS. Providence Journal publishes the leading newspaper in
terms of advertising and circulation in its market of Rhode Island and
southeastern Massachusetts. Providence Journal believes that the Providence
Journal-Bulletin, published daily since 1829, is the oldest continuously
published daily newspaper in the United States. Providence Journal also produces
cable and satellite television programming and interactive and on-line
electronic media services through its management role or ownership interests in
a variety of content-driven entertainment and information businesses.
At September 30, 1996, Providence Journal had total assets of $733,885,000
and stockholders' equity of $362,376,000. For the nine months ended September
30, 1996, Providence Journal had consolidated revenues of $254,407,000, of which
58.9% was derived from broadcasting, 37.4% was derived from publishing and 3.7%
was derived from programming and electronic media.
BACKGROUND; REORGANIZATION
Pursuant to the transactions described below, on October 5, 1995,
Providence Journal acquired its joint venture partner's 50% interest in KING-TV
(Seattle/Tacoma), KGW (TV) (Portland), KHNL (TV) (Honolulu), KREM-TV (Spokane)
and KTVB (TV) (Boise), which were owned and operated by an indirect subsidiary
of Old PJC, and disposed of all of its cable operations. Such transactions were
as follows: (i) Old PJC acquired its joint venture partner's interest (the
"Kelso Buyout") in KHC, which at the time of such acquisition held all of the
capital stock of KBC, the owner and operator of such stations, (ii) Old PJC
contributed all of its non-cable businesses (including all of the outstanding
capital stock of KHC) to Providence Journal, its wholly-owned subsidiary, and
Providence Journal assumed all of the liabilities related thereto (the
"Contribution"), (iii) Old PJC distributed one share of Providence Journal Class
A Common Stock and Providence Journal Class B Common Stock to the holder of each
share of Old PJC's class A common stock and class B common stock, respectively
(the "Distribution", and together with the Contribution, the "Spin-Off"), and
(iv) Old PJC, which following the Spin-Off held only Old PJC's cable television
businesses and assets (the "Old PJC Cable Business"), merged with and into
Continental (the "Continental Merger"). Immediately prior to the Kelso Buyout,
Continental purchased all of the stock of King Videocable Company, a Washington
corporation and wholly owned subsidiary of KBC, which held all of the cable
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television assets and business of KHC and KBC (the "King Cable Purchase"). As a
result of these transactions, Providence Journal, in substance, became the
successor to Old PJC, in the same lines of business, simultaneously disposing of
its cable operations.
In connection with, and as part of the Spin-Off, Providence Journal, with
certain exceptions, assumed and agreed to hold Continental, as successor by
merger to Old PJC, harmless from all of Old PJC's liabilities arising from its
noncable businesses, and Old PJC, with certain exceptions, in turn agreed to
hold Providence Journal harmless from liabilities arising from the Old PJC Cable
Business, which liabilities were assumed by Continental pursuant to the
Continental Merger Agreement.
The Continental Merger and the Spin-Off were intended to qualify as
tax-free under Sections 355 and 368 of the Code. A ruling was obtained from the
Service to the effect that the Spin-Off qualified as tax-free under Section 355
of the Code and an opinion of counsel was obtained to the effect that the
Continental Merger would qualify as tax-free under Section 368 of the Code. In
the event either the Continental Merger or the Spin-Off is determined not to so
qualify, such failure to qualify would result in Continental, the surviving
entity in the Continental Merger, recognizing gain equal to the excess of (i)
the fair market value of the shares of Providence Journal Common Stock
distributed to Old PJC's stockholders over (ii) Old PJC's adjusted tax basis in
the assets transferred to Providence Journal in the Contribution. Pursuant to
the Continental Merger Agreement, Providence Journal is required to indemnify
Continental for all Federal and state income tax liabilities of Old PJC and its
subsidiaries for periods ending on or before the Continental Closing Date,
including any income tax liabilities resulting from the failure of the Spin-Off
or the Continental Merger to so qualify, unless such failure to qualify is
attributable to certain actions of Continental taken without the consent of
Providence Journal. As part of the US West Merger, US West has agreed that any
failure of the Spin-Off and the Continental Merger to qualify as tax-free
reorganizations under the Code as a result of the transactions contemplated by
the US West Merger would not give rise to an indemnification obligation by
Providence Journal under the Continental Merger Agreement.
BROADCASTING
Overview. The Providence Journal Stations generally are in markets that
Providence Journal believes will experience above-average economic growth in
retail sales, effective buying income ("EBI") and population. The Providence
Journal Stations are owned by subsidiaries of Providence Journal and are
typically located in the largest cities or state capitals of the states in which
they operate. The Providence Journal Stations and the Providence Journal LMA
Stations are in geographically diverse markets of the United States, which
reduces Providence Journal's exposure to regional economic fluctuations. Such
markets include five of the fifty largest domestic television markets, as
measured by the number of television households. Providence Journal has entered
into LMAs for four television stations (one in each of Honolulu, Tucson, Seattle
and Spokane). Pursuant to these agreements, Providence Journal provides or will
provide programming and marketing services for such stations in return for all
or a percentage of advertising revenues generated by the respective Providence
Journal LMA Station. Seven of the television stations extend their reach through
satellite stations, low power television stations and translators.
With the exception of KING-TV (Seattle), which accounted for approximately
19.2% of consolidated revenues for both 1995 and the nine months ended September
30, 1996, none of the other Providence Journal Stations accounted for more than
10% of Providence Journal's consolidated revenues for those periods.
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The following table sets forth general information for each of the
Providence Journal Stations and the market it serves, based on the Nielsen
Station Index as of May 1996. The Providence Journal Stations are listed in
order of the ranking of their DMA.
<TABLE>
<CAPTION>
NUMBER OF
STATION/ COMMERCIAL TV STATION 1995 MARKET TV
MARKET CHANNEL/ DMA STATIONS IN RANK IN STATION HOUSEHOLDS (IN
AREA(1) STATUS AFFILIATION FREQUENCY RANK(2) MARKET(3) MARKET(4) SHARE(5) THOUSANDS)(6)
- ------------------------ ------ ----------- --------- ------- ------------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KING-TV................. Owned NBC 5/VHF 12 8 1 19% 1,464
KONG-TV(7).............. LMA IND. 16/UHF 12 8 -- -- 1,464
Seattle, WA
KGW(TV)................. Owned NBC 8/VHF 24 8 1 17 933
Portland, OR
WCNC-TV................. Owned NBC 36/UHF 28 8 3 10 802
Charlotte, NC
KASA-TV................. Owned Fox 2/VHF 48 6 4 7 553
Albuquerque/
Santa Fe, NM
WHAS-TV................. Owned ABC 11/VHF 50 6 1 23 543
Louisville, KY
KHNL(TV)................ Owned NBC 13/VHF 70 8 1 19% 381
KFVE(TV)................ LMA UPN 5/UHF 70 8 -- -- 381
Honolulu, HI
KREM-TV................. Owned CBS 2/VHF 74 5 2 18 366
KSKN-TV................. LMA IND. 22/UHF 74 -- -- -- 366
Spokane, WA
KMSB-TV................. Owned Fox 11/VHF 80 6 4 10 344
KTTU(TV)................ LMA UPN 18/UHF 80 6 -- -- 344
Tucson, AZ
KTVB(TV)................ Owned NBC 7/VHF 127 5 1 30 233
Boise, ID
</TABLE>
- ---------------
(1) As used in this Joint Proxy Statement/Prospectus, the following "call
letters" refer, as the context may require, either to the corporate owner of
the station indicated or to the station itself: "KING" refers to KING-TV,
Seattle/Tacoma, Washington; "KONG" refers to KONG-TV, Seattle/Tacoma,
Washington; "KGW" refers to KGW(TV), Portland, Oregon; "WCNC" refers to
WCNC-TV, Charlotte, North Carolina; "KASA" refers to KASA-TV,
Albuquerque/Santa Fe, New Mexico; "WHAS" refers to WHAS-TV, Louisville,
Kentucky; "KHNL" refers to KHNL(TV), Honolulu, Hawaii; "KFVE" refers to
KFVE(TV), Honolulu, Hawaii; "KREM" refers to KREM-TV, Spokane, Washington,
"KSKN" refers to KSKN-TV, Spokane, Washington; "KMSB" refers to KMSB-TV,
Tucson, Arizona; "KTTU" refers to KTTU(TV), Tucson, Arizona; and "KTVB"
refers to KTVB(TV), Boise, Idaho.
(2) Ranking of DMA served by the station among all DMAs, measured by the number
of television households for the 1995-1996 broadcast year.
(3) Represents the number of television stations ("reportable stations")
designated by Nielsen as "local" to the DMA, excluding public television
stations and stations that do not meet minimum Nielsen reporting standards
(weekly cumulative audience of less than 2.5%) for reporting in the Sunday
to Saturday, 6:00 a.m. to 2:00 a.m. period ("sign-on to sign-off"). Does not
include national cable channels or satellite stations. The number of
reportable stations may change for each reporting period.
(4) Station's rank relative to other reportable stations, based upon the DMA
rating as reported by Nielsen, 6:00 a.m. to 2:00 a.m., during the May, 1996
measuring period. Data for KHNL and KMSB include KFVE and KTTU,
respectively. Data for KING does not include KONG because the LMA for such
LMA Station was entered into on May 14, 1996 and the station is not yet
operational. Data for KREM does not include KSKN because the LMA for such
LMA Station was entered into on June 26, 1996.
(5) Represents the number of television households tuned to the station as a
percentage of the number of television households with sets in use for the
Sunday-Saturday 6:00 a.m. to 2:00 a.m. from the May 1996 Nielsen Station
Index. Data of KHNL and KMSB include KFVE and KTTU, respectively. Data for
KING does not include KONG because the LMA for such LMA Station was entered
into on May 14, 1996 and the station is not yet operational. Data for KREM
does not include KSKN because the LMA for such LMA Station was entered into
on June 26, 1996.
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(6) As reported in the May 1996 Nielsen Station Index.
(7) Data for KONG is not available because the station is not yet operational.
The Providence Journal Stations
KING-TV -- Seattle, WA. KING operates in the Seattle/Tacoma Washington
market, the twelfth largest television market in the United States, with
approximately 1.5 million television households and a population of
approximately 3.8 million. In 1995, the Seattle/Tacoma market totaled
approximately $269 million in television advertising revenue. There are eight
licensed commercial television stations in Seattle/Tacoma and three public
stations. All four network affiliates are VHF (including KING), two independents
are VHF and the other four independents are UHF (including KONG). KING has been
an NBC affiliate since 1959, and its current affiliation agreement expires in
2001.
KGW(TV) -- Portland, OR. KGW operates in the Portland, Oregon market, the
twenty-fourth largest television market in the United States, with approximately
933,000 television households and a population of approximately 2.5 million. In
1995, the Portland market totaled approximately $145 million in television
advertising revenue. There are eight licensed commercial television stations in
the Portland market 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.
WCNC-TV -- Charlotte, NC. WCNC operates in the Charlotte, North Carolina
market, the twenty-eighth largest television market in the United States, with
approximately 802,000 television households and a population of approximately
2.1 million. In 1995, the Charlotte market totaled approximately $118 million in
television advertising revenue. There are eight licensed commercial television
stations in Charlotte 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
1978, and its current affiliation agreement expires in 2001.
KASA-TV -- Albuquerque/Santa Fe, NM. KASA operates in the Albuquerque/Santa
Fe, New Mexico market, the forty-eighth largest television market in the United
States, with approximately 553,000 television households and a population of
approximately 1.6 million. In 1995, the Albuquerque/Santa Fe market totaled
approximately $79 million in television advertising revenue. There are six
licensed commercial television stations in Albuquerque/Santa Fe and two public
stations. All four network affiliates are VHF stations (including KASA), one
independent is a VHF station and three independents are UHF stations. KASA has
been a Fox affiliate since 1986, and its current affiliation agreement expires
in 1998.
WHAS-TV -- Louisville, KY. WHAS operates in the Louisville, Kentucky
market, the fiftieth largest television market in the United States, with
approximately 543,000 television households and a population of approximately
1.4 million. In 1995, the Louisville market totaled approximately $82 million in
television advertising revenue. There are six licensed commercial television
stations in Louisville and one public station. Two network stations are VHF
(including WHAS), two network stations are UHF and the three independent
stations are UHF. WHAS has been an ABC affiliate since 1990, and its current
affiliation agreement expires in 2000.
KHNL(TV) -- Honolulu, HI. KHNL operates in the Honolulu, Hawaii market, the
seventieth largest market in the United States, with approximately 381,000
television households and a population of approximately 1.2 million. In 1995,
the Honolulu market totaled approximately $64 million in television advertising
revenue. There are eight licensed commercial television stations in Honolulu and
one public station. All four network stations are VHF (including KHNL). One
independent station is VHF (KFVE) and four independent stations are UHF. KHNL
became an NBC affiliate on January 1, 1996, and its affiliation agreement with
NBC will expire in 2002. KFVE is affiliated with UPN.
KREM-TV -- Spokane, WA. KREM operates in the Spokane, Washington market,
the seventy-fourth largest television market in the United States, with
approximately 366,000 television households and a population of approximately
961,000. In 1995, the Spokane market totaled approximately $43 million in
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television advertising revenue. There are five licensed commercial television
stations in Spokane and three public stations. Three network affiliates are VHF
stations (including KREM). The Fox affiliate and KSKN are UHF stations. KREM has
been a CBS affiliate since 1977. Its current affiliation agreement expires in
1998 and is anticipated to be extended to 2002. KSKN is an independent,
non-affiliated station.
KMSB-TV -- Tucson, AZ. KMSB operates in the Tucson, Arizona market, the
eightieth largest television market in the United States, with approximately
344,000 television households and a population of approximately 887,000. In
1995, the Tucson market totaled approximately $52 million in television
advertising revenue. There are six licensed commercial television stations in
Tucson and two public stations. All four network affiliates are VHF stations
(including KMSB), and two independent stations are UHF stations (including
KTTU). KMSB has been a Fox affiliate since 1986, and its current affiliation
agreement expires in 1998. KTTU is affiliated with UPN.
KTVB (TV) -- Boise, ID. KTVB operates in the Boise, Idaho market, the one
hundred twenty-seventh largest television market in the United States, with
approximately 185,000 television households and a population of 498,000. In
1995, the Boise market totaled approximately $26 million in television
advertising revenue. There are five licensed commercial television stations in
Boise 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.
Network Affiliation Agreements and Relationships. Each of the Providence
Journal Stations is a party to a Providence Journal Network Agreement with one
of the four major networks giving the Providence Journal Station the right to
rebroadcast programs transmitted by such network. Each network has the right to
terminate its respective affiliation agreement in the event of a material breach
of such agreement by a Providence Journal Station and in certain other
circumstances. Although Providence Journal expects to continue to 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
Providence Journal Network Agreements could have a material adverse effect on
Providence Journal's results of operations. See "RISK FACTORS -- Risk Factors
Applicable to Belo and Providence Journal -- Reliance on Network Programming;
Dependence on Network Affiliation."
Industry Background. Commercial television broadcasting began in the United
States on a regular basis in the 1940s. 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. VHF television stations
generally have some competitive advantage over UHF television stations because
VHF channels usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only television receivers
and the expansion of cable television systems have reduced the competitive
advantage of television stations broadcasting over the VHF band.
Television station revenues are primarily derived from local, regional and
national advertising and, to a much lesser extent, from network compensation and
revenues from studio rental and commercial production activities. Because
broadcast television stations rely on advertising revenues, they are sensitive
to cyclical changes in the economy. The size of advertisers' budgets, which are
affected by broad economic trends, affect the broadcast industry in general and
the revenues of individual broadcast television stations.
Television stations in the United States are grouped by Nielsen into
approximately 210 generally recognized television markets that are ranked in
size according to various formulae based upon actual or potential audience. Each
market is designated as an exclusive geographic area consisting of all counties
in which the home-market commercial stations receive the greatest percentage of
total viewing hours.
Nielsen, which provides audience measuring services, periodically publishes
data on estimated audiences for television stations in the various television
markets throughout the country. These estimates are expressed in terms of the
percentage of the total potential audience in the market viewing a station (the
station's "rating") and of the percentage of the audience actually watching
television (the station's "share"). Nielsen provides such data on the basis of
total television households and selected demographic groupings in the
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market. The specific geographic markets are called DMAs. Nielsen uses two
methods of determining a station's rating and share. In larger geographic
markets, ratings are determined by a combination of meters connected directly to
selected television sets and weekly viewer-completed diaries of television
viewing, while in smaller markets, ratings are determined by weekly diaries
only. Of the markets in which Providence Journal conducts its business, three
are metered markets while the remaining markets are weekly diary markets.
Historically, three major broadcast networks, NBC, ABC and CBS, dominated
broadcast television. In recent years, Fox has effectively evolved into the
fourth major network, although the hours of network programming produced by Fox
for its affiliates are fewer than those produced by the other three major
networks. In addition, UPN and WB have also been launched as new television
networks and are increasing the hours of programming that they provide to their
affiliates.
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 affiliated station receives
approximately nine to ten hours of each day's programming from the network. This
programming, along with cash payments ("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 time sold during breaks in and between network programs and during
programs produced by the affiliate or purchased from non-network sources. In
acquiring programming to supplement network programming, 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 otherwise have been offered to local television
stations. In addition, a television station may acquire programming through
bartering arrangements. Under such arrangements, which are becoming increasingly
popular with both network affiliates and independents, a national program
distributor may receive advertising time in exchange for the programming it
supplies, with the station paying no fee or a reduced fee for such programming.
An affiliate of UPN or WB receives a smaller portion of each day's
programming from its network compared to an affiliate of NBC, ABC, CBS or Fox.
Currently, UPN and WB provide six and two hours of programming per day to their
affiliates, respectively. As a result of the smaller amount of programming
provided by their networks, affiliates of UPN or WB must purchase or produce a
greater amount of their programming, resulting in generally higher programming
costs. These stations, however, retain a larger portion of the inventory of
advertising time and the revenues obtained therefrom than stations affiliated
with the major networks, which may partially offset their higher programming
costs.
In contrast to a network-affiliated station, an independent station
purchases or produces all of the programming that it broadcasts, generally
resulting in higher programming costs, although the independent station is, in
theory, able to retain its entire inventory of advertising time and all of the
revenue obtained from the sale of such time. Barter and cash-plus-barter
arrangements, however, have become increasingly popular among all stations.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations and, to a lesser extent, with radio
stations, cable system operators and programmers and newspapers serving the same
market. Traditional network programming, and recently Fox programming, generally
achieves higher audience levels than syndicated programs aired by independent
stations. However, as greater amounts of advertising time become available for
sale by independent stations and Fox affiliates in syndicated programs, those
stations typically achieve a share of the television market advertising revenues
greater than their share of the market's audience.
Through the 1970s, network television broadcasting enjoyed virtual
dominance in viewership and television advertising revenues because
network-affiliated stations only competed with each other in local markets.
Beginning in the 1980s, this level of dominance began to change as the FCC
authorized more local stations and marketplace choices expanded with the growth
of independent stations and cable television services.
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Cable television systems were first installed in significant numbers in the
1970s and were initially used to retransmit broadcast television programming to
paying subscribers in areas with poor broadcast signal reception. In the
aggregate, cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable
programming network regularly attains audience levels amounting to more than a
small fraction of any of the major broadcast networks. The advertising share of
cable networks increased during the 1970s and 1980s as a result of the growth in
cable penetration (the percentage of television households that are connected to
a cable system). Notwithstanding such increases in cable viewership and
advertising, over-the-air broadcasting remains the dominant distribution system
for mass market television advertising.
Providence Journal believes that the market shares of television stations
affiliated with NBC, ABC and CBS declined during the 1980s primarily because of
the emergence of Fox and certain strong independent stations and secondarily
because of increased cable penetration. Independent stations have emerged as
viable competitors for television viewership share, particularly as a result of
the availability of first-run, network-quality programming. In addition, there
has been substantial growth in the number of home satellite dish receivers and
video cassette recorders, which has further expanded the number of programming
alternatives available to household audiences.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now in use with direct
broadcast satellites and in development for cable and wireless cable, are
expected to permit greater numbers of channels to be carried with existing
bandwidth. 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 technological changes will have on the broadcast
television industry or the future results of Providence Journal's operations.
Competition. Competition in the television industry, including each of the
markets in which the Providence Journal Stations and Providence Journal LMA
Stations compete, takes place on several levels: competition for audience,
competition for programming (including news) and competition for advertisers.
Additional factors material to a television station's competitive position
include signal coverage and assigned frequency. The television 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 Providence Journal Broadcasting Business.
Audience. The Providence Journal 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 Providence Journal Stations is supplied
by the network with which each Providence Journal Station is affiliated. In
those periods, the Providence Journal Stations are totally dependent upon the
performance of the network programs in attracting viewers. Each Providence
Journal Station competes in non-network time periods based on the performance of
its programming during such time periods, using a combination of self-produced
news, public affairs and other entertainment programming, including news and
syndicated programs, that such Providence Journal Station believes will be
attractive to viewers.
The Providence Journal Stations compete for television viewership share
against local network-affiliated and independent stations, as well as against
cable and alternate methods of television transmission. These other transmission
methods can increase competition for a Providence Journal Station by bringing
into its market distant broadcasting signals not otherwise available to the
Providence Journal Station's audience and also by serving as a distribution
system for non-broadcast programming originated on the cable system.
Historically, cable operators have not sought to compete with broadcast stations
for a share of the local news audience. To the extent cable operators elect to
do so, their increased competition for local news audiences could have an
adverse effect on Providence Journal's advertising revenues.
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Other sources of competition for the Providence Journal Stations include
home entertainment systems (including video cassette recorder and playback
systems, videodiscs and television game devices), multipoint distribution
systems, multichannel multipoint distribution systems, wireless cable, satellite
master antenna television systems, and some low power, in-home satellite
services. The Providence Journal Stations also face competition from
high-powered direct broadcast satellite services, such as DIRECT-TV, which
transmit programming directly to homes equipped with special receiving antennas.
Providence Journal competes with these sources of competition both on the basis
of service and product performance (quality of reception and number of channels
that may be offered) and price (the relative cost to utilize these systems
compared to television viewing).
Programming. Competition for non-network programming involves negotiating
with national program distributors or syndicators which sell first-run and
off-network packages of programming. The Providence Journal Stations compete
against in-market broadcast station competitors for exclusive access to
off-network reruns (such as "Home Improvement") and first-run product (such as
"The Oprah Winfrey Show") for exclusive access to those programs. 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. Competition for exclusive
news stories and features is also endemic to the television industry. Such
competition is generally on the basis of price.
Advertising. Advertising rates are based upon the size of the market in
which the Providence Journal Station operates, a program's popularity among the
viewers an advertiser wishes to attract, the number of advertisers competing for
the available time, the demographic makeup of the market served by the
Providence Journal Station, the availability of alternative advertising media in
the market area, aggressive and knowledgeable sales forces and the development
of projects, features and programs that tie advertiser messages to programming.
Advertising rates are also determined by a Providence Journal Station's overall
ability to attract viewers in its market, as well as the Providence Journal
Station's ability to attract viewers among particular demographic groups that an
advertiser may be targeting. The Providence Journal Stations compete for
advertising revenues with other television stations in their respective markets,
as well as with other advertising media, such as newspapers, radio, 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 on the basis of the above
factors as well as on the basis of advertising rates charged by competitors.
Generally, a television broadcasting station in the market does not compete with
stations in other market areas. The Providence Journal Stations are located in
highly competitive markets.
PUBLISHING
Overview. The Providence Journal-Bulletin and The Providence Sunday Journal
are the leading newspapers in terms of advertising and circulation in their
market of Rhode Island and southeastern Massachusetts. Average daily circulation
levels for the nine months ended September 30, 1996 were approximately 171,000
for circulation Monday through Saturday and 248,900 for circulation on Sunday.
According to a Belden Associates study, an average of approximately 58% and 69%
of the 929,000 total adults in the market surveyed in the fourth quarter of 1995
read the daily Providence Journal-Bulletin and The Providence Sunday Journal,
respectively. In addition, according to this study, an average of approximately
77% and 87% of adults in the market who read any newspaper read the daily
Providence Journal-Bulletin and The Providence Sunday Journal, respectively.
Providence Journal believes that the Providence Journal-Bulletin, published
daily since 1829, is the oldest continuously published daily newspaper in the
United States. Providence Journal has received numerous awards over the years
for its local and national coverage, including its fourth Pulitzer Prize in
1994.
Market Overview. The market area of the Providence Journal-Bulletin and The
Providence Sunday Journal (hereinafter referred to together as the "Providence
Journal Newspapers") includes the entire state of Rhode Island as well as
southeastern Massachusetts, an area that includes approximately 458,000
households and a population of 1.2 million. In the market area, 34% of the
adults are college graduates compared to only 20% of all adults in the United
States. Median household income for the market was $38,000 in 1995, which
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exceeded the national average by over $4,000. Retail sales in the market grew by
5% from 1990 through 1994 to reach total retail sales in 1994 of $9.8 billion.
The economy of the market of the Providence Journal Newspapers is comprised
of a diversified industrial base, banking, educational institutions, financial
services industry, health care and tourism. Major employers in the market
include the state and federal government, the Diocese of Providence, Rhode
Island Hospital, Texas Instruments Incorporated, Fleet Financial Group, Inc.,
General Dynamics, and Hasbro, Inc.
Sources of Revenue. Substantially all Providence Journal Publishing
Business revenue is derived from advertising and circulation, with lesser
amounts derived from electronic publishing, telemarketing and other sources.
Approximately 72.9% and 72.5% of the Providence Journal Publishing Business 1995
and nine months of 1996 revenues, respectively, were derived from the sale of
advertising (historically between 70% and 80% of the revenues of the Providence
Journal Publishing Business). Retail advertising appears throughout the
Providence Journal Newspapers and consists of display advertising from local
merchants, such as grocery and department stores, and national retail
advertisers that have local outlets. Classified advertising consists of display
and text 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 Providence Journal Newspapers. National
advertising is comprised of advertisements from national distributors and
manufacturers that appear throughout the Providence Journal Newspapers. The
Providence Journal Newspapers also contain preprinted advertisements that are
provided to the Providence Journal Newspapers for distribution in both of the
Providence Journal Newspapers and at times through the mail. Preprint
advertising revenue is derived primarily from retail and national advertisers
and accounted for approximately 20% of the Providence Journal Newspapers total
advertising revenue in 1995.
The Providence Journal Newspapers increased advertising rates for most
major categories of retail and classified advertising by at least 3% in each of
1993, 1994 and 1995.
Circulation and Pricing. The following table shows the average net paid
daily, Saturday and Sunday circulation of the Providence Journal Newspapers for
the 52 weeks ended on the last Sunday in March in each of the years 1991 through
1994, and the 53-week period ending July 2, 1995, 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. To
coincide with the Newspaper Consolidation, the auditing cycle at the Audit
Bureau was changed to July 2, 1995, a 53-week period.
AVERAGE NET PAID CIRCULATION
<TABLE>
<CAPTION>
52 WEEKS ENDED DAILY SATURDAY SUNDAY
- --------------------- ------- -------- -------
<S> <C> <C> <C>
March 31, 1991......................................... 202,200 188,900 265,000
March 29, 1992......................................... 197,100 186,400 268,100
March 28, 1993......................................... 192,500 182,700 269,100
March 27, 1994......................................... 188,200 179,600 268,800
July 2, 1995........................................... 184,100 177,000 264,300
</TABLE>
The above numbers are before the Newspaper Consolidation of the morning and
afternoon newspapers. Circulation levels as calculated by management for the
nine months ended September 30, 1996 were approximately 171,000 for daily
circulation and 248,900 for Sunday circulation.
Production and Raw Materials. In 1987, Providence Journal began operations
at its newly-constructed 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.
Newsprint costs, which are the largest component of direct expenses, have
in recent years accounted for between 13.0% and 19.3% of the Providence Journal
Publishing Business' total operating and administrative
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expenses. In 1995 and the first nine months of 1996, the Providence Journal
incurred total newsprint costs of $21.5 million and $15 million, respectively,
or 18.9% and 18.7% of total Providence Journal Publishing Business operating and
administrative expenses, respectively, and 8.7% and 6.9% of Providence Journal's
operating and administrative expenses, respectively, and used approximately
33,000 and 22,000 metric tons of newsprint, respectively. Providence Journal
reduced the number of newsprint suppliers from eight to five in 1992 and has
entered into contracts with these suppliers resulting in favorable pricing and
continuity of supply. Providence Journal currently receives competitive
discounts off list price for newsprint supplies. Additional cost savings have
been achieved by the implementation of quality controls. Newsprint prices
escalated throughout 1995, but have steadily declined since the second quarter
of 1996.
Competition. The Providence Journal-Bulletin has five daily newspaper
competitors in Rhode Island: The Times (Pawtucket, RI), Woonsocket Call
(Woonsocket, RI), Daily News (Newport, RI), Westerly Sun (Westerly, RI), and
Kent County Daily Times (Kent County, RI), each with net paid circulation levels
under 20,000 in Rhode Island. The Providence Journal Newspapers also encounter
competition in varying degrees from Boston and other Massachusetts newspapers,
nationally circulated newspapers, television, radio, magazines, electronic
publishing services, and other advertising media, including direct mail
advertising and yellow pages. The competition from electronic information
services may be increased in the future as a result of the Telecommunications
Act which allows the regional Bell holding companies to provide such services,
subject to certain safeguards. The Providence Journal Newspapers compete for
readership primarily on the basis of local news content and, to a lesser extent,
on the basis of the price charged for the daily and Sunday newspapers. The
Providence Journal Newspapers compete for advertising revenue based on their
readership levels and its ability to provide quality display and classified
advertising at a competitive price.
Newspaper Industry Background. Newspaper publishing is the oldest and
largest segment of the media industry, with total advertising expenditures on
daily and weekly newspapers reported at $36.0 billion in 1995 according to the
Newspaper Association of America (the "NAA"). Due to a focus on local news,
newspapers remain the dominant medium for local advertising and in 1995,
accounted for more than 48.0% of all local media advertising expenditures
according to the NAA. In addition, newspapers continue to be the preferred
medium for retail advertising that emphasizes the price of goods, in contrast to
television which is generally used for image advertising.
Advertising and, to a lesser extent, circulation, revenues are cyclical and
dependent upon general economic conditions. Historically, increases in
advertising revenues have corresponded with economic recoveries while decreases,
as well as changes in the mix of advertising, have corresponded with general
economic downturns and regional and local economic recessions.
The State of Rhode Island has enacted legislation concerning the percentage
of recycled content of newsprint which must be contained in the Providence
Journal Newspapers. For 1996, at least 22% of Providence Journal's annual usage
of newsprint must consist of recycled content. Such percentage increases to 31%
and 40% in 1998 and 2001, respectively. The Rhode Island law does not require
such minimum quantities in the event the price of recycled materials is more
expensive than virgin newsprint or if recycled materials are not readily
available for use by the Providence Journal Newspapers. Providence Journal is
currently in compliance and intends to use its best efforts to comply with this
law in the future.
PROGRAMMING AND ELECTRONIC MEDIA
Overview. Providence Journal produces cable television and satellite
network programming and interactive and on-line electronic media services
through its management role or ownership interest in a variety of content-driven
entertainment and information businesses. Providence Journal's approach to
development of programming and interactive opportunities is to invest in or
manage businesses that are extensions of its experience in the production of
programming content or build on existing media franchises.
Cable and Satellite Television Programming.
Television Food Network. As of September 30, 1996, Providence Journal
controlled a 46% interest in Television Food Network, G.P., a general
partnership consisting of eight media companies with cable
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television and/or programming holdings ("TVFN"), was formed specifically to own
and operate the Television Food Network, a 24-hour advertising-supported cable
and satellite network service that provides television programming related to
the preparation, enjoyment and consumption of food, as well as programs focusing
on nutrition and topical news areas. The Television Food Network is distributed
predominately through cable television operators to approximately 17.3 million
subscribers throughout the United States. Providence Journal is the managing
general partner of the managing partner of TVFN and has invested approximately
$47.9 million in TVFN through September 30, 1996. Providence Journal controls
46% of the TVFN partnership interests and three of the five votes on the TVFN
management committee. On January 6, 1997, Providence Journal purchased the 9.5%
equity partnership interests in TVFN held by Continental for a purchase price of
$16.3 million. In connection with this transaction, Providence Journal agreed to
transfer a 1.4% equity interest to Continental which interest had been given to
Providence Journal in 1993 in exchange for Providence Journal's agreement to
carry TVFN on all of its former cable systems. Following the consummation of
such transaction, Providence Journal owns an equity interest of approximately
55.5% in TVFN and holds four of the five voting seats on the TVFN management
committee.
Currently, the Television Food Network is the only 24-hour a day cable
channel dedicated solely to food-related programming. As a result, Providence
Journal believes that the Television Food Network has a unique opportunity to
establish a leading brand name in a variety of media relating to food and its
preparation. The Television Food Network's production operation enables the
Television Food Network to produce the vast majority of its programming in
27,282 square feet of office space in New York City.
The Television Food Network generated net revenues of $6.7 million in 1995,
an increase of $4.7 million from 1994. The Television Food Network's subscriber
base grew 57% in 1995 to approximately 15.5 million from 9.9 million at year end
1994. At present, the Television Food Network has distribution agreements with
every one of the top 25 cable television multiple system operators ("MSOs") and
two of the three major direct-to-home satellite distribution providers. The
Television Food Network is carried by 36 of the top 60 cable systems in the
United States. The network is currently available at no charge to MSOs that
place the Television Food Network on a basic or expanded basic service level;
however, due to the changing programming marketplace, the Television Food
Network will begin to institute subscriber fees along with enhanced marketing
support in 1997. TVFN has signed two distribution agreements with affiliates in
1996 that include subscriber fees and enhanced marketing support and plans to
convert other MSO and satellite distribution affiliations to fee structures in
1997. TVFN believes that this initiative as well as the introduction of several
on-air direct merchandising projects will become major sources of revenue for
the network over the next five years.
America's Health Network. Providence Journal owns interests in America's
Health Network, LLC and AHN Partners, L.P. (collectively, "AHN"), the
controlling entities of America's Health Network, that collectively represent a
65% equity interest in the development stage programming network service. It is
anticipated that this interest will be reduced to between 56% and 62% in early
1997 through the exercise of certain options by investors in AHN Partners, L.P.
America's Health Network is a 24-hour basic cable television programming service
principally featuring viewer call-in programs designed for health-conscious
adults who are active participants in their own health care and the health care
of spouses, parents, and children. America's Health Network's "Ask the Doctor"
programs are hosted by health care professionals whose responses to viewers'
questions are extensively visualized using graphics, animations and
illustrations. America's Health Network's programming also includes brief
"Health Mall" segments during which health-related products are offered for sale
to viewers, and "Health News" segments which provide daily updates on the areas
of health, medicine, wellness and nutrition. In addition, a limited number of
commercials from national and local advertisers are shown.
America's Health Network launched its service on March 25, 1996. To date,
Providence Journal believes that America's Health Network is available to
approximately 5.3 million basic cable television subscribers in the United
States. AHN has distribution agreements with MSOs that include affiliates of
Tele-Communication, Inc., Cablevision Systems Corporation, Adelphia
Communications Corporation and Greater Media Cablevision and also has agreements
to distribute America's Health Network with two buying consortiums,
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Telesynergy Inc. and National Cable TV Cooperative, that represent small and
mid-sized MSOs. These organizations represent a subscriber base of over 25
million subscribers. On November 26, 1996, AHN entered into an affiliation
agreement with DIRECTV, Inc. to distribute its programming to approximately 1.8
million subscribers. Providence Journal provided project management services to
AHN in connection with the construction and build-out of America's Health
Network's production center at Universal Studios and has agreed to sub-lease a
transponder to AHN for five years. AHN has also assembled a group of strategic
partners including the Mayo Foundation for Medical Education and Research and
IVI Publishing, Inc., Mayo's electronic publisher, which have entered into a
comprehensive and exclusive program content relationship with AHN. Providence
Journal believes that the strategic relationship with Mayo is an important
factor in establishing credibility with subscribers as the Mayo Clinic has one
of the most recognized names in medicine in the United States.
America's Health Network is housed in a 16,500 square foot production
facility immediately adjacent to the Universal Studios Florida theme park in
Orlando, Florida, and Universal Studios will recruit its theme park visitors to
participate in America's Health Network's live productions. National Call
Center, Inc., a wholly-owned subsidiary of Home Shopping Network, Inc., provides
telemarketing, order processing, warehousing and fulfillment services related to
the sale of merchandise on America's Health Network's "Health Mall" segments and
through AHN's database marketing programs.
NorthWest Cable News. To build on Providence Journal's established local
news franchises in Washington, Oregon and Idaho, Providence Journal launched
NorthWest Cable News, a 24-hour regional cable news network serving cable
subscribers in the Pacific Northwest in December 1995. NorthWest Cable News is
based in Seattle and combines state-of-the-art digital news-gathering and
editing systems with resources of the Providence Journal Stations located in
Seattle, Portland, Spokane and Boise. NorthWest Cable News was developed as a
result of research conducted by Frank M. Magid Associates that indicated that
95% of northwest United States cable television viewers are likely to watch a
regional news cable network, with 86% of these prospective viewers likely to
watch such a news cable network in addition to their local broadcast news
program. NorthWest Cable News is currently available in approximately 1.4
million cable homes. NorthWest Cable News provides Pacific Northwest cable
subscribers with 24-hour continuous news by combining the quality news teams of
Providence Journal's four northwestern Providence Journal Stations with
NorthWest Cable News own bureaus located throughout the region. These four
Providence Journal Stations also help to promote NorthWest Cable News and
increase viewers' overall awareness of the network.
Interactive and On-Line Media.
On October 1, 1996, the Providence Journal Newspapers launched projo.com
(http://www.projo.com), an interactive information site on the World Wide Web.
projo.com includes news from the Providence Journal Newspapers and other
sources, in-depth links to sites around the Web, and an interactive "Diner,"
where patrons discuss the news of the day. As of October 25, 1996, the site on
average services 9,000 separate pages per day. The service is supported by
advertising revenue from ten founding local advertisers. On August 1, 1996,
Providence Journal and Prodigy Services Company mutually terminated an earlier
on-line service called Rhode Island Horizons, hosted on the national Prodigy
service.
Peapod, L.P. As of September 30, 1996, Providence Journal owned a 14.5%
interest in Peapod, L.P. ("Peapod"), which provides an interactive computer
on-line grocery ordering, shopping and delivery service in Boston, Chicago,
Columbus and San Francisco, with plans to expand into Providence. Providence
Journal maintains certain rights with regard to the expansion of Peapod into the
Providence Journal Stations' markets and Providence, Rhode Island.
StarSight. Providence Journal is a 4.85% investor 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. StarSight's shares are traded
on the National Association of Securities Dealers Automated Quotation System
under the symbol "SGHT."
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<PAGE> 107
Broadcast Television Programming.
Providence Journal continually reviews opportunities to participate in the
creation and development of broadcast television programming. Providence Journal
seeks to enter into partnerships and other relationships with companies or
individuals having specialized expertise with regard to the content of the
programming.
Providence Journal is a limited partner with four other television group
broadcasters in the Partner Stations Network ("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 stations owned by PSN's five limited partners serve
markets accounting for approximately 20% of the television households in the
United States. Each of PSN's limited partners has a right of first access in its
respective television markets to the programs produced by PSN. Providence
Journal believes PSN to be a cost-effective testing ground for new programs and
a launch vehicle for successful syndicated programming. Before making a
full-season commitment to production, PSN will conduct short trials on its
partners' stations. Promising shows can then be introduced to a broader national
audience. PSN has produced and is currently testing several programs. As of
September 30, 1996, Providence Journal's aggregate investment in PSN was
approximately $2.1 million.
Competition.
Cable television and satellite network programming services. Competition in
the cable television and satellite network programming services industry takes
place on several levels: competition for distribution, competition for audience
and advertisers and, to a lesser extent, competition for programming.
Distribution. Providence Journal's cable television and satellite network
programming services compete for distribution with numerous other programming
services and local television stations. There are currently over 50 nationally
distributed cable television and satellite network programming services that
compete for distribution over existing cable, wireless cable and satellite
distribution systems with very limited distribution capacity. "Must-carry" and
certain other rules may further limit distribution capacity. See "-- Licensing
and Regulation." These systems carry established cable television and satellite
network programming services such as CNN, USA, TBS, ESPN, TNT, Discovery,
Lifetime and A&E, and are upgrading their facilities and enhancing their
technological capabilities in order to carry additional services. Many of these
additional services, such as E!, The History Channel, ESPN2, Home & Garden,
Outdoor Life and Speedvision, have been launched in the past several years, in
addition to the Television Food Network, America's Health Network and NorthWest
Cable News.
Audience and Advertisers. Providence Journal's cable television and
satellite network programming services compete for audience on the basis of
program popularity, which has a direct effect on advertising sales rates.
Advertising rates are based upon the size of the demographic make-up of the
network subscriber base that is reached, a program's popularity among the
viewers an advertiser wishes to attract, the number of advertisers competing for
the available time, the demographic make-up of the household subscriber base and
availability of alternative advertising media in the market areas where the
network is distributed, the aggressive and knowledgeable sales forces and the
development of projects, features and programs that tie advertiser messages to
programming. Advertising rates are also determined by a network's overall
ability to attract viewers, especially among particular demographic groups that
an advertiser may target. In the case of America's Health Network, program
popularity has an additional effect on the sale of merchandise. Providence
Journal's cable networks compete for viewership share and advertising revenue
against local, affiliated and independent television stations, other cable and
satellite network programming services, local cable systems, broadcast
television stations and networks, newspapers, radio, magazines, outdoor
advertising, transit advertising, yellow page advertising and direct mail.
Programming. Providence Journal's cable networks compete on a limited basis
for pre-produced programming with other cable television and satellite network
programming services. This involves negotiating with national program owners,
distributors and syndicators which sell first run and rerun packages of
programming. While the effects of the Telecommunications Act on Providence
Journal's Programming and Electronic Media Business cannot be fully determined
at this time, Providence Journal believes that various
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provisions of the new law could create a favorable environment for the
development and distribution of new programming and interactive services.
Interactive and on-line media services. The market for interactive and
on-line media services products is highly competitive and competition is
expected to continue to increase significantly. Providence Journal's interactive
and on-line media services compete in varying degrees with commercial on-line
services and various electronic media, including Internet and CD-ROM-distributed
services. Providence Journal's interactive and on-line media services also face
indirect competition from more traditional media that vie for consumers' time
and money, including cable television and satellite network programming
services, local cable systems, broadcast television stations and networks,
newspapers, radio and magazines.
Broadcast television programming. The market for the development of
broadcast television programming is extremely competitive. Providence Journal's
efforts in this regard compete directly with producers, syndicators and other
broadcasters that produce programming for syndication and license.
LICENSING AND REGULATION
See "SIGNIFICANT REGULATIONS APPLICABLE TO BROADCASTING SERVICES,
PROGRAMMING AND ELECTRONIC MEDIA" for a brief discussion of certain provisions
of the Communications Act, the Telecommunications Act and of FCC regulations and
policies that affect the Providence Journal Broadcasting Business and the
Providence Journal Programming and Electronic Media Business. Reference should
be made to the Communications Act, FCC rules and the public notices and rulings
of the FCC, on which such discussion is based, for further information
concerning the nature and extent of FCC regulation of television broadcasting
stations. The Providence Journal Publishing Business is not subject to extensive
regulation.
SEASONALITY OF BUSINESSES
Historically, Providence Journal's revenues have been slightly higher in
the fourth quarter of the year. EBITDA has been significantly higher during such
period, primarily attributable to increased expenditures by advertisers. During
1995, 28.4% of Providence Journal's revenues and 36.8% of EBITDA were earned in
the fourth quarter, in each case excluding programming and electronic media and
corporate expenses.
EMPLOYEES
As of September 30, 1996, Providence Journal employed approximately 2,764
full-time equivalents, of which approximately 1,081 worked in the Providence
Journal Broadcasting Business, approximately 1,146 worked in the Providence
Journal Publishing Business, and the remainder of which worked in corporate
headquarters and the Providence Journal Programming and Electronic Media
Business. Approximately 32% of the Providence Journal Broadcasting Business
employees are represented by a number of labor unions that are independent and
unaffiliated among the Providence Journal Stations.
Approximately 60% of the Providence Journal Publishing Business employees
are represented by labor unions, mostly under existing collective bargaining
agreements. The Providence Newspaper Guild and The Communications Workers of
America, Local 33 collective bargaining agreements expired on December 31, 1996.
Providence Journal is currently negotiating with these bargaining units for new
collective bargaining agreements. Providence Journal has not experienced any
significant work stoppages since 1973 when 425 employees in the Providence
Journal Publishing Business represented by the Providence Newspaper Guild
organized a work stoppage which lasted for a period of 13 days. Such work
stoppage did not have a material impact on the financial condition and
operations of the Providence Journal Publishing Business. The Newspaper Printing
Pressman's Union is in the fifth year of a ten-year contract. The International
Brotherhood of Teamsters, Local 64, was elected on February 29, 1996 as the
bargaining agent for 172 packaging department employees. Negotiation of a
collective bargaining agreement is in progress.
Providence Journal contributes to and maintains various employee benefit or
retirement plans for eligible employees. Providence Journal considers its
relations with its employees to be good.
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PROPERTIES
Providence Journal's corporate headquarters and various operating and
administrative departments of the Providence Journal Broadcasting Business, the
Providence Journal Publishing Business and the Providence Journal Programming
and Electronic Media Business are located at 75 Fountain Street, Providence,
Rhode Island, an historic building owned by Providence Journal with 205,635
square feet of working space. Each of the Providence Journal Stations has local
facilities consisting of owned or leased offices, studios, sales offices and
transmitter and tower sites. Providence Journal owns a number of production and
storage facilities in Providence used for the Providence Journal Publishing
Business, and leases various regional distribution centers and news and
advertising offices.
Providence Journal believes that its properties are generally in good
condition and are adequate and suitable for the operations of its businesses.
None of the properties owned or leased by Providence Journal is subject to a
lien under its debt agreement or is individually material to Providence
Journal's operations. However, the cost to relocate any of the Providence
Journal Stations' towers could be significant because zoning and other land use
restrictions, as well as Federal Aviation Administration regulations, limit the
number of suitable sites available in any geographic area.
LEGAL PROCEEDINGS
On January 17, 1995, a declaratory judgment action was brought by Cable LP
I, Inc. ("Cable LP") against Old PJC, Colony Communications Inc., a wholly owned
subsidiary of Old PJC ("Colony"), and Dynamic Cablevision of Florida, Inc., a
wholly owned subsidiary of Colony ("Dynamic"), in the Circuit Court of the
Eleventh Judicial Circuit in Dade County, Florida. Colony, a cable television
subsidiary of Old PJC, was transferred to Continental in connection with the
Continental Merger. This case relates to a partnership (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
claimed that (i) Dynamic was obligated to offer to sell Dynamic's general
partnership interest to Cable LP before Old PJC entered into the Continental
merger agreement with Continental and (ii) 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 sought a declaration by the court that the right of first
refusal it is asserting applies.
A motion to strike allegations of bad faith and breach of fiduciary duty
against Old PJC, Colony and Dynamic was granted by the court, and an Answer to
the Complaint and a Counterclaim was filed by them on March 16, 1995, seeking 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. violated Dynamic's right of first refusal under
the Dynamic partnership agreement. The case was tried in December 1995. A
declaratory judgment in this action in favor of Cable LP was entered on May 21,
1996, and requires, among other matters, Dynamic and Colony to negotiate on a
price to transfer Dynamic's interest in the general partnership to Cable LP.
Providence Journal has appealed this judgment and moved to stay the effect of
the judgment during the pendency of the appeal. On June 10, 1996 a hearing was
held on Providence Journal's motion to stay. At such hearing the judge declined
to grant or deny Providence Journal's motion to stay.
In the event that, as a result of such litigation, Dynamic is required to
sell its interest in the Dynamic Partnership to Cable LP, the Continental Merger
Agreement provides that 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 be
payable assuming the purchase price for such interest equaled $115 million. On
December 27, 1996, Providence Journal settled this obligation in full with
Continental for $25 million. Consequently, Providence Journal recorded a charge
to stockholders' equity in the fourth quarter of 1996 to reflect the decrease in
the net proceeds received from the disposal of the cable assets in 1995 pursuant
to the Continental Merger Agreement. Such payment was funded by borrowings under
Providence Journal's revolving credit facility.
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Providence Journal is a party to various other claims, legal actions and
complaints arising in the ordinary course of business. Providence Journal
believes that 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 Providence Journal.
RESTRICTIONS IN CERTAIN AGREEMENTS
Pursuant to the Contribution and Assumption Agreement entered into in
connection with the Continental Merger, Providence Journal agreed that until
October 5, 1999, it would 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, 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 October 5,
1996, $200 million, (y) for the period from October 5, 1996 to and including
October 5, 1997, $150 million and (z) for the period from October 5, 1997 to and
including October 5, 1999, $50 million. Providence Journal may proceed with any
transaction which would otherwise be prohibited by the foregoing if it provides
security to Continental in form and amount reasonably acceptable to Continental.
As part of the Continental Merger, Providence Journal entered into a
noncompetition agreement pursuant to which Providence Journal agreed that, until
October 5, 1998, 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 its cable
subsidiaries and who is employed by Continental following the closing date of
the Continental Merger, (ii) subject to certain exceptions, engage in any manner
in the operation (in specified geographic areas) of cable television systems
providing the services provided by Old PJC and its cable subsidiaries (the
"Restricted Business") at the closing date of the Continental Merger other than
the business of developing or creating programming or (iii) use or permit Old
PJC or Providence Journal's name to be used in connection with any Restricted
Business in specified geographic locations.
The foregoing restrictions will be binding on Belo Holdings following the
Merger.
CERTAIN TRANSACTIONS
The law firm of Edwards & Angell, of which Mr. Harris, a director of
Providence Journal, is a senior partner, regularly performs legal services for
Providence Journal. Edwards & Angell has acted as Providence Journal's principal
counsel for over 60 years.
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SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA. The following selected
consolidated historical financial data has been derived from the consolidated
financial statements of Providence Journal. The Statement of Operations Data for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the Balance
Sheet Data as of the same dates have been derived from the audited consolidated
financial statements of Providence Journal included elsewhere in this Joint
Proxy Statement/Prospectus. The Statement of Operations Data for the nine months
ended September 30, 1995 and 1996 and the balance sheet data as of September 30,
1996 have been derived from the unaudited consolidated financial statements of
Providence Journal which, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of financial position and results of operations for such periods. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996. The data should be read in conjunction with "Providence
Journal Management's Discussion and Analysis of Financial Condition and Results
of Operations" and is qualified in its entirety by reference to the consolidated
financial statements of Providence Journal and notes thereto appearing elsewhere
herein. As more fully discussed in "PROVIDENCE JOURNAL MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," Providence
Journal, among other transactions, disposed of its cable operations and
completed the Kelso Buyout on October 5, 1995. The results of operations for
1995 include the results of operations of KHC since January 1, 1995 with
adjustments for the consolidation of KHC. As a result of these transactions,
Providence Journal's historical results of operations and financial condition
for the years 1991 through 1994 are not comparable to 1995 and 1996.
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Broadcasting..................... $ 39,381 $ 43,281 $ 45,506 $ 54,024 $180,547 $128,557 $149,819
Publishing....................... 118,169 120,516 124,914 127,893 128,491 92,967 95,176
Programming and Electronic
Media.......................... -- -- -- 2,300 3,468 2,209 9,412
-------- -------- -------- -------- -------- ------- --------
Total revenues............... 157,550 163,797 170,420 184,217 312,506 223,733 254,407
-------- -------- -------- -------- -------- ------- --------
Expenses:
Operating and administrative
expenses:
Broadcasting................... 36,597 37,884 38,296 39,949 116,128 86,244 94,504
Publishing, excluding newspaper
consolidation and
restructuring costs.......... 101,770 97,204 103,597 107,425 113,683 84,073 79,468
Programming and Electronic
Media........................ -- -- -- 2,582 5,132 2,958 35,395
Corporate...................... 10,442 14,072 14,632 10,889 12,363 9,233 9,356
-------- -------- -------- -------- -------- ------- --------
Total........................ 148,809 149,160 156,525 160,845 247,306 182,508 218,723
Depreciation and amortization.... 20,909 20,549 20,613 19,983 33,969 24,072 32,129
Stock-based compensation......... 8,923 2,641 5,735 15,138 2,387 1,946 14,941
Pension expense (income)......... (590) (1,762) 756 (173) 1,236 747 701
-------- -------- -------- -------- -------- ------- --------
Total........................ 178,051 170,588 183,629 195,793 284,898 209,273 266,494
Newspaper consolidation and
restructuring costs(1)......... 3,400 2,335 -- -- 14,222 6,424 2,484
-------- -------- -------- -------- -------- ------- --------
Total expenses............... 181,451 172,923 183,629 195,793 299,120 215,697 268,978
-------- -------- -------- -------- -------- ------- --------
Operating income (loss)............ (23,901) (9,126) (13,209) (11,576) 13,386 8,036 (14,571)
Interest expense................... (10,102) (6,455) (2,578) (2,426) (11,395) (7,377) (15,246)
Equity in loss of affiliates....... -- (12,705) (8,763) (13,380) (7,835) (4,538) (3,521)
Other income, net.................. 31,072 46,104 2,182 6,103 4,797 2,955 4,285
-------- -------- -------- -------- -------- ------- --------
Income (loss) from continuing
operations before income taxes... (2,931) 17,818 (22,368) (21,279) (1,047) (924) (29,053)
</TABLE>
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<TABLE>
<CAPTION>
HISTORICAL (CONTINUED)
--------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit)....... 3,616 11,816 (6,097) 1,950 3,956 2,563 (2,200)
-------- -------- -------- -------- -------- ------- --------
Income (loss) from continuing
operations....................... $ (6,547) $ 6,002 $(16,271) $(23,229) $ (5,003) $ (3,487) $(26,853)
======== ======== ======== ======== ======== ======= ========
Income (loss) from continuing
operations per common share and
share equivalent................. $ (0.17) $ 0.16 $ (0.42) $ (0.61) $ (0.13) $ (0.09) $ (0.65)
======== ======== ======== ======== ======== ======= ========
Cash dividends declared per common
share and share equivalent....... $ 0.20 $ 0.21 $ 0.23 $ 0.25 $ 0.25 $ 0.19 $ 0.25
======== ======== ======== ======== ======== ======= ========
Number of shares used in per share
calculation...................... 39,516 38,711 38,386 38,197 38,507 38,110 41,411
======== ======== ======== ======== ======== ======= ========
OTHER DATA:
EBITDA(2):
Broadcasting..................... $ 2,784 $ 5,397 $ 7,210 $ 14,075 $ 64,419 $ 42,313 $ 55,315
Publishing....................... 16,399 23,312 21,317 20,468 14,808 8,894 15,708
-------- -------- -------- -------- -------- ------- --------
EBITDA excluding programming
and electronic media and
corporate expenses........... 19,183 28,709 28,527 34,543 79,227 51,207 71,023
Programming and Electronic
Media.......................... -- -- -- (282) (1,664) (749) (25,983)
Corporate........................ (10,442) (14,072) (14,632) (10,889) (12,363) (9,233) (9,356)
-------- -------- -------- -------- -------- ------- --------
Total EBITDA................... $ 8,741 $ 14,637 $ 13,895 $ 23,372 $ 65,200 $ 41,225 $ 35,684
======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, (UNAUDITED)
------------------------------------------------------------ AT SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $594,098 $793,433 $775,685 $724,713 $707,230 $733,885
Net assets of discontinued
cable television
operations included in
total assets............. 54,184 400,639 402,819 369,790 -- --
Long-term debt (including
current installments).... 73,112 263,609 280,106 260,761 244,098 159,800
Stockholders' equity....... 399,938 391,967 359,575 285,887 263,239 362,376
</TABLE>
- ---------------
(1) Includes Newspaper Consolidation Costs (defined below) totaling $7,422
incurred in 1995 in connection with the consolidation of Providence
Journal's morning and afternoon newspapers in order to reallocate resources
to regional editions and reduce operating costs (the "Newspaper
Consolidation"), Newspaper Restructuring Costs (defined below) totaling
$6,800 incurred in 1995 and $2,484 incurred in the nine months ended
September 30, 1996 in connection with the Newspaper Restructuring, and
severance costs totaling $3,400 and $2,335 incurred in 1991 and 1992,
respectively, associated with the consolidation from 30 to 13 of Providence
Journal's regional circulation centers ("RCC Consolidation Costs").
(2) "EBITDA" is defined by Providence Journal as operating income (loss) plus
RCC Consolidation Costs, Newspaper Consolidation Costs, Newspaper
Restructuring Costs, depreciation, amortization, stock-based compensation
and pension expense (income). EBITDA is not intended to represent cash flow
from operations and should not be considered as an alternative to operating
or net income computed in accordance with GAAP as an indicator of Providence
Journal's operating performance or as an alternative to cash flows from
operating activities (as determined in accordance with GAAP) as a measure of
liquidity. Providence Journal believes that EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the media industry. Accordingly, this information has
been disclosed herein to permit a more complete comparative analysis of
Providence Journal's operating performance relative to other companies in
its industry.
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SUPPLEMENTAL PRO FORMA FINANCIAL DATA. The following table presents
supplemental pro forma financial data for the years ended December 31, 1994 and
1995, and the nine months ended September 30, 1995 and 1996, as if the Spin-Off,
Continental Merger and Kelso Buyout had occurred on January 1, 1994.
Supplemental pro forma financial data is presented because Providence Journal
believes such data may be more meaningful than historical financial data in
comparing 1995 and 1996 results of operations with 1994 because such pro forma
data includes KHC's operations, and excludes discontinued cable operations, for
all periods presented. Although Providence Journal did not consolidate the
results of KHC's operations for accounting purposes until after the Kelso
Buyout, Providence Journal has managed these operations since February 1992.
This supplemental pro forma financial data, which is unaudited, consolidates the
historical results of operations of Providence Journal and KHC, after giving
effect to the supplemental pro forma adjustments and eliminations described in
footnote (1) below, for all periods presented. This data is not necessarily
indicative of the results of operations that would have actually been obtained
had the transactions referred to above been consummated on January 1, 1994, nor
is it indicative of the results of operations that may be obtained in the
future. Such financial data should be read in conjunction with "-- Selected
Consolidated Historical Financial Data of Providence Journal" and "PROVIDENCE
JOURNAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS," and is qualified in its entirety by reference to the
consolidated financial statements of Providence Journal and KHC, and respective
notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SUPPLEMENTAL PRO FORMA (UNAUDITED)(1)
-----------------------------------------
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1994 1995 1995 1996
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Broadcasting........................................ $171,083 $180,547 $128,557 $149,819
Publishing.......................................... 127,893 128,491 92,967 95,176
Programming and Electronic Media.................... 2,300 3,468 2,209 9,412
-------- -------- ------- --------
Total revenues................................. 301,276 312,506 223,733 254,407
-------- -------- ------- --------
Expenses:
Operating and administrative expenses:
Broadcasting..................................... 113,449 116,128 86,244 94,504
Publishing, excluding Newspaper Consolidation
Costs(2) and Newspaper Restructuring
Costs(3)....................................... 107,425 113,683 84,073 79,468
Programming and Electronic Media................. 2,914 5,132 2,958 35,393
Corporate........................................ 13,074 12,363 9,233 9,356
-------- -------- ------- --------
Total.......................................... 236,862 247,306 182,508 218,723
Depreciation and amortization(1).................... 41,219 39,585 29,688 32,129
Stock-based compensation............................ 15,138 2,387 1,946 14,941
Pension expense..................................... 303 1,236 747 701
-------- -------- ------- --------
Total.......................................... 293,522 290,514 214,889 266,494
Newspaper Consolidation Costs and Newspaper
Restructuring Costs.............................. -- 14,222 6,424 2,484
-------- -------- ------- --------
Total expenses................................. 293,522 304,736 221,313 268,978
-------- -------- ------- --------
Operating income (loss)............................... 7,754 7,770 2,420 (14,571)
Interest expense(1)................................... (17,971) (19,573) (15,555) (15,246)
Equity in loss of affiliates(4)....................... (5,054) (7,835) (4,538) (3,521)
Other income (expense), net........................... 2,601 4,797 2,955 4,285
-------- -------- ------- --------
Loss from continuing operations before income taxes... (12,670) (14,841) (14,718) (29,053)
Income taxes expense (benefit)(1)..................... 6,466 52 (1,341) (2,200)
-------- -------- ------- --------
Loss from continuing operations....................... $(19,136) $(14,893) $(13,377) $(26,853)
======== ======== ======= ========
Loss from continuing operations per share............. $ (0.50) $ (0.39) $ (0.35) $ (0.65)
Number of shares used in per share calculation........ 38,197 38,507 38,110 41,411
======== ======== ======= ========
</TABLE>
103
<PAGE> 114
<TABLE>
<CAPTION>
SUPPLEMENTAL PRO FORMA (UNAUDITED)(1)
------------------------------------------
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
--------------------- -----------------
1994 1995 1995 1996
-------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(5):
Broadcasting.................................... $ 57,634 $ 64,419 $42,313 $ 55,315
Publishing...................................... 20,468 14,808 8,894 15,708
-------- -------- ------- --------
EBITDA excluding programming and electronic
media and corporate expenses.................. 78,102 79,227 51,207 71,023
Programming and Electronic Media................ (614) (1,664) (749) (25,983)
Corporate....................................... (13,074) (12,363) (9,233) (9,356)
-------- -------- ------- --------
Total EBITDA............................... $ 64,414 $ 65,200 $41,225 $ 35,684
======== ======== ======= ========
Capital expenditures................................. 13,617 15,276 12,613 17,784
</TABLE>
- ---------------
(1) The Supplemental Pro Forma results of operations consolidate KHC's results
of operations for 1994 with those of Providence Journal in order for
Providence Journal's results of operations during 1994 to be comparable with
1995 and 1996. To effect this consolidation, adjustments were made to
consolidate KHC for 1994. In addition, pro forma adjustments were made for
all periods presented to reflect the Spin-Off, the Kelso Buyout and the
Continental Merger as if those transactions had occurred on January 1, 1994.
No pro forma adjustments were required for 1996. The pro forma adjustments
and elimination entries are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
INCREMENTAL AMOUNT TO ARRIVE AT
SUPPLEMENTAL PRO FORMA AMOUNTS
-------------------------------------
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------- SEPTEMBER 30,
LINE ITEM IN HISTORICAL FINANCIAL STATEMENTS 1994 1995 1995
- ----------------------------------------------------------- ------- ------- -------------
DEBIT (CREDIT)
(IN THOUSANDS)
<S> <C> <C> <C>
Pro Forma Adjustments
Depreciation and amortization
Additional amortization expense as a result of the
"step-up" in basis in acquired assets of KHC.......... $ 7,488 $ 5,616 $ 5,616
Interest expense
Additional interest expense assuming beginning debt as a
result of the transactions at January 1, 1994 was
approximately $225 million with an average interest
rate of approximately 8.1%............................ 6,852 8,178 8,178
Income tax expense (benefit)
Incremental income tax expense (benefit) from above
adjustments........................................... $(3,827) $(3,904) $(3,904)
======= ======= ==========
Elimination Entries
Operating and administrative expenses
Eliminate management fees paid to Providence Journal from
KHC included in KHC continuing operating expenses
($1,481 was allocated to discontinued operations in
1994)................................................. $(2,044) * *
Other income (expense)
Eliminate management fees paid to Providence Journal from
KHC................................................... $ 3,525 * *
Equity in income (loss) of affiliates
Eliminate Providence Journal's equity in loss of KHC..... $(8,326) * *
Income tax expense (benefit)
Eliminate income tax effects of above eliminations....... $ (500) * *
======= ======= ==========
</TABLE>
104
<PAGE> 115
- ---------------
* Elimination entries are not shown for 1995 and 1996 because KHC was
consolidated in Providence Journal's audited financial statements for those
years.
(2) "Newspaper Consolidation Costs" are those costs totaling $7,422 incurred in
1995 in connection with the Newspaper Consolidation.
(3) "Newspaper Restructuring Costs" are estimated severance costs totaling
$6,800 incurred in 1995 and $2,484 incurred in the nine months ended
September 30, 1996 in connection with the Newspaper Restructuring.
(4) Equity in loss of affiliates consists of equity in loss of affiliates in the
Programming and Electronic Media Business of $4,545, and $6,796 in 1994 and
1995, respectively, and $3,913 and $2,585 for the nine months ended
September 30, 1995 and 1996, respectively, and also consists of equity in
loss of Linkatel Pacific, LP, an investment of Providence Journal which was
sold October 2, 1996 (pending closure), of $509 and $1,039 for 1994 and
1995, respectively, and $625 and $936 for the nine months ended September
30, 1995 and 1996, respectively.
(5) "EBITDA" is defined by Providence Journal as operating income (loss), plus
Newspaper Consolidation Costs, Newspaper Restructuring Costs, depreciation,
amortization, stock-based compensation and pension expense. EBITDA is not
intended to represent cash flow from operations and should not be considered
as an alternative to operating or net income computed in accordance with
GAAP as an indicator of Providence Journal's operating performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Providence Journal believes
that EBITDA is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the media industry.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of Providence Journal's operating performance
relative to other companies in its industry.
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<PAGE> 116
PROVIDENCE JOURNAL BROADCASTING BUSINESS -- SUMMARY OF FINANCIAL RESULTS
(HISTORICAL)
The following table sets forth historical operating results for the
Providence Journal Broadcasting Business for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1995 and 1996.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------
(UNAUDITED)
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National................................ $19,475 $24,487 $ 91,125 $ 64,531 $ 70,989
Local and regional...................... 27,180 32,909 106,054 75,373 92,822
Other................................... 5,510 4,924 11,572 8,638 9,473
Agency commissions...................... (6,659) (8,296) (28,204) (19,985) (23,465)
------- ------- -------- -------- --------
Net revenues.............................. 45,506 54,024 180,547 128,557 149,819
------- ------- -------- -------- --------
Expenses:
Operating and administrative expenses... 38,296 39,949 116,128 86,244 94,504
Depreciation and amortization........... 8,682 7,856 21,884 15,017 20,370
------- ------- -------- -------- --------
Total expenses.................. 46,978 47,805 138,012 101,261 114,874
------- ------- -------- -------- --------
Operating income (loss)................... $(1,472) $ 6,219 $ 42,535 $ 27,296 $ 34,945
======= ======= ======== ======== ========
OTHER DATA:
EBITDA(1)............................... $ 7,210 $14,075 $ 64,419 $ 42,313 $ 55,315
EBITDA as a percentage of net
revenues........................... 16% 26% 36% 33% 37%
</TABLE>
- ---------------
(1) See footnote (2) to "SELECTED FINANCIAL DATA OF PROVIDENCE
JOURNAL -- Selected Consolidated Historical Financial Data" for a definition
of, and certain matters relating to, EBITDA.
106
<PAGE> 117
PROVIDENCE JOURNAL BROADCASTING BUSINESS -- SUMMARY OF FINANCIAL RESULTS
(SUPPLEMENTAL PRO FORMA)
The following table sets forth supplemental pro forma operating results for
the Providence Journal Broadcasting Business for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1995 and 1996. For
comparative purposes, supplemental pro forma amounts consolidate the results of
KHC's broadcasting operations as if the Kelso Buyout occurred on January 1, 1994
and give effect to the adjustments and eliminations described in footnote (1) to
"SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL -- Supplemental Pro Forma
Financial Data."
<TABLE>
<CAPTION>
SUPPLEMENTAL PRO FORMA (UNAUDITED)
---------------------------------------------
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
--------------------- --------------------
1994 1995 1995 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National....................................... $ 88,691 $ 91,125 $ 64,531 $ 70,989
Local and regional............................. 96,268 106,054 75,373 92,822
Other.......................................... 12,538 11,572 8,638 9,473
Agency commissions............................. (26,414) (28,204) (19,985) (23,465)
-------- -------- -------- --------
Net revenues..................................... 171,083 180,547 128,557 149,819
-------- -------- -------- --------
Expenses:
Operating and administrative expenses.......... 113,449 116,128 86,244 94,504
Depreciation and amortization.................. 29,019 27,500 20,633 20,370
-------- -------- -------- --------
Total expenses......................... 142,468 143,628 106,877 114,874
-------- -------- -------- --------
Operating income................................. $ 28,615 $ 36,919 $ 21,680 $ 34,945
======== ======== ======== ========
OTHER DATA:
EBITDA(1)...................................... $ 57,634 $ 64,419 $ 42,313 $ 55,315
EBITDA as a percentage of net revenues...... 34% 36% 33% 37%
</TABLE>
- ---------------
(1) See footnote (5) to "SELECTED FINANCIAL DATA OF PROVIDENCE
JOURNAL -- Supplemental Pro Forma Financial Data" for a definition of, and
certain matters relating to, EBITDA.
107
<PAGE> 118
PROVIDENCE JOURNAL PUBLISHING BUSINESS -- SUMMARY OF FINANCIAL RESULTS
(HISTORICAL)
The Providence Journal Publishing Business was not affected by the
Spin-Off, the Continental Merger or the Kelso Buyout. Therefore, the following
table includes only certain historical operating and other data for the years
ended December 31, 1993, 1994 and 1995 and the nine months ended September 30,
1995 and 1996:
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Advertising....................... $ 93,087 $ 95,079 $ 93,671 $ 67,018 $ 69,015
Circulation....................... 31,028 30,887 32,151 23,995 25,023
Other............................. 799 1,927 2,669 1,954 1,138
-------- -------- -------- ------- -------
124,914 127,893 128,491 92,967 95,176
Operating and administrative
expenses before Newspaper
Consolidation Costs and Newspaper
Restructuring Costs............... 103,597 107,425 113,683 84,073 79,468
Depreciation........................ 11,426 11,198 10,850 8,166 8,008
Newspaper Consolidation Costs and
Newspaper Restructuring Costs..... -- -- 14,222 6,424 2,484
-------- -------- -------- ------- -------
Total operating
expenses................ 115,023 118,623 138,755 98,663 90,140
-------- -------- -------- ------- -------
Operating income (loss)............. $ 9,891 $ 9,270 $(10,264) $ (5,696) $ 5,216
======== ======== ======== ======= =======
OTHER DATA:
EBITDA(1)........................... $ 21,317 $ 20,468 $ 14,808 $ 8,894 $ 15,708
======== ======== ======== ======= =======
Average net paid circulation:
Daily............................. 187,700 183,900 179,000 180,663 171,048
Sunday............................ 268,900 267,100 259,800 260,696 248,900
</TABLE>
- ---------------
(1) See footnote (2) to "SELECTED FINANCIAL DATA OF PROVIDENCE
JOURNAL -- Selected Consolidated Historical Financial Data" for a definition
of, and certain matters relating to, EBITDA.
108
<PAGE> 119
PROVIDENCE JOURNAL PROGRAMMING AND ELECTRONIC MEDIA BUSINESS -- SUMMARY OF
FINANCIAL RESULTS (HISTORICAL)
The Providence Journal Programming and Electronic Media Business was not
significantly affected by the Spin-Off, the Continental Merger or the Kelso
Buyout. As such, the following tables present the historical results of
Providence Journal's wholly owned subsidiaries and Providence Journal's share of
the equity in loss of affiliates comprising this segment:
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.................................... $ -- $ 2,300 $ 3,468 $ 2,209 $ 9,412
Operating expenses(1)....................... -- 2,582 5,132 2,958 35,395
Depreciation................................ -- 33 167 92 3,058
------- ------- ------- ------- --------
Operating loss.............................. $ -- $ (315) $(1,831) $ (841) $(29,041)
======= ======= ======= ======= ========
EQUITY IN LOSS OF AFFILIATES:
AHN(2).................................... $ -- $ -- $(1,835) $ (805) $ --
TVFN(3)................................... (1,391) (3,848) (4,177) (2,946) (1,078)
Peapod.................................... -- -- (460) -- (966)
PSN....................................... -- (697) (324) (162) (541)
======= ======= ======= ======= ========
Total equity in loss of affiliates..... $(1,391) $(4,545) $(6,796) $(3,913) $ (2,585)
======= ======= ======= ======= ========
OTHER DATA:
EBITDA(4)................................... $ -- $ (282) $(1,664) $ (749) $(25,983)
======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) Operating expenses for 1994 on a Supplemental Pro Forma (unaudited) basis
are $2.9 million, an increase of $0.3 million over historical operating
expenses, due to inclusion in Supplemental Pro Forma of the operation of
NorthWest Cable News, which was owned by KHC.
(2) AHN was consolidated with Providence Journal's results of operations
effective January 1, 1996.
(3) TVFN was consolidated with Providence Journal's results of operations
effective May 1, 1996.
(4) See footnote (2) to "SELECTED FINANCIAL DATA OF PROVIDENCE
JOURNAL -- Selected Consolidated Historical Financial Data" for a definition
of, and certain matters relating to, EBITDA.
109
<PAGE> 120
Providence Journal Programming and Electronic Media Business operations
include:
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS
INVESTED OWNERSHIP%
THROUGH AS OF
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BUSINESSES:
AHN(1)............................................................. $ 35,250 65%
TVFN(2)............................................................ 47,900 46%
NWCN............................................................... 7,877 100%
projo.com (formerly "Rhode Island Horizons")....................... 1,219 100%
-------
subtotal...................................................... 92,246
-------
INVESTMENTS IN AFFILIATES:
Peapod(3).......................................................... 6,338 15%
PSN(4)............................................................. 2,105 16%
-------
subtotal...................................................... 8,443
-------
OTHER:
StarSight Telecast, Inc.......................................... 5,939 5%
-------
Total investments.................................................. $ 106,628
=======
</TABLE>
- ---------------
(1) AHN was consolidated into Providence Journal's results of operations as of
January 1, 1996. Providence Journal has agreed to invest an additional $19.5
million through the first quarter of 1997 upon the achievement of certain
operating milestones, including entering into carriage agreements and
meeting certain revenue and ratings objectives.
(2) TVFN became a consolidated subsidiary effective May 1, 1996.
(3) Peapod is an existing interactive grocery ordering and delivery service.
(4) PSN is a limited partnership formed to develop and produce broadcast
television programming.
110
<PAGE> 121
PROVIDENCE JOURNAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the financial condition and results of operations
of Providence Journal should be read in conjunction with Providence Journal's
audited consolidated financial statements and notes thereto and the unaudited
"SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL" included elsewhere in this Joint
Proxy Statement/Prospectus.
Providence Journal's businesses are concentrated principally in broadcast
television, the publication of the Providence Journal Newspapers, and in
programming and electronic media ventures. Providence Journal's broadcast
television revenues, which comprised approximately 57.8% and 58.9% of total
revenues in 1995 and for the nine months ended September 30, 1996, respectively,
are derived substantially from local and national advertising and, to a lesser
extent, from network compensation for the broadcast of network programming.
Providence Journal's publishing revenues, which represented approximately 41.1%
and 37.4% of total revenues in 1995 and for the nine months ended September 30,
1996, respectively, are derived primarily from advertising and, to a lesser
extent, paid circulation. Revenues from the programming and electronic media
ventures, which comprised approximately 1.1% and 3.7% of total revenues in 1995
and for the nine months ended September 30, 1996, respectively, are principally
derived from subscriptions, service fees and advertising.
Providence Journal's revenues historically have been slightly higher in the
fourth quarter of the year and EBITDA has been significantly higher during such
period, primarily attributable to increased expenditures by advertisers.
Revenues and EBITDA, excluding programming and electronic media and corporate
expenses, for the fourth quarter of 1995 amounted to approximately 28.4% and
36.8%, respectively, of Providence Journal's total revenues and EBITDA excluding
programming and electronic media and corporate expenses for the year ended
December 31, 1995, respectively.
Broadcasting operating costs, which primarily include employee
compensation, programming, production and promotion, represented 47.0% and 43.2%
of the total operating and administrative costs of Providence Journal during
1995 and for the first nine months of 1996, respectively. Publishing operating
costs, principally labor and newsprint costs, represented 46.0% and 36.3% of
Providence Journal's total operating and administrative costs during 1995 and
for the first nine months of 1996, respectively.
RECENT DEVELOPMENTS
Subsequent to December 31, 1995, the following significant events have
occurred:
Increased Ownership Interest in Television Food Network, G.P.
In May 1996, Providence Journal purchased the equity partnership interests
held by Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing,
Inc. ("Scripps"), two of the partners of TVFN, for respective purchase prices of
approximately $12.7 million and $11.4 million. Prior to such purchase, Landmark
and Scripps owned a 10.8% and 9.7% general partnership interest, respectively,
in TVFN. Providence Journal's investment in TVFN through September 30, 1996,
including these purchases and funding of its share of operating losses, totaled
$47.9 million, which represents an equity interest of approximately 46%. As a
result of these purchases, Providence Journal held three of the five voting
seats on the TVFN management committee and TVFN became a controlled subsidiary
of Providence Journal and was consolidated into Providence Journal's results of
operations beginning in May 1996. On January 6, 1997, Providence Journal
purchased the 9.5% equity partnership interests in TVFN held by Continental for
a purchase price of $16.3 million. In connection with this transaction,
Providence Journal agreed to transfer a 1.4% equity interest to Continental
which interest had been given to Providence Journal in 1993 in exchange for
Providence Journal's agreement to carry TVFN on all of its former cable systems.
Following the consummation of such transaction, Providence Journal owns an
equity interest of approximately 55.5% in TVFN and holds four of the five voting
seats on the TVFN management committee.
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<PAGE> 122
Option to Purchase KFVE in Honolulu, Hawaii
On December 30, 1996, Providence Journal paid $9.0 million to the license
holder of KFVE in Honolulu, Hawaii in exchange for an option to purchase KFVE
for an agreed upon exercise price and a significant reduction in its monthly
fees paid to KFVE under its existing LMA agreement. The option is exercisable
after such time, if any, as the FCC permits ownership of two television stations
in a single market. The present duopoly rules prohibit attributable interests in
two television stations in the same designated market area. Although the FCC is
currently reviewing ownership rules, there can be no assurance that the FCC will
change or repeal the duopoly rules. The option, which is freely transferable to
a third party, expires on December 31, 1999.
Collection of Notes Receivable from Lowell Sun Companies
On December 27, 1996, Providence Journal collected $23.1 million in full
satisfaction of all principal and interest amounts due from Lowell Sun
Publishing Company and Lowell Sun Realty Company (collectively, "Lowell Sun
Companies") under a loan and credit facility the Lowell Sun Companies had with
Providence Journal which had expired in March, 1996.
Litigation
As discussed elsewhere in this Joint Proxy Statement/Prospectus and in note
16 to the consolidated financial statements of Providence Journal, a declaratory
judgment action was brought by Cable LP on January 17, 1995, against Old PJC,
among other parties, claiming that an indirect subsidiary of Old PJC (Colony)
had breached a right of first refusal entitling Cable LP to purchase a general
partnership interest in a cable system transferred to Continental in connection
with the Continental Merger Agreement. A final declaratory judgment in this
action in favor of Cable LP was entered on May 21, 1996. Such judgment requires,
among other matters, Dynamic and Colony to negotiate with Cable LP on a price to
transfer Dynamic's interest in the general partnership to Cable LP.
Providence Journal appealed this judgment and moved to stay the effect of
the judgment during the pendency of the appeal. On June 10, 1996, a hearing was
held on Providence Journal's motion to stay. At such hearing, the judge declined
to grant or deny Providence Journal's motion to stay at that time. In the event
that, as a result of such litigation, Dynamic is required to sell its interest
in the Dynamic Partnership to Cable LP, the Continental Merger Agreement
provides that 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 be payable assuming the
purchase price for such interest equaled $115 million. On December 27, 1996,
Providence Journal settled its obligations in full with Continental for $25
million. Consequently, Providence Journal recorded, in the fourth quarter of
1996, a charge to stockholders' equity to reflect the decrease in net proceeds
received from the disposal of the cable assets in 1995 pursuant to the
Continental Merger Agreement. Such payment was funded by borrowings under
Providence Journal's revolving credit facility.
Consummation of US West Merger
On November 15, 1996, US West and Continental consummated the US West
Merger. Based on the final value of the US West Merger, Providence Journal
recorded in November 1996 a $4.3 million credit (or approximately $2.8 million,
net of tax) to the income statement upon settlement of certain affected stock-
based compensation plans to reflect the partial reversal of previously recorded
expense related to these plans. Of this $4.3 million credit, $2.7 million was
credited to continuing operations and $1.6 million was credited to discontinued
operations.
Linkatel Pacific, LP Sale
On October 2, 1996, the owners of Linkatel Pacific, LP ("Linkatel"), an
alternative access business located in Orange County, CA, signed a definitive
agreement to sell that business to Nextlink Communica-
112
<PAGE> 123
tions LLC for $42.5 million. The transaction was simultaneously closed in escrow
pending California Public Utility Commission approval. Providence Journal's
interest in Linkatel has been valued for this sale at approximately $14.5
million. The sale will result in an estimated pre-tax gain to Providence Journal
of approximately $10 million (or approximately $7 million, net of tax) upon
final closing.
Initial Public Offering
On June 25, 1996, Providence Journal raised $106.3 million, net of
underwriters' commissions, in an initial public offering and direct placement to
Providence Journal employees of Providence Journal Class A Common Stock. The
number of shares of Providence Journal Class A Common Stock sold to the public
in the underwritten offering was 7,125,000 and the number of shares of
Providence Journal Class A Common Stock sold to eligible employees in the direct
placement program was 450,000. Expenses associated with the offerings were
approximately $2.2 million. On July 10, 1996, Providence Journal issued an
additional 1,068,750 shares of Providence Journal Class A Common Stock and
raised an additional $15.0 million, net of underwriters' commissions, pursuant
to the exercise of an overallotment option granted to the underwriters by
Providence Journal. The net proceeds from the offerings were used to repay a
portion of Providence Journal's outstanding debt.
Increased Ownership Interest in America's Health Network
On May 9, 1996, Providence Journal increased its investment in AHN to $35.3
million, which represents an equity interest of approximately 65%. Providence
Journal advanced $5.8 million in December 1996 as part of its commitment to
invest an additional $19.5 million by the first quarter of 1997 upon the
achievement by AHN of certain operating milestones, including entering into
carriage agreements and meeting certain revenue and ratings objectives.
Execution of a Local Marketing Agreement -- KONG in Seattle, Washington
In May 1996, Providence Journal entered into a ten-year LMA with KONG,
which holds a permit to construct a television station in the Seattle,
Washington market, and has an option to purchase the station at an agreed upon
exercise price payable, at Providence Journal's option, in cash or in shares of
Providence Journal Class A Common Stock. The option is exercisable by either
Providence Journal or KONG after such time, if any, as the FCC permits ownership
of two television stations in a single market. Under the LMA, Providence Journal
will spend approximately $2.0 million for equipment in the first year and, once
operational, will provide annual programming and marketing services to KONG
pursuant to which Providence Journal will receive all advertising revenues.
Until the option to purchase the station is exercised, Providence Journal is
required to make annual payments to KONG of approximately $0.4 million in years
one through five and $0.7 million in years six through ten of the contract term.
Execution of a Local Marketing Agreement -- KSKN in Spokane, Washington
At the end of June, 1996, Providence Journal entered into a ten-year LMA
with KSKN channel 22 in Spokane, Washington and has an option to purchase the
station at an agreed upon exercise price payable, at Providence Journal's
option, in cash or in shares of Providence Journal Class A Common Stock. The
option is exercisable by either Providence Journal or KSKN after such time, if
ever, as the FCC permits ownership of two television stations in a single
market. Under the LMA, Providence Journal will spend approximately $1.5 million
for equipment and will provide annual programming and marketing services to KSKN
pursuant to which Providence Journal will receive all advertising revenues.
Until the option to purchase the station is exercised, Providence Journal is
required to make annual payments to KSKN of approximately $0.24 million per year
through October, 1997 and $0.3 million per year thereafter.
REORGANIZATION
On October 5, 1995, Old PJC completed the acquisition of its 50% joint
venture partner's interest in KHC through the Kelso Buyout for $265 million,
including transaction fees, completed the Spin-Off and,
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<PAGE> 124
following the Spin-Off, at which point it held only Old PJC's cable television
businesses and assets, Old PJC was merged with and into Continental. Immediately
prior to the Kelso Buyout, Continental purchased for $405 million all of the
stock of King Videocable Company ("KVC"), an indirect wholly-owned cable
subsidiary of KHC. As a result of these transactions, Providence Journal, in
substance, became the successor to Old PJC, in the same lines of business,
simultaneously disposing of its cable operations, and in connection with the
Kelso Buyout, acquired the 50% interest not previously owned in KING, KGW, KHNL,
KREM and KTVB.
DISPOSAL OF CABLE OPERATIONS
Gross proceeds from the disposal of the cable operations discussed above
consisted of a combination of Continental stock, which was received directly
from Continental by Old PJC's shareholders in connection with the Continental
Merger, assumption of a portion of Old PJC's debt by Continental and cash from
Continental. The total combined consideration amounted to approximately $1.4
billion (including $405 million from the sale of KVC). For accounting purposes,
the disposal of Old PJC's cable operations was treated as if Providence Journal
had spun off the cable operations to shareholders, which Providence Journal
believes more appropriately reflects the substance of the transaction.
Accordingly, the excess of the gross proceeds over the net assets of the
discontinued cable operations less income taxes, which amounted to $582.5
million, is reflected in the consolidated statement of stockholders' equity for
the year ended December 31, 1995. The receipt by the Old PJC shareholders of the
Continental shares, valued at $584.8 million, is recorded as a "deemed
distribution" in the consolidated statement of stockholders' equity.
The loss from operations of the disposal of the discontinued cable business
is not reflected in the 1995 results of operations because loss on disposal of
that business, including estimated loss during the 1995 phase-out period, was
recognized in the fourth quarter of 1994. The loss from operations and disposal
of discontinued wholly-owned cable operations (excluding KHC's discontinued
cable operation) in 1994 amounted to $36.6 million, of which $34.8 million
reflected severance and transaction costs and $1.8 million reflected the
estimated loss from cable operations through the disposal date, net of allocated
interest of $20.7 million.
In connection with the Continental Merger, Providence Journal agreed to
indemnify Continental from any and all liabilities arising from the non-cable
television businesses and is responsible for all Federal and state income tax
liabilities for periods ending on or before the Continental Closing Date. See
"BUSINESS OF PROVIDENCE JOURNAL -- Background; Reorganization."
KELSO BUYOUT
The Kelso Buyout as discussed above and in Notes 2(a) and 3(a) of
Providence Journal's consolidated financial statements, was effected in the
fourth quarter of 1995. As illustrated below, the excess of the purchase price
over the net book value of assets acquired, including deferred taxes, was $206.7
million, of which approximately $88.0 million was allocated to identifiable
intangibles and the remainder to goodwill, all of which is being amortized over
an average life of approximately 30 years.
In connection with the Kelso Buyout, assets acquired and liabilities
assumed were as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired................................................... $243,186
Goodwill and other intangibles.................................... $206,740
Liabilities assumed............................................... $184,926
Cash paid......................................................... $265,000
</TABLE>
The primary business of KHC is broadcast television and, prior to the sale
to Continental of KVC, also included cable television. Prior to the Kelso
Buyout, Providence Journal reported its 50% investment in KHC under the equity
method of accounting and provided management services to KHC. Audited financial
statements of KHC as of December 31, 1994 and for each of the years in the
two-year period then ended are presented elsewhere in this Joint Proxy
Statement/Prospectus.
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CONSOLIDATED RESULTS OF OPERATIONS
SUPPLEMENTAL PRO FORMA RESULTS OF OPERATIONS
The supplemental pro forma financial data discussed below is presented as
if the Spin-Off, Continental Merger and Kelso Buyout had occurred on January 1,
1994. Supplemental pro forma data is presented because Providence Journal
believes such data may be more meaningful than historical financial data in
comparing 1995 and 1996 results of operations with 1994 because such pro forma
data includes KHC operations and excludes discontinued cable operations for all
periods presented. Although Providence Journal did not consolidate the results
of KHC's operations for accounting purposes until after the Kelso Buyout,
Providence Journal has managed these operations since February 1992. This
supplemental pro forma financial data consolidates the historical results of
operations of Providence Journal and KHC, after giving effect to the
supplemental pro forma adjustments and eliminations described in footnote (1) to
the table "Supplemental Pro Forma Financial Data" included in "SELECTED
FINANCIAL DATA OF PROVIDENCE JOURNAL," for all periods presented. This pro forma
financial data is not necessarily indicative of the results of operations that
would have actually been obtained had the transactions referred to above been
consummated on January 1, 1994, nor is it indicative of the results of
operations that may be obtained in the future. Such financial data should be
read in conjunction with "SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL" and is
qualified in its entirety by reference to the consolidated financial statements
of Providence Journal and KHC, and respective notes thereto included elsewhere
in this Joint Proxy Statement/Prospectus.
SUPPLEMENTAL PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
SUPPLEMENTAL PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1995
Consolidated (Supplemental Pro Forma)
Consolidated revenues for the nine months ended September 30, 1996 were
$254.4 million, an increase of 13.7%, compared to $223.7 million for the 1995
period. Continued strong growth in the third quarter of 1996 in Providence
Journal Broadcasting revenues contributed significantly to the increase in
consolidated revenues for the period. Providence Journal Broadcasting revenues
for the nine months ended September 30, 1996 of $149.8 million are 16.5% greater
than Providence Journal Broadcasting revenues of $128.6 million for the same
period in 1995. An improving Rhode Island economy led to an increase of $2.2
million in Providence Journal Publishing revenues to $95.2 million from $93.0
million for the nine months ended September 30, 1995. Providence Journal
Programming and Electronic Media Business revenues of $9.4 million for the nine
months ended September 30, 1996 have increased over revenues for the 1995 period
of $2.2 million primarily due to the consolidation of TVFN in May 1996. The
remaining businesses in the Providence Journal Programming and Electronic Media
Business are in the early development phase of operations.
For the nine months ended September 30, 1996, the consolidation of AHN and
TVFN added $29.1 million in operating and administrative expenses and was
primarily responsible for a 19.8%, or $36.2 million, increase in consolidated
operating and administrative expenses for the 1996 nine months over the same
period in 1995. Providence Journal Broadcasting Business operating and
administrative expenses increased 9.6% for the nine months ended September 30,
1996 over the same period last year due primarily to promotional costs relating
to the Olympics during the third quarter 1996 and the incremental costs of a
start-up news operation in Honolulu. Providence Journal Publishing Business
operating and administrative expenses decreased 5.5%, or $4.6 million, for the
nine months ended September 30, 1996 to $79.5 million from $84.1 million for the
1995 period primarily due to net payroll and related cost savings from the
Newspaper Consolidation and Newspaper Restructuring and reductions in newsprint
expense. Corporate operating and administrative expenses remained relatively
flat for the nine months ended September 30, 1996 compared with the same period
in 1995.
Consolidated supplemental pro forma depreciation and amortization expense
increased $2.4 million to $32.1 million for the nine months ended September 30,
1996 from $29.7 million for the nine months ended September 30, 1995. The
increase is due primarily to the consolidation of TVFN and AHN which together
contributed $2.4 million to the increase in depreciation and amortization
expense for the nine months ended September 30, 1996.
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In the first quarter of 1996, Providence Journal recorded an $11.4 million
charge (of which $10.1 million related to the IUP) to continuing operations and
a $5.4 million (pre-tax) charge to discontinued operations to reflect the vested
portion of an estimated $20.5 million adjustment to stock-based compensation
plans. Of the $3.7 million which was unvested at March 31, 1996, $1.3 million
became vested and was charged to operations in each of the second and third
quarters of 1996. The $20.5 million adjustment to the stock-based compensation
plans reflects additional consideration which participants in Providence
Journal's IUP, restricted stock unit plan and certain stock option plans will
receive to the extent the value ascribed to Providence Journal's former cable
operations has increased upon a final determination. Providence Journal's cable
operations were merged with Continental in October, 1995. In February, 1996,
Continental and US West jointly announced the US West Merger. The final amount
of additional consideration was determined at the closing of the US West Merger,
which occurred on November 15, 1996 as discussed under "-- Recent
Developments -- Consummation of the US West Merger" above.
In the first and second quarters of 1996, Providence Journal recorded
additional charges to operations of approximately $1.1 million and $1.3 million,
respectively, relating to early retirement costs and voluntary separation
benefits in connection with a plan of reorganization and restructuring of the
Providence Journal Publishing business adopted by Providence Journal in the
fourth quarter of 1995 (the "Newspaper Restructuring") at which time a $6.8
million charge was recorded. The following table illustrates the current status
of the restructuring accrual by component (in millions):
<TABLE>
<CAPTION>
OUTPLACEMENT
EMPLOYEE & OTHER
SEVERANCE COSTS COSTS TOTAL
--------------- ------------ -----
<S> <C> <C> <C>
Balance at December 31, 1995................................. $ 6.5 $ 0.3 $ 6.8
Charge to first quarter operations......................... 1.1 1.1
Charge to second quarter operations........................ 1.3 1.3
Utilization of accrual..................................... (0.5) (0.2) (0.7)
Funding by pension plan.................................... (6.3) (6.3)
----- ----- -----
Balance at September 30, 1996................................ $ 2.1 $ 0.1 $ 2.2
===== ===== =====
</TABLE>
The remaining costs in the accrual are expected to be paid over several
years extending to the year 2004 in accordance with terms of the applicable
severance packages. The Newspaper Restructuring and the Newspaper Consolidation
are expected to generate combined savings of approximately $11.0 million per
year and a net full-time equivalent reduction of 175 of the Providence Journal
Publishing Business work force.
Supplemental pro forma interest expense remained relatively flat for the
nine months ended September 30, 1996 compared to the 1995 period. Effective
average interest rates were 8.3% for the 1996 period compared to 8.0% for the
1995 period.
As a result of the additional stock-based compensation expense, additional
Newspaper Restructuring charges, and consolidations of AHN and TVFN together
offsetting the operating results of Providence Journal Broadcasting Business and
Providence Journal Publishing Business, the loss from continuing operations for
the nine months ended September 30, 1996 was $26.9 million compared to a
supplemental pro forma loss from continuing operations of $13.4 million for the
1995 period.
Broadcasting Business (Supplemental Pro Forma)
The Providence Journal Broadcasting Business consists of nine owned and
operated stations and four (one of which is under construction) stations to
which Providence Journal provides marketing and programming services. These
thirteen stations serve markets in Seattle, WA; Portland, OR; Charlotte, NC;
Albuquerque, NM; Louisville, KY; Honolulu, HI; Spokane, WA; Tucson, AZ; and
Boise, ID. The KONG and KSKN LMAs did not contribute significantly to the
operating results for the nine months ended September 30, 1996 as these were not
fully operational for these periods.
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Providence Journal Broadcasting Business revenues for the nine months ended
September 30, 1996 of $149.8 million were 16.5% greater than such revenues of
$128.6 million for the same period last year. Net revenues from Providence
Journal's NBC affiliates increased 21.9% year to date for 1996 over the 1995
period. Coverage of the 1996 Summer Olympics contributed approximately $4.0
million in incremental revenue and political revenue contributed over $4.0
million in incremental revenue for the nine months ended September 30, 1996.
Increased market share and ratings in Portland, Charlotte, and Honolulu also
contributed to the increases in revenue. For the nine months ended September 30,
1996, Providence Journal Broadcasting Business national advertising revenues
increased 10.0% to $71.0 million from $64.5 million for the 1995 periods and
local and regional advertising increased 23.2% to $92.8 million from $75.4
million over the same period last year.
Providence Journal Broadcasting Business operating and administrative
expenses increased 9.6% for the nine months ended September 30, 1996 to $94.5
million compared to $86.2 million for the same period last year. This increase
reflects the incremental costs of a start-up news operation and promotion
expenses in Honolulu (required by KHNL's affiliation switch from Fox to NBC on
January 1, 1996) coupled with the increased news costs associated with weather
coverage in the Northwest. Also contributing to the increase are over $1.0
million of one-time costs associated with the coverage and promotion of the 1996
Summer Olympics as well as sports related costs in Seattle and Tucson.
Depreciation and amortization expense for the nine months ended September 30,
1996 remained relatively flat compared to supplemental pro forma depreciation
expense for the nine months ended September 30, 1995.
Operating income for the Providence Journal Broadcasting Business for the
nine months ended September 30, 1996 is $34.9 million compared to $21.7 million
for the 1995 period on a supplemental pro forma basis, an increase of 60.8%.
Publishing Business (Supplemental Pro Forma and Historical)
Steady growth in the first nine months due in part to improving economic
conditions in Rhode Island has led to an overall increase of $2.2 million in
Providence Journal Publishing Business revenues to $95.2 million from $93.0
million for the nine months ended September 30, 1996 and 1995, respectively.
Advertising revenues for the nine months ended September 30, 1996 increased 3.0%
to $69.0 million from $67.0 million for the nine months ended September 30, 1995
with increases in both space and average rate. As a result of price increases
and the Newspaper Consolidation in July of 1995, average daily circulation for
the nine months ended September 30, 1996 decreased 5.3% to 171,048 from an
average of 180,663 for the nine months ended September 30, 1995. Average Sunday
circulation for the 1996 nine months was 248,900, down 4.5% from 260,696 for the
same period last year, largely because of increased price. Despite the decline
in circulation levels, circulation revenues are up 4.3% for the nine months
ended September 30, 1996 as a result of price increases.
Providence Journal Publishing Business operating and administrative
expenses decreased 5.5% or $4.6 million for the nine months ended September 30,
1996 to $79.5 million from $84.1 million for the 1995 period. These declines
were primarily due to payroll savings which totaled $3.9 million year to date
primarily due to the Newspaper Consolidation and Newspaper Restructuring
partially offset by a charge of $1.6 million year to date in 1996 for Providence
Journal Publishing Business employee gainsharing and bonus incentives. A
reduction in newsprint costs of $0.4 million for the nine months ended September
30, 1996 also contributed to the reduced operating expenses. The average
newsprint price per ton paid for the nine months ended September 30, 1996 was up
8.2% from the same period in 1995 although consumption is down 9% as a result of
the Newspaper Consolidation.
As previously discussed, management approved the Newspaper Restructuring at
the end of 1995 in an effort to improve efficiencies. Under the plan, Providence
Journal targeted a reduction in work force of approximately 100 full-time
equivalents through a combination of early retirement and voluntary and
involuntary separation assistance plans. A charge of $6.8 million was recorded
in the fourth quarter of 1995 relating to employee severance costs,
outplacement, and other costs associated with the restructuring. As a result of
a greater than anticipated response to the voluntary programs, management
recorded an additional
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charge to operations of $1.1 million in the first quarter of 1996 and $1.3
million in the second quarter of 1996. Providence Journal expects annual savings
from the Newspaper Restructuring and Newspaper Consolidation to be approximately
$7.0 million and $4.0 million, respectively. Substantially all costs under both
these plans have been or will be paid by Providence Journal's pension plans (in
which plan assets exceed plan obligations).
Due to increased revenues and primarily due to reduced payroll and
newsprint expenses, the Providence Journal Publishing Business had operating
income of $5.2 million for the nine months ended September 30, 1996 compared to
a loss of $5.7 million for the same period last year.
Programming and Electronic Media (Supplemental Pro Forma and Historical)
In December, 1995 Providence Journal launched the NorthWest Cable News
channel, which provides 24-hour news service to cable television viewers in
Washington, Oregon, and Idaho, and in the third quarter of 1995 launched Rhode
Island Horizons (renamed projo.com on October 1, 1996), its electronic on-line
information service. Beginning in May, 1995, Providence Journal made new
investments in AHN, a 24-hour health cable programming channel that launched on
March 25, 1996. In July, 1995, Providence Journal invested in Peapod, an
existing interactive grocery delivery service. Through the first nine months of
1996, Providence Journal continued to fund its share of the operations of its
investment in TVFN and AHN. In 1995, Providence Journal grouped these
investments together in a new segment called "Programming and Electronic Media."
Total cumulative investments through September 30, 1996 in the Providence
Journal Programming and Electronic Media Business totalled $106.6 million.
Effective January 1, 1996, Providence Journal consolidated its investment in
AHN, and effective May 1, 1996 consolidated its investment in TVFN reflecting
management's decision to expand its holdings in these entities and grow this
segment. These investments were previously accounted for under the equity method
of accounting. In addition to AHN and TVFN, Providence Journal currently
consolidates its wholly owned subsidiaries which operate NorthWest Cable News
and projo.com (formerly Rhode Island Horizons). On July 31, 1996, Rhode Island
Horizons ceased service on the Prodigy network in order to focus attention in
fully developing its web site, http://www.projo.com. which launched on October
1, 1996.
Providence Journal Programming and Electronic Media Business revenues of
$9.4 million for the nine months in 1996 have increased over revenues of $2.2
million for the same 1995 period primarily due to the consolidation of TVFN in
May, 1996. TVFN accounted for $5.2 million of the segment's revenue for the nine
months ended September 30, 1996. NorthWest Cable News accounted for $2.2 million
of the segment's revenues for the nine months ended September 30, 1996. The
remaining businesses in the Providence Journal Programming and Electronic Media
Business are in the early development phase of operations. Subscribers for TVFN
have grown 30.7% to 17.3 million as of September 30, 1996 compared to 13.3
million as of September 30, 1995. AHN has 3.4 million subscribers and NorthWest
Cable News has 1.4 million subscribers as of September 30, 1996.
For the nine months ended September 30, 1996, AHN and TVFN added $29.1
million in operating expenses in the Programming and Electronic Media Business.
Primarily because of the consolidation of TVFN and the start-up ventures
NWCN and AHN in 1996, the Providence Journal Programming and Electronic Media
Business operating losses were $29.0 million for the nine months ended September
30, 1996.
SUPPLEMENTAL PRO FORMA 1995 COMPARED TO SUPPLEMENTAL PRO FORMA 1994
Consolidated (Supplemental Pro Forma)
Consolidated revenues increased by 3.7% in 1995 to $312.5 million from
$301.3 million in 1994. Providence Journal Broadcasting Business revenues
contributed significantly to the increase in consolidated revenues with an
increase of 5.5% in 1995 to $180.5 million from $171.1 million in 1994 due to
increased advertising revenue resulting from improved ratings and local market
growth. The Providence Journal Publishing Business contributed substantially the
same revenue in 1995 as in the prior year with $128.5 million
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for 1995 compared with $127.9 million in 1994. The operations in the Providence
Journal Programming and Electronic Media Business, which are in the early
development phase, contributed $3.5 million in revenue in 1995 compared to $2.3
million in 1994.
Consolidated operating and administrative expenses increased 4.4% to $247.3
million in 1995 from $236.9 million in 1994, primarily as a result of the
increased costs in the Providence Journal Publishing Business. The Providence
Journal Broadcasting Business operating and administrative expenses increased
2.4% to $116.1 million in 1995 from $113.4 million in 1994. Publishing operating
and administrative expenses increased 5.9% in 1995 to $113.7 million from $107.4
million in 1994. This increase was the result of a 45% increase in the average
price per ton of newsprint paid by Providence Journal, which caused a $6.5
million increase in newsprint costs in 1995 compared to 1994. Operating expenses
for the development stage businesses in the Providence Journal Programming and
Electronic Media Business increased to $5.1 million in 1995 from $2.9 million in
1994 primarily due to expenses associated with the launching of Providence
Journal's cable network, NorthWest Cable News.
In 1995, Providence Journal recorded a $7.4 million charge in connection
with the Newspaper Consolidation and a $6.8 million charge at year end in
connection with the Newspaper Restructuring. The combined impact of both of
these efforts is expected to reduce the number of employees by approximately 175
full-time equivalents (net of 24 additional full-time equivalents) and, when
fully implemented, to generate estimated annual cost savings of approximately
$11 million.
Stock-based compensation expense, which relates to Providence Journal's
stock incentive plans, declined $12.7 million to $2.4 million in 1995 from $15.1
million in 1994 primarily due to the freezing of the IUP in 1994 and the
establishment of a reserve in 1994 for cash payments to be made pursuant to such
plan in 1995. See also "-- Liquidity and Capital Resources" regarding possible
additional payments under these plans.
Consolidated depreciation and amortization expense decreased $1.6 million
from $41.2 million in 1994 to $39.6 million in 1995. Included in supplemental
pro forma depreciation and amortization for both 1994 and 1995 is approximately
$7.5 million associated with the step-up in the carrying value of intangible
assets (with an average life of 30 years) acquired in the Kelso Buyout.
The increase of $2.8 million in equity in losses of affiliates from 1994 is
a result of the investment by the Providence Journal Programming and Electronic
Media Business in start-up businesses, AHN and Peapod. Other income (expense),
net increased $2.2 million to $4.8 million in 1995 from $2.6 million in 1994,
principally due to recognition in 1995 of $2.4 million in interest income from a
note receivable with the Lowell Sun Companies. Interest income received in 1994
and 1993 had been used to create a reserve against the principal of the note
receivable in those years. Included in other income (expense) are the operating
results of Providence Journal's ancillary garage operation, which are not
material to Providence Journal's results of operations.
Income tax expense decreased from $6.5 million in 1994 to $0.1 million in
1995 primarily due to a $6.0 million additional tax provision recorded in 1994
relating principally to interest on settlements and contingencies related to
income tax liabilities identified during Service examinations. Effective tax
rates for 1995 and 1994 were unfavorably affected by non-deductible amortization
of certain intangibles acquired. Loss from continuing operations for 1995 was
$14.9 million compared with $19.1 million in 1994 reflecting the factors
discussed above.
Providence Journal Broadcasting (Supplemental Pro Forma)
Providence Journal Broadcasting Business revenues grew 5.5% in 1995.
Revenues attributable to national advertisers increased 2.7% to $91.1 million in
1995 from $88.7 million in 1994. This modest increase occurred despite a slight
weakening of the economy in the fourth quarter of 1995 as well as the
unfavorable effects of large advance sales of advertising by the major networks
which reduced national advertiser demand for spot advertising at the Providence
Journal Stations. Revenues attributable to local and regional advertisers grew
10.2% in 1995, increasing from $96.3 million in 1994 to $106.1 million in 1995,
due to improved ratings and market growth.
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Operating and administrative expenses increased 2.4% to $116.1 million in
1995 from $113.4 million in 1994, an increase of $2.7 million. This increase
reflects the incremental costs of a start-up news operation in Honolulu
(required by KHNL's affiliation switch from Fox to NBC on January 1, 1996) and
the offsetting impact of cost containment policies at the Providence Journal
Stations. Depreciation and amortization expense decreased 5.2% to $27.5 million
in 1995 from $29.0 million in 1994, a change of $1.5 million. Included in
supplemental pro forma depreciation and amortization is approximately $7.5
million annually associated with the step-up in carrying value of intangible
assets (with an average life of 30 years) resulting from the Kelso Buyout.
As a result of revenue growth and reduced costs, operating income increased
29.0% to $36.9 million in 1995 from $28.6 million in 1994.
Providence Journal Publishing (Supplemental Pro Forma and Historical)
Prior to June 5, 1995, Providence Journal published a Sunday newspaper, and
both a morning daily newspaper (Monday through Saturday) and an afternoon daily
newspaper (Monday through Friday). As discussed previously, in response to
changing readership preferences and declining circulation, primarily in the
afternoon daily newspaper, and in an attempt to permanently reduce Providence
Journal's cost basis, Providence Journal effected the Newspaper Consolidation,
and now publishes a morning only daily Providence Journal-Bulletin (Monday
through Saturday) in addition to The Providence Sunday Journal.
Providence Journal Publishing Business revenues in 1995 of $128.5 million
were relatively flat with 1994 revenues of $127.9 million. Advertising revenues
declined slightly in 1995 to $93.7 million from $95.1 million in 1994 due to a
continuing lackluster Rhode Island economy. Advertising linage declined from 2.0
million in 1994 to 1.9 million in 1995. Despite the decline in circulation
levels as a result of the Newspaper Consolidation, circulation revenues of $32.2
million in 1995 were 4.2% ahead of 1994 circulation revenues of $30.9 million as
a result of rate increases in 1994 and 1995.
Operating and administrative expenses increased 5.9% in 1995 to $113.7
million primarily due to newsprint price increases of $6.5 million in 1995. The
average price per ton of newsprint paid by Providence Journal increased 45% in
1995. The Providence Journal Publishing Business has implemented several
newsprint conservation programs to offset these price increases, including,
among others, reducing the page width of the newspaper and strict control of
newspaper waste. In implementing the Newspaper Consolidation, Providence Journal
incurred costs of $7.4 million which include early retirement and voluntary
separation costs totaling $4.9 million affecting approximately 80 employees and
$2.5 million for promotion, training, and other costs of the conversion. Annual
savings from the Newspaper Consolidation are estimated to be approximately $4
million. As previously discussed, Providence Journal also implemented the
Newspaper Restructuring at the end of 1995 in an effort to improve efficiencies.
Under the plan, Providence Journal targeted a reduction in workforce of
approximately 100 full time equivalents through a combination of early
retirement and voluntary separation assistance plans. Newspaper Restructuring
Costs in an amount equal to $6.8 million were recorded in the fourth quarter of
1995 relating to salaries, benefits, and payroll taxes associated with the
restructuring. Annual savings from the Newspaper Restructuring are estimated to
be approximately $7 million. Substantially all of the Restructuring Costs as
well as the early retirement benefits offered in the Newspaper Consolidation,
together totaling approximately $9.6 million, are expected to be paid from
Providence Journal's pension plan (the plan assets of which exceed plan
obligations), thereby minimizing the impact on cash flow of the Providence
Journal Publishing Business.
Primarily due to the Newspaper Consolidation Costs, Newspaper Restructuring
Costs and increases in newsprint costs, the Providence Journal Publishing
Business had a $10.3 million operating loss in 1995 compared to $9.3 million of
operating income in 1994.
Providence Journal Programming and Electronic Media (Supplemental Pro Forma
and Historical)
The Providence Journal Programming and Electronic Media Business was not
significantly affected by the Spin-Off, the Continental Merger or the Kelso
Buyout. The only difference between "Historical" and "Supplemental Pro Forma"
results of operations for the Providence Journal Programming and Electronic
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Media Business is an additional $0.3 million of operating expenses included in
1994 on a supplemental pro forma basis attributable to the operations of
NorthWest Cable News, which was previously owned by KHC. Therefore, the results
of operations and financial condition of the Providence Journal Programming and
Electronic Media Business are substantially identical on both a "Supplemental
Pro Forma" and "Historical" basis.
In December 1995, Providence Journal launched the NorthWest Cable News
channel, which provides 24-hour news service to cable television viewers in
Washington, Oregon, and Idaho, and in May 1995, launched Rhode Island Horizons
(renamed "projo.com" effective October 1, 1996), Providence Journal's electronic
on-line information service. Providence Journal made new investments in
America's Health Network, a 24-hour health channel that was launched on March
25, 1996, and Peapod, an existing interactive grocery ordering and delivery
service. During 1995, Providence Journal also continued to fund its share of its
investment in TVFN and PSN. In addition, Providence Journal has fully subleased
the satellite transmission capacity it had previously leased. In 1995,
Providence Journal grouped these investments together in a new business segment
called "Programming and Electronic Media" (originally called "Programming and
New Media").
The operations in the Providence Journal Programming and Electronic Media
Business are in the early development phase and contributed $3.5 million in
revenue in 1995 compared to $2.3 million in 1994. Operating expenses for the
Providence Journal Programming and Electronic Media Business increased to $5.1
million in 1995 from $2.9 million in 1994 primarily due to expenses associated
with the launching of NorthWest Cable News. As a result of high start-up costs
associated with an early development phase business, the operating loss of the
Providence Journal Programming and Electronic Media Business was $1.8 million in
1995 and $0.3 million in 1994. The increase of $2.3 million in the Providence
Journal Programming and Electronic Media Business equity in losses of affiliates
from 1994 is a result of start-up costs incurred by AHN and Peapod.
CONSOLIDATED HISTORICAL RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
The results of operations on an historical basis for each of the periods in
the nine months ended September 30, 1996 and 1995 are not significantly
different than those presented on a supplemental pro forma basis, except that
the results on a supplemental pro forma basis in the 1995 period include pro
forma adjustments as follows:
Incremental Amount to Arrive at Supplemental Pro Forma Amounts:
<TABLE>
<CAPTION>
DEBIT (CREDIT)
----------------------------------
NINE
AFFECTED MONTHS ENDED
BUSINESS SEPTEMBER 30, 1995
------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Line Item in Historical Financial Statements
Depreciation and amortization
Additional amortization expense as a result of the
"step-up" in basis in acquired assets of KHC Broadcasting $5,616
Interest expense
Additional interest expense assuming beginning debt as
a result of the transactions at January 1, 1994 was
$225 million with an average interest rate of 8.1% Consolidated $8,178
Income tax expense (benefit)
Incremental income tax expense (benefit) from above
adjustments Consolidated $(3,904)
</TABLE>
After considering the effects of these adjustments, historical results of
operations on both a consolidated basis and a segment basis for each of the
periods in the nine months ended September 30, 1995 and 1996 exhibited the same
trends as those discussed previously on a "Supplemental Pro Forma" basis. As a
result of
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such trends, consolidated net loss for the nine months ended September 30, 1996
was $24.2 million compared to $7.7 million for the nine months ended September
30, 1995.
HISTORICAL 1995 COMPARED TO HISTORICAL 1994
The consolidated historical financial data discussed below is derived from
the audited consolidated financial statements of Providence Journal for the
years ended December 31, 1993, 1994, and 1995 summarized above in the table
"SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL -- Selected Consolidated
Historical Financial Data." As a result of the Kelso Buyout, 1995 results
include the results of operations of KHC since January 1, 1995. As a result of
the Spin-Off, the Continental Merger and the Kelso Buyout, Providence Journal's
results of operations and financial condition for the years 1991 through 1994
are not comparable to 1995 and 1996.
The discussion of historical results of operations which follows is
presented for the consolidated results of operations and the Providence Journal
Broadcasting Business for the years ended December 31, 1993, 1994 and 1995. The
Providence Journal Publishing Business and the Providence Journal Programming
and Electronic Media Business for these years were not significantly affected by
the Spin-Off, the Continental Merger and the Kelso Buyout. Consequently, the
historical trends for these segments are the same as those presented above under
"Supplemental Pro Forma," and therefore are not repeated here. A comparison of
1994 to 1993 on a historical basis for the Providence Journal Publishing
Business and the Providence Journal Programming and Electronic Media Business
is, however, included.
Consolidated (Historical)
As discussed above, 1995 results include the consolidation of KHC's
operations since January 1, 1995. Prior to the Kelso Buyout, Providence Journal
recorded the investment in KHC under the equity method of accounting.
Consequently, the significant increases in comparing historical Broadcasting
Business revenues, Broadcasting Business operating and administrative expenses,
Broadcasting Business operating income, interest expense and income taxes are
attributable to the consolidation of KHC's operations in 1995. Providence
Journal's 50% ownership interest in KHC's net operations included in the equity
in loss of affiliates amounted to $8.3 million and $7.2 million for 1994 and
1993, respectively. Management fees from KHC, which were eliminated in
consolidation in 1995, amounted to $3.5 million in each of the years 1994 and
1993, and are included in other income, net. As a result of the consolidation of
KHC's operations in 1995 and the related changes in equity in loss of affiliates
and other income, net loss from continuing operations for 1995 was $5.0 million
compared with $23.2 million in 1994.
Loss from the discontinued cable business is not reflected in 1995 because
loss on disposal of that business, including estimated loss during the 1995
phase-out period, was recognized in the fourth quarter of 1994. The loss from
the operations and disposal of discontinued wholly-owned cable operations
(excluding KHC's discontinued cable operation) in 1994 amounted to $36.6 million
of which $34.8 million reflected severance and transaction costs and $1.8
million reflected the loss from cable operations, net of allocated interest of
$20.7 million and loss during the phase-out period.
Net loss for 1995 was $9.6 million which includes an extraordinary charge
of $2.1 million related to the early extinguishment of debt. Net loss, including
the loss for discontinued operations of $36.6 million was $59.8 million in 1994.
Providence Journal Broadcasting (Historical)
The primary difference between "Historical" and "Supplemental Pro Forma"
results of operations for the Providence Journal Broadcasting Business in 1995
and 1994 is attributable to (i) an adjustment increasing amortization expense by
$5.6 million in 1995 and $7.5 million in 1994 in connection with the step-up in
carrying value of intangible assets resulting from the Kelso Buyout and (ii)
consolidation of KHC broadcast operations. See footnote (1) to "SELECTED
FINANCIAL DATA OF PROVIDENCE JOURNAL -- Supplemental Pro Forma Financial Data."
Historical depreciation and amortization increased $14.0 million in 1995 to
$21.9 million from $7.9 million in 1994 as a result of the consolidation of KHC
and additional amortization expense of $1.9 million associated with the step-up
in carrying values from the Kelso Buyout.
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<PAGE> 133
Providence Journal Broadcasting Business historical revenue and operating and
administrative expenses for 1995 compared to 1994 exhibited the same trends as
those discussed on a "Supplemental Pro Forma" basis. As a result of these
trends, the consolidation of KHC's operations, and the fluctuations discussed
above, the Providence Journal Broadcasting Business operating income increased
to $42.5 million in 1995 from $6.2 million in 1994.
HISTORICAL 1994 COMPARED TO HISTORICAL 1993
Consolidated (Historical)
Historical consolidated revenues increased 8.1% to $184.2 million in 1994
from $170.4 million in 1993. Providence Journal Broadcasting Business revenues
grew 18.7% to $54.0 million from $45.5 million due to a national improvement in
the economy. Providence Journal Publishing Business revenues grew slowly at 2.4%
to $127.9 million in 1994 from $124.9 million in 1993 reflecting a continuing
recession in the local economy serviced by the Providence Journal Publishing
Business. The Providence Journal Programming and Electronic Media Business began
its early stage development operating services in 1994 and generated $2.3
million in revenue. Operating and administrative expenses increased 2.7% on a
consolidated basis to $160.8 million in 1994 from $156.5 million in 1993
primarily due to $2.6 million in start-up costs associated with new operations
of the Providence Journal Programming and Electronic Media Business. Stock-based
compensation under Providence Journal's stock incentive plans increased $9.4
million to $15.1 million in 1994 from $5.7 million in 1993 primarily due to
payments required to be made under the terms of such plans as a result of a 40%
increase in the valuation of Providence Journal resulting from the Kelso Buyout,
the Spin-Off and the Continental Merger, as determined by an independent
appraiser. Depreciation and amortization declined slightly to $20.0 million in
1994 from $20.6 million in 1993 due to reduced capital spending. Other income,
net increased $3.9 million from $2.2 million in 1993 to $6.1 million in 1994. A
valuation adjustment resulting in an approximate $2.7 million loss associated
with Providence Journal's garage operation was recorded in 1993. Increases in
losses from affiliates of $4.6 million were primarily due to an increase of $1.1
million in Providence Journal's share of KHC's net operations (including
discontinued operations) and a $2.5 million increase in Providence Journal's
share of TVFN losses. Including the $6.0 million provision for income tax
settlements and contingencies in 1994 discussed earlier, loss from continuing
operations declined $6.9 million to $23.2 million in 1994 from $16.3 million in
1993.
As previously discussed, the loss from the operations and disposal of
discontinued wholly owned cable operations in 1994 amounted to $36.6 million.
The loss in 1993 from discontinued cable operations of $6.4 million includes
$19.8 million in allocated interest expense.
Net loss for 1994, including the $36.6 million loss for discontinued
operations, was $59.8 million. Net loss for 1993, including a $1.6 million
extraordinary gain associated with the early extinguishment of debt, was $21.1
million.
Providence Journal Broadcasting Business (Historical)
Broadcasting historical revenues grew 18.7% in 1994 to $54.0 million from
$45.5 million in 1993 reflecting national economic improvement and local market
growth. Operating and administrative expenses on an historical basis increased
4.2% to $39.9 million from $38.3 million. Historical depreciation declined to
$7.9 million in 1994 from $8.7 million in 1993 due to reduced capital spending
coupled with assets becoming fully depreciated. As a result of revenue growth
exceeding cost increases, the Providence Journal Broadcasting Business had
operating income of $6.2 million on a historical basis for 1994 compared to an
operating loss of $1.5 million in 1993.
Providence Journal Publishing Business (Historical)
Providence Journal Publishing Business revenues grew 2.4% in 1994 to $127.9
million from $124.9 million in 1993. The decline in advertising linage from 2.1
million in 1993 to 2.0 million in 1994 was offset by 3% rate increases. As a
result, advertising revenue increased 2.1% in 1994 to $95.1 million from $93.1
million in 1993. Circulation revenues declined slightly to $30.9 million from
$31.0 million in 1993 primarily as a result of the decline in the average net
paid daily circulation from 187,700 in 1993 to 183,900 in 1994, particularly in
the afternoon daily newspaper. Operating and administrative expenses increased
3.7% in 1994 to $107.4
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<PAGE> 134
million from $103.6 million in 1993, primarily due to $2.3 million of costs
associated with development efforts in 1994 related to a weekly "shopper" and
expanded information services and systems conversion costs of $1.0 million.
Depreciation and amortization remained relatively flat with $11.2 million in
1994 and $11.4 million in 1993. As a result of the above factors, operating
income for the Providence Journal Publishing Business declined 6.1% to $9.3
million in 1994 from $9.9 million in 1993.
Providence Journal Programming and Electronic Media Business (Historical)
The Providence Journal Programming and Electronic Media Business began
developing its operating services in 1994 and generated $2.3 million in revenue.
Operating expenses for the start-up of businesses in the Providence Journal
Programming and Electronic Media Business amounted to $2.6 million in 1994.
Equity in losses of affiliates of this segment increased $3.2 million primarily
due to costs incurred in developing operations at TVFN and PSN.
LIQUIDITY AND CAPITAL RESOURCES
Providence Journal has historically funded its working capital, debt
service, capital expenditures and dividend requirements primarily through cash
provided by its operating activities. Significant acquisitions or investments
have historically been funded primarily through long-term debt borrowings under
credit facilities. Its payment obligation resulting from the litigation
described under "BUSINESS OF PROVIDENCE JOURNAL -- Legal Proceedings" was $25
million, and was funded by Providence Journal on December 27, 1996 through
borrowings under Providence Journal's revolving credit facility. The following
table sets forth summary information from Providence Journal's Consolidated
Statement of Cash Flows for the years ended December 31, 1993, 1994, and 1995
and the nine months ended September 30, 1995 and 1996 included elsewhere in this
Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows provided by continuing
operations............................. $ 23,383 $ 24,927 $ 11,975 $ 11,667 $ 35,439
======== ======== ========= ======== ========
Cash flows provided by (used in)
investing activities:
Kelso Buyout, less cash acquired....... $ -- $ -- $(261,422) $ -- $ --
Investments in affiliates.............. (5,783) (6,555) (23,647) (17,379) (30,484)
Property, plant, and equipment......... (11,597) (6,481) (15,276) (12,613) (17,784)
Cash proceeds from sale of cable
operations, net of taxes paid(1).... -- -- 693,058 -- --
(Increase) decrease in investment in
cable operations through disposal
date................................ (4,528) 24,838 (66,459) (39,731) --
Proceeds from sale of assets........... 1,073 594 8,739 8,239 --
Other.................................. (2,800) 3,086 (58) -- --
-------- -------- --------- -------- --------
Total.......................... $(23,635) $ 15,482 $ 334,935 $(61,484) $(48,268)
======== ======== ========= ======== ========
Cash flows provided by (used in)
financing activities:
Issuance of Class A Common Stock, net
of expenses......................... $ -- $ -- $ -- $ -- $119,089
Net borrowings (repayments)............ 18,847 (19,345) (313,215) 66,893 (84,298)
Payments for television programming
rights financed..................... (7,296) (6,760) (16,166) (11,839) (12,936)
Dividends paid......................... (8,872) (9,711) (9,706) (7,266) (9,763)
Cash received from minority partners... -- -- -- -- 12,000
Purchases and adjustments to basis of
treasury stock...................... (2,387) (4,291) (7,353) -- --
Other.................................. -- -- (1,702) -- --
-------- -------- --------- -------- --------
Total.......................... $ 292 $(40,107) $(348,142) $ 47,788 $ 24,092
======== ======== ========= ======== ========
</TABLE>
- ---------------
(1) Represents $405,000 from the sale of KVC plus $410,000 assumption of New
Cable Indebtedness (defined below) less taxes of $121,942.
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<PAGE> 135
CASH FLOWS FROM OPERATIONS
The following table discusses cash flows from operations in a manner
intended to identify significant cash inflows and outflows. It is intended to
enhance the reader's understanding of, and reconciles EBITDA to, the cash flows
from operations as presented in Providence Journal's consolidated statement of
cash flows for the year ending December 31, 1995 and the nine months ended
September 30, 1996 included elsewhere in this Joint Proxy Statement/Prospectus.
Consolidated cash flows provided by (used in) operations can be analyzed as
follows:
<TABLE>
<CAPTION>
YEAR ENDED (UNAUDITED)
DECEMBER 31, NINE MONTHS ENDED
1995 SEPTEMBER 30, 1996
---------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
EBITDA:
Broadcasting....................................... $ 64,419 $ 55,315
Publishing (excluding Newspaper Consolidation Costs
and Newspaper Restructuring Costs).............. 14,808 15,708
Programming and Electronic Media................... (1,664) (25,983)
Corporate.......................................... (12,363) (9,356)
-------- --------
Total........................................... 65,200 35,684
Program rights amortization........................ 17,318 13,321
Interest paid...................................... (12,500) (15,200)
Income taxes (paid) received, net.................. (12,679) 25,000
Other working capital items and other income....... (6,765) (10,266)
-------- --------
Cash flow from operations before one-time cash
payouts....................................... 50,574 48,539
One-time cash payouts:
IRS and state tax settlements(1)................... (15,023) (3,500)
Stock-based compensation payouts in connection with
incentive stock unit plan liquidation (see
discussion below)............................... (20,633) --
Payment of working capital and other cable-related
disposal adjustments(2)......................... -- (8,900)
Cash paid related to Newspaper Consolidation
Costs(3)........................................ (2,943) (700)
-------- --------
Cash flow provided by operations................ $ 11,975 $ 35,439
======== ========
</TABLE>
- ---------------
(1) "IRS settlements" relates to amounts paid in connection with final
settlements reached with the Internal Revenue Service and applicable states
relating to examinations of Providence Journal's income tax returns for the
years 1984 through 1989.
(2) Includes working capital and other basis adjustments in disposal of cable
operations of $4.3 million and approximately $4.6 million in cash paid for
severance costs associated with such cable operations.
(3) Cash portion of Newspaper Consolidation Costs. See discussion of such costs
in "SELECTED FINANCIAL DATA OF PROVIDENCE JOURNAL -- Supplemental Pro Forma
Financial Data" and Note 8 of Providence Journal's consolidated financial
statements.
Stock-Based Compensation Payouts
Stock-based compensation payouts identified above totaling $20.6 million
relate to cash paid to participants in the liquidation of 85% of the units in
the IUP. An additional $6.6 million of this liability was settled in shares of
Providence Journal Class A Common Stock. Amounts paid to participants in the IUP
and for the remaining units previously were to be adjusted if, upon the
occurrence of a public offering of Continental class A common stock or certain
other events, the value of Continental class A common stock was greater or less
than the price attributed to such shares at the time 85% of the units were
liquidated. A similar adjustment was applicable to certain other stock-based
compensation plans of Providence Journal. See "THE MERGER AGREEMENT -- Certain
Covenants -- Providence Journal Employee Stock Options and Incentive Unit Plan."
As a result of the announcement of the US West Merger in February 1996, the
value of the Continental class A common stock was re-defined by the Compensation
Committee of the Providence Journal Board as the amount received by the holders
of Continental's class A common stock (the holders of which
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include the shareholders of Providence Journal that were shareholders of Old
PJC) upon consummation of the US West Merger or, if the merger agreement between
Continental and US West was terminated, the average of the closing prices for
Continental class A common stock during a specified trading period following
listing of Continental's class A common stock. In the nine months ended
September 30, 1996, Providence Journal recorded a charge to continuing
operations of $14.0 million and a pre-tax charge to discontinued operations of
$5.4 million to reflect the vested portion of an estimated $20.5 million
accounting adjustment to the stock-based compensation plans. In November 1996,
Providence Journal recorded a $2.7 million pre-tax credit to continuing
operations and a pre-tax credit of $1.6 million to discontinued operations as a
partial reversal of amounts recorded based on the closing of the US West Merger,
which occurred on November 15, 1996. Following payout of any additional amounts,
the IUP will be fully liquidated and terminated. The amount of the liquidation
of the IUP, including the 15% retained units and the estimated aforementioned
adjustments related to the US West Merger, total approximately $14.9 million of
which $3.9 million has been paid through the date of this Joint Proxy
Statement/Prospectus and the remainder of $11.0 million is expected to be paid
at the Effective Time. Such total will be paid in cash. In addition,
approximately $2.7 million has been paid in cash for similar adjustments under
the Providence Journal stock incentive plans other than the IUP.
CASH FLOWS -- INVESTING AND FINANCING ACTIVITIES
Investments in Affiliates
In addition to the Kelso Buyout, Providence Journal made significant
investments in the businesses in the Programming and Electronic Media Business
in 1995. Investments in AHN and TVFN totaled $10.3 million and $5.2 million,
respectively, in 1995. Investments in Peapod totaled $5.3 million in 1995 and
investments in PSN totaled $0.9 million in 1995. In 1995, Providence Journal
disposed of the Biltmore Hotel in Providence, Rhode Island, for approximately $7
million, which approximated net book value.
Investments in TVFN totaled $35.2 million in the first nine months of 1996
including the purchase by Providence Journal on May 14, 1996 of the equity
partnership interests held by Landmark and Scripps described above. Providence
Journal's investment in TVFN through September 30, 1996, including these
purchases and funding of its share of operating losses, totals $47.9 million,
which represents an equity interest of approximately 46%. Following those
purchases, Providence Journal held three of the five voting seats on the
management committee of TVFN. As a result of such purchases, TVFN became a
controlled subsidiary of Providence Journal and, effective May 1, 1996, was
consolidated into Providence Journal's results of operations. On January 6,
1997, Providence Journal purchased the 9.5% equity partnership interests in TVFN
held by Continental for a purchase price of $16.3 million. In connection with
this transaction, Providence Journal agreed to transfer a 1.4% equity interest
to Continental which interest had been given to Providence Journal in 1993 in
exchange for Providence Journal's agreement to carry TVFN on all of its former
cable systems. Following the consummation of such transaction, Providence
Journal owns an equity interest of approximately 55.5% in TVFN and holds four of
the five voting seats on the TVFN management committee.
On May 9, 1996 Providence Journal increased its investment in AHN to $35.3
million, which represents an equity interest of approximately 65%. Providence
Journal advanced $5.8 million in December 1996 as part of its commitment to
invest an additional $19.5 million by the first quarter of 1997 upon the
achievement of certain operating milestones, including entering into carriage
agreements and meeting certain revenue and ratings objectives.
The Continental Merger and Kelso Buyout
Providence Journal's significant investing and financing activities in 1995
are primarily related to the consummation of the Continental Merger and Kelso
Buyout transactions. The cash flows of KHC's operations are included in the
above table for 1995 since January 1, 1995, net of the effects of the acquired
assets and liabilities of KHC.
In connection with the Continental Merger and Kelso Buyout transactions,
Old PJC, prior to the Spin-Off, incurred indebtedness to a subsidiary of
Continental in a principal amount of approximately $408 million (net of $2
million in certain costs shared with Continental) ("New Cable Indebtedness").
Prior to the Spin-Off, Old PJC used the proceeds of the New Cable Indebtedness,
the $405 million provided by the sale of KVC and the Providence Journal
Indebtedness (defined below) to (i) consummate the Kelso Buyout, (ii) to
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<PAGE> 137
repay substantially all outstanding indebtedness of Old PJC and KHC in an
aggregate amount of approximately $623 million, and (iii) to pay other costs
associated with the transactions. Additional indebtedness (the "Providence
Journal Indebtedness") required to meet the foregoing obligations, among others,
was incurred by Old PJC and Providence Journal in the principal amount of $105
million. Following the Spin-Off, Providence Journal had no obligations or
liabilities with respect to the New Cable Indebtedness, and Continental had no
obligations or liabilities with respect to the Providence Journal Indebtedness.
In connection with the sale of KVC, KBC paid approximately $121 million in
taxes, which was funded by borrowings under Providence Journal's credit facility
in December 1995.
The effects of the above transactions on consolidated long-term debt and
consolidated stockholders' equity of Providence Journal are illustrated in the
following table comparing amounts immediately before the reorganization,
disposal of cable operations and the Kelso Buyout (effectively, September 30,
1995) with balances as of December 31, 1995:
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, DECEMBER 31,
1995 1995
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Consolidated Long-Term Debt....................... $337,400 $244,098
Consolidated Stockholders' Equity................. 277,745 263,239
Long-Term Debt to Equity Ratio.................... 1.21 .93
======== ========
</TABLE>
Providence Journal's debt to equity ratio at September 30, 1996 was .44.
Total debt outstanding as of September 30, 1996 was $159.8 million. The net
decrease in debt during the nine months ended September 30, 1996 was
substantially the result of the application to outstanding debt of $119.0
million net proceeds raised from Providence Journal's initial public offering
and direct placement of Providence Journal Class A Common Stock discussed
previously, plus receipt of income tax refunds of $25 million, net, offset by
investing activities during the period.
Credit Facility
The Providence Journal Indebtedness was incurred pursuant to the Credit
Agreement, which consists of a $75 million term loan and a $300 million
revolving credit facility. The amount of credit available as of September 30,
1996 under the revolving credit facility was approximately $225 million.
The amount available to be borrowed under Providence Journal's revolving
credit facility decreases quarterly commencing December 31, 1996, with a final
maturity on June 30, 2004. The amount available to be borrowed under the
revolving credit facility decreases as follows (in thousands): 1996 -- $4,000;
1997 -- $10,500; 1998 -- $14,500; 1999 -- $21,500; 2000 -- $53,250;
2001 -- $65,750; 2002 -- $67,750; and 2003 -- $62,750. The amount of credit
available under these facilities was reduced by $150 million effective October
8, 1996 pursuant to an amendment requested by Providence Journal. The
indebtedness evidenced by the Credit Agreement is secured by guarantees from all
of the principal subsidiaries of Providence Journal and a first priority pledge
of all such principal subsidiaries' capital stock. The Credit Agreement provides
for borrowings indexed, as Providence Journal may from time to time elect, to
the Eurodollar rate, the certificate of deposit rate, or the "base" rate of the
agent, plus the "spread" over such rates. The "spread" is determined by the
ratio of the total debt of Providence Journal to the operating cash flow of
Providence Journal (as defined by the Credit Agreement). The Credit Agreement
contains customary events of default, financial covenants, covenants restricting
the incurrence of debt (other than under the Credit Agreement), investments and
encumbrances on assets and covenants limiting mergers and acquisitions. See
"Business of Providence Journal -- Restrictions in Certain Agreements". The
Credit Agreement provides for the mandatory prepayment of amounts outstanding
and a reduction in the commitment under certain circumstances.
Providence Journal has hedged against a portion of its liability for
changes in interest rates on its revolving credit and term loan facilities
described above through an interest rate swap agreement. 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 set the interest rate
at December 31, 1995 at 8.1% on the first $200 million of outstanding debt.
Providence Journal recorded additional interest expense during 1995 and the nine
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<PAGE> 138
months ended September 30, 1996 of approximately $1.1 million and $1.8 million,
respectively, which represents the excess of the swap agreement rate over the
original contractual rate. The notional amounts under the agreement are as
follows: $200 million in 1996, $175 million in 1997 and $150 million in 1998 and
1999.
Dividends and Treasury Stock
Total gross dividends have been fairly constant over the past three years
at $9.7 million in 1995 and 1994 and $8.9 million in 1993. Including a special
dividend paid to stockholders of Providence Journal of $0.19 per share (after
giving effect to the 450-for-one stock split on June 18, 1996) prior to the
consummation of its initial public offering, total dividends paid in 1996 are
equivalent to the aggregate dividend paid in 1995. Because Providence Journal
did not intend to pay dividends following its initial public offering, such
special dividend was paid so that existing stockholders of Providence Journal
received an aggregate dividend in 1996 comparable to that received in 1995. No
additional dividends are contemplated in the foreseeable future.
As discussed in note 16 of the consolidated financial statements,
additional consideration totaling $7.4 million was paid in 1995 to a former
stockholder under the terms of a redemption agreement dated April 15, 1987 in
connection with a treasury stock repurchase at that time.
Capital Expenditures
Of the $15.3 million spent in 1995 on capital expenditures, $8.0 million
was spent by the Providence Journal Broadcasting Business, $3.2 million was
spent by the Providence Journal Publishing Business and $3.7 million was spent
in the Providence Journal Programming and Electronic Media Business. The
Providence Journal Broadcasting Business and the Providence Journal Programming
and Electronic Media Business capital expenditures consisted primarily of
maintenance of existing broadcasting plant and equipment as well as
approximately $2.1 million spent on advanced digital editing systems, with
another $4 million to $5 million planned for such digital editing systems in
1996. Total capital expenditures for the Providence Journal Broadcasting
Business in 1996 are currently expected to be approximately $12.5 million, of
which $8.3 million was spent in the first nine months of 1996. The Providence
Journal Publishing Business capital expenditures in 1995 of $3.2 million were
related to information and prepress systems and equipment replacement.
Approximately $2.5 million of capital expenditures were made for the Providence
Journal Publishing Business in 1996.
FUTURE FUNDING AND CAPITAL RESOURCES
Providence Journal anticipates that amounts available under its revolving
credit facility and cash flow from operations will be sufficient to meet the
liquidity requirements described above under "-- Liquidity and Capital
Resources."
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1996, Providence Journal adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The Statement encourages, but does not require, a fair value based
method of accounting for stock-based compensation plans. SFAS No. 123 allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method prescribed by APB Opinion No. 25. For those
entities electing to use the intrinsic value based method, SFAS No. 123 requires
pro forma disclosures of net income and earnings per share computed as if the
fair value based method had been applied. Providence Journal will continue to
account for stock-based compensation costs under APB Opinion No. 25 and will
provide the additional required disclosures relating to 1995 and 1996 stock
options in its 1996 Annual Report.
On January 1, 1996, Providence Journal adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. This statement also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying value or fair value less costs to sell. Adoption of SFAS No. 121 is not
expected to have a material impact on Providence Journal's consolidated
financial statements.
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PRINCIPAL STOCKHOLDERS OF PROVIDENCE JOURNAL
The following table sets forth information as of December 27, 1996 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)
the chief executive officer and the four most highly compensated executive
officers of Providence Journal, other than the chief executive officer, in 1995;
and (iv) all Directors and executive officers of Providence Journal as a group.
The number of shares beneficially owned by each stockholder, 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 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.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OF OUTSTANDING SHARES OF OUTSTANDING
CLASS A CLASS A CLASS B CLASS B AGGREGATE
NAME AND ADDRESS COMMON COMMON COMMON COMMON VOTING
OF BENEFICIAL OWNER STOCK STOCK STOCK STOCK POWER
- ---------------------------------------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Rhode Island Hospital Trust National
Bank(1)..................................... 4,051,137 14.7% 5,524,250 27.4% 24.1%
One Hospital Trust Tower
Providence, RI 02903
Fiduciary Trust Company International(2)...... 1,128,600 4.1% 1,405,800 7.0% 6.2%
Two World Trade Center
New York, NY 10048
Esther E. M. Mauran(3)........................ 1,197,000 4.3% 1,080,900 5.4% 5.1%
c/o Manasett Corporation
127 Dorrance Street
Providence, RI 02903
Frank Mauran(4)............................... 2,006,100 7.3% 2,115,000 10.5% 9.7%
c/o Manasett Corporation
127 Dorrance Street
Providence, RI 02903
Pauline C. Metcalf(5)......................... 1,359,000 4.9% 1,277,550 6.3% 6.0%
c/o Manasett Corporation
127 Dorrance Street
Providence, RI 02903
Jane P. Watkins(6)............................ 1,058,850 3.8% 1,114,200 5.5% 5.1%
c/o Manasett Corporation
127 Dorrance Street
Providence, RI 02903
Murray S. Danforth, III(7).................... 1,092,600 4.0% 1,038,600 5.2% 4.8%
c/o Manasett Corporation
127 Dorrance Street
Providence, RI 02903
</TABLE>
129
<PAGE> 140
<TABLE>
<CAPTION>
NAME OF DIRECTOR/
EXECUTIVE OFFICER(8)
- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephen Hamblett.............................. 372,674 1.4% 66,600 0.3% 0.6%
F. Remington Ballou........................... 22,950 0.1% 10,800 0.1% 0.1%
Henry P. Becton, Jr........................... 14,600 0.1% -- -- --
Fanchon M. Burnham(9)......................... 169,200 0.6% 169,200 0.8% 0.8%
Kay K. Clarke................................. 6,198 -- -- -- --
Peter B. Freeman.............................. 144,450 0.5% 180,000 0.9% 0.8%
Benjamin P. Harris, III....................... 23,425 0.1% 21,600 0.1% 0.1%
Paul A. Maeder(10)............................ 83,626 0.3% 153,000 0.8% 0.6%
Trygve E. Myhren.............................. 223,496 0.8% -- -- 0.2%
John W. Rosenblum............................. 8,550 -- -- -- --
W. Nicholas Thorndike(11)..................... 2,286,900 8.3% 2,429,550 12.1% 11.1%
John W. Wall.................................. 24,300 0.1% 32,400 0.2% 0.1%
Patrick R. Wilmerding(12)..................... 212,905 0.8% 271,800 1.4% 1.2%
John A. Bowers................................ 62,454 0.2% -- -- 0.1%
Jack C. Clifford.............................. 121,647 0.4% -- -- 0.1%
John L. Hammond............................... 28,602 0.1% -- -- --
Directors and Executive Officers as a Group
(25 Persons)................................ 3,998,191 14.5% 3,334,950 16.5% 16.0%
</TABLE>
- ---------------
(1) Rhode Island Hospital Trust National Bank ("Hospital Trust"), as a
fiduciary, possesses sole voting and investment power as to 303,650 shares
of Providence Journal Class A Common Stock and 1,137,600 shares of
Providence Journal Class B Common Stock and shared voting and investment
power as to 3,747,487 shares of Providence Journal Class A Common Stock and
4,386,650 shares of Providence Journal Class B Common Stock 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 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 692,550 shares of Providence Journal Class A
Common Stock and 855,000 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. 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 135,000 shares of Providence Journal Class A Common Stock; as to all
other shares, Fiduciary Trust Company International possesses sole voting
and investment power.
(3) Esther E. M. Mauran is a Director of Southland Communications, Inc., which
owns 1,087,200 shares of Providence Journal Class A Common Stock and
941,400 shares of Providence Journal Class B Common Stock. In addition,
Mrs. Mauran owns 109,800 shares of Providence Journal Class A Common Stock
and 139,500 shares of Providence Journal Class B Common Stock.
(4) Frank Mauran, the husband of Esther E. M. Mauran, owns 18,000 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 1,587,600 shares of
Providence Journal Class A Common Stock and 1,679,400 shares of Providence
Journal Class B Common Stock; and is co-trustee of the Esther E. M. Mauran
Family Trust, which holds 418,500 shares of Providence Journal Class A
Common Stock and 417,600 shares of Providence Journal Class B Common Stock.
(5) Pauline C. Metcalf is a Director of Southland Communications, Inc., which
owns 1,087,200 shares of Providence Journal Class A Common Stock and
941,400 shares of Providence Journal Class B Common Stock. In addition,
through a revocable trust, Ms. Metcalf owns 271,800 shares of Providence
Journal Class A Common Stock and 336,150 shares of Providence Journal Class
B Common Stock.
(6) Jane P. Watkins owns 52,650 shares of Providence Journal Class A Common
Stock and 117,000 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 997,200 shares of Providence
130
<PAGE> 141
Journal Class A Common Stock and 997,200 shares of Providence Journal Class
B Common Stock; and is co-trustee of a trust created by Mrs. Buchanan which
holds 9,000 shares of Providence Journal Class A Common Stock.
(7) Murray S. Danforth, III owns 503,100 shares of Providence Journal Class A
Common Stock and 472,500 shares of Providence Journal Class B Common Stock;
is sole trustee of a trust for the benefit of his sister which holds
508,500 shares of Providence Journal Class A Common Stock and 477,900
shares of Providence Journal Class B Common Stock; is co-trustee of a trust
for the benefit of his sister which holds 73,800 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 81,000 shares of Providence
Journal Class A Common Stock and 5,400 shares of Providence Journal Class B
Common Stock; and is co-trustee of the Manasett Corporation Retirement
Plan, which holds 9,000 shares of Providence Journal Class B Common Stock.
(8) Includes maximum number of shares subject to purchase within sixty days
upon the exercise of vested stock options as follows: Mr. Hamblett, 34,200;
Mr. Myhren, 64,800; Mr. Ballou, 4,500; Mr. Becton, 4,500; Ms. Burnham,
4,500; Ms. Clarke, 2,250; Mr. Freeman, 4,500; Mr. Harris, 4,500; Mr.
Maeder, 2,250; Mr. Rosenblum, 4,500; Mr. Thorndike, 4,500; Mr. Wall, 4,500;
Mr. Wilmerding, 4,500; Mr. Bowers, 12,600; Mr. Clifford, 13,500; Mr.
Hammond, 7,200; and Directors and Executive Officers as a Group, 213,300.
(9) Fanchon M. Burnham owns 52,650 shares of Providence Journal Class A Common
Stock, 66,150 shares of Providence Journal Class B Common Stock, and holds
vested options exercisable within sixty days to purchase an additional
4,500 shares of Providence Journal Class A Common Stock. She serves as a
co-trustee of trusts for her brother, which hold 94,950 shares of
Providence Journal Class A Common Stock and 85,050 shares of Providence
Journal Class B Common Stock. In addition, Mrs. Burnham's children own a
total of 17,100 shares of Providence Journal Class A Common Stock and
18,000 shares of Providence Journal Class B Common Stock.
(10) Paul A. Maeder owns 376 shares of Providence Journal Class A Common Stock
and holds vested options to purchase an additional 2,250 shares of
Providence Journal Class A Common Stock. He is one of four co-trustees of
the Murray S. Danforth, Jr. Grantor Trust No. 2 which holds 81,000 shares
of Providence Journal Class A Common Stock and 5,400 shares of Providence
Journal Class B Common Stock. He is co-trustee of two trusts, one for the
benefit of Murray S. Danforth, III and the other for the benefit of Mr.
Danforth's sister, with each trust holding 73,800 shares of Providence
Journal Class B Common Stock.
(11) W. Nicholas Thorndike owns 64,800 shares of Providence Journal Class A
Common Stock, 48,600 shares of Providence Journal Class B Common Stock, and
holds vested options exercisable within sixty days to purchase an
additional 4,500 shares of Providence Journal Class A Common Stock. He is a
co-trustee of several trusts for the benefit of members of another family
holding 1,130,400 shares of Providence Journal Class A Common Stock and
1,439,550 shares of Providence Journal Class B Common Stock. Mr. Thorndike
is a Director of Southland Communications, Inc., which owns 1,087,200
shares of Providence Journal Class A Common Stock and 941,400 shares of
Providence Journal Class B Common Stock.
(12) Patrick R. Wilmerding owns 59,005 shares of Providence Journal Class A
Common Stock, 129,600 shares of Providence Journal Class B Common Stock,
and holds vested options exercisable within sixty days to purchase an
additional 4,500 shares of Providence Journal Class A Common Stock. He is a
co-trustee of several trusts for the benefit of his family holding 149,400
shares of Providence Journal Class A Common Stock and 142,200 shares of
Providence Journal Class B Common Stock.
131
<PAGE> 142
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The Belo Series A Common Stock is listed on the NYSE under the symbol BLC.
The Providence Journal Class A Common Stock is listed on the NYSE under the
symbol PRJ. Neither the Belo Series B Common Stock nor the Providence Journal
Class B Common Stock is publicly traded.
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Belo Series A Common Stock and Providence
Journal Class A Common Stock as reported on the NYSE Composite Tape, in each
case based on published financial sources, and the dividends declared on such
stock. Belo Series A Common Stock market prices and dividends and Providence
Journal Class A Common Stock dividends have been adjusted for a two-for-one
stock split effected as a stock dividend on June 9, 1995, in the case of Belo,
and a 450-for-one stock split effected as a stock dividend on June 18, 1996, in
the case of Providence Journal. Providence Journal Class A Common Stock was not
publicly traded until the completion of its initial public offering on June 24,
1996.
<TABLE>
<CAPTION>
BELO SERIES A PROVIDENCE JOURNAL
COMMON STOCK CLASS A COMMON STOCK
------------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter...................... $27 1/2 $23 7/8 $ 0.075 -- -- $0.0636
Second Quarter..................... 25 3/16 21 9/16 0.075 -- -- 0.0636
Third Quarter...................... 26 1/8 21 11/1 0.075 -- -- 0.0636
Fourth Quarter..................... 28 5/8 23 3/4 0.075 -- -- 0.0636
1995
First Quarter...................... 30 1/4 27 13/16 0.075 -- -- 0.0636
Second Quarter..................... 32 5/8 28 3/16 0.08 -- -- 0.0636
Third Quarter...................... 36 3/4 29 0.08 -- -- 0.0636
Fourth Quarter..................... 36 3/4 32 1/2 0.08 -- -- 0.0636
1996
First Quarter...................... 37 3/8 31 0.08 -- -- 0.0636
Second Quarter..................... 39 7/8 32 5/8 0.11 16 1/4 15 1/4 0.1907(1)
Third Quarter...................... 41 3/4 33 5/8 0.11 29 7/8 14 1/2 --
Fourth Quarter..................... 40 33 3/4 0.11 32 1/2 29 1/8 --
1997
First Quarter (through January 3,
1997)........................... 35 33 1/4 -- 30 1/4 29 5/8 --
</TABLE>
- ---------------
(1) Includes a special dividend paid to stockholders of Providence Journal of
$0.19 per share (after giving effect to the 450-for-one stock split on June
18, 1996) prior to the consummation of its initial public offering. Because
Providence Journal did not intend to pay dividends following its initial
public offering, such special dividend was paid so that existing
stockholders of Providence Journal received an aggregate dividend in 1996
comparable to that received in 1995.
On September 25, 1996, the last full trading day prior to the public
announcement of the proposed Merger, the closing price on the NYSE (as reported
in The Wall Street Journal) was $37.88 per share of Belo Series A Common Stock
and $20.375 per share of Providence Journal Class A Common Stock. On January 3,
1997, the most recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the closing price on the NYSE (as reported in The Wall
Street Journal) was $33.88 per share of Belo Series A Common Stock and $29.75
per share of Providence Journal Class A Common Stock. Holders of Belo Common
Stock and Providence Journal Common Stock are urged to obtain current market
quotations for Belo Series A Common Stock and Providence Journal Class A Common
Stock, respectively, prior to making any decision with respect to the Merger.
In September 1996, the Belo Board increased Belo's current stock repurchase
authorization from 3,600,000 shares to 13,600,000 shares. In addition, Belo has
in place a repurchase program authorizing the purchase of up to $2,500,000 of
Belo stock annually. As of September 30, 1996, no shares had been repurchased in
1996. Belo repurchased 8,322,000 shares of Belo Series A Common Stock for an
aggregate cost
132
<PAGE> 143
of approximately $306,146,000 from October 1, 1996 through January 3, 1997,
funded primarily through borrowings under its revolving credit facility (which
is the identical number of shares and cost incurred for the period from
September 26, 1996 through the third business day prior to the date on which
this Joint Proxy Statement/Prospectus is mailed to Belo and Providence Journal
stockholders (the "Proxy Mailing Date")). Belo will not make any purchases in
the open market at any time when it would be prohibited from so doing under
applicable law or the Commission's rules, including, without limitation, during
the period commencing two business days prior to the Proxy Mailing Date and
ending on the later of the date of the Belo Stockholders Meeting and the
Providence Journal Stockholders Meeting, during the period in which the
Valuation Period Stock Price will be determined, or during the period between
the Mailing Date and the Election Deadline. At all other times, repurchases may
be made from time to time in open market and privately negotiated transactions.
There is no scheduled date for completion of Belo's repurchase program. Belo may
suspend its stock repurchases from time to time or discontinue its repurchase
program at any time. There can be no assurance given as to the market value of
Belo Common Stock after the Merger, which may be affected by future
acquisitions, if any, and other factors including, but not limited to, general
economic conditions and fluctuating interest rates.
The payment of future dividends on Belo Series A Common Stock will be a
business decision to be made by the Belo Board from time to time based upon the
results of operations and financial condition of Belo and such other factors as
the Belo Board considers relevant.
133
<PAGE> 144
CAPITALIZATION
The following table sets forth the capitalization of Belo and Providence
Journal as of September 30, 1996 and the pro forma capitalization of Belo and
Providence Journal after giving effect to the Merger. This table should be read
in conjunction with the "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS" included elsewhere in this Joint Proxy Statement/Prospectus and the
Belo and Providence Journal historical consolidated financial statements,
including the notes thereto, which are incorporated by reference or included
elsewhere in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
HISTORICAL
--------------------- ELIMINATION OF THE
PROVIDENCE NET BOOK VALUE OF PRO
BELO JOURNAL ADJUSTMENTS(1) KIRO(2) FORMA
-------- ---------- -------------- ------------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BORROWINGS:
Existing Debt..................... $361,657 $ 159,800 $ (159,800) $ -- $ 361,657
New Debt.......................... -- -- 1,137,748 (160,000) 977,748
-------- -------- ---------- --------- ----------
Total............................. 361,657 159,800 977,948 (160,000) 1,339,405
Total Shareholders' Equity........ 637,689 362,376 (362,376) -- 1,213,872
576,183
-------- -------- ---------- --------- ----------
Total Capitalization.............. $999,346 $ 522,176 $1,191,755 $ (160,000) $2,553,277
======== ======== ========== ========= ==========
</TABLE>
- ---------------
(1) Assumes the issuance of 25,391,000 shares of Belo Series A Common Stock at
an assumed price of $34.75 per share and payment of $587,000,000 in cash to
acquire all of the issued and outstanding Providence Journal Common Stock,
payment of $99,500,000 to (a) cash out all Providence Journal Employee Stock
Options; (b) satisfy stock-based compensation plans pertaining primarily to
the US West Merger; (c) settle obligations under Providence Journal
severance agreements; and (d) satisfy miscellaneous expenses in connection
with the Merger. See "THE MERGER -- Interests of Certain Persons in the
Merger" and "THE MERGER AGREEMENT -- Certain Covenants -- Providence Journal
Employee Stock Options and Incentive Unit Plan," and refinancing of
Providence Journal's existing debt. See "THE MERGER AGREEMENT -- Merger
Consideration." Adjustments also reflect additional borrowings of
approximately $306,146,000 and a corresponding reduction in shareholders'
equity to reflect the repurchase by Belo of 8,322,000 shares of Belo Series
A Common Stock subsequent to September 30, 1996.
(2) Upon consummation of the Merger, Belo will own two television stations in
the Seattle-Tacoma, Washington market (KIRO and KING). Pursuant to FCC
regulations, two competing television stations in a market may not be owned
by the same entity. In accordance with these regulations, Belo will be
required to divest one of these stations. Belo currently intends to either
sell KIRO or exchange it for one or more other television stations. The pro
forma capitalization reflects a reduction in long-term debt by the amount of
KIRO's net book value.
134
<PAGE> 145
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
BELO/PROVIDENCE JOURNAL COMBINED COMPANY
The unaudited pro forma combined condensed statements of earnings for the
nine months ended September 30, 1996 and for the year ended December 31, 1995
give effect to the Merger and certain additional transactions identified in the
accompanying notes as if they had occurred at the beginning of each period
presented. The unaudited pro forma combined condensed balance sheet at September
30, 1996 gives effect to the Merger and each such transaction as if they had
occurred on such date. The pro forma information is based on the historical
consolidated financial statements of Belo and Providence Journal and their
subsidiaries under the assumptions and adjustments set forth in the accompanying
Notes to Unaudited Pro Forma Combined Condensed Financial Statements. The
unaudited pro forma combined condensed financial statements are presented for
comparative purposes only and are not necessarily indicative of the results of
operations or financial position of the combined company that would have
occurred had the Merger been consummated at the beginning of each period
presented or on the date indicated, nor are they necessarily indicative of
future operating results or financial position.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the Belo and Providence Journal audited consolidated
financial statements and unaudited interim consolidated financial statements,
including the notes thereto, which are incorporated by reference or included
elsewhere in this Joint Proxy Statement/Prospectus. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "CONSOLIDATED FINANCIAL STATEMENTS OF
PROVIDENCE JOURNAL."
The Merger will be accounted for by the purchase method of accounting.
Accordingly, Belo's cost to acquire the outstanding shares of Providence Journal
Common Stock (the "Purchase Consideration"), calculated to be $1.5 billion
assuming a Valuation Period Stock Price of $34.75, will be allocated to the
tangible assets acquired and liabilities assumed according to their respective
fair values, with the excess Purchase Consideration being allocated to
intangible assets. The total cost to acquire Providence Journal is subject to
change, to the extent that fluctuations in the market value of Belo Series A
Common Stock cause the Valuation Period Stock Price to change. A change in the
Valuation Period Stock Price will result in a corresponding change in intangible
assets and related amortization expense. The final allocation of the Purchase
Consideration is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such an
allocation in the accompanying unaudited pro forma combined condensed financial
statements. Accordingly, the purchase allocation adjustments made in connection
with the development of the unaudited pro forma combined condensed financial
statements are preliminary and have been made solely for the purpose of
developing such unaudited pro forma combined condensed financial statements.
The future results of operations of Belo will reflect increased
amortization of intangible assets, increased interest expense and a higher
effective income tax rate, since a significant portion of the consideration to
be received by Providence Journal stockholders upon the consummation of the
Merger will be non-deductible for tax purposes.
The Pro Forma Combined Condensed Statements of Operations include
historical stock-based compensation expense of Providence Journal ($14.9 million
and $2.4 million for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively). The underlying compensation plans will be
settled and terminated prior to the Merger; therefore, there will be no such
expense from these plans in future periods. Belo believes that synergies from
the Merger could result in other cost savings, including an estimated reduction
in corporate expenses of approximately $8 million on an annual basis, primarily
due to the elimination of duplicate corporate staff positions after the Merger.
The full extent of such savings are not currently quantifiable.
The future financial position of Belo will reflect increased intangible
assets as described above, increased borrowings and increased shareholders'
equity resulting from the issuance of Belo Series A Common Stock to stockholders
of Providence Journal. See "NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS."
135
<PAGE> 146
A. H. BELO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------- ---------------------------------------
PROVIDENCE ELIMINATION
BELO JOURNAL ADJUSTMENTS OF KIRO(F) COMBINED
-------- ---------- ----------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Operating Revenues:
Broadcasting..................... $240,795 $ 149,819 $ -- $(35,609) $355,005
Newspaper Publishing............. 359,128 95,176 -- -- 454,304
Programming and Electronic
Media......................... 2,287 9,412 3,677 (e) -- 15,376
-------- -------- -------- -------- --------
Total Net Operating
Revenues............... 602,210 254,407 3,677 (35,609) 824,685
Operating Costs and Expenses....... 442,768 236,849 8,435 (e) (30,020) 658,032
Depreciation....................... 34,216 18,441 454 (e) (4,424) 48,687
Amortization....................... 14,827 13,688 20,228 (a) (2,303) 46,440
-------- -------- -------- -------- --------
Earnings (Loss) From Operations.... 110,399 (14,571) (25,440) 1,138 71,526
Interest Expense................... (20,531) (15,246) (25,605)(b) 6,960 (54,422)
Equity in Loss of Affiliated
Companies........................ -- (3,521) 1,078 (e) -- (2,443)
Other, Net......................... 5,381 4,285 53 (e) -- 9,719
-------- -------- -------- -------- --------
Earnings (Loss) Before Income Taxes
and Minority Interest............ 95,249 (29,053) (49,914) 8,098 24,380
Income Taxes....................... 38,103 (2,200) (19,908)(c) 3,239 19,234
-------- -------- -------- -------- --------
Earnings (Loss) From Continuing
Operations....................... 57,146 (26,853) (30,006) 4,859 5,146
Minority Interest.................. -- 6,253 1,294 (e) -- 7,547
-------- -------- -------- -------- --------
Earnings (Loss) From Continuing
Operations After Minority
Interest......................... $ 57,146 $ (20,600) $ (28,712) $ 4,859 $ 12,693
======== ======== ======== ======== ========
Earnings (Loss) Per Common and
Common Equivalent Share(d):
Earnings (Loss) From Continuing
Operations After Minority
Interest...................... $ 1.36 $ (0.49) $ 0.19
======== ======== ========
Weighted Average Shares
Outstanding...................... 42,142 41,411 67,533
======== ======== ========
</TABLE>
See accompanying notes
136
<PAGE> 147
A. H. BELO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PROVIDENCE ELIMINATION
BELO JOURNAL ADJUSTMENTS OF KIRO(F) COMBINED
-------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Operating Revenues:
Broadcasting.................... $322,642 $ 180,547 $ -- $(39,893) $ 463,296
Newspaper Publishing............ 409,099 128,491 -- -- 537,590
Programming and Electronic
Media........................ 3,602 3,468 5,157 (e) -- 12,227
-------- -------- -------- -------- ----------
Total Net Operating
Revenues.............. 735,343 312,506 5,157 (39,893) 1,013,113
Operating Costs and Expenses...... 539,333 265,151 29,124 (e) (35,985) 797,623
Depreciation...................... 42,270 22,346 1,306 (e) (4,805) 61,117
Amortization...................... 17,177 11,623 33,598 (a) (2,765) 59,633
-------- -------- -------- -------- ----------
Earnings (Loss) From Operations... 136,563 13,386 (58,871) 3,662 94,740
Interest Expense.................. (29,987) (11,395) (48,735)(b) 9,240 (80,877)
Equity in Loss of Affiliated
Companies....................... -- (7,835) 6,012 (e) -- (1,823)
Other, Net........................ 4,438 4,797 262 (e) -- 9,497
-------- -------- -------- -------- ----------
Earnings (Loss) Before Income
Taxes and Minority Interest..... 111,014 (1,047) (101,332) 12,902 21,537
Income Taxes.................... 44,438 3,956 (32,297)(c) 5,161 21,258
-------- -------- -------- -------- ----------
Earnings (Loss) From Continuing
Operations...................... 66,576 (5,003) (69,035) 7,741 279
Minority Interest............... -- (2,559) 8,491 (e) -- 5,932
-------- -------- -------- -------- ----------
Earnings (Loss) From Continuing
Operations After Minority
Interest........................ $ 66,576 $ (7,562) $ (60,544) $ 7,741 $ 6,211
======== ======== ======== ======== ==========
Earnings (Loss) Per Common and
Common Equivalent Share(d):
Earnings (Loss) From Continuing
Operations After Minority
Interest..................... $ 1.68 $ (0.20) $ 0.10
======== ======== ==========
Weighted Average Shares
Outstanding..................... 39,646 38,507 65,037
======== ======== ==========
</TABLE>
See accompanying notes
137
<PAGE> 148
A. H. BELO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -----------------------------------------------
------------------------- ELIMINATION OF
PROVIDENCE NET BOOK
BELO JOURNAL ADJUSTMENTS VALUE OF KIRO(G) COMBINED
---------- ---------- ----------- ---------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash
Equivalents............ $ 15,800 $ 11,350 $ (11,350)(a) $ (416) $ 15,384
Accounts Receivable, Net
of Allowance For
Doubtful Accounts...... 115,384 52,908 -- (9,647) 158,645
Other Current Assets...... 28,523 68,210 (3,349)(a) (820) 92,564
Property, Plant and
Equipment, Net......... 363,065 178,831 -- (39,560) 502,336
Intangible Assets, Net.... 587,164 371,434 1,437,398 (b) (117,682) 2,278,314
Other Assets, Net......... 99,653 51,152 -- (2,450) 148,355
---------- -------- ---------- --------- ----------
$1,209,589 $ 733,885 $ 1,422,699 $ (170,575) $3,195,598
========== ======== ========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Total Current
Liabilities............ $ 79,069 $ 81,146 $ (19,522)(e) $ (3,154) $ 137,539
Long-Term Debt............ 361,657 159,700 671,902 (c) (160,000) 1,339,405
306,146 (d)
Other Long-Term
Liabilities............ 131,174 117,443 250,366 (e) (7,421) 491,562
Minority Interest......... -- 13,220 -- -- 13,220
Shareholders' Equity...... 637,689 362,376 519,953 (f) -- 1,213,872
(306,146)(d)
---------- -------- ---------- --------- ----------
$1,209,589 $ 733,885 $ 1,422,699 $ (170,575) $3,195,598
========== ======== ========== ========= ==========
Common Stock Outstanding.... 44,301 47,611 61,370
========== ======== ==========
Book Value Per Share........ $ 14.39 $ 7.61 $ 19.78
========== ======== ==========
</TABLE>
See accompanying notes
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<PAGE> 149
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The pro forma combined condensed financial statements reflect the
following:
(i) Issuance of 25,391,000 shares of Belo Series A Common Stock at an
assumed price of $34.75 per share and the payment of $587,000,000 in
cash to acquire all of the issued and outstanding shares of
Providence Journal;
(ii) Assumed divestiture, following the Merger, of KIRO-TV through sale
or exchange for one or more other television stations (upon
completion of the Merger, Belo will own two television stations in
the Seattle-Tacoma, Washington market which is not allowed under
current FCC regulations);
(iii) Acquisition by Providence Journal of controlling interests in KHC,
AHN and TVFN prior to execution of the Merger Agreement;
In addition, the pro forma combined condensed balance sheet has been
adjusted to reflect the repurchase by Belo of 8,322,000 shares of Belo Series A
Common Stock, subsequent to September 30, 1996, for approximately $306,146,000,
using borrowings under its revolving credit facility.
Consideration exchanged in the Merger (based on the assumptions described
in (i) above) would consist of the following:
<TABLE>
<S> <C>
Belo Series A Common Stock............................................. $ 882,329
Cash................................................................... 587,039
Settlement of obligations, net of tax benefit(1)....................... 40,728
----------
Total.......................................................... 1,510,096
Less:
Providence Journal's net assets acquired as of September 30, 1996...... (362,376)
Add:
Deferred tax liabilities resulting from the Merger..................... 289,678
----------
Excess of purchase price over net assets acquired........................ $1,437,398
==========
</TABLE>
- ---------------
(1) Prior to, or shortly after the Merger, the following will occur: (a) cash
out all Providence Journal Employee Stock Options; (b) satisfaction of
stock-based compensation plans pertaining primarily to the US West Merger;
(c) settlement of obligations under Providence Journal employment
agreements; and (d) satisfaction of miscellaneous expenses in connection
with the Merger. These amounts have been reduced by certain accruals
recorded by Providence Journal and the applicable tax benefit. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT -- Certain Covenants -- Providence Journal Employee Stock Options
and Incentive Unit Plan."
Certain reclassifications have been made to Providence Journal's historical
consolidated financial statements to conform to Belo's presentation.
Pro forma adjustments giving effect to the Merger in the unaudited pro
forma combined condensed statements of earnings reflect the following:
(a) Amortization of the excess of the purchase price over net tangible
assets acquired, on a straight-line basis over 40 years, net of elimination
of the Providence Journal historical amortization of excess acquisition
costs over the values assigned to net tangible assets acquired in prior
acquisitions.
(b) Increase in interest expense resulting from net borrowings
incurred to finance the cash portion of the Aggregate Merger Consideration
and the cash settlement of certain obligations of Providence Journal less
the benefit of the assumed refinancing of Providence Journal's long-term
debt at Belo's interest rate. The interest rate on borrowings is assumed to
be 5.8% for 1996 and 6.3% for 1995, which is based on Belo's weighted
average borrowing rates during the respective periods. A change of 1/8 of
1% in
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<PAGE> 150
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
the assumed interest rate will change the pro forma annual interest expense
by approximately $1.6 million.
(c) Income tax effect of pro forma adjustments.
(d) Earnings per share based upon the weighted average number of
shares of Belo common and common equivalent shares outstanding for each
period presented, adjusted to include 25,391,000 shares of Belo Series A
Common Stock assumed to be issued in the Merger.
(e) To reflect the pro forma impact of acquisitions made by Providence
Journal prior to the transaction with Belo as if those acquisitions had
been made as of the beginning of each period presented. These acquisitions
include: (1) increasing its interest in KHC from 50% to 100% on October 5,
1995; (2) obtaining a controlling interest in AHN effective January 1,
1996; and (3) acquiring a controlling interest in TVFN effective May 1,
1996. See "PROVIDENCE JOURNAL CONSOLIDATED FINANCIAL STATEMENTS" for more
details on these transactions.
(f) Removal of the results of operations of KIRO, including related
interest expense based on a reduction in long-term debt, by the amount of
KIRO's net book value.
Pro forma adjustments in the unaudited pro forma combined condensed balance
sheet giving effect to the Merger and the repurchase of Belo Series A Common
Stock subsequent to September 30, 1996, reflect the following:
(a) Liquidation of certain cash balances and short-term investments to
fund partial payment of the Aggregate Merger Consideration.
(b) Excess of purchase price over net assets acquired.
(c) Borrowings incurred to finance the cash portion of the Aggregate
Merger Consideration and the cash settlement of certain obligations of
Providence Journal.
(d) Repurchase by Belo of 8,322,000 shares of Belo Series A Common
Stock, subsequent to September 30, 1996, using borrowings under its
revolving credit facility.
(e) Liquidation of certain accrued liabilities upon settlement of
obligations and recording of net deferred tax liability resulting from the
purchase price allocation.
(f) Elimination of Providence Journal stockholders' equity and
issuance of 25,391,000 shares of Belo Series A Common Stock in the Merger.
(g) Removal of the assets and liabilities of KIRO, with a
corresponding reduction in long-term debt by the amount of KIRO's net book
value.
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<PAGE> 151
MANAGEMENT OF BELO AND
PROVIDENCE JOURNAL NEWSPAPER CO. AFTER THE MERGER
BELO BOARD
At the Effective Time, pursuant to the Merger Agreement and the Belo
Bylaws, the number of directors comprising the full Belo Board will be increased
from 14 to 18. As permitted by the Belo Bylaws, the Belo Board will fill the new
vacancies pursuant to the Merger Agreement. The four new members of the Belo
Board will be Stephen Hamblett and three other members of the Providence Journal
Board as yet undetermined.
Stephen Hamblett, 62, is currently Chairman of the Providence Journal
Board, Chief Executive Officer of Providence Journal and Publisher of the
Providence Journal Newspapers. He has served in such capacities 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, Continental and
the Inter American Press Association.
BELO MANAGEMENT
Belo is under no obligation to make, and does not anticipate making, any
changes in its current officers and other senior management employees in
connection with the Merger.
BELO HOLDINGS BOARD AND MANAGEMENT
The persons constituting the Board of Directors of Belo Holdings and Belo
Holdings management prior to the Effective Time will remain the directors and
managers, respectively, of Belo Holdings after the Effective Time.
PROVIDENCE JOURNAL NEWSPAPER CO. BOARD
From and after the Effective Time, the Providence Journal Newspaper Co.
Board will consist of the current members of the Providence Journal Board listed
below, except for those members (other than Mr. Hamblett) elected to the Belo
Board who shall resign from the Providence Journal Newspaper Co. Board. See "THE
MERGER AGREEMENT -- Certain Covenants -- Directorships; Corporate Governance;
Charitable Contributions."
F. Remington Ballou, 67, is Chief Executive Officer of B. A. Ballou & Co.
Inc., a jewelry manufacturing company, and served as its president from 1965 to
1995. Mr. Ballou has served as a Director of Providence Journal since 1985. He
is also a Director of Keyport Life Insurance Co. and Rhode Island Hospital Trust
National Bank.
Henry P. Becton, Jr., 53, 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 and currently serves as Chairman of the Nominating
Committee of the Providence Journal Board. 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, 52, 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.
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<PAGE> 152
Kay K. Clarke, 58, is President of Templeton, Ltd., a management consulting
firm. Prior to that, Ms. Clarke was President of the Micromarketing Division and
Senior Vice President -- Business Development for ADVO, Inc., which she joined
in 1990, from McGraw-Hill, Inc., where she was Executive Vice President. Ms.
Clarke is also a director of Guardian Life Insurance Company of America, Age
Wave, Inc. and Cybex International, Inc. Ms. Clarke joined the Providence
Journal Board in 1995.
Peter B. Freeman, 64, has been a Director of Providence Journal since 1981
and currently serves as Chairman of the Audit Committee of the Providence
Journal Board. During the past five years Mr. Freeman has been self-employed as
a corporate director and trustee, including serving as a director of Blackstone
Valley Electric Company, AMICA Mutual Insurance Company and AMICA Life Insurance
Company, a trustee of Eastern Utilities Associates, as well as a trustee or
director of the following investment companies managed by Scudder, Stevens &
Clark: Scudder Fund, Inc.; Scudder Institutional Fund, Inc.; Scudder Cash
Investment Trust; Scudder California Tax Free Trust; Scudder Municipal Trust;
Scudder State Tax Free Trust; Scudder Tax Free Money Fund; Scudder Tax Free
Trust; Scudder Funds Trust; and Scudder Variable Life Investment Fund.
Benjamin P. Harris, III, 60, has been a partner in the law firm of Edwards
& Angell, Providence, Rhode Island, since 1969 and became a senior partner as of
January 1, 1996. Mr. Harris has been a Director of Providence Journal since
1985. Mr. Harris is also a director of The Providence Mutual Fire Insurance
Company.
Paul A. Maeder, 42, is Managing General Partner of Highland Capital
Partners, Inc., where he manages the firm's technology investments. Before
joining Highland in 1988, Mr. Maeder was a general partner at Charles River
Ventures. Mr. Maeder is also a Director of AVID, The Dodge Group, SQA, Inc.,
HighGround Systems Inc., Mainspring Communications, Inc. and PureSpeech, Inc.
Mr. Maeder has been a Director of Providence Journal since 1995.
Trygve E. Myhren, 59, was President and Chief Operating Officer of
Providence Journal from 1990 until his resignation on March 31, 1996. From 1981
to 1988, Mr. Myhren was Chairman and Chief Executive Officer of American
Television and Communications Corporation (now Time Warner Cable). 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., Peapod, Cable Labs and Founders Fund, Inc. In
addition, Mr. Myhren is a trustee of the University of Denver and Lifespan
Corporation. Mr. Myhren has been a Director of Providence Journal since 1994.
John W. Rosenblum, 52, became the Tayloe 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 and currently serves as Chairman of the Compensation
Committee of the Providence Journal Board.
W. Nicholas Thorndike, 63, has been a Director of Providence Journal since
1984 and currently serves as Chairman of the Executive Committee of the
Providence Journal Board. 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 of Directors 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
Directors 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, 72, 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
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<PAGE> 153
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, 53, 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 and a trustee of five U.S. business trusts
managed by Martin Currie Investment Management Ltd.
PROVIDENCE JOURNAL NEWSPAPER CO. AND OTHER SUBSIDIARY MANAGEMENT
At the Effective Time, the officers and other management employees of the
Providence Journal subsidiaries acquired by Belo will be those persons holding
the same offices or other management positions at such Providence Journal
subsidiaries immediately prior to the Effective Time. After the Effective Time,
Mr. Hamblett will become CEO and Publisher of Providence Journal Newspaper Co.
and the Directors of Providence Journal (other than the three Directors who will
be elected to the Belo Board) will become Directors of Providence Journal
Newspaper Co. Thereafter, officers and other management employees of Providence
Journal Newspaper Co. will be determined by the Providence Journal Newspaper Co.
Board in accordance with Providence Journal Newspaper Co.'s Certificate of
Incorporation and Bylaws.
DESCRIPTION OF BELO CAPITAL STOCK
Belo's authorized capital stock consists of 150,000,000 shares of Belo
Common Stock and 5,000,000 shares of Preferred Stock, $1.00 par value per share
("Belo Preferred Stock").
BELO COMMON STOCK
Belo's 150,000,000 shares of authorized Common Stock may be issued and
designated as Series A Common Stock, Series B Common Stock and/or Series C
Common Stock. As of December 31, 1995, 135,000,000 shares of Common Stock had
been designated Series A Common Stock and 15,000,000 shares of Common Stock had
been designated Series B Common Stock. No shares of Series C Common Stock have
been designated. Under the Belo Certificate, Belo may not issue any additional
shares of Series B Common Stock if such issuance would result in the Series A
Common Stock being excluded from trading on the NYSE or other national stock
exchange or quotation system. Except for this limitation, the Belo Board has the
authority to fix the number of shares constituting any such series and to
increase or decrease the number of shares of any series prior to or after the
issuance of shares of that series, but not below the number of shares of such
series then outstanding.
The issued and outstanding shares of Belo Series A Common Stock and Belo
Series B Common Stock vote together as a single class on all matters submitted
to a vote of stockholders, with each issued and outstanding share of Belo Series
A Common Stock entitled to one vote and each issued and outstanding share of
Belo Series B Common Stock entitled to ten votes on all such matters, except
that class votes by series are required with respect to (i) any amendment to the
Belo Certificate that alters or changes the powers, preferences, or special
rights of their respective series so as to affect them adversely, and (ii) such
other matters as require class votes under the DGCL. Cumulative voting is not
permitted in the election of directors.
Transferability of the Belo Series B Common Stock is limited to family
members and affiliated entities of the holder. Shares of Belo Series B Common
Stock are convertible at any time on a one-for-one basis into Belo Series A
Common Stock.
Holders of either series of Belo Common Stock are entitled to receive
dividends, if any, as may be declared by the Belo Board out of funds legally
available therefor and are entitled to share ratably in the net assets available
for distribution to such holders upon liquidation, dissolution and winding up of
Belo. Dividends must be paid on both the Belo Series A Common Stock and Belo
Series B Common Stock at any time that dividends are paid on either.
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<PAGE> 154
BELO PREFERRED STOCK
None of Belo's 5,000,000 shares of authorized Preferred Stock is
outstanding. The Belo Certificate authorizes the Belo Board, without any further
action by the stockholders, to issue the Belo Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each series and to fix the designations, powers, preferences and rights of the
shares of each series and the qualifications, limitations or restrictions
thereof. The Belo Board has designated 150,000 shares of Belo Preferred Stock as
Series A Junior Participating Preferred Stock, reserved for issuance under the
Belo Rights Agreement. See "-- Stockholders Rights Plan." Although the ability
of the Belo Board to designate and issue shares of the Belo Preferred Stock
provides desirable flexibility, including the ability to engage in future public
offerings to raise additional capital, the issuance of shares of the Belo
Preferred Stock may have adverse effects on the holders of Belo Common Stock,
including restrictions on dividends on the Belo Common Stock if dividends on
shares of the Belo Preferred Stock have not been paid; dilution of voting power
of the Belo Common Stock to the extent the shares of the Belo Preferred Stock
have voting rights; or, deferral of participation in Belo's assets upon
liquidation until satisfaction of any liquidation preference granted to holders
of shares of the Belo Preferred Stock. In addition, issuance of shares of the
Belo Preferred Stock could make it more difficult for a third party to acquire a
majority of the outstanding voting stock and accordingly may be used as an
"anti-takeover" device. The Belo Board, however, currently does not contemplate
the issuance of any shares of the Belo Preferred Stock unless required in
connection with Belo's stockholders rights plan. See "-- Certain Anti-Takeover
Matters" and "-- Stockholders Rights Plan."
FOREIGN OWNERSHIP
The Belo Bylaws provide that at no time shall aliens (as defined in the
Belo Bylaws) (i) own, directly or indirectly, more than one-fourth of the equity
in Belo, or in any other corporation directly or indirectly controlling Belo,
that is represented by the issued and outstanding capital stock; or (ii) vote,
directly or indirectly, more than one-fourth of the total voting rights in Belo,
or in any other corporation directly or indirectly controlling Belo, that are
represented by the issued and outstanding capital stock. The percentage of
voting rights and equity ownership of aliens in Belo's issued and outstanding
capital stock shall be determined in accordance with the Communications Act and
FCC rules and regulations. If and so long as circumstances exist which violate
the foregoing Bylaw provisions, any stockholders causing or contributing to such
violation shall have no voting, dividend or other rights with respect to the
shares of Belo that they may hold, except the right to transfer such shares in
such a manner that the violation will cease to exist. No transfers of shares of
domestic record to aliens shall be made if such a violation exists or if such
transfer would result in such a violation. If Belo shall determine that stock of
domestic record in fact is held or voted, in whole or in part, by or for the
account of an alien, and that such interest would give rise to a violation of
the foregoing Bylaw provision, the holder of such stock shall not be entitled to
vote, to receive dividends or to exercise any other normal stockholder rights,
except the right to transfer such stock to a citizen of the United States of
America. The Belo Board has broad authority under the Belo Bylaws to administer
these provisions.
CERTAIN ANTI-TAKEOVER MATTERS
Belo is a Delaware corporation and is subject to Section 203 of the DGCL
("Section 203"). In general, subject to certain exceptions, Section 203
prohibits a Delaware corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless (i) prior to such date
the Belo Board approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, or (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85 percent of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares owned by (x) persons who are directors and also
officers and (y) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer), or (iii) at or subsequent to
such time, the business combination is approved by the Belo Board and authorized
at an annual or special meeting of
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stockholders, and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock which is not owned by the
interested stockholder. Section 203 defines a "business combination" to include
certain mergers, consolidations, asset sales and stock issuances and certain
other transactions resulting in a financial benefit to an "interested
stockholder." In addition, Section 203 defines an "interested stockholder" to
include any entity or person beneficially owning 15 percent or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with such an entity or person.
CERTIFICATE OF INCORPORATION; BYLAWS
The Belo Certificate and Belo Bylaws contain several provisions that may
make the acquisition of control of Belo by means of a tender offer, open market
purchases, a proxy contest or otherwise more difficult. Set forth below are
brief descriptions of those provisions.
Classified Belo Board. The Belo Bylaws divide the Belo Board into three
classes, with each class being as nearly equal in number as possible. At each
annual meeting of stockholders, directors are elected to succeed those directors
whose terms have expired, and each newly elected director serves for a
three-year term. Belo believes that a classified Belo Board helps assure the
continuity and stability of the Belo Board and Belo's business strategies and
policies. The classified board provision could increase the likelihood that, in
the event of a takeover of Belo, incumbent directors will retain their
positions. In addition, the classified board provision helps ensure that the
Belo Board, if confronted with an unsolicited proposal from a third party that
has acquired a block of the voting stock of Belo, will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.
Removal of Directors; Filling Vacancies. Under the Belo Bylaws, a director
may be removed from office only for cause and by a vote of stockholders
representing not less than a majority of the voting power of the stock entitled
to vote in an election of directors. The Belo Bylaws further provide that vacant
directorships may be filled by the Belo Board.
No Stockholder Action by Written Consent; Special Meeting. The Belo
Certificate provides that stockholders may only take action at an annual or
special meeting. The stockholders are thus prohibited from taking action by
written consent in lieu of a meeting. The Belo Bylaws provide that special
meetings of stockholders may only be called by (i) the Chief Executive Officer,
(ii) the Belo Board or (iii) the holders of not less than one-fifth of the
voting power of all shares entitled to vote at the meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Belo Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination of candidates for election as
directors, other than by or at the direction of the Belo Board. These procedures
provide that the notice of stockholder proposals and stockholder nominations for
the election of directors at a meeting must be in writing and received at the
principal executive offices of Belo generally not less than 30 days nor more
than 60 days prior to the meeting and under certain circumstances no later than
the close of business on the tenth day following the day on which notice of the
meeting was mailed or public disclosure of the date of the meeting was made. The
notice of stockholder nominations must set forth certain information specified
in the Belo Bylaws and comply with applicable Federal proxy rules.
Supermajority and Fair Price Provisions. Article Eleven of the Belo
Certificate provides that for purposes of Sections 251, 253, 271, 275, and 311
of the DGCL (pertaining to mergers, consolidations of assets and dissolutions),
where applicable, the affirmative vote of the holders of at least two-thirds,
rather than a majority as provided by statute, of the outstanding stock, or any
class or series thereof, entitled to vote in accordance therewith shall be
required. Article Twelve of the Belo Certificate requires the affirmative vote
of the holders of at least 80% of all of the then outstanding shares of capital
stock of Belo for approval of certain business transactions with any Interested
Stockholder (as defined in the Belo Certificate) of Belo, including certain
mergers, sales or other dispositions of assets, issuances of securities,
liquidations, dissolutions, or recapitalizations of Belo. The 80% vote
requirement does not apply to any transaction that is approved by a majority of
Belo's continuing directors (as defined in the Belo Certificate) or to any
transaction that satisfies certain procedural requirements set forth in Article
Twelve of the Belo Certificate, as well as form of consideration and minimum
price requirements.
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STOCKHOLDERS RIGHTS PLAN
On February 28, 1996, the Belo Board authorized the amendment and
restatement of the Belo Rights Agreement. The Belo Rights Agreement was
originally adopted in 1986 and was scheduled to expire in March 1996. Pursuant
to the Belo Rights Agreement, each share of Belo Common Stock currently
outstanding and each share of Belo Common Stock to be outstanding hereafter
(unless and until the Belo Rights expire or are redeemed or a "Distribution
Date", as described below, occurs) will be accompanied by one Belo Right
entitling the registered holder to purchase from Belo one one-hundredth of a
share of Belo Preferred Stock at an exercise price of $150.00 per one
one-hundredth of a share of Belo Preferred Stock, subject to adjustment. The
shares of Belo Series A Common Stock issued in the Merger will be accompanied by
associated Belo Rights. The Belo Rights Agreement and the Rights will expire in
2006, unless extended.
The Belo Rights are and will be evidenced by the Belo Common Stock
certificates representing the shares which they accompany, and no separate Belo
Rights certificates will be distributed, until the occurrence of a "Distribution
Date." The Belo Rights will separate from the Belo Common Stock and a
"Distribution Date" will occur at the close of business on the earlier of (x)
the tenth business day following a public announcement that a person or group of
affiliated or associated persons has acquired or obtained the right to acquire
beneficial ownership of 30 percent or more of the outstanding Belo Common Stock
(a "Belo Acquiring Person"), unless the person becomes the owner of 30 percent
solely by reason of share purchases by Belo or under certain other
circumstances, or (y) the tenth business day following the commencement of (or
announcement of the intent to commence) a tender offer or exchange offer (other
than by Belo or certain affiliates) that would result in a person or group
beneficially owning 30 percent or more of the outstanding Belo Common Stock. The
Belo Rights Agreement permits the Belo Board to reduce the 30 percent threshold
to as low as 10 percent and to redeem the Belo Rights at a price of $.01 per
Belo Right (subject to adjustment).
In the event that (i) a person or group becomes a Belo Acquiring Person or
(ii) Belo is acquired in a merger or business combination or 50 percent or more
of its consolidated assets or earning power are sold after a person or group has
become a Belo Acquiring Person, each holder of a Belo Right will thereafter have
the right to receive, upon exercise and payment of the exercise price, Belo
Common Stock (or, in certain circumstances, cash, property or other securities
of the acquiring company) having a value equal to two times the exercise price
of the Belo Right. Notwithstanding the foregoing, following the occurrence of
any of the events set forth in clause (i) or (ii) of this paragraph, all Rights
that are or (under certain circumstances specified in the Belo Rights Agreement)
were beneficially owned by any Belo Acquiring Person will be null and void. At
any time after a person or group becomes a Belo Acquiring Person and prior to
the acquisition of 50 percent or more of the voting power of the outstanding
Belo Common Stock, the Belo Board may exchange the Belo Rights (other than
Rights owned by the Belo Acquiring Person) in whole or in part at an exchange
ratio of one share of Belo Series A Common Stock or Belo Series B Common Stock,
as determined by the Belo Board, per Belo Right, subject to adjustment.
For example, at an exercise price of $150.00 per Belo Right, each Belo
Right not owned by a Belo Acquiring Person following either of the events set
forth in clause (i) or (ii) of the preceding paragraph would entitle its holder
to purchase $300.00 worth of Belo Common Stock (or other consideration, as noted
above), determined pursuant to a formula set forth in the Belo Rights Agreement,
for $150.00. Assuming that the Belo Common Stock (or other consideration) had a
per share market price of $37.50 at such time, the holder of each valid Belo
Right would be entitled to purchase eight shares of Belo Common Stock (or other
consideration) for $150.00.
Certain of the provisions described in this "DESCRIPTION OF BELO CAPITAL
STOCK" section could discourage potential acquisition proposals and could delay
or prevent a change in control of Belo. Such provisions are intended to enhance
the likelihood of continuity and stability in the composition of the Belo Board
and in the policies formulated by the Belo Board and to discourage certain types
of transactions that may involve an actual or threatened change of control of
Belo. These provisions are designed to preserve and protect Belo's assets and to
reduce the vulnerability of Belo to an unsolicited acquisition proposal and are
also intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have
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the effect of discouraging others from making tender offers for Belo's shares
that could result from actual or rumored takeover attempts and may also have the
effect of preventing changes in the management of Belo.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Belo Series A Common Stock is The
First National Bank of Boston.
COMPARISON OF STOCKHOLDERS' RIGHTS
General. At the Effective Time, the stockholders of Providence Journal will
become stockholders of Belo. As stockholders of Belo, their rights will be
governed by the DGCL and the Belo Certificate and Belo Bylaws rather than the
Providence Journal Certificate and Providence Journal Bylaws. Following are
summaries of certain differences between the rights of Belo stockholders and the
rights of Providence Journal stockholders. For additional information regarding
the rights of Belo's stockholders, see "DESCRIPTION OF BELO CAPITAL STOCK" and
"THE SPECIAL MEETINGS -- Voting Rights; Votes Required for Approval."
Both Belo and Providence Journal are organized under the laws of the State
of Delaware. Any differences, therefore, in the rights of holders of Belo
capital stock and Providence Journal capital stock arise solely from differences
in their respective certificates of incorporation and bylaws. The Belo
Certificate and Belo Bylaws are substantially similar to the Providence Journal
Certificate and the Providence Journal Bylaws, except for certain matters as
described herein.
Authorized Capital. The total number of authorized shares of capital stock
of Belo is 155,000,000, consisting of 150,000,000 shares of Belo Common Stock
and 5,000,000 shares of Belo Preferred Stock. Each share of Belo Series B Common
Stock is convertible into one share of Belo Series A Common Stock at the option
of the holder. See "DESCRIPTION OF BELO CAPITAL STOCK -- Belo Common Stock" and
"-- Belo Preferred Stock."
The total number of authorized shares of capital stock of Providence
Journal is 196,825,000, consisting of 150,000,000 shares of Providence Journal
Class A Common Stock, of which 75,000,000 shares are reserved for issuance upon
exercise of rights issued pursuant to the Providence Journal Rights Agreement
(defined below), and 46,825,000 shares of Providence Journal Class B Common
Stock, of which 23,412,500 shares are reserved for issuance pursuant to the
Rights Agreement. Each share of Providence Journal Class B Common Stock is
convertible into one share of Providence Journal Class A Common Stock at the
option of the holder.
Removal of Directors. Under the Belo Bylaws, at any meeting of stockholders
called expressly for the purpose of removing one or more directors or the entire
Belo Board may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of a majority of the voting power of all
shares then entitled to vote in the election of directors. The Providence
Journal Certificate provides that any or all directors may be removed from
office at any time without cause and only by the affirmative vote of the holders
of at least 80% of the combined voting power of the then outstanding shares of
stock of all classes entitled to vote in the election of directors; provided,
however, that an affirmative vote of only a majority of holders of a majority of
such combined voting power is required for any such removal recommended to the
stockholders by the vote of not less than two-thirds of the entire Providence
Journal Board.
Filling Vacancies on the Board of Directors. Pursuant to the Belo Bylaws,
any vacancy in the Belo Board may be filled by the affirmative vote of a
majority of the directors then in office, although less than a quorum of the
Belo Board. Under the Providence Journal Certificate, any vacancy in the
Providence Journal Board may be filled solely by the affirmative vote of a
majority of the remaining directors, although less than a quorum of the
Providence Journal Board.
Stockholder Meetings and Provisions for Notices. The Belo Bylaws provide
that special meetings of stockholders may be called by the Belo Board, the Chief
Executive Officer or holders of not less than one-fifth of the voting power of
all shares entitled to vote at the meeting. The Providence Journal Bylaws
provide that a
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special meeting of stockholders may be called by the Chairman of the Board, the
President or the Providence Journal Board.
Pursuant to the Belo Bylaws and the Providence Journal Bylaws, written or
printed notice of the annual meeting of stockholders stating the place, day and
hour of the annual meeting shall be given to each stockholder entitled to vote
at such meeting between ten and 60 days before the date of such meeting, either
personally or by mail. Written notice of a special meeting must also include the
purpose or purposes for which the meeting is called, and only such business as
is stated in such notice shall be acted upon thereat. See "DESCRIPTION OF BELO
CAPITAL STOCK -- Certificate of Incorporation; Bylaws -- Advance Notice
Requirements for Stockholder Proposals and Director Nominations."
Stockholder Action Without A Meeting. Under the Belo Certificate, as
permitted by the DGCL, no action may be taken by the stockholders except at a
meeting. The Providence Journal Certificate permits actions to be taken by
written consent of the stockholders without a meeting.
Quorum. Under the Belo Bylaws, a quorum for the transaction of business at
any stockholder meeting consists of the holders of a majority of the voting
power of all of the shares entitled to vote, represented in person or by proxy,
but in no event less than one-third of the shares entitled to vote and thus
represented at such meeting. Under the Providence Journal Bylaws, a quorum for
the transaction of business at any stockholder meeting consists of the holders
of a majority of the voting power of all of the shares entitled to vote,
represented in person or by proxy, at such meeting.
Voting by Stockholders. Under the Belo Bylaws, except as required by law or
the Belo Certificate, action by Belo stockholders is taken by the vote of the
holders of a majority of the voting power of the stock represented and entitled
to vote at a meeting of stockholders at which a quorum is present. However, the
Belo Certificate requires the vote of 80% of the voting power represented by the
outstanding stock entitled to vote thereon for certain "Business Combinations"
(as defined in the Belo Certificate). See "DESCRIPTION OF BELO CAPITAL
STOCK -- Certain Anti-Takeover Matters." In addition, the Belo Certificate
requires the affirmative vote of two-thirds of the voting power represented by
the outstanding stock entitled to vote for approval of mergers of Belo, the sale
by Belo of all or substantially all of its assets or the dissolution of Belo.
Each holder of Belo Series A Common Stock is entitled to one vote in person or
by proxy for each share of Series A Common Stock outstanding in his or her name
on the transfer records of Belo; each holder of Belo Series B Common Stock is
entitled to ten votes in person or by proxy for each share of Series B Common
Stock outstanding in his or her name on the transfer records of Belo.
Under the Providence Journal Bylaws, except as required by law or the
Providence Journal Certificate, action by Providence Journal stockholders is
taken by the vote of the holders of a majority of the voting power of all shares
represented and entitled to vote at a meeting of stockholders at which a quorum
is present, except for the election of directors which requires a plurality.
However, the Providence Journal Certificate requires the vote of 80% of the
combined voting power of the then outstanding stock entitled to vote thereon for
certain "business combinations" (as defined in the Providence Journal
Certificate), in the absence of an affirmative vote of at least two-thirds of
the Providence Journal Board. Each holder of Providence Journal Class A Common
Stock is entitled to one vote in person or by proxy for each share of Class A
Common Stock outstanding in his or her name on the transfer records of
Providence Journal; each holder of Providence Journal Class B Common Stock is
entitled to four votes in person or by proxy for each share of Class B Common
Stock outstanding in his or her name on the transfer records of Providence
Journal.
Dividends. Pursuant to the Belo Certificate, holders of either series of
Belo Common Stock are entitled to receive dividends, if any, as may be declared
by the Belo Board out of funds legally available therefor and are entitled to
share ratably in the net assets available for distribution to such holders upon
liquidation, dissolution and winding up of Belo. Dividends must be paid on both
the Belo Series A Common Stock and Belo Series B Common Stock at any time that
dividends are paid on either. The Providence Journal Certificate contains an
identical provision for the Providence Journal Common Stock.
Rights Plan. On February 28, 1996, the Belo Board authorized the amendment
and restatement of Belo's preferred share purchase rights plan which was
originally adopted in 1986 and was scheduled to expire in
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March 1996. Pursuant to the Belo Rights Agreement, each share of Belo Common
Stock currently outstanding (both Belo Series A Common Stock and Belo Series B
Common Stock) and each share of Belo Common Stock to be outstanding hereafter
(unless and until the Belo Rights expire or are redeemed or a Distribution Date
occurs) will be accompanied by one Belo Right entitling the registered holder to
purchase from Belo one one-hundredth of a share of Belo Preferred Stock at an
exercise price of $150.00 per one one-hundredth of a share of Belo Preferred
Stock, subject to adjustment. A description of the Belo Rights Plan is set forth
under "DESCRIPTION OF BELO CAPITAL STOCK -- Stockholders Rights Plan."
On May 8, 1996, Providence Journal declared a dividend of one Class A right
(a "Class A Right") for each outstanding share of Providence Journal Class A
Common Stock and one Class B right (a "Class B Right," and together with the
Class A Rights, the "Providence Journal Rights") for each outstanding share of
Providence Journal Class B Common Stock. The dividend was paid to stockholders
of record on May 8, 1996 (the "Declaration Date"). Each Class A Right entitles
the registered holder to purchase from Providence Journal one share of
Providence Journal Class A Common Stock at a price of $70 per share of
Providence Journal Class A Common Stock, subject to adjustment. Each Class B
Right entitles the registered holder to purchase from Providence Journal one
share of Providence Journal Class B Common Stock at a price of $70 per share of
Providence Journal Class B Common Stock, subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement, dated May 8, 1996
(the "Providence Journal Rights Agreement"), between Providence Journal and The
First National Bank of Boston, as Rights Agent.
The Providence Journal Rights are and will be evidenced by the Providence
Journal Common Stock certificates representing the shares which they accompany,
and no separate Providence Journal Rights certificates will be distributed until
the occurrence of a "Providence Journal Distribution Date." The Providence
Journal Rights will separate from the Providence Journal Common Stock and a
"Providence Journal Distribution Date" will occur at the close of business on
the earlier of (i) ten days following a public announcement that a person or
group of affiliated or associated persons (a "Providence Journal Acquiring
Person") have acquired beneficial ownership of (A) 15% of more of the Voting
Power (as defined in the Providence Journal Rights Agreement) of the Providence
Journal Common Stock or (B) 35% or more of the voting power of the Providence
Journal Class A Common Stock or (ii) ten business days (or such later date as
may be determined by action of the Providence Journal Board prior to such time
as any person or group of affiliated persons becomes a Providence Journal
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of either 15% or more of the
voting power of the Providence Journal Common Stock or 35% or more of the voting
power of the Providence Journal Class A Common Stock. The Providence Journal
Rights are not exercisable until the Providence Journal Distribution Date. The
Providence Journal Rights will expire on May 7, 2006 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by Providence Journal in accordance with the terms
of the Providence Journal Rights Agreement.
In the event that Providence Journal is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become a Providence Journal
Acquiring Person, proper provision will be made so that each holder of a
Providence Journal Right will thereafter have the right to receive, upon the
exercise thereof at the then-current exercise price of the Providence Journal
Right, that number of shares of common stock of the acquiring company, which, at
the time of such transaction, will have a market value of two times the exercise
price of the Providence Journal Right. In the event that any person or group of
affiliated or associated persons becomes a Providence Journal Acquiring Person,
proper provision shall be made so that each holder of a Providence Journal Class
A Right and a Providence Journal Class B Right, other than Providence Journal
Rights beneficially owned by the Providence Journal Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Providence Journal Class A Common Stock or Providence
Journal Class B Common Stock, as applicable, having a market value of two times
the exercise price of such Providence Journal Right.
At any time after any person or group becomes a Providence Journal
Acquiring Person and prior to the acquisition by such person or group of 50% or
more of the voting power represented by the outstanding shares
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of Providence Journal Common Stock, the Providence Journal Board may exchange
the Providence Journal Rights (other than Providence Journal Rights owned by
such person or group which will have become void) in whole or in part, at an
exchange ratio of one share of Class A Common Stock or Class B Common Stock per
related Providence Journal Right (subject to adjustment).
The terms of the Providence Journal Rights may be amended by the Providence
Journal Board without the consent of the holders of the Providence Journal
Rights, including an amendment to lower certain thresholds with respect to the
Voting Power of the Providence Journal Common Stock described above to not less
than 10% and with respect to the Voting Power of the Providence Journal Class A
Common Stock to not less than 25%, except that from and after such time as any
person or group of affiliated or associated persons becomes a Providence Journal
Acquiring Person, no such amendment may adversely affect the interests of the
holders of the Providence Journal Rights.
Until a Providence Journal Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of Providence Journal, including, without
limitation, the right to vote or to receive dividends.
In connection with the execution of the Merger Agreement, Providence
Journal amended the Providence Journal Rights Agreement to amend, among other
things, the definition of "Acquiring Person" to permit the execution and
delivery by Providence Journal of the Merger Agreement without Belo or Finance
becoming an Acquiring Person under the Providence Journal Rights Agreement.
Interested Director Transactions. Under the DGCL, certain contracts or
transactions in which one or more of a corporation's directors has an interest
are not void or voidable solely by reason of such interest provided that one of
the following conditions is met: (i) such contract or transaction is approved by
the stockholders or by a majority of disinterested members of the board of
directors or, in certain circumstances, a committee thereof if the material
facts are disclosed or known thereto, or (ii) the contract or transaction was
fair to the corporation at the time it was approved.
Indemnification and Limitation of Liability. The Belo Bylaws provide for
indemnification of, and advancement of expenses to any person who was or is
involved in any manner or was or is threatened to be made so involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he is or
was or has agreed to become a director, officer, employee or agent of Belo or is
or was or has agreed to serve at the request of Belo as director, officer,
employee or agent of another corporation or other enterprise against all
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
proceeding, provided that the person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of Belo,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The Belo Certificate provides that
no director of Belo will be personally liable to Belo or to its stockholders for
monetary damages for breach of fiduciary duty as a director, except for (i) any
breach of the director's duty of loyalty to Belo or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. This
right to indemnification includes the right to receive payment of any expenses
incurred by the person being indemnified in connection with such proceeding in
advance of the final disposition of the proceeding consistent with applicable
law as then in effect. Any indemnification will be paid by Belo unless otherwise
decided by (A) a majority vote of a quorum of disinterested Belo directors, or
if such a vote by the Belo Board is not possible, (B) independent legal counsel
in a written opinion or (C) vote of the holders of a majority of the outstanding
share entitled to vote thereon.
The Providence Journal Certificate and Providence Journal Bylaws, taken
together, provide that Providence Journal shall, to the fullest extent permitted
by the DGCL as then in effect, indemnify any person who was or is involved in
any manner or was or is threatened to be made so involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of Providence Journal or is or was serving
at the request of Providence Journal as director, officer, employee or agent of
another corporation or other enterprise against all expenses, including
attorneys' fees, judgments, fines and amounts paid in
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settlement actually and reasonably incurred by him in connection with such
proceeding. The Providence Journal Certificate provides that, to the extent
provided in the DGCL, no director of Providence Journal will be personally
liable to Providence Journal or to its stockholders for monetary damages for
breach of fiduciary duty as a director. This right to indemnification includes
the right to receive payment of any expenses incurred by the person being
indemnified in connection with such proceeding in advance of the final
disposition of the proceeding consistent with applicable law as then in effect.
By reference to Delaware law, the Providence Journal Certificate also specifies
certain procedures, presumptions and remedies that apply with respect to the
right to indemnification and the advancement of expenses provided for therein.
The Providence Journal Certificate requires the affirmative vote of 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 to
amend or repeal the Providence Journal Certificate indemnification provisions.
Amendment of Bylaws. Under the Belo Certificate, the Belo Bylaws may be
altered, amended or repealed, or new Bylaws may be adopted, by either the
holders of at least two-thirds of the outstanding capital stock or voting power
entitled to vote thereon or by the Board of Directors. The Providence Journal
Bylaws provide that the Providence Journal Bylaws may be altered, amended or
repealed, or new Bylaws may be adopted by a majority vote of the Providence
Journal stockholders or by the majority of the entire Providence Journal Board,
provided that notice of the proposed alteration or repeal or the proposed new
Bylaws be included in the notice of such meeting of the Providence Journal
Board.
SIGNIFICANT REGULATIONS APPLICABLE
TO BROADCASTING SERVICES,
PROGRAMMING AND ELECTRONIC MEDIA
Television and radio broadcasting are subject to the jurisdiction of the
FCC under the Communications Act. The Communications Act empowers the FCC, among
other things, to issue, revoke or modify broadcasting licenses, determine the
location of stations, regulate the equipment used by stations, adopt such
regulations as may be necessary to carry out the provisions of the
Communications Act and impose certain penalties for violation of its
regulations. The following highlights some of the principal areas of FCC
regulation of the broadcast industry. For more detailed information, see the
Belo 1995 10-K and its reports filed with the Commission pursuant to the
Exchange Act and the other Belo Reports.
Existing Regulation and 1996 Legislation. Television broadcasting is
subject to the jurisdiction of the FCC under the Communications Act. The
Communications Act prohibits the operation of television broadcasting stations
except under licenses issued by the FCC and empowers the FCC, among other
things, to issue, renew, revoke and modify broadcasting licenses; assign
frequency bands; determine stations' frequencies, locations, and power; regulate
the equipment used by stations; adopt other regulations to carry out the
provisions of the Communications Act; impose penalties for violation of such
regulations; and impose fees for processing applications and other
administrative functions. The Communications Act prohibits the assignment of a
license or the transfer of control of a licensee without prior approval of the
FCC. Under the Communications Act, the FCC also regulates certain aspects of the
operation of cable television systems and other electronic media that compete
with broadcast stations.
The recently enacted Telecommunications Act represents the most
comprehensive overhaul of the country's telecommunications laws in more than 60
years. The first Communications Act originated at a time when telephone and
broadcasting technologies were quite distinct and addressed different consumer
needs. As a consequence, both the statute and its implementing regulatory scheme
were designed to compartmentalize the various sectors of the telecommunications
industry. The Telecommunications Act removes the statutory barriers to telephone
company ("telco") entry into the video programming delivery business, to cable
company provision of telephone service, and to common ownership of broadcast
television and cable properties.
The Telecommunications Act also significantly changes both the process for
renewal of broadcast station licenses and the broadcast ownership rules. First,
the Telecommunications Act establishes a "two-step" renewal process that limits
the FCC's discretion to consider applications filed in competition with an
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incumbent's renewal application. The Telecommunications Act also substantially
liberalizes the national broadcast ownership rules, eliminating the national
radio limits and easing the national restrictions on TV ownership. The
Telecommunications Act also relaxes local radio ownership restrictions, but
leaves local TV restrictions in place pending further FCC review. The FCC has
already implemented some of these changes through FCC orders.
This new regulatory flexibility has already engendered, and is likely to
engender further, aggressive local, regional, and/or national acquisition
campaigns. Removal of previous station ownership limitations on leading
incumbents (i.e., existing networks and major station groups) has already
increased sharply, and can be expected further to increase sharply, the
competition for and the prices of attractive stations.
License Grant and Renewal. Prior to the passage of the Telecommunications
Act, television broadcasting licenses generally were granted or renewed for a
period of five years upon a finding by the FCC that the "public interest,
convenience, and necessity" would be served thereby. At the time an application
is made for renewal of a television license, parties in interest may file
petitions to deny the application, and such parties, including members of the
public, may comment upon the service the station has provided during the
preceding license term. In addition, prior to passage of the Telecommunications
Act, any person was permitted to file a competing application for authority to
operate on the station's channel and replace the incumbent licensee. Renewal
applications were granted without a hearing if there were no competing
applications or if issues raised by petitioners to deny such applications were
not serious. If competing applications were filed, a full comparative hearing
was required.
Under the Telecommunications Act, the statutory restriction on the length
of broadcast licenses has been amended to allow the FCC to grant broadcast
licenses for terms of up to eight years. The Telecommunications Act also
requires renewal of a broadcast license if the FCC finds that (1) the station
has served the public interest, convenience, and necessity; (2) there have been
no serious violations of either the Telecommunications Act or the FCC's rules
and regulations by the licensee; and (3) there have been no other serious
violations which taken together constitute a pattern of abuse. In making its
determination, the FCC may still consider petitions to deny but cannot consider
whether the public interest would be better served by a person other than the
renewal applicant. Instead, under the Telecommunications Act, competing
applications for the same frequency may be accepted only after the FCC has
denied an incumbent's application for renewal of license.
By order dated April 12, 1996, the FCC modified its rules to implement the
new two-step renewal procedure and to eliminate the right to file an application
that is mutually exclusive with a renewal. Also on April 12, 1996, the FCC
issued a Notice of Proposed Rulemaking to consider how to implement the new
(longer) license term provision of the Telecommunications Act.
Belo has pending an application for renewal of the license of WFAA-TV in
Dallas, Texas. The WFAA-TV renewal application has not yet been granted;
pursuant to Section 307(c)(3) of the Communications Act, the station's license
continues in effect pending final action on the renewal application by the FCC.
Belo is not required to file any other license renewal applications prior to the
Termination Date except a renewal application for WWL-TV in New Orleans,
Louisiana, which must be filed by February 1, 1997.
All of the Providence Journal Stations are presently operating under
regular five-year licenses that expire on the following dates: December 1, 1996
(WCNC (Charlotte)); August 1, 1997 (WHAS (Louisville)); October 1, 1998 (KASA
(Albuquerque/Santa Fe), KMSB (Tucson) and KTVB (Boise)); and February 1, 1999
(KING (Seattle), KGW (Portland), KHNL (Honolulu) and KREM (Spokane)). As noted
above, an application for renewal of the license for WCNC-TV is pending. In
addition, the licenses for each of the Providence Journal LMA Stations, KFVE
(Honolulu), KTTU (Tucson) and KSKN (Spokane) expire on February 1, 1999, April
1, 1997, and February 1, 1999, respectively. KONG holds a permit which was
scheduled to expire on December 30, 1995 to construct a television station in
the Seattle, Washington market. KONG applied for an extension in November, 1995,
and on May 23, 1996, applied to co-locate its transmission facilities with KING.
KONG will file an FCC license application when the station commences on-air
broadcasting, which is expected for KONG in the first quarter of 1997.
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Although in the vast majority of cases broadcast licenses are renewed by
the FCC even when petitions to deny are filed against them, there can be no
assurance that any of Belo's or Providence Journal Stations' licenses or the
licenses of the owner-operators of the Providence Journal LMA Stations will be
renewed.
The non-renewal or revocation of one or more of Providence Journal's or
Belo's FCC licenses could have a material adverse effect on Providence
Journal's, Belo's or the combined company operations.
Multiple Ownership Restrictions. The FCC has promulgated rules that, among
other things, limit the ability of individuals and entities to own or have an
official position or ownership interest above a certain level (an "attributable"
interest, as defined more fully below) in broadcast stations, as well as other
specified mass media entities. Prior to the passage of the Telecommunications
Act, these rules included limits on the number of radio and television stations
that could be owned on both a national and local basis. On a national basis, the
rules generally precluded any individual or entity from having an attributable
interest in more than 20 AM radio stations, 20 FM radio stations and/or 12
television stations. Moreover, the aggregate audience reach of the co-owned
television stations could not exceed 25 percent of all U.S. television
households. The Telecommunications Act substantially relaxed the television and
radio ownership limitations. The FCC began its implementation of the
Telecommunications Act with several orders issued on March 8, 1996. In those
orders, the FCC eliminated the 12-station limit for television station ownership
and increased the national audience reach limitation from 25% to 35%.
Additionally, the FCC eliminated its numerical limitations on radio station
ownership nationwide. On November 7, 1996, the FCC released a Notice of Proposed
Rulemaking seeking comment on various issues concerning implementation of the
revised national television ownership rules, including the proper method for
calculating compliance with the 35% national audience reach limitation.
On a local basis, FCC rules currently allow an individual or entity to have
an attributable interest in only one television station in a market. Further,
FCC rules, the Communications Act or both generally prohibit an individual or
entity from having an attributable interest in both a television station and a
radio station, daily newspaper or cable television system that is located in the
same local market area served by the television station. The FCC employs a
liberal waiver policy with respect to the TV/radio cross-ownership restriction
(the so-called "one-to-a-market" rule) which generally permits common ownership
of one AM, one FM, and one TV station in any of the 25 largest markets, provided
there are at least 30 separately owned stations.
In a pending rulemaking proceeding, the FCC has suggested the possibility
of narrowing the geographic scope of the local television cross-ownership rule
(the so-called "TV duopoly rule") and permitting some two-station combinations
in certain (large) markets. Moreover, in the same proceeding, the FCC proposed
eliminating the one-to-a-market rule entirely, or at least exempting larger
markets. The FCC also sought comment on issues of control and attribution with
respect to certain time brokerage or LMAs entered into by television stations.
The Telecommunications Act grandfathers existing LMAs and permits future LMAs
that are in compliance with FCC rules as they may be adopted from time to time.
The FCC may, however, determine to adopt new restrictions on television LMAs,
including the treatment of an LMA as an attributable interest in the future.
Further, if the FCC were to find that a licensee of an LMA station failed to
maintain control over its operations, the licensee of the LMA station and/or the
station providing programming and marketing services could be subject to
sanctions. While LMAs provide a financial benefit to Providence Journal, LMAs
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.
The Telecommunications Act has a direct impact on several of these issues.
Specifically, the Telecommunications Act requires the FCC to conduct a
rulemaking proceeding to determine whether the television duopoly rule should be
retained, modified or eliminated. In addition, it directs the FCC to extend its
one-to-a-market waiver policy (allowing TV/radio combinations) to the top 50
markets, consistent with the public interest, convenience and necessity. On
November 7, 1996, the FCC released a Further Notice of Proposed Rulemaking
seeking further comment on a number of local television ownership issues,
including (i) whether to extend the presumptive waiver of the one-to-a-market
rule from the top 25 to the top 50 markets; and (ii) whether to modify the
television duopoly rule to allow common ownership of two television stations in
separate DMAs as long as the stations do not have overlapping Grade A signal
contours. In that same
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proceeding, the FCC also sought comment on whether to grandfather existing LMAs
if such agreements are deemed attributable in a companion proceeding seeking
comment on revisions to the FCC's attribution rules.
As directed in the Telecommunications Act, the FCC issued an order on March
8, 1996 which substantially relaxed the limits on local radio station ownership.
In addition, the Telecommunications Act eliminates a statutory prohibition
against common ownership of television broadcast stations and cable systems
serving the same area, but leaves the current FCC rule restriction in place. The
Telecommunications Act stipulates that the FCC should not consider the repeal of
the statutory ban in any review of its applicable rules. The recent legislation
also eliminates the FCC's former network/cable cross-ownership limitations, but
allows the FCC to adopt regulations if necessary to ensure carriage, appropriate
channel positioning, and nondiscriminatory treatment of non-affiliated broadcast
stations on network-owned cable systems. The FCC issued an order dated March 15,
1996 eliminating the network/cable cross-ownership ban, and is expected to
commence proceedings on the local television/cable cross-ownership limitation by
the end of 1996.
The Telecommunications Act does not alter the FCC's newspaper/broadcast
cross-ownership restrictions. Belo's ownership of The Dallas Morning News and
co-located WFAA, however, predates the adoption of the FCC's rules and therefore
has been "grandfathered" by the FCC. On October 1, 1996, the FCC released a
notice of inquiry soliciting comment on what changes, if any, it should make
with regard to its policies as to waivers of its prohibition against common
ownership of daily newspapers and radio stations serving the same market.
Finally, pursuant to the Telecommunications Act, on March 8, 1996 the FCC issued
an order revising its long-standing "dual network" rule to permit television
broadcast stations to affiliate with an entity that maintains two or more
networks, unless the combination is composed of (a) two of the four existing
networks (ABC, CBS, NBC or Fox) or (b) any of the four existing networks and one
of the two emerging networks (WBN or UPN).
Expansion of Belo's and Providence Journal's broadcast operations in
particular areas and nationwide will continue to be subject to the FCC's
ownership rules and any further changes the FCC or Congress may adopt.
Significantly, the Telecommunications Act requires the FCC to review its
remaining ownership rules biennially -- as part of its regulatory reform
obligations -- to determine whether its various rules are still necessary.
Neither Belo nor Providence Journal can predict the impact of the biennial
review process or any other agency or legislative initiatives upon the FCC's
broadcast rules. Further, the Telecommunications Act's relaxation of the FCC's
ownership rules may increase the level of competition in one or more of the
markets in which Belo's or Providence Journal's stations are located,
particularly to the extent that any of their competitors may have greater
resources and thereby be in a better position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of securities of Belo or Providence Journal could violate FCC regulations
if that purchaser owned or acquired an "attributable" or "meaningful" interest
in other media properties in the same areas as stations owned by Belo or
Providence Journal or in a manner otherwise prohibited by the FCC. All officers
and directors of a licensee or its parent, as well as general partners, limited
partners who are not properly "insulated" from management activities, and
shareholders who own five percent or more of the outstanding voting stock of a
licensee (either directly or indirectly), generally will be deemed to have an
attributable interest in the license. Certain institutional investors who exert
no control or influence over a licensee may own up to ten percent of such
outstanding voting stock before attribution occurs. In January 1995, the FCC
initiated a rulemaking proceeding designed to permit a "thorough review of [its]
broadcast media attribution rules." On November 7, 1996, the FCC released a
Further Notice of Proposed Rulemaking in that proceeding, seeking comment on a
variety of issues, including (i) the circumstances, if any, in which an LMA
should be attributed to an entity holding the right to program more than 15% of
the time of a television station; and (ii) whether a combination of debt and
equity exceeding a certain threshold should be considered to be an attributable
interest. However, neither Belo nor Providence Journal can predict with
certainty when this proceeding will be concluded or whether any of these
standards will be changed.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities or individuals to own or hold certain interests in broadcast
licenses. Foreign governments, representatives of foreign governments, non-U.S.
citizens, representatives of non-U.S. citizens, and corporations or partnerships
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organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-U.S. citizens, collectively, may directly or indirectly own or
vote up to 20% of the capital stock of a licensee. In addition, a broadcast
license may not be granted to or held by any corporation that is controlled,
directly or indirectly, by any other corporation more than one-fourth of whose
capital stock is owned or voted by non-U.S. citizens or their representatives,
by foreign governments or their representatives, or by non-U.S. corporations, if
the FCC finds that the public interest will be served by the refusal or
revocation of such license. The FCC has interpreted this provision of the
Communications Act to require an affirmative public interest finding before a
broadcast license may be granted to or held by any such corporation, and the FCC
has made such an affirmative finding only in limited circumstances. As a result
of these provisions, and without an FCC public interest finding, Providence
Journal and Belo, each of which serves as a holding company for its various
television station licensee subsidiaries, and the combined company after the
Merger, cannot have more than 25% of its capital stock owned of record or voted
by Aliens. See "DESCRIPTION OF BELO CAPITAL STOCK -- Foreign Ownership."
Recent Developments, Proposed Legislation and Regulation. The FCC
eliminated the prime time access rule ("PTAR"), effective August 30, 1996. The
PTAR limited the ability of television stations within the 50 largest markets
that are affiliated with ABC, CBS or NBC to broadcast network programming
(including syndicated programming previously broadcast over any of these
networks) during certain prime time hours. The elimination of the PTAR could
increase the amount of network programming broadcast over a station affiliated
with ABC, CBS or NBC. Such elimination also could result in (i) an increase in
the compensation paid by the network (due to the additional prime time hours
during which network programming could be aired by a network-affiliated station)
and (ii) increased competition for syndicated network programming that
previously was unavailable for broadcast by network affiliates during prime
time. The FCC also recently eliminated its remaining financial interest and
syndication rules. The original rules, first adopted in 1970, severely
restricted the ability of ABC, CBS and NBC to obtain financial interests in, or
participate in syndication of, prime-time entertainment programming created by
independent producers for airing during the networks' evening schedules.
In addition, the FCC recently completed 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. As a result, beginning in 1997, commercial television stations
generally must begin broadcasting an average of three hours per week of
programming designed to meet the educational and informational needs of children
age 16 and under. Other matters that could affect the Belo or Providence Journal
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.
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 continue, 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.
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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 television 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). Under certain circumstances,
the network non-duplication rule allows local broadcast network affiliates to
demand that cable television operators black out duplicative network broadcast
programming carried on more distant signals.
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 in the past examined legislative proposals to
eliminate or severely restrict the advertising of beer and wine. In addition,
the FTC and the FCC recently have begun questioning the recent airing of liquor
advertising by certain broadcast stations and cable television networks.
(Broadcasting advertising of distilled spirits is not legally prohibited, but
distillers and broadcasters historically have refrained from such advertising.)
Neither Belo nor Providence Journal can predict whether any or all of such
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 Belo or Providence Journal 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. The Telecommunications Act requires that
any newly manufactured television set with a picture screen of 13 inches or
greater be equipped with a feature designed to enable viewers to block all
programs with a certain violence rating (the "v-chip"). The FCC, after
consulting with the TV manufacturing industry, shall specify the effective date
of this requirement, which may not be less than two years after enactment of the
law. The FCC is directed to oversee the adoption of standards for this blocking
technology. If the television industry has not voluntarily devised a violence
rating system within one year, the FCC is directed to prescribe a rating system.
Industry representatives recently announced agreement on a proposed rating
system similar to the motion picture rating system currently in use. Neither
Belo nor Providence Journal can predict whether the v-chip and a ratings system
will have any significant effect on the operations of Belo or Providence Journal
Broadcasting Business.
The 1992 Cable Act. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). Certain statutory provisions, such as signal carriage, retransmission
consent, and equal employment opportunity requirements, have a direct effect on
television broadcasting. Other provisions are focused exclusively on the
regulation of cable television but can still be expected to have an indirect
effect on Belo because of the competition between over-the-air television
stations and cable systems.
The 1992 Cable Act was amended in several important respects by the
Telecommunications Act. Most notably, as discussed above, the Telecommunications
Act repeals the cross-ownership ban between cable and telephone entities and the
FCC's current video dialtone rules. These provisions, among others, foreshadow
significant future involvement in the provision of video services by telephone
companies. Neither Belo nor Providence Journal can predict the impact that telco
entry into video programming will have upon the broadcasting industry.
The 1992 Cable Act requires television broadcasters to make an election to
exercise either certain "must-carry" or "retransmission consent" rights in
connection with the carriage of television stations 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 market, which, in certain circumstances, may be denied.
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.
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.
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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. In late 1995, on
remand, the three-judge panel of the United States District Court for the
District of Columbia upheld the constitutionality of the must-carry
requirements. The appeal of the case was argued before the Supreme Court on
October 7, 1996, with a decision likely in the first half of 1997. Neither Belo
nor Providence Journal can predict the effect of the outcome or the effect on
Belo or Providence Journal of this case.
Advanced Television Service. The FCC has proposed the adoption of rules for
implementing ATV service in the United States. Implementation of digital ATV
will improve the technical quality of television signals receivable by viewers
and will provide broadcasters the flexibility to offer new services, including
high-definition television ("HDTV"), simultaneous multiple programs of standard
definition television ("SDTV"), and data broadcasting.
The FCC must adopt ATV service rules and a table of ATV allotments before
broadcasters can provide these services made possible by the new technology. In
1995, the FCC issued a notice of proposed rulemaking ("NPRM") inviting comment
on a broad range of issues related to the implementation of ATV, particularly
the transition to digital broadcasting, and in August 1996 it similarly invited
comment on its proposed ATV channel allocations.
Absent further legislation requiring the auctioning of ATV channels, it is
expected that the FCC will assign all existing television licensees and
permittees a second channel on which to provide ATV simultaneously with their
current "NTSC" service. After a period of years (the 1992 proposal was for 15
years, although that period of time is under review in the pending FCC
proceeding) broadcasters would be required to cease NTSC operations and
broadcast only with the newer digital ATV technology. It is also possible that
the NTSC channel, once returned to the FCC, will be auctioned for other use.
Under certain circumstances, conversion to ATV operations could reduce a
station's geographical coverage area; the majority of stations, however, will
obtain service areas that substantially match existing operations. Recent
debates in Congress call into question whether the transition to ATV will
proceed as planned.
Due to additional equipment costs, implementation of ATV will impose
near-term financial burdens on television stations providing the service. The
implementation of ATV could require significant per station capital expenditures
by the Belo Stations and the Providence Journal Stations to provide facilities
and equipment necessary to broadcast an ATV signal. If ATV stations are licensed
by auction, this additional expense will apply to broadcasters who choose to
implement ATV. At the same time, there is a potential for increased revenues to
be derived from ATV.
Direct Broadcast Satellite Systems. The FCC has authorized DBS, a service
which provides video programming via satellite directly to home subscribers.
Local broadcast stations are not carried on DBS systems. In June 1994, DIRECTV,
Inc. ("DIRECTV"), an affiliate of the General Motors Company, and United States
Satellite Broadcasting Company ("USSB") initiated DBS service. In January 1996,
AT&T Corporation announced it had invested $138 million in DIRECTV. In December
1995, EchoStar Satellite Corporation ("EchoStar") launched its first satellite.
EchoStar began service in the spring of 1996. Directsat Corporation, an
affiliate of EchoStar, launched its first satellite in September of 1996, with
service to begin a few months later.
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 Belo or the Providence Journal Broadcasting Business and
the Belo Stations or Providence Journal Stations, result in the loss of audience
share and advertising revenues of such Stations, and affect Belo's or Providence
Journal's ability to acquire additional broadcast stations or finance
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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; and (x) proposals to
limit the tax deductibility of advertising expenses by advertisers.
The information contained under this heading does not purport to be a
complete summary of all the provisions of the Communications Act, the FCC rules
thereunder, or of pending proposals for other legislation regarding the
regulation of broadcasting and related activities. For a complete statement of
such provisions, reference is made to the Communications Act, and to the FCC
rules and such pending proposals.
LEGAL MATTERS
The validity of the Belo Series A Common Stock to be issued in the Merger
will be passed upon by Gibson, Dunn & Crutcher LLP.
An opinion with respect to the tax consequences of the Merger has been and
will be given by Gibson, Dunn & Crutcher LLP. Opinions with respect to the tax
consequences of the Merger and certain other matters have been and will be given
by Wachtell, Lipton, Rosen & Katz.
EXPERTS
The consolidated financial statements of A. H. Belo Corporation appearing
in Belo's Annual Report (Form 10-K) for the year ended December 31, 1995, as
amended, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of The Providence Journal Company and
its subsidiaries (except for King Holding Corp., a 50% owned investee company
prior to October 5, 1995, as of December 31, 1994 and for each of the years in
the two-year period then ended) as of December 31, 1995 and 1994 and for each of
the years in the three-year period ended December 31, 1995, included in this
Joint Proxy Statement/Prospectus have been included herein in reliance upon the
report of KPMG Peat Marwick, LLP, independent auditors appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick, LLP covering the December 31, 1995
financial statements contains an explanatory paragraph that states that
Providence Journal completed the merger and related transactions with
Continental Cablevision, Inc. and the Kelso Buyout on October 5, 1995 which
resulted in the disposal of Providence Journal's cable operations, and the
acquisition of Providence Journal's joint venture partner's interest in King
Holding Corp.
The consolidated financial statements of King Holding Corp. and
subsidiaries included in this Joint Proxy Statement/Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
It is expected that representatives of Ernst & Young LLP, Belo's
independent auditors, will be present at the Belo Stockholders Meeting and
representatives of KPMG Peat Marwick, LLP, Providence Journal's independent
auditors, will be present at the Providence Journal Stockholders Meeting where
they will have an opportunity to respond to appropriate questions of
stockholders and to make a statement if they so desire.
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STOCKHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the stockholders
of Belo after such consummation is expected to be held on or about May 14, 1997.
If the Merger is not consummated, the 1997 annual meeting of the stockholders of
Belo is expected to be held on or about May 14, 1997 and the 1997 annual meeting
of the stockholders of Providence Journal is expected to be held on or about
April 17, 1997.
Subject to the foregoing, if any Belo stockholder intends to present a
proposal at the 1997 Belo annual meeting and wishes to have such proposal
considered for inclusion in the proxy materials for such meeting, such holder
must submit the proposal to the Secretary of Belo in writing so as to be
received at the executive offices of Belo by December 14, 1996. Such proposals
must also meet the other requirements of the rules of the Commission relating to
stockholders' proposals. If the Merger is not consummated, the only stockholder
proposals eligible to be considered for inclusion in the proxy materials for the
1997 annual meetings of Belo and Providence Journal will be those which have
been duly submitted to the Secretary of Belo by December 14, 1996 or the
Secretary of Providence Journal by December 26, 1996, as the case may be, as
provided in the respective 1997 Annual Meeting Proxy Statements of Belo and
Providence Journal.
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INDEX OF SELECTED DEFINED TERMS
<TABLE>
<CAPTION>
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<S> <C>
ABC.............................................. 30
Acquiring Party.................................. 18
Aggregate Merger Consideration................... 8
AHN.............................................. 23
Antitrust Division............................... 19
Antitrust Laws................................... 77
ATV.............................................. 31
Bear Stearns..................................... 19
Bear Stearns' Opinion............................ 20
Belo............................................. cover
Belo Board....................................... 18
Belo Bylaws...................................... 5
Belo Certificate................................. 34
Belo Common Stock................................ 5
Belo Covered Shares.............................. 81
Belo Holdings.................................... cover
Belo Preferred Stock............................. 143
Belo Proposal.................................... cover
Belo Record Date................................. 5
Belo Right....................................... cover
Belo Rights Agreement............................ cover
Belo Series A Common Stock....................... cover
Belo Series B Common Stock....................... 5
Belo Significant Stockholders.................... 81
Belo Stations.................................... 30
Belo Stockholders Agreement...................... 81
Belo Stockholders Meeting........................ cover
Cable LP......................................... 99
Cash Election.................................... 7
Cash Election Number............................. 9
Cash Election Shares............................. 8
Cash Fraction.................................... 70
CBS.............................................. 30
Certificates..................................... 8
Class A Right.................................... 149
Class B Right.................................... 149
Closing Date..................................... 69
Code............................................. 20
Colony........................................... 99
Commission....................................... cover
Communications Act............................... 20
Communications Laws.............................. 77
Confidentiality Agreement........................ 78
Continental...................................... 29
Continental Closing Date......................... 29
Continental Merger............................... 85
Continental Merger Agreement..................... 29
Contribution..................................... 85
Credit Agreement................................. 127
Declaration Date................................. 149
DGCL............................................. 6
Dissenting Shares................................ 6
Distribution..................................... 85
Divestitures..................................... 77
Dynamic.......................................... 99
Dynamic Partnership.............................. 99
EBI.............................................. 86
EBITDA........................................... 102
Effective Time................................... 6
Election Deadline................................ 7
Election Form Record Date........................ 7
Exchange Act..................................... 2
Exchange Agent................................... 7
Exchange Ratio................................... 8
Existing Severance Agreements.................... 59
FCC.............................................. 17
FCC Application.................................. 63
Finance.......................................... cover
<CAPTION>
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<S> <C>
Form of Election................................. 7
Fox.............................................. 30
FTC.............................................. 19
Furman Selz...................................... 19
Further Media Interest........................... 77
Governmental Entity.............................. 17
Hospital Trust................................... 130
HSR Act.......................................... 17
Illustrative Holder.............................. 11
Indemnified Parties.............................. 76
IPO.............................................. 53
IUP.............................................. 75
Journal Covered Shares........................... 81
KBC.............................................. 29
Kelso Buyout..................................... 85
KHC.............................................. 29
King Cable Purchase.............................. 86
KVC.............................................. 114
Letter of Transmittal............................ 7
LMAs............................................. 32
Mailing Date..................................... 7
Merger........................................... cover
Merger Agreement................................. cover
Merger Consideration............................. 8
Mixed Consideration.............................. 8
Mixed Election................................... 7
Mixed Election Cash Fraction..................... 70
Mixed Election Cash Shares....................... 70
Mixed Election Shares............................ 70
Mixed Election Stock Shares...................... 70
MSOs............................................. 95
NBC.............................................. 30
New Cable Indebtedness........................... 126
Newspaper Consolidation.......................... 102
Newspaper Consolidation Costs.................... 105
Newspaper Restructuring.......................... 116
Newspaper Restructuring Costs.................... 105
Nielsen.......................................... 83
Non-Election..................................... 7
Non-Election Consideration....................... 8
Non-Election Fraction............................ 71
Non-Election Shares.............................. 70
Notification and Report Form..................... 65
NYSE............................................. cover
Old PJC.......................................... 29
Old PJC Cable Business........................... 85
Operating Cash Flow.............................. 22
Peapod........................................... 96
Per Share Cash Amount............................ 8
Providence Journal............................... cover
Providence Journal Board......................... 18
Providence Journal Broadcasting Business......... 85
Providence Journal Bylaws........................ 6
Providence Journal Certificate................... 34
Providence Journal Class A Common Stock.......... 5
Providence Journal Class B Common Stock.......... 5
Providence Journal Common Stock.................. 5
Providence Journal Common Stock Number........... 70
Providence Journal Employee Stock Option......... 75
Providence Journal Indebtedness.................. 127
Providence Journal LMA Stations.................. 85
Providence Journal Network Agreement............. 30
Providence Journal Newspaper Co.................. 18
Providence Journal Newspaper Co. Board........... 58
Providence Journal Newspapers.................... 92
Providence Journal Programming and Electronic
Media Business................................. 85
Providence Journal Proposal...................... cover
</TABLE>
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<TABLE>
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Providence Journal Publishing Business........... 85
<S> <C>
Providence Journal Record Date................... 5
Providence Journal Rights........................ 149
Providence Journal Rights Agreement.............. 149
Providence Journal S-1........................... 50
Providence Journal Significant Stockholders...... 81
Providence Journal Stations...................... 30
Providence Journal Stockholders Agreement........ 81
Providence Journal Stockholders Meeting.......... cover
Proxy Mailing Date............................... 133
PSN.............................................. 97
Purchase Consideration........................... 135
rating........................................... 89
RCC Consolidation Costs.......................... 102
Registration Statement........................... cover
Section 262...................................... 65
Securities Act................................... cover
Service.......................................... 60
share............................................ 89
Special Meetings................................. cover
Spin-Off......................................... 85
<CAPTION>
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<S> <C>
StarSight........................................ 96
Stock Election................................... 7
Stock Election Number............................ 9
Stock Election Shares............................ 8
Stock Fraction................................... 71
superior proposal................................ 75
takeover proposal................................ 74
Telecommunications Act........................... 31
television duopoly rule.......................... 64
Temporary Waiver................................. 77
Termination Date................................. 17
Termination Fee.................................. 18
TVFN............................................. 95
UHF.............................................. 83
Unit............................................. 75
UPN.............................................. 30
US West.......................................... 75
US West Merger................................... 75
Valuation Period Stock Price..................... 8
VHF.............................................. 83
WB............................................... 31
</TABLE>
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INDEX TO PROVIDENCE JOURNAL FINANCIAL STATEMENTS
<TABLE>
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<S> <C>
FINANCIAL STATEMENTS OF PROVIDENCE JOURNAL
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets, December 31, 1994 and 1995 and (Unaudited) September
30, 1996......................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994,
and 1995 and (Unaudited) Nine Months Ended September 30, 1995 and 1996........... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
and 1995 and (Unaudited) Nine Months Ended September 30, 1995 and 1996........... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993, 1994, and 1995 and (Unaudited) Nine Months Ended September 30, 1996........ F-6
Notes to Consolidated Financial Statements.......................................... F-7
FINANCIAL STATEMENTS OF PROVIDENCE JOURNAL'S SIGNIFICANT UNCONSOLIDATED AFFILIATE
KING HOLDING CORP. AND SUBSIDIARIES*
Independent Auditors' Report........................................................ F-32
Consolidated Balance Sheet, December 31, 1994....................................... F-33
Consolidated Statements of Operations for the Years Ended December 31, 1993 and
1994............................................................................. F-34
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994............................................................................. F-35
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993
and 1994......................................................................... F-36
Notes to Consolidated Financial Statements.......................................... F-37
</TABLE>
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* King Holding Corp. was acquired and consolidated by Providence Journal in
1995.
F-1
<PAGE> 173
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Providence Journal Company:
We have audited the consolidated financial statements of The Providence
Journal Company and Subsidiaries ("Providence Journal") as listed in the
accompanying index. These consolidated financial statements are the
responsibility of Providence Journal'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 prior to October 5, 1995) as of December 31,
1994 and for each of the years in the two-year period then ended. Providence
Journal's investment in King Holding Corp. at December 31, 1994 was $76,829,000
and its equity in losses of King Holding Corp. was $7,244,000 and $8,325,000 for
the years 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,
Providence Journal completed the Continental Merger and related transactions
with Continental Cablevision, Inc. and the Kelso Buyout on October 5, 1995 which
resulted in the disposal of Providence Journal's cable operations, and the
acquisition of Providence Journal's joint venture partner's interest in King
Holding Corp.
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 The Providence Journal Company and
Subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Providence, Rhode Island
February 16, 1996, except for
Notes 2, 13 and 17 which are dated
March 4, 1996, February 27, 1996
and June 18, 1996, respectively.
F-2
<PAGE> 174
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,319 $ 87 $ 11,350
Short-term investments..................................... -- -- 3,349
Accounts receivable, net of allowance for doubtful accounts
of $1,950 in 1994 and $4,328 in 1995.................... 24,916 56,321 52,908
Notes receivable, current.................................. -- -- 17,726
Television program rights, net............................. 4,699 16,536 21,916
Federal and state income taxes receivable.................. 1,661 24,146 3,547
Deferred income taxes (note 9)............................. 20,526 7,112 7,112
Inventory, prepaid expenses and other current assets....... 4,593 5,019 14,560
-------- -------- --------
Total current assets............................... 57,714 109,221 132,468
Investments in affiliated companies (note 3)................. 83,407 22,171 9,512
Notes receivable (note 4).................................... 19,513 19,174 1,005
Television program rights, net............................... 2,670 3,817 6,345
Property, plant and equipment, net (note 5).................. 130,287 171,649 178,831
License costs, goodwill and other intangible assets, net
(note 6)................................................... 35,222 354,411 371,434
Other assets (notes 10 and 14)............................... 26,110 26,787 34,290
Net assets of discontinued operations (note 2)............... 369,790 -- --
-------- -------- --------
$724,713 $707,230 $ 733,885
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 10,202 $ 16,837 $ 12,385
Accrued expenses and other current liabilities (note 7).... 92,840 49,504 49,939
Current installments of long-term debt (note 10)........... 13,588 100 100
Current portion of television program rights payable (note
11)..................................................... 4,542 16,463 18,722
-------- -------- --------
Total current liabilities.......................... 121,172 82,904 81,146
Long-term debt (note 10)..................................... 247,173 243,998 159,700
Television program rights payable (note 11).................. 2,822 5,509 6,589
Deferred income taxes (note 9)............................... 11,944 52,298 51,138
Deferred compensation (note 13).............................. 11,287 10,204 10,391
Other liabilities (notes 13 and 14) ......................... 44,428 49,078 49,325
-------- -------- --------
Total liabilities.................................. 438,826 443,991 358,289
-------- -------- --------
Commitments and contingencies (notes 2, 3, 12, 14, 16 and 19)
Minority interest............................................ -- -- 13,220
-------- -------- --------
Stockholders' equity (notes 2 and 17):
Class A common stock, par value $1.00 per share; authorized
150,000,000 shares; issued 17,331,300 shares in 1995 and
26,543,003 in 1996...................................... -- 17,331 26,543
Class B common stock, par value $1.00 per share; authorized
46,825,000 shares; issued 21,067,650 shares in 1995 and
1996.................................................... -- 21,068 21,068
Class A common stock, par value $2.50 per share; issued
17,266,050 shares in 1994............................... 43,165 -- --
Class B common stock, par value $2.50 per share; issued
21,276,450 shares in 1994............................... 53,191 -- --
Additional paid in capital................................. -- 65 116,781
Retained earnings (note 2)................................. 196,874 226,028 197,573
Unrealized gain (loss) on securities held for sale, net.... 105 (1,253) 411
Treasury stock at cost-432,450 shares in 1994.............. (7,448) -- --
-------- -------- --------
Total stockholders' equity......................... 285,887 263,239 362,376
-------- -------- --------
$724,713 $707,230 $ 733,885
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 175
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Broadcasting......................... $ 45,506 $ 54,024 $ 180,547 $ 128,557 $ 149,819
Publishing advertising............... 93,886 97,006 96,340 68,972 70,153
Publishing circulation............... 31,028 30,887 32,151 23,995 25,023
Programming and Electronic Media..... -- 2,300 3,468 2,209 9,412
---------- ---------- ---------- ---------- ----------
Total net revenues............ 170,420 184,217 312,506 223,733 254,407
---------- ---------- ---------- ---------- ----------
Expenses:
Operating............................ 84,925 77,543 161,283 127,236 131,245
Selling, general and
administrative..................... 71,600 83,302 86,023 55,272 87,478
Newspaper consolidation and
restructuring costs (note 8)....... -- -- 14,222 6,424 2,484
Stock-based compensation............. 5,735 15,138 2,387 1,946 14,941
Depreciation and amortization........ 20,613 19,983 33,969 24,072 32,129
Pension expense (income)............. 756 (173) 1,236 747 701
---------- ---------- ---------- ---------- ----------
Total expenses................ 183,629 195,793 299,120 215,697 268,978
---------- ---------- ---------- ---------- ----------
Operating income (loss)................ (13,209) (11,576) 13,386 8,036 (14,571)
Other income (expense):
Interest expense (notes 2 and 10).... (2,578) (2,426) (11,395) (7,377) (15,246)
Equity in loss of affiliated
companies (note 3)................. (8,763) (13,380) (7,835) (4,538) (3,521)
Management fees from related parties
(note 3)........................... 3,781 3,525 -- -- --
Other income (expense), net.......... (1,599) 2,578 4,797 2,955 4,285
---------- ---------- ---------- ---------- ----------
Total other expense, net...... (9,159) (9,703) (14,433) (8,960) (14,482)
---------- ---------- ---------- ---------- ----------
Loss from continuing operations before
income tax expense (benefit)......... (22,368) (21,279) (1,047) (924) (29,053)
Income tax expense (benefit) (note
9)................................... (6,097) 1,950 3,956 2,563 (2,200)
---------- ---------- ---------- ---------- ----------
Loss from continuing operations........ (16,271) (23,229) (5,003) (3,487) (26,853)
Discontinued operations (note 2):
Loss from operations of discontinued
segments, net of
income tax benefits................ (6,413) (1,798) -- -- --
Loss on disposal of segments, net of
income tax benefits................ -- (34,764) -- -- (3,578)
---------- ---------- ---------- ---------- ----------
Loss before extraordinary items........ (22,684) (59,791) (5,003) (3,487) (30,431)
Extraordinary items, net (note 10)..... 1,551 -- (2,086) (1,652) --
---------- ---------- ---------- ---------- ----------
Loss before minority interests......... (21,133) (59,791) (7,089) (5,139) (30,431)
Minority interests..................... -- -- (2,559) (2,559) 6,253
---------- ---------- ---------- ---------- ----------
Net loss............................... $ (21,133) $ (59,791) $ (9,648) $ (7,698) $ (24,178)
========== ========== ========== ========== ==========
Net income (loss) per common share:
From continuing operations........... $ (0.42) $ (0.61) $ (0.13) $ (0.09) $ (0.65)
From discontinued operations......... (0.17) (0.96) -- -- (0.09)
Extraordinary items.................. 0.04 -- (0.05) (0.04) --
Minority interests................... -- -- (0.07) (0.07) 0.16
---------- ---------- ---------- ---------- ----------
Net loss per common share.............. $ (0.55) $ (1.57) $ (0.25) $ (0.20) $ (0.58)
========== ========== ========== ========== ==========
Weighted average shares outstanding.... 38,385,900 38,196,900 38,506,500 38,110,050 41,410,548
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 176
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss........................................... $(21,133) $(59,791) $ (9,648) $ (7,698) $(24,178)
Adjustments to reconcile net loss to cash flows
provided by continuing operations:
Extraordinary items.............................. (1,551) -- 2,086 1,652 --
Discontinued operations.......................... 6,413 36,562 -- -- 3,578
Minority interests............................... -- -- 2,559 2,559 (6,253)
Depreciation and amortization.................... 20,613 19,983 33,969 24,072 32,129
Program rights amortization...................... 7,674 7,356 17,318 12,877 13,321
Equity in loss of affiliated companies........... 8,763 13,380 7,835 4,538 3,521
Deferred income taxes............................ (4,846) (3,258) 11,008 1,307 (1,160)
Increase (decrease) in deferred compensation..... 5,767 7,740 (1,531) 1,218 1,345
Changes in assets and liabilities, net of effects
of acquisitions
Accounts receivable.............................. (1,451) (484) (4,604) 6,164 5,812
Inventories, prepaid expenses and other current
assets......................................... (660) (1,868) (34,870) (1,095) 13,879
Accounts payable................................. (3,128) 2,545 1,172 (3,486) (2,539)
Accrued expenses and other current liabilities... 1,629 (697) (15,095) (27,461) (5,166)
Other, net......................................... 5,293 3,459 1,776 (2,980) 1,150
-------- -------- --------- -------- --------
Cash flows provided by continuing operations..... 23,383 24,927 11,975 11,667 35,439
-------- -------- --------- -------- --------
Investing activities:
Purchase of Kelso interest, less cash acquired
$3,578......................................... -- -- (261,422) -- --
Investment in securities held for sale........... (5,551) -- (397) -- --
Investments in and advances to affiliated
companies...................................... (5,783) (6,555) (23,647) (17,379) (30,484)
Additions to property, plant and equipment....... (11,597) (6,481) (15,276) (12,613) (17,784)
Collections on notes receivable.................. 2,751 3,086 339 -- --
Proceeds from sale of assets..................... 1,073 594 8,739 8,239 --
Cash proceeds in sale of cable operations, net of
taxes paid..................................... -- -- 693,058 -- --
(Increase) decrease in discontinued operations
through disposal date.......................... (4,528) 24,838 (66,459) (39,731) --
-------- -------- --------- -------- --------
Cash flows provided by (used in) investing
activities..................................... (23,635) 15,482 334,935 (61,484) (48,268)
-------- -------- --------- -------- --------
Financing activities:
Proceeds from syndicated long-term debt.......... 30,000 -- 233,000 93,000 88,765
Net increase in syndicate line of credit......... -- -- 1,298 -- --
Proceeds from refinanced syndicated long-term
debt........................................... -- -- 90,711 -- --
Principal payments on long-term debt including
prepayment penalty............................. (11,153) (19,345) (638,224) (26,107) (173,063)
Payments of debt issue costs..................... -- -- (1,748) -- --
Payments on television program rights payable.... (7,296) (6,760) (16,166) (11,839) (12,936)
Cash received form minority Partners............. -- -- -- -- 12,000
Dividends paid................................... (8,872) (9,711) (9,706) (7,266) (9,763)
Issuance of Class A stock, net of expenses....... -- -- 46 -- 119,089
Purchases and adjustments to basis of treasury
stock.......................................... (2,387) (4,291) (7,353) -- --
-------- -------- --------- -------- --------
Cash flows provided by (used in) financing
activities..................................... 292 (40,107) (348,142) 47,788 24,092
-------- -------- --------- -------- --------
Increase (decrease) in cash.......................... 40 302 (1,232) (2,029) 11,263
Cash and cash equivalents at beginning of period..... 977 1,017 1,319 4,897 87
-------- -------- --------- -------- --------
Cash and cash equivalents at end of period........... $ 1,017 $ 1,319 $ 87 $ 2,868 $ 11,350
======== ======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 177
THE 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 ADDITIONAL GAIN (LOSS) TREASURY STOCK
-------------------- -------------------- PAID IN 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 31,
1992........... 17,090,550 $ 42,726 21,451,950 $ 53,630 $ -- $296,381 -- (45,000) $ (770) $ 391,967
Treasury stock
activity:
Tender offer
and other
purchases... -- -- -- -- -- -- -- (151,650) (2,460) (2,460)
Issuance of
common stock
from
treasury.... -- -- -- -- -- -- -- 4,500 73 73
Conversion upon
sale of Class
B to Class A
common
stock......... 168,300 421 (168,300) (421) -- -- -- -- -- --
Dividends
declared,
$0.23 per
share......... -- -- -- -- -- (8,872) -- -- -- (8,872)
Net loss........ -- -- -- -- -- (21,133) -- -- -- (21,133)
---------- ------- ---------- ------- -------- -------- ------- --------- ------- ---------
Balances at
December 31,
1993............ 17,258,850 43,147 21,283,650 53,209 -- 266,376 -- (192,150) (3,157) 359,575
Purchases of
treasury
stock......... -- -- -- -- -- -- -- (240,300) (4,291) (4,291)
Conversion upon
sale of Class
B to Class A
common
stock......... 7,200 18 (7,200) (18) -- -- -- -- -- --
Dividends
declared,
$0.25 per
share......... -- -- -- -- -- (9,711) -- -- -- (9,711)
Cumulative
effect of
change in
accounting
principle
(note 1(c))... -- -- -- -- -- -- 5,120 -- -- 5,120
Net change in
unrealized
gain
(loss)........ -- -- -- -- -- -- (5,015) -- -- (5,015)
Net loss........ -- -- -- -- -- (59,791) -- -- -- (59,791)
---------- ------- ---------- ------- -------- -------- ------- --------- ------- ---------
Balances at
December 31,
1994............ 17,266,050 43,165 21,276,450 53,191 -- 196,874 105 (432,450) (7,448) 285,887
Conversion upon
sale of Class
B to Class A
common
stock......... 58,950 147 (58,950) (147) -- -- -- -- -- --
Reissuance of
treasury stock
in connection
with stock
based
compensation
plans......... -- -- -- -- 2,738 -- -- 282,600 4,867 7,605
Treasury stock
adjustments to
basis (note
16)........... -- -- -- -- -- -- -- -- (7,353) (7,353)
Dividends
declared $0.25
per share..... -- -- -- -- -- (9,706) -- -- -- (9,706)
Net change in
unrealized
gain (loss)... -- -- -- -- -- -- (1,358) -- -- (1,358)
Excess of
proceeds over
net assets
held for sale
in disposal of
cable
operations
(note 2)...... -- -- -- -- -- 582,510 -- -- -- 582,510
Deemed
distribution
to
shareholders
of Continental
capital stock
in connection
with disposal
of cable
operations
(note 2)...... -- -- -- -- -- (584,769) -- -- -- (584,769)
Recapitalization
in connection
with PJC
Spin-Off
(notes 2 and
17)........... -- (25,987) (149,850) (31,976) (2,738) 50,767 -- 149,850 9,934 --
Exercised
options....... 6,300 6 -- -- 65 -- -- -- -- 71
Net loss........ -- -- -- -- -- (9,648) -- -- -- (9,648)
---------- ------- ---------- ------- -------- -------- ------- --------- ------- ---------
Balances at
December 31,
1995............ 17,331,300 17,331 21,067,650 21,068 65 226,028 (1,253) -- -- 263,239
Dividend declared
$0.25 per
share........... -- -- -- -- -- (9,763) -- -- -- (9,763)
Net change in
unrealized gain
(loss).......... -- -- -- -- -- -- 1,664 -- -- 1,664
Common stock
issued:
Common stock
offering...... 8,643,750 8,644 -- -- 110,379 -- -- -- -- 119,023
Exercised
options....... 25,200 25 -- -- 258 -- -- -- -- 283
Common stock
issued for RSU
Plan.......... 542,753 543 -- -- 6,079 -- -- -- -- 6,622
Adjustment to
excess proceeds
over assets held
for sale in
disposal of
cable assets.... -- -- -- -- -- 5,486 -- -- -- 5,486
Net loss......... -- -- -- -- -- (24,178) -- -- -- (24,178)
---------- ------- ---------- ------- -------- -------- ------- --------- ------- ---------
Balances at
September 30,
1996
(unaudited)..... 26,543,003 $ 26,543 21,067,650 $ 21,068 $116,781 $197,573 $ 411 -- $ -- $ 362,376
========== ======= ========== ======= ======== ======== ======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 178
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of The Providence Journal Company and its subsidiaries
(collectively the "Providence Journal"). Providence Journal is the successor to
Providence Journal Company ("Old PJC") which reorganized itself, acquired all of
its joint venture partner's interest in King Holding Corp. ("KHC"), and disposed
of its cable operations on October 5, 1995 in a series of transactions as
described in Note 2. 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
television broadcasting ("Providence Journal Broadcasting Business"), newspaper
publishing ("Providence Journal Publishing Business") and programming and
electronic media ventures ("Providence Journal Programming and Electronic Media
Business"). Prior to the consummation of the Continental Merger (defined below)
and other transactions described below, these businesses were conducted by Old
PJC which was also engaged in the ownership and operation of cable television
systems ("PJC Cable Business").
All significant intercompany balances and transactions have been eliminated
and appropriate minority interests have been recorded in consolidation. The
results of operations for KHC have been consolidated in the accompanying
statements of operations since January 1, 1995 with appropriate adjustments for
minority interests for the period from January 1, 1995 to October 5, 1995 the
date of the Kelso Buyout, as discussed in Note 3.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) Cash and Cash Equivalents
Cash equivalents are those short-term highly liquid investments generally
with original maturities of 90 days or less. At September 30, 1996, cash
equivalents consisted primarily of commercial paper and overnight investments
and totaled $10,082. There were no cash equivalents at December 31, 1994 and
1995. Cash and cash equivalents at January 1, 1995 as presented in the
consolidated statements of cash flows for the nine months ended September 30,
1995 includes the cash and cash equivalents of KHC as a result of consolidating
KHC as of January 1, 1995.
Providence Journal 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, 1994
and 1995, Providence Journal reclassified $2,805 and $2,162 respectively, of net
outstanding checks to accounts payable.
F-7
<PAGE> 179
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Income taxes paid during the year (excluding IRS
settlements, see Note 9)........................ $ 9,815 $ 2,588 $12,679
------- ------- -------
Interest paid during the year (including amounts
allocated to discontinued operations), net of
amounts capitalized............................. $20,285 $20,911 $47,891
------- ------- -------
Obligations incurred for acquisition of television
program rights (non-cash transactions).......... $ 5,898 $ 6,627 $21,520
------- ------- -------
</TABLE>
In connection with the acquisition of the joint venture partner's interest
in King Holding Corp. in 1995, assets acquired and liabilities assumed were as
follows:
<TABLE>
<S> <C>
Assets acquired................................................... $243,186
--------
Goodwill and other intangibles.................................... $206,740
--------
Liabilities assumed............................................... $184,926
========
</TABLE>
(c) Investments
Investments in Affiliates
Investments in affiliates in which Providence Journal has significant
influence (generally ownership of 20% to 50% of voting stock) and investments in
partnerships are accounted for using the equity method. Other investments
(generally ownership of less than 20% of voting stock) are carried at the lower
of cost or net realizable value. The following investments are accounted for
under the equity method as of December 31, 1995:
Television Food Network, G.P.
America's Health Network
Peapod, L.P.
Partner Stations Network, L.P.
Linkatel Pacific, L.P.
Effective January 1, 1996, the results of America's Health Network's
operations have been consolidated with Providence Journal to reflect Providence
Journal's decision to maintain a controlling majority interest.
Effective May 1, 1996, Television Food Network, G.P. was consolidated with
Providence Journal's results of operations as a result of the acquisition of
additional equity interests in 1996.
Information about these investments is presented in Note 3.
Investments in Marketable Equity Securities
Investments in marketable equity securities consist of one common stock
investment, StarSight Telecast, Inc., in which Providence Journal owns
approximately 5% of the outstanding common stock. This marketable equity
security 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, Providence Journal's marketable equity
securities
F-8
<PAGE> 180
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
are considered to be "held for sale" and unrealized gains and losses, net of the
related tax effect, are recorded as a separate component of stockholders'
equity. 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 consolidated statement of
operations.
At December 31, 1994 and 1995, the cost of marketable equity securities
totaled and $5,552 and $5,949, respectively; fair market value totaled and
$5,727 and $3,861 respectively.
(d) Inventories
Inventories, principally comprising raw materials, are stated at the lower
of cost or market. Cost is determined principally on the last-in, first-out
(LIFO) basis. Replacement cost of inventories was $1,945 and $2,806 at December
31, 1994 and 1995, 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 consolidated 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.
Television program rights are reviewed periodically for impairment and, if
necessary, adjusted to estimated net realizable value.
(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. Providence Journal provides for depreciation using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.............................................. 2 - 45 years
Machinery and equipment................................................. 3 - 15
Furniture and fixtures.................................................. 5 - 11
Broadcast equipment..................................................... 6 - 15
</TABLE>
When Providence Journal 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.
Providence Journal provides for amortization using the straight-line method over
periods ranging from 5 to 40 years.
Providence Journal periodically reviews its intangible assets to determine
whether any impairment has occurred. Providence Journal assesses the
recoverability of intangible assets by reviewing the performance of
F-9
<PAGE> 181
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
the underlying operations, in particular the operating cash flows (earnings
before income taxes, depreciation, and amortization) of the operation.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
(i) Pension and Other Postretirement Benefits
Providence Journal has defined benefit pension plans covering substantially
all employees of Providence Journal Publishing Business and certain employees of
Providence Journal Broadcasting Business. The plans are funded in accordance
with the requirements of the Employee Retirement Income Security Act.
Providence Journal sponsors a defined life insurance and medical plan for
its newspaper and one of its broadcast operations, respectively. The plans are
accounted for under Statement of Financial Accounting Standards ("SFAS") No.
106, "Employer's Accounting for Postretirement Benefits Other than Pensions".
(j) Derivative Financial Instruments
Providence Journal has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Derivative financial
instruments are only used to manage interest rate risks.
Providence Journal has entered into an interest rate swap agreement which
is 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 10). Gains and losses upon settlement of a swap agreement are
deferred and amortized over the remaining term of the agreement.
(k) Net Loss Per Share
Net loss per share is based on the weighted average number of shares of
Providence Journal Class A and Class B 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) Stock-Based Compensation
Effective January 1, 1996, Providence Journal adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." The Statement encourages, but does
not require, a fair value based method of accounting for stock-based
compensation plans. SFAS No. 123 allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method
prescribed by APB Opinion No. 25. For those entities electing to use the
intrinsic value based method, SFAS No. 123 requires pro forma disclosures of net
income and earnings per share computed as if the fair value based method had
been applied. Providence Journal intends to continue to account for stock-based
compensation costs under APB Opinion No. 25 and will provide the additional
required disclosures relating to 1995 and 1996 stock options in its 1996 Annual
Report.
F-10
<PAGE> 182
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
(m) Unaudited Interim Consolidated Financial Statements
The consolidated financial statements as of and for the nine months ended
September 30, 1995 and 1996 are unaudited; however, they include all adjustments
(consisting of normal recurring adjustments) considered necessary by management
for a fair 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.
NOTE 2 -- REORGANIZATION AND DISCONTINUED CABLE OPERATIONS
(a) Reorganization
On October 5, 1995, Old PJC completed the acquisition of the 50% interest
in King Holding Corp. ("KHC") held by an unrelated third party for $265 million,
including $5 million in transaction fees (the "Kelso Buyout"), completed the
transfer of all non-cable operations from Old PJC to Providence Journal in a
substantially tax-free reorganization pursuant to which the shares of capital
stock of Providence Journal were distributed to the shareholders of Old PJC (the
"PJC Spin-Off"), and, following the PJC Spin-Off, at which point it held only
Old PJC's cable television businesses and assets, Old PJC was merged ("the
Continental Merger") with and into Continental Cablevision, Inc.
("Continental"). Immediately prior to the Kelso Buyout, Continental purchased
for $405 million all of the stock of King Videocable Company ("KVC"), a wholly
owned subsidiary of King Broadcasting Company ("KBC"), which is wholly owned by
KHC. As a result of these transactions, Providence Journal, in substance, became
successor to Old PJC, in the same lines of businesses, simultaneously spinning
off its cable subsidiaries to its shareholders who then merged them into
Continental.
Proceeds from the disposal of the cable operations discussed above
consisted of a combination of Continental stock, which was received directly
from Continental by Old PJC's shareholders in connection with the Continental
Merger, assumption of a portion of the Old PJC's debt by Continental (see Note
10), and cash. The total combined consideration amounted to approximately $1.4
billion (including the $405 million from the sale of KVC). The excess of the
proceeds over the net assets of the discontinued cable operations was $582,510
and is reflected in the consolidated statement of stockholders' equity. The
receipt by the Old PJC Shareholders of the Continental shares, valued at
$584,769, is recorded as a deemed distribution to shareholders in the statement
of stockholders' equity.
The Continental Merger agreement between Old PJC and Continental provides
that the total combined consideration received from the disposal of Providence
Journal's cable operations will be adjusted for certain working capital items of
the cable operations acquired by Continental. On March 4, 1996, Providence
Journal agreed to pay Continental $4,250 in full settlement of this working
capital adjustment which was accrued in the accompanying balance sheet as of
December 31, 1995 and included in discontinued operations of 1995.
In connection with the Continental Merger, Providence Journal agreed to
indemnify Continental from any and all liabilities arising from the non-cable
television businesses, and is responsible for all federal and state income tax
liabilities for periods ending on or before the closing date.
(b) Discontinued Cable Operations
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-11
<PAGE> 183
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 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,
-------------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues........................................ $ 177,417 $ 177,953 $ 148,268
Costs and expenses.............................. (185,998) (180,597) (154,741)
Equity in income of affiliate................... 1,413 2,417 1,373
--------- --------- ---------
Loss before income taxes........................ (7,168) (227) (5,100)
Income tax (expense) benefit.................... 755 (1,571) (2,017)
--------- --------- ---------
Net loss........................................ $ (6,413) $ (1,798) $ (7,117)
========= ========= =========
</TABLE>
The net loss for discontinued operations in 1995 was accrued in 1994 as
part of the costs to dispose of the cable operations. No amounts were required
to be recorded in the loss from operations of discontinued segments in the
consolidated statement of operations for 1995.
Loss from operations of discontinued segments includes allocated interest
expense totaling $19,807, $20,674 and $17,265 (excluding $12,380 allocated to
KVC operations) in 1993, 1994 and 1995, respectively. Interest allocated to
discontinued segments was limited to the associated interest on debt that was
repaid in connection with the Continental Merger. The estimated loss on disposal
of segments in 1994 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.
In addition, in 1994 Providence Journal sold its remaining cellular system
investment and its paging subsidiary. As a result of these transactions,
Providence Journal 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
Communications, Inc. ("Colony") (a subsidiary of Old PJC) and Copley Press
Electronics Company ("Copley"), engaged in cable television operations. In
connection with the Continental Merger agreement with Continental, in May, 1995
Copley sold all of its interests in Copley/Colony to Colony for a fixed
aggregate purchase price of $47,790 in cash. As a result, Colony owned all of
the outstanding shares of Copley/Colony at the time of the Continental Merger.
The net assets of the cable television businesses acquired by Continental
are presented in the accompanying consolidated balance sheets as "net assets of
discontinued operations" prior to the disposal. Discontinued assets acquired
consisted primarily of plant and equipment, and intangible assets. Liabilities
assumed consisted primarily of accounts payable and accrued expenses.
NOTE 3 -- INVESTMENTS IN AFFILIATED COMPANIES
(a) King Holding Corp.
The Kelso Buyout as discussed in Note 2 (a), was recorded in the fourth
quarter of 1995 as a step acquisition under the purchase method of accounting.
The excess of the purchase price over the net book value of assets acquired
including deferred taxes was $206,740, of which approximately $88,000 was
allocated to identifiable intangibles and the remainder to goodwill, together to
be amortized over an average life of approximately 30 years.
The following table presents unaudited pro forma summary results of
operations as if the Kelso Buyout and Continental Merger had occurred on January
1, 1994, and accordingly, include adjustments for additional amortization and
interest expense and related income tax benefits. It does not purport to be
indicative of what
F-12
<PAGE> 184
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
would have actually occurred had the acquisition occurred on January 1, 1994 nor
is it indicative of results which may occur in the future:
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
YEARS ENDED DECEMBER 31,
------------------------
1994 1995
-------- --------
<S> <C> <C>
Revenues....................................................... $301,276 $312,506
Loss from continuing operations................................ (19,136) (14,893)
Net loss....................................................... $(19,136) $(16,979)
======== ========
Net loss per common share...................................... $ (0.50) $ (0.44)
======== ========
</TABLE>
Prior to the acquisition of all outstanding interests, Providence Journal
received annual governance fees and management fees from KHC totaling $3,781 and
$3,525 in 1993 and 1994 respectively, which had been included in management fees
from related parties. Providence Journal charged KHC $330 and $1,130 for
accounting services in 1993 and 1994, respectively, and was also reimbursed
$2,842 and $3,240 by KHC for expenses in its capacity as manager in 1993 and
1994, respectively. In 1995, the annual governance, management, and accounting
fees and expenses reimbursed have been eliminated in consolidation.
Summary combined information for King Holding Corp. as of December 31, 1994
and for each of the years in the two year period then ended is summarized below:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Current assets.............................................. $ 39,978
Current liabilities......................................... (48,804)
-------
Working capital deficiency................................ (8,826)
Property, plant and equipment, net.......................... 58,131
Intangible and other assets................................. 138,453
Net assets of discontinued operations....................... 255,902
Long-term liabilities....................................... (289,669)
-------
Net assets................................................ $ 153,991
=======
</TABLE>
<TABLE>
<CAPTION>
1993 1994
-------- ---------
<S> <C> <C>
Revenues.................................................... $102,340 $ 117,059
-------- ---------
Operating income............................................ $ 16,371 $ 24,776
-------- ---------
Income from continuing operations........................... $ 900 $ 7,263
-------- ---------
Loss from discontinued operations, net...................... $(15,389) $ (23,915)
-------- ---------
Net loss.................................................. $(14,489) $ (16,652)
======== =========
</TABLE>
(b) Television Food Network, G.P.
As of December 31, 1995, Providence Journal, controlled a 21% interest in
Television Food Network, G.P. ("TVFN"). The partnership was formed specifically
to own and operate the Television Food Network channel. TVFN is a 24-hour
advertising supported network service that provides television programming
related to the preparation, enjoyment and consumption of food, as well as
programs focusing on nutrition and topical news areas. TVFN is a general
partnership consisting of eight media companies with cable television, broadcast
television and programming holdings. TVFN is distributed predominantly through
cable television stations to approximately 17.3 million subscribers throughout
the United States. Providence Journal is the
F-13
<PAGE> 185
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
general partner in the managing partner of TVFN and has invested approximately
$47,900 through September 30, 1996.
Effective March 1994 Providence Journal entered into a sub-lease agreement
with TVFN for use of Providence Journal's C-band primary transponder. The lease
is effective through March 1999. Providence Journal recorded $1,700 and $1,090
in rental revenue from TVFN in 1994 and 1995, respectively.
In May 1996, the Company purchased the equity partnership interests held by
Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing, Inc.
("Scripps"), two of the partners of TVFN, for respective purchase prices of
approximately $12,650 and $11,400. Prior to such purchase, Landmark and Scripps
each owned a 10.8% and 9.7% general partnership interest, respectively, in TVFN.
The Company's investment in TVFN through September 30, 1996, including these
purchases and funding of its share of operating losses, totaled $47,900 which
represents an equity interest of approximately 46%. The Company now holds three
of the five voting seats on the TVFN management committee. These purchases were
accounted for under the purchase method of accounting, and as a result of the
purchases, TVFN became a controlled subsidiary of the Company and was
consolidated into the Company's results of operations effective May 1, 1996. See
note 19.
(c) America's Health Network
During 1995, Providence Journal invested $10,250 in America's Health
Network ("AHN"), a development stage cable programming network service intending
to provide health-related information and products. The channel launched on
March 25, 1996 with 750,000 subscribers. Providence Journal's Board of Directors
has approved additional investments up to $12,000, expected to made in 1996. In
early 1996, AHN, Inc. was reorganized and became America's Health Network,
L.L.C. ("AHN LLC"), a limited liability corporation which is the general partner
in AHN Partners, L.P. ("AHN Partners"), a limited partnership formed to carry on
the operations of the network. Providence Journal's total investment through
September 30, 1996 is $35,250 and its interest in AHN is approximately 65%.
Effective January 1, 1996, the results of AHN's operations have been
consolidated with Providence Journal. Prior to January 1, 1996, Providence
Journal accounted for this investment under the equity method of accounting at
which time control was considered temporary.
Providence Journal also entered into a sub-lease agreement with AHN for use
of Providence Journal's C-band primary transponder. The lease term is from
November 1, 1995 through October 31, 2000. Providence Journal recorded revenue
of $410 related to this agreement during 1995.
F-14
<PAGE> 186
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
In addition, the following table presents unaudited pro forma summary
results of operations as if AHN (see (c) below) and TVFN had been consolidated
in operations since January 1, 1995, and accordingly, includes adjustments for
additional amortization and interest expense and related income tax benefits. It
does not purport to be indicative of what would have actually occurred had the
consolidation occurred on January 1, 1995 nor is it indicative of results which
may occur in the future:
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues........................................................... $317,663 $258,244
Loss from continuing operations.................................... (20,345) (30,411)
Loss from discontinued operations.................................. -- (3,578)
Extraordinary item................................................. (2,086) --
Minority interests................................................. 3,966 7,676
-------- --------
Net loss........................................................... (18,465) (26,313)
======== ========
Net loss per common share.......................................... $ (0.48) $ (0.64)
======== ========
</TABLE>
(d) Peapod, L.P.
On July 27, 1995, Providence Journal purchased a 17.1% interest in Peapod,
L.P., which currently provides an interactive computer on-line grocery ordering,
shopping and delivery service in Boston, Chicago, Columbus and San Francisco.
Total investments in the partnership during 1995 were $5,335. Providence Journal
invested an additional $1,003 in 1996 as part of a $15 million private
placement. No additional investments have been committed to.
Summary Financial Information -- TVFN, AHN, and Peapod, L.P
Summary combined financial information for TVFN, AHN and Peapod L.P., as of
December 31, 1994 and 1995 and for the years ended December 31, 1994 and 1995 is
presented below. Information for 1993 presented below is for TVFN only:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C> <C>
Current assets...................................... $ 8,511 $ 14,935
Current liabilities................................. (2,489) (8,418)
-------- --------
Working capital................................... 6,022 6,517
Property, plant and equipment, net.................. 6,052 7,996
Intangible and other assets......................... 3,356 11,248
Long-term liabilities............................... (373) (3,009)
-------- --------
Net assets........................................ $ 15,057 $ 22,752
======== ========
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Revenues............................................ $ 13 $ 10,307 $ 22,579
------- ------- -------
Operating loss...................................... $(6,526) $(25,513) $(31,863)
------- ------- -------
Net loss.......................................... $(6,648) $(25,223) $(31,614)
======= ======= =======
</TABLE>
F-15
<PAGE> 187
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
(e) Partner Stations Network, L.P.
Providence Journal is a limited partner with four other television group
broadcasters in Partner Stations Network, L.P. ("PSN"). PSN was 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. Each of the limited partners has a 16% interest and the general
partner, Lambert Television Management, Inc. has a 20% interest. Through
December 31, 1995, Providence Journal has invested $1,810.
(f) Linkatel Pacific, L.P.
In July 1993, Providence Journal, through its wholly-owned subsidiary
Colony/Linkatel Networks, Inc., invested in Linkatel Pacific, L.P. (a
development stage enterprise) ("Linkatel"), with two other communications
companies. Providence Journal has a 45% limited interest in the partnership,
which was formed to pursue the development of alternative access networks.
Through December 31, 1995, Providence Journal has invested $6,531 in Linkatel
Pacific, L.P.
Linkatel Pacific, L.P.'s net loss approximated $1,262 and $2,319 for the
years ended December 31, 1994 and 1995. Net assets approximated $7,367 and
$9,088 as of December 31, 1994 and 1995.
See note 19.
NOTE 4 -- NOTES RECEIVABLE
In September 1990, Providence Journal advanced the Lowell Sun Publishing
Company and Lowell Sun Realty Company (collectively the "Lowell Sun Companies")
$25,650 and agreed to provide a $6,500 revolving credit facility. The loan and
revolving credit facility which were originally due in March 1996 are subject to
a forbearance until January 2, 1997. Amounts outstanding bear interest at a
floating rate of prime plus 1.25%. The advance is collateralized by all assets
of the Lowell Sun Companies and an interest in Lowell Sun Companies stock. The
principal balance receivable at December 31, 1994 and 1995 was $23,675 and
$23,575, respectively. See note 19.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, consist of the following at
December 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land......................................................... $ 17,054 $ 24,338
Machinery and equipment...................................... 78,503 84,733
Buildings and improvements................................... 75,608 116,790
Broadcast equipment.......................................... 38,307 104,147
Furniture and fixtures....................................... 39,871 45,076
Construction in progress..................................... 1,564 1,445
-------- --------
250,907 376,529
Less accumulated depreciation................................ 120,620 204,880
-------- --------
$130,287 $171,649
======== ========
</TABLE>
Depreciation expense on property, plant and equipment used in continuing
operations totaled $16,964, $16,617 and $22,346 in 1993, 1994 and 1995,
respectively.
F-16
<PAGE> 188
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
NOTE 6 -- INTANGIBLE ASSETS
As of December 31, 1994 and 1995, intangible assets consist of:
<TABLE>
<CAPTION>
LIFE RANGE 1994 1995
----------- ------- --------
<S> <C> <C> <C>
Goodwill........................................... 25-40 years $28,219 $166,594
Licenses........................................... 10-25 years 1,303 165,836
Advertiser Relations............................... 18-25 years 41,395 88,595
Other.............................................. 5 years 307 411
-------- --------
Total.................................... $71,224 $421,436
======== ========
</TABLE>
Advertiser relationships generally represent the present value of
anticipated cash flows from well established local and national advertisers
relationships which existed at the time of acquisition by Providence Journal of
some of its television stations, generally those stations which were more mature
in their markets and had long-term relationships established.
Amortization expense on intangible assets charged to continuing operations
totaled $3,649, $3,366 and $11,623 in 1993, 1994, and 1995, respectively.
Accumulated amortization on intangible assets totaled $36,002 and $67,025 at
December 31, 1994 and 1995, respectively. See also Note 3.
NOTE 7 -- 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>
1994 1995
------- -------
<S> <C> <C>
Accrued costs on disposal of the cable television segment........ $35,075 $12,278
Deferred compensation............................................ 31,266 4,806
Accrued interest................................................. 7,263 872
Salaries, wages and other employee benefits...................... 7,033 11,626
Unearned revenue................................................. 4,024 3,709
Newspaper restructuring.......................................... -- 6,800
Other............................................................ 8,179 9,413
------- -------
$92,840 $49,504
======= =======
</TABLE>
NOTE 8 -- NEWSPAPER CONSOLIDATION AND RESTRUCTURING COSTS
(a) Newspaper Consolidation Costs
Included in the 1995 consolidated statement of operations are one-time
charges related to the consolidation of Providence Journal's afternoon newspaper
(The Evening Bulletin) with the morning newspaper (The Providence Journal). This
consolidation was effective June 5, 1995 and resulted in the publishing of
Providence Journal-Bulletin, a morning newspaper. This consolidation is referred
to as the Newspaper Consolidation. In connection with the Newspaper
Consolidation, Providence Journal offered early retirement benefits and
voluntary separation assistance to affected employees. As of December 31, 1995,
61 employees accepted early retirement benefits and 19 employees accepted
voluntary separation amounting to a charge to operations of approximately $3,826
and $1,071, respectively, including benefits. In addition, Providence Journal
incurred costs of approximately $2,525 for promotion, training, and other costs
of the conversion. The early retirement benefits will be paid from Providence
Journal's retirement plans. As of
F-17
<PAGE> 189
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
December 31, 1995 approximately $700 remains unpaid under the voluntary
separation plans. This amount is expected to be paid in 1996.
(b) Newspaper Restructuring Costs
During the fourth quarter of 1995, management approved a plan of
reorganization and restructuring of most departments of Providence Journal
Publishing Business in an effort to improve efficiencies (the "Newspaper
Restructuring"). Under the plan, the Company has targeted a reduction in
workforce of approximately 100 full time equivalents through a combination of
early retirement and voluntary and involuntary separation assistance plans. Of
the 100 full time equivalents, approximately 62 are from the news and operations
departments with the remainder coming from other departments. Salaries and
related payroll taxes associated with these reductions amounted to approximately
$6,800 and has been included as a restructuring charge in the accompanying
consolidated statement of operations for 1995. In the nine months ended
September 30, 1996, Providence Journal recorded an additional charge to
operations of approximately $2,484 relating to early retirement costs and
voluntary separation benefits in connection with this Newspaper Restructuring.
Early retirement and voluntary separation benefits will be paid out of
Providence Journal's pension plans (in which plan assets exceed plan
obligations) and all other costs are expected to be paid in varying amounts
through 2004.
NOTE 9 -- FEDERAL AND STATE INCOME TAXES
Income tax expense (benefit) has been allocated as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Continuing operations.................................. $(6,097) $ 1,950 $3,956
Operations of discontinued segments.................... (755) 1,571 2,017
Loss on disposal of segments........................... -- (8,038) --
Extraordinary items.................................... 799 -- (417)
Stockholders' equity................................... -- 70 (905)
------- ------- ------
$(6,053) $(4,447) $4,651
======= ======= ======
</TABLE>
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1993:
U.S. Federal........................................ $ (879) $ (4,886) $(5,765)
State............................................... (372) 40 (332)
------- -------- -------
$(1,251) $ (4,846) $(6,097)
======= ======== =======
Year ended December 31, 1994:
U.S. Federal........................................ $ 5,855 $ (3,258) $ 2,597
State............................................... (647) -- (647)
------- -------- -------
$ 5,208 $ (3,258) $ 1,950
======= ======== =======
Year ended December 31, 1995:
U.S. Federal........................................ $(8,523) $ 11,162 $ 2,639
State............................................... 1,471 (154) 1,317
------- -------- -------
$(7,052) $ 11,008 $ 3,956
======= ======== =======
</TABLE>
F-18
<PAGE> 190
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
During 1995, Providence Journal paid $15,023 in additional taxes and
interest in final settlement with the Internal Revenue Service ("IRS") relating
to examinations of its income tax returns for the years 1984 through 1989. In
anticipation of the interest on these settlements and in providing for various
contingencies on income tax exposures identified during on-going examinations,
Providence Journal recorded additional income tax expense of $6,000 in 1994.
During 1994, Providence Journal also agreed to a settlement in connection
with the IRS initiative for settlement of intangible asset issues. Consequently,
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 settlement of these intangible
asset issues. As a result of these adjustments, deferred tax liabilities and
goodwill associated with the purchase business combinations were reduced by
approximately $12,500.
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax loss from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Computed "expected" tax benefit........................ $(7,605) $(7,235) $ (356)
Increase (decrease) in income taxes resulting from:
Reserve for tax contingencies and interest on
settlements....................................... -- 6,000 --
Equity in net loss of affiliates..................... 2,463 2,831 623
State and local income taxes, net of federal income
tax............................................... (219) (427) 804
Rehabilitation credit................................ (1,248) -- --
Amortization of goodwill............................. 271 231 2,223
Other, net........................................... 241 550 662
------- ------- ------
$(6,097) $ 1,950 $3,956
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1995 are presented below:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Gross deferred tax assets:
Deferred compensation........................................ $ 14,915 $ 5,678
State net operating loss carryforwards....................... 3,252 3,329
Investment and other reserves................................ 5,117 5,535
Self-insurance reserves...................................... 1,027 1,357
Vacation accrual............................................. 702 935
Postretirement benefits...................................... 1,897 3,767
Accounts receivable, principally due to allowance for
doubtful accounts......................................... 438 1,163
Accrued costs on disposal of segments........................ 7,021 2,968
Other........................................................ 3,510 3,765
-------- --------
Total gross deferred tax assets...................... 37,879 28,497
Less valuation allowance............................. (3,252) (3,329)
-------- --------
Net deferred tax assets.............................. 34,627 25,168
-------- --------
</TABLE>
F-19
<PAGE> 191
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation
and capitalized interest.................................. (15,477) (29,771)
Net intangibles, principally due to differences in basis..... (4,140) (33,288)
Prepaid pension costs........................................ (4,016) (3,544)
Partnership investment....................................... (486) (213)
Other........................................................ (1,926) (3,538)
-------- --------
Total gross deferred tax liabilities................. (26,045) (70,354)
-------- --------
Net deferred tax asset (liability)................... $ 8,582 $(45,186)
======== ========
</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. Based upon certain assumptions, such as the
scheduled reversal of deferred tax liabilities, available taxes in the carryback
period, projected future taxable income, (the realization of which there can be
no assurance) in determining management has determined that it is more likely
than not that the deferred tax assets will be realized.
The valuation allowance for deferred tax assets as of December 31, 1994 and
1995 was $3,252 and $3,329. The net change in the total valuation allowance was
an increase of $394 in 1993, a decrease of $1,283 in 1994, and an increase of
$77 in 1995. Changes to the valuation allowance relate principally to deferred
tax assets recorded for state net operating loss carryforwards.
At December 31, 1995, Providence Journal had net operating loss
carryforwards for state income tax purposes of approximately $59,401 which are
available to offset future state taxable income, if any, expiring in various
years ending in 2007.
NOTE 10 -- LONG-TERM DEBT
At December 31, 1994 and 1995, long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of interest
averaging
7.2% in 1995................................................. $ -- $234,298
Revolving credit and term loan facility at rates of interest
averaging
5.8% and 7.52% in 1994 and 1995, repaid October 1995......... 243,655 --
Industrial Revenue Bonds ("IRB") payable at various rates of
interest averaging 3.5% payable through December 2022........ 9,900 9,800
Note payable at an annual rate of interest equal to 18% payable
through April 2002, retired in July 1995..................... 7,123 --
Other.......................................................... 83 --
-------- --------
Total long-term debt................................. 260,761 244,098
Less current installments...................................... 13,588 100
-------- --------
Long-term debt, excluding current installments....... $247,173 $243,998
======== ========
</TABLE>
Total debt outstanding as of September 30, 1996 was $159,800. The net
decrease in debt during the nine months ended September 30, 1996 is a result of
the application to outstanding debt of $119.0 million net
F-20
<PAGE> 192
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
proceeds raised from Providence Journal's initial public offering and direct
placement of Class A shares discussed in Note 17, plus receipt of income tax
refunds of $25 million, net, offset by investing activities during the nine
months ended September 30, 1996.
Scheduled principal payments on outstanding debt total $244,098 and are due
as follows: IRB payments of $100 in each of the years 1996 through 2000.
Thereafter scheduled principal payments on the IRB continue at $100 annually
until increasing to $200 in 1998 through 2005; to $300 in 2006 through 2010; to
$400 in 2011 through 2014; to $500 in 2015 through 2017; to $600 in 2018 through
2019; to $700 in 2020 and 2021, and a final payment of $800 in 2022. Of the
revolver and term loan outstanding at December 31, 1995, $75,000 is a term loan
with a balloon payment due in 2004. The revolver commitment decreases quarterly
on a schedule commencing December 31, 1996 in accordance with the Credit
Agreement as described below.
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 and $1,748 at December 31, 1994 and
1995, respectively. Accumulated amortization at December 31, 1994 and 1995
aggregated $1,876 and $50, respectively. On October 5, 1995 Providence Journal
refinanced its debt in connection with the transactions described in Note 2.
Accordingly, unamortized deferred financing costs of $4,554 associated with the
debt refinanced was written off and allocated to discontinued operations in the
fourth quarter of 1995.
On October 5, 1995, in connection with the transactions discussed in Note
2, Old PJC (net of $2 million in certain costs shared with Continental), prior
to the PJC Spin-Off, incurred indebtedness to a subsidiary of Continental in a
principal amount of approximately $408 million ("New Cable Indebtedness"). Prior
to the PJC Spin-Off, Old PJC used the proceeds of the New Cable Indebtedness,
the $405 million provided by the sale of KVC and the Registrant Indebtedness
(defined below) to (i) consummate the Kelso Buyout (ii) to repay substantially
all outstanding indebtedness of Old PJC and KHC in an aggregate amount of
approximately $623 million, and (iii) to pay other costs associated with the
transactions discussed in Notes 2 and 16. Additional indebtedness (the
"Providence Journal Indebtedness") required to meet the foregoing obligations,
among others, was incurred by Old PJC and Providence Journal in the principal
amount of $105 million. Following the PJC Spin-Off, Providence Journal had no
obligations or liabilities with respect to the New Cable Indebtedness, and
Continental had no obligations or liabilities with respect to Providence Journal
Indebtedness. In connection with the sale of KVC, KBC paid approximately $121
million in taxes.
Providence Journal Indebtedness was incurred pursuant to a Credit Agreement
entered into by Providence Journal on October 5, 1995 (the "Credit Agreement").
The Credit Agreement, consists of a $75,000 term loan and a $300,000 revolving
credit facility. The $75,000 term loan provided for under the Credit Agreement
is due 2004. Under the terms of the Credit Agreement, the revolving credit
facility provides for decreases by the following amounts in the years indicated:
1996-$4,000; 1997-$10,500; 1998-$14,500; 1999-$21,500; 2000-$53,250;
2001-$65,750; 2002-$67,750; 2003- $62,750. The indebtedness evidenced by the
Credit Agreement is secured by guarantees from all of the material subsidiaries
of Providence Journal and a first priority pledge of all such material
subsidiaries' capital stock. The Credit Agreement provides for borrowings
indexed, as Providence Journal may from time to time elect, to the Eurodollar
rate, the certificate of deposit rate, or the "base" rate of the agent, plus the
"spread" over such rates. The "spread" will be determined by the ratio of the
total debt of Providence Journal to the operating cash flow of Providence
Journal (as defined by the Credit Agreement).
Effective October 8, 1996, the Credit Agreement was amended to reduce the
$300,000 revolving credit facility to $150,000.
The Credit Agreement contains customary events of default, financial
covenants, covenants restricting the incurrence of debt (other than under the
Credit Agreement), investments and encumbrances on assets
F-21
<PAGE> 193
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
and covenants limiting mergers and acquisitions. The Credit Agreement provides
for the mandatory prepayment of amounts outstanding and a reduction in the
commitment under certain circumstances.
In July, 1995, Providence Journal retired its 18% note payable for $8,734.
The loss on the early retirement of this debt amounted to $2,086 (net of income
taxes of $417) and is included as an extraordinary item in Providence Journal's
consolidated statement of operations.
In January 1993, Providence Journal 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. These retirements were funded through additional
borrowings under the revolving credit and term loan facility.
In November 1992, Providence Journal 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 presently sets the fixed interest
rate at 8.1% on the first $200,000 of outstanding debt. Providence Journal
recorded additional interest expense during 1993, 1994 and 1995 totaling
approximately $6,883, $4,880, and $1,121, respectively, which represents the
excess of the swap agreement rate over the original contractual rate. In
accordance with certain covenants under the Credit Agreement, Providence Journal
will maintain its existing interest rate swap arrangements with The First
National Bank of Chicago through December 31, 1999.
The notional amounts and respective periods covered under the interest rate
swap 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>
Providence Journal is exposed to credit loss in the event of nonperformance
by the other party to the interest rate swap agreement, however, Providence
Journal does not anticipate nonperformance under the agreement.
NOTE 11 -- TELEVISION PROGRAM RIGHTS PAYABLE
Television program rights payable consist of the gross value of cash
payments due on the acquisition of program rights as well as amounts due in the
amount of approximately $3,805 at December 31, 1995 for programs purchased
through barter transactions. Future cash payments total $18,167 and are due in
the following years: 1996 -- $12,658; 1997 -- $3,128; 1998 -- $1,814; and
1999 -- $567. The barter obligations are scheduled to be fulfilled in 1996.
NOTE 12 -- OPERATING LEASES
Providence Journal 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:
1996 -- $6,037; 1997 -- $5,362; 1998 -- $4,711; 1999 -- $4,253; 2000 -- $4,229;
and thereafter -- $15,228. Gross rental expense for the years ended December 31,
1993, 1994 and 1995, was $2,173, $5,167 and $5,993, respectively.
Future minimum rental income under noncancelable satellite subleases is as
follows: 1996 -- $4,030; 1997 -- $4,030; 1998 -- $3,220; 1999 -- $1,923; and
2000 -- $900. Sublease satellite rental income totaled
F-22
<PAGE> 194
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
$2,100 and $3,349 in 1994 and 1995 and is included in Providence Journal
Programming and Electronic Media revenue. There was no sublease satellite rental
income in 1993.
NOTE 13 -- STOCK-BASED COMPENSATION PLANS
(a) Incentive Compensation Plans
Providence Journal has a deferred incentive compensation plan which is
administered by the Compensation Committee of the Providence Journal Board of
Directors. The expense under this plan was $5,330, $12,747, and $773 in 1993,
1994 and 1995, respectively. As of December 31, 1994 and 1995, the amounts
accrued under this plan equaled $31,266 and $4,806 respectively. On September
29, 1995, Providence Journal liquidated 85% of the units in Providence Journal's
deferred incentive compensation units plan (the "IUP Plan") which was paid in
cash and stock totaling $27,233.
(b) Restricted Stock Unit Plan
During 1993, Providence Journal established a Restricted Stock Unit Plan
for certain key executives. Participants were awarded restricted stock units
with each unit being equivalent to one share of Providence Journal 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. In connection with the disposal of its
cable operations, Providence Journal fully vested 115,650 units of which 60,300
units were paid in cash and stock totaling $1,653 prior to the Continental
Merger. In connection with the reorganization and transactions described in Note
2, and as provided under the terms of the plans, the number of units awarded to
participants holding units immediately after the closing of the transaction were
adjusted upward by a factor of approximately 2.3876 (the "Conversion Factor") in
order to preserve the economic value of the outstanding units. In connection
with the Plan, a total of 730,800 shares of Providence Journal Class A Common
Stock (after considering the Conversion Factor) have been reserved. As of
December 31, 1994 and 1995, 299,700 units and 567,450 (after the Conversion
Factor), respectively, were issued and outstanding. Compensation expense,
included in continuing operations, totaled $405, $2,400, and $1,173 during 1993,
1994 and 1995, respectively. At the end of September, 1996, 542,753 shares of
Class A Common Stock were issued to the restricted stock unit participants in
settlement of this plan.
(c) Stock Option Plans
Effective October 1, 1994, the Providence Journal Board of Directors
adopted the "1994 Employee Stock Option Plan" and the "1994 Non-Employee
Director Stock Option Plan", (The "Option Plans"). The Option Plans were
approved by the stockholders of Providence Journal at its Annual Meeting in
1995. The Option Plans will remain in effect until the earlier of October 1,
1999 or termination of the aforementioned Option Plans by the Providence Journal
Board of Directors.
Under the terms of the Option Plans, key employees recommended by the
Compensation Committee of the Providence Journal Board of Directors (or by any
other committee appointed by the Providence Journal Board consisting of two or
more non-employee Directors) and all 12 non-employee directors, are eligible to
receive grants of stock options. The maximum number of shares Providence Journal
of Class A Common Stock that can be used for purposes of the Option Plans is
1,867,500. Shares may be awarded from authorized and unissued shares or from
treasury shares, as determined by the Compensation 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.
F-23
<PAGE> 195
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Upon a "Change of Control" as defined in the Option Plans, all options
granted will become immediately vested and exercisable. In 1994, 286,650 options
were granted, at an exercise price of $17.11. In 1995, an additional 27,000
options were granted to the non-employee directors, and an additional 349,200
options were granted to key employees at an exercise price of $11.27. In
connection with the reorganization and transactions described in Note 2, and as
provided under the terms of the plans, the option exercise price on the 286,650
options issued in 1994 were adjusted to $1.471 in order to preserve the economic
value of the outstanding options. During 1995, 6,300 options were exercised at
an exercise price of $1.471. As of December 31, 1995, there were 656,550 options
outstanding of which 81,900 are exercisable.
Amounts paid to participants in the liquidation of 85% of the IUP Plan and
the remaining units in the IUP Plan, may be adjusted if, upon the occurrence of
a public offering of Continental Class A Common Stock or certain other events,
the value of Continental Class A Common Stock was greater or less than the price
attributed to such shares at the time 85% of the units were liquidated. A
similar adjustment is applicable to certain options and units issued prior to
the Continental Merger in the Option Plans and the Restricted Stock Unit Plan.
As a result of a planned merger of Continental with and into USWest Media Group
(the "USWest Merger"), jointly announced by these entities on February 27, 1996,
participants in these plans may receive the adjustment as additional payments in
cash or stock reflecting the increase in the price of Continental Class A Common
Stock since the Continental Merger. See note 19.
NOTE 14 -- PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plans
Providence Journal has three noncontributory defined benefit retirement
plans (including one funded by KHC acquired in the Kelso Buyout). Providence
Journal'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.
The funded status of the defined benefit plans is as follows:
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations................................ $(49,956) $ (86,502)
-------- ---------
Accumulated benefit obligations........................... $(54,169) $ (91,968)
-------- ---------
Projected benefit obligations............................... $(71,227) $(109,985)
Plan assets at fair value (primarily corporate equity and
debt securities, government securities and real estate)... 89,106 132,779
-------- ---------
Excess of plan assets over projected benefit
obligations.......................................... $ 17,879 $ 22,794
-------- ---------
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Discount rate............................................... 7.5% 7.0%
Rate of increase in compensation levels..................... 5.0% 4.5%
</TABLE>
F-24
<PAGE> 196
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
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>
1994 1995
------- -------
<S> <C> <C>
Unrecognized net loss.......................................... $(8,336) $(2,874)
Unrecognized net transition asset being amortized principally
over 18 years................................................ 11,956 10,727
Unrecognized prior service cost due to plan amendment.......... (3,504) (3,029)
Prepaid pension cost (included in other assets)................ 17,763 17,970
------- -------
Excess of plan assets over projected benefit
obligations........................................ $17,879 $22,794
======= =======
</TABLE>
The components of 1993, 1994 and 1995 pension expense (income) and the
assumptions used as determined by the plans' actuary, are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Service cost.................................... $ 1,971 $ 2,017 $ 3,185
Interest cost................................... 5,022 5,093 7,480
Actual return on plan assets.................... (8,681) 2,724 (25,674)
Net amortization of unrecognized net assets and
deferrals..................................... 691 (11,304) 15,041
------- -------- --------
Pension expense (income)...................... $ (997) $ (1,470) $ 32
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate................................... 7.5% 7.5% 7.5%
Rate of increase in compensation levels......... 5.0 5.0 5.0
Expected long-term rate of return on assets..... 8.5 8.5 8.5
</TABLE>
The effects of the special termination benefits of $3,701 and curtailment
gain of $531 associated with the Newspaper Consolidation and early retirement
program are included in the Newspaper Consolidation Costs discussed in Note 8
(a).
(b) Defined Contribution Plan
Providence Journal 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 $1,086,
$1,150 and $1,312 in 1993, 1994 and 1995, respectively.
(c) Other Postretirement Benefit Plans
In addition to Providence Journal's defined benefit pension plans, one of
the Providence Journal Broadcasting stations provides postretirement medical
benefits to its group of employees. Providence Journal provides postretirement
life insurance benefits to substantially all of its employees. These plans are
non-contributory and are not funded.
Providence Journal's accrued postretirement benefit cost as of December 31,
1994 and 1995 was $3,086 and $3,461, respectively, consisting primarily of
accumulated postretirement benefit obligations for retirees. Net periodic
postretirement benefit cost for 1993, 1994 and 1995 totaled $252, $300 and $204,
respectively, consisting primarily of interest costs.
F-25
<PAGE> 197
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
For measurement purposes relating to the medical plan, a medical trend rate
of 13.0% was used grading to 6.0% by the year 2002. 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% and 7.0 % in 1994 and 1995, respectively.
(d) Supplemental Retirement Plan
Providence Journal maintains an unfunded supplemental retirement plan which
provides supplemental benefits to a select group of senior management employees.
At December 31, 1994 and 1995, the vested benefit obligation was $1,220 and
$3,933, respectively, and the accumulated benefit obligation was $3,437 and
$4,684, respectively. The projected benefit obligation totaled $5,799 and
$6,065, respectively, at December 31, 1994 and 1995.
The net periodic pension cost for 1993, 1994, and 1995 was $1,501, $997 and
$1,000, respectively, consisting of service and interest costs. An assumed
discount rate of 7.5% and 7.0% and compensation level increase rate of 5.0% and
4.5% were used in determining the benefit obligations at December 31, 1994 and
1995, respectively.
(e) Change in Control Agreements
In October, 1993, Providence Journal executed various management agreements
which only become effective upon a change-in-control of Providence Journal. The
terms of the agreements vary, with the maximum agreement providing a three year
term of employment with responsibilities, compensation, and benefits at least
commensurate as those during the prior six (6) months. If terminated
involuntarily, the individuals are entitled to 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, executed in October
1993, Providence Journal 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.
NOTE 15 -- 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 Providence Journal'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 Providence Journal's long-term debt instruments
are based on the amount of future cash flows associated with each instrument
discounted using Providence Journal'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 Providence Journal's current borrowing rate,
over the term of the related contract.
F-26
<PAGE> 198
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
(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. At December 31, 1994
settlement approximated a $9,400 receivable to Providence Journal. The amount of
payment required to settle outstanding interest rate swaps at December 31, 1995
approximated $8,000.
(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, 1994 AT DECEMBER 31, 1995
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Notes receivable........................ $ 19,513 $ 19,513 $ 19,174 $ 19,174
======== ========= ======== =========
Long-term debt.......................... $260,761 $ 263,430 $244,098 $ 244,098
======== ========= ======== =========
Television program rights payable....... $ 7,364 $ 6,458 $ 21,972 $ 20,467
======== ========= ======== =========
</TABLE>
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
Providence Journal has outstanding payment commitments for broadcast
television programming totaling $45,511 at December 31, 1995, which under the
licensing agreements are not yet available for showing. Such programming becomes
available at various times over the years 1996 through 2000, at which point
Providence Journal records the asset and related liability.
Providence Journal has various talent contract commitments primarily with
its newscast employees covering up to three years together totaling $28,743.
Providence Journal has insurance programs for workers' compensation,
general liability, auto and certain health coverages which comprise a form of
self-insurance. Providence Journal's liability for large losses is capped,
individually and in the aggregate, through contracts with insurance companies.
In addition, Providence Journal is self-insured for environmental hazards. An
estimate for claims incurred but not paid is accrued annually.
Providence Journal 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, Providence Journal repurchased approximately 8% of its outstanding
shares of common stock from an unaffiliated party with a provision that
additional consideration be paid to the unaffiliated party in the event of a
significant change in ownership of Providence Journal. Providence Journal paid
this unaffiliated party approximately $7,353 on October 5, 1995 in full
settlement of the redemption agreement, and has recorded the additional
consideration in the consolidated statement of stockholders' equity.
On August 12, 1994, Department of Insurance regulators seized control of
Confederation Life Insurance Company. Providence Journal's Qualified
Compensation Deferral Plan has an investment contract with Confederation Life
Insurance Company. The contract was entered into in 1991 and was 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. Providence Journal has agreed
to guarantee the difference between the amount eventually paid by
F-27
<PAGE> 199
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
the regulators and the contract value on the seizure date. To date this amount
cannot be quantified but is not expected to have a material effect on the
consolidated financial position or results of operations of Providence Journal.
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Old PJC, Colony and Dynamic Cablevision of Florida,
Inc., a wholly-owned subsidiary of Colony ("Dynamic"), in the Circuit Court of
Dade County, Florida. Colony was a cable television subsidiary of Old PJC, which
was transferred to Continental in connection with the Continental Merger. This
case relates to a partnership (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 claimed that Dynamic was
obligated to offer to sell Dynamic's general partnership interest to Cable LP
before Old PJC entered into the Continental Merger Agreement. 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.
Old PJC, Colony and Dynamic made a motion to strike allegations of bad
faith and breach of fiduciary duty filed against them, 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. violated Dynamic's right of first refusal under
the Dynamic Partnership Agreement. The case was tried with testimony given on
December 11 through December 13, 1995 with final arguments heard on January 12,
1996.
In the event that, as a result of such litigation, Dynamic is required to
sell its interest in the Dynamic partnership to Cable LP, the Continental Merger
Agreement provides that 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.
On May 21, 1996, a final judgment in this action in favor of Cable LP was
entered. Such judgment requires, among other matters, Dynamic and Colony to
negotiate on a price to transfer Dynamic's interest in the general partnership
to Cable LP.
Providence Journal appealed this judgment and moved to stay the effect of
the judgment during the pendency of the appeal. On June 10, 1996 a hearing was
held on the Providence Journal's motion to stay. At such hearing the judge
declined to grant or deny Providence Journal's motion to stay at this time. See
note 19.
F-28
<PAGE> 200
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
NOTE 17 -- STOCKHOLDERS' EQUITY
In connection with its initial public offering of shares of Providence
Journal Class A Common Stock (see note 19), Providence Journal's Board of
Directors approved a 450 for 1 split of its issued and outstanding common stock
effective June 18, 1996. Such stock split has been reflected throughout these
financial statements.
Providence Journal has two classes of common stock: Class A and Class B.
Each class has the same rights and privileges, except that Providence Journal
Class A Common Stock is entitled to one vote per share, whereas Providence
Journal Class B Common Stock is entitled to four votes per share. In addition,
the transfer of Providence Journal Class B Common Stock is limited to "Permitted
Transferees" only, otherwise the shares convert to Providence Journal Class A
Common Stock upon sale. In connection with the Continental Merger agreement,
trading of all shares is restricted for a period of one year from the date of
the closing.
Effective September 26, 1990, pursuant to a shareholder rights agreement,
Providence Journal issued to shareholders one common stock right for each share
of Providence Journal Class A or Class B Common Stock then outstanding. The
right entitles the holder to purchase one share of Providence Journal Class A or
Class B Common Stock at a purchase price of $77.78 per share. Upon the
occurrence of certain events, as defined in the rights agreement, the Providence
Journal Board of Directors may order the exchange of three common shares for
each right held. The shareholder rights agreement was terminated in connection
with the closing under the Continental Merger Agreement. A substantially similar
agreement was entered into by Providence Journal.
Treasury stock at December 31, 1994, consisted of 288,450 Class A shares
and 144,000 Class B shares. In connection with the PJC Spin-off, all treasury
stock was canceled as of the effective time of the closing.
NOTE 18 -- BUSINESS SEGMENT INFORMATION
Providence Journal primarily operates in Broadcasting, Publishing, and
Programming and Electronic Media. Providence Journal Broadcasting Business
consists of nine owned network-affiliated television stations and two television
stations for which the Company provides programming and marketing service for
under local marketing agreements ("LMA"s) serving the following markets:
Seattle, Portland, Charlotte, Albuquerque, Louisville, Honolulu, Spokane,
Tucson, and Boise. Prior to the Kelso Buyout, Providence Journal Broadcasting
consisted of five stations (including one station under an LMA). Providence
Journal Publishing Business consists primarily of the publication and sale of
the major daily newspaper serving Rhode Island and parts of southeastern
Massachusetts. The Providence Journal Programming and Electronic Media Business
consists of wholly owned subsidiaries or equity investments in cable television
programming networks, electronic and interactive media, programming ventures,
and other electronic media. It currently consists of Providence Journal's
investments in AHN and TVFN (cable programming networks); interactive media
investments: Peapod and StarSight; its electronic on-line information service,
projo.com (formerly Rhode Island Horizons); its broadcast programming venture:
Partner Stations Network; and its recently launched cable news network:
NorthWest Cable News Network ("NWCN"). NWCN is a 24-hour regional cable news
network serving cable subscribers in the Pacific Northwest. It was launched on
December 18, 1995 and currently reaches 1.4 million subscribers.
Operating results and other financial data for the principal business
segments of Providence Journal for 1993, 1994 and 1995 are presented in the
table which follows. 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
F-29
<PAGE> 201
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
segment are those assets used in Providence Journal operations in each segment.
Capital expenditures are reported exclusive of acquisitions.
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Broadcasting................................................. $ 45,506 $ 54,024 $180,547
Publishing................................................... 124,914 127,893 128,491
Programming and Electronic Media............................. -- 2,300 3,468
-------- -------- --------
$170,420 $184,217 $312,506
======== ======== ========
Operating income (loss):
Broadcasting................................................. $ (1,472) $ 6,219 $ 42,535
Publishing................................................... 9,891 9,270 (10,264)
Programming and Electronic Media............................. -- (315) (1,831)
Corporate.................................................... (21,628) (26,750) (17,054)
-------- -------- --------
$(13,209) $(11,576) $ 13,386
======== ======== ========
Identifiable assets
Broadcasting................................................. $106,992 $ 84,278 $502,024
Publishing................................................... 162,848 161,743 152,890
Programming and Electronic Media:
Investments in affiliated companies....................... 3,786 2,708 17,315
Other..................................................... 1,312 8,364 10,719
Discontinued operations, net................................. 396,707 369,790 --
Investments in affiliates -- Other........................... 86,451 80,699 4,856
Other........................................................ 17,589 17,131 19,426
-------- -------- --------
$775,685 $724,713 $707,230
======== ======== ========
Depreciation and amortization:
Broadcasting................................................. $ 8,682 $ 7,856 $ 21,884
Publishing................................................... 11,426 11,198 10,850
Programming and Electronic Media............................. -- 33 167
Other........................................................ 505 896 1,068
-------- -------- --------
$ 20,613 $ 19,983 $ 33,969
======== ======== ========
Capital expenditures
Broadcasting................................................. $ 1,368 $ 1,587 $ 7,951
Publishing................................................... 9,962 2,356 3,200
Programming and Electronic Media............................. -- 1,138 3,670
Other........................................................ 267 1,400 455
-------- -------- --------
$ 11,597 $ 6,481 $ 15,276
======== ======== ========
</TABLE>
F-30
<PAGE> 202
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
NOTE 19 -- RECENT EVENTS (UNAUDITED)
On October 2, 1996, the owners of Linkatel signed a definitive agreement to
sell that business to Nextlink Communications LLC for $42.5 million. The
transaction was simultaneously closed in escrow pending California Public
Utility Commission approval. The Company's interest in Linkatel is valued at
approximately $14.5 million in this transaction. The sale will result in an
estimated pre-tax gain of approximately $10 million (or approximately $7
million, net of tax) upon final closing.
On June 25, 1996, the Company raised $106,277 net of underwriters'
commission, in its initial public offering and direct placement of its Class A
Common Stock. The number of Class A shares sold to the public in the
underwritten offering was 7,125,000 and the number of Class A shares sold to
eligible employees in the direct placement program was 450,000. Expenses
associated with the offering were approximately $2,200. On July 10, 1996, the
Company issued an additional 1,068,750 Class A shares and raised an additional
$14,995 net of underwriters' commission pursuant to the exercise of an
overallotment option granted to the underwriters by the Company. The net
proceeds from the offerings were used to repay a portion of the Company's
outstanding debt.
In the nine months ended September 30, 1996, the Company recorded a charge
to continuing operations of $13,943 and a charge to discontinued operations of
$5,421 (pre-tax) to reflect the vested portion of an estimated $20,530
adjustment to the stock-based compensation plans as a result of the US West
Merger as discussed in note 13. On November 15, 1996, US West and Continental
consummated the US West Merger. Based on the final value of the US West Merger,
Providence Journal recorded in November 1996 a $4.3 million credit (or
approximately $2.8 million, net of tax) to the income statement upon settlement
of certain affected stock-based compensation plans to reflect the partial
reversal of previously recorded expenses related to these plans. Of this $4.3
million credit, $2.7 million was credited to continuing operations and $1.6
million was credited to discontinued operations.
On December 27, 1996, Providence Journal collected $23,147 in full
satisfaction of all principal and interest amounts due from Lowell Sun Companies
under a loan and credit facility the Lowell Sun Companies had with Providence
Journal which had expired in March, 1996 as discussed in note 4.
On December 27, 1996, Providence Journal paid $25,000 to Continental in
full satisfaction of its obligations in connection with the litigation among
Cable LP, Colony, Dynamic, and Old PJC described in note 16. Consequently,
Providence Journal recorded a charge to stockholders' equity in the fourth
quarter of 1996, to reflect the decrease in net proceeds received from the
disposal of the cable assets in 1995 pursuant to the Continental Merger
Agreement.
On January 6, 1997, Providence Journal purchased the 9.5% equity
partnership interests in TVFN held by Continental for a purchase price of $16.3
million. In connection with this transaction, Providence Journal agreed to
transfer a 1.4% equity interest to Continental which interest had been given to
Providence Journal in 1993 in exchange for Providence Journal's agreement to
carry TVFN on all of its former cable systems. Following the consummation of
such transaction, Providence Journal owns an equity interest of approximately
55.5% in TVFN and holds four of the five voting seats on the TVFN management
committee.
F-31
<PAGE> 203
INDEPENDENT AUDITORS' REPORT
King Holding Corp.:
We have audited the consolidated balance sheet of King Holding Corp. and
subsidiaries (the Company) as of December 31, 1994 and the related consolidated
statements of operations, stockholders' equity, and of cash flows for each of
the two years in the 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 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, 1994, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
F-32
<PAGE> 204
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994
--------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................................... $ 3,578
Accounts receivable, net........................................................ 26,801
Film and syndication rights, current portion.................................... 7,995
Prepaid expenses and other current assets....................................... 1,604
--------
Total current assets.................................................... 39,978
--------
Property and Equipment, net....................................................... 58,131
--------
Other Assets:
Film and syndication rights, long-term portion.................................. 787
Deferred financing costs, net................................................... 10,625
Intangible assets, net.......................................................... 124,070
Long-term pension asset......................................................... 2,927
Other assets.................................................................... 44
--------
Total other assets...................................................... 138,453
--------
Net Assets of Discontinued Operations............................................. 255,902
--------
$492,464
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................................... $ 28,804
Current portion of film and syndication rights.................................. 7,753
Accounts payable and other accrued expenses..................................... 12,247
--------
Total current liabilities............................................... 48,804
Long-term Obligations:
Long-term debt.................................................................. 265,245
Film and syndication rights obligations......................................... 1,501
Deferred income taxes........................................................... 17,202
Other........................................................................... 5,721
--------
Total liabilities....................................................... 338,473
--------
Commitments and Contingencies
Stockholders' Equity:
Common stock, Class A; $0.10 par value; 200 shares authorized issued and
outstanding.................................................................. --
Common stock, Class B (nonvoting); $0.10 par value; 240,000 shares authorized;
211,000 issued and outstanding............................................... 21
Additional paid in capital...................................................... 210,314
Accumulated deficit............................................................. (56,344)
--------
Total stockholders' equity.............................................. 153,991
--------
$492,464
========
</TABLE>
See accompanying notes to consolidated financial statements
F-33
<PAGE> 205
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Revenues:
Gross broadcast revenue.............................................. $117,967 $135,177
Less agency commissions.............................................. 15,627 18,118
-------- --------
Net revenues................................................. 102,340 117,059
-------- --------
Costs and Expenses:
Operating............................................................ 44,005 48,734
Selling, general and administrative.................................. 25,233 27,179
Management and other fees paid to related parties.................... 2,034 2,624
Depreciation and amortization........................................ 14,697 13,746
-------- --------
Total........................................................ 85,969 92,283
-------- --------
Operating income....................................................... 16,371 24,776
Other income (expense):
Interest expense, net of allocation to discontinued operations....... (8,972) (8,694)
Other, net........................................................... 288 24
-------- --------
Total other expense.......................................... (8,684) (8,670)
-------- --------
Income from continuing operations before income taxes.................. 7,687 16,106
Income tax provision................................................... 6,787 8,843
-------- --------
Income from continuing operations...................................... 900 7,263
Loss from discontinued cable operations, net of taxes.................. (15,389) (11,837)
Provision for loss on discontinued cable operations during phaseout
period, net of taxes................................................. -- (12,078)
-------- --------
Net loss..................................................... $(14,489) $(16,652)
======== ========
Net loss per common share:
Income from continuing operations.................................... $ 4.26 $ 34.38
Discontinued operations.............................................. (72.86) (113.23)
-------- --------
Net loss per common share.............................................. $ (68.60) $ (78.85)
======== ========
Weighted average shares outstanding.................................... 211,198 211,198
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-34
<PAGE> 206
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations.................................... $ 900 $ 7,263
Adjustments to reconcile income from continuing operations to net
cash flows provided by continuing operating activities:
Depreciation and amortization..................................... 14,697 13,746
Loss on disposal of fixed assets.................................. -- 464
Compensation costs related to warrant bonuses..................... 335 --
Deferred income taxes............................................. 18 (746)
Changes in assets and liabilities:
Accounts receivable............................................... (4,695) (3,116)
Prepaid expenses and other current assets......................... 905 533
Accounts payable and other accrued expenses....................... 838 2,491
Other, net........................................................ 575 2,595
Film rights assets and liabilities................................ (1,286) 489
-------- --------
Total adjustments............................................ 11,387 16,456
-------- --------
Net cash flows provided by continuing operating activities... 12,287 23,719
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................... (3,086) (7,136)
Increase in other assets, net........................................ (250) --
Net decrease in investments in discontinued operations............... 7,238 7,113
-------- --------
Net cash provided by (used in) investing activities.......... 3,902 (23)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable............................................ (16,000) (20,951)
-------- --------
Net cash used in financing activities........................ (16,000) (20,951)
-------- --------
Increase in cash and cash equivalents.................................. 189 2,745
Cash and cash equivalents, beginning of year (including cash and cash
equivalents included in net assets of discontinued operations)....... 687 876
-------- --------
Cash and cash equivalents, end of year:
Continuing operations................................................ 833 3,578
Included in net assets of discontinued operations.................... $ 43 $ 43
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-35
<PAGE> 207
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
CLASS A CLASS B CAPITAL DEFICIT EQUITY
------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT 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 AT DECEMBER 31, 1993.......... -- 21 210,314 (39,692) 170,643
Net loss............................ (16,652) (16,652)
----- ----- --------- --------- --------
BALANCE AT DECEMBER 31, 1994.......... $ -- $ 21 $ 210,314 $ (56,344) $153,991
===== ===== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 208
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 Holding Company, Inc. and subsidiaries
("Providence Journal") and an investment banking organization (the "Investor
Stockholder"). The Providence Journal and Investor Stockholder each own a 50%
interest in the Company. On February 25, 1992, the Company acquired the
outstanding capital stock of King Broadcasting Company ("KBC"), the parent
company of King Videocable Company ("KVC"), 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).
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
related to continuing operations at December 31, 1994 aggregated $1,200.
Property and Equipment -- Property and equipment are recorded at cost, or
in the case of property and equipment acquired as a result of the Acquisition,
at appraised fair value at the date of purchase. Cable system betterments,
including materials, labor and interest, are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets, generally three to twenty years.
In 1993, due to provisions of the Cable Television Consumer Protection and
Competition Act of 1992 ("Cable Act") which effectively transferred ownership of
wiring and additional outlets installed in a customer's residence, KVC
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. The charge recorded in December 1993 related
to these items aggregated $4,607 and is reflected in discontinued operations.
F-37
<PAGE> 209
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1994 aggregated
$4,201.
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 years ended December 31, 1993
and 1994 is as follows:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Cash paid for interest........................................... $25,453 $25,165
Cash paid for income taxes....................................... 3,021 4,736
</TABLE>
Income Taxes -- Deferred income taxes are provided to recognize temporary
differences between book and tax bases of the Company's assets and liabilities
and the effects of credits and other items not yet recognized for tax purposes.
Interest Rate Swaps -- The Company has only limited involvement with
derivative financial instruments and does not use them for trading purposes.
Derivative financial instruments are used only to manage well-defined interest
rate risks.
The Company has entered into interest rate swap agreements which are
accounted for as a hedge of the obligation and accordingly, the net swap
settlement amount is recorded as an adjustment to interest expense in the period
incurred. Gains and losses upon settlement of a swap agreement are deferred and
amortized over the remaining term of the agreement.
Net Loss Per Common Share -- Net loss per common share is computed using
the weighted average number of common shares outstanding during the year.
Reclassifications -- The accompanying statements of cash flows have been
reclassified to present cash flows from discontinued operations in investing
activities.
2. DISCONTINUED OPERATIONS (INFORMATION SUBSEQUENT TO FEBRUARY 10, 1995 IS
UNAUDITED)
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, KBC sold its entire interest in
KVC to Continental for proceeds which approximated $405 million. Simultaneously
with this transaction, the Providence Journal acquired the remaining 50%
interest in the Company held by the Investor Stockholder, thus becoming sole
owner of the
F-38
<PAGE> 210
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. Immediately thereafter, the remaining cable operations of the
Providence Journal were 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 KVC
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. Proceeds of the transaction were used to repay all of the Company's
existing longterm debt and to settle the outstanding interest rate swaps.
The net assets of KVC 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 KVC 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>
1993 1994
--------- ---------
<S> <C> <C>
Revenues..................................................... $ 83,538 $ 84,174
Costs and expenses........................................... (106,342) (101,261)
--------- ---------
(Loss) before income taxes................................... (22,804) (17,087)
Income tax benefit........................................... 7,415 5,250
--------- ---------
Net (loss)......................................... $ (15,389) $ (11,837)
========= =========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations consisted of the following
at December 31:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Land and buildings........................................................ $ 40,225
Broadcast equipment....................................................... 30,352
Office equipment.......................................................... 2,979
Leasehold improvements.................................................... 1,207
Construction-in-process................................................... 4,343
--------
Total........................................................... 79,106
Less accumulated depreciation and amortization............................ (20,975)
--------
Property and equipment -- net............................................. $ 58,131
========
</TABLE>
F-39
<PAGE> 211
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets of continuing operations consisted of the following at
December 31:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
FCC license agreements.................................................... $ 59,780
Goodwill.................................................................. 28,774
Advertiser relations...................................................... 47,200
Other..................................................................... 7,669
--------
Total........................................................... 143,423
Less accumulated amortization............................................. (19,353)
--------
Intangible assets -- net.................................................. $124,070
========
</TABLE>
5. FINANCING AGREEMENTS
The Company has a credit agreement (the "Credit Agreement") with a
syndicate of banks which consists of a revolving credit facility, "swing" loans
(as defined), and a term loan.
The revolving credit facility provides for borrowings of up to $50,000 of
which $10,800 was outstanding on December 31, 1994. Borrowings outstanding under
the facility are payable in full in February 2000. The term loan of $283,249 is
payable in 32 quarterly installments commencing in March 1994.
"Swing" loans are available to the Company from the lead bank of the
syndicate. "Swing" loans are available up to a maximum aggregate borrowing level
of $5,000 at any one time, and are generally subject to the same repayment terms
as the revolving credit facility.
Borrowings under the Credit Agreement bear interest at either a bank's CD
rate plus an applicable margin (as defined), the LIBOR rate plus the applicable
margin or an alternate base rate determined as the greater of a bank's prime
rate, the Federal Funds rate plus 1/2% or a secondary market determined rate
plus 1 1/4% all determined at the Company's option. At December 31, 1994, the
interest rate on the revolving credit facility was 7.375%. During 1994, interest
rates on the term loan ranged between 4.88% and 7.75%, based on the one and
three month LIBOR rates, respectively.
In connection with the Credit Agreement, the Company is required to pay an
annual fee of 3/8 of 1% of the average daily unused availability under the
revolving credit facility. In addition, the Company is required to pay the lead
bank an annual fee of 3/8 of 1% of the average daily unused "swing" loan
availability. Such fees aggregated $187, $194 in 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 was due as follows: 1995 -- $28,804;
1996 -- 38,408; 1997 -- $38,408; 1998 -- $38,408; 1999 -- $28,804;
thereafter -- $121,217.
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.
F-40
<PAGE> 212
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded additional interest expense during 1993 and 1994
totaling approximately, $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.
KVC has been allocated interest (including amortization of deferred
financing costs) of $19,054 and $18,224 for the years ended December 31, 1993
and 1994, respectively. Interest expense has been allocated to KVC 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.
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 years ended December 31, 1993 and 1994 is as
follows:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Service cost for benefits earned during the period............... $ 852 $ 908
Interest cost on projected benefit obligation.................... 1,804 1,896
Return on Plan assets............................................ (2,481) 774
Net deferral..................................................... 323 (3,030)
Amortization of prior service cost............................... -- (18)
------- -------
Total.................................................. $ 498 $ 530
======= =======
</TABLE>
F-41
<PAGE> 213
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the Plan's funded status and obligations at
December 31, 1994 without regard to the effect of the discontinued operations:
<TABLE>
<CAPTION>
1994
--------
<S> <C>
Actuarial present value of accumulated benefit obligations, including
vested benefits of $20,012.............................................. $(23,146)
========
Projected benefit obligation.............................................. $(26,596)
Plan assets at fair value, consisting of cash and equity securities....... 28,226
--------
Plan assets in excess of projected benefit obligation..................... 1,630
Prior service cost........................................................ (176)
Unrecognized net loss..................................................... 1,955
--------
Pension asset............................................................. $ 3,409
========
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Discount rate.......................................................... 7.5% 7.5%
Rate of increase in compensation levels................................ 5.0 5.0
Expected long-term rate of return on assets............................ 8.5 8.5
</TABLE>
In 1993, the Company instituted an employee savings plan (401(k) Plan) to
provide benefits for substantially all employees of the Company meeting certain
eligibility requirements. The plan requires the Company to match 25% of employee
contributions, up to a maximum of 1% of covered compensation. Expense related to
the plan without regard to the effect of the discontinued operations aggregated
$228 and $252 for the years ended December 31, 1993 and 1994, respectively.
Pension expense allocated to KVC 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 KVC at
December 31, 1993 and 1994, respectively.
7. INCOME TAXES
The income tax provision for continuing operations recorded for the years
ended December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Currently payable:
Federal.......................................................... $5,577 $8,103
State............................................................ 579 1,486
------ ------
Total.................................................... 6,156 9,589
------ ------
Deferred:
Federal.......................................................... 651 (886)
State............................................................ (20) 140
------ ------
Total.................................................... 631 (746)
------ ------
Income tax provision -- net........................................ $6,787 $8,843
====== ======
</TABLE>
F-42
<PAGE> 214
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the net income tax provision computed using the U.S.
federal statutory rate of 35% (34% in 1993) to pretax income from continuing
operations was as follows:
<TABLE>
<CAPTION>
1993 1994
------ ------
<S> <C> <C>
Computed "expected" tax expense.................................... $2,614 $5,637
Amortization of goodwill........................................... 1,800 1,850
State and local taxes, net of federal tax benefit.................. 362 1,057
Enacted future rate change......................................... 1,880 362
Other.............................................................. 131 (63)
------ ------
Effective tax...................................................... $6,787 $8,843
====== ======
</TABLE>
The significant components of deferred income tax provision attributable to
income from continuing operations for the years ended December 31, 1993 and 1994
are as follows:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred income tax (exclusive of the effects of other
components below).............................................. $(1,950) $(4,899)
(Increase) decrease in alternative minimum tax................... 701 3,845
State net operating loss benefit, net of federal tax............. -- 244
Federal net operating loss benefit............................... -- 64
Enacted future rate change....................................... 1,880 --
------- -------
Total deferred tax provision (benefit)........................... $ 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,
1994 are presented below:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts.............................................................. $ 279
Film and syndication rights, principally due to different accounting
methods............................................................... 511
Compensated absences, principally due to accrual for financial reporting
purposes.............................................................. 212
Net operating loss carryforwards......................................... 13
Alternative minimum tax credit carryforwards............................. --
Other.................................................................... 1,186
-------
Gross deferred tax assets.................................................. 2,201
-------
Deferred tax liabilities:
Property and equipment, principally due to basis differences............. 17,778
Retirement plan, principally due to accrual for financial reporting
purposes.............................................................. 1,256
Enacted future rate increases............................................ --
Other.................................................................... 369
-------
Gross deferred tax liabilities............................................. 19,403
-------
Net deferred tax liabilities............................................... $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
F-43
<PAGE> 215
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating loss carryforwards be realized in the future, the effect would be to
reduce the recorded value of certain intangible assets.
8. COMMITMENTS
Film and Syndication Rights -- The Company has entered into certain film
and syndication rights' agreements which allow for showings of certain programs
over various periods. At December 31, 1994, film and syndication rights
liabilities related to programs available for broadcast are due as follows:
<TABLE>
<S> <C>
1995........................................................ $7,753
1996........................................................ 787
1997........................................................ 487
1998........................................................ 189
1999........................................................ 38
Thereafter.................................................. --
------
Total............................................. $9,254
======
</TABLE>
In addition, the Company has entered into film and syndication rights'
agreements covering programs not yet available for broadcast. No asset or
liability related to these programs has been reflected in the financial
statements. At December 31, 1994, the Company had executed contracts aggregating
$36,745 (net of deposits) for programs not yet available for broadcast.
Operating Leases -- The Company leases office and other facilities under
operating leases expiring at various dates through 2004. At December 31, 1994,
minimum payments required under noncancelable leases with terms in excess of one
year for continuing operations are as follows:
<TABLE>
<S> <C>
1995........................................................ $ 888
1996........................................................ 880
1997........................................................ 812
1998........................................................ 567
1999........................................................ 309
Thereafter.................................................. 899
------
Total............................................. $4,355
======
</TABLE>
Rent expense under operating leases from continuing operations aggregated
$383 and $490 for the years ended December 31, 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 KBC'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 KBC. No bonus was earned during 1994 and 1993. In
addition, the Management Agreement provides for the awarding of certain warrant
bonuses, both on an annual and cumulative basis, based on operating cash flow at
the end of defined periods. Through December 31, 1994, the Providence Journal
had been awarded warrant bonuses providing for the purchase of 1,552 shares, of
the Company's Class B nonvoting common stock at $0.10 per share. Compensation
expense recorded related to these warrant issuances aggregated $335 in 1993.
Based upon the purchase and sale agreement (See note 2) whereby the Providence
Journal will buy out the
F-44
<PAGE> 216
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $2,842 and $3,844 during 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 years ended December 31, 1993 and 1994, KVC has been allocated
expenses under the terms of the Management Agreement, and other related fees
discussed above, aggregating $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, 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, 1994
approximated $3,575 (gain).
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 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.
F-45
<PAGE> 217
APPENDIX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 26, 1996
AMONG
A.H. BELO CORPORATION,
A H FINANCE COMPANY
AND
THE PROVIDENCE JOURNAL COMPANY
================================================================================
<PAGE> 218
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER.................................................................
SECTION 1.01. The Merger.......................................................... A-1
SECTION 1.02. Closing............................................................. A-1
SECTION 1.03. Effective Time...................................................... A-2
SECTION 1.04. Effects of the Merger............................................... A-2
SECTION 1.05. Certificate of Incorporation of Surviving Corporation; Contribution
of Newspaper Assets; Certificate of Incorporation and By-laws of
Newco............................................................... A-2
SECTION 1.06. Directors of Newco.................................................. A-2
SECTION 1.07. Officers of Newco................................................... A-3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATE.............................................................. A-3
SECTION 2.01. Conversion of Stock................................................. A-3
SECTION 2.02. Exchange of Certificates............................................ A-6
SECTION 2.03. Dissenting Shares................................................... A-8
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................... A-9
SECTION 3.01. Representations and Warranties of the Company....................... A-9
SECTION 3.02. Representations and Warranties of Parent and Sub.................... A-16
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS................................. A-23
SECTION 4.01. Conduct of Business................................................. A-23
SECTION 4.02. No Solicitation..................................................... A-25
ARTICLE V ADDITIONAL AGREEMENTS...................................................... A-26
SECTION 5.01. Preparation of the Form S-4 and the Proxy Statement; Stockholders
Meetings............................................................ A-26
SECTION 5.02. Letters of the Company's Accountants................................ A-26
SECTION 5.03. Letters of Parent's Accountants..................................... A-27
SECTION 5.04. Access to Information; Confidentiality.............................. A-27
SECTION 5.05. Reasonable Efforts.................................................. A-27
SECTION 5.06. Indemnification and Insurance....................................... A-29
SECTION 5.07. Fees and Expenses................................................... A-29
SECTION 5.08. Public Announcements................................................ A-30
SECTION 5.09. Affiliates.......................................................... A-30
SECTION 5.10. NYSE Listing........................................................ A-30
SECTION 5.11. Stockholder Litigation.............................................. A-30
SECTION 5.12. Directorships of Parent............................................. A-30
SECTION 5.13. Stock Options....................................................... A-31
SECTION 5.14. Benefit Plans....................................................... A-31
SECTION 5.15. Independent Governance Structure for the Company's Newspaper
Business............................................................ A-32
SECTION 5.16. Charitable Contributions............................................ A-32
SECTION 5.17. Company Stockholder Agreements...................................... A-32
ARTICLE VI CONDITIONS PRECEDENT...................................................... A-32
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger.......... A-32
SECTION 6.02. Conditions to Obligations of Parent and Sub......................... A-33
SECTION 6.03. Conditions to Obligations of the Company............................ A-34
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................................ A-34
SECTION 7.01. Termination......................................................... A-34
SECTION 7.02. Effect of Termination............................................... A-35
SECTION 7.03. Amendment........................................................... A-35
SECTION 7.04. Extension; Waiver................................................... A-35
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver........... A-35
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VIII GENERAL PROVISIONS...................................................... A-35
SECTION 8.01. Nonsurvival of Representations and Warranties....................... A-35
SECTION 8.02. Notices............................................................. A-36
SECTION 8.03. Definitions......................................................... A-36
SECTION 8.04. Interpretation...................................................... A-38
SECTION 8.05. Counterparts........................................................ A-38
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries...................... A-38
SECTION 8.07. Governing Law....................................................... A-38
SECTION 8.08. Assignment.......................................................... A-38
SECTION 8.09. Enforcement......................................................... A-38
SECTION 8.10. Severability........................................................ A-39
</TABLE>
<PAGE> 220
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement") dated
as of September 26, 1996, among A.H. Belo Corporation, a Delaware corporation
("Parent"), A H Finance Company, a Delaware corporation and a wholly owned
subsidiary of Parent ("Sub") and The Providence Journal Company, a Delaware
corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company,
and Parent acting as the sole stockholder of Sub, have approved the merger of
the Company with and into Sub (the "Merger"), upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each issued and
outstanding share of the Company's Class A Common Stock, par value $1.00 per
share (the "Company Class A Common Stock"), and the Company's Class B Common
Stock, par value $1.00 per share (the "Company Class B Common Stock" and
together with the Class A Common Stock, the "Company Common Stock"), other than
shares owned directly or indirectly by Parent or the Company, will be converted
into the right to receive the Merger Consideration (as defined in Section
2.01(a)); and
WHEREAS, as a condition to the willingness of Parent to enter into this
Agreement, those directors and officers of the Company who are also stockholders
of the Company (the "Company Significant Stockholders") listed on Schedule A
attached to the Company Stockholder Agreement (as defined below) have entered or
will enter into that certain Stockholder Agreement, dated as of the date hereof
(the "Company Stockholder Agreement"), which provides, among other things, that,
subject to the terms and conditions thereof, each Company Significant
Stockholder will vote the shares of Company Common Stock which he owns directly
in his individual capacity in favor of the Merger and the approval and adoption
of this Agreement; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, as a condition to the willingness of the Company to enter into
this Agreement, those directors of Parent who are also stockholders of Parent
(the "Parent Significant Stockholders") listed on Schedule A attached to the
Parent Stockholder Agreement (as defined below) have entered or will enter into
that certain Stockholder Agreement, dated as of the date hereof (the "Parent
Stockholder Agreement" and together with the Company Stockholder Agreement, the
"Stockholder Agreements"), which provides, among other things, that, subject to
the terms and conditions thereof, each Parent Significant Stockholder will vote
the shares of Parent Common Stock (as defined in Section 3.02(c)) which he or
she owns in his or her individual capacity in favor of the issuance of the
shares of Parent Series A Common Stock (as defined in Section 2.01(a)) and any
other transactions contemplated in this Agreement for which the approval of the
stockholders of Parent shall be required under applicable law or the rules of
any securities exchange on which such shares are listed; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "Code"); and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. (a) Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), the Company shall be merged with and into Sub at
the Effective Time (as defined in Section 1.03). Following the Effective
<PAGE> 221
Time, the separate corporate existence of the Company shall cease and Sub shall
continue as the surviving corporation (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of the Company in
accordance with the DGCL.
(b) At the election of Parent, any direct wholly owned subsidiary of Parent
may be substituted for Sub as a constituent corporation in the Merger. In such
event, the parties agree to execute an appropriate amendment to this Agreement
in order to reflect such substitution.
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which (subject to
the prior satisfaction or waiver of the conditions set forth in Sections 6.01,
6.02 and 6.03) shall be no later than the second business day after the day on
which the conditions set forth in Section 6.01 have been satisfied or waived, at
the offices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York
10166, unless another time, date or place is agreed to in writing by the parties
hereto. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL
to effectuate fully the Merger. The Merger shall become effective at such time
as the Certificate of Merger is duly filed with the Delaware Secretary of State,
or at such other time as Sub and the Company shall agree should be specified in
the Certificate of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation of Surviving Corporation;
Contribution of Newspaper Assets; Certificate of Incorporation and By-laws of
Newco.
(a) The certificate of incorporation of Sub as in effect at the Effective
Time shall be the certificate of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
(b) Prior to the Closing Date, the Company shall form under the laws of the
State of Delaware a direct, wholly-owned subsidiary ("Newco") which, prior to
the date on which such assets are transferred pursuant to the succeeding
sentence, shall have no assets and will have conducted no business operations
(except for de minimus assets and operations necessary for its formation and
qualification as a foreign corporation). Promptly after the Effective Time, the
Surviving Corporation shall transfer to Newco all of the assets, liabilities and
businesses relating to the Providence Journal-Bulletin and The Providence Sunday
Journal in a transaction described in Section 368(a)(2)(C) of the Code;
provided, however, that such transfer and all transactions to be undertaken in
connection therewith shall not be covered by or otherwise relate to Providence
Journal's representations and warranties herein and shall not in any way expand
the conditions to, or otherwise affect or delay, the obligation of the parties
to consummate the Merger in accordance with this Agreement.
(c) The certificate of incorporation of Newco as in effect at the Effective
Time, in the form attached hereto as Exhibit A.1, shall be the certificate of
incorporation of Newco until thereafter changed or amended as provided therein
or by applicable law; provided that Article One of the certificate of
incorporation of Newco shall be amended in its entirety to read as follows: "The
name of the corporation is The Providence Journal Company."
(d) The by-laws of Newco as in effect at the Effective Time, in the form
attached hereto as Exhibit A.2, shall be the by-laws of Newco, until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.06. Directors of Newco. The directors of the Company immediately
prior to the Effective Time shall become the directors of Newco at the Effective
Time, until the earlier of their resignation or removal or until their
respective successors are duly appointed or elected, as the case may be, in
accordance with the certificate of incorporation of Newco and applicable law.
A-2
<PAGE> 222
SECTION 1.07. Officers of Newco. The officers of the Company immediately
prior to the Effective Time shall be the officers of Newco at the Effective
Time, until the earlier of their resignation or removal or until their
respective successors are duly appointed or elected and qualified, as the case
may be, in accordance with the certificate of incorporation of Newco and
applicable law.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Sub, the Company or the
holders of any of the following securities:
(a) Subject to Section 2.01(b) and the allocation provisions set forth
below, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (excluding any treasury shares,
shares held directly or indirectly by Parent and Dissenting Shares (as
defined in Section 2.03) as to which appraisal rights have been perfected
under the DGCL) shall be converted into:
(i) the right to receive a number of shares of Parent's Series A
common stock, $1.67 par value, including associated Parent Rights (as
defined in Section 3.02(c)) ("Parent Series A Common Stock"), equal to
the sum of (A) 0.5333 and (B) the quotient (calculated to the nearest
0.0001) of $12.33 divided by the Valuation Period Stock Price (such sum,
the "Exchange Ratio"),
(ii) the right to receive in cash, without interest, the sum of
(A) $12.33 and (B) the product of 0.5333 and the Valuation Period Stock
Price (such sum, the "Per Share Cash Amount"),
(iii) the right to receive 0.5333 shares of Parent Series A Common
Stock and $12.33 in cash, without interest (the "Mixed Consideration")
or
(iv) the right to receive a combination of shares of Parent Series
A Common Stock and cash determined in accordance with Section 2.01(d),
Section 2.01(e) or Section 2.01(f) (the consideration provided for in
this Section 2.01(a) in exchange for each share of Company Common Stock
is referred to herein as the "Merger Consideration" and the aggregate of
such consideration provided in exchange for all shares of Company Common
Stock is referred to herein as the "Aggregate Merger Consideration");
provided, however, that, in any event, if between the date of this
Agreement and the Effective Time the outstanding shares of Parent Series A
Common Stock or Company Common Stock shall have been 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, the Exchange Ratio, the Per Share Cash
Amount and the Mixed Consideration shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares. The "Valuation
Period Stock Price" means the average of the NYSE (as defined in Section
6.01) closing sale prices for the Parent Series A Common Stock (as reported
in The Wall Street Journal or, in the absence thereof, by another
authoritative source) for the ten consecutive trading-day period ending on
the tenth day immediately prior to the anticipated Closing Date. Each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding any treasury shares, shares held directly or
indirectly by Parent and Dissenting Shares as to which appraisal rights
shall have been perfected under the DGCL) shall at the Effective Time no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each certificate previously evidencing any such
shares ("Certificates") shall thereafter represent the right to receive
only the Merger Consideration. The holders of Certificates shall cease to
have any rights with respect to the shares of Company Common Stock
previously represented thereby, except as otherwise provided herein or by
law. Such certificates previously evidencing such shares of Company Common
Stock shall be exchanged for (A) certificates evidencing whole shares of
Parent Series A Common Stock issued in consideration therefor or (B) the
Per Share Cash Amount multiplied by the number of shares previously
evidenced by
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the cancelled Certificate or (C) a combination of such certificates and
cash, in each case in accordance with the allocation procedures of this
Section 2.01 and upon the surrender of such Certificates in accordance with
the provisions of Section 2.02, without interest. No fractional shares of
Parent Series A Common Stock shall be issued and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.02(e).
(b) The number of shares of Company Common Stock to be converted into
the right to receive cash in the Merger (the "Cash Election Number") shall
be equal to the product of (i) the aggregate number of shares of Company
Common Stock to be converted in the Merger, which shall be the number of
shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time (excluding any treasury shares and shares held directly
or indirectly by Parent (the "Company Common Stock Number")), and (ii) a
fraction, the numerator of which is $12.33 and the denominator of which is
the Per Share Cash Amount. The number of shares of Company Common Stock to
be converted into the right to receive Parent Series A Common Stock in the
Merger (the "Stock Election Number") shall be equal to the difference
between (i) the Company Common Stock Number and (ii) the Cash Election
Number. The aggregate number of shares of Parent Series A Common Stock
constituting the portion of the Aggregate Merger Consideration payable in
Parent Series A Common Stock shall equal 0.5333 times the Company Common
Stock Number. That portion of the Aggregate Merger Consideration to be paid
in cash shall equal $12.33 times the Company Common Stock Number.
(c) Election forms in such form as Parent and the Company shall
mutually agree (each a "Form of Election") and a Letter of Transmittal (as
defined in Section 2.02(b)) shall be mailed 30 days prior to the
anticipated Effective Time, or such other date as Parent and the Company
shall agree (the "Mailing Date"), to each holder of record of Company
Common Stock as of five business days prior to the Mailing Date (the
"Election Form Record Date"). Each Form of Election shall permit the holder
(or the beneficial owner through appropriate and customary documentation
and instructions) to choose to receive (subject to the allocation and
proration procedures set forth below) one of the following in exchange for
such holder's shares of Company Common Stock: (i) only cash (a "Cash
Election"), (ii) only Parent Series A Common Stock (a "Stock Election") or
(iii) the Mixed Consideration (a "Mixed Election"). Alternatively, each
Form of Election will permit the holder to indicate that such holder has no
preference as to the receipt of cash or Parent Series A Common Stock for
such holder's shares of Company Common Stock (a "Non-Election"). Holders of
record of shares of Company Common Stock who hold such shares as nominees,
trustees or in other representative capacities (a "Representative") may
submit multiple Forms of Election, provided that such Representative
certifies that each such Form of Election covers all the shares of Company
Common Stock held by each Representative for a particular beneficial owner.
Any Company Common Stock (excluding any treasury shares, shares held
directly or indirectly by Parent and Dissenting Shares) with respect to
which the holder (or the beneficial owner, as the case may be) shall not
have submitted to the Exchange Agent an effective, properly completed Form
of Election on or before 5:00 p.m. (New York City time) on the 25th day
following the Mailing Date (or such other time and date as Parent and the
Company may mutually agree) (the "Election Deadline") shall be deemed to be
shares of Company Common Stock with respect to which a Non-Election has
been made. Dissenting Shares shall be treated as Cash Election Shares for
purposes of this Section 2.01 but holders of Dissenting Shares shall not be
entitled to any Merger Consideration.
Parent shall make available (or shall cause the Exchange Agent to make
available) one or more separate Forms of Election to all persons who become
holders (or beneficial owners) of Company Common Stock between the Form of
Election Record Date and the close of business on the business day prior to
the Election Deadline upon such holder's request to the Exchange Agent, and
the Company shall provide to the Exchange Agent all information reasonably
necessary for it to perform as specified herein.
Any such election shall have been properly made only if the Exchange
Agent shall have actually received a properly completed Form of Election by
the Election Deadline. A Form of Election shall be deemed properly
completed only if accompanied by one or more Certificates (or affidavits
and
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indemnification regarding the loss or destruction of such Certificates
reasonably acceptable to Parent or the guaranteed delivery of such
Certificates) representing all shares of Company Common Stock covered by
such Form of Election, together with a duly executed Letter of Transmittal.
Any Form of Election may be revoked or changed by the person submitting
such Form of Election at or prior to the Election Deadline. In the event an
Form of Election is revoked prior to the Election Deadline, the shares of
Company Common Stock represented by such Form of Election shall be deemed
to be shares covered by a Non-Election (unless thereafter covered by a duly
completed Form of Election) and Parent shall cause the Certificates to be
promptly returned without charge to the person submitting the Form of
Election upon written request to that effect from such person.
Parent will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether Forms of Election have
been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. If Parent (or the Exchange Agent)
shall determine that any purported Cash Election or Stock Election was not
properly made, such purported Cash Election or Stock Election shall have no
force and effect and the holder making such purported Cash Election or
Stock Election shall for purposes hereof be deemed to have made a
Non-Election. The decision of Parent (or the Exchange Agent) in all such
matters shall be conclusive and binding. Neither Parent nor the Exchange
Agent will be under any obligation to notify any person of any defect in a
Form of Election submitted to the Exchange Agent. The Exchange Agent shall
also make all computations contemplated by this Section 2.01 and all such
computations shall be conclusive and binding on the holders of Company
Common Stock.
(d) If the sum of the aggregate number of shares covered by Cash
Elections (the "Cash Election Shares") and the aggregate number of such
shares covered by Mixed Elections (the "Mixed Election Shares") to be
acquired for cash (determined by multiplying the number of Mixed Election
Shares by a fraction (the "Mixed Election Cash Fraction"), the numerator of
which is $12.33 and the denominator of which is the Per Share Cash Amount
(such number of shares referred to as the "Mixed Election Cash Shares"))
exceeds the Cash Election Number, then:
(i) all shares of Company Common Stock covered by Stock Elections
(the "Stock Election Shares") and all shares of Company Common Stock
covered by Non-Elections (the "Non-Election Shares") shall be converted
into the right to receive Parent Series A Common Stock;
(ii) all Mixed Election Shares shall be converted to a right to
receive the Mixed Consideration; and
(iii) each Cash Election Share shall be converted into the right to
receive (A) an amount of cash, without interest, equal to the product of
(x) the Per Share Cash Amount and (y) a fraction (the "Cash Fraction"),
the numerator of which shall be the Cash Election Number minus the
number of Mixed Election Cash Shares and the denominator of which shall
be the total number of Cash Election Shares and (B) a number of shares
of Parent Series A Common Stock equal to the product of (x) the Exchange
Ratio and (y) a fraction equal to one minus the Cash Fraction.
(e) If the sum of the aggregate number of Stock Election Shares and
the aggregate number of Mixed Election Shares to be acquired for stock
(determined by multiplying the number of Mixed Election Shares by one minus
the Mixed Election Cash Fraction (such shares referred to as the "Mixed
Election Stock Shares")) exceeds the Stock Election Number, then:
(i) all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive cash;
(ii) all Mixed Election Shares shall be converted into a right to
receive the Mixed Consideration; and
(iii) each Stock Election Share shall be converted into the right
to receive (A) a number of shares of Parent Series A Common Stock equal
to the product of (x) the Exchange Ratio and (y) a fraction (the "Stock
Fraction"), the numerator of which shall be the Stock Election Number
minus
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the number of Mixed Election Stock Shares and the denominator of which
shall be the total number of Stock Election Shares and (B) an amount in
cash, without interest, equal to the product of (x) the Per Share Cash
Amount and (y) a fraction equal to one minus the Stock Fraction.
(f) In the event that neither Section 2.01(d) nor Section 2.01(e) is
applicable, then:
(i) all Cash Election Shares shall be converted into the right to
receive cash;
(ii) all Stock Election Shares shall be converted into the right
to receive Parent Series A Common Stock;
(iii) all Mixed Election Shares shall be converted into a right to
receive the Mixed Consideration; and
(iv) each Non-Election Share shall be converted into the right to
receive (A) an amount in cash, without interest, equal to the product of
(x) the Per Share Cash Amount and (y) a fraction (the "Non-Election
Fraction"), the numerator of which shall be the excess of the Cash
Election Number over the sum of the total number of Cash Election Shares
and the total number of Mixed Election Cash Shares and the denominator
of which shall be the excess of the Company Common Stock Number over the
sum of the total number of Cash Election Shares, the total number of
Mixed Election Shares and the total number of Stock Election Shares and
(B) a number of shares of Parent Series A Common Stock equal to the
product of (x) the Exchange Ratio and (y) a fraction equal to one minus
the Non-Election Fraction.
(g) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Parent or any
direct or indirect wholly owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be cancelled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.
(h) Each issued and outstanding share of capital stock of Sub shall
continue as a validly issued, fully paid and nonassessable share of common
stock, par value of $0.01 per share, of the Surviving Corporation. Each
certificate representing any such shares of Sub shall continue to represent
the same number of shares of common stock of the Surviving Corporation.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Parent shall deposit with such bank or trust company as may be
designated by Parent (the "Exchange Agent"), for the benefit of the holders of
shares of Company Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, (i) certificates representing the shares of Parent
Series A Common Stock issuable pursuant to Section 2.01 in exchange for
outstanding shares of Company Common Stock and (ii) cash in the amount
sufficient to pay the cash portion of the Aggregate Merger Consideration (such
shares and cash consideration, together with any dividends or distributions with
respect thereto with a record date on or after the day on which the Effective
Time occurs and any cash payable in lieu of any fractional shares of Parent
Series A Common Stock being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. No later than the business day after the Effective
Time, the Exchange Agent shall mail or, if requested, deliver to each holder of
record of a Certificate or Certificates immediately prior to the Effective Time,
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, 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 have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration (collectively, the "Letter of
Transmittal"), unless such record holder shall have submitted a Letter of
Transmittal together with the Form of Election pursuant to Section 2.01(c). Upon
the later of the Effective Time and the surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Parent Series A
Common Stock and
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(y) a certified or bank cashier's check in the amount equal to the cash, which
such holder has the right to receive pursuant to the provisions of this Article
II (in each case, less the amount of any withholding taxes required under
applicable law), and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of the Company, a certificate
representing the proper number of shares of Parent Series A Common Stock may be
issued to a person (as defined in Section 8.03) other than the person in whose
name the Certificate so surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required by reason
of the issuance of shares of Parent Series A Common Stock to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Parent that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration and any cash in lieu of a fractional share of
Parent Series A Common Stock which the holder thereof has the right to receive
in respect of such Certificate pursuant to this Article II. No interest will be
paid or will accrue on any cash payable to holders of Certificates pursuant to
this Article II.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions with
respect to shares of Parent Series A Common Stock with a record date on or after
the day on which the Effective Time occurs shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Series A Common
Stock represented thereby, and no cash in lieu of a fractional share of Parent
Series A Common Stock shall be paid to any such holder pursuant to this Article
II, and all such dividends, other distributions and cash in lieu of any
fractional share of Parent Series A Common Stock shall be paid by Parent to the
Exchange Agent (less the amount of any required withholding taxes) and shall be
included in the Exchange Fund, in each case until the surrender of such
Certificate in accordance with this Article II. Following surrender of any such
Certificate, there shall be issued or paid, as applicable, to the holder thereof
(i) at the time of such surrender, (x) a certificate representing whole shares
of Parent Series A Common Stock issued in exchange therefor, (y) the cash
portion of the Merger Consideration and any cash payable in lieu of a fractional
share of Parent Series A Common Stock to which such holder is entitled pursuant
to this Article II and (z) the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Series A Common Stock (in each case, without interest and less
the amount of any required withholding taxes); and (ii) at the appropriate
payment date, the amount of any dividends or other distributions with a record
date after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares of
Parent Series A Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of
Parent Series A Common Stock issued and cash paid upon the surrender for
exchange of Certificates in accordance with this Article II shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock theretofore represented by such Certificates,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of Company
Common Stock in accordance with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. Subject to applicable law,
Certificates presented after the Effective Time to the Surviving Corporation or
the Exchange Agent for any reason shall be cancelled and exchanged as provided
in this Article II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Series A Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution of Parent
shall relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent.
(ii) Notwithstanding any other provision of this Agreement, each holder of
record of shares of Company Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a
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fraction of a share of Parent Series A Common Stock (after taking into account
all Certificates delivered by such holder of record) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Parent Series A Common Stock multiplied by the closing sales price of
one share of Parent Series A Common Stock on the NYSE Composite Transactions
List (as reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source) on the trading day immediately preceding the Closing
Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates who have not theretofore complied with this Article II shall
thereafter look only to Parent for payment of their claim for the Merger
Consideration and any cash in lieu of fractional shares or other dividends or
distributions payable to such holders pursuant to this Article II, in each case
without interest thereon.
(g) No Liability. None of Parent, Sub, the Company and the Exchange Agent
shall be liable to any person in respect of any shares of Parent Series A Common
Stock (or any dividends or distributions with respect thereto or with respect to
any shares of Company Common Stock theretofore represented by any Certificate)
or any cash from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. If any Certificate
shall not have been surrendered prior to the date on which any Merger
Consideration or any cash in lieu of a fractional share of Parent Series A
Common Stock or other dividends or distributions payable to the holder of such
Certificate pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity (as defined in Section 3.01(e)), any such
Merger Consideration or cash or other dividends or distributions shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interests of any person previously
entitled thereto.
(h) Lost, Stolen and Destroyed 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 and, if
required by Parent, the posting by such person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger
Consideration, cash in lieu of a fractional share of Parent Series A Common
Stock, and unpaid dividends and distributions on shares of Parent Series A
Common Stock as provided in this Article II, deliverable in respect thereof
pursuant to this Agreement.
(i) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in U.S. government securities, as directed by
Parent, on a daily basis. Any interest and other income resulting from such
investments shall be paid to Parent.
(j) Return of Merger Consideration. Any portion of the Aggregate Merger
Consideration made available to the Exchange Agent to pay for Dissenting Shares
(as defined in Section 2.03) for which appraisal rights have been perfected
shall be returned to Parent, promptly upon demand.
SECTION 2.03. Dissenting Shares. Notwithstanding Section 2.01, shares of
Company Common Stock outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who had demanded appraisal for such shares in accordance with the
DGCL (such shares, "Dissenting Shares") shall not be converted into a right to
receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses his right to appraisal. If after the Effective Time
such holder fails to perfect or withdraws or loses his right to appraisal, such
shares shall be treated under this Agreement as if they had been converted as of
the Effective Time into a right to receive the Merger Consideration. The Company
shall give Parent prompt notice of any demands received by the Company for
appraisal of shares of Company Common Stock, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Parent, make any
payment with respect to, or settle or offer to settle, any such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company. Except as set
forth with respect to a specifically identified representation and warranty
(other than to the extent it is reasonably evident from one such disclosure that
it also applies to one or more other representations and warranties) on the
Disclosure Schedule delivered by the Company to Parent at or prior to the
execution and delivery of this Agreement (the "Company Disclosure Schedule") or
as disclosed in the Company SEC Documents (as defined in Section 3.01(f)) filed
and publicly available prior to the date of this Agreement (the "Filed Company
SEC Documents"), the Company represents and warrants to Parent and Sub as
follows:
(a) Organization, Standing and Corporate Power. Each of the Company
and its Significant Subsidiaries (as defined in Section 8.03) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of the Company and its Significant Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
except jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not have a
material adverse effect (as defined in Section 8.03) on the Company. The
Company has delivered to Parent prior to the execution and delivery of this
Agreement complete and correct copies of its certificate of incorporation
and by-laws.
(b) Subsidiaries. Paragraph (b) of the Company Disclosure Schedule
sets forth a true and complete list of each equity investment in an amount
of $5,000,000 or greater made by the Company or any of its subsidiaries in
any other person other than the Company's Significant Subsidiaries ("Other
Interests"). All the outstanding shares of capital stock of each subsidiary
of the Company have been validly issued and are fully paid and
nonassessable and are owned by the Company, by another subsidiary of the
Company or by the Company and another such subsidiary, free and clear of
all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens"). The Other Interests
are owned by the Company, by one or more of the Company's subsidiaries or
by the Company and one or more of its subsidiaries, in each case free and
clear of all Liens, except for Liens created by any partnership agreements
for Other Interests.
(c) Capital Structure. (i) The authorized capital stock of the Company
consists of 150,000,000 shares of Company Class A Common Stock and
46,825,000 shares of Company Class B Common Stock. At the close of business
on September 24, 1996, (i) 25,998,450 shares of Company Class A Common
Stock were issued and outstanding, (ii) 21,067,650 shares of Company Class
B Common Stock were issued and outstanding, (iii) no shares of Company
Class A Common Stock and no shares of Company Class B Common Stock were
held by the Company in its treasury or by subsidiaries of the Company, (iv)
4,383,000 shares of Company Class A Common Stock were reserved for issuance
pursuant to the Company Stock Plans (as defined in Section 5.13), and (v)
75,000,000 shares of Company Class A Common Stock and 23,412,500 shares of
Company Class B Common Stock were reserved for issuance pursuant to that
certain Rights Agreement, dated as of May 8, 1996 (the "Company Rights
Agreement"), between the Company and The First National Bank of Boston, as
Rights Agent (the "Company Rights Agent"). Except as set forth above, at
the close of business on September 24, 1996, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance
or outstanding. From September 24, 1996 to the date of this Agreement, no
shares of capital stock or other voting securities of the Company have been
issued except shares of Company Common Stock pursuant to the Company Stock
Plans. There are no outstanding stock appreciation rights or rights (other
than the Company Employee Stock Options (as defined in Section 5.13)) to
receive shares of Company Common Stock on a deferred basis granted under
the Company Stock Plans or otherwise. The aggregate number of shares of
Company Common Stock subject to issuance upon exercise of all Company
Employee Stock Options does not exceed the aggregate number of shares
specified for issuance upon exercise of all Company Employee Stock Options
in paragraph (c) of the Company Disclosure Schedule. Except as set
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forth herein, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind, to which the Company is a party or by which it is bound, obligating
the Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company, or obligating the Company to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.
(ii) All outstanding shares of capital stock of the Company are, and
all shares which may be issued pursuant to the Company Stock Plans will be
when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are no bonds, debentures, notes
or other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote. Paragraph (c)
of the Company Disclosure Schedule sets forth a complete and correct list,
as of the date hereof, of all holders of Company Employee Stock Options and
the exercise prices thereof.
(iii) There are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind,
to which any Significant Subsidiary of the Company is bound, obligating
such Significant Subsidiary to issue, deliver, sell, or cause to be issued
delivered or sold, additional shares of capital stock or other voting
securities of such Significant Subsidiary, or obligating such Significant
Subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right commitment, agreement, arrangement or undertaking.
(iv) There are no outstanding contractual obligations of the Company
or any of its Significant Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any of its
Significant Subsidiaries. There are no outstanding contractual obligations
of the Company to vote or to dispose of any shares of the capital stock of
any of its Significant Subsidiaries.
(d) Corporate Authority; Noncontravention. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to the Company Stockholder Approval (as defined in Section 3.01(k))
with respect to the Merger, to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action
on the part of the Company subject, in the case of the Merger, to the
Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery thereof by Parent and Sub, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by general
principles of equity or principles applicable to creditors' rights
generally. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (after notice or lapse of time or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of
the Company or any of its subsidiaries under, (i) the certificate of
incorporation or by-laws of the Company or the comparable charter or
organizational documents of any of its Significant Subsidiaries, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its subsidiaries or any of their respective
properties or assets or (iii) subject to the governmental filings and other
consents and matters referred to in Section 3.01(e), any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its subsidiaries or any of their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such
conflicts, violations, defaults, rights, losses or Liens that, individually
or in the aggregate, would not (x) have a material adverse effect on the
Company or (y) prevent the consummation of any of the transactions
contemplated by this Agreement.
(e) Governmental Authorization. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local government or any court, administrative or regulatory
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agency or commission or other governmental authority or agency (each a
"Governmental Entity") is required by or with respect to the Company or any
of its subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation of the transactions
contemplated by this Agreement, except for (i) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"); (ii) the filing with
the Securities and Exchange Commission (the "SEC") of (x) a proxy statement
(such proxy statement, as amended or supplemented from time to time, the
"Proxy Statement") relating to the Company Stockholders Meeting (as defined
in Section 5.01(b)) which shall also constitute a prospectus of Parent
relating to the shares of Parent Series A Common Stock to be issued in the
Merger, (y) a proxy statement relating to the Parent Stockholders Meeting
(as defined in Section 5.01(c)) and (z) such reports under Section 13(a)
and Section 16 of the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act"), as may
be required in connection with this Agreement and the transactions
contemplated by this Agreement; (iii) such filings with, and orders of, the
Federal Communications Commission (the "FCC") as may be required under the
Communications Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Communications Act"); (iv) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which the
Company is qualified to do business; (v) such filings with Governmental
Entities as may be required to satisfy the applicable requirements of state
securities or "blue sky" laws in connection with the transactions
contemplated by this Agreement; and (vi) such other consents, approvals,
orders, authorizations, regulations, declarations or filings, the failure
of which to obtain or make would not have a material adverse effect on the
Company. Except as set forth in paragraph (e) of the Company Disclosure
Schedule, the Company has no knowledge of any facts or circumstances
relating to the Company or any of its subsidiaries that, individually or in
the aggregate, would prevent any necessary FCC approval of the transactions
contemplated by this Agreement.
(f) SEC Documents; Undisclosed Liabilities. The Company has filed with
the SEC the Company's registration statement on Form S-1 (the "Company
S-1"), which became effective on June 24, 1996 (the "S-1 Effective Date"),
and all required reports, schedules, forms, statements and other documents
since the S-1 Effective Date (together with such Form S-1 registration
statement, the "Company SEC Documents"). None of the Company's subsidiaries
is required to file with the SEC any report, form or other document. As of
their respective dates, the Company SEC Documents complied as to form in
all material respects with the requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"), or the Exchange Act, as the case may be, and none of the
Company SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a 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. The financial
statements of the Company included in the Company SEC Documents comply as
to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by
the rules and regulations of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present, in all material respects, the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the Filed
Company SEC Documents, and except for liabilities and obligations incurred
since the Balance Sheet Date in the ordinary course of business consistent
with past practice, as of the date of this Agreement, neither the Company
nor any of its subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be recognized or disclosed on a
consolidated balance sheet of the Company and its consolidated subsidiaries
or in the notes thereto and which, individually or in the aggregate, would
have a material adverse effect on the Company.
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(g) Information Supplied. None of the information to be supplied by
the Company specifically for inclusion or incorporation by reference in (i)
the registration statement on Form S-4 to be filed with the SEC by Parent
in connection with the issuance of shares of Parent Series A Common Stock
in the Merger (the "Form S-4") will, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, 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 not misleading or (ii)
the Proxy Statement will, at the date it is first mailed to the Company's
stockholders or at the time of the Company Stockholders Meeting, contain
any untrue statement of a material fact or 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 are made, not
misleading. The Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made
by the Company with respect to statements made or incorporated by reference
therein based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference in the Proxy Statement.
(h) Absence of Certain Changes or Events. Except as contemplated by
this Agreement, since December 31, 1995 (the "Balance Sheet Date"), the
Company has conducted its business only in the ordinary course, and there
has not been (i) any material adverse change (as defined in Section 8.03)
in the Company, other than changes relating to or arising from legislative
or regulatory changes or developments generally affecting broadcasting or
publishing operations or general economic conditions, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of the Company's capital
stock, (iii) any split, combination or reclassification of any of its
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by the Company or any of its
subsidiaries to any executive officer or other key employee of the Company
or any of its Significant Subsidiaries of any increase in compensation
(except for normal increases in the ordinary course of business consistent
with past practice or as required under any employment agreement in effect
as of the Balance Sheet Date) or (y) any granting by the Company or any of
its subsidiaries to any such executive officer or key employee of any
increase in severance or termination pay (except as was required under any
employment, severance or termination agreement in effect as of the Balance
Sheet Date), (v) any damage, destruction or loss, whether or not covered by
insurance, that has had or would have a material adverse effect on the
Company, or (vi) except as required by a change in generally accepted
accounting principles, any change in accounting methods, principles or
practices by the Company materially affecting the basis of presenting or
method of determining its results of operations, assets, liabilities or
businesses.
(i) Litigation. There is no suit, action or proceeding pending, and
the Company has not received written notification threatening any suit,
action or proceeding, against or affecting the Company or any of its
subsidiaries that individually or in the aggregate would (i) have a
material adverse effect on the Company or (ii) prevent the consummation of
any of the transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its subsidiaries
having any effect referred to in clause (i) or (ii) of this sentence.
(j) ERISA and Other Compensation Matters. (i) Except as will not have
a material adverse effect on the Company, all employee benefit plans
("Plans") covering employees or former employees of the Company or any of
its subsidiaries ("Company Employees") have been administered according to
their terms and, to the extent subject to the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder ("ERISA"), are in compliance with ERISA. Each Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Company Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter
from the Internal Revenue Service (the "Service"), and the Company is not
aware of any circumstances likely to result in revocation of any such
favorable
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determination letter. Neither the Company nor any of its subsidiaries or
Company ERISA Affiliates (as defined below) has engaged in a transaction
with respect to any Company Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject the Company or any
of its subsidiaries or Company ERISA Affiliates to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA which would
have a material adverse effect on the Company. Neither the Company nor any
of its subsidiaries or any Company ERISA Affiliates has contributed or been
required to contribute to any multiemployer plan.
(ii) No liability under Subtitles C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any of its
subsidiaries or Company ERISA Affiliates with respect to any ongoing,
frozen or terminated Plan, currently or formerly maintained by any of
them, or the Plan of any person which is considered one employer with the
Company under Section 4001 of ERISA or Section 414 of the Code (a "Company
ERISA Affiliate") which would have a material adverse effect on the
Company.
(iii) All contributions required to be made and all contributions
accrued as of the Balance Sheet Date under the terms of any Plan for which
the Company or any of its subsidiaries or ERISA Affiliates may have
liability have been timely made or have been reflected on the most recent
audited balance sheet included in the Filed Company SEC Documents. Neither
any Company Pension Plan nor any single-employer plan of the Company or any
of its subsidiaries or Company ERISA Affiliates has incurred an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA which would have a
material adverse effect on the Company. Neither the Company nor any of its
subsidiaries has provided, or is required to provide, security to any
Company Pension Plan or to any Plan of a Company ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(iv) Neither the Company nor any of its subsidiaries has any
obligations for retiree health and life benefits under any Plan, except as
set forth in the Company Disclosure Schedule, which would have a material
adverse effect on the Company.
(v) The execution and delivery of this Agreement do not, and the
performance of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any of the Company's Compensation and
Benefit Plans that will or may result in any payment (whether of severance
or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee of the Company or any of its subsidiaries or
Company ERISA Affiliates which would have a material adverse effect on the
Company.
(vi) There is no contract, agreement, plan or arrangement covering
any employee or former employee of the Company or any of its subsidiaries
or Company ERISA Affiliates that, individually or collectively, could give
rise as a result of the transactions contemplated by this Agreement to the
payment of any amount that would not be deductible pursuant to the terms of
Section 162(a)(1) or 280G of the Code.
(vii) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or any of its
subsidiaries or Company ERISA Affiliates relating to, or change in employee
participation or coverage under, any of the Company's Compensation and
Benefit Plans which would increase materially above the level of the
expense incurred in respect thereof for the fiscal year ended on the
Balance Sheet Date.
(k) Voting Requirements. The affirmative vote at the Company
Stockholders Meeting of the holders of a majority of the votes represented
by the outstanding Company Common Stock (the "Company Stockholder
Approval") is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve and adopt this Agreement and
the transactions contemplated by this Agreement.
(l) State Takeover Statutes. The Board of Directors of the Company has
approved the terms of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement, and such approval is
sufficient to render inapplicable to the Merger and the other
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transactions contemplated by this Agreement and the Company Stockholder
Agreement the provisions of Section 203 of the DGCL. To the knowledge of
the Company, no other state takeover statute or similar statute or
regulation applies or purports to apply to the Merger, this Agreement, the
Company Stockholder Agreement or any of the transactions contemplated by
this Agreement and no provision of the certificate of incorporation,
by-laws or other governing documents of the Company or any of its
Significant Subsidiaries would, directly or indirectly, restrict or impair
the ability of Parent or any of its Significant Subsidiaries to vote, or
otherwise to exercise the rights of a stockholder with respect to, shares
of the Company Common Stock and the shares of capital stock of its
Significant Subsidiaries that may be acquired or controlled directly or
indirectly by Parent.
(m) Brokers. No broker, investment banker, financial advisor or other
person, other than Bear, Stearns & Co. Inc., the fees and expenses of which
will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or any of its subsidiaries. The Company
has furnished to Parent true and complete copies of all agreements with
Bear, Stearns & Co. Inc. under which any such fees or expenses may be
payable, including all indemnification agreements.
(n) Opinion of Financial Advisor. The Company has received the opinion
of Bear, Stearns & Co. Inc., dated the date of this Agreement, to the
effect that, as of such date, the Aggregate Merger Consideration is fair to
the Company's stockholders from a financial point of view, a signed copy of
which opinion has been delivered to Parent.
(o) Compliance with Applicable Laws. Each of the Company and its
subsidiaries is in compliance with all applicable statutes, laws,
ordinances, rules, regulations, judgments, decrees and orders of any
Governmental Entity applicable to its business and operations, except for
possible noncompliance that would not, individually or in the aggregate,
have a material adverse effect on the Company.
(p) Taxes. Each of the Company and its subsidiaries has timely filed
(or has had timely filed on its behalf) or will file or cause to be timely
filed, all material Tax Returns (as defined in Section 8.03) required by
applicable law to be filed by it prior to or as of the Effective Time. All
such Tax Returns are, or will be at the time of filing, true, complete and
correct in all material respects. Each of the Company and its subsidiaries
has paid (or has had paid on its behalf), or where payment is not yet due,
has established (or has had established on its behalf and for its sole
benefit and recourse), or will establish or cause to be established on or
before the Effective Time, an adequate accrual for the payment of, all
Taxes (as defined in Section 8.03) due with respect to any period ending
prior to or as of the Effective Time, except for Taxes which would not,
individually or in the aggregate, have a material adverse effect on the
Company.
(q) Labor. Since the Balance Sheet Date, as of the date of this
Agreement, there has not been any amendment in any material respect by the
Company or any of its subsidiaries of any collective bargaining agreement
or contract with a labor union or labor organization (each a "Collective
Bargaining Agreement") to which it is a party or otherwise bound. There is
no labor strike, labor dispute, work slowdown, labor stoppage or lockout
actually pending, and the Company has received no written notice of any
threatened labor strike, labor dispute, work slowdown, labor stoppage or
lockout, against the Company or any of its subsidiaries, nor are there, to
the knowledge of the Company, any organizational efforts presently being
made involving any of the unorganized employees of the Company or any of
its subsidiaries which in any such case or all such cases together would
have a material adverse effect on the Company.
(r) Rights Agreement. The Company has taken, and as soon as possible
after the date hereof the Company Rights Agent will take, all actions
necessary to amend the Company Rights Agreement, or the Board of Directors
of the Company has taken other action under the Company Rights Agreement,
to the extent necessary to ensure that neither the execution and delivery
of this Agreement or the Company Stockholder Agreement, nor the
consummation of the transactions contemplated hereby and thereby, will
cause the "Rights" to become exercisable, cause Parent or any or all of the
Company Significant
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Stockholders to become an "Acquiring Person" or result in a "Distribution
Date" with respect to the "Rights", in each case as defined in the Company
Rights Agreement.
(s) Environmental Matters. (i) Except as disclosed in the Company
Disclosure Schedule and except for such matters that, alone or in the
aggregate, would not have a material adverse effect on the Company:
(1) the Company and its subsidiaries have complied with all
applicable Environmental Laws; (2) the properties currently owned or
operated by the Company and its subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not
contaminated with any Hazardous Substances; (3) the properties formerly
owned or operated by the Company or its subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by the Company or any of its subsidiaries; (4) neither the
Company nor any of its subsidiaries is subject to liability for any
Hazardous Substance disposal or contamination on any third party
property; (5) neither the Company nor any of its subsidiaries has been
associated with any release or threat of release of any Hazardous
Substance; (6) neither the Company nor any of its subsidiaries has
received any notice, demand, letter, claim or request for information
alleging that the Company or any of its subsidiaries may be in violation
of or liable under any Environmental Law; (7) neither the Company nor
any of its subsidiaries is subject to any orders, decrees, injunctions
or other arrangements with any Governmental Entity or is subject to any
orders, decrees, injunctions or other arrangements with any Governmental
Entity or is subject to any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to
Hazardous Substances; (8) there are no circumstances or conditions
involving the Company or any of its subsidiaries that could reasonably
be expected to result in any claims, liability, investigations, costs or
restrictions on the ownership, use or transfer of any property of the
Company or its subsidiaries pursuant to any Environmental Law; (9) none
of the properties of the Company or its subsidiaries contains any
underground storage tanks, asbestos-containing material, lead-based
products, or polychlorinated biphenyls; and (10) neither the Company nor
any of its subsidiaries has engaged in any activities involving the
generation, use, handling or disposal of any Hazardous Substances.
(ii) As used herein:
(1) "Environmental Law" means any federal, state, local or foreign
law, regulation, treaty, order, decree, permit, authorization, policy,
opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and
safety, or natural resources; (B) the handling, use, presence, disposal,
release or threatened release of any chemical substance or waste; or (C)
noise, odor, wetlands, pollution, contamination or any injury or threat
of injury to persons or property.
(2) "Hazardous Substance" means any substance that is: (A) listed,
classified or regulated in any concentration pursuant to any
Environmental Law; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any
other substance which may be the subject of regulatory action by any
Governmental Entity pursuant to any Environmental Law.
(t) Licenses. (i) Each of the Company and its subsidiaries has all
permits, licenses, waivers and authorizations (other than FCC Licenses (as
defined in Section 8.03), but including licenses, authorizations and
certificates of public convenience and necessity from applicable state and
local authorities), which are necessary for it to conduct its business,
including its television broadcast operations, in the manner in which they
are presently being conducted (collectively, "Company Licenses"), other
than any Company Licenses the failure of which to have would not,
individually or in the aggregate, have a material adverse effect on the
Company. Each of the Company and its subsidiaries is in compliance with the
terms of all Company Licenses (other than FCC Licenses), except for such
failures so to comply which would not have a material adverse effect on the
Company. The Company and its subsidiaries have duly performed their
respective obligations under such Company Licenses, except for such non-
performance as would not have a material adverse effect on the Company.
There is no pending or, to the
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knowledge of the Company, threatened application, petition, objection or
other pleading with any Governmental Entity other than the FCC which
challenges or questions the validity of, or any rights of the holder under,
any Company License (other than an FCC License), except for such
applications, petitions, objections or other pleadings, that would not,
individually or in the aggregate, have a material adverse effect on the
Company.
(ii) Except as does not materially jeopardize the operation by the
Company or applicable subsidiary of the Company of any of the Company
Stations (as defined in Section 8.03) to which the FCC Licenses apply: (v)
the Company and those of its subsidiaries that are required to hold FCC
Licenses, or that control FCC Licenses, are financially qualified and, to
the knowledge of the Company, are otherwise qualified to hold such FCC
Licenses or to control such FCC Licenses, as the case may be; (w) the
Company and those of its subsidiaries that are required to hold FCC
Licenses hold such FCC Licenses; (x) the Company is not aware of any facts
or circumstances relating to the Company or any of its subsidiaries that
would prevent the FCC's granting the requisite consent to the FCC Form 315
Transfer of Control Application to be filed with respect to the Merger (the
"FCC Application"); (y) each Company Station is in material compliance with
all FCC Licenses held by it; and (z) there is not pending or, to the
knowledge of the Company, threatened any application, petition, objection
or other pleading with the FCC or other Governmental Entity which
challenges the validity of, or any rights of the holder under, any FCC
License held by the Company or one of its subsidiaries, except for rule
making or similar proceedings of general applicability to persons engaged
in substantially the same business conducted by the Company Stations.
(u) Intellectual Property. The Company and its subsidiaries own or
have rights to use (i) all material computer software utilized in the
conduct of their respective businesses and (ii) all names and service marks
used by the Company or any such subsidiary and, to the knowledge of the
Company, such use does not conflict with any rights of others with respect
thereto, except for such failures to own or have rights to use and such
conflicts that have not had and would not have a material adverse effect on
the Company.
(v) Material Agreements. (i) Neither the Company nor any of its
subsidiaries is in material breach of any network affiliation agreement for
any Company Station (a "Company Network Agreement").
(ii) Neither the Company nor any of its subsidiaries is in material
breach of any agreement other than a Company Network Agreement, except for
breaches which would not, individually or in the aggregate, have a material
adverse effect on the Company.
SECTION 3.02. Representations and Warranties of Parent and Sub. Except as
set forth with respect to a specifically identified representation and warranty
(other than to the extent it is reasonably evident from one such disclosure that
it also applies to one or more other representations and warranties) on the
Disclosure Schedule delivered by Parent to the Company at or prior to the
execution and delivery of this Agreement (the "Parent Disclosure Schedule") or
as disclosed in the Parent SEC Documents (as defined in Section 3.02(f)) filed
and publicly available prior to the date of this Agreement (the "Filed Parent
SEC Documents"), Parent and Sub represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and Sub
and each of Parent's Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each
of Parent and its Significant Subsidiaries is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, except jurisdictions where the
failure to be so qualified or licensed or to be in good standing
individually or in the aggregate would not have a material adverse effect
on Parent. Parent has delivered to the Company prior to the execution and
delivery of this Agreement complete and correct copies of its certificate
of incorporation and by-laws.
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(b) Subsidiaries. All the outstanding shares of capital stock of each
subsidiary of Parent have been validly issued and are fully paid and
nonassessable and are owned by Parent, by another subsidiary of Parent or
by Parent and another such subsidiary, free and clear of all Liens.
(c) Capital Structure. (i) As of the date of this Agreement, the
authorized capital stock of Parent consists of 150,000,000 shares of Common
Stock, par value $1.67 per share (the "Parent Common Stock"), of which such
shares as may be designated from time to time by the Board of Directors of
Parent as Series A Common Stock are designated as Series A Common Stock
(the "Parent Series A Common Stock") and 15,000,000 shares are designated
as Series B Common Stock ("Parent Series B Common Stock"), and 5,000,000
shares of Preferred Stock, par value $1.00 per share ("Parent Preferred
Stock" of which 150,000 shares are designated as Series A Junior
Participating Preferred Stock. At the close of business on September 25,
1996, (i) 35,066,733 shares of Parent Series A Common Stock were issued and
outstanding, (ii) 9,233,864 shares of Parent Series B Common Stock were
issued and outstanding, (iii) no shares of Parent Series A Common Stock,
Parent Series B Common Stock or Parent Preferred Stock were held by Parent
in its treasury, (iv) 2,123,557 and 748,740 shares of Parent Series A
Common Stock and Parent Series B Common Stock, respectively, were reserved
for issuance upon exercise of outstanding options under Parent's employee
stock option plans (the "Parent Stock Plan") and 3,833,992 shares of Parent
Common Stock were reserved for issuance pursuant to the Parent Stock Plan
in respect of options that have not been granted, and (v) all shares of
Parent's Series A Junior Participating Preferred Stock were reserved for
issuance pursuant to that certain Amended and Restated Rights Agreement,
dated as of February 28, 1996 (the "Parent Rights Agreement"), between
Parent and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent
(the "Parent Rights Agent"). Except as set forth above, at the close of
business on September 25, 1996, no shares of capital stock or other voting
securities of Parent were issued, reserved for issuance or outstanding.
Except as set forth above or as otherwise contemplated by this Agreement,
as of the date of this Agreement, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind, to which Parent is a party or by which it is
bound, obligating Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of Parent, or obligating Parent to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking.
(ii) All outstanding shares of capital stock of Parent are, and all
shares which may be issued pursuant to this Agreement will be when issued,
duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. As of the date of this Agreement, there are
no bonds, debentures, notes or other indebtedness of Parent having the
right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of Parent may vote.
(iii) There are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind,
to which any Significant Subsidiary of Parent is bound, obligating such
Significant Subsidiary to issue, deliver, sell, or cause to be issued
delivered or sold, additional shares of capital stock or other voting
securities of such Significant Subsidiary, or obligating such Significant
Subsidiary to issue, grant, extend or enter into any such security, option,
warrant, call, right commitment, agreement, arrangement or undertaking.
(iv) As of the date of this Agreement, there are no outstanding
contractual obligations of Parent or any of its Significant Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
Parent or any of its Significant Subsidiaries. As of the date of this
Agreement, the authorized capital stock of Sub consists of 1,000 shares of
common stock, par value $.01 per share, 100 of which have been validly
issued, are fully paid and nonassessable and are owned by Parent free and
clear of any Lien.
(d) Corporate Authority; Noncontravention. Parent and Sub have all
requisite corporate power and authority to enter into this Agreement and,
subject to the Parent Stockholder Approval (as defined in Section 3.02(k)),
to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement
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have been duly authorized by all necessary corporate action on the part of
Parent and Sub subject, in the case of Parent, to the Parent Stockholder
Approval. This Agreement has been duly executed and delivered by Parent and
Sub and, assuming the due authorization, execution and delivery thereof by
the Company, constitutes a valid and binding obligation of each such party,
enforceable against such party in accordance with its terms, except as such
enforceability may be limited by general principles of equity or principles
applicable to creditors' rights generally. The execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or
default (after notice or lapse of time or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of Parent, Sub or any of Parent's
other subsidiaries under, (i) the certificate of incorporation or by-laws
of Parent or Sub or the comparable charter or organizational documents of
any of Parent's Significant Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent,
Sub or such other subsidiary or any of their respective properties or
assets or (iii) subject to the governmental filings and other consents and
matters referred to in Section 3.02(e), any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent, Sub or
such other subsidiary or any of their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that, individually or in the
aggregate, would not (x) have a material adverse effect on Parent or (y)
prevent the consummation of any of the transactions contemplated by this
Agreement.
(e) Governmental Authorization. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement or the
consummation by Parent or Sub, as the case may be, of any of the
transactions contemplated by this Agreement, except for (i) the filing of a
premerger notification and report form by Parent under the HSR Act; (ii)
the filing with the SEC of (x) the Form S-4, (y) a proxy statement relating
to the Parent Stockholders Meeting and (z) the filing or furnishing with or
to the SEC of such reports under Section 13(a) of the Exchange Act as may
be required in connection with this Agreement, and the transactions
contemplated by this Agreement; (iii) such filings with, and orders of, the
FCC as may be required under the Communications Act and the FCC's rules and
regulations in connection with this Agreement and the transactions
contemplated by this Agreement; (iv) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified
to do business; (v) such filings with Governmental Entities as may be
required to satisfy the applicable requirements of state securities or
"blue sky" laws in connection with the transactions contemplated by this
Agreement; (vi) such other consents, approvals, orders, authorizations,
regulations, declarations or filings, the failure of which to obtain or
make would not have a material adverse effect on Parent; and (vii) such
filings with and approvals of the NYSE to permit the shares of Parent
Series A Common Stock that are to be issued in the Merger to be listed on
the NYSE. Except as set forth in paragraph (e) of the Parent Disclosure
Schedule, Parent has no knowledge of any facts or circumstances relating to
Parent or any of its subsidiaries that, individually or in the aggregate,
would prevent any necessary FCC approval of the transactions contemplated
by this Agreement.
(f) SEC Documents; Undisclosed Liabilities. Parent has filed with the
SEC all reports, schedules, forms, statements and other documents required
to be filed since the Balance Sheet Date (the "Parent SEC Documents"). None
of Parent's subsidiaries is required to file with the SEC any report, form
or other document. As of their respective dates, the Parent SEC Documents
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a 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. The financial statements of Parent included in the Parent SEC
Documents comply as to form in all material
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respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by the rules and regulations of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present, in all
material respects, the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as disclosed in the Filed Parent SEC Documents, and
except for liabilities and obligations incurred since the Balance Sheet
Date in the ordinary course of business consistent with past practice, as
of the date of this Agreement, neither Parent nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by generally accepted
accounting principles to be recognized or disclosed on a consolidated
balance sheet of Parent and its consolidated subsidiaries or in the notes
thereto and which, individually or in the aggregate, would have a material
adverse effect on Parent.
(g) Information Supplied. None of the information to be supplied by
Parent or Sub specifically for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes effective
under the Securities Act, 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 not misleading or (ii) the Proxy
Statement will, at the date the Proxy Statement is first mailed to Company
stockholders or at the time of the Company Stockholders Meeting, contain
any untrue statement of a material fact or 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 are made, not
misleading. The Form S-4 and Parent's proxy statement relating to the
Parent Stockholders Meeting will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations
promulgated thereunder, except that no representation or warranty is made
by Parent or Sub with respect to statements made or incorporated by
reference in the Form S-4 based on information supplied by the Company
specifically for inclusion or incorporation by reference therein.
(h) Absence of Certain Changes or Events. Except as contemplated by
this Agreement, since the Balance Sheet Date, Parent has conducted its
business only in the ordinary course, and there has not been (i) any
material adverse change in Parent, other than changes relating to or
arising from legislative or regulatory changes or developments generally
affecting broadcasting or publishing operations or general economic
conditions, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to
any of Parent's capital stock, except for regular quarterly dividends on
the Parent Common Stock, (iii) any split, combination or reclassification
of any of its capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iv) any damage,
destruction or loss, whether or not covered by insurance, that has had or
would have a material adverse effect on Parent, (v) (x) any granting by
Parent or any of its subsidiaries to any executive officer or other key
employee of Parent or any of its Significant Subsidiaries of any increase
in compensation (except for normal increases in the ordinary course of
business consistent with past practice or as required under any employment
agreement in effect as of the Balance Sheet Date) or (y) any granting by
Parent or any of its Significant Subsidiaries to any such executive officer
or key employee of any increase in severance or termination pay (except as
was required under any employment, severance or termination agreement in
effect as of the Balance Sheet Date), (vi) any damage, destruction or loss,
whether or not covered by insurance, that has had or would have a material
adverse effect on Parent, or (vii) except as required by a change in
generally accepted accounting principles, any change in accounting methods,
principles or practices by Parent materially affecting the basis of
presenting or method of determining its results of operations, assets,
liabilities or businesses.
(i) Litigation. There is no suit, action or proceeding pending, and
Parent has not received written notification threatening any suit, action
or proceeding, against or affecting Parent or any of its subsidiaries
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that individually or in the aggregate could (i) have a material adverse
effect on Parent or (ii) prevent the consummation of any of the
transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator
outstanding against Parent or any of its subsidiaries having, or which,
insofar as reasonably can be foreseen, in the future would have, any effect
referred to in clause (i) or (ii) of this sentence.
(j) ERISA and Other Compensation Matters. (i) Except as will not have
a material adverse effect on Parent, all Plans covering employees or former
employees of Parent or any of its subsidiaries ("Parent Employees") have
been administered according to their terms and, to the extent subject to
ERISA, are in compliance with ERISA. Each Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA ("Parent
Pension Plan") and which is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from the
Service, and Parent is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. Neither Parent nor
any of its subsidiaries or Parent ERISA Affiliates (as defined below) has
engaged in a transaction with respect to any Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
subject Parent or any of its subsidiaries or Parent ERISA Affiliates to a
tax or penalty imposed by either Section 4975 of the Code or Section 502(i)
of ERISA which would have a material adverse effect on Parent. Neither
Parent nor any of its subsidiaries or Parent ERISA Affiliates has
contributed or been required to contribute to any multiemployer plan.
(ii) No liability under Subtitles C or D of Title IV of ERISA has
been or is expected to be incurred by Parent or any of its subsidiaries or
Parent ERISA Affiliates with respect to any ongoing, frozen or terminated
Plan, currently or formerly maintained by any of them, or the Plan of any
person which is considered one employer with Parent under Section 4001 of
ERISA or Section 414 of the Code (a "Parent ERISA Affiliate") which would
have a material adverse effect on Parent.
(iii) All contributions required to be made and all contributions
accrued as of the Balance Sheet Date under the terms of any Plan for which
Parent or any of its subsidiaries or Parent ERISA Affiliates may have
liability have been timely made or have been reflected on the most recent
audited balance sheet included in the Filed Parent SEC Documents. Neither
any Parent Pension Plan nor any single-employer plan of Parent or any of
its subsidiaries or Parent ERISA Affiliates has incurred an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section
412 of the Code or Section 302 of ERISA which would have a material adverse
effect on Parent. Neither Parent nor any of its subsidiaries has provided,
or is required to provide, security to any Parent Pension Plan or to any
Plan of a Parent ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(iv) Neither Parent nor any of its subsidiaries has any obligations
for retiree health and life benefits under any Plan, except as set forth in
the Parent Disclosure Schedule, which would have a material adverse effect
on Parent.
(v) The execution and delivery of this Agreement do not, and the
performance of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any of the Parent's Compensation and
Benefit Plans that will or may result in any payment (whether of severance
or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee of Parent or any of its subsidiaries or Parent
ERISA Affiliates which would have a material adverse effect on Parent.
(vi) There is no contract, agreement, plan or arrangement covering
any employee or former employee of Parent or any of its subsidiaries or
Parent ERISA Affiliates that, individually or collectively, could give
rise as a result of the transactions contemplated by this Agreement to the
payment of any amount that would not be deductible pursuant to the terms
of Section 162(a)(1) or 280G of the Code.
(vii) There has been no amendment to, written interpretation or
announcement (whether or not written) by Parent or any of its subsidiaries
or Parent ERISA Affiliates relating to, or change in employee participation
or coverage under, any of the Parent's Compensation and Benefit Plans which
would
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increase materially above the level of the expense incurred in respect
thereof for the fiscal year ended on the Balance Sheet Date.
(k) Voting Requirements. The affirmative vote at the Parent
Stockholders Meeting of the holders of a majority of the votes represented
by the outstanding shares of Parent Common Stock (the "Parent Stockholder
Approval") is the only vote of the holders of any class or series of
Parent's capital stock necessary to approve the issuance of Parent Series A
Common Stock upon effectiveness of the Merger.
(l) Brokers. No broker, investment banker, financial advisor or other
person, other than Furman, Selz LLC, the fees and expenses of which will be
paid by Parent, is entitled to any broker's, finders, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of Parent or Sub.
(m) Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby and has engaged in no
other business other than incident to its creation and this Agreement and
the transactions contemplated hereby.
(n) Taxes. Each of Parent and its subsidiaries has timely filed (or
has had timely filed on its behalf), or will file or cause to be timely
filed, all material Tax Returns required by applicable law to be filed by
it prior to or as of the Effective Time. All such Tax Returns are, or will
be at the time of filing, true, complete and correct in all material
respects. Each of Parent and its subsidiaries has paid (or has had paid on
its behalf), or where payment is not yet due, has established (or has had
established on its behalf and for its sole benefit and recourse), or will
establish or cause to be established on or before the Effective Time, an
adequate accrual for the payment of, all Taxes due with respect to any
period ending prior to or as of the Effective Time, except for Taxes which
would not, individually or in the aggregate, have a material adverse effect
on Parent.
(o) Compliance with Applicable Laws. Each of Parent and its
subsidiaries is in compliance with all applicable statutes, laws,
ordinances, rules, regulations, judgments, decrees and orders of any
Governmental Entity applicable to its business and operations, except for
possible noncompliance that would not, individually or in the aggregate,
have a material adverse effect on Parent.
(p) Labor. Since the Balance Sheet Date, as of the date of this
Agreement, there has not been any amendment in any material respect by
Parent or any of its subsidiaries of any Collective Bargaining Agreement to
which it is a party or otherwise bound. There is no labor strike, labor
dispute, work slowdown, labor stoppage or lockout actually pending, and
Parent has received no written notice of any threatened labor strike, labor
dispute, work slowdown, labor stoppage or lockout, against Parent or any of
its subsidiaries, nor are there, to the knowledge of Parent, any
organizational efforts presently being made involving any of the
unorganized employees of Parent or any of its subsidiaries which in any
such case or all such cases together would have a material adverse effect
on Parent.
(q) Rights Agreement. Parent has taken, and as soon as possible after
the date hereof, the Parent Rights Agent will take, all actions necessary
to amend the Parent Rights Agreement, or the Board of Directors of Parent
has taken other action under the Parent Rights Agreement, to the extent
necessary to ensure that neither the execution and delivery of this
Agreement or the Parent Stockholder Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will cause the "Rights" to
become exercisable, cause the Company or any or all of the Company
Significant Stockholders to become an "Acquiring Person" or result in a
"Distribution Date" with respect to the "Rights", in each case as defined
in the Parent Rights Agreement.
(r) Environmental Matters. (i) Except for such matters that, alone or
in the aggregate, would not have a material adverse effect on Parent:
(1) Parent and its subsidiaries have complied with all applicable
Environmental Laws; (2) the properties currently owned or operated by
Parent and its subsidiaries (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances; (3) the properties formerly owned or operated by Parent or its
subsidiaries were not contaminated with
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Hazardous Substances during the period of ownership or operation by Parent
or any of its subsidiaries; (4) neither Parent nor any of its subsidiaries
is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (5) neither Parent nor any of
its subsidiaries has been associated with any release or threat of release
of any Hazardous Substance; (6) neither Parent nor any of its subsidiaries
has received any notice, demand, letter, claim or request for information
alleging that Parent or any of its subsidiaries may be in violation of or
liable under any Environmental Law; (7) neither Parent nor any of its
subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; (8) there are no circumstances or conditions involving Parent
or any of its subsidiaries that could reasonably be expected to result in
any claims, liability, investigations, costs or restrictions on the
ownership, use or transfer of any property of Parent or its subsidiaries
pursuant to any Environmental Law; (9) none of the properties of Parent or
its subsidiaries contains any underground storage tanks,
asbestos-containing material, lead-based products, or polychlorinated
biphenyls; and (10) neither Parent nor any of its subsidiaries has engaged
in any activities involving the generation, use, handling or disposal of
any Hazardous Substances.
(s) Licenses. (i) Each of Parent and its subsidiaries has all permits,
licenses, waivers and authorizations (other than FCC Licenses, but
including licenses, authorizations and certificates of public convenience
and necessity from applicable state and local authorities), which are
necessary for it to conduct its business, including its television
broadcast operations, in the manner in which they are presently being
conducted (collectively, the "Parent Licenses") other than any Parent
Licenses the failure of which to have would not, individually or in the
aggregate, have a material adverse effect on Parent. Each of Parent and its
subsidiaries is in compliance with the terms of all Parent Licenses (other
than FCC Licenses), except for such failures so to comply which would not
have a material adverse effect on Parent. Parent and its subsidiaries have
duly performed their respective obligations under such Parent Licenses,
except for such non-performance as would not have a material adverse effect
on Parent. There is no pending or, to the knowledge of Parent, threatened
application, petition, objection or other pleading with any Governmental
Entity other than the FCC which challenges or questions the validity of, or
any rights of the holder under, any Parent License (other than an FCC
License), except for such applications, petitions, objections or other
pleadings, that would not, individually or in the aggregate, have a
material adverse effect on Parent.
(ii) Except as does not materially jeopardize the operation by Parent
or the applicable subsidiary of Parent of any of the Parent Stations (as
defined in Section 8.03) to which the FCC Licenses apply: (v) Parent and
those of its subsidiaries that are required to hold FCC Licenses, or that
control FCC Licenses, are financially qualified and, to the knowledge of
Parent, are otherwise qualified to hold such FCC Licenses or to control
such FCC Licenses, as the case may be; (w) Parent and those of its
subsidiaries that are required to hold FCC Licenses hold such FCC Licenses;
(x) Parent is not aware of any facts or circumstances relating to Parent or
any of its subsidiaries that would prevent the FCC's granting the requisite
consent to the FCC Application; (y) each Parent Station is in material
compliance with all FCC Licenses held by it; and (z) there is not pending
or, to the knowledge of Parent, threatened any application, petition,
objection or other pleading with the FCC or other Governmental Entity which
challenges the validity of, or any rights of the holder under, any FCC
License held by Parent or any of its subsidiaries, except for rule making
or similar proceedings of general applicability to persons engaged in
substantially the same business conducted by the Parent Stations.
(t) Intellectual Property. Parent and its subsidiaries own or have
rights to use (i) all material computer software utilized in the conduct of
their respective businesses and (ii) all names and service marks used by
Parent or any such subsidiary and, to the knowledge of Parent, such use
does not conflict with any rights of others with respect thereto, except
for such failures to own or have rights to use and such conflicts that have
not had and would not have a material adverse effect on Parent.
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(u) Material Agreements. (i) Neither Parent nor any of its
subsidiaries is in material breach of any network affiliation agreement for
any Parent Station (a "Parent Network Agreement").
(ii) Neither Parent nor any of its subsidiaries is in material breach
of any agreement other than a Parent Network Agreement, except for breaches
which would not, individually or in the aggregate, have a material adverse
effect on Parent.
(v) Financing. At the Effective Time, Parent and Sub will have
available all of the funds necessary (i) to satisfy their respective
obligations under this Agreement, and (ii) to pay all the related fees and
expenses in connection with the foregoing.
(w) FCC Application. Parent and Sub are legally and financially
qualified and, to Parent's knowledge, otherwise qualified to hold, or
control the entities which hold or will hold, the FCC Licenses currently
held or controlled by the Company or to be held by Parent, Sub or any
person under their control after the Effective Time, and are not aware of
any facts or circumstances that might prevent or delay prompt consent to or
waivers for the FCC Application.
(x) Opinion of Financial Advisor. Parent has received the opinion of
Furman Selz LLC, dated the date of this Agreement, to the effect that, as
of such date, the Aggregate Merger Consideration is fair to Parent's
stockholders from a financial point of view, a signed copy of which has
been delivered to the Company.
(y) No Ownership of Company Common Stock. Neither Parent nor any of
its subsidiaries owns any shares of Company Common Stock.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by the
Company. Prior to the Effective Time, except as contemplated by this Agreement
(including Section 4.01(c)), the Company shall, and shall cause each of its
subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees and others having business dealings
with them to the end that their goodwill and ongoing businesses shall not be
impaired at the Effective Time. Without limiting the generality of the
foregoing, prior to the Effective Time, except as contemplated by this Agreement
(including Section 4.01(c)), without the prior, express written consent of
Parent (which may not be unreasonably delayed or withheld), the Company shall
not, and shall not permit any of its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent, (y) 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 for shares of its capital stock or (z)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the
issuance of Company Common Stock upon the exercise of Company Employee
Stock Options outstanding on the date of this Agreement in accordance with
their present terms);
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(iii) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, limited liability company,
partnership, joint venture, association or other business organization or
division thereof, or (y) any assets that, individually or in the
aggregate, are material to the Company and its subsidiaries taken as a
whole;
(v) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets,
except, in any such case, in the ordinary course of business consistent
with past practice, and except transactions between a wholly owned
subsidiary of the Company and the Company or another wholly owned
subsidiary of the Company;
(vi) (x) incur any indebtedness, except for borrowings (net of cash,
cash equivalents and marketable securities held by the Company or any of
its subsidiaries) not in excess of $175,000,000 at any one time outstanding
incurred in the ordinary course of business consistent with past practice,
or (y) except in the ordinary course of business consistent with past
practice, make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct
or indirect wholly owned subsidiary of the Company;
(vii) make or agree to make any new capital expenditure or capital
expenditures, except in the ordinary course of business consistent with
past practice;
(viii) make any material Tax election or settle or compromise any
material Tax liability;
(ix) except in the ordinary course of business or except as would
not have a material adverse effect on the Company, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary is a party or waive, release or assign any material rights or
claims thereunder;
(x) make any material change to its accounting methods, principles
or practices, except as may be required by generally accepted accounting
principles;
(xi) except as required to comply with applicable law and except as
necessary to comply with Section 5.13, (w) adopt, enter into, terminate or
amend any of the Company's Compensation and Benefit Plans or other
arrangement for the benefit or welfare of any current or former director,
officer or employee, (x) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or employee (except
for normal increases, promotions or bonuses in the ordinary course of
business consistent with past practice), (y) pay any benefit not provided
for under any of the Company's Compensation and Benefit Plans, or (z)
except as permitted in clause (x), grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or of the
Company's Compensation and Benefit Plans (including the grant of stock
options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
restrictions in any of the Company's Compensation and Benefit Plans or
agreement or awards made thereunder);
(xii) enter into any television program or newspaper publishing
production or distribution arrangements, including joint venture
arrangements, with a term in excess of one year; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by Parent. (i) Prior to the Effective Time, without
the prior, express written consent of the Company (which may be given or
withheld in its sole discretion), Parent shall not, and shall not permit any of
its subsidiaries to:
(x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, the Parent capital stock, other than quarterly
dividends paid in accordance with past practice;
(y) split, combine or reclassify the Parent capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for the Parent Series A Common Stock; or
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(z) authorize, or commit or agree to take, any of the foregoing
actions.
(ii) Prior to the Effective Time, Parent will not, without the consent
of the Company (which will not be unreasonably withheld or delayed),
acquire or agree to acquire another publicly held company, or another
person, by way of purchase, merger or consolidation, if, in connection with
such acquisition, merger or consolidation, Parent would issue shares of
Parent Common Stock in an aggregate amount exceeding 10% of the aggregate
amount of shares of Parent Common Stock outstanding on the date of
consummation.
(c) Control of the Stations and Publishing Operations. Prior to the
Effective Time, control of the Company's television broadcast operations, along
with all of the Company's other operations, shall remain with the Company. The
Company, Parent and Sub acknowledge and agree that neither Parent nor Sub nor
any of their respective employees, agents or representatives, directly or
indirectly, shall, or have any right to, control, direct or otherwise supervise,
or attempt to control, direct or otherwise supervise, such broadcast and other
operations, it being understood that supervision of all programs, equipment,
operations and other activities of such broadcast and other operations shall be
the sole responsibility, and at all times prior to the Effective Time remain
within the complete control and discretion, of the Company, subject to the terms
of Section 4.01(a).
(d) Advisement of Changes. The Company and Parent shall promptly advise the
other party orally and in writing upon its becoming aware of (i) any
representation or warranty made by it in this Agreement becoming untrue or
inaccurate in any material respect, (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or (iii) any change or
event which would have a material adverse effect on such party or on the ability
of the conditions set forth in Article VI to be satisfied; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
SECTION 4.02. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of any
takeover proposal (as defined in Section 8.03), (ii) enter into any agreement
providing for any takeover proposal or (iii) participate in any negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action knowingly to facilitate the making of, any takeover
proposal; provided, however, that if, at any time prior to the receipt of the
Company Stockholder Approval, the Board of Directors of the Company determines
in good faith that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, as advised
by outside counsel, the Company may, with respect to an actual or potential
unsolicited takeover proposal and subject to compliance with Section 4.02(c),
(x) furnish non-public information with respect to the Company to such person
making such actual or potential unsolicited takeover proposal and (y)
participate in negotiations regarding such proposal.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Sub, the approval or recommendation by such Board of
Directors or any such committee of this Agreement or the Merger, (ii) approve or
recommend or propose to approve or recommend, any takeover proposal or (iii)
enter into any agreement with respect to any takeover proposal. Notwithstanding
the foregoing, the Board of Directors of the Company may approve or recommend
(and, in connection therewith, withdraw or modify its approval or recommendation
of this Agreement or the Merger) a superior proposal (as defined in Section
8.03) if the Board of Directors of the Company shall have determined in good
faith that it is necessary, in order to comply with its fiduciary duties to the
Company's stockholders under applicable law, as advised by outside counsel, to
approve or recommend such superior proposal, and have given notice to Parent
advising Parent that the Company has received such superior proposal from a
third party, specifying the material terms and conditions (including the
identity of the third party), and specifically stating that the Company intends
to approve or recommend such superior proposal in accordance with this Section
4.02(b).
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(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 4.02, the Company shall promptly advise Parent
orally and in writing of any request for information or of any takeover proposal
or any inquiry with respect to or which could reasonably be expected to lead to
any takeover proposal which, in any such case, is either (i) in writing or (ii)
made to any executive officer or director of the Company (and brought to the
attention of the chief executive officer of the Company), the identity of the
person making any such request (to the extent practicable), takeover proposal or
inquiry and all the material terms and conditions thereof. The Company will keep
Parent fully informed of the status and details (including amendments or
proposed amendments) of any such request, takeover proposal or inquiry.
Nothing contained in this Section 4.02 shall prohibit the Company or its
Board of Directors from (i) taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 of the Exchange Act or (ii) making any disclosure to
its stockholders that in the judgment of its Board of Directors, as advised by
its outside legal counsel, is required under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Proxy Statement;
Stockholders Meetings. (a) As soon as practicable after execution and delivery
of this Agreement, the Company and Parent shall prepare and the Company shall
file with the SEC the Proxy Statement and Parent shall prepare and file with the
SEC the Form S-4, in which the Proxy Statement will be included as a prospectus.
The Company and Parent shall each use all reasonable efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. The Company will use all reasonable efforts to cause the Proxy
Statement to be mailed to the Company's stockholders and Parent will use all
reasonable efforts to cause an appropriate proxy statement to be mailed to
Parent's stockholders, in each case as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. Parent shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or filing a general consent to service of process) required
to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of shares of Parent Series A Common Stock in the
Merger and the Company shall furnish all information concerning the Company and
the holders of Company Common Stock and rights to acquire Company Common Stock
pursuant to the Company Stock Plans as may be reasonably requested in connection
with any such action.
(b) The Company will, as soon as reasonably practicable following the date
of this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Stockholders Meeting") for the purpose of obtaining
the Company Stockholder Approval. Without limiting the generality of the
foregoing but subject to Section 4.02(b), the Company agrees that its
obligations pursuant to the first sentence of this Section 5.01(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any takeover proposal. The Company will, through
its Board of Directors, recommend to its stockholders the approval and adoption
of this Agreement and the transactions contemplated hereby, subject to Section
4.02(b).
(c) Parent will, as soon as reasonably practicable after the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Parent Stockholders Meeting") for the purpose of obtaining
the Parent Stockholder Approval. Parent will, through its Board of Directors,
recommend to its stockholders that such stockholders approve the issuance of
shares of Parent Series A Common Stock upon consummation of the Merger.
(d) The Company and Parent will use all reasonable efforts to hold the
Company Stockholders Meeting and the Parent Stockholders Meeting as soon as
practicable after the execution and delivery of this Agreement.
SECTION 5.02. Letters of the Company's Accountants. The Company shall use
all reasonable efforts to cause to be delivered to Parent a letter of KPMG Peat
Marwick LLP, the Company's independent public accountants, dated a date within
two business days before the date on which the Form S-4 shall become
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effective, addressed to Parent, in form reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
SECTION 5.03. Letters of Parent's Accountants. Parent shall use all
reasonable efforts to cause to be delivered to the Company a letter of Ernst &
Young LLP, Parent's independent public accountants for the relevant periods
prior to the date hereof, dated a date within two business days before the date
on which the Form S-4 shall become effective, addressed to the Company, in form
reasonably satisfactory to the Company and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
SECTION 5.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreement (as defined below), Parent and the Company shall, and
shall cause each of its subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of the other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their properties,
books, contracts, commitments, personnel and records and, during such period
(subject to existing confidentiality and similar non-disclosure obligations and
the preservation of applicable privileges), Parent and the Company shall, and
shall cause each of its subsidiaries to, furnish promptly to the other party (a)
a copy of each material report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of Federal
or state securities laws and (b) all other information concerning its business,
properties and personnel as the other party may reasonably request. Each party
will hold, and will cause its officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information in accordance with the terms of the Confidentiality
Agreement, dated as of August 27, 1996, between Parent and the Company (the
"Confidentiality Agreement").
SECTION 5.05. Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions, waivers, consents, licenses and approvals from Governmental Entities
and the making of all necessary registrations and filings (including filings
with Governmental Entities) and the taking of all reasonable steps as may be
necessary to obtain an approval, waiver or license from, or to avoid an action
or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the Stockholder Agreements, or the consummation of
the transactions contemplated by this Agreement, including seeking to have any
stay or temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
carry out fully the purposes of, this Agreement. Without limiting the foregoing,
the Company and Parent shall use all reasonable efforts and cooperate in
promptly preparing and filing as soon as practicable, and in any event within 15
business days after executing this Agreement, (i) notifications under the HSR
Act and (ii) the FCC Application and related filings in connection with the
Merger and the other transactions contemplated hereby, and to respond as
promptly as practicable to any inquiries or requests received from the Federal
Trade Commission (the "FTC"), the Antitrust Division of the United States
Department of Justice (the "Antitrust Division"), the FCC and any other
Governmental Entities for additional information or documentation and to respond
as promptly as practicable to all inquiries and requests received from any State
Attorney General or other Governmental Entity in connection with antitrust
matters or matters relating to the FCC Application. Each of Parent, Sub and the
Company, to the extent applicable, further agrees to file contemporaneously with
the filing of the FCC Application any requests for waivers of applicable FCC
rules or rules or regulations of other Governmental Entities as may be required,
to expeditiously prosecute such waiver requests and to diligently submit any
additional information or amendments for which the FCC or any other relevant
Governmental Entity may ask with respect to such wavier requests. In furtherance
of the foregoing,
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Parent and Sub will agree to seek a temporary waiver (not more than 12 months in
duration) of the FCC's mass media ownership rules (the "Temporary Waiver") to
allow for the disposition of the assets comprising the broadcast station
identified in Schedule 5.05 (the "Schedule 5.05 Assets") to the extent that,
under the FCC's mass media ownership rules, the Schedule 5.05 Assets could not
be held in common control with any Company Station following the Effective Time.
Parent and Sub further covenant that, prior to the Effective Time, they shall
not acquire any new or increased "attributable interest," as defined in the FCC
rules, in any media property ("Further Media Interest"), which Further Media
Interest could not be held in common control with any Company Station by Parent
or Sub following the Effective Time (including by virtue of the FCC's multiple
ownership limits), without the prior written consent of the Company.
Notwithstanding anything to the contrary contained in this Section 5.05, no
party shall be obligated to take any action pursuant to this Section 5.05 (other
than disposing of the Schedule 5.05 Assets) if the taking of such action or the
obtaining of any waiver, consent, approval or exemption would have a material
adverse effect on the Company or Parent.
(b) In connection with, but without limiting, the foregoing, the Company
and its Board of Directors shall (i) use all reasonable efforts to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, the Stockholder Agreements, the Merger or any of
the other transactions contemplated by this Agreement and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to this
Agreement, the Stockholder Agreements, the Merger or any of the transactions
contemplated by this Agreement, use all reasonable efforts to ensure that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
(c) In connection with, but without limiting, the foregoing, Parent and Sub
shall use all reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the transactions contemplated by this Agreement under
any antitrust, competition or trade regulatory laws, rules or regulations of any
Governmental Entity ("Antitrust Laws") or any laws, rules or regulations of the
FCC or other Governmental Entities relating to the broadcast, newspaper, mass
media or communications industries (collectively, "Communications Laws") and
will take all necessary and proper steps (excluding, however, agreeing to hold
separate, to place in trust and/or to divest any of the businesses, product
lines or assets ("Divestitures") of (1) the Company or any of its subsidiaries
or affiliates at any time after the Effective Time or (2) Parent or any of its
subsidiaries or affiliates, except for the Divestiture of the Schedule 5.05
Assets (pursuant to the Temporary Waiver, if necessary) or Divestitures
involving assets having a value of $50,000,000 or less) as may be reasonably
required (i) for securing the termination of any applicable waiting period on or
before the Termination Date (as defined in Section 7.01) or the grant of the FCC
Application on or before the Termination Date under the Antitrust Laws or
Communications Laws or (ii) by any domestic or foreign court or similar
tribunal, in any suit brought by a private party or Governmental Entity
challenging the transactions contemplated by this Agreement as violative of any
Antitrust Law or Communications Law, in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order or other
order that has the effect of preventing the consummation of any of such
transactions. The entry by a court, in any suit brought by a private party or
Governmental Entity challenging the transactions contemplated by this Agreement
as violative of any Antitrust Law or Communications Law, of any order or decree
permitting the transactions contemplated by this Agreement but requiring
Divestiture of the Schedule 5.05 Assets, shall not be deemed a failure to
satisfy the conditions specified in Section 6.01(c) or (d).
(d) Each of Parent and the Company shall promptly provide the other with a
copy of any inquiry or request for information (including notice of any oral
request for information), pleading, order or other document either party
receives from any Governmental Entities with respect to the matters referred to
in this Section 5.05.
(e) Parent and Sub agree to assume and become bound by the terms of any of
the Company Network Agreements if and to the extent required thereby in
connection with the transactions contemplated by this Agreement.
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SECTION 5.06. Indemnification and Insurance. (a) Parent and Sub agree that
all rights to indemnification for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors,
officers, employees or agents of the Company and its subsidiaries (the
"Indemnified Parties") as provided in their respective certificates of
incorporation or by-laws (or comparable charter or organizational documents) or
otherwise shall survive the Merger and shall continue in full force and effect
in accordance with their terms for a period of not less than six years from the
Effective Time. From and after the Effective Time, Parent shall guarantee the
performance by the Surviving Corporation of its obligations referred to in the
immediately preceding sentence, provided that, in the event any claim or claims
are asserted or made within such six-year period, all rights to indemnification
in respect of any such claim or claims, and Parent's guarantee with respect
thereto, shall continue until final disposition of any and all such claims. From
and after the Effective Time, Parent also agrees to indemnify all Indemnified
Parties to the fullest extent permitted by applicable law with respect to all
acts and omissions arising out of such individuals' services as officers,
directors, employees or agents of the Company or any of its subsidiaries or as
trustees or fiduciaries of any plan for the benefit of employees or directors
of, or otherwise on behalf of, the Company or any of its subsidiaries, occurring
at or prior to the Effective Time, including the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, from and after
the Effective Time, in the event any such Indemnified Party is or becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter, including the transactions contemplated by this
Agreement, occurring prior to or at the Effective Time, Parent shall pay as
incurred such Indemnified Party's reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith.
From and after the Effective Time, Parent shall pay all reasonable expenses,
including reasonable attorneys' fees, that may be incurred by any Indemnified
Party in enforcing the indemnity and other obligations provided for in this
Section 5.06.
(b) Parent will cause to be maintained, for a period of not less than six
years from the Effective Time, the Company's current directors' and officers'
insurance and indemnification policy to the extent that it provides coverage for
events occurring prior to or at the Effective Time ("D&O Insurance"), provided
that Parent shall not be obligated to pay annual premiums for such D&O Insurance
in excess of 200% of the last annual premium paid prior to the date of this
Agreement (the amount equal to such percentage of such last annual premium, the
"Maximum Premium"); provided, however, that Parent may, in lieu of maintaining
such existing D&O Insurance as provided above, cause coverage to be provided
under any policy maintained for the benefit of Parent or any of its
subsidiaries, so long as the terms thereof are no less advantageous to the
intended beneficiaries thereof than the existing D&O Insurance. If the existing
D&O Insurance expires, is terminated or cancelled or is not available during
such six-year period, Parent will use all reasonable efforts to cause to be
obtained as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions not materially less advantageous to the covered persons than the
existing D&O Insurance. The Company represents to Parent that the Maximum
Premium is $458,726.
SECTION 5.07. Fees and Expenses. (a) All fees and expenses incurred in
connection with the Merger, this Agreement, the Stockholder Agreements and the
transactions contemplated by this Agreement and the Stockholder Agreements shall
be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated, except that each of Parent and the Company shall bear and pay
one-half of the costs and expenses incurred in connection with the filing,
printing and mailing of the Form S-4, the Proxy Statement and Parent's proxy
statement referred to in Section 5.01(a).
(b) The Company shall pay, or cause to be paid, in same day funds to Parent
$50,000,000 (the "Termination Fee") upon demand if (i) the Company or Parent
terminates this Agreement pursuant to Section 7.01(c) or (ii) if the Company or
Parent terminates this Agreement pursuant to Section 7.01(b)(i); provided,
however, that, with respect to clause (ii) of this paragraph (b) only, the
Termination Fee shall not be payable unless and until (x) any Person (other than
Parent) (an "Acquiring Party") has acquired, by purchase, merger, consolidation,
sale, assignment, lease, transfer or otherwise, in one transaction or any
related series of transactions within 12 months after such termination, a
majority of the voting power of the outstanding securities of the Company or all
or substantially all of the assets of the Company or (y) there has
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been consummated within 12 months after such termination a consolidation, merger
or similar business combination between the Company and an Acquiring Party in
which stockholders of the Company immediately prior to such consolidation,
merger or similar transaction do not own securities representing at least 50% of
the outstanding voting power of the surviving entity (or, if applicable, any
entity in control of such Acquiring Party) of such consolidation, merger or
similar transaction immediately following the consummation thereof, in either of
cases (x) or (y) involving a consideration for Company Common Stock (including
the value of any stub equity) in excess of the Aggregate Merger Consideration;
and provided further, that, with respect to clause (ii) of this paragraph (b)
only, no such Termination Fee shall be payable unless there shall have been made
public prior to the Company Stockholders Meeting a takeover proposal involving
consideration for Company Common Stock (including the value of any stub equity)
in excess of the Aggregate Merger Consideration. The Company acknowledges that
the agreements contained in this Section 5.07(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent and Sub would not enter into this Agreement; accordingly, if the Company
fails promptly to pay the amount due pursuant to this Section 5.07(b) and, in
order to obtain such payment, Parent or Sub commences a suit which results in a
judgment against the Company for the Termination Fee, the Company shall pay to
Parent or Sub its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the Termination Fee at
the prime rate of Citibank, N.A. in effect on the date such payment was required
to be made.
(c) Transfer and Gains Taxes and Certain Other Taxes. Parent and Sub agree
that the Surviving Corporation will pay all real property transfer, gains and
other similar taxes and all documentary stamps, filing fees, recording fees and
sales and use taxes, if any, and any penalties or interest with respect thereto,
payable in connection with consummation of the Merger without any offset,
deduction, counterclaim or deferment of the payment of the Aggregate Merger
Consideration.
SECTION 5.08. Public Announcements. Prior to the Closing Date, Parent and
Sub, on the one hand, and the Company, on the other hand, will use all
reasonable efforts to consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court order or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by the
parties.
SECTION 5.09. Affiliates. At least thirty days prior to the Closing Date,
the Company shall deliver to Parent a letter identifying all persons who are, at
the time the Merger is submitted for approval to the stockholders of the
Company, "affiliates" of the Company for purposes of Rule 145(c) under the
Securities Act. The Company shall use all reasonable efforts to cause each such
person to deliver to Parent, on or prior to the Closing Date, a written
agreement substantially in the form attached hereto as Exhibit B (each an
"Affiliate Agreement").
SECTION 5.10. NYSE Listing. Parent shall use all reasonable efforts to
cause the shares of Parent Series A Common Stock to be issued in the Merger to
be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
SECTION 5.11. Stockholder Litigation. The Company shall advise Parent of
all material developments in any stockholder litigation against the Company and
its directors relating to the transactions contemplated by this Agreement and
the Company shall not agree to any settlement of such litigation without
Parent's consent, which consent shall not be unreasonably withheld.
SECTION 5.12. Directorships of Parent. Promptly after the Effective Time,
Parent's Board of Directors will, in accordance with its customary nominating
procedures, elect Stephen Hamblett and three other current members of the
Company's Board of Directors to be directors of Parent. One of the undetermined
members will be elected as a Class III Director it, being agreed that the Board
of Directors of Parent will be under no obligation to renominate such person
thereafter. The second undetermined member will be elected as a Class I
Director, it being agreed that the Board of Directors of Parent will be under no
obligation to renominate such
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person thereafter. Replacements for Stephen Hamblett and the third undetermined
member will be either current members of the Board of Directors of the Company
or other persons resident in New England who in each case are familiar with
Rhode Island and the Providence Journal-Bulletin and its history. All three
undetermined members will resign from the Board of Directors of the Company upon
election to the Board of Directors of Parent (or, if later, at the Effective
Time). Through at least the Annual Meeting of Stockholders of Parent in 2000,
Parent's Board of Directors will cause James M. Moroney, Jr. to be included in
Parent's slate of nominees for election by the holders of Parent Common Stock,
if he is willing and able to serve. Parent's Board of Directors will cause
Stephen Hamblett and the third undetermined member and their respective
successors to be included in Parent's slate of nominees for election by the
holders of Parent Common Stock as long as each is willing and able to serve,
subject to the then existing normal retirement age policy of Parent's Board of
Directors.
SECTION 5.13. Stock Options. (a) At or immediately prior to the Effective
Time, each outstanding employee or director stock option to purchase shares of
Company Common Stock (a "Company Employee Stock Option") granted under any
employee or director stock option or compensation plan or arrangement of the
Company (each a "Company Stock Plan") shall be cancelled, and at the Effective
Time the Surviving Corporation shall pay to each holder of any such option,
whether or not then vested or exercisable, for each such Company Employee Stock
Option an amount of cash determined by multiplying (i) the excess, if any, of
the Per Share Cash Amount over the applicable exercise price of such Company
Employee Stock Option by (ii) the number of shares of Company Common Stock such
holder could have purchased (assuming full vesting of his Company Employee Stock
Option) had such holder exercised such Company Employee Stock Option in full
immediately prior to the Effective Time. Notwithstanding anything to the
contrary herein, if it is determined that compliance with any of the preceding
sentence may cause any individual subject to Section 16 of the Exchange Act to
become subject to the profit recovery provisions thereof, any Company Employee
Stock Options held by such individual may, if such individual so agrees, subject
to the proviso to this sentence, be cancelled or purchased, as the case may be,
at the Effective Time or at such later time as may be necessary to avoid
application of such profit recovery provisions and such individual will be
entitled to receive from the Surviving Corporation an amount in cash in respect
thereof equal to the product of (1) the excess, if any, of the Per Share Cash
Amount over the per share exercise price of such Company Employee Stock Option
and (2) the number of shares of Company Common Stock subject thereto immediately
prior to the Effective Time, provided that the parties hereto will cooperate,
including by providing alternate arrangements, so as to achieve the intent of
the foregoing without giving rise to such profit recovery.
(b) At the later of the Effective Time and the closing of the U.S. West
Merger (as defined in the Company S-1), each unit (a "Unit") outstanding under
the Company's Incentive Unit Plan shall be cancelled, and Parent shall pay to
each such holder for such Unit, whether or not then vested, an amount in cash
equal to the value of such Unit, as determined in accordance with the Incentive
Unit Plan, which value shall be consistent with the description of such Units
contained in the Company S-1.
(c) Prior to the Effective Time, the Company shall use all reasonable
efforts (i) to obtain any consents from holders of Company Employee Stock
Options and (ii) to make any amendments to the terms of such Company Stock Plans
that, in the case of either clause (i) or (ii), are necessary to give effect to
the transactions contemplated by Section 5.13(a). Notwithstanding any other
provision of this Section 5.13, payment may be withheld in respect of any
Company Employee Stock Option until necessary consents are obtained.
SECTION 5.14. Benefit Plans. Promptly after the Effective Time, Parent
shall cause the Surviving Corporation and its subsidiaries to provide Company
employees who are employees thereof or any of its subsidiaries with compensation
and employee benefit plans that are in the aggregate similar to the compensation
and Plans provided to similarly situated employees of Parent or its subsidiaries
who are not employees of the Company; provided, however, that employees of the
Company shall not be required to satisfy any additional copayment or other
deductible requirements in connection therewith; provided further, that this
sentence shall not apply to any employees of the Company or any of its
subsidiaries covered by a Collective Bargaining Agreement to which the Company
or any of its subsidiaries is a party or otherwise bound. For the purpose of
determining eligibility to participate in Plans, eligibility for benefit forms
and subsidies and the
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vesting of benefits under such Plans (including any pension, severance, 401(k),
vacation and sick pay), and for purposes of accrual of benefits under any
severance, sick leave, vacation and other similar employee benefit plans (other
than defined benefit pension plans), Parent shall give effect to years of
service (and for purposes of qualified and nonqualified pension plans, prior
earnings) with the Company or its subsidiaries, as the case may be, as if they
were with Parent or one of its subsidiaries. Parent shall also cause the
Surviving Corporation to assume and agree to perform the Company's obligations
under all employment, severance, consulting and other compensation contracts
between the Company or any of its subsidiaries and any current or former
director, officer or employee thereof. Nothing in this Section 5.14 shall be
construed or applied to restrict the ability of the Surviving Corporation to
establish such types and levels of compensation and benefits as it determines to
be appropriate or to modify or terminate compensation or benefit programs
adopted pursuant to the first sentence of this Section 5.14.
SECTION 5.15. Independent Governance Structure for the Company's Newspaper
Business. From and after the Effective Time, Newco's Board of Directors shall
consist of the existing Board of Directors of the Company (except that any such
directors other than Stephen Hamblett who are elected to the Board of Directors
of Parent shall resign from Newco's Board of Directors).
SECTION 5.16. Charitable Contributions. Shortly after the Effective Time,
Parent will (a) fund the Providence Journal Charitable Foundation in the amount
of $10,000,000 and (b) contribute an amount not to exceed $1,000,000 to the
University of Rhode Island as an endowment to the Institute for Reporting Marine
and Environmental Issues in memory of Michael P. Metcalf.
SECTION 5.17. Company Stockholder Agreements. On or before October 2, 1996,
those Company Significant Stockholders who have not executed the Company
Stockholder Agreement shall have executed the Company Stockholder Agreement and
those Parent Significant Stockholders who have not executed the Parent
Stockholder Agreement shall have executed the Parent Stockholder Agreement.
Subject to applicable law, the Company will use all reasonable efforts to
obtain, within ten days after the date of this Agreement, from all holders of
shares representing one percent or more of the outstanding Company Class B
Common Stock that have not executed the Company Stockholder Agreement,
stockholder agreements, in form and substance substantially similar to the
Company Stockholder Agreement, covering such holders' shares of Company Common
Stock.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of each of the following
conditions:
(a) Stockholder Approvals. The Company Stockholder Approval and the
Parent Stockholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) FCC Approvals. The FCC Application shall have been approved by the
FCC without any condition that would have a material adverse effect on
Parent; provided, however, that the approval of the FCC Application subject
to a condition that Parent or Sub divest the Schedule 5.05 Assets or divest
other assets having a value of $50,000,000 or less shall not be deemed to
have a material adverse effect on Parent; provided further, that this
condition shall not be deemed satisfied if and so long as there is a
significant risk that such approval of the FCC Application will not become
final (i.e., no longer subject to administrative or judicial review).
(d) Other Governmental Approvals. All other consents, authorizations,
orders and approvals of (or filings or registrations with) any Governmental
Entity (other than in respect of the FCC and under the HSR Act) required in
connection with the execution, delivery and performance of this Agreement
shall
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have been obtained or made, except for filing the Certificate of Merger and
any other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a
material adverse effect on Parent and the Company after the Effective Time.
(e) No Injunctions or Restraints. There shall not be in effect any (i)
decree, temporary restraining order, preliminary or permanent injunction or
other order entered, issued or enforced by any court of competent
jurisdiction or (ii) federal statute, rule or regulation enacted or
promulgated, in each case (i) or (ii) that prohibits the consummation of
the Merger. There shall not be in effect any state or local statute, rule
or regulation enacted or promulgated that prohibits the consummation of the
Merger and which would have a material adverse effect on Parent after the
Effective Time.
(f) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(g) NYSE Listing. The shares of Parent Series A Common Stock, issuable
to the Company's stockholders pursuant to this Agreement shall have been
approved for listing on the New York Stock Exchange, Inc. ("NYSE"), subject
to official notice of issuance.
(h) Tax Opinion. The Company and Parent shall have received from
Wachtell, Lipton, Rosen & Katz, special counsel to the Company, on the date
of the Proxy Statement and on the Closing Date, opinions, in each case
dated as of such respective dates and stating that the Merger will not have
an adverse impact on the qualification of the transactions consummated
pursuant to the Contribution and Assumption Agreement between the Company
and the Providence Journal Company, a Rhode Island corporation ("PJC"),
dated as of October 5, 1995, and the distribution of the Company Common
Stock to certain stockholders of PJC on October 5, 1995, as, respectively,
a reorganization within the meaning of Section 368(a) of the Code and a
tax-free distribution pursuant to the provisions of Section 355 of the
Code. In rendering such opinions, counsel for the Company shall be entitled
to rely upon representations of stockholders and officers of the Company
and officers of Parent, in each case reasonably satisfactory in form and
substance to such counsel.
SECTION 6.02. Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to satisfaction or
waiver of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Sections 3.01(c)(i), 3.01(t)(ii) and 3.01(v)(i)
shall be true and correct (except for de minimus inaccuracies), in each
case on the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date. All other representations and
warranties of the Company set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except (i) for
representations and warranties that are made as of a specific date (in
which case such representations and warranties shall be true and correct on
and as of such date, subject to the following clause (ii)) and (ii) for
inaccuracies in such representations and warranties that individually or in
the aggregate do not have a material adverse effect on the Company. Parent
shall have received a certificate dated the Closing Date and signed on
behalf of the Company by the chief financial officer of the Company to the
foregoing effects.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate dated the Closing Date signed on behalf
of the Company by the chief financial officer of the Company to such
effect.
(c) Tax Opinions. Parent shall have received from Gibson, Dunn &
Crutcher LLP, counsel to Parent, on the date of the Proxy Statement and on
the Closing Date, opinions, in each case dated as of such respective dates
and stating that the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and
that Parent, Sub and the Company will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinions, counsel for Parent shall be entitled to rely upon
representations of officers of
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Parent, Sub and the Company and representations of stockholders of the
Company, in each case reasonably satisfactory in form and substance to such
counsel.
(d) Network Consents. The Company shall have received a written
consent from each television network with which each of the Company
Stations is affiliated consenting to the transactions contemplated by this
Agreement, as and to the extent required by the terms of the applicable
Company Network Agreements, and the transferred Company Network Agreements
will be on terms reasonably satisfactory to Parent (it being understood
that terms not less favorable than the current terms thereof will be
satisfactory to Parent).
SECTION 6.03. Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Sub set forth in Sections 3.02(s)(ii) and 3.02(u)(i) shall be
true and correct (except for de minimus inaccuracies), in each case on the
date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date. All other representations and warranties of Parent and
Sub set forth in this Agreement shall be true and correct, in each case as
of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date, except (i) for representations and warranties
that are made as of a specific date (in which case such representations and
warranties shall be true and correct on and as of such date, subject to the
following clause (ii)) and (ii) for inaccuracies in such representations
and warranties that individually or in the aggregate do not have a material
adverse effect on Parent. Parent shall have received a certificate dated
the Closing Date and signed on behalf of Parent by the chief financial
officer of Parent to the foregoing effects.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the chief financial officer of Parent to such effect.
(c) Tax Opinions. The Company shall have received from Wachtell,
Lipton, Rosen & Katz, special counsel to the Company, on the date of the
Proxy Statement and on the Closing Date opinions, in each case dated as of
such respective dates and stating that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that Parent, Sub and the Company will each
be a party to that reorganization within the meaning of Section 368(b) of
the Code. In rendering such opinions, counsel for the Company shall be
entitled to rely upon representations of officers of Parent, Sub and the
Company and representations of stockholders of the Company, in each case
reasonably satisfactory in form and substance to such counsel.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Stockholder
Approval or the Parent Stockholder Approval:
(a) by mutual written consent of Parent, Sub and the Company; or
(b) by either Parent or the Company as follows:
(i) if the Company Stockholders Meeting (including as it may be
adjourned from time to time) shall have concluded without the Company
Stockholder Approval having been obtained;
(ii) if the Merger shall not have been consummated on or before
September 30, 1997 (the "Termination Date"), provided that the party
seeking to terminate this Agreement is not otherwise in material breach
of this Agreement;
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(iii) if any Governmental Entity shall have issued an order,
injunction, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such
order, injunction, decree, ruling or other action shall have become
final and nonappealable; or
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (x) would give rise to the failure of a condition set
forth in Section 6.02(a) or (b) or Section 6.03(a) or (b), as
applicable, and (y) cannot be cured by the Termination Date (provided
that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement);
(c) by Parent if the Board of Directors of the Company approves or
recommends a superior proposal, or by the Company if the Board of Directors
of the Company approves or recommends a superior proposal pursuant to
Section 4.02(b); or
(d) by Parent or the Company if the Parent Stockholders Meeting
(including as it may be adjourned from time to time) shall have concluded
without the Parent Stockholder Approval having been obtained.
SECTION 7.02. Effect of Termination. If this Agreement is terminated by
either the Company or Parent pursuant to Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Parent, Sub or the Company, (a) other than liabilities and
obligations under Section 3.01(m), Section 3.02(j), the last sentence of Section
5.04, Section 5.07, this Section 7.02 and Article VIII and (b) except that no
such termination shall relieve any party of any liability for damages resulting
from any material breach by such party of this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at
any time before or after the Company Stockholder Approval or the Parent
Stockholder Approval; provided, however, that after any such approval, there
shall not be made any amendment that by law requires further approval by the
stockholders of the Company or Parent without obtaining such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso to the first sentence of Section 7.03, waive compliance by the other
parties with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a 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. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties contained in this Agreement or in any document or
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
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SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses and telecopier numbers (or at such other address or telecopier number
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Michael J. McCarthy, Esq.
Senior Vice President and General Counsel
A.H. Belo Corporation
400 South Record Street
Dallas, Texas 75202
Telephone: (214) 977-6600
Telecopy: (214) 977-8209
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Telephone: (212) 351-4000
Telecopy: (212) 351-4035
Attention: E. Michael Greaney, Esq.
(b) if to the Company, to
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7000
Telecopy: (401) 277-7889
Attention: Stephen Hamblett and John L. Hammond, Esq.
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telephone: (212) 403-1218
Telecopy: (212) 403-2000
Attention: Daniel A. Neff, Esq.
and a copy to:
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02903
Telephone: (401) 274-9200
Telecopy: (401) 276-6611
Attention: Walter G.D. Reed, Esq.
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.
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(b) "Company Station" means each broadcast television station owned by
the Company or a subsidiary of the Company and shall not include any
broadcast television station operated by the Company or a subsidiary of the
Company pursuant to a local marketing agreement.
(c) "Compensation and Benefit Plans" means all bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
other stock plans, all employment or severance contracts, all other
employee benefit plans and any applicable "change of control" or similar
provisions in any plan, contract or arrangement which cover employees or
former employees of a person or any of its ERISA Affiliates and all other
benefit plans, contracts or arrangements (regardless of whether they are
funded or unfunded or foreign or domestic) covering employees or former
employees of a person or any of its ERISA Affiliates, including "employee
benefit plans" within the meaning of Section 3(3) of ERISA.
(d) "FCC License" means any permit, license, waiver or authorization
that a person is required by the FCC to hold in connection with the
operation of its business.
(e) "indebtedness" means, with respect to any person, without
duplication, (i) all obligations of such person for borrowed money, (ii)
all obligations of such person evidenced by bonds, debentures, notes or
similar instruments, (iii) all obligations of such person under conditional
sale or other title retention agreements relating to property purchased by
such person, and (iv) all guarantees of such person of any indebtedness of
any other person.
(f) "Parent Station" means a broadcast television station owned by
Parent or a subsidiary of Parent and shall not include any broadcast
television station operated by Parent or a subsidiary of Parent pursuant to
a local marketing agreement.
(g) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(h) "material adverse change" or "material adverse effect" means, when
used in connection with the Company or Parent, any change or effect that is
or would be materially adverse to the business, operations or condition
(financial or otherwise) of such party and its subsidiaries taken as a
whole.
(i) "Significant Subsidiary" means (i) with respect to the Company,
each of Mountain States Broadcasting, Inc., King Holding Corp., Providence
Journal Broadcasting Corp., King Broadcasting Company, Journal Broadcasting
of Charlotte, Inc., Journal Broadcasting of Kentucky, Inc. and Journal
Broadcasting of New Mexico, Inc. and (ii) with respect to Parent, The
Dallas Morning News, Inc., Owensboro Messenger-Inquirer, Inc.,
Bryan-College Station Eagle, Inc., Great Western Broadcasting Corp.,
KHOU-TV, Inc., KOTV, Inc., Third Avenue Television, Inc., WFAA-TV, Inc.,
WVEC Television, Inc. and WWL-TV, Inc.
(j) a "subsidiary" of any person means another person, an amount of
the voting securities or other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
securities or interests, 50% or more of the equity interests of which) is
owned directly or indirectly by such first person.
(k) "superior proposal" means (i) a bona fide takeover proposal to
acquire, directly or indirectly, all or a substantial portion of the shares
of Company Common Stock then outstanding or all or substantially all the
assets of the Company and (ii) otherwise on terms which the Board of
Directors of the Company determines in its good faith judgment to be more
favorable to the Company's stockholders than the Merger after receipt of
the written advice of the Company's independent financial advisor.
(l) "takeover proposal" means any proposal for a merger, consolidation
or other business combination involving the Company or any of its
Significant Subsidiaries or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of, or
a substantial portion of the assets of, the Company or any of its
Significant Subsidiaries, other than the transactions contemplated by this
Agreement.
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(m) "Taxes" means all Federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
(n) "Tax Returns" means all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns and any amended tax return relating to Taxes.
SECTION 8.04. Interpretation. When a reference is made in this Agreement
to an Article, Section, subsection, Exhibit or Schedule, such reference shall be
to an Article or Section, subsection of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" and "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement. Headings of the Articles and Sections of this Agreement are for
the convenience of reference only, and shall be given no substantive or
interpretive effect whatsoever. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and assigns
and, in the case of an individual, to his or her heirs and estate, as
applicable.
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article II and Sections 5.06, 5.12 and 5.13(b), are not intended
to confer upon any person other than the parties any rights or remedies. The
Company Disclosure Schedule and the Parent Disclosure Schedule and all Exhibits
attached hereto are hereby incorporated herein and made a part hereof for all
purposes, as if fully set forth herein.
SECTION 8.07. 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 applicable principles of conflicts of
laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations under this
Agreement to Parent or to any direct wholly owned subsidiary of Parent, but no
such assignment shall relieve Sub of any of its obligations under this
Agreement. Any attempted assignment in violation of the preceding sentence shall
be void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
SECTION 8.09. Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement
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and to enforce specifically the terms and provisions of this Agreement in any
Federal court located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any Federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
SECTION 8.10. Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
A.H. BELO CORPORATION
By: /s/ ROBERT W. DECHERD
---------------------------------
Name: Robert W. Decherd
Title: Chairman of the Board,
President and Chief
Executive Officer
A H FINANCE COMPANY
By: /s/ ROBERT W. DECHERD
---------------------------------
Name: Robert W. Decherd
Title: President
THE PROVIDENCE JOURNAL COMPANY
By: /s/ STEPHEN HAMBLETT
---------------------------------
Name: Stephen Hamblett
Title: Chairman of the Board,
Chief Executive Officer
and Publisher
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AGREEMENT AND PLAN OF MERGER
LIST OF OMITTED EXHIBITS AND SCHEDULES
<TABLE>
<C> <S>
EXHIBITS:
A.1 Restated Certificate of Incorporation of [NEWCO]
A.2 Bylaws of The Providence Journal Company
B Form of Affiliate Letter
SCHEDULES:
3.01(b) List of Subsidiaries and Other Interests
3.01(c) Capital Structure
3.01(d) Corporate Authority; Noncontravention
3.01(h) Absence of Certain Changes or Events
3.01(i) Litigation
3.01(j) ERISA and Other Compensation Matters
3.01(q) Labor
3.01(s) Environmental Matters
3.01(t)(ii) Regulatory Matters
3.02(s) Licenses
5.05 Reasonable Efforts
</TABLE>
Pursuant to Regulation S-K, Item 601(b)(2), the Registrant hereby agrees to
furnish supplementally a copy of any of the foregoing omitted exhibits and
schedules to the Securities and Exchange Commission upon request.
<PAGE> 260
APPENDIX B
[Letterhead of Furman Selz LLC]
January 6, 1997
The Board of Directors
A.H. Belo Corporation
400 South Record
Dallas, TX 75202
Ladies and Gentlemen:
We understand that A. H. Belo Corporation ("BLC" or the "Company"), A H
Finance Company, a wholly-owned subsidiary of the Company ("Newco"), and The
Providence Journal Company ("PRJ") have entered into an Amended and Restated
Agreement and Plan of Merger, dated as of September 26, 1996, which has been
furnished to us (the "Agreement"), whereby, among other things, PRJ will be
merged with and into Newco in a transaction (the "Merger") in which, among other
things:
(a) Each share of PRJ's Class A Common Stock, par value $1.00 per share
(the "PRJ Class A Common Stock"), and Class B Common Stock, par value $1.00 per
share, (combined, the "PRJ Common Stock") issued and outstanding immediately
prior to the Effective Time (excluding any treasury shares, shares held directly
or indirectly by BLC and Dissenting Shares (as defined in the Agreement)) shall
be converted into:
(i) the right to receive a number of shares of Series A Common
Stock, $1.67 par value of BLC (the "BLC Series A Common Stock") equal to
the sum of (A) 0.5333 and (B) the quotient (calculated to the nearest
0.0001) of $12.33 divided by the Valuation Period Stock Price (such sum,
the "Exchange Ratio");
(ii) the right to receive in cash, without interest, the sum of (A)
$12.33 and (B) the product of 0.5333 and the Valuation Period Stock Price
(such sum, the "Per Share Cash Amount");
(iii) the right to receive 0.5333 shares of BLC Series A Common Stock
and $12.33 in cash, without interest (the "Mixed Consideration"); or
(iv) the right to receive a combination of shares of BLC Series A
Common Stock and cash determined in accordance with the proration
procedures as described in the Agreement.
(b) The Exchange Ratio, the Per Share Cash Amount, the Mixed Consideration
and the consideration provided for in (iv) above are collectively referred to
herein, in aggregate, as the "Aggregate Merger Consideration."
(c) The portion of Aggregate Merger Consideration payable in shares of BLC
Series A Common Stock shall equal 0.5333 times the number of shares of PRJ
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding any treasury shares and shares held by BLC) and the portion of
Aggregate Merger Consideration payable in cash shall equal $12.33 times the
number of shares of PRJ Common Stock issued and outstanding immediately prior to
the Effective Time (excluding any treasury shares and shares held by BLC).
(d) The Effective Time means the time the Merger becomes effective and the
Valuation Period Stock Price means the average of the New York Stock Exchange
closing sale prices for the BLC Series A Common Stock for the ten consecutive
trading-day period ending on the tenth day immediately prior to the anticipated
Closing Date (as defined in the Agreement).
The terms and conditions of the Merger are set forth in more detail in the
Agreement.
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of the BLC Series A Common Stock
and the holders of Series B Common Stock, $1.67 par value, of BLC (the "BLC
Series B Common Stock," and, together with the BLC Series A Common Stock, the
<PAGE> 261
"BLC Common Stock") of the Aggregate Merger Consideration to be offered in the
Merger to the holders of PRJ Common Stock.
In connection with rendering our opinion as set forth below, we have, among
other things:
(i) reviewed the Agreement and certain related documents and the
financial terms of the Merger set forth therein;
(ii) reviewed PRJ's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, Quarterly Report on Form 10-Q for the quarters
ended June 30, 1996 and September 30, 1996 and certain other filings with
the Securities and Exchange Commission made by PRJ, including Proxy
Statements, Form 8-Ks, and the Prospectus dated June 24, 1996 relating to
the initial public offering of PRJ Class A Common Stock;
(iii) reviewed the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, Quarterly Report on Form 10-Q for the
quarters ended June 30, 1996 and September 30, 1996 and certain other
filings with the Securities and Exchange Commission made by the Company,
including Proxy Statements, Form 8-Ks, and the Prospectus dated May 1, 1996
relating to the public offering of BLC Series A Common Stock;
(iv) reviewed certain other publicly available information
concerning the Company and the trading market for the BLC Series A Common
Stock;
(v) reviewed certain other publicly available information
concerning PRJ and the trading market for the PRJ Class A Common Stock;
(vi) reviewed certain non-public information relating to the Company
and PRJ, including financial forecasts and projections for each as well as
pro forma financial forecasts and projections, furnished to us by the
Company and PRJ;
(vii) reviewed certain publicly available information, including
research reports, concerning certain other companies engaged in businesses
which we believe to be comparable to the Company and PRJ and the trading
markets for certain of such companies' securities;
(viii) reviewed the financial terms of certain recent mergers and
acquisitions which we believe to be relevant;
(ix) conducted discussions with certain members of senior management
of the Company and PRJ concerning their respective businesses and
operations, assets, present condition and future prospects; and
(x) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered such other
factors, as we have deemed in our sole judgment, to be necessary,
appropriate or relevant to render the opinion set forth herein.
In rendering our opinion, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, projections and other data of the Company and PRJ used in
our analysis, the management of the Company or PRJ, as the case may be, has
advised us that such forecasts, projections and other data have been reasonably
prepared on bases reflecting their best currently available estimates and
judgements as to their future financial performance. In addition, we have not
made an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company or PRJ, nor have we been furnished with
any such evaluations or appraisals. For purposes of our opinion, we were not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of PRJ. We have further assumed that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and that the Merger will not result
in the incurrence by PRJ of any future tax payments relating to the merger of
PRJ's former cable television businesses with Continental Cablevision, Inc. as
of August 1, 1995.
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We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon market, business and other conditions at the present time and can
only be evaluated on the date hereof, and does not represent an opinion as to
the value of the BLC Common Stock or to the impact of the Merger or its
announcement on the trading price of the BLC Series A Common Stock.
As you are aware, we have performed various investment banking services for
the Company in the past, including financial advisory and investment banking
services concerning the strategic development of the Company's business,
including advice with respect to potential acquisitions, divestitures, joint
ventures, capital markets transactions or other potential corporate transactions
or any combination of such transactions, and have received customary fees for
such services. Furman Selz has received a fee for its services to the Board of
Directors in connection with this opinion pursuant to an engagement letter dated
September 24, 1996 entered into between Furman Selz and the Company. In
addition, the Company has agreed to reimburse Furman Selz for certain
out-of-pocket expenses and to indemnify Furman Selz for certain liabilities
arising from the delivery of this opinion. Furman Selz is acting as exclusive
financial advisor to the Company in connection with the Merger and will receive
a fee for its services as well as other transactions contemplated by the
aforementioned engagement letter. In the ordinary course of our business, we may
actively trade in the equity securities of the Company and PRJ for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Based upon and subject to the foregoing, as investment bankers, it is our
opinion as of the date hereof that the Aggregate Merger Consideration to be
offered in the Merger is fair, from a financial point of view, to the holders of
BLC Common Stock.
This opinion is for the use and benefit of the Board of Directors in its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to or whether to accept the consideration to be offered to
such stockholder in connection with the proposed Merger. We were not requested
to opine as to, and this opinion does not in any manner address, BLC's
underlying business decision to proceed with or effect the Merger, or the
relative merits of the Merger as compared to any alternative business strategies
which might exist for BLC or the effect of any other transaction in which BLC
might engage or any agreements which might be concluded between BLC and PRJ
after the date hereof. This opinion may be included in its entirety in any proxy
statement/prospectus with respect to the Merger, but it may not be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
Very truly yours,
/s/ FURMAN SELZ LLC
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APPENDIX C
[BEAR, STEARNS & CO. INC. LETTERHEAD]
January 6, 1997
Board of Directors
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Ladies and Gentlemen:
We understand that The Providence Journal Company ("PJC" or the "Company")
intends to merge (the "Merger") with and into A H Finance Company ("Sub"), a
wholly-owned subsidiary of A. H. Belo Corporation ("Belo"). In the Merger, each
issued and outstanding share of the Company's Class A Common Stock, par value
$1.00 per share (the "Company Class A Common Stock"), and the Company's Class B
Common Stock, par value $1.00 per share (the "Company Class B Common Stock" and,
together with the Company Class A Common Stock, the "Company Common Stock"),
other than shares owned directly or indirectly by Belo or the Company, will be
converted into the right to receive the Merger Consideration (as defined below).
You have provided us with the Amended and Restated Agreement and Plan of Merger
among Belo, Sub and PJC in substantially final form (the "Merger Agreement").
Pursuant to the Merger Agreement, and subject to the provisions of the next
paragraph and the allocation provisions set forth below, each share of Company
Common Stock issued and outstanding immediately prior to the effective time of
the Merger (excluding treasury shares, shares held directly or indirectly by
Belo and dissenting shares) shall be converted into:
(i) the right to receive a number of shares of Belo's Series A Common
stock, $1.67 par value, including associated Belo stock purchase
rights issued pursuant to Belo's Amended and Restated Rights
Agreement, dated as of February 28, 1996 (the "Belo Series A Common
Stock"), equal to the sum of (A) 0.5333 and (B) the quotient of
$12.33 divided by the Valuation Period Stock Price (as defined in
the Merger Agreement) (such sum, the "Exchange Ratio"),
(ii) the right to receive in cash, without interest, the sum of (A) $12.33
and (B) the product of 0.5333 and the Valuation Period Stock Price
(as defined in the Merger Agreement) (such sum, the "Per Share Cash
Amount"),
(iii) the right to receive 0.5333 shares of Belo Series A Common Stock and
$12.33 in cash, without interest (the "Mixed Consideration"), or
(iv) the right to receive a combination of shares of Belo Series A Common
Stock and cash determined in accordance with certain value
equalization proration mechanisms described in Section 2.01(d),
Section 2.01(e) and Section 2.01(f) of the Merger Agreement. The
consideration provided for in subparagraphs (i) through (iv) of this
paragraph in exchange for each share of Company Common Stock is
referred to herein as the "Merger Consideration" and the aggregate
of such consideration provided for all shares of Company Common
Stock is referred to herein as the "Aggregate Merger Consideration."
The Merger Agreement provides that the number of shares of Company Common Stock
to be converted into the right to receive cash in the Merger (the "Cash Election
Number") shall be equal to the product of (i) the aggregate number of shares of
Company Common Stock to be converted in the Merger, which shall be the number of
shares of Company Common Stock issued and outstanding immediately prior to the
effective time of the Merger (excluding any treasury shares and shares held
directly or indirectly by Belo (the "Company Common Stock Number")) and (ii) a
fraction, the numerator of which is $12.33 and the denominator of which is the
Per Share Cash Amount. The number of shares of Company Common Stock to be
converted into the right to receive Belo Series A Common Stock in the Merger
(the "Stock Election Number") shall be
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equal to the difference between (i) the Company Common Stock Number and (ii) the
Cash Election Number. The aggregate number of shares of Belo Series A Common
Stock constituting the portion of the Aggregate Merger Consideration payable in
Belo Series A Common Stock shall equal 0.5333 times the Company Common Stock
Number. That portion of the Aggregate Merger Consideration to be paid in cash
shall equal $12.33 times the Company Common Stock Number.
The Merger Agreement also provides that, at or immediately prior to the
effective time of the Merger, each outstanding employee or director stock option
to purchase shares of Company Common Stock (a "Company Employee Stock Option")
granted under any employee or director stock option or compensation plan or
arrangement of the Company shall be canceled, and at the effective time of the
Merger the Surviving Corporation (as defined in the Merger Agreement) shall pay
to each holder of any such option whether or not then vested or exercisable, for
each such Company Employee Stock Option an amount of cash determined by
multiplying (i) the excess, if any, of the Per Share Cash Amount over the
applicable exercise price of such Company Employee Stock Option by (ii) the
number of shares of Company Common Stock such holder could have purchased
(assuming full vesting of his/her Company Employee Stock Option) had such holder
exercised such Company Employee Stock Option in full immediately prior to the
effective time of the Merger.
You have asked us to render our opinion as to whether the Merger is fair, from a
financial point of view, to the shareholders of PJC.
In the course of performing our reviews and analyses for rendering this opinion,
we have:
1. reviewed the Merger Agreement;
2. reviewed the Company's Annual Report to Shareholders and Annual Report
on Form 10-K for the year ended December 31, 1995, its Quarterly Reports
on Form 10-Q for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996 and its registration statement on Form S-1 dated June
24, 1996;
3. reviewed Belo's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1993 through 1995 and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996,
June 30, 1996 and September 30, 1996;
4. reviewed certain operating and financial information, including
estimates and projections, provided to us by the senior managements of
PJC and Belo relating to PJC's and Belo's businesses and prospects,
respectively;
5. met with certain members of PJC's and Belo's senior management to
discuss each company's operations, historical financial statements and
future prospects;
6. reviewed the historical prices, trading volumes and valuation parameters
of the shares of Company Class A Common Stock and Belo Series A Common
Stock;
7. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to PJC and Belo;
8. reviewed the terms of recent mergers and acquisitions involving
companies which we deemed generally comparable to PJC and the Merger;
and
9. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by PJC and Belo. With respect to PJC's and
Belo's projected financial results and potential synergies that could be
achieved upon consummation of the Merger, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior managements of PJC and Belo as to the expected
future performance of PJC and Belo, respectively. We have not assumed any
responsibility for the independent verification of any such information or of
the projections provided to us and we have further relied upon the assurances of
the senior managements of PJC and Belo that they are unaware of any facts that
would
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make the information or projections provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities of PJC and Belo, nor have we been
furnished with any such appraisals. We have assumed with your consent that the
Merger will qualify as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended. This letter does not address
PJC's underlying business decision to pursue the Merger. Our opinion is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.
We have acted as financial advisor to PJC in connection with the Merger and will
receive a fee for such services, payment of a significant portion of which is
contingent upon the consummation of the Merger.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of PJC and does not constitute a recommendation to any holder
of Company Common Stock as to how to vote his/her shares in connection with the
Merger. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted or referred to at any time, in whole or in part, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any joint proxy statement/prospectus to be distributed to the
holders of Company Common Stock in connection with the Merger.
Based on the foregoing, it is our opinion that the Merger is fair, from a
financial point of view, to the shareholders of PJC.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ DAVID H. GLASER
------------------------------------
Senior Managing Director
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APPENDIX D
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SEC. 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 sec. 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 or
membership interest of a member of a nonstock corporation; and the words
"depository 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 sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 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 shares 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 sec. 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
sec.sec. 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, or depository receipts in respect thereof;
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 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.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(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 subsection (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 sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's 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 such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
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constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders 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
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to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall 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.
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APPENDIX E-1
A. H. BELO CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF A. H. BELO
CORPORATION
The undersigned, revoking all other proxies heretofore given, hereby
appoints Robert W. Decherd and Ward L. Huey, Jr., or any one or both of them, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote as designated below all the shares of the
Common Stock of A. H. Belo Corporation held of record by the undersigned on
December 27, 1996, at the Special Meeting of Shareholders to be held on February
19, 1997, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1.
Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 271
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned [X] Please mark
shareholder. If no direction is made, this Proxy will be voted "FOR" Proposal 1. your votes
like this
Proposal 1. Proposal to approve the issuance by the Company of up to 25,600,000 of the FOR AGAINST ABSTAIN
Company's Series A Common Stock, pursuant to an Amended and Restated Agreement and [ ] [ ] [ ]
Plan of Merger, dated as of September 26, 1996, among the Company, A H Finance
Company, a wholly-owned subsidiary of the Company, and The Providence Journal
Company.
Proposal 2. In their discretion to vote on such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
------- Please sign exactly as name appears. When shares are
held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate
name by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person. If you receive more than one proxy
card, please sign and return all cards received.
Dated: , 1997.
-----------------------------------------
------------------------------------------------------
Signature
------------------------------------------------------
Signature if Held Jointly
</TABLE>
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS ABOVE AND RETURN IN THE
ENVELOPE.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 272
- --------------------------------------------------------------------------------
APPENDIX E-2
TO PARTICIPANTS IN THE A. H. BELO CORPORATION EMPLOYEE SAVINGS AND INVESTMENT
PLAN AND THE A. H. BELO CORPORATION EMPLOYEE THRIFT PLAN:
As a participant in either the Employee Savings and Investment Plan or the
Employee Thrift Plan with full shares of the Company's Common Stock allocated to
your account as of December 27, 1996, you may instruct the Trustee how to vote
such shares at the Special Meeting of Shareholders to be held February 19, 1997
and any adjournment or postponement thereof.
Your instructions to the Trustee will be held in strict confidence and will
be made available only to the inspectors of election at the Special Meeting,
none of whom is an employee of the Company. Under the terms of the Plans, you
have the right to give voting instructions for all shares allocated to your
account. Please use the other side of this form in giving your instructions.
Any shares held by the Trustee as to which it has not received voting
instructions by February 14, 1997, will be voted in the same manner,
proportionately, as the shares in the applicable Plan as to which voting
instructions have been received. Any shares held by the Trustee as to which it
has been instructed to sign the Board of Directors proxy, with no additional
instructions to the contrary indicated, will be voted "FOR" Item 1.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
TRUSTEE
(continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
<PAGE> 273
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
U.S. Trust Company of California, N.A. Please mark [X]
You are hereby instructed to sign the Board your votes
of Directors proxy. like this
You are further instructed to direct the
Proxies to vote as follows:
Item 1 -- Approval of the issuance by the Item 2 -- At the discretion I hereby authorize U.S. Trust Company of
Company of up to 25,600,000 of the Company's of such Proxies, on any California, N.A., as Trustee under the Employee
Series A Common Stock, pursuant to an other matter that properly Savings and Investment Plan and the Employee
Amended and Restated Agreement and Plan of may come before the meeting Thrift Plan, to vote the shares of Common Stock
Merger, dated as of September 26, 1996, or any adjournment or held for my account under the applicable Plan at
among the Company, and The Providence adjournments thereof. the Special Meeting in accordance with the
Journal Company. instructions given above. U.S. Trust Company of
California, N.A., has appointed The First
FOR AGAINST ABSTAIN National Bank of Boston as Agent to tally the
votes.
[ ] [ ] [ ]
Dated , 1997.
-------------------------------------
-------------------------------------------------
Signature
</TABLE>
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS ABOVE AND RETURN IN THE
ENVELOPE.
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<PAGE> 274
- --------------------------------------------------------------------------------
APPENDIX F-1
THE PROVIDENCE JOURNAL COMPANY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints STEPHEN HAMBLETT, JOHN W. WALL and F.
REMINGTON BALLOU, or any one of them, attorneys and proxies with full power of
substitution to each for and in the name of the undersigned, with all powers the
undersigned would possess if personally present to vote the Common Stock of the
undersigned in The Providence Journal Company at the Special Meeting of its
stockholders to be held on February 19, 1997 or any adjournment thereof.
(Continued on reverse side)
P R O X Y
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 275
- --------------------------------------------------------------------------------
Please mark votes
[X] as in this example.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU INSTRUCT THE PROXIES TO VOTE FOR THE
FOLLOWING PROPOSAL.
<TABLE>
<S> <C> <C> <C> <C>
1. To approve and adopt the Amended and Restated Agreement and Plan of Merger, dated as FOR AGAINST ABSTAIN
of September 26, 1996, among The Providence Journal Company, A. H. Belo Corporation [ ] [ ] [ ]
and A H Finance Company, pursuant to which The Providence Journal Company will be
merged with and into A H Finance Company.
2. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the
Special Meeting or any adjournment thereof.
MARK HERE FOR [ ] MARK HERE IF YOU [ ]
ADDRESS CHANGE AND PLAN TO ATTEND THE
NOTE AT LEFT MEETING
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL NUMBER 1.
This proxy should be dated, signed
by the stockholder exactly as
appears hereon, and returned
promptly in the enclosed envelope.
Persons signing in a fiduciary
capacity should so indicate.
Dated: , 1997.
------------------------
-------------------------------------
(Signature)
-------------------------------------
(Signature)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 276
- --------------------------------------------------------------------------------
APPENDIX F-2
TO PARTICIPANTS IN THE PROVIDENCE JOURNAL COMPANY
STOCK PURCHASE PLAN:
As a participant in The Providence Journal Company Stock Purchase Plan (the
"Plan") with full shares of the Company's Class A Common Stock allocated to your
account as of December 27, 1996, you may instruct the Trustee how to vote such
shares at the Special Meeting of Shareholders to be held February 19, 1997 and
any adjournment or postponement thereof.
Your instructions to the Agent will be held in strict confidence and will be
made available only to the inspectors of election at the Special Meeting, none
of whom is an employee of the Company. Under the terms of the Plan, you have the
right to give voting instructions for all shares allocated to your account.
Please use the other side of this form in giving your instructions.
Any shares held by the Agent as to which it has not received voting
instructions by February 17, 1997 will be voted in the same manner,
proportionately, as the shares in the Plan as to which voting instructions have
been received. Any shares held by the Agent as to which it has been instructed
to sign the Board of Directors proxy, with no additional instructions to the
contrary indicated, will be voted "FOR" Item 1.
MERRILL LYNCH & CO.
AGENT
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE> 277
- --------------------------------------------------------------------------------
Please mark votes
Merrill Lynch & Co. as in this example [X]
You are hereby instructed to sign the Board of Directors proxy. You are further
instructed to direct the Proxies to vote as follows:
Item 1 -- Approval and adoption of the Amended and Restated Agreement and Plan
of Merger, dated as of September 26, 1996, among The Providence Journal Company,
A. H. Belo Corporation and A H Finance Company, pursuant to which The Providence
Journal Company will be merged with and into A H Finance Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Item 2 -- In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or any
adjournment thereof.
I hereby authorize Merrill Lynch & Co., as the Agent under The Providence
Journal Company Stock Purchase Plan, to vote the shares of Class A Common Stock
held for my account under the Plan at the Special Meeting in accordance with the
instructions given above. Merrill Lynch & Co. has appointed The First National
Bank of Boston as agent to tally the votes.
Dated , 1997.
--------------------
----------------------------------
Signature
PLEASE MARK, DATE AND SIGN AS YOUR
NAME APPEARS ABOVE AND RETURN IN
THE ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 278
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the Delaware General Corporation Law (the
"DGCL") empowers a corporation to indemnify any director or officer, or former
director or officer, who was or is a party or is threatened to be made a party
to 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), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding provided that such director
or officer acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, provided that such director or officer had no
cause to believe his or her conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, 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 such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred in
connection with the defense or settlement of such action or suit provided that
such director or officer acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine that despite the
adjudication of liability such director or officer is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification provided for in Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation shall have power to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her in any such
capacity or arising out of his or her status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
Article Fifteen of the Registrant's Certificate of Incorporation, as
amended, provides that a director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Article XI of the Registrant's Bylaws provides for indemnification of, and
advancement of expenses to any person who was or is involved in any manner or
was or is threatened to be made so involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, by reason of the fact that he or she is or was or has agreed
to become a director, officer, employee or agent of the Registrant or is or was
or has agreed to serve at the request of the Registrant as director, officer,
employee or agent of another corporation or other enterprise against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such proceeding, provided
that the person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
II-1
<PAGE> 279
The Registrant maintains liability insurance in the amount of $50 million
insuring its officers and directors against liabilities that they may incur in
such capacities, including liabilities arising under the Federal securities laws
other than liabilities arising out of the filing of a registration statement
with the Securities and Exchange Commission.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
+2.1 -- Amended and Restated Agreement and Plan of Merger, dated as of
September 26, 1996 among Registrant, The Providence Journal Company
and A H Finance Company (see list of omitted exhibits and schedules
attached to this Agreement).
2.2 -- Stockholders Agreement, dated as of September 26, 1996, by and among
The Providence Journal Company and each of the other parties
signatory thereto (incorporated by reference to Exhibit 10.5 to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996).
4.1 -- Certificate of Incorporation of Registrant (incorporated by reference
to Exhibit 3.1 to Registrant's Annual Report on Form 10-K/A dated
April 8, 1996).
4.2 -- Certificate of Correction to Certificate of Incorporation dated May
13, 1987 (incorporated by reference to Exhibit 3.2 to Registrant's
Annual Report on Form 10-K/A dated April 8, 1996).
4.3 -- Certificate of Designation of Series A Junior Participating Preferred
Stock of Registrant dated April 16, 1987 (incorporated by reference
to Exhibit 3.3 to Registrant's Annual Report on Form 10-K/A dated
April 8, 1996).
4.4 -- Certificate of Amendment of Certificate of Incorporation of
Registrant dated May 4, 1988 (incorporated by reference to Exhibit
3.4 to Registrant's Annual Report on Form 10-K/A dated April 8,
1996).
4.5 -- Certificate of Amendment of Certificate of Incorporation of
Registrant dated May 3, 1995 (incorporated by reference to Exhibit
3.5 to Registrant's Annual Report on Form 10-K dated for the fiscal
year ended December 31, 1995.
4.6 -- Amended Certificate of Designation of Series A Junior Participating
Preferred Stock of Registrant dated May 4, 1988 (incorporated by
reference to Exhibit 3.6 to Registrant's Annual Report on Form 10-K/A
dated April 8, 1996).
4.7 -- Bylaws of Registrant effective February 22, 1995 (incorporated by
reference to Exhibit 3.7 to Registrant's Annual Report on Form 10-K
dated March 8, 1995).
4.8 -- Specimen Form of Certificate representing shares of Registrant's
Series A Common Stock (incorporated by reference to Exhibit 4.2 to
Registrant's Annual Report on Form 10-K dated for the fiscal year
ended December 31, 1995.).
4.9 -- Form of Rights Agreement as Amended and Restated, as of February 28,
1996, between Registrant and The First National Bank of Boston, a New
York banking corporation (incorporated by reference to Exhibit 4.4 to
Registrant's Annual Report on Form 10-K dated for the fiscal year
ended December 31, 1995.).
4.10 -- Form of Supplement No. 1 to Amended and Restated Rights Agreement
(incorporated by reference to Exhibit 4.5 to Registrant's Quarterly
Report on Form 10-Q for the fiscal year ended September 30, 1996).
5.1 -- Opinion of Gibson, Dunn & Crutcher LLP regarding legality of shares.
8.1 -- Opinion of Gibson, Dunn & Crutcher LLP regarding tax matters.
8.2 -- Opinion of Wachtell, Lipton, Rosen & Katz regarding tax matters.
</TABLE>
II-2
<PAGE> 280
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
23.3 -- Consent of Deloitte & Touche LLP.
23.4 -- Consent of KPMG Peat Marwick, LLP.
23.5 -- Consent of Wachtell, Lipton, Rosen & Katz.
23.6 -- Consent of Bear, Stearns & Co. Inc.
23.7 -- Consent of Furman Selz LLC.
23.8 -- Consent of Belden Associates.
24.1 -- Power of Attorney (contained on signature page hereto).
+99.1 -- Section 262 of the Delaware General Corporation Law (Appraisal
Rights).
+99.2 -- Form of Proxy for Belo Stockholders Meeting.
+99.3 -- Form of Proxy for Providence Journal Stockholders Meeting.
99.4 -- Consents of Persons to Become Directors pursuant to Rule 438.
99.5 -- Statement and Affidavit pursuant to Rule 438.
</TABLE>
(b) Financial Statement Schedules
Not applicable.
(c) Opinions of Financial Advisors
+1. Form of Opinion of Bear, Stearns & Co. Inc.
+2. Form of Opinion of Furman Selz LLC
- ---------------
+ Filed as Appendix to the prospectus in Part I of this Registration
Statement.
Registrant hereby agrees to furnish to the Commission supplementally a copy
of any omitted schedule or exhibit upon request.
ITEM 22. UNDERTAKINGS.
(a) 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.
(b) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities 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 purpose of determining any liability
under the Securities Act, 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 thereof.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-3
<PAGE> 281
(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.
(e) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
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 thereof.
(f) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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, the Registrant 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
Securities Act and will be governed by the final adjudication of such issue.
(g) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose 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 thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 282
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, A.
H. Belo Corporation has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 31st day of December, 1996.
By: /s/ ROBERT W. DECHERD
---------------------------------
Robert W. Decherd
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each Director and/or Officer of A. H. Belo Corporation whose signature
appears below hereby constitutes and appoints Robert W. Decherd and Michael D.
Perry as the true and lawful attorneys-in-fact and agents for the undersigned,
acting together or alone, with full powers of substitution and resubstitution,
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign and file any and all amendments (including
post-effective amendments) and exhibits to this Registration Statement on Form
S-4, and any and all applications and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, acting together or alone, full powers and
authority to do and perform each and every act and thing requisite and necessary
or desirable to be done, hereby ratifying and confirming all that said
attorneys-in-fact and agents, acting together or alone, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT W. DECHERD Chairman of the Board, December 31, 1996
- --------------------------------------------- President & Chief
Robert W. Decherd Executive Officer
(Principal Executive
Officer)
/s/ WARD L. HUEY, JR. Vice Chairman of the Board December 31, 1996
- --------------------------------------------- and President, Broadcast
Ward L. Huey, Jr. Division
/s/ BURL OSBORNE Director, President, December 31, 1996
- --------------------------------------------- Publishing Division and
Burl Osborne Publisher and Editor, The
Dallas Morning News
/s/ JOHN W. BASSETT, JR. Director December 31, 1996
- ---------------------------------------------
John W. Bassett, Jr.
/s/ JUDITH L. CRAVEN Director December 31, 1996
- ---------------------------------------------
Judith L. Craven, M.D., M.P.H.
/s/ ROGER A. ENRICO Director December 31, 1996
- ---------------------------------------------
Roger A. Enrico
/s/ DEALEY D. HERNDON Director December 31, 1996
- ---------------------------------------------
Dealey D. Herndon
</TABLE>
II-5
<PAGE> 283
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LESTER A. LEVY Director December 31, 1996
- ---------------------------------------------
Lester A. Levy
/s/ ARTURO MADRID Director December 31, 1996
- ---------------------------------------------
Arturo Madrid, Ph.D.
/s/ JAMES M. MORONEY, JR. Director December 31, 1996
- ---------------------------------------------
James M. Moroney, Jr.
/s/ HUGH G. ROBINSON Director December 31, 1996
- ---------------------------------------------
Hugh G. Robinson
/s/ WILLIAM T. SOLOMON Director December 31, 1996
- ---------------------------------------------
William T. Solomon
/s/ THOMAS B. WALKER, JR. Director December 31, 1996
- ---------------------------------------------
Thomas B. Walker, Jr.
/s/ J. McDONALD WILLIAMS Director December 31, 1996
- ---------------------------------------------
J. McDonald Williams
/s/ MICHAEL D. PERRY Senior Vice President and December 31, 1996
- --------------------------------------------- Chief Financial Officer
Michael D. Perry (Principal Financial and
Accounting Officer)
</TABLE>
II-6
<PAGE> 284
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+2.1 -- Amended and Restated Agreement and Plan of Merger, dated as of
September 26, 1996 among Registrant, The Providence Journal Company
and A H Finance Company (see list of omitted exhibits and schedules
attached to this Agreement).
2.2 -- Stockholders Agreement, dated as of September 26, 1996, by and among
The Providence Journal Company and each of the other parties
signatory thereto (Exhibit 10.5 to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1996).
4.1 -- Certificate of Incorporation of Registrant (Exhibit 3.1 to
Registrant's Annual Report on Form 10-K/A dated April 8, 1996).
4.2 -- Certificate of Correction to Certificate of Incorporation dated May
13, 1987 (Exhibit 3.2 to Registrant's Annual Report on Form 10-K/A
dated April 8, 1996).
4.3 -- Certificate of Designation of Series A Junior Participating Preferred
Stock of Registrant dated April 16, 1987 (Exhibit 3.3 to Registrant's
Annual Report on Form 10-K/A dated April 8, 1996).
4.4 -- Certificate of Amendment of Certificate of Incorporation of
Registrant dated May 4, 1988 (Exhibit 3.4 to Registrant's Annual
Report on Form 10-K/A dated April 8, 1996).
4.5 -- Certificate of Amendment of Certificate of Incorporation of
Registrant dated May 3, 1995 (Exhibit 3.5 to Registrant's Annual
Report on Form 10-K dated February 28, 1996).
4.6 -- Amended Certificate of Designation of Series A Junior Participating
Preferred Stock of Registrant dated May 4, 1988 (Exhibit 3.6 to
Registrant's Annual Report on Form 10-K/A dated April 8, 1996).
4.7 -- Bylaws of Registrant effective February 22, 1995 (Exhibit 3.7 to
Registrant's Annual Report on Form 10-K dated March 8, 1995).
4.8 -- Specimen Form of Certificate representing shares of Registrant's
Series A Common Stock (Exhibit 4.2 to Registrant's Annual Report on
Form 10-K dated March 18, 1995).
4.9 -- Form of Rights Agreement as Amended and Restated, as of February 28,
1996, between Registrant and The First National Bank of Boston, a New
York banking corporation (Exhibit 4.4 to Registrant's Annual Report
on Form 10-K dated February 28, 1996).
4.10 -- Form of Supplement No. 1 to Amended and Restated Rights Agreement
(incorporated by reference to Exhibit 4.5 to Registrant's Quarterly
Report on Form 10-Q for the fiscal year ended September 30, 1996).
5.1 -- Opinion of Gibson, Dunn & Crutcher LLP regarding legality of shares.
8.1 -- Opinion of Gibson, Dunn & Crutcher LLP regarding tax matters.
8.2 -- Opinion of Wachtell, Lipton, Rosen & Katz regarding tax matters.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
23.2 -- Consent of Gibson, Dunn & Crutcher LLP (contained in Exhibit 5.1).
23.3 -- Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE> 285
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
23.4 -- Consent of KPMG Peat Marwick, LLP.
23.5 -- Consent of Wachtell, Lipton, Rosen & Katz.
23.6 -- Consent of Bear, Stearns & Co. Inc.
23.7 -- Consent of Furman Selz LLC.
23.8 -- Consent of Belden Associates.
24.1 -- Power of Attorney (contained on signature page hereto).
+99.1 -- Section 262 of the Delaware General Corporation Law (Appraisal
Rights).
+99.2 -- Form of Proxy for Belo Stockholders Meeting.
+99.3 -- Form of Proxy for Providence Journal Stockholders Meeting.
99.4 -- Consents of Persons to Become Directors pursuant to Rule 438.
99.5 -- Statement and Affidavit pursuant to Rule 438.
</TABLE>
+1. Form of Opinion of Bear, Stearns & Co. Inc.
+2. Form of Opinion of Furman Selz LLC
- ---------------
+ Filed as Appendix to the prospectus in Part I of this Registration Statement.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
January 7, 1997
(714) 451-3800 C 05281-00009
A.H. Belo Corporation
400 South Record Street
Dallas, Texas 75202
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-4, Registration No.
333-______ (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Securities Act"), filed by A. H. Belo Corporation, a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission") on January 7, 1997. The Registration Statement covers 25,600,000
shares of the Company's Series A Common Stock, par value $1.67 per share, and
associated rights to purchase one one-hundredth of a share of the Company's
Series A Junior Participating Preferred Stock, par value $1.00 per share
(collectively, the "Shares"), to be issued in connection with the transactions
contemplated by that certain Amended and Restated Agreement and Plan of Merger,
dated as of September 26, 1996 (the "Merger Agreement"), among the Company, A H
Finance Company, a Delaware corporation and direct, wholly-owned subsidiary of
the Company, and The Providence Journal Company, a Delaware corporation
("Providence Journal").
We have examined the originals or certified copies of such records of the
Company, certificates of officers of the Company and/or public officials and
such other documents (including the Merger Agreement) as we have considered
relevant and necessary as the basis for the opinion set forth below. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified copies and the
authenticity of the originals of such copies.
Based upon our examination mentioned above, subject to the assumptions
stated above and relying on statements of fact contained in the documents that
we have examined, we are of the opinion that the Shares have been duly
authorized for issuance and that the Shares, when issued in accordance with the
terms of the Merger Agreement, will have been validly issued and will be fully
paid and nonassessable.
The Company is a Delaware corporation. We are not admitted to practice in
Delaware. However, we are generally familiar with the Delaware General
Corporation Law and have made such review thereof as we consider necessary for
the purpose of this opinion. Subject to the foregoing, this opinion is limited
to Delaware and United States federal law.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the references to our firm appearing under the captions "THE
MERGER -- Background," "THE MERGER -- Certain Federal Income Tax Consequences,"
"LEGAL MATTERS" and "THE MERGER AGREEMENT -- Conditions to the Merger" in the
Prospectus that forms a part of the Registration Statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act or the General Rules
and Regulations of the Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
January __, 1997
(212) 351-4000 C 05281-00009
A. H. Belo Corporation
400 South Record Street
Dallas, Texas 75202
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of The Providence Journal
Company, a Delaware corporation (the "Company"), with and into A H Finance
Company ("Finance"), a Delaware corporation and a direct, wholly-owned
subsidiary of A. H. Belo Corporation, a Delaware corporation ("Parent").
In formulating our opinion, we have reviewed such documents as we deemed
necessary or appropriate, including that certain Amended and Restated Agreement
and Plan of Merger, dated as of September 26, 1996, among Parent, Finance and
the Company (the "Merger Agreement"), and that certain Joint Proxy
Statement/Prospectus of Parent and the Company that was included in the
Registration Statement on Form S-4 (File No. 333- ), as declared effective
by the Securities and Exchange Commission (the "Commission") on January __, 1997
(the "Prospectus").
Our opinion set forth below assumes (i) the accuracy of the statements and
facts concerning the Merger set forth in the Merger Agreement and the
Prospectus, (ii) that the Merger is consummated in the manner contemplated by,
and in accordance with, the terms set forth in the Merger Agreement and the
Prospectus, and (iii) the accuracy of (a) the representations made to us by
Parent, which are set forth in the officer's certificate delivered to us by
Parent, dated January __, 1997, and (b) the representations made to us by the
Company, which are set forth in the officer's certificate delivered to us by the
Company, dated January __, 1997.
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above, and subject to the assumptions set
forth above, we are of the opinion that:
1. The Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Parent, Finance and the Company will each be treated as a party to a
reorganization within the meaning of Section 368(b) of the Code.
We express no opinion concerning any tax consequences of the Merger other than
those specifically set forth herein.
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or the facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts, assumptions
and representations on which we relied, may affect the continuing validity of
the opinion set forth herein. We assume no responsibility to inform you of any
such change or inaccuracy that may occur or come to our attention.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF WACHTELL, LIPTON, ROSEN & KATZ]
January __ , 1997
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Ladies and Gentlemen:
We have acted as special counsel to The Providence Journal Company, a
Delaware corporation (the "Company"), in connection with the proposed merger
(the "Merger") of the Company with and into A H Finance Company, a Delaware
corporation ("Sub"), which is a direct, wholly-owned subsidiary of A. H. Belo
Corporation, a Delaware corporation ("Parent"). You have requested our opinion
regarding certain federal income tax consequences of the Merger.
In formulating our opinion, we have reviewed the Amended and Restated
Agreement and Plan of Merger, dated as of September 26, 1996, among Parent, Sub,
and the Company the ("Merger Agreement"), the Joint Proxy Statement of Parent
and the Company relating to the Merger (which also constitutes a prospectus of
Parent) (the "Prospective") that was included in the Registration Statement on
Form S-4 (File No. 333-_____) (the "Registration Statement"), in the form that
the Prospectus will be mailed to the stockholders of the Company, the
certificates of an officer of the Company and of an officer of Parent, dated the
date hereof, attached hereto as Appendices A and B, respectively (the "Officers'
Certificates"), and such other corporate records, certificates and other
documents as we have considered necessary or appropriate for purposes of
rendering this opinion.
Our opinion set forth below assumes, with your consent, (i) the accuracy of
the representations and warranties of the Company, Parent and Sub made in, and
the compliance by such parties with, their agreements contained in the Merger
Agreement, (ii) that the Prospectus does not contain any untrue statement or
omit to state any fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, (iii) that the Merger is
consummated in the manner contemplated by, and in accordance with, the terms set
forth in the Merger Agreement and the Prospectus, and (iv) that the
representations made to us by the Company and Parent, which are set forth in the
Officers' Certificates, are accurate and complete.
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above, and subject to the assumptions set
forth above, we are of the opinion that:
1. The Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Parent, Sub and the Company will each be treated as a party to a
reorganization within the meaning of Section 368(b) of the Code.
We express no opinion concerning any tax consequences of the Merger other than
those specifically set forth herein.
We are members of the Bar of the State of New York, and with your consent,
we express no opinion as to matters of law other than the Federal laws of the
United States. Our opinion is based on current provisions of the Code, the
Treasury Regulations promulgated thereunder, published pronouncements of the
Internal Revenue Service and case law, any of which may be changed at any time
with retroactive effect. Any change in applicable laws or the facts and
circumstances surrounding the Merger, or any inaccuracy in the statements,
facts, assumptions and representations on which we relied, may affect the
continuing validity of the opinion set
<PAGE> 2
The Providence Journal Company
January __ , 1997
Page 2
forth herein. With your consent, we assume no responsibility to inform you of
any such change or inaccuracy that may occur or come to our attention.
This opinion is rendered only to you and is solely for your benefit in
connection with the Merger. This opinion may not be relied upon by you for any
other purpose, or relied upon by any other person, entity, firm or corporation
for any purpose without our prior written consent. The opinions contained herein
are limited to the matters expressly stated herein, and no opinion may be
inferred or may be implied beyond the matters expressly stated herein.
We hereby consent to your filing this opinion as part of the Prospectus and
to the reference to our firm appearing under the captions "THE
MERGER -- Background," "THE MERGER -- Certain Federal Income Tax Consequences,"
"LEGAL MATTERS" and "THE MERGER AGREEMENT -- Conditions to the Merger" in the
Prospectus. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the General Rules and Regulations of the Commission.
Very truly yours,
<PAGE> 3
THE PROVIDENCE JOURNAL COMPANY
OFFICER'S CERTIFICATE
In connection with the tax opinions to be rendered by Gibson, Dunn &
Crutcher LLP and Wachtell, Lipton, Rosen & Katz on January __, 1997, regarding
certain federal income tax consequences of the merger (the "Merger") of The
Providence Journal Company (the "Company") with and into A H Finance Company
("Sub"), a direct wholly-owned subsidiary of A. H. Belo Corporation ("Parent"),
pursuant to the Amended and Restated Agreement and Plan of Merger dated as of
September 26, 1996 (the "Merger Agreement"), and recognizing that you will rely
on this representation letter in delivering said opinion, the undersigned
officer of the Company hereby represents on behalf of the Company that to the
best knowledge and belief of such officer, after due inquiry and investigation,
the facts relating to the Merger, as such facts are described in the Joint Proxy
Statement/Prospectus of Parent and the Company filed with the Securities and
Exchange Commission on Form S-4 and declared effective on January __, 1997, are
insofar as such facts pertain to the Company, true, correct and complete in all
material respects.
The undersigned further represents on behalf of the Company to the best of
his knowledge the following:
1. The fair market value of the stock of Parent ("Parent Stock") and
cash to be received by the shareholders of the Company (other than Parent
and its subsidiaries) will be approximately equal to the fair market value
of the stock of the Company ("Company Stock") surrendered in the exchange.
2. No shareholder of the Company owns five percent or more of Company
Stock as of the date hereof. To the best knowledge of the management of the
Company, there is no plan or intention of the shareholders of the Company
to sell, exchange or otherwise dispose of a number of shares of Parent
Stock received in the Merger that would reduce the Company shareholders'
ownership of Parent Stock to a number of shares of Parent Stock having a
value as of the date of the Merger of less than fifty percent of the value
of all of the formerly outstanding shares of Company Stock as of the same
date. For purposes of this representation, shares of Company Stock
exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of Parent Stock will be
treated as outstanding Company Stock on the date of the Merger. Also, for
purposes of this representation, shares of Company Stock and Parent Stock
held by Company shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Merger will be considered in making this
representation.
3. The Company and its shareholders will pay their respective
expenses, if any, incurred in connection with the Merger.
4. Sub will acquire at least ninety percent of the fair market value
of the net assets of the Company and at least seventy percent of the fair
market value of the gross assets of the Company actually held by the
Company immediately prior to the Merger. For purposes of this
representation, assets of the Company used to pay reorganization expenses
and all redemptions and distributions (other than regular, normal
dividends) made by the Company will be included as assets of the Company
immediately prior to the Merger. No assets of the Company will be used to
pay dissenters or issued as consideration to shareholders of the Company
pursuant to the Merger.
5. The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code").
6. On the date of the Merger, the fair market value of the assets of
the Company transferred to Sub will exceed the sum of the liabilities of
the Company assumed by Sub, plus the amount of liabilities, if any, to
which the assets are subject.
7. The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
8. The Merger Agreement represents the full and complete agreement
among Parent, Sub, and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
<PAGE> 4
9. There is no intercorporate indebtedness existing between Parent and
the Company or between Sub and the Company that was issued, acquired, or
will be settled at a discount.
10. The liabilities of the Company to be assumed by Sub and the
liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of business.
11. The payment of cash in lieu of fractional shares of Parent Stock
is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the Merger to the shareholders of the Company instead of issuing
fractional shares of Parent Stock will not exceed one percent of the total
consideration that will be issued in the Merger to the shareholders of the
Company in exchange for their shares of Company Stock. The fractional share
interests of each Company shareholder will be aggregated, and no Company
shareholder will receive cash in an amount equal to or greater than the
value of one full share of Parent Stock in respect of fractional shares of
Company Stock.
IN WITNESS WHEREOF, I have, on behalf of the Company, signed this
Certificate as of January __, 1997.
THE PROVIDENCE JOURNAL COMPANY
By
---------------------------------
Name:
Title:
2
<PAGE> 5
A. H. BELO CORPORATION
OFFICER'S CERTIFICATE
In connection with the tax opinions to be rendered by Gibson, Dunn &
Crutcher LLP and Wachtell, Lipton, Rosen & Katz on January __, 1997, regarding
certain federal income tax consequences of the merger (the "Merger") of The
Providence Journal Company (the "Company") with and into A H Finance Company
("Sub"), a direct wholly-owned subsidiary of A. H. Belo Corporation ("Parent"),
pursuant to the Amended and Restated Agreement and Plan of Merger dated as of
September 26, 1996 (the "Merger Agreement"), and recognizing that you will rely
on this representation letter in delivering said opinion, the undersigned
officer of Parent hereby represents on behalf of Parent and Sub that to the best
knowledge and belief of such officer, after due inquiry and investigation, the
facts relating to the Merger, as such facts are described in the Joint Proxy
Statement/Prospectus of Parent and the Company filed with the Securities and
Exchange Commission on Form S-4 and declared effective on January __, 1997, are
insofar as such facts pertain to Parent or Sub, true, correct, and complete in
all material respects.
The undersigned further represents on behalf of Parent and Sub to the best
of his knowledge the following:
1. The fair market value of the stock of Parent ("Parent Stock") and
cash to be received by the shareholders of the Company (other than Parent
and its subsidiaries) will be approximately equal to the fair market value
of the stock of the Company ("Company Stock") surrendered in the exchange.
2. Sub will acquire at least ninety percent of the fair market value
of the net assets of the Company and at least seventy percent of the fair
market value of the gross assets of the Company actually held by the
Company immediately prior to the Merger. For purposes of this
representation, assets of the Company used to pay reorganization expenses
and all redemptions and distributions (other than regular, normal
dividends) made by the Company will be included as assets of the Company
immediately prior to the merger. No assets of the Company will be used to
pay dissenters. All amounts paid to dissenters and all cash to be paid to
shareholders of the Company pursuant to the Merger will be paid by Parent.
3. Prior to the Merger, Parent will be in control of Sub. For purposes
of this representation, control means the direct ownership of stock in Sub
possessing at least eighty percent of the total combined voting power of
all classes of stock of Sub entitled to vote and at least eighty percent of
the number of shares of each other class of stock of Sub.
4. Parent has no plan or intention to cause Sub to issue additional
shares of its stock that would result in Parent losing control of Sub. For
purposes of this representation, control means the direct ownership of
stock in Sub possessing at least eighty percent of the total combined
voting power of all classes of stock of Sub entitled to vote and at least
eighty percent of the number of shares of each other class of stock of Sub.
5. Parent has no plan or intention to redeem or otherwise reacquire
any of the Parent Stock issued in the transaction, except that Parent
expects to make redemptions by means of open market [and other] purchases
of Parent Stock pursuant to the stock repurchase program authorized by the
Parent Board of Directors on September 26, 1996, but not in excess of the
lesser of (i) 6 million shares of Parent Stock or (ii) such number of
shares of Parent Stock the value of which would cause the amount of merger
consideration constituting Parent Stock (if all redeemed Parent Stock were
treated as redeemed from holders of Company Stock before the Merger) to
fall below 45%.
6. Parent has no plan or intention to liquidate Sub, to merge Sub with
or into another corporation (other than with the Company), to sell or
otherwise dispose of the stock of Sub, or to cause Sub to sell or otherwise
dispose of any of the assets of the Company acquired in the Merger, except
for (i) dispositions made in the ordinary course of business; (ii)
transfers described in Section 368(a)(2)(C) of the Internal Revenue Code of
1986, as amended (the "Code") (relating to transfers to direct, controlled
subsidiaries), or (iii) the disposition of up to 10% of the net assets of
the Company in other non-ordinary course transactions (provided that a
disposition in which the proceeds are either retained by Sub (or a wholly-
<PAGE> 6
owned subsidiary) or transferred by Sub (or such subsidiary) to Parent by
way of an intercompany demand loan between Sub (or such subsidiary) and
Parent bearing interest at a rate no less than the applicable federal rate
will not be considered a disposition for purposes of this clause (iii)).
7. No liabilities of the Company's shareholders will be assumed by
Parent, nor will any of the Company Stock be subject to any liabilities.
8. Parent and Sub will pay their respective expenses, if any, incurred
in connection with the Merger, and will not pay any of the expenses of the
Company or its shareholders.
9. Neither Parent nor Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. Parent has not issued and will not issue any stock rights to
acquire additional Parent Stock to shareholders of the Company.
11. Parent intends to cause Sub to continue the historic business of
the Company and its subsidiaries or use a significant portion of the
historic business assets of the Company in a business following the Merger.
12. None of the Parent Stock received by any shareholder-employee of
the Company or its subsidiaries will be separate consideration for, or
allocable to, any employment agreement. None of the compensation received
by any shareholder-employee of the Company is separate consideration for,
or allocable to, such shareholder-employee's shares of the Company Stock
surrendered in the Merger, and the compensation paid to such
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
13. The Merger Agreement represents the full and complete agreement
among Parent, Sub, and the Company regarding the Merger, and there are no
other written or oral agreements regarding the Merger.
14. There is no intercorporate indebtedness existing between Parent
and the Company or between Sub and the Company that was issued, acquired,
or will be settled at a discount.
15. No stock of Sub will be issued in the Merger.
16. The payment of cash in lieu of fractional shares of Parent Stock
is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the Merger to the shareholders of the Company instead of issuing
fractional shares of Parent Stock will not exceed one percent of the total
consideration that will be issued in the Merger to the shareholders of the
Company (other than Parent and its subsidiaries) in exchange for their
shares of Company Stock. The fractional share interests of each Company
shareholder will be aggregated, and no Company shareholder will receive
cash in an amount equal to or greater than the value of one full share of
Parent Stock in respect of fractional shares of Company Stock.
IN WITNESS WHEREOF, I have, on behalf of Parent and Sub, signed this
Certificate as of January __, 1997.
A. H. BELO CORPORATION
By:
--------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement and related Prospectus of A. H. Belo Corporation for the
registration of 25,600,000 shares of its Series A Common Stock and to the
incorporation by reference therein of our report dated January 24, 1996, with
respect to the consolidated financial statements of A. H. Belo Corporation
included in its Annual Report (Form 10-K), as amended, for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
January 6, 1997
3
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
King Holding Corp.:
We consent to the use in this Registration Statement of the A.H. Belo
Corporation on Form S-4 of our report dated February 10, 1995 relating to the
consolidated financial statements of King Holding Corp. as of December 31, 1994
and for each of the two years in the period ended December 31, 1994, appearing
in the Joint Proxy/Prospectus, which is a part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Joint
Proxy/Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
January 6, 1997
4
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and
Shareholders of The Providence
Journal Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Joint Proxy Statement/Prospectus. This
report contains an explanatory paragraph that states that the Company completed
the Merger and related transactions with Continental Cablevision, Inc. and the
Kelso Buyout on October 5, 1995 which resulted in the disposal of the Company's
cable operations, and the acquisition of the Company's joint venture partner's
interest in King Holding Corp.
KPMG PEAT MARWICK, LLP
Providence, Rhode Island
January 6, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF WACHTELL, LIPTON, ROSEN & KATZ
January 7, 1997
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
We hereby consent to the filing of the form of an opinion regarding tax
matters as part of the Joint Proxy Statement/Prospectus included in the
Registration Statement on Form S-4 (the "Prospectus") and to the reference to
our firm appearing under the captions "THE MERGER -- Background," "THE MERGER --
Certain Federal Income Tax Consequences," "LEGAL MATTERS" and "THE MERGER
AGREEMENT -- Conditions to the Merger" in the Prospectus. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the General
Rules and Regulations of the Commission.
Very truly yours,
/s/ WACHTELL, LIPTON, ROSEN & KATZ
------------------------------------
<PAGE> 1
EXHIBIT 23.6
CONSENT
Bear, Stearns & Co. Inc. hereby consents to the use of the summary entitled
"Opinion of Providence Journal's Financial Advisor" under "THE
MERGER -- Fairness Opinions" and to the references to its fairness opinion dated
January 6, 1997 in "SUMMARY -- The Merger -- Recommendation of Providence
Journal Board; Providence Journal's Reasons for the Merger," "THE
MERGER -- Background" and "THE MERGER -- Recommendation of Providence Journal
Board; Providence Journal's Reasons for the Merger" in the Joint Proxy
Statement/Prospectus of The Providence Journal Company and A. H. Belo
Corporation forming part of this Registration Statement on Form S-4.
IN WITNESS WHEREOF, the undersigned has executed this consent this 6th day
of January, 1997.
BEAR, STEARNS & CO. INC.
BY: /s/ JAMES B. CARROLL
------------------------------------
James B. Carroll
Managing Director
<PAGE> 1
EXHIBIT 23.7
CONSENT
Reference is hereby made to the fairness opinions dated September 26, 1996
and January 6, 1997 (the "Fairness Opinions") addressed to the Board of
Directors of A. H. Belo Corporation ("Belo") by Furman Selz LLC ("Furman Selz").
Furman Selz hereby consents to the references to and summary of the Fairness
Opinions under "SUMMARY -- The Merger -- Recommendation of Belo Board; Belo's
Reasons for the Merger," "THE MERGER -- Background," "THE
MERGER --Recommendation of Belo Board; Belo's Reasons for the Merger" and "THE
MERGER -- Fairness Opinions" of the Joint Proxy Statement/ Prospectus of The
Providence Journal Company and Belo forming part of this Registration Statement
on Form S-4.
IN WITNESS WHEREOF, the undersigned has executed this consent this 6th day
of January, 1997.
FURMAN SELZ LLC
By: /s/ GERALD H. CROMACK
------------------------------------
Name: Gerald H. Cromack
Title: Managing Director
<PAGE> 1
EXHIBIT 23.8
January 6, 1997
Belden Associates
Ms. Deanne Termini
President
3102 Oak Lawn Avenue, Suite 500
Dallas, TX 95219
RE: The Providence Journal Company
Dear Ms. Termini:
As you may know, The Providence Journal Company (the "Company") has filed a
Joint Proxy Statement/Prospectus with the Securities and Exchange Commission
(the "Joint Proxy Statement/Prospectus") in connection with its merger with A H
Finance Company, a wholly owned subsidiary of A. H. Belo Corporation. In
connection with this process, we need to obtain your consent to the reference to
Belden Associates and the use in the Joint Proxy Statement/Prospectus which is
part of a Registration Statement on Form S-4 (the "Registration Statement") of a
study published by you.
As we are on a tight time schedule, we would appreciate receiving your
signed consent as soon as possible.
Very truly yours,
THE PROVIDENCE JOURNAL COMPANY
By: /s/ JOHN L. HAMMOND
----------------------------------
John L. Hammond
Vice President-General Counsel and
Chief Administrative Officer
We hereby consent in the reference to Belden Associations and to the use of
information published by us, with respect to the above-referenced Registration
Statement and related Joint Proxy Statement/Prospectus.
BELDEN ASSOCIATES
By: /s/ DEANNE L. TERMINI
--------------------------------
Title: President
Date: January 6, 1997
<PAGE> 1
EXHIBIT 99.4
CONSENT OF PERSON TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
as a person to become a director of A. H. Belo Corporation ("Belo") upon
consummation of the merger of The Providence Journal Company with and into A H
Finance Company.
/s/ STEPHEN HAMBLETT
------------------------------
Stephen Hamblett
Dated: December 13, 1996
<PAGE> 1
EXHIBIT 99.5
STATEMENT PURSUANT TO RULE 438
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
registrant hereby states that the Rule 438 consents of the three other directors
who, along with Stephen Hamblett, will become directors of A. H. Belo
Corporation ("Belo") upon consummation of the merger of The Providence Journal
Company with and into A H Finance Company, are omitted because these three other
directors have not yet been identified and, therefore, obtaining such consents
is impracticable at present; and hereby submits the following affidavit in
support hereof.
AFFIDAVIT PURSUANT TO RULE 438
The undersigned, Michael J. McCarthy, Senior Vice President, Secretary and
General Counsel of A. H. Belo Corporation ("Belo"), hereby affirms under penalty
of perjury that he is unable to obtain the Rule 438 consents of the three other
directors who, along with Stephen Hamblett, will become directors of Belo upon
consummation of the merger of The Providence Journal Company with and into A H
Finance Company, because these three other directors have not yet been
identified and, therefore, obtaining such consents is impracticable at present.
/s/ MICHAEL J. MCCARTHY
------------------------------------
Michael J. McCarthy
Senior Vice President, Secretary and
General Counsel
Date: January 6, 1997
