<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.
240.14a-11(c) or sec. 240.14a-12
</TABLE>
Hollinger International Inc.
----------------------------------------------------
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (check the appropriate box):
<TABLE>
<S> <C> <C>
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
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2) Form, Schedule or Registration No.:
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3) Filing Party:
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4) Date Filed:
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</TABLE>
<PAGE> 2
Hollinger International Inc. Logo
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
TELEPHONE (312) 321-2299; FACSIMILE (312) 321-0629
MAY 21, 1997
Dear Stockholder:
You are invited to attend the Special Meeting of Stockholders of Hollinger
International Inc. (the "Company") to be held on Thursday, July 10, 1997, at
11:00 a.m., local time, in the Atrium, 7th Floor of The Sun-Times Building, 401
North Wabash Avenue, Chicago, Illinois 60611.
At the meeting you will be asked to (i) authorize the issuance of shares of
Class A Common Stock and convertible preferred stock of the Company in exchange
for securities issued in connection with the acquisition of certain owned and
controlled Canadian newspaper interests of Hollinger Inc. on April 18, 1997 (the
"Canadian Newspaper Transaction"), as follows: (x) authorize the issuance of
3,207,045 shares of the Company's Class A Common Stock and 8,294,090 shares of
newly authorized Series C Convertible Preferred Stock to UniMedia Holding
Company, a wholly-owned subsidiary of Hollinger Inc. ("UniMedia Holding"), in
exchange for outstanding shares of the Company's Series 1 Nonvoting Preferred
Stock and Series 2 Nonvoting Preferred Stock held by UniMedia Holding and
received as partial consideration in connection with the Canadian Newspaper
Transaction on April 18, 1997 (the "First Exchange"), and (y) the issuance of
8,294,090 shares of the Company's Class A Common Stock to UniMedia Holding in
exchange for outstanding shares of Series C Preferred Stock issued in the First
Exchange and the issuance of the same number of newly authorized shares of
Series C Preferred Stock to a wholly owned subsidiary of Hollinger Inc. in
exchange for 8,294,090 outstanding shares of Class A Common Stock directly owned
by such subsidiary (collectively, the "Second Exchange"), with the Second
Exchange to be consummated immediately following the First Exchange; and (ii)
approve an increase in the authorized preferred stock of the Company from
20,000,000 shares to 120,000,000 shares.
A special committee of the Board of Directors, consisting solely of
Directors who are independent of Hollinger Inc. thoroughly reviewed and
unanimously approved the Canadian Newspaper Transaction, and the issuance and
exchange of the Company's securities in connection therewith. Based on the
special committee's recommendation, the Board of Directors recommends that you
vote in favor of the proposal to exchange and issue certain of the Company's
securities. The Board of Directors also recommends that you vote in favor of the
proposal to increase the authorized preferred stock of the Company. The
proposals are more fully described in the enclosed Notice of Meeting and Proxy
Statement, which you are encouraged to read carefully. Hollinger Inc. has
sufficient voting power to approve the proposals regardless of the vote of any
other stockholder.
The Board of Directors appreciates and encourages stockholder participation
in the Company's affairs. Whether or not you plan to attend the Special Meeting,
it is important that your shares be represented. Accordingly, we request that
you sign, date and mail the enclosed proxy in the postage paid envelope provided
at your earliest convenience.
Very truly yours,
/s/ CONRAD M. BLACK
CONRAD M. BLACK
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE> 3
Hollinger International Inc. Logo
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
TELEPHONE (312) 321-2299; FACSIMILE (312) 321-0629
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1997
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Hollinger
International Inc. (the
"Company") will be held in the Atrium, 7th Floor of The Sun-Times Building, 401
North Wabash Avenue, Chicago, Illinois 60611, on July 10, 1997, at 11:00 a.m.,
local time, for the following purposes:
1. To authorize (a) the issuance to UniMedia Holding Company, a
subsidiary of Hollinger Inc. ("UniMedia Holding"), of 8,294,090 shares of
Series C Convertible Preferred Stock, par value $.01 per share of the
Company (the "Series C Preferred Stock") (including up to 8,294,090 shares
of Class A Common Stock, par value $.01 per share ("Class A Common Stock"),
into which the shares of Series C Preferred Stock are convertible) and
3,207,045 shares of Class A Common Stock, in exchange for 23,267 shares of
Series 1 Nonvoting Preferred Stock and 149,658 shares of Series 2 Nonvoting
Stock Preferred Stock of the Company held by UniMedia Holding (the "First
Exchange") and (b) immediately following the First Exchange, the issuance
to UniMedia Holding of 8,294,090 shares of Class A Common Stock in exchange
for 8,294,090 shares of Series C Preferred Stock and the issuance of
8,294,090 shares of Series C Preferred Stock to a wholly owned subsidiary
of Hollinger Inc. in exchange for 8,294,090 outstanding shares of Class A
Common Stock directly owned by such subsidiary (the "Second Exchange") (the
First Exchange and the Second Exchange are referred to herein as the
"Exchange Proposal").
2. To approve and adopt an amendment to the Restated Certificate of
Incorporation, as amended (the "Restated Certificate") of the Company, to
increase the authorized preferred stock of the Company from 20,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), to
120,000,000 shares of Preferred Stock (the "Charter Proposal").
3. To transact such further and other business as may properly come
before the meeting or any adjournments or postponements thereof.
The Exchange Proposal and the Charter Proposal (together, the "Proposals")
each will be voted upon separately by the stockholders of the Company. Approval
of the Exchange Proposal requires the approval of a majority of the total votes
cast on the proposal in person or by proxy by the holders of the Class A Common
Stock, Class B Common Stock, par value $.01 par share ("Class B Common Stock"
and, together with Class A Common Stock, "Common Stock"), and Series B
Convertible Preferred Stock, par value $.01 per share ("Series B Preferred
Stock"), of the Company, voting together as a single class. Approval of the
Charter Proposal requires the approval of a majority of the voting power of all
the outstanding shares of Common Stock and Series B Preferred Stock voting
together as a single class. Each share of Class A Common Stock is entitled to
one vote per share, each share of Class B Common Stock is entitled to ten votes
per share, and each half share of Series B Preferred Stock is entitled to 4/5 of
a vote per half share.
The Board of Directors has fixed the close of business on May 20, 1997 (the
"Record Date") as the record date for the determination of stockholders entitled
to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. A list of stockholders as of the Record Date will be
available for inspection by stockholders at the Company's principal executive
office at the address set forth above during ordinary business hours in the
ten-day period prior to and including the Special Meeting. Stockholders of the
Company will not have the right to seek an appraisal of their shares of Common
Stock in connection with the Proposals. See "Dissenting Stockholders" in the
attached Proxy Statement.
As of the Record Date, Hollinger Inc. directly or indirectly owned all of
the outstanding shares of Class B Common Stock and 33,610,754 shares of Class A
Common Stock which represented 77.75% of the outstanding combined voting power
of the Common Stock and Series B Preferred Stock. Therefore, Hollinger Inc. has
sufficient voting power to approve the Proposals regardless of the vote of any
other stockholders. As described in the attached Proxy Statement, Hollinger Inc.
has agreed to vote in favor of the Proposals.
By Order of the Board of Directors
KENNETH L. SEROTA
Vice President-Law & Finance and Secretary
May 21, 1997
If you are unable to attend the meeting in person, you are requested to
mark, sign, date and return the enclosed proxy card in the enclosed, addressed,
postage paid envelope provided for that purpose.
<PAGE> 4
Hollinger International Inc. Logo
------------------------
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1997
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Hollinger International Inc., a Delaware
corporation (the "Company"), for use at the Special Meeting of Stockholders of
the Company to be held on July 10, 1997 (the "Special Meeting") at 11:00 a.m.,
local time, in the Atrium, 7th Floor of The Sun-Times Building, 401 North Wabash
Avenue, Chicago, Illinois 60611. This Proxy Statement is being mailed on or
about May 21, 1997. Proxies are being solicited from holders of record as of the
close of business on May 20, 1997 (the "Record Date") of the outstanding shares
of Class A Common Stock, par value $.01 per share ("Class A Common Stock"),
Class B Common Stock, par value $.01 per share ("Class B Common Stock," and
together with Class A Common Stock, "Common Stock"), and Series B Convertible
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), of the
Company for use at the Special Meeting and at any adjournments or postponements
thereof.
On April 18, 1997, certain Canadian newspaper interests owned and
controlled by Hollinger Inc., the parent corporation of the Company, were
purchased by a Canadian company in the Company's consolidated group, from
Hollinger Inc. (the "Canadian Newspaper Transaction"), effective as of January
1, 1997, for an aggregate consideration of approximately Cdn.$523.0 million
(U.S.$373.5 million (using exchange rates in effect on April 18, 1997)) pursuant
to (i) the UniMedia Class A Stock Purchase Agreement dated as of April 18, 1997
among Hollinger Inc., UniMedia Holding Company, a subsidiary of Hollinger Inc.
("UniMedia Holding"), and the Company (the "UniMedia Class A Stock Purchase
Agreement"), (ii) the UniMedia Class B Stock Purchase Agreement dated as of
April 18, 1997 among Hollinger Inc., UniMedia Holding and the Company (the
"UniMedia Class B Stock Purchase Agreement"), and (iii) the Sterling Purchase
Agreement dated as of April 18, 1997 between Hollinger Inc. and Hollinger
Canadian Publishing Holdings Inc. ("Hollinger Canadian Publishing") (the
"Sterling Purchase Agreement"). (The UniMedia Class A Stock Purchase Agreement,
the UniMedia Class B Stock Purchase Agreement and the Sterling Purchase
Agreement are collectively referred to as the "Purchase Agreements.") The
Canadian newspaper interests transferred to the Company consist of the Sterling
Newspaper Group and UniMedia Inc. (collectively, the "Canadian Newspapers").
Pursuant to the UniMedia Class A Stock Purchase Agreement, the Company paid
UniMedia Holding consideration consisting of Cdn.$19.373 million in cash and
149,658 shares of newly issued Series 2 Nonvoting Preferred Stock, par value
$.01 per share, of the Company ("Series 2 Preferred Stock") with a stated issue
price of Cdn.$149.658 million. Pursuant to the UniMedia Class B Stock Purchase
Agreement, the Company paid UniMedia Holding consideration consisting of
Cdn.$100,000 in cash and 23,267 shares of newly issued Series 1 Nonvoting
Preferred Stock, par value $.01 per share, of the Company ("Series 1 Preferred
Stock") with a stated issue price of Cdn.$23.267 million. Pursuant to the
Sterling Purchase Agreement, Hollinger Canadian Publishing paid Hollinger Inc.
consideration consisting of Cdn.$330.602 million in cash.
As a condition to the closing of the Purchase Agreements, the Company,
Hollinger Inc. and UniMedia Holding entered into an Exchange Agreement dated as
of April 18, 1997 (the "Exchange Agreement") pursuant to which the Company
agreed to exchange all of the shares of Series 1 Preferred Stock and Series 2
Preferred Stock issued to UniMedia Holding as consideration under the UniMedia
Class A Stock Purchase Agreement and the UniMedia Class B Stock Purchase
Agreement for an aggregate of 3,207,045 shares of Class A Common Stock and
8,294,090 shares of Series C Convertible Preferred Stock, par value $.01 per
share of the Company ("Series C Preferred Stock"), subject to receiving the
requisite approval of the stockholders of the Company. In addition, the Company,
Hollinger Inc., UniMedia Holding and 1159670 Ontario Limited, a wholly owned
subsidiary of Hollinger Inc., entered into a Second Exchange Agreement dated as
of May 20, 1997 (the "Second Exchange Agreement") pursuant to which the Company
agreed to issue 8,294,090 shares of Class A Common Stock to UniMedia Holding in
exchange for the issued Series C Preferred Stock, and to issue 8,294,090 shares
of Series C Preferred Stock to 1159670 Ontario Limited (and/
<PAGE> 5
or another designated subsidiary of Hollinger Inc.) in exchange for 8,294,090
shares of outstanding Class A Common Stock owned by 1159670 Ontario Limited. The
exchanges contemplated by the Second Exchange Agreement would occur immediately
following the First Exchange, subject to receiving the requisite approval of the
stockholders of the Company. In accordance with the rules of the New York Stock
Exchange (the "NYSE"), on which the Company's Class A Common Stock and Preferred
Redeemable Increased Dividend Equity Securities ("PRIDES") are listed, the
Company is required to obtain stockholder approval for the First Exchange and
the Second Exchange.
At the Special Meeting, the stockholders of the Company will be asked to
vote upon the following proposals (the "Proposals"):
1. To authorize (a) the issuance to UniMedia Holding of 8,294,090
shares of Series C Preferred Stock (including up to 8,294,090 shares of
Class A Common Stock into which the shares of Series C Preferred Stock are
convertible) and 3,207,045 shares of Class A Common Stock, in exchange for
23,267 shares of Series 1 Preferred Stock and 149,658 shares of Series 2
Preferred Stock held by UniMedia Holding (the "First Exchange") and (b)
immediately following the First Exchange, the issuance to UniMedia Holding
of 8,294,090 shares of Class A Common Stock in exchange for 8,294,090
shares of Series C Preferred Stock and the issuance of 8,294,090 shares of
Series C Preferred Stock to a wholly owned subsidiary of Hollinger Inc. in
exchange for 8,294,090 outstanding shares of Class A Common Stock directly
owned by such subsidiary (the "Second Exchange") (the First Exchange and
the Second Exchange are referred to herein as the "Exchange Proposal").
2. To approve and adopt an amendment to the Restated Certificate of
Incorporation, as amended (the "Restated Certificate") of the Company, to
increase the authorized preferred stock of the Company from 20,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), to
120,000,000 shares of Preferred Stock (the "Charter Proposal").
3. To transact such further and other business as may properly come
before the meeting and any adjournments or postponements thereof.
It is expected that the solicitation will be primarily by mail or
telephone, but proxies may also be solicited personally by regular employees of
the Company. The cost of such solicitation will be borne by the Company. The
Company will not pay any compensation for the solicitation of proxies, but upon
request will reimburse banks, brokers and other nominees for their reasonable
expenses incurred in sending proxy materials to beneficial owners and obtaining
their instructions.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 4
THE SPECIAL MEETING................................................................... 6
General.......................................................................... 6
Record Date...................................................................... 7
Required Votes................................................................... 7
Proxies.......................................................................... 7
Ownership by Hollinger Inc....................................................... 8
THE CANADIAN NEWSPAPER TRANSACTION.................................................... 9
Overview......................................................................... 9
Selected Historical and Pro Forma Financial Data of the Canadian Newspapers
and the Company................................................................ 9
Background of the Canadian Newspaper Transaction................................. 10
Recommendation of the Special Committee and Board of Directors of the Company.... 14
Opinion of Financial Advisor to the Special Committee............................ 14
Terms of the Canadian Newspaper Transaction...................................... 18
Terms of the Series 1 and 2 Preferred Stock...................................... 21
THE EXCHANGE PROPOSAL................................................................. 22
Terms of the Exchange Agreement.................................................. 22
Terms of the Series C Preferred Stock............................................ 23
Terms of the Second Exchange Agreement........................................... 24
Interests of Certain Persons in the Exchange Proposal............................ 24
THE CHARTER PROPOSAL.................................................................. 24
Description of Capital Stock..................................................... 24
Certain Anti-Takeover Considerations............................................. 28
THE COMPANY........................................................................... 30
United States Newspaper Group.................................................... 30
International Newspaper Group.................................................... 30
Market Prices and Dividend Policy................................................ 32
Principal Stockholders........................................................... 33
Certain Relationships and Related Transactions................................... 35
DISSENTING STOCKHOLDERS............................................................... 41
INDEPENDENT AUDITORS.................................................................. 41
STOCKHOLDER PROPOSALS................................................................. 41
OTHER MATTERS......................................................................... 41
</TABLE>
ANNEXES
A. Opinion of Financial Advisor to the Special Committee
B. Exchange Agreement dated as of April 18, 1997 among Hollinger Inc., Hollinger
International Inc. and UniMedia Holding Company
C. Second Exchange Agreement dated as of May 20, 1997 among Hollinger Inc.,
UniMedia Holding Company, 1159670 Ontario Limited and Hollinger International
Inc.
D. Form of Amendment to the Restated Certificate of Incorporation, as amended,
of Hollinger International Inc.
3
<PAGE> 7
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy solicitation materials and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy solicitation materials and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's site address, http://www.sec.gov. The Class A Common
Stock and the PRIDES of the Company are listed on the NYSE. Such reports, proxy
solicitation materials and other information can also be inspected and copied at
the NYSE at 20 Broad Street, New York, New York 10003.
No person is authorized to give any information or make any representation
other than those contained or incorporated by reference in this Proxy Statement,
and, if given or made, such information or representation should not be relied
upon as having been authorized. This Proxy Statement does not constitute the
solicitation of a proxy in any jurisdiction in which such solicitation is not
authorized or to or from any person to whom it is unlawful to make such
solicitation. The information contained in this Proxy Statement regarding the
Company has been furnished by the Company and information herein regarding
Hollinger Inc. has been furnished by Hollinger Inc.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-24004) pursuant to the Exchange Act are incorporated herein by reference:
1. the Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. the Company's Current Reports on Form 8-K dated December 11, 1996
(as amended on February 24, 1997), January 7, 1997, February 28, 1997,
March 18, 1997 and April 18, 1997; and
3. the Company's Proxy Statement dated March 28, 1997.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Proxy Statement and prior to the Annual Meeting shall be deemed to be
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Proxy Statement.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, upon the written or oral request of such
person, by first class mail or equally prompt means within one business day of
receipt of such request, a copy of any or all of the documents that are
incorporated herein by reference, other than exhibits to such information
(unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to Hollinger International Inc., 401
North Wabash Avenue, Chicago, Illinois 60611, Attention: Secretary, telephone
number (312) 321-2299.
* * *
As used in this Proxy Statement, unless the context otherwise requires, (i)
the "Company" refers to Hollinger International Inc. and its consolidated
subsidiaries and affiliated companies; (ii) "Publishing" refers to Hollinger
International Publishing Inc. and its consolidated subsidiaries and affiliated
companies; (iii) "Chicago Sun-Times" refers to The Sun-Times Company and its
consolidated subsidiaries;
4
<PAGE> 8
(iv) "Jerusalem Post" refers to the subsidiaries of the Company which publish
The Jerusalem Post; (v) "The Telegraph" refers to Telegraph Group Limited
(formerly The Telegraph plc) and its consolidated subsidiaries and affiliated
companies; (vi) "DTH" refers to DT Holdings Limited; (vii) "FDTH" refers to
First DT Holdings Limited; (viii) "HTH" refers to Hollinger-Telegraph Holdings
Inc.; (ix) "Hollinger Inc." refers to Hollinger Inc. and its consolidated
subsidiaries; (x) "Southam" refers to Southam Inc. and its consolidated
subsidiaries; (xi) "Fairfax" refers to John Fairfax Holdings Limited and its
consolidated subsidiaries; and (xii) "Hollinger Canadian Publishing" refers to
Hollinger Canadian Publishing Holdings Inc.
All dollar references in this Proxy Statement are to United States dollars
unless otherwise specifically indicated. Except as otherwise indicted, the
financial information in this Proxy Statement relating to The Telegraph has been
translated into United States dollars ("$") from British pounds sterling ("L")
and British pence ("p"), financial information relating to Fairfax has been
translated into United States dollars from Australian dollars ("A$"), and
financial information relating to Southam and the Canadian Newspapers has been
translated into United States dollars from Canadian dollars ("Cdn.$"), using
exchange rates at the end of the period for which the relevant statements are
prepared for assets, liabilities and minority interest and the weighted average
exchange rates for the relevant period for items in the statements of
operations.
On May 20, 1997, the noon buying rate in The City of New York for cable
transfers in United States dollars as certified for customs purposes by the
Federal Reserve Bank of New York was Cdn.$1.00 per $.7273, L1.00 per $1.6438 and
A$1.00 per $.7742.
Unless otherwise indicated, all circulation information contained in this
Proxy Statement represents average daily or non-daily circulation as of December
31, 1996, as the case may be (after giving effect to the subsequent disposition
of the Company's interest in Fairfax), derived from the following sources: (a)
for the Company's United States community newspapers, the Chicago Sun-Times, the
Daily Southtown and the Tribune-Democrat in Johnstown, Pennsylvania,
Chicago-area suburban newspapers and Jerusalem Post, from the Company's
unaudited internal records for the month of December 1996; (b) for The Daily
Telegraph and The Sunday Telegraph, from unaudited circulation reports furnished
to the Audit Bureau of Circulations in the United Kingdom for the six month
period July 1996 to January 1997; and (c) for Southam, from unaudited internal
records.
5
<PAGE> 9
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company from holders of Class A Common
Stock, Class B Common Stock and Series B Preferred Stock for use at the Special
Meeting.
On April 18, 1997, certain Canadian newspaper interests owned and
controlled by Hollinger Inc., the parent corporation of the Company, were
purchased by Hollinger Canadian Publishing, a Canadian company in the Company's
consolidated group, from Hollinger Inc. in the Canadian Newspaper Transaction,
effective as of January 1, 1997, for an aggregate consideration of approximately
Cdn. $523.0 million (U.S.$373.5 million (using exchange rates in effect on April
18, 1997)) pursuant to the (i) UniMedia Class A Stock Purchase Agreement, (ii)
the UniMedia Class B Stock Purchase Agreement and (iii) the Sterling Purchase
Agreement. The Canadian Newspapers transferred to the Company consist of the
Sterling Newspaper Group and UniMedia Inc. Pursuant to the UniMedia Class A
Stock Purchase Agreement, the Company paid UniMedia Holding consideration
consisting of Cdn.$19.373 million in cash and 149,658 shares of newly issued
Series 2 Preferred Stock of the Company with a stated issue price of
Cdn.$149.658 million. Pursuant to the UniMedia Class B Stock Purchase Agreement,
the Company paid UniMedia Holding consideration consisting of Cdn.$100,000 in
cash and 23,267 shares of newly issued Series 1 Preferred Stock of the Company
with a stated issue price of Cdn.$23.267 million. Pursuant to the Sterling
Purchase Agreement, Hollinger Canadian Publishing paid Hollinger Inc.
consideration consisting of Cdn.$330.602 million in cash.
As a condition to the closing of the Purchase Agreements, the Company,
Hollinger Inc. and UniMedia Holding entered into the Exchange Agreement,
pursuant to which the Company agreed to exchange all of the shares of Series 1
Preferred Stock and Series 2 Preferred Stock issued to UniMedia Holding as
consideration under the UniMedia Class A Stock Purchase Agreement and the
UniMedia Class B Stock Purchase Agreement for an aggregate of 3,207,045 shares
of Class A Common Stock and 8,294,090 shares of Series C Preferred Stock of the
Company, subject to receiving the requisite approval of the stockholders of the
Company. In addition, the Company, Hollinger Inc., UniMedia Holding and 1159670
Ontario Limited, a wholly owned subsidiary of Hollinger Inc., entered into the
Second Exchange Agreement dated as of May 20, 1997 pursuant to which the Company
agreed to issue 8,294,090 shares of Class A Common Stock to UniMedia Holding in
exchange for the issued Series C Preferred Stock, and to issue 8,294,090 shares
of Series C Preferred Stock to 1159670 Ontario Limited (and/or another
designated subsidiary of Hollinger Inc.) in exchange for 8,294,090 shares of
outstanding Class A Common Stock owned by 1159670 Ontario Limited. The exchanges
contemplated by the Second Exchange Agreement would occur immediately following
the First Exchange, subject to receiving the requisite approval of the
stockholders of the Company. In accordance with the rules of the NYSE, on which
the Company's Class A Common Stock and PRIDES are listed, the Company is
required to obtain stockholder approval for the First Exchange and the Second
Exchange.
In connection with the Canadian Newspaper Transaction and the other matters
to be considered at the Special Meeting, the stockholders of the Company will be
asked to vote upon the following Proposals:
1. EXCHANGE PROPOSAL: To (a) authorize the issuance to UniMedia Holding of
8,294,090 shares of Series C Preferred Stock (including up to 8,294,090
shares of Class A Common Stock into which the shares of Series C
Preferred Stock are convertible) and 3,207,045 shares of Class A Common
Stock, in exchange for 23,267 shares of Series 1 Preferred Stock and
149,658 shares of Series 2 Preferred Stock held by UniMedia Holding in
the First Exchange and (b) immediately following the First Exchange, the
issuance to UniMedia Holding of 8,294,090 shares of Class A Common Stock
in exchange for 8,294,090 shares of Series C Preferred Stock, and the
issuance of 8,294,090 shares of Series C Preferred Stock to a wholly
owned subsidiary of Hollinger Inc. in exchange for 8,294,090 outstanding
shares of Class A Common Stock directly owned by such subsidiary in the
Second Exchange.
6
<PAGE> 10
2. CHARTER PROPOSAL: To approve and adopt an amendment to the Restated
Certificate of the Company to increase the authorized preferred stock of
the Company from 20,000,000 shares of Preferred Stock to 120,000,000
shares of Preferred Stock.
3. OTHER MATTERS: To transact such further and other business as may
properly come before the meeting and any adjournments or postponements
thereof.
Each of the Proposals will be voted upon separately by the stockholders of the
Company.
RECORD DATE
The Board of Directors of the Company has fixed the close of business on
May 20, 1997 as the Record Date for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting. Only holders of record of shares
of Common Stock and Series B Preferred Stock at the close of business on the
Record Date will be entitled to notice of and to vote at the Special Meeting. On
the Record Date, 69,565,754 shares of Class A Common Stock were outstanding and
held by approximately 208 holders of record (and approximately 4,500 beneficial
owners), 14,990,000 shares of Class B Common Stock were outstanding and held
directly or indirectly by Hollinger Inc., and 10,350,000 shares of Series B
Preferred Stock were outstanding and held by one holder of record (and
approximately 2,700 beneficial owners). Each share of Class A Common Stock is
entitled to one vote per share held of record on the Record Date, each share of
Class B Common Stock is entitled to ten votes per share held of record on the
Record Date, and each one half share of Series B Preferred Stock is entitled to
4/5 of a vote per half share held of record on the Record Date (each one half
share of Series B Preferred Stock underlies one of the Company's PRIDES and is
represented by a depositary share).
REQUIRED VOTES
The Exchange Proposal and the Charter Proposal each will be voted upon
separately by the stockholders of the Company. Approval of the Exchange Proposal
requires the approval of a majority of the total votes cast on the proposal in
person or by proxy by the holders of the Common Stock and Series B Preferred
Stock voting together as a single class. Approval of the Charter Proposal
requires the approval of a majority of the voting power of all the outstanding
shares of Common Stock and Series B Preferred Stock voting together as a single
class. Abstentions from voting will have the effect of a vote against the
Proposals, and broker non-votes will have no effect except that broker non-votes
will have the effect of a vote against the Charter Proposal.
As of the Record Date, Hollinger Inc. has a majority equity ownership in
interest in the Company, which consists of approximately 51.21% of the combined
equity interest, and approximately 77.75% of the combined voting power, of the
outstanding Common Stock and Series B Preferred Stock. Hollinger Inc. has
sufficient voting power to approve the Proposals regardless of the vote of any
other stockholders. Hollinger Inc. has agreed that it will vote in favor of the
Proposals.
PROXIES
Stockholders of record on the Record Date are entitled to cast their votes,
in person or by properly executed proxy, at the Special Meeting. The presence,
in person or by properly executed proxy, of the holders of a majority of the
voting power attributable to the outstanding shares of Common Stock and Series B
Preferred Stock is necessary to constitute a quorum at the Special Meeting.
All shares represented at the Special Meeting by properly executed proxies
received prior to or at the Special Meeting and not properly revoked will be
voted at the Special Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated, such proxies will be voted FOR
approval of the Proposals. The Board of Directors of the Company does not know
of any matters, other than the matters described in the Notice of Special
Meeting attached to this Proxy Statement, that will come before the Special
Meeting.
If a quorum is not present at the time the Special Meeting is convened, or
if for any other reason the Company believes that additional time should be
allowed for the solicitation of proxies, the Company may adjourn or postpone the
Special Meeting with a vote of the stockholders. If the Company proposes to
adjourn
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<PAGE> 11
or postpone the Special Meeting, the persons named in the enclosed proxy card
will vote all shares for which they have voting authority in favor of such
adjournment or postponement.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the Special Meeting, a written
notice of revocation bearing a date later than the date of the proxy, (ii) duly
executing a subsequent proxy relating to the same shares and delivering it to
the Secretary of the Company at or before the Special Meeting, or (iii)
attending the Special Meeting and voting in person (although attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy). Any
written notice revoking a proxy should be sent to: Hollinger International Inc.,
401 North Wabash Avenue, Chicago, Illinois 60611, Attention: Secretary.
Proxies are being solicited by and on behalf of the Board of Directors of
the Company. All expenses of this solicitation, including the cost of mailing
this Proxy Statement, will be borne by the Company. In addition to solicitation
by use of the mails, proxies may be solicited by directors, officers and
employees of the Company in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated but may be reimbursed for out-of-pocket expenses in connection with
such solicitation. Arrangements will be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation material to beneficial owners
of Common Stock held of record by such persons, and the Company may reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
OWNERSHIP BY HOLLINGER INC.
Hollinger Inc. directly and indirectly owns approximately 51.21% of the
combined equity interest and approximately 77.75% of the combined voting power
of the outstanding Class A Common Stock, Class B Common Stock and Series B
Preferred Stock of the Company (without giving effect to the future issuance of
Class A Common Stock in connection with the PRIDES or the Series A Convertible
Redeemable Preferred Stock, par value $.01 per share ("Series A Preferred
Stock"), of the Company or the proposed issuances of Series C Preferred Stock
and Class A Common Stock under the Exchange Proposal). As a result, Hollinger
Inc. will continue to be able to control the outcome of any election of
directors and to direct management policy, strategic direction and financial
decisions of the Company and its subsidiaries. Hollinger Inc. owns all of the
outstanding Series A Preferred Stock, which is convertible at any time into
shares of Class A Common Stock at the initial conversion price of the Canadian
dollar equivalent of $14 per share. Based on the initial conversion price,
5,632,685 shares of Class A Common Stock would have been issuable as of May 20,
1997.
Hollinger Inc. is effectively controlled by The Hon. Conrad M. Black,
Chairman of the Board and Chief Executive Officer of Hollinger Inc. and the
Company, through his direct and indirect ownership and control of Hollinger
Inc.'s securities.
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<PAGE> 12
THE CANADIAN NEWSPAPER TRANSACTION
OVERVIEW
The Canadian Newspaper Transaction consists of the transfer of certain of
Hollinger Inc.'s Canadian Newspapers, including (a) certain newspaper assets
located mainly in Ontario, including 11 daily and 27 non-daily newspapers, (b)
certain newspaper assets located mainly in Saskatchewan, including four daily
and six non-daily newspapers, (c) certain newspaper assets located mainly in
British Columbia, including eight daily and 16 non-daily newspapers, and (d)
UniMedia Inc., which publishes two daily and 14 non-daily newspapers located in
Quebec and one daily newspaper located in Ontario. The Canadian Newspapers have
been transferred to Hollinger Canadian Publishing, in which (i) Publishing and
its subsidiaries own 100% of the non-voting equity shares and non-voting
preference shares and (ii) each of Publishing and Hollinger Inc. (through its
wholly-owned subsidiary) own 50% of the voting preference shares which have only
nominal equity value.
The Canadian Newspapers were held by Hollinger Inc. directly or indirectly
through its Sterling Newspaper Group and UniMedia Inc.
STERLING NEWSPAPER GROUP. The Sterling Newspaper Group consists of
newspapers in Canada which were owned and operated directly by Hollinger Inc.
and its wholly-owned subsidiary, Sterling Newspapers Ltd., a British Columbia
corporation ("Sterling"), since the 1980s. Sterling has publications in British
Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Prince Edward Island,
which include 23 daily newspapers and 30 non-daily newspapers. Sterling expanded
its operations by the acquisition in October 1995 of 18 Canadian paid
circulation newspapers from The Thomson Corporation, and the February 1996
acquisition from Armadale Co., Ltd., of two daily newspapers, the Regina
Leader-Post and the Saskatoon Star Phoenix, which were Hollinger Inc.'s two
largest English-language daily newspapers in Canada, and eight non-daily
community newspapers in Alberta, Saskatchewan and Manitoba.
UNIMEDIA INC. UniMedia Inc., a wholly-owned, indirectly held subsidiary of
Hollinger Inc. ("UniMedia") since 1987, operates two paid circulation daily
French language newspapers in the Province of Quebec and one paid circulation
daily in Ontario. In addition, UniMedia operates 13 non-daily newspapers,
several publication distribution businesses and has several ancillary
businesses, including the publication of religious books.
BUSINESS STRATEGY. The Company believes that the consolidation of the
Canadian Newspapers, as well as Southam, in the Company should enhance cash
flows and further improve the equity markets' valuation of the Company's assets
as a result of the increased size of the Company, anticipated future growth in
operating margins in the acquired properties, and synergies with the Company's
comparable Canadian newspapers held by Southam and its Community Newspapers
group. The Company intends to continue current efforts to improve the
profitability of the Canadian Newspapers and to capitalize on profitability
improvements already introduced by Hollinger Inc. The approach of both the
Company and Hollinger Inc. to improving profitability typically includes
measures to reduce costs, improve efficiency and enhance product quality,
including the visual quality of printed pages. Generally, the most significant
source of savings is labor costs. The Company also intends to achieve additional
cost savings through the centralization of newsprint purchasing and certain
other functions, such as accounting and personnel. The Company intends to
coordinate, to the extent practicable, its newsprint purchase for its United
States newspapers with those of the Canadian Newspapers acquired from Hollinger
Inc. as well as Southam's newsprint purchases. To achieve greater product
quality and cost reductions, the Company, where justified by economic and
operational criteria, may regionalize production operations at its Canadian
community newspapers and may explore the feasibility of such regionalization
with Southam's newspaper operations in Canada. The Company also intends to
enhance advertising and circulation revenues by focusing on the natural
circulation and readership advantages of the particular newspapers acquired.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF THE CANADIAN NEWSPAPERS AND
THE COMPANY
The selected financial data presented below for the year ended December 31,
1996 sets forth selected historical financial data for the Canadian Newspapers
and selected historical and pro forma financial data (after giving effect to the
Canadian Newspaper Transaction) for the Company.
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<PAGE> 13
<TABLE>
<CAPTION>
CANADIAN
NEWSPAPERS THE COMPANY
-------------- ----------------------------
YEAR ENDED YEAR ENDED DECEMBER 31, 1996
DECEMBER 31, 1996 ----------------------------
----------------- PRO
HISTORICAL(1) HISTORICAL(2) FORMA(2)
-------------- ---------- ----------
(IN THOUSANDS OF
CANADIAN DOLLARS) (IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenue..................................... $296,582 $1,862,714 $2,074,099
EBITDA...................................... 43,390 220,686 251,201
Operating income............................ 26,898 127,833 148,767
Net income.................................. 20,440 31,663 36,513
BALANCE SHEET DATA
Working capital............................. 21,593 (432,411) (515,911)
Total asset................................. 361,971 3,189,088 3,362,539
Long-term debt.............................. 10,697 675,263 850,427
Shareholder's equity........................ 281,641 753,839 747,583
</TABLE>
- ---------
(1) Expressed in Canadian dollars and in accordance with Canadian generally
accepted accounting principles.
(2) Expressed in United States dollars and in accordance with United States
generally accepted accounting principles.
BACKGROUND OF THE CANADIAN NEWSPAPER TRANSACTION
On September 9, 1996, management of Hollinger Inc. advised the Company's
Board of Directors that Hollinger Inc. was considering the possibility of making
a proposal that would involve the sale to the Company of Hollinger Inc.'s
interest in Sterling Newspapers Limited (including all the assets purchased from
Thomson Newspapers and Armadale Ltd. in the preceding two years), UniMedia Inc.
and Saturday Night Magazine Limited. Because of Hollinger Inc.'s majority
interest in the Company and significant representation on its Board of
Directors, it was determined by the Company's directors that any such proposal
would require the review of a committee of directors independent of the Company
and Hollinger Inc. Accordingly, at the September 9, 1996 meeting, the Company's
directors unanimously approved the appointment of a Special Committee of the
Company's Board of Directors, consisting of Richard N. Perle, Chairman, Richard
R. Burt and James R. Thompson (the "Special Committee"). The Special Committee
was authorized to review, study, negotiate and make recommendations to the
Company's Board of Directors concerning any proposal that Hollinger Inc. might
make regarding the sale of its Canadian newspaper assets to the Company. To
assist in its deliberations, the Special Committee also was authorized to retain
legal counsel and an independent investment banking firm.
After its formation, the Special Committee retained RBC Dominion Securities
Inc. ("RBC Dominion Securities") to serve as the Special Committee's financial
advisor to assist in analyzing any transaction involving the purchase by the
Company of Hollinger Inc.'s Canadian newspaper assets and, if requested by the
Special Committee, to render an opinion as to the fairness, from a financial
point of view, of the consideration to be paid by the Company pursuant to any
such transaction to the Company and the holders of the Class A Common Stock and
Series B Preferred Stock of the Company, other than Hollinger Inc. The Special
Committee also retained Weil, Gotshal & Manges LLP to serve as the Special
Committee's legal advisor.
Following its retention, RBC Dominion Securities conducted an in-depth due
diligence review of Hollinger Inc.'s Canadian newspaper assets and, in
connection therewith, met with members of management of Hollinger Inc. and
reviewed information supplied to it regarding the financial and operating
performance, prospects and forecasts for Hollinger Inc.'s Canadian Newspapers.
The Special Committee met on several occasions with RBC Dominion Securities to
review the results of its due diligence review of the Canadian newspaper assets.
At these meetings, RBC Dominion Securities reviewed with the Special Committee a
number of valuation methodologies and reported on its preliminary financial
assessment of Hollinger Inc.'s
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<PAGE> 14
Canadian Newspapers. The Special Committee and its advisors also discussed the
strategic rationale for the Company's acquisition of Hollinger Inc.'s Canadian
newspaper assets and the benefits of such a transaction to the Company and
reviewed a number of other relevant considerations, including the pro forma
financial impact of a transaction on the Company and various issues relating to
the future financial performance of Hollinger Inc.'s Canadian newspapers.
On November 26, 1996, Hollinger Inc. submitted a proposal to the Special
Committee regarding the Company's acquisition of Hollinger Inc.'s Canadian
newspaper assets. The consideration proposed by Hollinger Inc. to be paid by the
Company equaled Cdn.$570 million, with the possibility of aggregate payments to
Hollinger Inc. of as high as Cdn.$617.5 million depending on the financial
performance of the Canadian newspaper assets in 1997. In addition, the proposal
also contemplated the sale of Hollinger Inc.'s head office in Toronto and
western executive office in Vancouver for Cdn.$10 million.
Following its receipt of Hollinger Inc.'s proposal, the Special Committee
and its advisors met to review RBC Dominion Securities' financial assessment of
the Canadian newspaper assets and the consideration to be paid for the assets as
proposed by Hollinger Inc. At this meeting, the Special Committee unanimously
determined that the consideration should be reduced from the level proposed by
Hollinger Inc. The Special Committee members also concluded that the Company
should not purchase Hollinger Inc.'s offices in Toronto and Vancouver.
In early December 1996 the Special Committee and its advisors held a
telephonic conference call with Conrad M. Black and F. David Radler to discuss
the Special Committee's views regarding the Hollinger Inc. proposal. During this
conference call, Messrs. Black and Radler explained Hollinger Inc.'s rationale
for its November 26, 1996 proposal, and discussed the pricing in recent
newspaper transactions and the anticipated financial results for the Canadian
newspaper assets that they believed supported the price level reflected in
Hollinger Inc.'s proposal. The Special Committee and RBC Dominion Securities
also discussed with Messrs. Black and Radler the basis for the Special
Committee's view that the consideration proposed by Hollinger Inc. should be
reduced. At the conclusion of the call, the Special Committee requested RBC
Dominion Securities to meet with the appropriate Hollinger Inc. personnel to
review the financial information and forecasts referred to by Messrs. Black and
Radler which had not previously been made available to the Special Committee and
its advisors.
During early-to-mid December 1996, RBC Dominion Securities reviewed
additional information concerning the Canadian newspaper assets and, based
thereon, further refined its financial assessment. The Special Committee met by
telephonic conference call on a number of occasions to review with RBC Dominion
Securities its assessment of the Canadian newspaper assets and its views
regarding the range of fair values for the Canadian newspaper assets. Based on
these meetings, the Special Committee authorized Richard N. Perle to negotiate
on behalf of the Special Committee a reduced purchase price within a range of
values designated by the Special Committee.
During mid-to-late December Mr. Perle and Mr. Black had a number of
telephone conversations regarding Hollinger Inc.'s proposal. During the
conversations, Mr. Perle reiterated the Special Committee's belief that the
consideration should be reduced from the level indicated in Hollinger Inc.'s
November 26, 1996 proposal. At the conclusion of those conversations, Mr. Perle
and Mr. Black agreed that they would each recommend a price of Cdn.$523 million,
subject to resolution of all outstanding issues. Following these discussions of
Messrs. Perle and Black, representatives of Hollinger Inc. and the Special
Committee negotiated the form of the consideration to be paid by the Company and
the terms of the securities to be issued to Hollinger Inc. in payment for the
Canadian newspaper assets.
Subsequent to the agreement of Messrs. Perle and Black, the Special
Committee met with its advisors to review the consideration proposed to be paid
by the Company for Hollinger Inc.'s Canadian newspaper assets. The Special
Committee received the advice of RBC Dominion Securities that it would, at the
appropriate time and subject to various assumptions, render its opinion to the
effect that the consideration proposed to be paid by the Company is fair, from a
financial point of view, to the Company and the holders of the Class A Common
Stock and Series B Preferred Stock of the Company, other than Hollinger Inc. The
Special Committee also noted that its approval and recommendation of a
transaction would be subject to its review and approval of, among other things,
definitive documentation and the tax considerations and ownership
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<PAGE> 15
structure of the transaction. Subject to these matters, the Special Committee
determined to recommend that the full Board of Directors approve the Company's
acquisition of Hollinger Inc.'s Canadian newspaper assets and for Cdn.$523
million.
At a meeting of the Board of Directors on December 24, 1996, Mr. Black
informed the Board of Directors of the status of discussions between Hollinger
Inc. and the Special Committee. Mr. Perle confirmed that the Special Committee
had engaged in numerous discussions with its independent legal counsel and RBC
Dominion Securities, conducted extensive research into the valuation of
Hollinger Inc.'s Canadian newspaper assets and the fairness of the proposed
transaction to the Company, and participated in meetings with its legal counsel,
RBC Dominion Securities and Hollinger Inc. concerning the proposed transaction.
It was determined that the meeting be adjourned until January 7, 1997, at which
time a detailed presentation of the proposed transaction would be made to the
Board of Directors. The meeting was reconvened on January 7, 1997, at which time
Mr. Black and Mr. Perle discussed the proposed transaction with the Board. RBC
Dominion Securities then reviewed the proposed transaction with the Board of
Directors and delivered its oral opinion to the Board to the effect that, as of
January 7, 1997, and based upon and subject to the matters presented to the
Board, including the terms and conditions set forth in the proposed letter of
intent dated as of January 7, 1997 between the Company and Hollinger Inc. (the
"Letter of Intent"), the consideration proposed to be paid by the Company as
contemplated by the Letter of Intent was fair, from a financial point of view,
to the Company and the holders of the Class A Common Stock and Series B
Preferred Stock other than Hollinger Inc. After the presentation, the Board,
with Messrs. Black, Colson, Radler and Mrs. Black abstaining, approved the
proposed transaction and authorized the execution of the Letter of Intent. The
Letter of Intent provided for the acquisition of the Canadian Newspapers,
including (a) certain newspaper assets located mainly in Ontario, (b) certain
newspaper assets located mainly in Saskatchewan, (c) certain newspaper assets
located mainly in British Columbia, and (d) UniMedia, for an aggregate
consideration of approximately Cdn.$523.0 million ($382.0 million), subject to
working capital adjustments and currency exchange adjustments. The Letter of
Intent proposed that the purchase price, all of which would be payable to
Hollinger Inc., be satisfied as to approximately $250.0 million by the issuance
of a debt instrument payable on demand after six months, as to approximately
$90.0 million by the issuance of debentures exchangeable into a new series of
mandatorily convertible preferred stock of the Company similar to the PRIDES
issued by the Company in August 1996 having a face value of approximately $90.0
million, and as to approximately $42.0 million, by the issuance of debentures
exchangeable into shares of Class A Common Stock of the Company.
From mid-January through early April 1997, management of the Company and
Hollinger Inc. and their respective legal advisors reviewed the Letter of Intent
and determined that completion of the proposed transaction by means of the
Purchase Agreements and the Exchange Agreement would provide an optimal
structure for both parties. Drafts of the definitive Purchase Agreements, the
Exchange Agreement and related documentation were prepared and negotiated on
behalf of the Company and Hollinger Inc. subject to review by the Special
Committee and its legal and financial advisors. Hollinger Inc. and its Canadian
subsidiaries completed an internal reorganization in order to simplify the
ultimate transaction (in the form of conveyances of capital stock of UniMedia
and Sterling, rather than the operating assets of several subsidiaries and
divisions), to promote tax efficiencies and to facilitate the Company's
financing. The Company determined that Hollinger Canadian Publishing would be in
a position to pay the entire cash portion of the purchase price at closing
through internal funds and borrowings under the Amended Publishing Credit
Facility and, therefore, there would be no need to issue a promissory note to
Hollinger Inc. The Company also proposed that shares of the Company's Series 1
and Series 2 Preferred Stock be issued to UniMedia Holding at the closing,
subject to mandatory exchange following approval by the Company's stockholders,
rather than the convertible debenture contemplated by the Letter of Intent. The
Company also completed a comprehensive legal, tax and business due diligence
review of the Canadian Newspapers in which it was determined, among other
things, that Hollinger Inc.'s interests in Saturday Night Magazine Limited would
not be included in the transaction because that entity was incurring losses on
an on-going basis; and that the final list of Canadian Newspapers would be
modified slightly from the list attached to the Letter of Intent in order to
address certain Canadian competition law considerations and to permit Hollinger
Inc. to satisfy a pre-existing commitment to transfer one newspaper to a third
party. Management of the Company determined that these changes would
12
<PAGE> 16
not have an adverse impact on the aggregate EBITDA of the Canadian Newspapers
acquired by the Company. The Company also proposed that the effective date of
the transaction be set at January 1, 1997 (rather than January 7, as
contemplated by the Letter of Intent) in order to be more closely aligned with
the Company's financial statement presentation of the transaction on an "as if
pooling of interests" basis.
In early April 1997, the Special Committee's legal and financial advisors
commenced their review of the structure and documentation proposed by Hollinger
Inc. relating to the Company's acquisition of the Canadian newspaper assets. The
Special Committee's legal advisors, among other things, reviewed with the
respective legal counsel for the Company and Hollinger Inc. the ownership
structure contemplated for the Canadian newspaper assets, related corporate and
United States and Canadian tax issues and also reviewed drafts of the
documentation intended to implement the transaction. During these discussions,
the Special Committee's legal advisors requested various revisions to the
documentation, including the addition of representations and warranties by
Hollinger Inc. regarding the financial projections furnished to the Special
Committee and its advisors, tax matters and employee matters, the term of
survivability of the representations and warranties, various covenants of
Hollinger Inc. regarding, among other things, maintenance of the ownership
structure of the Canadian newspaper assets, Canadian and United States tax
matters and the agreement of Hollinger Inc. not to compete with the Canadian
newspaper assets. At the Special Committee's request, Hollinger Inc. also agreed
to a minimum value of $9.00 per share for purposes of determining the number of
shares of Class A Common Stock and Series C Preferred Stock to be issued to
Hollinger Inc. in exchange for the Series 1 Preferred Stock and Series 2
Preferred Stock of the Company to be held by Hollinger Inc. following the
completion of the transaction.
The Special Committee and its advisors also received a proposal by
Hollinger Inc. to exchange immediately following the receipt of shares of the
Class A Common Stock and the Series C Preferred Stock issued by the Company in
the First Exchange for the Series 1 Nonvoting Preferred Stock and Series 2
Nonvoting Preferred Stock of the Company, such newly issued securities with the
Company for an identical number of shares of Class A Common Stock and Series C
Preferred Stock to be issued by the Company pursuant to a Second Exchange
Agreement. This Second Exchange would have no financial impact on the Company
and its stockholders.
The Special Committee's financial advisors reviewed the financial impact of
the changes in the assets Hollinger Inc. proposed to include in the Canadian
Newspaper Transaction, reviewed and updated their financial assessment of the
Canadian newspaper assets and met with Hollinger Inc. personnel and reviewed
additional financial information and forecasts not previously available at the
time of the execution of the Letter of Intent.
On April 18, 1997, the Special Committee held a meeting to consider the
approval of the Canadian Newspaper Transaction. The Special Committee reviewed
the draft documentation for the transaction with its advisors, including the
Purchase Agreements and the Exchange Agreement and related documentation.
Representatives of RBC Dominion Securities reviewed with the Special Committee
the changes that had been proposed to the transaction since the execution of the
Letter of Intent, the financial impact of such changes, and their financial
assessment of the Canadian newspaper assets. A representative of RBC Dominion
Securities then rendered the oral opinion of RBC Dominion Securities (which was
subsequently confirmed in writing) to the effect that as of the date of such
opinion, the consideration to be paid by the Company in the Canadian Newspaper
Transaction is fair from a financial point of view, to the Company and the
holders of the Class A Common Stock and Series B Preferred Stock of the Company,
other than Hollinger Inc. Thereafter, the Special Committee unanimously
concluded, based in part upon the factors described below under "Recommendation
of the Special Committee and the Board of Directors of the Company", to approve
the Company's acquisition of the Canadian newspaper assets pursuant to the
Canadian Newspaper Transaction and the issuance and exchange of the Company's
securities in connection therewith.
On December 24, 1996 and January 7, 1997, meetings of the Board of
Directors of Hollinger Inc. were held to review the terms of the proposed
transaction. The Board was briefed on the terms of the proposed transaction and
reviewed the opinion of Dirks, Van Essen and Associates, the financial advisor
to Hollinger Inc. The opinion stated that the financial advisor believed the
offer by Hollinger Inc. to the Company to be
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<PAGE> 17
fair and equitable to the shareholders of Hollinger Inc., from a financial point
of view and representative of the current fair market value of the business.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF THE
COMPANY
The Special Committee and the full Board of Directors of the Company have
unanimously approved the Canadian Newspaper Transaction and believe that the
transaction is in the best interests of the Company and its stockholders and
fair to the Company and its holders of Class A Common Stock and Series B
Preferred Stock other than Hollinger Inc. The Special Committee and the Board of
Directors recommend that stockholders vote for each of the Proposals. In
reaching its conclusion, the Board of Directors of the Company considered the
recommendation of the Special Committee and the factors set forth below.
The Board of Directors, in reaching its decision, considered a number of
factors, including, without limitation the following:
(i) the enhanced cash flows and valuation of the Company's equity
expected as a result of the Canadian Newspaper Transaction, resulting from
the increased size of the Company, anticipated future growth in operating
margins in the acquired properties, and synergies with the Company's
comparable Canadian newspapers held by Southam and its Community Newspapers
group;
(ii) the consideration to be paid by the Company pursuant to the
Canadian Newspaper Transaction;
(iii) the presentations of RBC Dominion Securities and the fairness
opinion of RBC Dominion Securities to the effect that the consideration to
be paid by the Company in connection with the Canadian Newspaper
Transaction is fair, from a financial point of view, to the Company and the
holders of the Class A Common Stock and Series B Preferred Stock, other
than Hollinger Inc.;
(iv) the terms and conditions of the documentation to be entered into
by Hollinger Inc. and the Company in connection with the Canadian Newspaper
Transaction, including the nature of the parties' representations,
covenants and agreements set forth in such documentation; and
(v) the participation of the Special Committee and its advisors acting
on behalf of the Company's minority stockholders and the fact that the
consideration and certain other terms of the Canadian Newspaper Transaction
were negotiated on an arms' length basis by Hollinger Inc. and the Special
Committee and their respective advisors.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
On November 25, 1996, the Special Committee retained RBC Dominion
Securities to act as its financial advisor and to render an opinion as to
whether the consideration to be paid by the Company pursuant to the Purchase
Agreements and the Exchange Agreement is fair, from a financial point of view,
to the Company and the holders of Class A Common Stock and Series B Preferred
Stock of the Company other than Hollinger Inc.
At the meeting of the Company's Board of Directors that began on December
24, 1996 and was reconvened on January 7, 1997, RBC Dominion Securities
delivered its oral opinion to the Company's Board of Directors to the effect
that, as of January 7, 1997 and based upon and subject to the matters presented
to the Company's Board of Directors, including the Special Committee's review
and approval of, among other things, definitive documentation and the tax
considerations and ownership structure of the transaction, the consideration
proposed to be paid by the Company as contemplated by the Letter of Intent was
fair, from a financial point of view, to the Company and the holders of the
Class A Common Stock and Series B Preferred Stock of the Company other than
Hollinger Inc. (the oral opinion of RBC Dominion Securities provided to the
Company's Board of Directors on January 7, 1997 is referred to as the "Original
RBC Dominion Securities Opinion"). In connection with the closing of the
transactions contemplated by the Purchase Agreements on April 18, 1997, the
Special Committee requested that RBC Dominion Securities update the Original RBC
Dominion Securities Opinion. On April 18, 1997, RBC Dominion Securities
delivered its oral opinion to the Special Committee to the effect that, as of
April 18, 1997 and based upon and subject to the matters presented to the
Special Committee, the consideration proposed to be paid by the Company as
contemplated by the Purchase Agreements and the Exchange Agreement was fair,
from a financial point of
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<PAGE> 18
view, to the Company and the holders of the Class A Common Stock and Series B
Preferred Stock of the Company other than Hollinger Inc. RBC Dominion Securities
confirmed its oral opinion in a written opinion dated April 18, 1997 (the
written opinion of RBC Dominion Securities dated April 18, 1997 is referred to
as the "RBC Dominion Securities Opinion").
A COPY OF THE RBC DOMINION SECURITIES OPINION IS ATTACHED HERETO AS ANNEX
A. HOLDERS OF CLASS A COMMON STOCK AND SERIES B PREFERRED STOCK ARE URGED TO
READ THE RBC DOMINION SECURITIES OPINION IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW BY RBC DOMINION SECURITIES IN RENDERING THE RBC DOMINION
SECURITIES OPINION. REFERENCES TO THE RBC DOMINION SECURITIES OPINION HEREIN AND
THE SUMMARY OF THE RBC DOMINION SECURITIES OPINION SET FORTH BELOW ARE QUALIFIED
BY REFERENCE TO THE FULL TEXT OF THE RBC DOMINION SECURITIES OPINION, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THE RBC DOMINION SECURITIES OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE EXCHANGE PROPOSAL AND SHOULD NOT BE
RELIED UPON BY ANY STOCKHOLDER OF THE COMPANY AS SUCH.
In arriving at its opinion, RBC Dominion Securities, among other things (i)
analyzed certain internal financial statements and other financial and operating
data concerning the Canadian Newspapers prepared by the management of Hollinger
Inc. and the Company, (ii) analyzed certain financial projections concerning the
Canadian Newspapers prepared by the management of Hollinger Inc. and the
Company, (iii) held discussions with members of the senior management of
Hollinger Inc. and the Company regarding the past and current operations and
financial condition and future prospects of the Canadian Newspapers, (iv)
analyzed certain publicly available financial statements and other information
regarding the Company, including published reports of equity research analysts,
(v) reviewed the historical market prices and trading volume for the Class A
Common Stock and Preferred Redeemable Increased Dividend Equity Securities of
the Company, (vi) discussed with senior management of Hollinger Inc. and the
Company their view of the strategic rationale for the Canadian Newspaper
Transaction and the benefits of the Canadian Newspaper Transaction to the
Company, (vii) compared the financial performance of the Canadian Newspapers and
the proposed consideration with that of certain other comparable publicly traded
companies and their equity securities, (viii) conducted discussions with the
Company's auditors regarding accounting treatment of the Canadian Newspaper
Transaction, (ix) reviewed industry information, including commodity price
forecasts, (x) analyzed the estimated pro forma financial impact of the Canadian
Newspaper Transaction on the Company, including the pro forma impact on the
Company's consolidated capitalization and financial ratios, (xi) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions, (xii) participated in discussions with legal counsel
to the Special Committee regarding certain tax and ownership aspects of the
Canadian Newspaper Transaction, (xiii) reviewed a letter dated April 17, 1997
from KPMG in connection with the Company's analysis of the pro forma effects of
the Canadian Newspaper Transaction on its earnings per share, (xiv) reviewed the
Purchase Agreements, (xv) reviewed the Exchange Agreement, (xvi) reviewed the
Company's Form 8-K dated April 18, 1997, (xvii) reviewed preliminary drafts of
the Proxy Statement to be issued in connection with the Canadian Newspaper
Transaction, including the draft dated April 17, 1997 and (xviii) performed such
other studies, analyses and examinations as it deemed appropriate.
In the course of its review, RBC Dominion Securities relied upon and
assumed, without independent verification, the accuracy and completeness of all
of the financial and other information provided to it by the Company and
Hollinger Inc. With respect to financial projections supplied to RBC Dominion
Securities by the Company and Hollinger Inc., RBC Dominion Securities assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the senior managements of the
Company and Hollinger Inc. as to the anticipated future competitive, operating
and regulatory environments and related financial performance of the Canadian
Newspapers. RBC Dominion Securities did not assume responsibility for conducting
a physical inspection of the properties or facilities of the Canadian Newspapers
or for making or obtaining any independent valuation or appraisal of the assets
or liabilities (contingent or otherwise) of the Canadian Newspapers nor was RBC
Dominion Securities furnished with any such valuation or appraisal. RBC Dominion
Securities assumed that the transactions described in the Purchase Agreements
and the Exchange Agreement will be consummated on the terms set forth therein.
RBC
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Dominion Securities assumed that the Company's ownership of the Canadian
Newspapers through the structure contemplated by the Purchase Agreements will
comply with Canadian foreign ownership and tax rules and other applicable rules
and regulations and such structure will not have an adverse effect on the
Company's anticipated future financial returns from the Canadian Newspapers. The
RBC Dominion Securities Opinion is necessarily based on financial, economic,
market, regulatory and other conditions as they exist and can be evaluated on,
and the information made available to RBC Dominion Securities as of, the date of
its opinion.
The consideration to be paid in the Canadian Newspaper Transaction was
determined by negotiations between the Special Committee and Hollinger Inc. RBC
Dominion Securities provided advice to the Special Committee during the course
of such negotiations. No limitations were imposed by the Company or Hollinger
Inc. on RBC Dominion Securities with respect to the investigations made or
procedures followed by RBC Dominion Securities in connection with the rendering
of its opinion.
The following is a summary of the material financial analyses performed by
RBC Dominion Securities in connection with the RBC Dominion Securities Opinion.
Calculation of Transaction Value. RBC Dominion Securities calculated that,
based on the $9.52 per share weighted average market price of the Class A Common
Stock on the NYSE for the 10 trading day period ending five business days prior
to the date of its opinion, the estimated value of the consideration (the
"Transaction Value") to be paid by the Company pursuant to the Purchase
Agreements and the Exchange Agreement is approximately $368 million. The
Purchase Agreements contemplate that the Canadian Newspapers will be transferred
free of all bank and other liens, claims and encumbrances and with no long-term
or short-term debt. RBC Dominion Securities considered the Transaction Value as
a multiple of 1996 revenues, as a multiple of 1996 earnings before interest,
taxes, depreciation and amortization ("EBITDA") and as a multiple of estimated
1997 EBITDA of the Canadian Newspapers (after adjusting for management fees and
certain other allocated items). RBC Dominion Securities noted such multiples
were 1.8x for 1996 revenues, 10.1x for 1996 EBITDA and 8.3x for estimated 1997
EBITDA.
Comparable Company Analysis. RBC Dominion Securities reviewed and compared
certain financial information, ratios and multiples relating to the Canadian
Newspapers (based on the Transaction Value) to corresponding financial
information, ratios, and multiples for certain publicly traded newspaper and
diversified publishing companies in Canada and the United States. The companies
in Canada included in this analysis were Hollinger Inc., Southam Inc. and
Torstar Corp. (the "Canadian Companies"). The companies in the United States
included in this analysis were A.H. Belo Corporation, Central Newspapers, Dow
Jones & Company, Gannett Company, Gray Communications, Harte Hanks
Communications Inc., Hollinger International Inc., Knight-Ridder Inc., Lee
Enterprises Inc., McClatchy Newspapers, Inc., Media General, Inc., New York
Times Company, Pulitzer Publishing, Scripps (EW) Co., Times Mirror Company,
Tribune Company and Washington Post Company (the "U.S. Companies"). With respect
to the Canadian Companies and the U.S. Companies, RBC Dominion Securities
considered the adjusted market value (market value of common equity plus face
value of preferred stock and book value of debt less cash and marketable
securities) as a multiple of 1996 revenues, as a multiple of 1996 EBITDA and as
a multiple of estimated 1997 EBITDA. Financial information for each of the
Canadian Companies and U.S. Companies was based on the most recent publicly
available information and on published estimates of research analysts. RBC
Dominion Securities noted that the adjusted market value as a multiple of 1996
revenues ranged from 1.1x to 1.7x for the Canadian Companies and 1.2x to 3.1x
for the U.S. Companies, as compared to a multiple of 1.8x for the Canadian
Newspapers based on the Transaction Value. RBC Dominion Securities noted that
the adjusted market value as a multiple of 1996 EBITDA ranged from 9.5x to 12.9x
for the Canadian Companies and 6.7x to 12.0x for the U.S. Companies, as compared
to a multiple of 10.1x for the Canadian Newspapers based on the Transaction
Value. RBC Dominion Securities noted that the adjusted market value as a
multiple of estimated 1997 EBITDA ranged from 7.4x to 8.8x for the Canadian
Companies and 6.9x to 12.2x for the U.S. Companies, as compared to a multiple of
8.3x for the Canadian Newspapers based on the Transaction Value.
Discounted Cash Flow Analysis. RBC Dominion Securities performed a
discounted cash flow analysis of the projected unlevered free cash flows of the
Canadian Newspapers for the fiscal years 1997 to 2000, based on projections
provided by management of the Company and Hollinger Inc. as well as projections
which were
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adjusted by RBC Dominion Securities to reflect information gained during the due
diligence process. In its discounted cash flow analysis, RBC Dominion Securities
utilized discount rates ranging from 8.5% to 9.5% and terminal value multiples
ranging from 7.0x to 8.0x EBITDA. The range of terminal value multiples
reflected different assumptions regarding the growth and profitability of the
Canadian Newspapers beyond the year 2000. RBC Dominion Securities performed the
discounted cash flow analysis in Canadian dollars and translated the results
into U.S. dollars based on current exchange rates. The discounted cash flow
analysis indicated a reference range based on management projections of $403
million to $463 million and a reference range based on RBC Dominion Securities'
adjusted projections of $337 million to $387 million, as compared to an
estimated Transaction Value of approximately $368 million.
Comparable Transactions Analysis. RBC Dominion Securities analyzed certain
publicly available information relating to selected acquisitions of newspaper
businesses in Canada and the United States. RBC Dominion Securities noted that
no transaction reviewed was identical to the Canadian Newspaper Transaction and
that, accordingly, an assessment of the results of the following analysis
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the Canadian Newspapers and other
factors that would affect the acquisition value of the businesses and assets to
which it is being compared. In particular, RBC Dominion Securities noted that
change of control transactions involving Canadian newspaper assets, including
the proposed Canadian Newspaper Transaction, are subject to foreign ownership
restrictions. The transactions in Canada included in the analysis were Hollinger
Inc./The Thomson Corporation (19 Ontario newspapers), Southam Inc./The Thomson
Corporation (seven Atlantic Canada newspapers), Hollinger Inc./Armadale Co.,
Southam Inc./Burgoyne family (three daily newspapers and 13 related community
newspapers in Ontario), Southam Inc./The Thomson Corporation (seven Ontario
newspapers), TSP Management/Toronto Sun Publishing, Hollinger Inc./Southam Inc.
and Black Press Ltd./ Trinity International Holdings PLC (one daily and 30
community newspapers in British Columbia) (the "Canadian Comparable
Transactions"). The transactions in the United States included in the analysis
were Pulitzer Publishing/Scripps League Newspapers, Media General/Worrell
Enterprises, and Knight-Ridder Inc./Lesher Communications (the "U.S. Comparable
Transactions"). RBC Dominion Securities noted that the adjusted purchase price
as a multiple of revenues for the last twelve months ranged from 1.0x to 2.4x
for the Canadian Comparable Transactions and 2.2x to 5.7x for the U.S.
Comparable Transactions, as compared to a multiple of 1.8x for the Canadian
Newspapers based on the Transaction Value. RBC Dominion Securities noted that
the adjusted purchase price as a multiple of EBITDA for the last twelve months
ranged from 7.7x to 14.7x for the Canadian Comparable Transactions and 11.3x to
16.4x for the U.S. Comparable Transactions, as compared to a multiple of 10.1x
for the Canadian Newspapers based on the Transaction Value.
Pro Forma Analysis. RBC Dominion Securities analyzed the pro forma
financial effects of the Canadian Newspaper Transaction on the Company's
earnings per share. This analysis was based upon financial forecasts of the
Canadian newspaper assets provided to RBC Dominion Securities by senior
management of the Company and Hollinger Inc. and consensus research analysts'
estimates. The pro forma analysis suggests that the Canadian Newspaper
Transaction would result in an increase in the Company's earnings per share
ranging from approximately 4.7% to 8.4% for 1997 and 4.5% to 7.0% for 1998.
In arriving at its opinion, RBC Dominion Securities performed a variety of
financial analyses, the material portions of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by RBC Dominion Securities. In addition, RBC Dominion
Securities 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 a misleading view of the
process underlying the analyses set forth in its opinion. In addition, RBC
Dominion Securities did not attribute any particular weight to any analysis or
factor it considered, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor.
In performing its analyses, RBC Dominion Securities made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company. Any estimates or financial projections incorporated or used in the
analyses performed by RBC Dominion Securities are not necessarily indicative of
actual past or future results of values, which may be significantly more or less
favorable than such projections or estimates. Estimated values do not
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<PAGE> 21
purport to be appraisals and do not necessarily reflect prices at which
businesses or companies may be sold in the future. Such financial projections
and estimates are inherently subject to substantial uncertainty. No company or
transaction utilized in the comparable company and comparable transactions
analyses as a comparison is identical to the Canadian Newspapers. Accordingly,
an analysis of comparable companies and/ or comparable transactions is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the public trading value of the comparable companies
or the business segment or company to which they are being compared. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description.
The Special Committee retained RBC Dominion Securities based upon its
experience and expertise. RBC Dominion Securities is an internationally
recognized investment banking and advisory firm. RBC Dominion Securities, as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. RBC Dominion Securities has previously provided financial
advisory services to a special committee of the Board of Directors of Southam
Inc., a subsidiary of the Company. RBC Dominion Securities may provide
investment banking services to Hollinger Inc. or the Company in the future.
RBC Dominion Securities provides a full range of financial, advisory and
brokerage services and in the course of its normal trading activities may from
time to time effect transactions and hold positions in the securities or options
on securities of the Company or Hollinger Inc. for its own account and for the
account of customers.
Pursuant to a letter agreement dated November 25, 1996 (the "Engagement
Letter"), the Special Committee engaged RBC Dominion Securities as its financial
advisor to assist in analyzing the proposed Canadian Newspaper Transaction and
to render an opinion as to whether the consideration to be paid by the Company
to Hollinger Inc. is fair, from a financial point of view, to the Company and
holders of Class A Common Stock and Series B Preferred Stock of the Company
other than Hollinger Inc. Pursuant to the terms of the Engagement Letter, the
Company agreed to pay RBC Dominion Securities an initial fee of $100,000 upon
execution of the Engagement Letter, a fee for advisory services of $150,000 and
a fee of $250,000 payable in respect of the opinion. In addition, if the Special
Committee requests RBC Dominion Securities to render additional written opinions
with respect to amended or revised transactions, RBC Dominion Securities will
receive an additional fee of $250,000 for each such opinion. The Company has
also agreed to reimburse RBC Dominion Securities for its reasonable
out-of-pocket expenses, including fees and disbursements of legal counsel, and
to indemnify and hold harmless RBC Dominion Securities against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, incurred in connection with its engagement.
TERMS OF THE CANADIAN NEWSPAPER TRANSACTION
On April 18, 1997, certain Canadian newspaper interests owned and
controlled by Hollinger Inc., the parent corporation of the Company, were
purchased by Hollinger Canadian Publishing, a Canadian company in the Company's
consolidated group, from Hollinger Inc. in the Canadian Newspaper Transaction,
effective as of January 1, 1997, for an aggregate consideration of approximately
Cdn.$523.0 million (U.S. $373.5 million (using exchanges rates in effect on
April 18, 1997)) pursuant to the (i) UniMedia Class A Stock Purchase Agreement,
(ii) the UniMedia Class B Stock Purchase Agreement, and (iii) the Sterling
Purchase Agreement. The Canadian Newspapers transferred to the Company consist
of the Sterling Newspaper Group and UniMedia Inc. Pursuant to the UniMedia Class
A Stock Purchase Agreement, the Company paid UniMedia Holding consideration
consisting of Cdn.$19.373 million in cash and 149,658 shares of newly issued
Series 2 Preferred Stock of the Company with a stated issue price of
Cdn.$149.658 million. Pursuant to the UniMedia Class B Stock Purchase, the
Company paid UniMedia Holding consideration consisting of Cdn.$100,000 in cash
and 23,267 shares of newly issued Series 1 Preferred Stock of the Company with a
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stated issue price of Cdn.$23.267 million. Pursuant to the Sterling Purchase
Agreement, Hollinger Canadian Publishing paid Hollinger Inc. consideration
consisting of Cdn.$330.602 million in cash.
As a condition to the closing of the Purchase Agreements, the Company,
Hollinger Inc. and UniMedia Holding entered into the Exchange Agreement,
pursuant to which the Company agreed to exchange all of the shares of Series 1
Preferred Stock and Series 2 Preferred Stock issued to UniMedia Holding as
consideration under the UniMedia Class A Stock Purchase Agreement and the
UniMedia Class B Stock Purchase Agreement for an aggregate of 3,207,045 shares
of Class A Common Stock and 8,294,090 shares of Series C Preferred Stock of the
Company, subject to receiving the requisite approval of the stockholders of the
Company. In addition, the Company, Hollinger Inc., UniMedia Holding and 1159670
Ontario Limited, a wholly owned subsidiary of Hollinger Inc., entered into the
Second Exchange Agreement dated as of May 20, 1997 pursuant to which the Company
agreed to issue 8,294,090 shares of Class A Common Stock to UniMedia Holding in
exchange for the issued Series C Preferred Stock and to issue 8,294,090 shares
of Series C Preferred Stock to 1159670 Ontario Limited (and/or another
designated subsidiary of Hollinger Inc.) in exchange for 8,294,090 shares of
outstanding Class A Common Stock owned by 1159670 Ontario Limited. The exchanges
contemplated by the Second Exchange Agreement would occur immediately following
the First Exchange, subject to receiving the requisite approval of the
stockholders of the Company. In accordance with the rules of the NYSE, on which
the Company's Class A Common Stock and PRIDES are listed, the Company is
required to obtain stockholder approval for the First Exchange and the Second
Exchange.
Upon consummation of the Purchase Agreements, Hollinger Inc. continues to
own a majority of the equity interest and voting control of the Company, the
Company continues to own all of the outstanding capital stock of Publishing,
Hollinger Inc. and Publishing each hold interests in Hollinger Canadian
Publishing such that (i) Publishing and its subsidiaries own 100% of the
non-voting equity shares and non-voting preference shares and (ii) each of
Publishing and Hollinger Inc. (through its wholly-owned subsidiary) own 50% of
the voting preference shares which have only nominal equity value.
Pursuant to the Purchase Agreements, the Company purchased from Hollinger
Inc. the Canadian Newspapers, consisting of the Sterling Newspaper Group and
UniMedia Inc. The Purchase Agreements each contained customary representations
and warranties of the Company, Hollinger Inc., and UniMedia Holding with respect
to the UniMedia Class A Stock Purchase Agreement and the UniMedia Class B Stock
Purchase Agreement and Hollinger Canadian Publishing with respect to the
Sterling Purchase Agreement relating to, among other matters, due incorporation,
capitalization, title of the stock and Canadian newspaper assets, financial
statements of the Canadian Newspapers, indebtedness, compliance with laws and
taxes.
The UniMedia Class A Stock Purchase Agreement provides for an adjustment to
the purchase price paid thereunder to be paid in Canadian dollars within 60 days
of closing, or June 17, 1997, as follows: (i) increased by an amount equal to
the excess of interest and dividends on the purchase price from and including
January 1, 1997 to and excluding the closing date (the "Interim Period") at an
annual rate equal to 7.75% over the amount of any interest expense incurred
during the Interim Period by UniMedia Newspapers Company and its subsidiaries on
certain specified outstanding indebtedness; and (ii) decreased (increased) by an
amount equal to the aggregate net cash receipts (disbursements) generated by the
operations of the Canadian Newspapers transferred pursuant to the UniMedia Class
A Purchase Agreement during the Interim Period which have been paid to Hollinger
Inc. The UniMedia Class A Purchase Agreement further provides for a net working
capital adjustment as of December 31, 1996 to be paid to UniMedia Holding. The
UniMedia Class B Purchase Agreement provides for an increase to the purchase
price paid thereunder to be paid in Canadian dollars within 60 days of closing,
or June 17, 1997, in an amount equal to interest on the purchase price during
the Interim Period at an annual rate equal to 7.75%. The Sterling Purchase
Agreement provides for an adjustment to the purchase price paid thereunder to be
paid in Canadian dollars within 60 days of closing, or June 17, 1997, as
follows: (i) increased by an amount equal to the interest on the purchase price
during the Interim Period at an annual rate of 7.75%; (ii) decreased (increased)
by an amount equal to the aggregate pre-tax net cash receipts (disbursements)
generated by the operations of the Canadian Newspapers transferred pursuant to
the Sterling Purchase Agreement during the Interim Period which have been paid
to Hollinger Inc.; and (iii) increased by an amount equal to the notional tax
liability attributable to the Canadian
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Newspapers transferred pursuant to the Sterling Purchase Agreement during the
Interim Period calculated using a tax rate of 44%. The Sterling Purchase
Agreement further provides for a net working capital adjustment, which was paid
on the closing date to Hollinger Inc. in the form of a cash dividend.
The UniMedia Class A Purchase Agreement and the UniMedia Class B Purchase
Agreement each provide that Hollinger Inc. and UniMedia Holding shall jointly
and severally indemnify the Company for claims resulting from a breach of a
representation, warranty or covenant of Hollinger Inc. or UniMedia Holding under
such agreements; provided, however, that any claims must be made by the Company
no later than the date(s) on which such representations, warranties or covenants
expire. The representations, warranties and covenants generally expire within
two years of the closing date of the Purchase Agreements, except for certain
matters, such as taxes, due incorporation and capitalization. With respect to
each agreement, Hollinger Inc. and UniMedia Holding are obligated to indemnify
the Company only if indemnification claims, in the aggregate, exceed Cdn.$1.0
million, in which case Hollinger Inc. and UniMedia Holding are required to
indemnify the Company only to the extent such claims exceed Cdn.$500,000, to a
maximum aggregate amount equal to the purchase price under each such agreement.
The Sterling Purchase Agreement provides that Hollinger Inc. shall indemnify
Hollinger Canadian Publishing for claims resulting from a breach of a
representation, warranty or covenant of Hollinger Inc. under the Sterling
Purchase agreement; provided, however, that any claims must made by Hollinger
Canadian Publishing no later than the date(s) on which such representations,
warranties or covenants expire. Hollinger Inc. is obligated to indemnify
Hollinger Canadian Publishing only if indemnification claims, in the aggregate
exceed Cdn.$1.0 million, in which case Hollinger Inc. is required to indemnify
Hollinger Canadian Publishing only to the extent such claims exceed Cdn.
$500,000, to a maximum aggregate amount equal to the purchase price under the
Sterling Purchase Agreement.
Pursuant to the Purchase Agreements, (i) the Company agreed to call a
special meeting of the holders of its Common Stock and Series B Preferred Stock
to approve the issuance to UniMedia Holding under the Exchange Agreement of
Class A Common Stock and Series C Preferred Stock in exchange for the Series 1
and 2 Preferred Stock, and (ii) Hollinger Inc., which holds directly or
indirectly approximately 77.75% of the total voting power of the Common Stock
and Series B Preferred Stock, agreed to vote in favor of the proposed issuance.
Hollinger Inc. further agreed pursuant to the Purchase Agreements, that it
and its subsidiaries would not, for a period of five years after the closing of
the Purchase Agreements, without the prior written consent of the Company,
either directly or indirectly, undertake or carry on or be engaged or have any
financial interest in any newspaper, shopper or similar publication carrying
advertising, for which the circulation or the distribution is primarily in the
communities where the Canadian Newspapers are currently being published or
within a radius of 10 miles of the center point of any such community; provided,
however, that these restrictions do not apply to the publication or acquisition
of certain national market publications, the ownership of less than 5% of any
class of securities of any publicly-traded company, or the interest that
Hollinger Inc. has in Hollinger Canadian Publishing, Southam, The Financial Post
Limited, Saturday Night Magazine Limited and their respective subsidiaries.
The Company and Hollinger Inc. also entered into a waiver agreement which
waived the provisions of the Business Opportunities Agreement (as defined
herein) to permit the Company to consummate the purchase of the Canadian
Newspapers from Hollinger Inc. Hollinger Inc., which owns 50% of the voting
stock of Hollinger Canadian Publishing, also agreed that it would not take
certain actions affecting ownership of the Canadian Newspapers which would cause
a material adverse impact on the Canadian Newspapers under Canadian tax law.
Any amendment, modification or supplement to the Purchase Agreements after
the closing date shall be effective as to the Company only if in writing signed
by the Chairman of the Special Committee on behalf of the Company. The Company
shall not waive any obligations of Hollinger Inc. or UniMedia Holding under the
Purchase Agreements or any other benefits to the Company arising under the
Purchase Agreements unless approved by the Board of Directors of the Company
following receipt of a favorable recommendation thereof by the Special
Committee.
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The purchase price of the Canadian Newspapers was financed in part through
a Cdn. $244.5 million ($175 million) borrowing by Hollinger Canadian Publishing
under an amended long term bank credit facility among Publishing, Hollinger
Canadian Publishing, The Telegraph and certain financial institutions (the
"Amended Bank Credit Facility"). The remainder of the cash portion of the
purchase price, Cdn. $105.5 million ($75 million), was funded by a loan from
Publishing to Hollinger Canadian Publishing. The Amended Bank Credit Facility,
which was entered into on April 7, 1997, provides for up to $900 million in
total credit availability under four tranches with available borrowings by The
Telegraph limited to $150 million, available borrowings by Hollinger Canadian
Publishing limited to $250 million, and available borrowings by Publishing
limited to $900 million, less amounts outstanding under other tranches, with
maximum borrowings in each case limited by financial statement covenants. As of
May 6, 1997, $21.65 million would have been available to Publishing under the
Amended Bank Credit Facility, after taking into account the $175 million
borrowing by Hollinger Canadian Publishing and $8.75 million in borrowing by The
Telegraph. The Amended Bank Credit Facility also provides a fourth tranche which
may be used for permitted acquisitions under terms and conditions subject to the
lenders' approval. The Amended Bank Credit Facility matures on March 15, 2004
with required reductions in availability equal to 6.25% of the commitment per
calendar quarter commencing on June 30, 2000.
Loans under the Amended Bank Credit Facility bear interest, at the option
of the respective borrower, at a rate per annum tied to specified floating rates
or a reserve adjusted Eurocurrency rate, in each case plus a specified margin
determined based on leverage ratios. The obligations of each borrower under the
Amended Bank Credit Facility are guaranteed by the Company and by each U.S.
subsidiary (other than American Publishing (1991) Inc. ("AP-91"), which provides
a partial guaranty). The obligations of Hollinger Canadian Publishing are
guaranteed in whole or part by each of its Canadian subsidiaries (other than
Southam) and by The Telegraph and its subsidiaries. The obligations of The
Telegraph are guaranteed in whole or part by each English subsidiary and by
Hollinger Canadian Publishing and each of its Canadian subsidiaries.
The obligations of all borrowers under the Amended Bank Credit Facility are
secured by a pledge by the Company of all stock of Publishing, the pledge by
Publishing and its restricted subsidiaries of the stock of their United States
subsidiaries (other than AP-91 and its subsidiaries), certain intercompany notes
and security agreements, and portions of the stock of certain Canadian and
English subsidiaries. The obligations of Hollinger Canadian Publishing and the
Canadian and English subsidiaries which have guaranteed its debt are secured by
all or part of the pledge of the stock of the Canadian subsidiaries, including
approximately 42% of the stock of Southam, and all or part of the stock of The
Telegraph and the English subsidiaries. The obligations of The Telegraph and the
Canadian and English subsidiaries which have guaranteed its debt are secured by
the pledge of all or part of the stock of the English subsidiaries, and all or
part of the stock of The Telegraph and the Canadian subsidiaries.
TERMS OF THE SERIES 1 AND 2 PREFERRED STOCK
The Series 1 Preferred Stock consists of 23,267 shares with a stated issue
price of Cdn.$1,000 per share, which were issued pursuant to the UniMedia Class
B Stock Purchase Agreement. The Series 2 Preferred Stock consists of 149,658
shares with a stated issue price of Cdn.$1,000 per share, which were issued
pursuant to the UniMedia Class A Stock Purchase Agreement. The Series 2
Preferred Stock consists of two tranches: (i) 124,704 shares of Series 2
Preferred Stock, which will be mandatorily exchanged into 8,294,090 shares of
Series C Preferred Stock (the "First Tranche") pursuant to the Exchange
Agreement, and (ii) 24,954 shares of Series 2 Preferred Stock, which will be
mandatorily exchanged into 1,659,571 shares of Class A Common Stock (the "Second
Tranche") pursuant to the Exchange Agreement. See "The Exchange Proposal--Terms
of the Exchange Agreement."
Dividends are payable on the Series 1 and 2 Preferred Stock from the date
of issuance through the earlier of the date of exchange or redemption. Dividends
are payable on the Series 1 Preferred Stock when, as and if declared by the
Board of Directors of the Company, at a rate equal to the dividends that would
have been paid on Class A Common Stock as if Class A Common Stock been issued on
the closing date of the Purchase Agreements. Dividends accrue on the First
Tranche of the Series 2 Preferred Stock at a rate equal to 9.5% per annum.
Dividends are payable on the Second Tranche of the Series 2 Preferred Stock
when, as and if declared by the Board of Directors of the Company, at a rate
equal to the dividends that would have been paid on
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Class A Common Stock as if Class A Common Stock been issued on the closing date
of the Purchase Agreements.
The Series 1 and 2 Preferred Stock is subject to mandatory exchange in
accordance with the terms of the Exchange Agreement. Subject to the receipt of
stockholder approval of the Exchange Proposal, the Series 1 Preferred Stock is
mandatorily exchangeable into 1,547,474 shares of Class A Common Stock, the
First Tranche of the Series 2 Preferred Stock is mandatorily exchangeable into
8,294,090 shares of Series C Preferred Stock and the Second Tranche of the
Series 2 Preferred Stock is mandatorily exchangeable into 1,659,571 shares of
Class A Common Stock. See "The Exchange Proposal--Terms of the Exchange
Agreement." If the Exchange Proposal is not approved, the Series 1 and 2
Preferred Stock may be redeemed at the option of the holder in whole or in part
at any time after December 31, 1997, upon 60 days' prior written notice to the
Company, for an amount equal to 95% of the stated issue price, plus the amount
of any unpaid dividends accrued to the date of redemption.
The Series 1 and 2 Preferred Stock rank on a parity with the Common Stock
and junior to the Series A Preferred Stock and Series B Preferred Stock. The
Series 1 and 2 Preferred Stock do not have any voting rights, except as
otherwise provided by law, and are nontransferable, except to affiliates or
subsidiaries of the original holder or otherwise with the prior written approval
of the Company, but may be pledged by the original holder as collateral security
for indebtedness. If the requisite stockholder approval of the Exchange Proposal
is not obtained, all (but not less than all) of the Series 1 and 2 Preferred
Stock may be sold or transferred to a third party, subject to compliance with
all applicable laws, agreement by the pledgee or transferee to be bound by the
terms of the Exchange Agreement and receipt of a legal opinion.
THE EXCHANGE PROPOSAL
TERMS OF THE EXCHANGE AGREEMENT
The Company, Hollinger Inc. and UniMedia Holding entered into the Exchange
Agreement as a condition to the closing of the Purchase Agreements. Pursuant to
the Purchase Agreements, (i) the Company agreed to call a special meeting of the
holders of its Common Stock and Series B Preferred Stock to approve the issuance
to UniMedia Holding under the Exchange Agreement of Class A Common Stock and
Series C Preferred Stock in exchange for the Series 1 and 2 Preferred Stock, and
(ii) Hollinger Inc., which holds directly or indirectly approximately 77.75% of
the total voting power of the Common Stock and Series B Preferred Stock, agreed
to vote in favor of the proposed issuance.
The Exchange Agreement provides that within five business days of obtaining
the required affirmative stockholder vote with respect to the Exchange Proposal,
the Company will issue to UniMedia Holding the following securities in exchange
for all issued and outstanding shares of Series 1 and 2 Preferred Stock: (i)
1,547,474 newly issued shares of Class A Common Stock in exchange for all 23,267
shares of Series 1 Preferred Stock; (ii) 8,294,090 newly issued shares of Series
C Preferred Stock in exchange for all 124,704 shares of the First Tranche of the
Series 2 Preferred Stock; and (iii) 1,659,571 newly issued shares of Class A
Common Stock for all 24,954 shares of the Second Tranche of the Series 2
Preferred Stock. Upon completion of the exchange contemplated by the Exchange
Agreement, all outstanding shares of Series 1 and 2 Preferred Stock will be
cancelled. The number of shares to be issued was determined by reference to the
Adjusted Market Price (as defined in the Exchange Agreement) of the Class A
Common Stock for the ten trading days ending five business days prior to the
mailing date of this Proxy Statement.
The Exchange Agreement also provides that no later than five business days
after the Determination Date (as defined in the Exchange Agreement), the
Company, Hollinger Inc., UniMedia Holding and 1159670 Ontario Limited, a wholly
owned subsidiary of Hollinger Inc., will enter into the Second Exchange
Agreement. See "Terms of the Second Exchange Agreement."
The Company also has agreed, that at the request of Hollinger Inc., it will
take commercially reasonable efforts to cause the registration under the
Securities Act of 1933, as amended, of the shares of Class A Common Stock and
Series C Preferred Stock (and the shares of Class A Common Stock issuable upon
the conversion of the Series C Preferred Stock) issued as a result of the
exchanges contemplated by the Exchange Agreement, and to list such shares on the
NYSE as soon as practicable.
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In the event stockholder approval of the Exchange Proposal is not obtained,
the shares of Series 1 and 2 Preferred Stock will remain outstanding in
accordance with their terms. If the requisite stockholder approval of the
Exchange Proposal is not obtained, all (but not less than all) of the Series 1
and Series 2 Preferred Stock may be sold or transferred to a third party,
subject to compliance with all applicable laws, agreement by the pledgee or
transferee to be bound by the terms of the Exchange Agreement and receipt of a
legal opinion, and the issuances contemplated by the Second Exchange will not
occur.
TERMS OF THE SERIES C PREFERRED STOCK
In connection with the Exchange Proposal, the Company proposes to issue
8,294,090 shares of Series C Preferred Stock to Hollinger Inc. in exchange for
the First Tranche of the Series 2 Preferred Stock. The Series C Preferred Stock
will rank senior in right and priority of payment to the Common Stock, junior to
the Company's outstanding Series A Preferred Stock and on a parity with the
Series B Preferred Stock as to dividends and upon liquidation. The Series C
Preferred Stock is mandatorily convertible into shares of Class A Common Stock
on June 1, 2001 (the "Series C Mandatory Conversion Date"), and the Company will
have the option to redeem the shares of Series C Preferred Stock, in whole or in
part, at any time on or after June 1, 2000 and prior to the Series C Mandatory
Conversion Date.
Holders of the Series C Preferred Stock will be entitled to receive
cumulative dividends at a rate of 9 1/2% per annum of the stated liquidation
amount of $10.85 per share of the Series C Preferred Stock, payable quarterly in
arrears on the first day of March, June, September and December, commencing
September 1, 1997 and to, but not including, the Series C Mandatory Conversion
Date. Dividends cease to accrue on the earlier of the Series C Mandatory
Conversion Date, the date of conversion of the Series C Preferred Stock or the
date of the redemption of the Series C Preferred Stock.
On the Series C Mandatory Conversion Date, unless previously redeemed or
converted, each share of Series C Preferred Stock will mandatorily convert into
(i) one share of Class A Common Stock, subject to adjustment in certain events,
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
dividends thereon.
Shares of Series C Preferred Stock are not redeemable prior to June 1,
2000. At any time and from time to time on or after June 1, 2000 until
immediately prior to the Series C Mandatory Conversion Date, the Company may
redeem any or all of the outstanding shares of Series C Preferred Stock. Upon
any such redemption, each holder will receive, in exchange for each share of
Series C Preferred Stock, a number of shares of Class A Common Stock equal to
the greater of (i) the Call Price (as defined) divided by the Current Market
Price (as defined) of the Class A Common Stock and (ii) .8503 of a share of
Class A Common Stock. The "Call Price" is the sum of (i) $11.115 on and after
June 1, 2000 to and including August 31, 2000; or $11.047 on and after September
1, 2000 to and including November 30, 2000; or $10.982 on and after December 1,
2000 to and including February 28, 2001; or $10.916 on and after March 1, 2001
to and including May 31, 2001; or $10.850 (equal to the stated liquidation
amount) on the Series C Mandatory Conversion Date; and (ii) all accrued and
unpaid dividends thereon to but not including the date fixed for redemption. The
"Current Market Price" per share of Class A Common Stock on any date of
determination means the lesser of (x) the average of the Closing Prices (as
defined) of the Class A Common Stock for the 15 consecutive trading days ending
on and including the date of determination and (y) the Closing Price for such
date of determination. The "Closing Price" on any day means the last reported
sales price of the Class A Common Stock on the NYSE, or if not listed thereon,
the Nasdaq National Market, or the average of the bid and ask prices on the
over-the-counter market, as appropriate.
At any time prior to the Series C Mandatory Conversion Date, unless
previously redeemed, each share of Series C Preferred Stock is convertible at
the option of the holder thereof into .8503 of a share of Class A Common Stock,
determined by dividing the stated liquidation amount of $10.85 per share by the
conversion price (initially 117.647% of the stated liquidation amount), subject
to adjustment.
The holders of Series C Preferred Stock have the right to vote together as
a single class with the holders of Common Stock and Series B Preferred Stock in
the election of Directors and upon each other matter coming before the
stockholders of the Company on the basis of one vote per share of Series C
Preferred Stock, except as otherwise provided by law or the Company's Restated
Certificate. In addition, (i) whenever
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dividends on the Series C Preferred Stock or any other series of Preferred Stock
with like voting rights are in arrears and unpaid for six quarterly dividend
periods, and in certain other circumstances, the holders of all Series C
Preferred Stock (voting separately as a class) will be entitled to vote, on the
basis of one vote for each share of Series C Preferred Stock, for the election
of two directors of the Company, such directors to be in addition to the number
of directors constituting the Board of Directors immediately prior to the
accrual of such right, and (ii) the holders of Series C Preferred Stock may have
voting rights with respect to certain alterations of the Company's Restated
Certificate and certain other matters, voting on the same basis or separately as
a series.
TERMS OF THE SECOND EXCHANGE AGREEMENT
In addition, the Company, Hollinger Inc., UniMedia Holding and 1159670
Ontario Limited, a wholly owned subsidiary of Hollinger Inc., entered into the
Second Exchange Agreement pursuant to which the Company agreed to issue shares
of Class A Common Stock to UniMedia Holding in exchange for the Series C
Preferred Stock issued in the First Exchange and to issue shares of Series C
Preferred Stock to 1159670 Ontario Limited (and/or another subsidiary designated
by Hollinger Inc.) in exchange for shares of outstanding Class A Common Stock
owned by 1159670 Ontario Limited. The exchanges contemplated by the Second
Exchange Agreement would occur immediately following the First Exchange, subject
to receiving the requisite approval of the stockholders of the Company.
In the event stockholder approval of the Exchange Proposal is not obtained,
neither the First Exchange nor the Second Exchange will occur and UniMedia
Holding will continue to hold the Series 1 Preferred Stock and Series 2
Preferred Stock.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE PROPOSAL
In considering the recommendation of the Company's Board of Directors with
respect to the Canadian Newspaper Transaction (based on the recommendation of
its Special Committee consisting of independent directors), and in particular,
the recommendation with respect to the exchange of Series 1 and 2 Preferred
Stock for Class A Common Stock and Series C Preferred Stock, the Company's
stockholders should be aware that Hollinger Inc. is the majority stockholder of
the Company and that certain members of the Company's management and its Board
of Directors are also officers, directors and/or shareholders of Hollinger Inc.
and thus have certain interests in the Canadian Newspaper Transaction that may
present them with actual or potential conflicts of interest in connection with
the Canadian Newspaper Transaction. See "The Company-- Certain Relationships and
Related Transactions."
THE CHARTER PROPOSAL
The authorized capital stock of the Company consists of 250,000,000 shares
of Class A Common Stock, $.01 par value per share, 50,000,000 shares of Class B
Common Stock, $.01 par value per share, and 20,000,000 shares of Preferred
Stock. If the Charter Proposal is approved and adopted at the Special Meeting,
the authorized Preferred Stock of the Company would be increased from 20,000,000
shares to 120,000,000 shares of Preferred Stock. The adoption of the Charter
Proposal will enhance the Company's financing and corporate flexibility,
including the possible use of Preferred Stock as consideration for acquisitions.
The complete text of the amendment to the Restated Certificate of the Company to
increase the authorized Preferred Stock is attached hereto as Annex D and
incorporated by reference herein.
DESCRIPTION OF CAPITAL STOCK
CLASS A AND CLASS B COMMON STOCK
VOTING RIGHTS. Holders of Class A Common Stock are entitled to one vote
per share and holders of Class B Common Stock are entitled to ten votes per
share. Holders of Class A Common Stock and Class B Common Stock are not entitled
to vote cumulatively for the election of Directors. Hollinger Inc. presently
retains, by virtue of its ownership of all outstanding shares of Class B Common
Stock, effective control of the Company through its ownership of 77.75% of the
combined voting power of the outstanding Common Stock.
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Directors may be removed with or without cause by the holders of the Common
Stock. A vacancy on the Board created by the removal or resignation of a
Director or by the expansion of the authorized number of Directors may be filled
by the remaining Directors then in office.
The holders of Class A Common Stock and Class B Common Stock vote together
as a single class on all matters on which stockholders may vote, except when
class voting is required by applicable law.
DIVIDENDS. Each share of Class A Common Stock and Class B Common Stock is
entitled to receive dividends if, as and when declared by the Board of Directors
of the Company. Under the Delaware General Corporation Law, the Company may
declare and pay dividends only out of its surplus, or in case there shall be no
such surplus, out of its net profits for the fiscal year in which the dividend
is declared and/or the preceding year. Under the Delaware General Corporation
Law, surplus is defined as the excess, if any, at any given time, of the net
assets of the Company over the amount determined to be capital. Capital
represents the aggregate par value of the Company's capital stock. No dividends
may be declared, however, if the capital of the Company has been diminished by
depreciation, losses or otherwise to any amount less than the aggregate amount
of capital represented by any issued and outstanding stock having a preference
on distribution. Dividends must be paid on both the Class A Common Stock and the
Class B Common Stock at any time that dividends are paid on either. Any dividend
so declared and payable in cash, capital stock of the Company (other than Class
A Common Stock or Class B Common Stock) or other property will be equally, share
for share, payable on the Class A Common Stock and Class B Common Stock.
Dividends and distributions payable in shares of Class A Common Stock maybe paid
only on shares of Class A Common Stock and dividends and distributions payable
in shares of Class B Common Stock may be paid only on shares of Class B Common
Stock. If a dividend or distribution payable in Class A Common Stock is made on
the Class A Common Stock, the Company must also make a simultaneous dividend or
distribution on the Class B Common Stock. If a dividend or distribution payable
in Class B Common Stock is made on the Class B Common Stock, the Company must
also make a simultaneous dividend or distribution on the Class A Common Stock.
Pursuant to any such dividend or distribution, each share of Class B Common
Stock will receive a number of shares of Class B Common Stock equal to the
number of shares of Class A Common Stock payable on each share of Class A Common
Stock.
TRANSFERABILITY AND CONVERTIBILITY OF CLASS B COMMON STOCK. Each share of
Class B Common Stock is convertible at any time at the option of the holder into
one share of Class A Common Stock and is transferable by Hollinger Inc. to a
subsidiary or an affiliate. In addition, each share of Class B Common Stock is
automatically convertible into a share of Class A Common Stock at the time it is
sold, transferred or otherwise disposed of by Hollinger Inc. or a subsequent
permitted transferee to any third party (other than a subsidiary or an affiliate
of Hollinger Inc. or such subsequent permitted transferee) unless such purchaser
or transferee offers to purchase all shares of Class A Common Stock from the
holders thereof for an amount per share equal to the amount per share received
by the holder of the Class B Common Stock. Any such offer shall be subject to
the requirements of applicable securities laws.
Any holder of Class B Common Stock may pledge his or its shares of Class B
Common Stock to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee, provided that such
shares shall not be transferred to or registered in the name of the pledgee and
shall remain subject to the transfer restrictions described in the foregoing
paragraph. In the event that shares of Class B Common Stock are so pledged, the
pledged shares shall not be converted automatically into Class A Common Stock.
However, if any such pledged shares become subject to any foreclosure,
realization or other similar action of the pledgee, they shall be converted
automatically into shares of Class A Common Stock unless they are sold in a
permitted transaction. Hollinger Inc. has pledged all shares of Class A Common
Stock, Class B Common Stock and Series A Preferred Stock owned by it to Canadian
chartered banks as collateral for outstanding indebtedness of Hollinger Inc.
OTHER PROVISIONS. There are no preemptive rights to subscribe for any
additional securities which the Company may issue, and there are no redemption
provisions or sinking fund provisions applicable to either class, nor is the
Class A Common Stock or the Class B Common Stock subject to calls or assessments
by the Company. All outstanding shares are legally issued, fully paid and
nonassessable.
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In the event of the liquidation, dissolution or winding up of the Company,
holders of the shares of Class A Common Stock and Class B Common Stock are
entitled to share equally, share for share, in the assets available for
distribution.
LISTING OF CLASS A COMMON STOCK. The Class A Common Stock is listed on the
New York Stock Exchange under the trading symbol "HLR".
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of up to 20,000,000 shares of Preferred Stock. If the Charter Proposal is
approved and adopted, the authorized Preferred Stock would be increased to
120,000,000 shares of Preferred Stock. The Board of Directors has the authority
under the Restated Certificate to establish voting rights, liquidation
preferences, redemption rights, conversion rights and other rights with respect
to such Preferred Stock without the approval of the Company's stockholders.
To date, the Company has issued 739,500 shares of Series A Preferred Stock,
10,350,000 shares of Series B Preferred Stock and an aggregate of 172,925 shares
of Series 1 and 2 Preferred Stock. As a result of the exchanges contemplated by
the First Exchange and the Second Exchange, the Company will have issued
8,294,090 shares of Series C Preferred Stock, a new series of preferred stock
designated by the Board of Directors of the Company. The terms of the
outstanding series of Preferred Stock are summarized below.
SERIES A PREFERRED STOCK. The Company's Series A Preferred Stock consists
of 739,500 shares of Series A Preferred Stock, all of which is held by Hollinger
Inc. The number of shares of the Series A Preferred Stock is equal to 1/10 of
the 7,395,000 Southam common shares directly or indirectly included in the
Hollinger Southam Interest (namely, 250,000 Southam common shares owned directly
by FDTH plus one-half of the 14,290,000 Southam common shares owned indirectly
by HTH). The shares of the Series A Preferred Stock are entitled to receive
cumulative cash dividends, payable quarterly. The amount of each dividend per
share will be equal to the aggregate amount (if any) of ordinary course cash
dividends paid during the preceding calendar quarter on such Southam shares
divided by 739,500. If at any time full cumulative dividends on the shares of
the Series A Preferred Stock have not been and are not being contemporaneously
paid, no dividend or distribution shall be declared or paid on the Common Stock
or any Preferred Stock ranking junior to the Series A Preferred Stock as to
dividend or liquidation rights, and no shares of Common Stock or Preferred Stock
(except shares senior to the Series A Preferred Stock as to dividend and
liquidation rights) shall be purchased, redeemed or acquired by the Company,
subject to certain exceptions including stock dividends payable in shares of
junior capital stock, the acquisition of stock ranking junior to the Series A
Preferred Stock as to dividend or liquidation rights in exchange for or out of
the net cash proceeds from the contemporaneous sale of junior stock, the
redemption in whole of the shares of the Series A Preferred Stock, offers to
purchase shares made on the same terms to all holders of shares of the Series A
Preferred Stock and each other series of Preferred Stock ranking on a parity
with the Series A Preferred Stock, and dividends on Preferred Stock ranking
junior as to dividend rights if full cumulative dividends on the shares of the
Series A Preferred Stock to the next preceding dividend date for the Series A
Preferred Stock (or the date of the payment on the junior Preferred Stock, if
identical to a dividend date for the Series A Preferred Stock) have been or are
contemporaneously declared and paid or set apart for payment.
The shares of the Series A Preferred Stock are redeemable in whole or in
part, at any time and from time to time, subject to restrictions in the
Company's existing credit facilities, by the Company or by a holder of such
shares. Hollinger Inc., the holder of all of the outstanding shares of Series A
Preferred Stock, has agreed pursuant to the Share Exchange Agreement to limit
the exercise of its redemption rights to a number of HTH shares or Southam
common shares that at the time of such exercise have been delivered to the
Company free and clear of encumbrances other than certain permitted
encumbrances. The redemption price and liquidation preference per share of the
Series A Preferred Stock will be Cdn.$146.625 (10 times the average closing
market price per share of the Southam common shares on the Toronto Stock
Exchange during the 20 business days preceding the date of the Share Exchange
Agreement) plus an amount equal to accrued and unpaid dividends. A holder
exercising redemption rights must give notice to the Company not less than 180
and not more than 240 days prior to the redemption date if the aggregate
redemption price of the shares to be so redeemed and shares of the Series A
Preferred Stock redeemed or to be redeemed prior to such redemption
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date will exceed Cdn.$10,000,000. Shares of Common Stock or of any other stock
ranking junior to the Series A Preferred Stock as to dividend or liquidation
rights may not be purchased, redeemed or acquired by the Company if after giving
effect thereto the remaining net assets of the Company would be less than the
aggregate liquidation preference of the Series A Preferred Stock and each series
of Preferred Stock ranking, as to liquidation rights, on a parity with or senior
to the Series A Preferred Stock, or if at the time thereof the Company is
insolvent or would become so as a result thereof.
A holder or holders of shares of the Series A Preferred Stock may convert
such shares at any time into shares of Class A Common Stock of the Company. The
conversion price will initially be based upon the Canadian dollar equivalent of
$14.00 per share of Class A Common Stock, subject to adjustment upon the
occurrence of any of the following events: the subdivision, combination or
reclassification of outstanding shares of Common Stock; a distribution or
dividend to holders of Common Stock paid in shares of Common Stock or other
capital stock of the Company; the distribution of rights or warrants to all
holders of Common Stock entitling them for a period expiring within 60 days to
acquire shares of Common Stock at a price per share less than the then Current
Market Price Per Share (as defined) of the Common Stock; and the distribution to
all holders of Common Stock of any assets or debt securities or any rights or
warrants to purchase securities of the Company, not including dividends or
distributions paid in cash out of consolidated current or retained earnings per
the Company's books, and not including rights or warrants mentioned above. In
the event of any capital reorganization, reclassification, consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of the Company's assets to another corporation, each holder of
shares of the Series A Preferred Stock is to have the right to convert such
shares into such shares of stock, securities or assets as such holder would have
owned immediately after the transaction if the shares had been converted
immediately prior to the effective date of the transaction, and adjustments are
to be provided for events subsequent to such transaction. In addition, the
Company will be permitted to make such reductions in the conversion price as it
considers to be advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
holders of Common Stock or to diminish any income taxes payable because of such
event.
The shares of Series A Preferred Stock are non-voting, rank on a parity
with each other series of Preferred Stock except as specified by the Board of
Directors when such other series is created, and are subject to certain
restrictions on transfer.
Any holder of Series A Preferred Stock may pledge such shares to a pledgee
pursuant to a bona fide pledge of such shares as collateral security for
indebtedness or other obligations due to the pledgee, provided that such shares
shall remain subject to, and upon foreclosure, realization or other similar
action by the pledgee, shall be transferred only in accordance with, the
transfer restrictions set forth in the Restated Certificate of Incorporation.
PRIDES AND SERIES B PREFERRED STOCK. The PRIDES are depository shares,
each of which represents one half of a share of Series B Preferred Stock. The
PRIDES are listed on the NYSE under the symbol "HLR PrP." The Series B Preferred
Stock ranks (i) senior in right and priority of payment to the Common Stock as
to dividends or upon liquidation and (ii) junior to the Company's outstanding
Series A Preferred Stock as to dividends and upon liquidation. The Series B
Preferred Stock is convertible into shares of Class A Common Stock, as described
below. In addition, the Company has the option to redeem the shares of Series B
Preferred Stock, in whole or in part, at any time on or after August 1, 1999 and
prior to the mandatory conversion date of August 1, 2000 (the "Mandatory
Conversion Date").
Holders of PRIDES are entitled to receive quarterly cumulative dividends on
the Series B Preferred Stock represented thereby at a rate of 9 3/4% per annum
for each PRIDES. Dividends cease to accrue on the earlier of (i) the day
immediately prior to the Mandatory Conversion Date or (ii) the day immediately
prior to the earlier redemption of the Series B Preferred Stock.
Each half share of Series B Preferred Stock has the right with the holders
of Common Stock to vote in the election of Directors and upon each other matter
coming before any meeting of the holders of Common Stock on the basis of 4/5 of
a vote for each half share of Series B Preferred Stock.
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On the Mandatory Conversion Date, unless previously redeemed or converted,
each half share of Series B Preferred Stock represented by outstanding PRIDES
will mandatorily convert into (i) one share of Class A Common Stock, subject to
adjustment in certain events, (ii) cash in lieu of fractional shares of Class A
Common Stock and (iii) the right to receive cash in an amount equal to all
accrued and unpaid dividends thereon (other than previously declared dividends
payable to a holder of record on a prior date).
Shares of Series B Preferred Stock represented by PRIDES are not redeemable
prior to August 1, 1999. At any time and from time to time on or after August 1,
1999 until immediately prior to the Mandatory Conversion Date, the Company may
redeem any or all of the outstanding shares of Series B Preferred Stock
represented by PRIDES. Upon any such redemption, each holder will receive, in
exchange for each half share of Series B Preferred Stock represented by PRIDES,
a number of shares of Class A Common Stock equal to the sum of (i) $9.988
declining to $9.750 on the Mandatory Conversion Date, and (ii) all accrued and
unpaid dividends thereon (other than previously declared dividends payable to a
holder of record as of a prior date) divided by the current market price for
shares of Class A Common Stock on the applicable date of determination, but in
no event less than .8439 of a share of Class A Common Stock, subject to
adjustment.
At any time prior to the Mandatory Conversion Date, unless previously
redeemed, each half share of Series B Preferred Stock represented by a PRIDES is
convertible at the option of the holder thereof into .8439 of a share of Class A
Common Stock, equivalent to a conversion price of $11.55 per share of Class A
Common Stock, subject to adjustment.
SERIES 1 AND 2 PREFERRED STOCK. For a description of the Series 1 and 2
Preferred Stock, see "The Canadian Newspaper Transaction--Terms of the Series 1
and 2 Preferred Stock."
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
The Company's Restated Certificate and By-laws contain certain provisions
that could make more difficult a change in control of the Company not having
approval of the Board of Directors. The Restated Certificate authorizes the
issuance of "blank check" Preferred Stock, which will be increased by
100,000,000 shares if the Charter Proposal is approved and adopted at the Annual
Meeting. The Board of Directors or a duly constituted committee thereof may
establish voting rights, liquidation preferences, redemption rights, conversion
rights and other rights relating to such Preferred Stock, all or some of which
may be senior to the Common Stock, without the approval of the Company's
stockholders. In some circumstances, the Preferred Stock could be issued and
have the effect of preventing a merger, tender offer or other takeover attempt
which the Board of Director opposes. Issuance of Preferred Stock, however, may
be subject to certain rules of the NYSE. The Company's By-laws also provide that
a special meeting of the stockholders of the Company may only be called by the
Board of Directors, a duly designated committee of the Board of Directors, the
Chairman of the Board of Directors, or the President of the Company. No other
person may call a special meeting of the stockholders. If the Charter Proposal
is approved and adopted, 100,000,000 additional shares of "blank check"
Preferred Stock will be available for issuance.
The Amended Bank Credit Facility contains certain provisions that could
make more difficult a change in control of the Company. The Amended Bank Credit
Facility generally provides that an event of default shall occur if any person
other than Hollinger Inc. becomes the beneficial owner, directly or indirectly,
of more than 49% of the total voting power of all classes of capital stock
outstanding of the Company or if certain changes occur in the composition of the
Company's Board of Directors and result in a change in the majority of the Board
of Directors. The outstanding publicly issued notes of Publishing contain a
provision that upon a change of control (as defined in the indenture relating
thereto), each holder will have the right to require that Publishing purchase
all or any portion of such holder's notes.
Certain transactions with the Company may be subject to Section 203 of the
Delaware General Corporation Law. Section 203 prohibits certain "business
combinations" between an "interested stockholder" and a corporation for three
years after a stockholder becomes interested, unless one of the statute's
exceptions applies. Section 203(c)(5) defines an interested stockholder as a
person, broadly defined to include a group, who owns at least 15% of a company's
outstanding voting stock. The statute defines business combinations expansively
to include any merger or consolidation of, with, or caused by the interested
stockholder. Section 203(a) provides three exceptions to the business
combination prohibition. First, there is no constraint
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if the interested stockholder obtains prior board approval for the business
combination or the transaction resulting in ownership of 15% of the target's
voting stock. Second, the statute does not apply if, in completing the
transaction that crosses the 15% threshold, the stockholder becomes the owner of
85% of the corporation's voting stock outstanding as of the time the transaction
commenced. Any shares owned by directors who are officers, and shares owned by
certain stock option plans are excluded from the calculation. This exception
applies most particularly to a tender offeror who has less than 15% of the
target's stock and receives tenders that satisfy 85% requirement. Finally, the
statute does not apply if the interested stockholder's business combination is
approved by the board of directors and affirmed by at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
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THE COMPANY
The Company is a leading publisher of English-language newspapers in the
United States, the United Kingdom, Canada and Israel. Included among the 163
paid daily newspapers which the Company owns or has an interest in are the
Chicago Sun-Times, The Daily Telegraph (London) and The Ottawa Citizen. These
163 newspapers have a world-wide daily combined circulation of approximately
4,451,000. In addition, the Company owns or has an interest in 441 non-daily
newspapers as well as magazines and other publications. The Company's strategy
is to achieve growth through acquisitions and improvements in the cash flow and
profitability of its newspapers, principally through cost reductions. Since the
Company's formation in 1986, the existing senior management team has acquired
399 newspapers and related publications (net of dispositions) in the United
States, The Telegraph in the United Kingdom and Jerusalem Post in Israel, and,
together with Hollinger Inc., in Canada (including a majority interest in
Southam). Recently, the Company completed the sale of its 24.7% interest in
Fairfax, a publicly held Australian newspaper publisher.
UNITED STATES NEWSPAPER GROUP
The Company is the largest newspaper publishing group in the United States,
as measured by paid daily newspapers owned and operated, and one of the twelve
largest in terms of daily circulation. The Company's United States operations
consist of its Chicago Group, led by the Chicago Sun-Times, the ninth largest
circulation metropolitan daily newspaper in the United States, and its Community
Newspaper Group, consisting of 324 newspapers and related publications. As of
December 31, 1996, the Company published a total of 399 newspapers and related
publications in the United States consisting of 103 daily newspapers with a
total paid circulation of approximately 1,240,000, 140 paid non-daily newspapers
with a combined paid circulation of approximately 1,256,000, and 156 free
circulation publications with a combined circulation of approximately 2,201,000.
The total combined circulation of the Company's United States publications as of
December 31, 1996 was approximately 4,697,000. The Community Newspaper Group
also includes, for accounting and management purposes, the Company's
wholly-owned subsidiary which publishes The Jerusalem Post, Israel's only
English-language daily newspaper, with a paid daily circulation of approximately
16,300. The related weekend edition of The Jerusalem Post, including the English
and French-language international weekly editions, have combined paid
circulation of approximately 132,196.
On December 16, 1996, the Company completed an exchange of newspaper assets
with Thomson Newspapers, Inc. and Cox Newspapers, Inc. through which the Company
acquired the Mount Vernon Register-News (Mount Vernon, Illinois--circulation
approximately 11,000), the Enid News, (Enid, Oklahoma--circulation approximately
21,000) and the Herald-Palladium (St. Joseph/Benton Harbor,
Michigan--circulation approximately 32,000) and related publications in exchange
for four daily newspapers in Indiana and a daily in Texas (total circulation
approximately 21,000) and related publications and approximately $32.4 million
in cash.
INTERNATIONAL NEWSPAPER GROUP
The Company's international operations consist of its wholly owned
subsidiary, The Telegraph, and a majority equity interest in Southam, a publicly
traded Canadian newspaper publisher.
THE TELEGRAPH. The Telegraph publishes The Daily Telegraph, the leading
quality (or broadsheet) newspaper in the United Kingdom. The Telegraph also
publishes The Sunday Telegraph, The Weekly Telegraph, the Electronic Telegraph
and The Spectator magazine. The Daily Telegraph is the largest circulation
quality daily newspaper in the United Kingdom with an average daily circulation
of approximately 1,097,000 representing a 38.5% share of the quality daily
newspaper market. The Daily Telegraph's Saturday edition has the highest average
daily circulation (approximately 1,253,000) among quality daily newspapers in
the United Kingdom. The Sunday Telegraph is the second largest circulation
quality Sunday newspaper in the United Kingdom with an average Sunday
circulation of approximately 804,000.
On August 8, 1996, the Company completed the acquisition of all of the
outstanding ordinary shares of The Telegraph (approximately 36%) not previously
controlled by the Company (the "Telegraph Minority Shares"). The acquisition was
effected by means of a "scheme of arrangement" under Section 425 of the
Companies Act of 1985 of Great Britain (the "Scheme"). As a result, The
Telegraph became an indirect
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<PAGE> 34
wholly owned subsidiary of the Company. The total consideration paid by the
Company was approximately $455.1 million.
SOUTHAM. Southam is a publicly held Canadian corporation with operations
in newspaper publishing and to a lesser extent, business communications. Southam
is Canada's largest publisher of daily newspapers with 32 daily newspapers and
58 non-daily newspapers with a total daily circulation of approximately
1,601,000. Southam's principal publications include The Gazette (Montreal), The
Ottawa Citizen, the Calgary Herald, The Vancouver Sun, The Province (Vancouver)
and The Edmonton Journal. In addition, the Southam Magazine and Information
Group publishes Canadian and United States business magazines and tabloids for
the automotive, trucking, construction, natural resources, manufacturing and
other industries.
On May 24, 1996, a wholly owned Canadian subsidiary of Hollinger Inc.
purchased from a subsidiary of Power Corporation of Canada ("Power") 16,349,743
common shares of Southam held by Power (the "Power Shares"), representing
approximately 21.5% of Southam's then outstanding common shares, for an
aggregate consideration of Cdn.$294.3 million. The acquisition of the Power
Shares provided the Company and Hollinger Inc. with combined holdings of
approximately 40.9% of Southam's then outstanding common shares. On December 11,
1996, the Company purchased, through a wholly owned subsidiary of FDTH,
8,000,300 common shares of Southam for an aggregate consideration of Cdn.$160.0
million, which increased the combined holdings of the Company and Hollinger Inc.
to 50.7% of Southam's then outstanding common shares. The Company completed an
internal reorganization of its interests in Southam during the first quarter of
1997 in order to consolidate, for financial reporting purposes, such interests
in Hollinger Canadian Publishing.
On May 15, 1997, Hollinger Canadian Publishing mailed a previously
announced offer to shareholders of Southam to acquire all of the common shares
of Southam not presently controlled by the Company for consideration valued by
the offeror at Cdn.$23.50 per share payable as to Cdn.$13.50 in cash and as to
Cdn.$10.00 by the issue of a Hollinger Canadian Publishing Non-Voting Special
Share. Each special share will be automatically exchanged three years after
issue into Class A Common Stock of the Company on the basis of an exchange ratio
calculated by dividing Cdn.$12.31 by 95% of the then weighted average trading
price of the Class A Common Stock on the NYSE (expressed for these purposes in
Canadian dollars). In the alternative, the Company will have the option to
satisfy its exchange obligation by the payment of Cdn.$12.31 in cash per special
share.
Since the acquisition of the Power Shares on May 24, 1996, the Company
implemented various changes designed to enhance its operating performance
through reduced costs and improved editorial quality, including, the acquisition
of additional Canadian newspapers and the disposition of non-newspaper assets.
CANADIAN NEWSPAPERS. On April 18, 1997, the Company completed the
acquisition of the Canadian Newspapers, which consist of the Sterling Newspaper
Group and UniMedia. The Sterling Newspaper Group consists of newspapers in
Canada which were owned and operated directly by Hollinger Inc. and its wholly-
owned subsidiary, Sterling, since the 1980s. Sterling has publications in
British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Prince Edward
Island, which include 23 daily newspapers and 30 non-daily newspapers. Sterling
expanded its operations by the acquisition in October 1995 of 18 Canadian paid
circulation newspapers from The Thomson Corporation, and the February 1996
acquisition from Armadale Co., Ltd., of two daily newspapers, the Regina
Leader-Post and the Saskatoon Star Phoenix, which were Hollinger Inc.'s two
largest English-language daily newspapers in Canada, and eight non-daily
community newspapers in Alberta, Saskatchewan and Manitoba. UniMedia, a
wholly-owned, indirectly held subsidiary of Hollinger Inc. since 1987, operates
two paid circulation daily French language newspapers in the province of Quebec
and one paid circulation daily in Ontario. In addition, UniMedia operates 14
non-daily newspapers, several publication distribution businesses and has
several ancillary businesses, including the publication of religious books.
GENERAL. The Company was incorporated in the State of Delaware on December
28, 1990 and has its executive offices at 401 North Wabash Avenue, Chicago,
Illinois 60611, telephone number (312) 321-2299.
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<PAGE> 35
MARKET PRICES AND DIVIDEND POLICY
The Class A Common Stock is listed on the New York Stock Exchange under the
trading symbol "HLR." At May 20, 1997, there were 69,565,754 shares of Class A
Common Stock outstanding and held by approximately 208 holders of record and
approximately 4,500 beneficial owners. The Class A Common Stock traded on the
Nasdaq Stock Market from the Company's initial public offering on May 11, 1994
through January 15, 1996. The Class B Common Stock of the Company is not
publicly traded and the 14,900,000 shares of Class B Common Stock outstanding
are held directly and indirectly Hollinger Inc. The Company has issued and
outstanding 739,500 shares of its Series A Preferred Stock which are held by
Hollinger Inc. and which are convertible into shares of Class A Common Stock.
The Company has issued 20,700,000 PRIDES, each of which represents one-half
share of the Company's Series B Preferred Stock, par value $.01 per share. The
PRIDES are listed on the New York Stock Exchange and are held by one holder of
record and approximately 2,700 beneficial owners.
The following table sets forth for the periods indicated the high and low
sales prices for the Class A Common Stock, as reported by the Nasdaq Stock
Market for the period from January 1, 1995 through January 15, 1996, and by the
New York Stock Exchange Composite Transactions Tape for the period since
January 16, 1996, and the cash dividends declared per share on the Class A
Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE CASH DIVIDENDS
------------------- DECLARED
CALENDAR PERIOD HIGH LOW PER SHARE
- ------------------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
1995
First Quarter.......................................... $12.750 $ 9.250 $0.025
Second Quarter......................................... 10.750 9.250 0.025
Third Quarter.......................................... 13.000 9.750 0.025
Fourth Quarter......................................... 13.000 9.750 0.025
1996
First Quarter.......................................... $12.375 $ 9.250 $0.100
Second Quarter......................................... 13.875 10.625 0.100
Third Quarter.......................................... 12.625 9.125 0.100
Fourth Quarter......................................... 13.000 10.000 0.100
1997
First Quarter.......................................... $12.125 $ 8.875 $0.100
Second Quarter (through May 19, 1997).................. $10.875 $ 9.000 $0.100
</TABLE>
On April 18, 1997, the high and low sales prices of the Company's Class A
Common Stock were $10.50 and $10.00 per share. On May 14, 1997, the
Determination Date under the Exchange Agreement, the high and low sales prices
of the Class A Common Stock were $10.625 and $10.375 per share. Each share of
Class A Common Stock and Class B Common Stock is entitled to receive dividends
if, as and when declared by the Board of Directors of the Company. Since the
third quarter of 1994 the Company has paid a quarterly dividend of $0.025 per
share of Common Stock. The quarterly dividend was increased to $0.10 per share
of Common Stock in the first quarter of 1996.
As an international holding company, the Company's ability to declare and
pay dividends in the future with respect to its Common Stock will be dependent,
among other factors, upon its results of operations, financial condition and
cash requirements, the ability of its United States and foreign subsidiaries
(principally The Telegraph) to pay dividends and make other payments to the
Company under applicable law and subject to restrictions contained in existing
and future loan agreements and indentures related to publicly-held debt, the
prior payment of dividends to holders of PRIDES and Series A Preferred Stock,
the preference share terms and other financing obligations to third parties
relating to such United States or foreign subsidiaries of the Company, as well
as foreign and United States tax liabilities with respect to dividends and other
payments from those entities.
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<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 20, 1997, certain information
regarding those persons or entities known to hold more than 5% of the
outstanding shares of Class A Common Stock, Class B Common Stock and Series B
Preferred Stock of the Company and ownership of Class A Common Stock, Class B
Common Stock and Series B Preferred Stock by the named executive officers of the
Company, the directors of the Company, nominees for directors of the Company and
all directors and executive officers of the Company as a group. All of the
outstanding Series A Preferred Stock is held directly and indirectly by
Hollinger Inc. (see note 5 below).
<TABLE>
<CAPTION>
CLASS AND
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED (1)(2) OF CLASS (3)
- --------------------------------------- ---------------------------------------- ------------
<S> <C> <C>
FMR Corp............................... 9,377,231 Class A Common (4) 13.05%
82 Devonshire Street
Boston, MA 02109
Metropolitan Life Insurance Company.... 4,443,258 Class A Common (4) 6.20%
One Madison Avenue
New York, NY 10010
State Street Research & Management
Company.............................. 4,443,258 Class A Common (4) 6.20%
One Financial Center, 30th Floor
Boston, MA 02111-2690
Hollinger Inc. and affiliates.......... 54,215,065 Class A Common (5) 60.13%
10 Toronto Street 14,990,000 Class B Common (5) 100.0%
Toronto, Ontario
M5C 2B7 Canada
The Hon. Conrad M. Black, P.C., O.C.... 54,254,665 Class A Common (1), (5), (6) 60.15%
14,990,000 Class B Common (5), (6) 100.0%
Dwayne O. Andreas...................... -- (7) --
Barbara Amiel Black.................... 54,254,665 Class A Common (1), (8) 60.15%
14,990,000 Class B Common (8) 100.0%
John A. Boultbee....................... 9,000 Class A Common (1) *
Richard R. Burt........................ -- --
Raymond G. Chambers.................... -- --
Daniel W. Colson....................... -- --
J. David Dodd.......................... 23,500 Class A Common (1) *
Dr. Henry A. Kissinger................. -- --
Marie-Josee Kravis, O.C................ -- --
Shmuel Meitar.......................... -- --
Richard N. Perle....................... 10,700 Class A Common (9) *
F. David Radler........................ 39,600 Class A Common (1), (10) *
Robert S. Strauss...................... 10,000 Class A Common (11) *
A. Alfred Taubman...................... -- --
James R. Thompson...................... 500 Class A Common *
Lord Weidenfeld........................ -- --
Leslie H. Wexner....................... -- --
All Directors and Executive Officers as
a group (21 persons)................. 54,361,715 Class A Common (12) 60.22%
</TABLE>
- ---------
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<PAGE> 37
(1) Includes shares subject to presently exercisable options or options
exercisable within 60 days of March 20, 1997 held by all executive officers
of the Company under the Company's 1994 Stock Option Plan (as defined) as
follows: Mr. Black, 30,000 shares; Mr. Radler, 30,000 shares; Mr. Boultbee,
9,000 shares; Mr. Dodd, 22,500 shares; Mr. Healy, 10,000 shares; and Mr.
Serota, 3,750 shares.
(2) The directors and executive officers of the Company as a group (21 persons)
were the beneficial owners of 54,361,715 shares of Class A Common Stock
(which includes presently exercisable options to purchase 105,250 shares of
Class A Common Stock, 14,990,000 shares of Class B Common Stock which are
convertible into an equal number of shares of Class A Common Stock, and
5,614,311 shares of Class A Common Stock into which 739,500 shares of
Series A Preferred Stock are convertible as of March 20, 1997) or
approximately 60.22% of the outstanding Class A Common Stock, 14,990,000
shares of Class B Common Stock or 100% of the outstanding Class B Common
Stock, as of March 20, 1997.
(3) An asterisk (*) indicates less than one percent of a class of stock.
(4) The information concerning the beneficial ownership of FMR Corp.,
Metropolitan Life Insurance Company, and State Street Research & Management
Company has been obtained from the Schedules 13G filed with the Commission
by such persons on February 11, 1997, February 13, 1997 and February 14,
1997, respectively. Included in the number of shares of Class A Common
Stock reported by FMR Corp. and Metropolitan Life Insurance Company are
2,642,513 and 2,102,058 shares, respectively, of Class A Common Stock
issuable upon the conversion of PRIDES and the underlying Series B
Preferred Stock into Class A Common Stock. Such information has not been
independently verified by the Company.
(5) Includes 14,990,000 shares of Class B Common Stock which are convertible
into an equal number of shares of Class A Common Stock and 5,614,311 shares
of Class A Common Stock (based upon an assumed March 20, 1997 conversion)
into which 739,500 shares of Series A Preferred Stock are convertible at
any time at the Canadian dollar equivalent of $14.00 per share. The
Ravelston Corporation Limited ("Ravelston"), 10 Toronto Street, Toronto,
Ontario, Canada M5C 2B7, effectively controls Hollinger Inc. through its
direct or indirect control or direction (including through its subsidiary
Argus Corporation Limited ("Argus") over 46.6% of the outstanding common
shares of Hollinger Inc. Mr. Black effectively controls Ravelston through
his direct or indirect control or direction over 65.3% of the common shares
of Ravelston. Certain executive officers of the Company, including Messrs.
Black, Radler and Boultbee are employees of Ravelston. Mr. Black also
beneficially owns 39,600 shares (which includes options to purchase 30,000
shares) of Class A Common Stock of the Company, as described in notes (1)
and (6). As of March 20, 1997, there were 56,546,793 outstanding common
shares of Hollinger Inc. Certain of the executive officers and directors of
the Company, including Messrs. Black, Radler, Andreas, Boultbee, Colson,
Dodd and Taubman and Mrs. Black also own, directly or indirectly, equity
securities of Hollinger Inc. or own or have the right to acquire equity
securities of Hollinger Inc. through Hollinger Inc.'s Executive Share
Option Plan and Executive Share Purchase Plan. As of March 20, 1997, all
executive officers and directors of the Company (including Ravelston, Argus
and certain other entities controlled by Mr. Black) beneficially held an
aggregate of 28,554,384 common shares of Hollinger Inc., or approximately
50.33% of the outstanding common shares. In addition, such persons held (i)
1,203,300 shares of various series of convertible preference stock of
Hollinger Inc. which, subject to the vesting of conversion rights, may be
converted into an equivalent number of common shares of Hollinger Inc.;
(ii) 1,507,000 options which, subject to certain vesting requirements, may
be exercised to purchase an equivalent number of common shares of Hollinger
Inc.; (iii) 7,965,700 common share purchase warrants held by Ravelston that
may be immediately exercised to acquire an equivalent number of common
shares of Hollinger Inc.; and (iv) 40 shares of Floating Rate Cumulative
Redeemable Convertible Preferred Shares, Series G of Hollinger Inc. held by
an indirect subsidiary of Ravelston (with respect to which the conversion
rights have been waived for so long as such shares are so held). Mr.
Taubman indirectly owns 30,000 shares of Hollinger Inc. through the A.
Alfred Taubman Restated Revocable Trust. Mr. Andreas is the Chairman and
Chief Executive Officer of Archer-Daniels-Midland Co. which owns all of the
1,000,000 shares of Floating Rate Cumulative Redeemable Convertible
Perpetual Preferred Shares, Series B issued by Hollinger Inc., which are
convertible into
34
<PAGE> 38
3,410,640 common shares of Hollinger Inc. Mr. Andreas disclaims beneficial
ownership of such securities. Assuming the conversion of all such
preference stock and the exercise of all options and common share purchase
warrants held by such persons, all executive officers and directors of the
Company would hold 58.1% of the then outstanding shares of Hollinger Inc.
(6) Includes 9,600 shares of Class A Common Stock which are held by Conrad
Black Capital Corporation and as to which Mr. Black may be deemed to have
indirect beneficial ownership. Also includes 14,990,000 shares of Class B
Common Stock and 5,614,311 shares of Class A Common Stock into which
739,500 shares of Series A Preferred Stock are convertible, all of which
are held by Hollinger Inc. and as to which Mr. Black may be deemed to have
indirect beneficial ownership.
(7) Mr. Andreas is the Chairman and Chief Executive Officer of
Archer-Daniels-Midland Co., which owns 730,000 shares of Class A Common
Stock. Mr. Andreas disclaims beneficial ownership of such securities.
(8) Mrs. Black may be deemed to have beneficial ownership of the shares of
Class A Common Stock and Class B Common Stock held by Hollinger Inc.,
Conrad Black Capital Corporation and Mr. Black. Mrs. Black disclaims
beneficial ownership of such securities. See Notes (5) and (6) above.
(9) Includes 5,000 shares of Class A Common Stock held by Mr. Perle's wife and
1,600 shares of Class A Common Stock held by the Perle Defined Pension Plan
and as to which Mr. Perle may be deemed to have indirect beneficial
ownership.
(10) Includes 9,000 shares of Class A Common Stock held by F. D. Radler Ltd.,
200 shares of Class A Common Stock held by Mr. Radler's wife, 200 shares of
Class A Common Stock held by one daughter, and 200 shares of Class A Common
Stock held by another daughter, and as to which Mr. Radler may be deemed to
have indirect beneficial ownership. Mr. Radler disclaims beneficial
ownership of the Class A Common Stock held by his wife and daughters.
(11) Includes 10,000 shares of Class A Common Stock held by Robert and Helen
Strauss Family Partnership.
(12) See notes (1) through (11).
Prior to its initial public offering in May 1994, the Company had been a
wholly owned subsidiary of Hollinger Inc. Hollinger Inc. presently has the
exclusive right to vote shares constituting approximately 77.75% of the total
voting power of the Common Stock and Series B Preferred Stock (without giving
effect to the future issuance of Class A Common Stock in connection with the
PRIDES or the Series A Preferred Stock or the First and Second Exchanges) and
the ability to elect the entire Board of Directors.
Hollinger Inc. pledged all shares of Class A Common Stock, Class B Common
Stock and Series A Preferred Stock owned by it to Canadian chartered banks as
collateral for outstanding indebtedness of Hollinger Inc. A default under such
indebtedness could result in a change of control of the Company. In connection
with the pledge, Hollinger Inc. entered into registration rights agreements with
such banks pursuant to which Hollinger Inc. caused the Company to file a shelf
registration statement with respect to the pledged shares of Class A Common
Stock and Class B Common Stock at the request of the banks.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH HOLLINGER INC.
AGREEMENTS RELATED TO THE 1995 REORGANIZATION. In connection with the
October 1995 reorganization of the Company's and Hollinger Inc.'s international
newspaper operations (the "1995 Reorganization"), Hollinger Inc. and the Company
entered into several contractual arrangements. Under the Share Exchange
Agreement, dated as of July 19, 1995, between Hollinger Inc. and the Company
(the "Share Exchange Agreement"), Hollinger Inc. has agreed that, for a period
of two years following the closing of the Share Exchange Agreement, it will
consult with an Independent Committee (as defined in the agreement) of the
Company's Board of Directors with respect to any proposed sale or disposition of
any shares of Series A Preferred Stock or any public offer or sale of Class A
Common Stock, so as not to interfere with any planned capital market activities
of the Company. Hollinger Inc. has also agreed not to propose or undertake a
Going Private Transaction (as defined in the agreement) concerning the Company
during such period unless
35
<PAGE> 39
approved by a majority of disinterested members of the Independent Committee.
Hollinger Inc. has also agreed that so long as any shares of Series A Preferred
Stock are held by Hollinger Inc. or any of its affiliates, the Company may not
reduce the conversion price of such shares, redeem any shares or amend or modify
the terms thereof, unless such action is approved by a majority of the
disinterested members of such Independent Committee.
In connection with the 1995 Reorganization, FDTH purchased from Hollinger
Inc., pursuant to the HTH/FDTH Share Exchange Agreement (the "HTH/FDTH Share
Exchange Agreement"), an indirect interest in Southam (the "Hollinger Southam
Interest"), consisting of Hollinger Inc.'s one-half interest in HTH (a
subsidiary then owned one-half by Hollinger Inc. and one-half by The Telegraph)
(the "HTH Shares") and its direct 0.3% interest in Southam. The HTH Shares were
pledged by Hollinger Inc. in connection with certain debentures (the
"Southam-Linked Debentures"). As partial consideration in the 1995
Reorganization, Hollinger Inc. received 739,500 shares of the Company's Series A
Preferred Stock. Hollinger Inc. agreed that its redemption rights under Series A
Preferred Stock were subject to its delivery to FDTH of legal title to the HTH
Shares or the underlying Southam common shares free of all liens, pledges,
charges and encumbrances, subject to certain exceptions. Hollinger Inc. also
agreed that in the event it does not comply with its obligation to deliver clear
title to all of the HTH Shares to FDTH prior to April 1, 1999 or upon earlier
demand, it will be obligated to pay to FDTH an amount equal to the greater of
the initial purchase price for the Hollinger Southam Interest or the fair market
value thereof calculated by reference to the then market value of the underlying
Southam common shares. The HTH/FDTH Share Exchange Agreement was amended on
March 18, 1997 in connection with an internal reorganization of the Company's
Southam interests. See "Reorganization of the Company's Southam Interests"
below.
The Share Exchange Agreement included a covenant by Hollinger Inc. that it
will exercise its redemption rights as a holder of shares of Series A Preferred
Stock only with respect to a number of shares proportionate to the number of HTH
Shares or the underlying Southam common shares that at the time of such exercise
have been delivered to FDTH free and clear of encumbrances as provided in the
Share Exchange Agreement, and that Hollinger Inc. will cause any transferee of
shares of Series A Preferred Stock to agree to be bound by the same covenant.
The Company also agreed that so long as any of the HTH Shares are subject to the
pledge under the Southam-Linked Debentures, the Company will use its reasonable
commercial efforts not to take any action, without the consent of Hollinger
Inc., which itself would constitute an event of default by Hollinger Inc. under
the indenture relating to such debentures. On March 18, 1997, the Company
substituted a direct pledge of Southam common shares owned by the Company
representing approximately 8% of Southam's outstanding common shares for the
pledge of 50% of the HTH Shares. See "Reorganization of the Company's Southam
Interests" below.
REORGANIZATION OF THE COMPANY'S SOUTHAM INTERESTS. The Company and
Hollinger Inc. now directly own a combined approximate 50.4% interest in Southam
through Hollinger Canadian Publishing. Effective March 18, 1997, the Company
completed an internal reorganization of its interests in Southam which
previously had been held as follows: (i) 18.4% through HTH, a Canadian
corporation which is jointly owned by two wholly subsidiaries of the Company,
and 0.6% through such subsidiaries; (ii) 21.1% acquired from the Power
Corporation of Canada held through Hollinger Canadian Publishing; and (iii)
10.3% through a wholly owned subsidiary of FDTH as a result of the Southam share
acquisition in December 1996. The Company's majority interest in Southam is now
held by Hollinger Canadian Publishing in which Publishing and Hollinger Inc.
own, directly or indirectly, the following interests: (i) Publishing and its
subsidiaries own 100% of the non-voting equity shares and non-voting preference
shares and (ii) each of Publishing and Hollinger Inc. (through its wholly-owned
subsidiary) own 50% of the voting preference shares which have only nominal
equity value. Hollinger Inc. has pledged its interest in Hollinger Canadian
Publishing as collateral for bank financing arrangements of the Company and its
subsidiaries.
In connection with this internal reorganization, the Company substituted a
direct pledge of Southam common shares owned by the Company representing
approximately 8% of Southam's outstanding common shares for the previously
pledged of 50% of the HTH Shares under the Southam-Linked Debentures. Prior to
this internal reorganization, HTH owned an 18.5% interest in Southam. Upon such
substitution, the HTH Shares became free and clear of the pledge under the
Southam-Linked Debentures. As a result, the
36
<PAGE> 40
Company's interest in Southam which is directly or indirectly subject to pledge
under the Southam-Linked Debentures has been reduced from 18.5% to approximately
8%.
As the holder of the Company's Series A Preferred Stock, Hollinger Inc.'s
redemption rights were linked to the number of shares of HTH or Southam that at
the time of exercise are free and clear of encumbrances. The Share Exchange
Agreement entered into in connection with the 1995 Reorganization contained a
covenant by Hollinger Inc. limiting the exercise of its redemption rights as the
holder of the Series A Preferred Stock. The Share Exchange Agreement has been
modified to reflect the substitution of the Southam common shares for the HTH
Shares as collateral for the Southam-Linked Debentures. Hollinger Inc. is now
contractually entitled to exercise its redemption rights under the Series A
Preferred Stock proportionate to the number of such Southam common shares that
are delivered to the Company free of the pledge under the Southam-Linked
Debentures. The Series A Preferred Stock has an aggregate redemption price of
approximately $79.2 million. The Company expects that shares of the Series A
Preferred Stock will be redeemed, to the fullest extent permissible under
applicable credit agreements and indentures, during 1997.
DTH AND FDTH PREFERENCE SHARES. The Company's English subsidiaries, DTH and
FDTH, have outstanding preference shares held by persons other than the Company
and its affiliates with an aggregate redemption amount of $124.2 million (as of
December 31, 1996) and which require the payment of quarterly dividends with a
current effective dividend cost of 6.5% per annum (after giving effect to
certain interest rate and currency exchange agreements). In addition, DTH owns
all 165,000,000 non-cumulative redeemable preference shares of L1 per share
issued by FDTH and 23,801,420 non-cumulative redeemable preference shares of
Cdn.$1 per share issued by FDTH which were transferred by Hollinger Inc. to DTH
in July 1995.
The DTH preference shares are redeemable at the option of the holder at any
time on four days notice at a redemption price discounted in accordance with an
agreed formula, and the FDTH preference shares and the DTH preference shares are
redeemable by the issuer or the holders on the fifth anniversary of their
issuance (May or June 1997, respectively), each five-year anniversary thereafter
and at other prescribed times and in prescribed circumstances, including where
the consolidated debt of Hollinger Inc. is more than two times its consolidated
equity. This debt to equity ratio is affected by, among other things, Hollinger
Inc.'s consolidated results of operations, as well as changes in the levels of
consolidated debt of Hollinger Inc. and its subsidiaries, including the Company.
The Company has been informed by Hollinger Inc. that Hollinger Inc. is in
compliance with the debt to equity ratio as of December 31, 1996. Hollinger Inc.
has indemnified the holders of the DTH and FDTH preference shares and agreed to
purchase these preference shares if DTH or FDTH fails to pay the full amount of
dividends or redemption prices on such shares and in certain other events. Under
an agreement entered into at the time of the 1995 Reorganization, the Company
has agreed to compensate Hollinger Inc. for any payments made by Hollinger Inc.
to holders of the DTH and FDTH preference shares and to purchase any DTH and
FDTH preference shares which Hollinger Inc. is required to purchase in
accordance with the terms thereof. The timing of any such payments by the
Company to Hollinger Inc. will be determined by Hollinger Inc. Such indemnity
agreement will terminate at this time of the redemption of the DTH and FDTH
preference shares.
In connection with the 1995 Reorganization, on December 29, 1995, DTH
transferred all outstanding FDTH preference shares which it then held (with an
aggregate redemption amount of Cdn.$140 million ($102.8 million)) to a wholly
owned English subsidiary ("Argsub") of Argus, in exchange for newly issued
preference shares (with an aggregate redemption amount of Cdn.$140 million
($102.8 million)) of such English subsidiary. On September 30, 1996, FDTH issued
600 Cumulative Redeemable Fourth Preference Shares, Series 1996 to Argsub, in
exchange for newly issued preference shares of Argsub. The preference shares so
issued to Argsub and the preference shares issued by Argsub to FDTH have an
aggregate redemption amount of $300.0 million. After giving effect to such
transaction, Argsub holds FDTH preference shares having an aggregate redemption
amount of $402.2 million and, in turn, FDTH and DTH hold in the aggregate
preference shares of Argsub having a redemption amount of $402.2 million. Each
series of preference shares of Argsub has terms substantially identical to the
series of FDTH preference shares in exchange for which it was issued or acquired
by Argsub. Argus owns directly and indirectly approximately 31% of the common
shares of Hollinger Inc.
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The Company plans to redeem the DTH and FDTH preference shares held by
parties other than Argsub at their respective redemption dates in May and June
1997. The Company has entered into an arrangement with a Canadian bank and has
deposited approximately $116 million to provide for such redemption. In
connection with the redemption of such preference shares, the FDTH preference
shares issued to Argsub and the Argsub preference shares issued to DTH and FDTH
will be redeemed, retracted, transferred to DTH or otherwise cancelled.
In connection with the 1995 Reorganization, the Company entered into
interest rate and currency exchange arrangements with Hollinger Inc. for the
period ending June 30, 1997 (the "Supplemental Swap Arrangements"), that are
intended to permit the Company to receive benefits that correspond to those
obtained by Hollinger Inc. under its interest rate and currency exchange
arrangements dated as of June 11, 1992 (the "Original Swap Arrangements") with a
Canadian chartered bank. The Original Swap Arrangements were intended to
effectively convert substantially all of the DTH preference share dividends to
United States dollar obligations payable at a variable rate derived from LIBOR
for the period ending June 30, 1997, and to convert Cdn.$60 million of the
capital amount of Series 1 of the DTH preference shares to United States $50.3
million payable June 30, 1997. The Company has placed approximately $7 million
with its lenders to defease the potential exposure under the swap. Under the
terms of the DTH preference shares, all amounts on Series 1 of the DTH
preference shares are payable in Canadian dollars, with dividends at a fixed
rate of .748%, while all amounts on Series 2 of the DTH preference shares are
payable in United States dollars, with dividends at a fixed rate of 6.829%
(subject in either case to potential increases in the dividend rate to adjust
for reductions in income tax credits or any additional income tax liabilities
affecting holders of preference shares). The Company has agreed to make variable
rate interest payments and a currency payment to Hollinger Inc. that correspond
to Hollinger Inc.'s obligations to the Canadian chartered bank under the
Original Swap Arrangements, and Hollinger Inc. has agreed to pay fixed rate
interest payments and a currency payment to the Company that correspond to the
bank's obligations to it under the Original Swap Arrangements. These
arrangements, after giving effect to certain tax indemnities to holders of DTH
preference shares which would have raised the dividend cost, permitted the
Company to lower the effective dividend cost for financial reporting purposes to
5.6% for Series 1 of the DTH preference shares and to 7% for Series 2 of the DTH
preference shares using December 31, 1994 rates.
CANADIAN NEWSPAPER TRANSACTION. See "The Canadian Newspaper Transaction --
Terms of the Canadian Newspaper Transaction" and -- "Terms of the Series 1 and 2
Preferred Stock" for a description of the agreements entered into with Hollinger
Inc. in connection with the Canadian Newspaper Transaction.
OTHER ARRANGEMENTS. Hollinger Inc. has guaranteed the senior secured notes
issued by American Publishing (1991) Inc., a subsidiary of the Company. The
amount of Hollinger Inc.'s guarantee varies and is limited pursuant to a
formula, which at December 31, 1996 was zero. The Company was indebted to
Hollinger Inc. in the amount of $63,000 at December 31, 1996.
Additional or modified arrangements and transactions may be entered into in
the future by the Company and Hollinger Inc. and their respective subsidiaries.
Any such future arrangements and transactions will be determined through
negotiation between the Company and Hollinger Inc. and it is possible that
conflicts of interest will be involved. In general, the Audit Committee of the
Board of Directors of the Company is responsible for recommending to the Board
of Directors policies and procedures for dealing with conflicts of interest and
reviews any such arrangements and transactions.
MANAGEMENT SERVICES AND BUSINESS OPPORTUNITIES.
Concurrently with the consummation of the Company's initial public
offering, the Company and Hollinger Inc. entered into agreements for the purpose
of defining their ongoing relationships, including a Services Agreement, to
which Publishing later became a party, and a Business Opportunities Agreement.
These agreements, which remain in effect, were developed in the context of a
parent-subsidiary relationship and, therefore, were not the result of
arms-length negotiations between independent parties. The agreements were
subsequently amended, with the approval of the Audit Committee, in connection
with the 1995 Reorganization and on February 7, 1996 in connection with the
Company's equity and debt offerings (as so amended, the "Services Agreement" and
the "Business Opportunities Agreement").
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MANAGEMENT SERVICES. Historically, Hollinger Inc. provided various
management and administrative services to the Company and continued such
relationship pursuant to the Services Agreement. Although the primary purpose of
the agreement relates to the provision of services by Hollinger Inc. to the
Company, the agreement also contemplates that the Company may provide services
to Hollinger Inc. The services to be provided pursuant to the Services Agreement
include, among other things, strategic advice and planning and financial
services (including advice and assistance with respect to acquisitions);
assistance in operational matters; participation in group insurance programs;
and guarantees of indebtedness of the Company or other forms of credit
enhancements. The party receiving the services has agreed to reimburse the party
rendering the services for its allocable costs in providing those services, as
determined by the provider thereof or, in the case of a guarantee, for an amount
equal to the cost to the Company of obtaining a bank letter of credit in the
amount of such guarantee. The party allocating its costs will consider the
salaries or other compensation payable to directors, officers and employees
actually providing services, out-of-pocket costs, the cost of obtaining
substantially equivalent services from a third party and other factors as may be
deemed appropriate. The Services Agreement will remain in effect for so long as
Hollinger Inc. holds at least 50% of the voting power of the Company, subject to
termination by either party under certain specified circumstances.
The services agreement between The Telegraph and Hollinger Inc. (the
"Hollinger-Telegraph Services Agreement") sets forth the basis on which
Hollinger Inc. and The Telegraph may provide services to each other. So long as
Mr. Black remains Chairman of the Board of The Telegraph, The Telegraph will
bear 66.7% of the cost of Mr. Black's office at Hollinger Inc., or such other
proportion as may be agreed from time to time by the Audit Committee of The
Telegraph and senior management of Hollinger Inc. Other services are provided at
cost and typically include the arrangement of insurance, assistance in the
arrangement of financing required by The Telegraph and assistance and advice on
acquisitions, disposals and joint venture arrangements. The amount of the
charges in respect of these other services is submitted to the Audit Committee
of The Telegraph for approval. Hollinger Inc. has assigned its rights and
obligations under the Hollinger-Telegraph Services Agreement to the Company,
which assignment was approved by the Audit Committee of The Telegraph.
Pursuant to the Services Agreement, the Company has paid Hollinger Inc. and
affiliates (including Messrs. Black, Radler, Boultbee, Colson, and Creasey and
Mrs. Black who are officers and/or directors of both Hollinger Inc. and of the
Company and who do not receive compensation in their capacities as executive
officers of the Company directly from the Company) for an allocated portion of
Hollinger Inc.'s costs relating to such services in the aggregate amounts of
$5,605,000 in 1995 and $8,485,186 (including payments under the
Hollinger-Telegraph Services Agreement) in 1996.
BUSINESS OPPORTUNITIES. The Business Opportunities Agreement provides that
the Company is Hollinger Inc.'s principal vehicle for engaging in and effecting
acquisitions in the newspaper business and in related media business in the
United States, Israel, and, through The Telegraph, the United Kingdom, the rest
of the European Community, Australia and New Zealand (the "Telegraph
Territory"). Hollinger Inc. has reserved to itself the ability to pursue all
media (including newspaper) acquisition opportunities outside the United States,
Israel and the Telegraph Territory and all media acquisition opportunities
unrelated to the newspaper business in the United States, Israel and the
Telegraph Territory. As newspaper acquisition opportunities arise in the United
States, Israel and the Telegraph Territory, the Company has the right to pursue
such opportunities directly or through The Telegraph. If Hollinger Inc. acquires
a newspaper business in the United States or Israel, Hollinger Inc. will be
obligated to offer such business for sale to the Company on terms no less
favorable to the Company than those obtained by Hollinger Inc. Hollinger Inc. is
prohibited from acquiring newspapers or media businesses in the Telegraph
Territory under a co-operation agreement with The Telegraph (the "Co-operation
Agreement"). As newspaper or media acquisitions arise in Canada, Hollinger Inc.
has the right to pursue such opportunities, except that the Company is permitted
to increase its investment in Southam. Likewise, if the Company acquires a
newspaper business in Canada (other than an increase in its indirect investment
in Southam), the Company will be obligated to offer such business for sale to
Hollinger Inc. on terms no less favorable to Hollinger Inc. than those obtained
by the Company. Hollinger Inc. expects to continue to acquire newspapers in
Canada, as the Company is not permitted to increase its presence in Canada
except through an increase in its ownership interest in Southam, and to explore
the acquisition of media businesses elsewhere in the world subject to the
provisions of the Business Opportunities
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Agreement and the Co-operation Agreement with The Telegraph. Any decision by the
Company with respect to a particular acquisition shall be subject to the review
and approval of the Audit Committee. In addition, the Business Opportunities
Agreement does not restrict newspaper companies in which Hollinger Inc. has a
minority investment from acquiring newspaper or media businesses in the United
States or Israel, nor does it restrict subsidiaries of Hollinger Inc. from
acquiring up to 20% interests in publicly-held newspaper businesses in the
United States. For the purposes of the Business Opportunities Agreement,
"newspaper business" means the business of publishing and distributing
newspapers, magazines and other paid or free publications having national,
regional, local or targeted markets, including publications having limited or no
news or editorial content such as shoppers or other total market coverage
publications and similar publications. "Media business" means the business of
broadcasting radio, television, cable and satellite programs (including
national, regional or local radio, television, cable and satellite programs).
The Business Opportunities Agreement will remain in effect so long as Hollinger
Inc. holds at least 50% of the voting power of the Company, subject to
termination by either party under certain specified circumstances.
With respect to the Canadian Newspaper Transaction, the Company obtained a
waiver under the Business Opportunities Agreement to permit it to acquire the
Canadian Newspapers. In addition, Hollinger Inc. agreed, for a period of five
years after the closing of the Purchase Agreements, that it would not engage in
any newspaper business in the communities where the Canadian Newspapers are
currently being published (subject to certain limited exceptions). See "The
Exchange Proposal--Terms of the Canadian Newspaper Transaction."
The Company and Hollinger Inc. also have acknowledged that, pursuant to the
Co-operation Agreement, Hollinger Inc. has undertaken to restrict its activities
in respect of the newspaper business and the media business (defined to include
radio, television, cable and satellite programs) in the Telegraph Territory. So
long as Hollinger Inc. has beneficial ownership of 50% or more of the voting
power of the Company's outstanding securities, the Company and Hollinger Inc.
have agreed that neither shall, without the other's prior written consent,
violate the provisions of the Co-operation Agreement. In addition, Hollinger
Inc. has agreed not to amend or modify the Co-operation Agreement and will not
waive any benefit or right hereunder without the prior written consent of the
Company. Hollinger Inc. is prohibited from directly acquiring beneficial
ownership of any voting securities of The Telegraph.
OTHER TRANSACTIONS.
On March 15, 1996, the Company sold three paid dailies, three non-dailies
and five total market coverage papers to a group controlled by Larry J.
Perrotto, former Chief Executive Officer of the Company, for approximately $5.1
million plus assumption of certain liabilities. The transaction was unanimously
approved by the independent Directors of the Company as a market value
transaction.
In order to facilitate the rendering of management and advisory services by
Messrs. Black and Radler, and to enhance the business interests of the Company
with the financial community, the newspaper industry and otherwise, a subsidiary
of the Company purchased apartments in New York and Chicago in 1994 for the use
of Messrs. Black and Radler, respectively, on a rent-free basis while they are
in the United States. The cost to the Company of building out and maintaining
the apartments for Messrs. Black and Radler was $68,970 and $50,967,
respectively, during 1996. The incremental cost to the Company of these
apartments was zero in 1996. The Company has granted an option to Mr. Black to
acquire at any time the Company's beneficial interest in the New York apartment
at its then fair market value. The Company's subsidiary has agreed to sell the
apartment upon exercise of the option by Mr. Black or by a third party in the
event of Mr. Black's termination as both an officer and a director of the
Corporation, his death or permanent disability or upon notice by Mr. Black.
The Company leases its office in New York from 712 5th Avenue Associates,
L.P., a limited partnership in which Mr. Taubman, a Director of the Company, may
be deemed to have an indirect interest. The payments under such lease aggregated
approximately $116,470 in 1996.
Winston & Strawn, a law firm of which James R. Thompson, a Director of the
Company, is a partner, has provided legal services to the Company for which it
received fees at its customary rates.
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DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the Delaware General Corporation Law ("Section
262"), holders of Class A Common Stock, Class B Common Stock or Series B
Preferred Stock will not have the right to dissent from the Proposals and elect
to have the fair value of their shares of Class A Common Stock, Class B Common
Stock or Series B Preferred Stock judicially determined and paid to them in
cash. Under Section 262, dissenters' rights are not available to the
stockholders of a corporation that is a party to a transaction such as the
Reorganization.
INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP as independent
auditors of Hollinger International for the year ending December 31, 1997.
Representatives of KPMG Peat Marwick LLP will be present at the Special Meeting
and will have an opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present for consideration at
the 1998 Annual Meeting of Stockholders must be received by the Secretary of the
Company at the principal executive office of the Company no later than November
26, 1997.
OTHER MATTERS
The Board of Directors does not know of any other business which will come
before the Special Meeting for action by the stockholders other than the matters
specified in the accompanying Notice of the Special Meeting. If any other
matters requiring a stockholder vote properly come before the meeting, the
persons appointed in the enclosed proxy will vote in accordance with their
discretion with respect to such matters.
Kenneth L. Serota
Vice President-Law & Finance and
Secretary
Chicago, Illinois
May 21, 1997
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ANNEX A
RBC LETTERHEAD
April 18, 1997
Board of Directors
Hollinger International Inc.
401 North Wabash Avenue
Chicago, IL 60611
Members of the Board:
We understand that Hollinger International Inc. (the "Company"), Hollinger
Inc. and certain of their affiliates propose to enter into Purchase Agreements
to be dated April 18, 1997 (the "Purchase Agreements") and an Exchange Agreement
to be dated April 18, 1997 (the "Exchange Agreement") pursuant to which a
Canadian subsidiary of the Company will acquire certain Canadian newspaper
interests consisting of the Sterling Newspaper Group and UniMedia Inc. (the
"Canadian Newspapers") from Hollinger Inc. effective as of January 1, 1997 for
consideration consisting of (i) cash of approximately $250 million and (ii)
shares of two new series of preferred stock of the Company having an aggregate
nominal amount of approximately $124 million (the "Preferred Stock"). Pursuant
to the Exchange Agreement, the Preferred Stock will be exchanged for a
combination of Class A Common Stock and convertible preferred securities of the
Company following the receipt of the requisite approval of the stockholders of
the Company. The terms and conditions of the foregoing transactions
(collectively, the "Canadian Newspaper Transaction") are set forth in more
detail in the Purchase Agreements and the Exchange Agreement.
You have requested our opinion as to whether the consideration to be paid
by the Company pursuant to the Purchase Agreements and the Exchange Agreement is
fair, from a financial point of view, to the Company and the holders of the
Class A Common Stock and Series B Preferred Stock of the Company other than
Hollinger Inc.
RBC Dominion Securities Inc. ("RBC Dominion Securities"), as part of its
investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as financial advisor to the Special Committee
of the Board of Directors of the Company (the "Special Committee") in connection
with the Canadian Newspaper Transaction and will receive a fee for our services.
RBC Dominion Securities has previously provided financial advisory services to a
special committee of the Board of Directors of Southam Inc., a subsidiary of the
Company. RBC Dominion Securities may provide investment banking services to
Hollinger Inc. or the Company in the future. RBC Dominion Securities provides a
full range of financial, advisory and brokerage services and in the course of
its normal trading activities may from time to time effect transactions and hold
positions in the securities or options of the Company or Hollinger Inc. for its
own account and for the account of customers.
In connection with our opinion set forth herein, we have, among other
things (i) analyzed certain internal financial statements and other financial
and operating data concerning the Canadian Newspapers prepared by the management
of Hollinger Inc. and the Company, (ii) analyzed certain financial projections
concerning the Canadian Newspapers prepared by the management of Hollinger Inc.
and the Company, (iii) held discussions with members of the senior management of
Hollinger Inc. and the Company regarding the past and current operations and
financial condition and future prospects of the Canadian Newspapers, (iv)
analyzed certain publicly available financial statements and other information
regarding the Company, including published
RBC Footer
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reports of equity research analysts, (v) reviewed the historical market prices
and trading volume for the Class A Common Stock and Preferred Redeemable
Increased Dividend Equity Securities of the Company, (vi) discussed with senior
management of Hollinger Inc. and the Company their view of the strategic
rationale for the Canadian Newspaper Transaction and the benefits of the
Canadian Newspaper Transaction to the Company, (vii) compared the financial
performance of the Canadian Newspapers and the proposed consideration with that
of certain other comparable publicly traded companies and their equity
securities, (viii) conducted discussions with the Company's auditors regarding
accounting treatment of the Canadian Newspaper Transaction, (ix) reviewed
industry information, including commodity price forecasts, (x) analyzed the
estimated pro forma financial impact of the Canadian Newspaper Transaction on
the Company, including the pro forma impact on the Company's consolidated
capitalization and financial ratios, (xi) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions, (xii)
participated in discussions with legal counsel to the Special Committee
regarding certain tax and ownership aspects of the Canadian Newspaper
Transaction, (xiii) reviewed a letter dated April 17, 1997 from KPMG in
connection with the Company's analysis of the pro forma effects of the Canadian
Newspaper Transaction on its earnings per share, (xiv) reviewed the Purchase
Agreements, (xv) reviewed the Exchange Agreement, (xvi) reviewed the Company's
Form 8-K dated April 18, 1997, (xvii) reviewed preliminary drafts of the Proxy
Statement to be issued in connection with the Canadian Newspaper Transaction,
including the draft dated April 17, 1997 and (xviii) performed such other
studies, analyses and examinations as we have deemed appropriate.
In connection with our review, we have not independently verified any of
the foregoing information and have relied on its being complete and accurate in
all material respects. In addition, we have not made an independent evaluation
or appraisal of the assets and liabilities (contingent or otherwise) of the
Canadian Newspapers, nor have we been furnished with such evaluations or
appraisals. With respect to the financial projections supplied to us by the
Company and Hollinger Inc., we have assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the senior managements of the Company and Hollinger Inc. as
to the anticipated future competitive, operating and regulatory environments and
related financial performance of the Canadian Newspapers. We have assumed that
the transactions described in the Purchase Agreements and the Exchange Agreement
will be consummated on the terms set forth therein. We have assumed that the
Company's ownership of the Canadian Newspapers through the structure
contemplated by the Purchase Agreements will comply with Canadian foreign
ownership and tax rules and other applicable rules and regulations and such
structure will not have an adverse effect on the Company's anticipated future
financial returns from the Canadian Newspapers. Our opinion is necessarily based
on financial, economic, market, regulatory and other conditions as they exist
and can be evaluated on, and the information made available to us as of, the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. We have assumed for purposes of our opinion that the final terms
of documents reviewed by us in draft form will not vary materially from the
drafts reviewed by us and that the terms of any additional documents that may be
agreed to other than those reviewed by us will not materially affect our
analyses. We are expressing no opinion as to the prices at which any securities
of the Company, including the securities to be issued by the Company in
connection with the Canadian Newspaper Transaction, will trade in the future.
This letter is for the information of the Board of Directors of the Company
only and may not be used for any other purpose without our prior written
consent. We hereby consent, however, to the inclusion of this opinion as an
exhibit to the proxy statement to be distributed by the Company to its
stockholders in connection with the Canadian Newspaper Transaction. In addition,
we express no opinion or recommendation to any stockholder of the Company or
Hollinger Inc. as to how such stockholder should vote at the stockholders'
meeting of the Company to be held in connection with the Canadian Newspaper
Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by the Company pursuant to the
Purchase Agreements and the Exchange Agreement is fair, from a financial point
of view, to the Company and the holders of the Class A Common Stock and Series B
Preferred Stock of the Company other than Hollinger Inc.
Very truly yours,
RBC Dominion Securities Inc.
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ANNEX B
HOLLINGER INTERNATIONAL INC.
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
APRIL 18, 1997
Hollinger Inc.
UniMedia Holding Company
10 Toronto Street
Toronto, Ontario
Canada M5C 2B7
Attention: Mr. John A. Boultbee, Vice-President,
Finance and Treasury
Re: Exchange Agreement
Dear Mr. Boultbee:
Reference is hereby made to (i) the UniMedia Class A Stock Purchase
Agreement dated as of April 18, 1997 ("UniMedia A Agreement") among Hollinger
Inc., a corporation continued under the laws of Canada ("Hollinger"), UniMedia
Holding Company, a company formed under the laws of Nova Scotia ("Vendor"), and
Hollinger International Inc., a Delaware corporation ("International"), relating
to the purchase of all of the outstanding Class A Common Shares of UniMedia
Newspapers Company, a Nova Scotia unlimited liability company ("UniMedia"); and
(ii) the UniMedia Class B Stock Purchase Agreement dated as of April 18, 1997
("UniMedia B Agreement") among Hollinger, the Vendor, and International relating
to the purchase of all of the outstanding Class B Common Shares of UniMedia (the
UniMedia A Agreement and the UniMedia B Agreement being referred to collectively
as the "Purchase Agreements").
In consideration of the purchase of the outstanding Class B Common Shares
of UniMedia, International is issuing to the Vendor 23,267 newly issued shares
of Series 1 Nonvoting Preferred Stock (having the relative rights and
preferences set forth in the form of Certificate of Designations attached hereto
as Annex 1) at a stated issue price of Cdn. $1,000 per share ("Series 1
Nonvoting Preferred Stock") and cash in the amount of Cdn. $100,000. In
consideration of the purchase of the outstanding Class A Common Shares of
UniMedia, International is issuing to the Vendor 149,658 shares of Series 2
Nonvoting Preferred Stock (having the relative rights and preferences set forth
in the form of Certificate of Designations attached hereto as Annex 2) at a
stated issue price of Cdn. $1,000 per share ("Series 2 Nonvoting Preferred
Stock"), and cash in the amount of Cdn. $19,373,000.
The shares of Series 1 Nonvoting Preferred Stock and Series 2 Nonvoting
Preferred Stock (collectively, "Nonvoting Preferred Stock") will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will not be transferable by the Vendor without the prior written consent of
International, except as provided below. No sale, transfer, or other disposition
of any share or shares of Nonvoting Preferred Stock shall be valid or effectual
for any purpose whatsoever, and International shall not be obligated to
recognize or give any effect to any purported such sale, transfer or other
disposition, other than a sale, transfer or disposition to a Subsidiary or
Affiliate (as such terms are defined in International's Restated Certificate of
Incorporation, as amended) of Hollinger unless and until International, by
resolution duly adopted by its Board of Directors, shall first have consented to
the proposed sale, transfer or other disposition and approved the proposed
transferee; provided, however, that, subject to the next sentence hereof, (a)
the Vendor, Hollinger or any Subsidiary or Affiliate of Hollinger may pledge
such shares to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness or other obligations due to the pledgee,
and (b) the Vendor may sell, transfer or otherwise dispose of all (but not less
than all) such shares to a third party at any time after the Stockholders
Meeting (as hereinafter defined) but only if the requisite Stockholder Approval
(as hereinafter defined) has not been obtained at the Stockholders Meeting or
any postponement or adjournment(s) thereof. Notwithstanding the provisions of
clauses (a) and (b) above, no such pledge, sale,
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transfer or other disposition shall be effectual unless, as a condition prior
thereto: (A) such pledge, sale, transfer or other disposition shall be completed
in accordance with all applicable laws, including without limitation the
Securities Act and the rules and regulations of the Securities and Exchange
Commission thereunder and Canadian securities laws and regulations thereunder;
(B) the shares so pledged, sold, transferred or disposed shall remain subject to
the provisions of this Exchange Agreement, and any transferee thereof (whether
by or following foreclosure, realization or other similar action by the pledgee
in the case of pledged shares, or by or following the purchase by or transfer to
a third party in the case of any other sale, transfer or other disposition)
shall have consented, in a writing addressed to International, to be bound by
the provisions of this Exchange Agreement, including but not limited to the
restrictions on transfer set forth in this paragraph which, for greater
certainty, will continue in effect with respect to any proposed sale, transfer
or other disposition of shares by such third party; and (C) International shall
have received a written opinion, from counsel reasonably acceptable to
International, confirming the matters referred to in clauses (A) and (B), above.
The authorized capital stock of International currently consists of
250,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A
Common Stock"), 50,000,000 shares of Class B Common Stock, par value $.01 per
share ("Class B Common Stock"), and 20,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock"), of which 69,565,754 shares of Class A
Common Stock, 14,990,000 shares of Class B Common Stock, 739,500 shares of
Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock"),
10,350,000 shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 23,267 shares of Series 1 Nonvoting Preferred Stock, and 149,658 shares
of Series 2 Nonvoting Preferred Stock are issued and outstanding. In order to
comply with NYSE rules relating to issuance of shares to certain related
parties, International has agreed to call a special meeting of the holders of
International's Class A Common Stock, Class B Common Stock, and Series B
Preferred Stock (the "Stockholders Meeting") as soon as practicable after the
date hereof in accordance with the Securities Exchange Act of 1934, as amended,
the applicable rules and regulations of the Securities and Exchange Commission
thereunder, and the applicable rules of the New York Stock Exchange. At the
Stockholders Meeting, the stockholders of International will be requested, among
other matters, to consider and vote upon the following proposals: (i) to permit
the issuance by International of authorized but unissued shares of Class A
Common Stock upon exchange by the Vendor of all shares of Series 1 Nonvoting
Preferred Stock and the "Second Tranche Shares" of the Series 2 Nonvoting
Preferred Stock (as hereinafter defined) in accordance with this Exchange
Agreement; (ii) to permit the issuance by International of authorized but
unissued shares of Series C Convertible Preferred Stock (having the relative
rights and preferences set forth in the form of Certificate of Designations
attached hereto as Annex 3) of International ("Series C Convertible Preferred
Stock") upon exchange by the Vendor of all of the "First Tranche Shares" of the
Series 2 Nonvoting Preferred Stock (as hereinafter defined) in accordance with
this Exchange Agreement; (iii) to permit the issuance by International of
authorized but unissued shares of Class A Common Stock upon conversion of the
Series C Convertible Preferred Stock as provided therein; and (iv) to increase
the authorized capital of International from 20 million shares to 120 million
shares of Preferred Stock (collectively, the "International Proposals"). The
holders of outstanding shares of Class A Common Stock, Class B Common Stock and
Series B Preferred Stock will be entitled to vote as a single class on items (i)
through (iv), above. Hollinger, as the sole holder of the outstanding shares of
Series A Preferred Stock, hereby consents to approve an amendment to the terms
of the Series A Preferred Stock to clarify its voting rights (as provided by
law) to eliminate any right to vote as a separate class with respect to any
proposed increase in the number of shares of Preferred Stock or to authorize the
issuance of parity or junior stock, such amendment to be effective as soon as
practicable after the date hereof and, in any event, prior to the Stockholders
Meeting. Hollinger Inc., as the holder, directly or indirectly through its
subsidiaries, of all of the outstanding Class B Common Stock, and 33,610,754
shares of Class A Common Stock, has agreed to vote or cause to be voted all such
shares of International held by it or its subsidiaries in favour of the
International Proposals.
On the Determination Date (as hereafter defined), an amount equal to Cdn.
$149,658,000 (the "Canadian Dollar Balance") will be converted into U.S. dollars
using the "U.S. Dollar Equivalent" (as hereinafter defined) as of that date and
allocated, for computational purposes, as set forth below. The Canadian dollar
equivalent of U.S. $90,000,000 using the "Noon Buying Rate," as hereinafter
defined on the
B-2
<PAGE> 49
Determination Date (the "First Tranche Amount"), will first be allocated to a
portion of the Series 2 Nonvoting Preferred Stock (the "First Tranche Shares")
to determine the portion of the Series 2 Nonvoting Preferred Stock to be
mandatorily exchanged into Series C Convertible Preferred Stock. Such portion
(rounded to the nearest share) will be determined by (A) dividing the First
Tranche Amount by the Canadian Dollar Balance, and then (B) multiplying the
resulting fractional amount (rounded to the fourth decimal place) by 149,658.
Then, any remaining amount of the Canadian Dollar Balance (the "Second Tranche
Amount"), expressed in Canadian dollars, will be allocated to the remaining
shares of Series 2 Nonvoting Preferred Stock (the "Second Tranche Shares"),
determined by subtracting the number of First Tranche Shares from 149,658. On
the Determination Date, International will deliver two new stock certificates to
the Vendor in respect of the Series 2 Nonvoting Preferred Stock in replacement
of the original certificate issued on the date hereof, with one new certificate
representing the First Tranche Shares and the other representing the Second
Tranche Shares.
Within five (5) business days after obtaining the affirmative vote of the
holders of a majority of the total votes cast with regard to items (i) through
(iv) of the International Proposals ("Stockholder Approval"), International
shall issue to Hollinger or the Vendor the following securities in exchange for
all (but not less than all) issued and outstanding shares of Nonvoting Preferred
Stock of all series (the "Exchange"):
(i) in exchange for all 23,267 shares of Series 1 Nonvoting Preferred
Stock, that number of newly issued shares of Class A Common Stock as is
determined by dividing (x) the "U.S. Dollar Equivalent" of Cdn. $23,267,000
on the Determination Date by (y) the "Adjusted Market Price" of Class A
Common Stock on the "Determination Date" (as such terms are hereinafter
defined);
(ii) in exchange for all the First Tranche Shares, that number of
newly issued shares of Series C Convertible Preferred Stock as is
determined by dividing (x) the "U.S. Dollar Equivalent" of the First
Tranche Amount by (y) the "Adjusted Market Price" of Class A Common Stock
on the "Determination Date" (as such terms are defined below);
(iii) in exchange for all of the Second Tranche Shares, that number of
newly issued shares of Class A Common Stock as is determined by dividing
(x) the "U.S. Dollar Equivalent" of the "Second Tranche Amount" (if any) by
(y) the "Adjusted Market Price" of Class A Common Stock on the
"Determination Date" (as such terms are defined below).
If the "U.S. Dollar Equivalent" of the Canadian Dollar Balance is less than
U.S. $90,000,000, then the number of shares of Series C Convertible
Preferred Stock will be proportionally reduced. If the Second Tranche
Amount is zero, there will be no exchange in respect thereof.
For purposes hereof: (A) the "U.S. Dollar Equivalent" means the inverse of the
"Noon Buying Rate"; (B) the "Noon Buying Rate" means the noon buying rate in the
City of New York for cable transfers in United States dollars as certified for
customs purposes by the Federal Reserve Bank of New York; (C) the "Adjusted
Market Price" means the greater of (I) the amount per share determined by
multiplying 1.05 by the "Market Price" and (II) U.S. $9.00 per share; (D) the
"Market Price" means the weighted average market price per share of Class A
Common Stock on the New York Stock Exchange (taking into account the actual sale
prices and the respective number of shares of Class A Common Stock so sold in
each sale transaction on the New York Stock Exchange) for the ten (10) trading
day period ending on the "Determination Date" as reported by Bloomberg or other
authority satisfactory to International; and (E) the "Determination Date" means
the date that is five (5) business days prior to the mailing by International of
the definitive version of the proxy solicitation materials (the "Proxy
Statement") to all stockholders of record of International with respect to the
Stockholders Meeting.
As soon as practicable after the Determination Date, but in any event no
later than the date (the "Mailing Date") on which International first mails the
definitive Proxy Statement to its stockholders with respect to the Stockholders
Meeting, International will furnish to Hollinger and the Vendor a certificate
(the "Officers' Certificate"), executed by a duly authorized officer of
International and substantially in the form of Annex 4 attached hereto with all
blanks completed. Absent manifest error, all such information as set forth in
the definitive Officers' Certificate delivered to Hollinger and the Vendor
hereunder shall be binding and conclusive on all of the parties hereto.
B-3
<PAGE> 50
As soon as practicable, but in any event no later than five (5) business
days after the Determination Date, International, Hollinger, Vendor, 1159670
Ontario Limited, Hollinger's indirect wholly owned subsidiary ("1159670"),
and/or any other direct or indirect wholly owned subsidiary of Hollinger (as
Hollinger may designate) will enter into the Second Exchange Agreement,
substantially in the form of Annex 5 attached hereto with all blanks completed
(the "Second Exchange Agreement"). Hollinger will cause Vendor, 1159670 and/or
any other direct or indirect wholly owned subsidiary of Hollinger (as Hollinger
may designate) to execute and deliver the Second Exchange Agreement and perform
their respective obligations thereunder.
During the preparation of the definitive Proxy Statement, the parties
hereto shall consult and cooperate with each other in order to complete any and
all matters relating to the definitive Certificate of Designations to be filed
with the Delaware Secretary of State to create the Series C Convertible
Preferred Stock, including without limitation the expected date of the Exchange,
the expected Dividend Payment Dates, the Mandatory Conversion Date and the
Initial Redemption Date, the calculation of the Call Price, and all other
pertinent matters, taking into account the parties' mutual intention that the
Series C Convertible Preferred Stock (as reflected in the definitive Certificate
of Designations creating such Preferred Stock, and when issued upon the
Exchange) be similar in all material respects to the Series B Preferred Stock
(except for the agreed dividend rate of 9.5% per annum and the other financial
terms referred to above).
The Special Committee of independent members of the Board of Directors of
International (the "Special Committee"), acting on behalf of International
pursuant to authority duly delegated to it by the Board of Directors of
International, shall approve (a) the definitive Officers' Certificate prior to
its delivery to Hollinger and the Vendor and (b) the other provisions requiring
completion with respect to the definitive Certificate of Designations for the
Series C Convertible Preferred Stock.
The Exchange shall be mandatory and shall not require any request or other
action by, or notice to, Hollinger, the Vendor or International. Immediately
upon the Exchange dividends will cease to accrue in respect of shares of
Nonvoting Preferred Stock. Hollinger and the Vendor will promptly tender all
stock certificates evidencing shares of Nonvoting Preferred Stock in order to
permit International to complete the Exchange.
Upon the completion of the Exchange after Stockholder Approval is obtained,
the outstanding shares of Nonvoting Preferred Stock will be cancelled. The
shares of Class A Common Stock and Series C Convertible Preferred Stock issued
upon the Exchange will not be registered under the Securities Act at the time of
issuance. At the request of Hollinger, International agrees to take commercially
reasonable efforts to cause the registration under the Securities Act of the
shares of Class A Common Stock and Series C Convertible Preferred Stock issued
to the Vendor upon the Exchange (and the shares of Class A Common Stock issuable
upon conversion of the Series C Convertible Preferred Stock) and to list such
newly issued shares of Class A Common Stock and Series C Convertible Preferred
Stock on the New York Stock Exchange, in each case as soon as practicable after
the issuance thereof.
In the event Stockholder Approval is not obtained at the Stockholders
Meeting or any adjournment or postponement thereof, the shares of Nonvoting
Preferred Stock will remain outstanding, subject to redemption at the option of
the holder in accordance with their terms or transfer in accordance with the
provisions of this Exchange Agreement.
This Agreement may be amended or modified, but only by a written agreement
that identifies this Exchange Agreement and is signed by all of the parties
hereto. Any such amendment or modification shall be effective as to
International only if in writing signed by the Chairman of the Special Committee
on behalf of International. In addition, International shall not waive any
obligations of Hollinger or the Vendor hereunder or any other benefits to
International arising under this Exchange Agreement unless approved by the Board
of Directors of International following receipt of a favourable recommendation
thereof by the Special Committee.
B-4
<PAGE> 51
This Exchange Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
Very truly yours,
HOLLINGER INTERNATIONAL INC.
By: /s/ KENNETH L. SEROTA
------------------------------------
Name: Kenneth L. Serota
Title: Vice President-Law &
Finance and Secretary
Agreed and Accepted
this 18th day of April, 1997:
HOLLINGER INC.
By: /s/ J. A. BOULTBEE
----------------------------------
Name: J. A. Boultbee
Title: Vice-President, Finance and
Treasury
UNIMEDIA HOLDING COMPANY
By: /s/ J. A. BOULTBEE
----------------------------------
Name: J. A. Boultbee
Title: Vice-President, Finance and
Treasury
B-5
<PAGE> 52
ANNEX C
HOLLINGER INTERNATIONAL INC.
401 NORTH WABASH AVENUE
CHICAGO, ILLINOIS 60611
MAY 20, 1997
Hollinger Inc.
UniMedia Holding Company
1159670 Ontario Limited
10 Toronto Street
Toronto, Ontario Canada M5C2B7
Attention: Mr. John A. Boultbee, Vice-President,
Finance and Treasury
Re: Second Exchange Agreement
Dear Mr. Boultbee:
Reference is hereby made to the Exchange Agreement dated as of April 18,
1997 ("First Exchange Agreement") among Hollinger Inc., a corporation continued
under the laws of Canada ("Hollinger"), UniMedia Holding Company, a company
formed under the laws of Nova Scotia ("UniMedia"), and Hollinger International
Inc., a Delaware corporation ("International"), relating to the issuance to
UniMedia of shares of Series 1 Nonvoting Preferred Stock and of Series 2
Nonvoting Preferred Stock of International and the exchange by UniMedia and
International ("First Exchange") of the shares of Series 1 Nonvoting Preferred
Stock and Series 2 Nonvoting Preferred Stock for shares of Class A Common Stock
and Series C Convertible Preferred Stock of International in accordance with the
terms, and subject to the conditions, set forth in the First Exchange Agreement.
All capitalized terms not otherwise defined herein have the meaning ascribed to
them in the First Exchange Agreement.
As soon as practicable, but in any event no later than five (5) business
days, after completion of the First Exchange, International shall issue ("Second
Exchange") (x) to UniMedia or any other direct or indirect wholly owned
subsidiaries of Hollinger as Hollinger may designate (any such subsidiary a
"Designated Subsidiary"), shares of Class A Common Stock in exchange for all
(but not less than all) issued and outstanding shares of Series C Convertible
Preferred Stock ("UniMedia Series C Preferred Shares") issued to UniMedia
pursuant to the First Exchange (which shall be immediately cancelled), and (y)
to 1159670 or a Designated Subsidiary, newly issued shares of Series C
Convertible Preferred Stock in exchange for shares of Class A Common Stock
("1159670 Class A Common Shares") as set forth below:
(i) in exchange for the UniMedia Series C Preferred Shares, 8,294,090
newly issued shares of Class A Common Stock; and
(ii) in exchange for 8,294,090 of the 1159670 Class A Common Shares,
8,294,090 newly issued shares of Series C Convertible Preferred Stock.
The Second Exchange shall be mandatory and shall not require any request or
other action by, or notice to, Hollinger, 1159670, UniMedia, the Designated
Subsidiaries or International. The obligations of the parties to this Second
Exchange Agreement to perform the Second Exchange are conditioned upon and the
Second Exchange will occur only after: (i) receipt by International of the
approval by its stockholders of the proposed stock issuances contemplated by
both the First Exchange and the Second Exchange and (ii) completion of the First
Exchange.
Immediately upon the Second Exchange dividends will cease to accrue in
respect of the UniMedia Series C Preferred Shares and the 1159670 Class A Common
Shares. UniMedia and 1159670 will promptly tender all stock certificates
evidencing the UniMedia Series C Preferred Shares and the 1159670 Class A Common
Shares in order to permit International to complete the Second Exchange. Upon
the completion of
C-1
<PAGE> 53
the Second Exchange, the outstanding UniMedia Series C Preferred Shares will be
cancelled and the outstanding 1159670 Class A Common Shares will be retired.
Upon completion of the First Exchange and for a period of thirty (30) days
thereafter pending completion of the Second Exchange, Hollinger and UniMedia
shall not exercise the registration rights granted under the First Exchange
Agreement. The shares of Class A Common Stock and Series C Convertible Preferred
Stock issued upon the Second Exchange will not be registered under the
Securities Act at the time of issuance, and the certificates evidencing such
shares will bear the legends set forth in Exhibit 1 attached hereto. At the
request of UniMedia, 1159670 or the Designated Subsidiaries, International
agrees to take commercially reasonable efforts to cause the registration under
the Securities Act of the shares of Class A Common Stock and Series C
Convertible Preferred Stock issued to UniMedia and 1159670 upon the Second
Exchange and to list such newly issued shares of Class A Common Stock and Series
C Convertible Preferred Stock on the New York Stock Exchange, in each case as
soon as practicable after the issuance thereof.
This Second Exchange Agreement may be amended or modified, but only by a
written agreement that identifies this Second Exchange Agreement and is signed
by all of the parties hereto. Any such amendment or modification shall be
effective as to International only if in writing signed by the Chairman of the
Special Committee on behalf of International. In addition, International shall
not waive any obligations of 1159670, UniMedia or the Designated Subsidiaries
hereunder or any other benefits to International arising under this Second
Exchange Agreement unless approved by the Board of Directors of International
following receipt of a favorable recommendation thereof by the Special
Committee.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
C-2
<PAGE> 54
Very truly yours,
HOLLINGER INTERNATIONAL INC.
By: /s/ KENNETH L. SEROTA
------------------------------------
Name: Kenneth L. Serota
Title: Vice President-Law &
Finance and Secretary
Agreed and Accepted
this 20th day of May 1997:
HOLLINGER INC.
By: /s/ J. A. BOULTBEE
----------------------------------
Name: J. A. Boultbee
Title: Vice-President, Finance and
Treasury
UNIMEDIA HOLDING COMPANY
By: /s/ J. A. BOULTBEE
----------------------------------
Name: J. A. Boultbee
Title: Vice-President, Finance and
Treasury
1159670 ONTARIO LIMITED
By: /s/ J. A. BOULTBEE
----------------------------------
Name: J. A. Boultbee
Title: Vice-President, Finance and
Treasury
C-3
<PAGE> 55
ANNEX D
FORM OF
CERTIFICATE OF AMENDMENT
OF RESTATED CERTIFICATE OF INCORPORATION
OF
HOLLINGER INTERNATIONAL INC.
Hollinger International Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify:
FIRST: The Board of Directors of the Corporation at a meeting held on
April , 1997 adopted a resolution proposing an amendment to the Restated and
Amended Certificate of Incorporation of the Corporation (the "Amendment") and
directed that the Amendment be submitted to the holders of the issued and
outstanding stock of the Corporation entitled to vote thereon for their
consideration and approval as follows:
RESOLVED, that the Restated and Amended Certification of Incorporation
of the Corporation be, and hereby is, amended by deleting paragraph A of
ARTICLE IV thereof in its entirety and substituting therefor paragraph A as
set forth below:
ARTICLE IV
A. AUTHORIZED CAPITALIZATION. The total number of all shares of
capital stock which the Corporation shall have the authority to issue is
350,000,000 shares consisting of: (1) 250,000,000 shares of Class A
Common Stock, with a par value of $.01 per share; (2) 50,000,000 shares
of Class B Common Stock, with a par value of $.01 per share; and (3)
120,000,000 shares of Preferred Stock, with a par value of $.01 per
share. The number of authorized shares of Class A Common Stock or Class
B Common Stock may be increased or decreased (but not below the number
of shares thereof then outstanding) if the increased or decrease is
approved by the holders of a majority of the voting power of all of the
then outstanding shares of stock entitled to vote in any general
election of directors, voting together as a single class but without the
separate vote of the holders of any other class of stock.
SECOND: That said Amendment has been consented to and authorized by the
stockholders of the Corporation pursuant to a majority vote of the holders of
the outstanding stock of the Corporation entitled to vote thereon at a Special
Meeting of the Stockholders duly called and held on , 1997.
THIRD: That said Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by J.A. Boultbee, its Vice President and Chief Financial Officer and
attested by Kenneth L. Serota, its Vice President-Law and Finance and Secretary
this day of , 1997.
HOLLINGER INTERNATIONAL INC.
By:
------------------------------------
J.A. Boultbee
Vice President and
Chief Financial Officer
ATTEST:
By:
- ------------------------------------
Kenneth L. Serota
Secretary and Vice President-
Law and Finance
D-1
<PAGE> 56
HOLLINGER INTERNATIONAL INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF HOLLINGER INTERNATIONAL INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 10, 1997
The undersigned holder of shares of Class A Common Stock, par value $.01 per
share ("Class A Common Stock"), Class B Common Stock, par value $.01 per share
("Class B Common Stock") and/or Series B Convertible Preferred Stock, par value
$.01 per share ("Series B Preferred Stock") of Hollinger International Inc.
("Hollinger International"), hereby appoints Kenneth L. Serota and Paul B.
Healy, individually, with full power of substitution in each of them, as proxy
or proxies to represent the undersigned and vote all shares of Class A Common
Stock, Class B Common Stock and/or Series B Preferred Stock of Hollinger
International which the undersigned would be entitled to vote if personally
present and voting at the Special Meeting of Stockholders of Hollinger
International to be held on July 10, 1997 at 11:00 a.m., local time, at the
Atrium, 7th Floor of The Sun-Times Building, 401 North Wabash Avenue, Chicago,
Illinois 60611, and at any adjournments or postponements thereof, upon all
matters coming before such meeting. Said proxies are directed to vote as set
forth below and, in their discretion, upon such other matters as may properly
come before the meeting.
(1) Authorization of (a) the issuance to UniMedia Holding Company, a subsidiary
of Hollinger Inc. ("UniMedia Holding"), of 8,294,090 shares of Series C
Preferred Stock, par value $.01 per share of Hollinger International (the
"Series C Preferred Stock") (including up to 8,294,090 shares of Class A Common
Stock into which the shares of Series C Preferred Stock are convertible) and
3,207,045 shares of Class A Common Stock, in exchange for 23,267 shares of
Series 1 Nonvoting Preferred Stock and 149,658 shares of Series 2 Nonvoting
Stock Preferred Stock of Hollinger International held by UniMedia Holding (the
"First Exchange") and (b) immediately following the First Exchange, the issuance
to UniMedia Holding of shares of Class A Common Stock in exchange for 8,294,090
shares of Series C Preferred Stock, and the issuance of 8,294,090 shares of
Series C Preferred Stock to a wholly owned subsidiary of Hollinger Inc. in
exchange for 8,294,090 outstanding shares of Class A Common Stock directly owned
by such subsidiary (the "Second Exchange") (the First Exchange and the Second
Exchange are referred to as the "Exchange Proposal").
(2) Approval and adoption of the amendment to the Restated Certificate of
Incorporation, as amended, of Hollinger International, to increase the
authorized preferred stock of Hollinger International from 20,000,000 shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"), to 120,000,000
shares of Preferred Stock (the "Charter Proposal").
P
R
SEE REVERSE
O SIDE
X
Please mark, sign, date and return the proxy card promptly
Y using the enclosed postage paid envelope.
<PAGE> 57
4252
[ X ] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HOLLINGER
INTERNATIONAL. WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE EXCHANGE PROPOSAL AND FOR THE CHARTER PROPOSAL. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
The Board of Directors recommends a vote FOR all proposals.
FOR AGAINST ABSTAIN
1. EXCHANGE [ ] [ ] [ ]
PROPOSAL
(see opposite side)
2. CHARTER PROPOSAL FOR AGAINST ABSTAIN
(see opposite side) [ ] [ ] [ ]
3. OTHER BUSINESS. The proxies shall be authorized to vote on any other
business properly brought before the meeting and any adjournments or
postponements thereof in accordance with their discretion.
I WILL [ ] I WILL NOT [ ] ATTEND THE SPECIAL MEETING.
SIGNATURE(S) DATE , 1997
------------------------------------------ ------------
NOTE: Please sign EXACTLY as your name appears hereon. When signing as executor,
trustee, etc., or as officer of a corporation, give full title as such.
For joint accounts, please obtain both signatures.
