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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than Registrant [_]
Check the Appropriate box:
[_] Preliminary Proxy [_] Confidential, for Use of the
Statement Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to
(S) 240.14a-11(c) or (S) 240.14a-12
----------------
UNITED VIDEO SATELLITE GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] 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 transactions apply: Class
A common stock, par value $.01 per share and Class B common stock,
par value $.01 per share.
2) Aggregate number of securities to which transactions apply:
22,503,412 shares of Class A common stock and 50,246,588 shares of
Class B common stock.
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): The
average of the bid and asked price for the Class A common stock on
October 2, 1998 was $14.50 per share. There is no trading market for
the Class B common stock. As of August 31, 1998, the latest
practicable date of determination, the book value of the Class B
common stock was $2.45 per share. The aggregate market value of the
Class A common stock to be transferred in the transactions is
$326,299,474.00 and the aggregate net book value of the Class B
common stock to be transferred in the transactions is $123,104,141.00
and the aggregate value of the cash portion of the transactions is
$800,000,000.00
4) Proposed maximum aggregate value of transactions: $1,249,403,615.00
5) Total fee paid: $249,881.00
[X] 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:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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UNITED VIDEO SATELLITE GROUP, INC.
7140 SOUTH LEWIS AVENUE
TULSA, OKLAHOMA 74136-5422
January 20, 1999
Dear Stockholder:
On behalf of the Board of Directors and management of United Video Satellite
Group, Inc., I cordially invite you to attend a special meeting of
stockholders to be held at the Southern Hills Marriott Hotel, 1902 East 71st
Street South, Tulsa, Oklahoma, on February 19, 1999, at 10:00 a.m. local time.
At the special meeting, you will be asked to consider and vote on:
(1) UVSG's acquisition from Liberty Media Corporation of three
corporations which own:
(a) approximately 40% of Superstar/Netlink Group LLC, a venture UVSG
operates that markets satellite entertainment programming to C-band
satellite dish owners,
(b) a business that provides satellite-transmitted programming
services known as the "Denver 6,"
(c) the right to receive payments from UVSG based upon certain net
revenues of UVSG's UVTV/WGN business, and
(d) a business that sells programming packages to satellite master
antenna television systems.
(2) UVSG's acquisition from The News Corporation Limited of two
corporations that publish TV Guide magazine and other print and electronic
television programming guides and distribute through the Internet an
entertainment service known as TV Guide Entertainment Network.
(3) Changing UVSG's name to TV Guide, Inc.
Liberty is a subsidiary of Tele-Communications, Inc. and an affiliate of
UVSG. TCI currently owns Class A and Class B common stock representing
approximately 94% of the voting power of all of UVSG's outstanding common
stock. News Corp. is not currently an affiliate of UVSG, but after the
acquisitions will own 32% of the Class A common stock and 50% of the Class B
common stock. Upon completion of the acquisitions, TCI will own 41% of the
Class A common stock and 50% of the Class B common stock. Thereafter, TCI or
News Corp. will purchase additional shares of Class A common stock so each
will own an equal number of shares of Class A common stock. As a result, TCI
and News Corp. will each own shares representing approximately 49% of the
voting power of the common stock and will jointly control UVSG.
The Board of Directors recommends that you vote FOR each proposal. Detailed
descriptions of the acquisitions and businesses, and discussions of the
factors considered by the Board of Directors in evaluating the acquisitions
and other important information are set forth in the accompanying Proxy
Statement. I urge you to consider it carefully. Whether or not you plan to
attend the special meeting, please complete, sign, date and return the
enclosed proxy as soon as possible in the enclosed return envelope, which
requires no postage if mailed in the United States. This action will not limit
your right to vote in person if you attend the special meeting.
Sincerely,
/s/ Gary S. Howard
Gary S. Howard
Chairman and Chief Executive Officer
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
7140 South Lewis Avenue
Tulsa, Oklahoma 74136-5422
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held February 19, 1999
AND
PROXY STATEMENT
----------------
TO THE STOCKHOLDERS OF UNITED VIDEO SATELLITE GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of United
Video Satellite Group, Inc., will be held on February 19, 1999, at 10:00 a.m.,
local time, at the Southern Hills Marriott Hotel, 1902 East 71st Street South,
Tulsa, Oklahoma. At the special meeting, you will be asked to consider and
vote upon the following:
1. The Netlink Acquisition Proposal: A proposal to approve, in accordance
with the rules of The Nasdaq Stock Market, the issuance of 12,750,000
shares of Class B common stock, which will be the consideration for the
acquisition from Liberty Media Corporation of all outstanding shares of LMC
Netlink Corporation, Westlink, Inc. and Telluride Cablevision, Inc., which
own:
(a) approximately 40% of Superstar/Netlink Group LLC, which is
operated and also approximately 40% owned by UVSG,
(b) a business that provides satellite-transmitted programming
services known as the "Denver 6,"
(c) the right to receive payments from the Company based upon certain
net revenues of the Company's UVTV/WGN business, and
(d) a business that sells programming packages to satellite master
antenna television systems.
2. The TV Guide Acquisition Proposal: A proposal to approve, in
accordance with the rules of The Nasdaq Stock Market,
(a) the issuance of 22,503,412 shares of Class A common stock and the
issuance of 37,496,588 shares of Class B common stock, in each case
subject to certain adjustments, which, together with $800 million in
cash will be the consideration for the Company's acquisition from The
News Corporation Limited of all outstanding shares of News America
Publications Inc. and TVSM, Inc., which publish TV Guide magazine and
other print and electronic television programming guides and
distribute, through the Internet, an entertainment service known as TV
Guide Entertainment Network, that includes an electronic television
programming guide, and
(b) the issuance and sale to TCI or News Corp. of such additional
shares of Class A common stock as may be required to equalize their
holdings of Class A common stock.
3. The Name Change Proposal: A proposal to approve an amendment to the
Company's Restated Certificate of Incorporation to change the Company's
name to TV Guide, Inc.
4. The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Liberty is a subsidiary of Tele-Communications, Inc. and an affiliate of
UVSG. TCI currently owns 74% of UVSG's common stock representing approximately
94% of the voting power of all outstanding common stock. News Corp. is not
currently an affiliate of UVSG, but after the acquisitions will own 32% of the
Class A common stock and 50% of the Class B common stock. TCI has indicated
that all shares of common stock beneficially owned by it will be voted in
favor of the Netlink acquisition proposal, the TV Guide acquisition proposal
and the name change proposal. Thus, the proposals will be approved at the
special meeting, whether or not any other
<PAGE>
stockholder votes for them. Upon completion of the acquisitions, TCI will own
41% of the Class A common stock and 50% of the Class B common stock.
Thereafter, TCI or News Corp. will purchase additional shares of Class A common
stock so each will own an equal number of shares of Class A common stock. As a
result, TCI and News Corp. will each own shares representing approximately 49%
of the voting power of the common stock and will jointly control UVSG.
The Company's Board of Directors has approved and recommends that you vote
for approval of the Netlink acquisition proposal, the TV Guide acquisition
proposal and the name change proposal.
This Proxy Statement is being furnished to you in connection with the
solicitation of proxies by the Board of Directors of UVSG for use at the
special meeting. This Proxy Statement is being mailed to stockholders on or
about January 21, 1999. The Board has fixed the close of business on January 7,
1999 as the record date for the determination of stockholders entitled to
notice of, and to vote at, the special meeting. Approval of each proposal
requires the affirmative vote of a majority of the votes cast (in person or by
proxy) on such proposal at the special meeting with holders of shares of Class
A common stock and Class B common stock voting together as a single class.
Whether or not you plan to attend the special meeting, please complete, date
and sign the enclosed proxy and return it in the enclosed envelope promptly. If
you attend the special meeting and wish to vote your shares personally, you may
do so even if you have previously returned a proxy. See "The Special Meeting--
Proxies."
A list of stockholders entitled to notice of and to vote at the special
meeting will be open to the examination of any stockholder, for any purpose
appropriate to the meeting, during ordinary business hours, for a period of ten
days prior to the special meeting, at our offices located at 7140 South Lewis
Avenue, Tulsa, Oklahoma 74136-5422 (telephone (918) 488-4000).
By Order of the Board of Directors
/s/ Peter C. Boylan
Peter C. Boylan III
President and Chief Operating
Officer
Tulsa, Oklahoma
----------------
The date of this Proxy Statement is January 20, 1999.
<PAGE>
CAUTIONARY STATEMENT
Certain statements in this Proxy Statement, including statements contained
in the Summary, and under the captions "Proposal 1--The Netlink Acquisition
Proposal", "Proposal 2--The TV Guide Acquisition Proposal" and "Proposal 3--
Change of the Company's Name" and elsewhere in this Proxy Statement constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"), that involve known and
unknown risks, including, without limitation, statements containing the words
"believes," "anticipates," "estimates," "expects," "may" and words of similar
import or statements of management's opinion. Such forward looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, market performance or achievements of the Company,
both before and after the completion of the Acquisitions, to differ materially
from any future results, performance or achievements expressed or implied by
such forward looking statements. Important factors that could cause such
differences include, but are not limited to, changes in the regulation of the
cable television and/or satellite industries adverse to the Company's
services, loss of the cable and/or satellite compulsory licenses provided by
federal law, the willingness of cable television systems to acquire and
install new equipment that will allow the Company effectively to market its
interactive technology, increased price and service competition within the
industry, the Company's ability to keep pace with technological developments
and the Company's dependence upon intellectual property rights, including the
Company's ability to defend itself against claims by others asserting
infringement of their intellectual property, a reduction in demand for
advertising, competition from other media companies for audience and
advertising revenues, changes in paper prices or postal rates, and material
adverse changes in general economic conditions.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
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CAUTIONARY STATEMENT...................................................... iii
GLOSSARY.................................................................. vi
SUMMARY................................................................... 1
The Company............................................................. 1
Proposal 1--Netlink Acquisition Proposal................................ 1
The Netlink Businesses................................................ 1
Opinion of PaineWebber................................................ 2
Reasons for the Netlink Acquisition................................... 2
Other Considerations.................................................. 3
Proposal 2--TV Guide Acquisition Proposal............................... 3
The TV Guide Businesses............................................... 4
Change in the Company's Board......................................... 4
Opinion of Merrill Lynch.............................................. 4
Reasons for the TV Guide Acquisition.................................. 4
Other Considerations.................................................. 5
Proposal 3--Name Change Proposal........................................ 5
Certain Matters to be Considered by Stockholders........................ 6
Current Ownership of UVSG, the Netlink Corporations and the TV Guide
Businesses............................................................. 6
Ownership of UVSG, the Netlink Corporations and the TV Guide Businesses
After the Acquisitions................................................. 8
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 10
United Video Satellite Group, Inc. Selected Historical Financial Data... 10
Netlink USA Wholesale Division Selected Historical Financial Data....... 12
News America Publications Inc. Selected Historical Financial Data....... 13
United Video Satellite Group, Inc. Unaudited Selected Pro Forma
Financial Data......................................................... 14
THE SPECIAL MEETING....................................................... 15
Date, Time, Place and Purpose........................................... 15
Record Date; Voting at the Special Meeting.............................. 15
Proxies................................................................. 15
PROPOSAL 1--THE NETLINK ACQUISITION PROPOSAL.............................. 17
Description of the Netlink Acquisition.................................. 17
The Netlink Businesses.................................................. 17
SNG Interest.......................................................... 17
Denver 6 Service...................................................... 18
WGN Interests......................................................... 19
SMATV Service......................................................... 20
Regulation Affecting the Netlink Businesses............................. 21
National Association of Broadcasters Matters............................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Results of Operations................................................. 23
Liquidity and Capital Resources....................................... 25
History and Background of the Netlink Acquisition....................... 26
Reasons for the Netlink Acquisition; Recommendation of the Board........ 28
Opinion of PaineWebber.................................................. 29
Regulatory Approvals.................................................... 34
Tax and Accounting Treatment............................................ 34
Vote Required........................................................... 35
Other Material Arrangements Between the Company and TCI................. 35
</TABLE>
iv
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DESCRIPTION OF THE NETLINK ACQUISITION AGREEMENT AND RELATED AGREEMENTS... 36
The Netlink Acquisition Agreement....................................... 36
Other Agreements........................................................ 39
PROPOSAL 2--THE TV GUIDE ACQUISITION PROPOSAL............................. 40
Description of the TV Guide Acquisition................................. 40
The TV Guide Businesses................................................. 40
TV Guide.............................................................. 40
TVSM, Inc. ........................................................... 41
TVGEN Business........................................................ 41
Transfer of Certain Businesses to Holdings............................ 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 41
Use of Earnings Before Interest, Taxes, Depreciation and
Amortization......................................................... 42
Results of Operations................................................. 42
Liquidity and Capital Resources....................................... 43
Inflation and Volatility of Paper Prices and Postal Rates............. 44
Year 2000............................................................. 44
History and Background of the TV Guide Acquisition...................... 45
Reasons for the TV Guide Acquisition; Recommendation of the Board....... 46
Opinion of Merrill Lynch................................................ 47
Credit Facility......................................................... 51
Regulatory Approvals.................................................... 52
Tax and Accounting Treatment............................................ 53
Vote Required........................................................... 53
DESCRIPTION OF THE TV GUIDE ACQUISITION AGREEMENT AND RELATED AGREEMENTS.. 53
The TV Guide Acquisition Agreement...................................... 53
Change in the Company's Board........................................... 56
Other Agreements........................................................ 57
PROPOSAL 3--CHANGE OF THE COMPANY'S NAME.................................. 59
CERTAIN MATTERS TO BE CONSIDERED BY STOCKHOLDERS.......................... 59
Relationships of UVSG with Liberty and its Affiliates................... 59
Stockholder Agreement with TCI.......................................... 59
Dilution................................................................ 60
FEDERAL INCOME TAX CONSEQUENCES........................................... 60
General................................................................. 60
The Netlink Acquisition................................................. 60
The TV Guide Acquisition................................................ 60
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS............................... 61
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............. 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 76
INDEPENDENT ACCOUNTANTS................................................... 77
STOCKHOLDER PROPOSALS..................................................... 77
OTHER BUSINESS............................................................ 77
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 77
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
v
<PAGE>
GLOSSARY
This Glossary contains definitions of certain capitalized terms used in this
Proxy Statement. Certain capitalized terms that are used only within one
subsection of this Proxy Statement are defined where they are used and are not
included in this Glossary.
"Acquisitions" means, collectively, the Netlink Acquisition and the TV Guide
Acquisition.
"C-Band Business" means the business of marketing satellite entertainment
programming to C-band DTH satellite dish owners in North America.
"Canadian Operations" means the business of uplinking the WGN broadcast
signal and selling it to cable television stations in Canada.
"Code" means the Internal Revenue Code of 1986, as amended.
"Copyright Act" means the Copyright Act of 1976, as amended.
"DBS" refers to direct broadcast satellite services.
"Denver 6" means, collectively, the following Denver-based television
channels: national broadcast network affiliates KCNC (CBS), KDVR (Fox), KMGH
(ABC) and KUSA (NBC); independent superstation and WB Network affiliate KWGN;
and Denver-based public broadcasting channel KRMA.
"Denver 6 Service" means the satellite-transmitted programming service
consisting of one or more of the Denver 6 channels.
"DTH" refers to direct-to-home satellite television programming
transmission.
"EBITDA" means operating income before depreciation and amortization.
"Equalization Shares" means such additional shares of Class A common stock
as required to equalize TCI and News Corp.'s beneficial ownership of Class A
common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"GE Americom" means GE American Communications, Inc.
"GE Americom Agreement" means the satellite transponder service agreement
between NDTC and GE Americom covering several transponders on the applicable
GE Americom satellite in addition to those used by Netlink USA.
"Holdings" means TVG Holdings, Inc., a Delaware corporation and an indirect
subsidiary of News Corp.
"Liberty" means Liberty Media Corporation, a Delaware corporation and a
wholly owned subsidiary of TCI.
"LMC Netlink" means LMC Netlink Corporation, a Colorado corporation and a
wholly owned subsidiary of Liberty.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Merrill Lynch Opinion" means the written opinion of Merrill Lynch dated
June 8, 1998 that was delivered to the Board, a copy of which is attached to
this Proxy Statement as Appendix IV.
vi
<PAGE>
"NAB" means the National Association of Broadcasters.
"NAB Agreement" means the settlement and compliance agreement entered into
by Netlink USA, Telluride, the NAB, certain network-affiliated television
stations, and their respective affiliate associations.
"NAI" means News America Incorporated, a Delaware corporation and a
subsidiary of News Corp.
"NAI Contributed Entities" means, collectively, TVSM and Publications.
"Name Change Proposal" means the proposal to change the name of the Company
to "TV Guide, Inc."
"Nasdaq Stock Market Rules" means the rules of The Nasdaq Stock Market
applicable to companies whose securities are traded on the National Market
tier.
"NDTC" means National Digital Television Center, Inc., a subsidiary of TCI.
"Netlink Acquisition" means the proposed acquisition from Liberty of all of
the outstanding shares of capital stock of the Netlink Corporations pursuant
to the Netlink Acquisition Agreement.
"Netlink Acquisition Agreement" means the Amended and Restated Stock
Purchase Agreement between the Company and Liberty, executed on November 30,
1998 and effective as of May 18, 1998, a copy of which is attached to this
Proxy Statement as Appendix I.
"Netlink Acquisition Proposal" means the proposal to approve, in accordance
with the Nasdaq Stock Market Rules, the issuance of the Netlink Equity in
connection with the Netlink Acquisition.
"Netlink Businesses" means, collectively, the SNG Interest, the Denver 6
Service, the WGN Interests and the SMATV Service.
"Netlink Closing" means the consummation of the Netlink Acquisition.
"Netlink Corporations" means, collectively, Telluride, LMC Netlink and
Westlink.
"Netlink Equity" means 12,750,000 shares of the Company's Class B common
stock proposed to be issued in connection with the Netlink Acquisition.
"Netlink Special Committee" means the Special Committee appointed by the
Board to review the Netlink Acquisition.
"Netlink USA" means Netlink USA, a Colorado general partnership.
"Netlink USA Wholesale Division" means, collectively, the Denver 6 Service,
the WGN Interests and the SMATV Service.
"News Corp." means The News Corporation Limited, a South Australia,
Australia corporation.
"PaineWebber" means PaineWebber Incorporated.
"PaineWebber Opinion" means the written opinion of PaineWebber dated May 14,
1998 that was rendered to the Netlink Special Committee, a copy of which is
attached to this Proxy Statement as Appendix III.
"Parent Agreement" means the letter agreement effective as of June 10, 1998
among News Corp., TCI and the Company.
"Primestar" means PRIMESTAR, Inc.
vii
<PAGE>
"Primestar Transaction" means the transaction with Primestar with respect to
which the Company announced an agreement in principle in April 1998 and which
was subsequently abandoned.
"Publications" means News America Publications Inc., a Delaware corporation
and a wholly owned subsidiary of Holdings.
"Revenue-Sharing Agreement" means the Revenue-Sharing Agreement dated
September 1, 1991 between the Company and Netlink USA.
"SHVA" means the Satellite Home Viewer Act of 1994, as amended.
"SMATV" refers to satellite master antennae television systems (private
cable television systems that serve hotels and multi-unit dwellings such as
condominiums, apartment complexes and private residential communities).
"SMATV Service" means the business of selling programming packages to SMATV
systems located within, or in counties contiguous to, the service areas of
cable systems owned, directly or indirectly, by TCI.
"SNG" means Superstar/Netlink Group LLC, a joint venture owned approximately
40% by each of Superstar and Netlink USA and approximately 20% by Turner
Vision.
"SNG Interest" means the approximately 40% interest in SNG owned by Netlink
USA.
"SSDS" means SSDS, Inc., a subsidiary of the Company.
"SSI" means Satellite Services, Inc., a Delaware corporation and a
subsidiary of TCI.
"Subscription Unit" refers to a single household's subscription to one of
the Denver 6 channels. For example, each household may subscribe to as many as
six Denver 6 channels, which would constitute six Subscription Units.
"Superstar" means the Company's Superstar Satellite Entertainment division.
"TCI" means Tele-Communications, Inc., a Delaware corporation. As used in
this Proxy Statement, the term "TCI" includes its consolidated subsidiaries
unless the context indicates otherwise.
"TCI Sub" means TCI UVSG, Inc., a subsidiary of TCI through which TCI
beneficially owns its interest in the Company.
"Telluride" means Telluride Cablevision, Inc., a Delaware corporation and a
wholly owned subsidiary of Liberty.
"Turner Vision" means Turner Vision, Inc.
"TVGEN" means TV Guide Entertainment Network.
"TV Guide" means TV Guide magazine.
"TV Guide Acquisition" means the Company's proposed acquisition from
Holdings of all of the outstanding shares of capital stock of the NAI
Contributed Entities.
"TV Guide Acquisition Agreement" means the Share Exchange Agreement among
the Company, Holdings and NAI, dated as of June 10, 1998, a copy of which is
attached to this Proxy Statement as Appendix II.
viii
<PAGE>
"TV Guide Acquisition Proposal" means the proposal to approve, in accordance
with Nasdaq Stock Market Rules, (i) the issuance of the TV Guide Equity in
connection with the TV Guide Acquisition and (ii) the issuance of the
Equalization Shares, if any.
"TV Guide Businesses" means, collectively, publishing TV Guide and other
print and electronic television programming guides and distributing, through
the Internet, an entertainment service known as TV Guide Entertainment Network
that includes an electronic television programming guide.
"TV Guide Cash Consideration" means $800 million in cash proposed to be paid
in conjunction with the issuance of the TV Guide Equity in connection with the
TV Guide Acquisition.
"TV Guide Closing" means the consummation of the TV Guide Acquisition.
"TV Guide Consideration" means, collectively, the TV Guide Equity and the TV
Guide Cash Consideration.
"TV Guide Equity" means, collectively, 22,503,412 shares of the Company's
Class A common stock and 37,496,588 shares of Class B common stock, in each
case subject to certain adjustments, proposed to be issued in connection with
the TV Guide Acquisition.
"TV Guide Letter Agreement" means the binding letter agreement entered into
on June 10, 1998 that includes the significant terms of the business
combination agreed to by the representatives of the Company, TCI and News
Corp. with respect to the TV Guide Acquisition.
"TV Guide Stockholders Agreement" means the stockholders agreement to be
entered into at the TV Guide Closing among the Company, TCI, TCI Sub, News
Corp., and Holdings.
"TVSM" means TVSM, Inc., a Delaware corporation and a wholly owned
subsidiary of Holdings.
"UVTV" means the Company's UVTV division, through which the Company markets
and distributes, among other video and audio programming, WGN, the largest
independent satellite-delivered television "superstation," to cable television
systems and other multi-channel video programming distributors.
"Westlink" means Westlink, Inc., a Colorado corporation and a wholly owned
subsidiary of Liberty.
"WGN Acquisition Agreement" means the Agreement for Acquisition of Wholesale
Business USA dated September 1, 1991 between the Company and Netlink USA,
pursuant to which the Company acquired the Wholesale Business from Netlink
USA.
"WGN Agreements" means, collectively, the Revenue-Sharing Agreement and the
WGN Acquisition Agreement.
"WGN Interests" means all of Netlink USA's interest in the WGN Agreements.
"Wholesale Business" means the business of uplinking the signal of WGN and
selling that signal to distributors for resale to individual users in North
America.
ix
<PAGE>
SUMMARY
This summary highlights certain information contained in this Proxy Statement
and may not contain all of the information that is important to you. To
understand the proposed transactions more fully, you are urged to read this
Proxy Statement and its Appendices in their entirety. The information in this
Proxy Statement (including numbers of shares and share prices) has been
adjusted to reflect a two-for-one split of the Company's common stock to
holders of record as of August 10, 1998 that occurred on August 20, 1998.
Unless the context otherwise requires, the terms "Company" and "UVSG" refer to
the business of United Video Satellite Group, Inc., and its consolidated
subsidiaries. Many of the capitalized terms used in this Summary and throughout
this Proxy Statement are defined in the foregoing Glossary.
The Company
UVSG provides satellite-delivered video, audio, data and program promotion
services to cable television systems, satellite dish owners, radio stations and
private network users, primarily throughout North America, and software
development and systems integration services to commercial entities, the
federal government and defense- related agencies in locations throughout the
United States. UVSG, together with its predecessors, has over thirty years of
experience in successfully developing marketable services and technology for
the point-to-multipoint satellite transmission industry. UVSG operates in five
primary business areas: program promotion and guide services, direct-to- home
satellite services, satellite distribution of video entertainment services,
software development and systems integration services and satellite
transmission services for private networks.
UVSG is a majority-controlled subsidiary of Tele-Communications, Inc. and
four of UVSG's seven directors are also employees, officers and/or directors of
TCI or its affiliates other than UVSG. TCI, through its subsidiaries and
affiliates, is principally engaged in the construction, acquisition, ownership
and operation of cable television systems and in providing satellite-delivered
video entertainment, information and home shopping programming services to
various video distribution media, principally cable television systems. As used
in this Proxy Statement, the term "TCI" includes its consolidated subsidiaries
unless the context indicates otherwise.
Proposal 1--Netlink Acquisition Proposal
UVSG is seeking approval of the issuance of 12,750,000 shares of Class B
common stock (the "Netlink Equity") in connection with the proposed acquisition
of certain businesses and assets from Liberty Media Corporation ("Liberty"),
which is an affiliate of UVSG and a subsidiary of TCI. The Netlink Acquisition
Agreement provides for the acquisition by UVSG of all of the outstanding
capital stock of three corporations, LMC Netlink Corporation, Westlink, Inc.
and Telluride Cablevision, Inc. (the "Netlink Corporations") in exchange for
the Netlink Equity. The principal executive offices of all of the Netlink
Corporations are located at 4100 East Dry Creek Road, Littleton, Colorado
80122, and the telephone number is (303) 843-7400. See "Proposal I--The Netlink
Acquisition Proposal" and the Netlink Acquisition Agreement, which is attached
as Appendix I, for a more detailed description of the proposed terms of this
transaction.
Recommendation of the Board. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE NETLINK ACQUISITION PROPOSAL.
The Netlink Businesses
The Netlink Corporations own all of the outstanding ownership interests of
Netlink USA, which, in turn, owns the following:
SNG Interest. SNG is a joint venture owned approximately 40% by each of UVSG
and Netlink USA and approximately 20% by Turner Vision, Inc. ("Turner Vision").
As a result of the Netlink Acquisition, UVSG
1
<PAGE>
will hold approximately an 80% interest in SNG. SNG markets satellite
entertainment programming to C-band direct-to-home satellite dish owners in
North America. The C-band home satellite industry experienced rapid growth
during 1990 through 1995; however, with the continued expansion of cable
systems and the introduction of direct-to-home digital broadcast satellite
services, the C-band satellite industry is shrinking. During the twelve months
ended September 30, 1998, the number of C-band subscribers in the industry
decreased 8% to 2 million.
Denver 6 Service. Netlink USA markets and distributes to cable television
systems and home satellite programming packagers six Denver-based network
affiliate and other television channels known collectively as the "Denver 6."
The Denver 6 Service includes four channels that are national broadcast network
affiliates: KCNC (CBS), KDVR (Fox), KMGH (ABC) and KUSA (NBC). It also includes
KWGN, an independent superstation and WB Network affiliate, as well as KRMA, a
Denver-based public broadcasting channel.
WGN Interests. Netlink USA's WGN Interests represent amounts payable by UVSG
to Netlink USA pursuant to agreements that were entered into in connection with
the formation and consolidation of UVSG's wholesale programming business. UVSG
markets and distributes, among other video and audio programming, WGN, the
largest independent satellite-delivered television "superstation," to cable
television systems and other multi-channel video programming distributors. In
1991, UVSG acquired from Netlink USA its wholesale business of uplinking the
signal of WGN and selling that signal to distributors for resale to individual
users in North America. In exchange, UVSG agreed to make quarterly payments for
20 years based on a percentage of the quarterly cash flow from the combined
wholesale businesses of UVSG and Netlink USA. Also in 1991, Netlink USA agreed
to stop uplinking WGN and selling it to cable television stations in Canada and
UVSG agreed to pay Netlink USA 50% of the net revenues received from its
Canadian wholesale business. As a result of the Netlink Acquisition, UVSG will,
in effect, reacquire the payment rights under these agreements.
SMATV Service. Netlink USA sells programming to satellite master antennae
television systems (private cable television systems that serve hotels and
multi-unit dwellings such as condominiums, apartment complexes and private
residential communities), located within, and in counties contiguous to, the
operating area of cable television systems owned by TCI and its subsidiaries.
Opinion of PaineWebber
Because the Netlink Acquisition is a transaction with an affiliate of UVSG,
UVSG's Board appointed a special committee to consider the transaction. The
special committee retained PaineWebber Incorporated ("PaineWebber"), a
nationally recognized investment banking firm, to act as the committee's
financial advisor and to review the Netlink Acquisition. In deciding to approve
the Netlink Acquisition, the special committee considered, among other things,
PaineWebber's opinion that as of the date thereof, based on and subject to the
assumptions and considerations set forth in such opinion, the Netlink Equity to
be issued by UVSG in the Netlink Acquisition is fair, from a financial point of
view, to the stockholders of UVSG who are not affiliates of the Company or TCI.
A copy of the written opinion of PaineWebber, which sets forth the assumptions
made, the matters considered and the scope of PaineWebber's review undertaken
in connection therewith, is set forth as Appendix III to this Proxy Statement.
We encourage you to read this opinion and the more detailed description of it
under the caption "Proposal--The Netlink Acquisition Proposal--Opinion of
PaineWebber."
Reasons for the Netlink Acquisition
UVSG believes the Netlink Acquisition will offer UVSG significant benefits,
including:
. the opportunity to become the majority owner of the largest national
provider of satellite entertainment programming to C-band home satellite
dish owners;
. the opportunity to increase the Company's earnings while strengthening
its balance sheet and increasing its capacity to generate capital for
future growth; and
2
<PAGE>
. the opportunity to gain economies of scale by combining certain
functions of the Company's UVTV division with Netlink USA's Denver 6
operations, which is substantially the same line of business.
UVSG also considered certain negative industry and market conditions,
including the following:
. increasing competition in the multi-channel television services
business, particularly competition from other C-band satellite service
providers, DBS satellite service providers and cable television system
operators, that resulted in the number of SNG subscribers continuing to
decline.
Although there can be no assurance of future performance, based on the
foregoing, UVSG believes that the Netlink Acquisition will provide enhanced
long-term value for UVSG's stockholders.
Other Considerations
Dissenters' Rights. Stockholders will not have dissenters' rights in
connection with the transactions contemplated by the Netlink Acquisition
Agreement.
Accounting Treatment. The Netlink Acquisition will be accounted for by the
Company as a combination of entities under common control in a manner similar
to a pooling of interests. This treatment means that UVSG will treat the
Netlink Corporations as if they had been combined with UVSG for accounting and
financial reporting purposes since the date common control was established,
January 25, 1996.
Tax Consequences to the Stockholders of the Company. The consummation of the
transactions set forth in the Netlink Acquisition Agreement will not result in
a taxable event to the stockholders of the Company (excluding any tax
consequences to Liberty as a party to the Netlink Acquisition).
Last Sale Price of Class A Common Stock Prior to Announcement. The last
reported sale price for the Company's Class A common stock on the National
Market tier of The Nasdaq Stock Market on February 13, 1998, which was the last
trading day prior to the announcement of the Netlink Acquisition, was $16.625.
Based on this sale price, the value of the Netlink Equity and the value of the
total consideration for the Netlink Acquisition when the transaction was
announced was approximately $212 million. Based on a price of $30.50 per share
(the closing price of the Company's Class A common stock on the National Market
Tier of The Nasdaq Stock Market on January 15, 1999) the value of the Netlink
Equity and the value of the total consideration for the Netlink Acquisition is
approximately $389 million.
Proposal 2--TV Guide Acquisition Proposal
UVSG is seeking approval of the issuance of 22,503,412 shares of Class A
common stock and 37,496,588 shares of Class B common stock, in each case
subject to adjustments in certain circumstances (the "TV Guide Equity") and, if
applicable, additional shares of Class A common stock (the "Equalization
Shares") in connection with the acquisition of certain businesses and assets
from The News Corporation Limited ("News Corp."). The TV Guide Acquisition
Agreement provides for the acquisition by UVSG of all the outstanding capital
stock of News America Publications Inc. ("Publications") and TVSM, Inc.
("TVSM"), which operate the TV Guide Businesses, in exchange for $800 million
in cash and the TV Guide Equity. In addition, TCI and News Corp. have agreed to
purchase, and UVSG has agreed to sell, the Equalization Shares if necessary for
TCI and News Corp. to hold an equal number of shares of Class A common stock
after completion of the TV Guide Acquisition. The principal executive offices
of Publications are located at 100 Matsonford Road, Radnor Corporate Center,
Building 4, Radnor, PA 19088 and the telephone number is (610) 293-8500. The
principal executive offices of TVSM are located at 309 Lakeside Drive, Horsham,
PA 19044 and the telephone number is (215) 443-9300. See "Proposal 2--The TV
Guide Acquisition Proposal" and the TV Guide Acquisition Agreement, which is
attached as Appendix II, for a more detailed description of the proposed terms
of this transaction.
Recommendation of the Board. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE TV GUIDE ACQUISITION PROPOSAL.
3
<PAGE>
The TV Guide Businesses
TV Guide. Publications publishes TV Guide, the largest selling weekly
magazine in the United States, with a weekly paid circulation of approximately
12 million. TV Guide provides both comprehensive television listings, including
guides related to cable and satellite programming, and feature articles written
by the TV Guide editorial staff relating to programming, entertainers and the
entertainment industry. Publications publishes 184 separate editions of TV
Guide each week, including geographic and cable specific editions. TV Guide
also produces special interest publications sold on a stand-alone basis,
including special interest magazines that highlight successful movies, sports
playoffs, television award ceremonies and celebrity tributes. Publications also
provides newsstand distribution for TV Guide as well as for third-party
magazine publishers.
TVSM. TVSM is the largest publisher of comprehensive cable-based television
listings guides in the United States. TVSM produces customized, system-specific
guides covering basic and premium cable channels for cable system operators.
TVGEN. TV Guide Entertainment Network ("TVGEN") operates an entertainment
website which can be found on the World Wide Web at www.tvgen.com. TVGEN
includes an online TV listings service, movie database, soap opera news and
updates, general entertainment news and gossip, photos, games, chat rooms and
bulletin boards. In addition, TVGEN publishes TV Guide content on its website.
TVGEN has over 30,000,000 page views per month.
Change in the Company's Board
Upon completion of the TV Guide Acquisition, UVSG's Board will be increased
to ten members, four of whom will be continuing directors, four of whom will be
designated by News Corp.'s affiliate, TVG Holdings, Inc. ("Holdings"), and two
of whom will be independent directors within the meaning of the Nasdaq Stock
Market Rules. In addition, UVSG's by-laws will be amended to require that the
approval of any action by the Board will require the affirmative vote of at
least seven directors, except for the removal of the chief executive officer,
the president or any vice president of the Company which will require approval
of six directors, and to establish an Executive Committee, to be comprised of
four directors designated by the holders of Class B common stock, which
committee will have the duties and powers delegated to it from time to time by
the Board and shall act by unanimous vote or unanimous written consent.
Opinion of Merrill Lynch
UVSG's Board retained Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), a nationally recognized investment banking firm, to act as
financial advisor in connection with the proposed TV Guide Acquisition and to
review the fairness, from a financial point of view, to the Company of the TV
Guide Consideration to be paid by the Company in the TV Guide Acquisition. In
connection with the Board's decision on June 8, 1998 to enter into the TV Guide
Acquisition, Merrill Lynch delivered a written opinion to the Board that, as of
the date thereof, based on and subject to the assumptions and considerations
set forth in such opinion, the TV Guide Consideration to be paid by the Company
in the TV Guide Acquisition was fair, from a financial point of view, to the
Company. A copy of the written opinion of Merrill Lynch, which sets forth the
assumptions made, the matters considered and the qualifications and limitations
on the review undertaken in connection therewith, is set forth as Appendix IV
to this Proxy Statement. We encourage you to read this opinion and the more
detailed description of it and the analyses and assumptions underlying it under
the caption "Proposal 2--The TV Guide Acquisition Proposal--Opinion of Merrill
Lynch."
Reasons for the TV Guide Acquisition
The Board and management of the Company have identified significant benefits
of the TV Guide Acquisition, including:
. the opportunity for the Company to combine with a strategic partner
with similar business plans which will allow the Company to have product
offerings across multiple platforms;
4
<PAGE>
. the opportunity to increase the Company's earnings while strengthening
its balance sheet and increasing its capacity to generate capital for
future growth; and
. the opportunity to gain economies of scale by combining certain
functions of the Company's Prevue Channel division, which distributes on-
screen cable television programming guides, with TV Guide's print and
Internet television programming guides, which are substantially the same
line of business.
The Board and management of the Company also considered the following
negative factors:
. Publications' declining EBITDA and circulation;
. the negative perception in the equity markets of TV Guide's growth
prospects; and
. competitive factors, including competition from free Sunday newspaper
supplements.
They concluded that these negative factors should be overcome by the positive
factors described above, including particularly the opportunities for cross-
selling and cross-promotion of product offerings across multiple platforms, the
ability to drive magazine distribution into the cable and satellite industries,
the benefit of News Corp.'s and TCI's commitment to the Company and the
marketing advantages for new products of a well-known and highly- regarded
brand name.
Although there can be no assurance of future performance, based on the
foregoing, the Board believes that the TV Guide Acquisition will provide
enhanced long-term value for the Company's stockholders.
Other Considerations
Dissenters' Rights. Stockholders will not have dissenters' rights in
connection with the transactions contemplated by the TV Guide Acquisition
Agreement.
Accounting Treatment. The TV Guide Acquisition will be accounted for by the
Company using the purchase method of accounting.
Tax Consequences to the Stockholders of the Company. The consummation of the
transactions set forth in the TV Guide Acquisition Agreement will not result in
a taxable event to the stockholders of the Company.
Last Sale Price of Class A Common Stock Prior to Announcement. The last
reported sale price for the Company's Class A common stock on the National
Market tier of The Nasdaq Stock Market on June 10, 1998, which was the last
trading day prior to the announcement of the TV Guide Acquisition, was $18.50.
Based on this sale price, the value of the TV Guide Equity when the transaction
was announced was approximately $1.1 billion and the value of the total
consideration for the TV Guide Acquisition was approximately $1.9 billion.
Based on a price of $30.50 per share (the closing price of the Company's Class
A common stock on the National Market Tier of The Nasdaq Stock Market on
January 15, 1999), the value of the TV Guide Equity is approximately $1.8
billion and the value of the total consideration for the TV Guide Acquisition
is approximately $2.6 billion.
Proposal 3--Name Change Proposal
UVSG is seeking approval of a change to the Company's Restated Certificate of
Incorporation to change the Company's name to "TV Guide, Inc." The Board and
management of the Company believe that utilizing the well- known "TV Guide"
name will make the Company and its products better recognized in the
programming guide marketplace. The resolution adopted by the Board provides
that, even if the stockholders approve the name change proposal at the special
meeting, the name change may be abandoned by the Board at any time prior to
filing the amendment to the Company's Restated Certificate of Incorporation
with the Secretary of State of Delaware.
Recommendation of the Board. THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE NAME CHANGE PROPOSAL.
5
<PAGE>
Certain Matters to be Considered by Stockholders
Stockholders should carefully consider the matters set forth under "Certain
Matters to Be Considered by Stockholders" in addition to matters set forth
elsewhere in this Proxy Statement and its Appendices in connection with the
Acquisition Proposals.
Current Ownership of UVSG, the Netlink Corporations and the TV Guide Businesses
The following chart depicts the ownership of UVSG, the Netlink Corporations,
Netlink USA, SNG, Publications and TVSM immediately before the Acquisitions.
Certain entities that appear in this chart are owned by various holding
companies or subsidiaries which are not shown in the chart. Currently, TCI
beneficially owns 29,037,520 shares of Class A common stock and 24,746,588
shares of Class B common stock constituting approximately 74% of the total
number of shares of the common stock and approximately 94% of the total voting
power of the common stock.
6
<PAGE>
[FLOW CHART APPEARS HERE]
[Organization chart depicting direct and/or indirect ownership, before the
Acquisitions, (a) of Publications and TVSM by News Corp., (b) of UVSG, Netlink
USA and the Netlink Corporations by public shareholders and TCI and (c) of SNG
by Turner Vision, UVSG and Netlink USA.]
7
<PAGE>
Ownership of UVSG, the Netlink Corporations and the TV Guide Businesses
After the Acquisitions
The Netlink Equity. The Netlink Equity consists of 12,750,000 shares of Class
B common stock and will represent approximately 15% of the total number of
shares of the common stock and approximately 30% of the total voting power of
the common stock. After completion of the Netlink Acquisition, but before
giving effect to the TV Guide Acquisition, TCI will own 29,037,520 shares of
Class A common stock and 37,496,588 shares of Class B common stock which will
represent approximately 78% of the total number of shares of the common stock
and approximately 96% of the total voting power of the common stock.
The TV Guide Equity. After completion of the Netlink Acquisition and the TV
Guide Acquisition and assuming no adjustments,
(1) News Corp., through its subsidiaries, will own 22,503,412 shares of
Class A common stock and 37,496,588 shares of Class B common stock,
representing approximately 41% of the total number of shares of the common
stock and approximately 48% of the total voting power of the common stock,
and
(2) TCI's shares of Class A common stock and Class B common stock will
represent approximately 46% of the total number of shares of common stock
and approximately 49% of the total voting power of the common stock.
Adjustments to TV Guide Equity. If the Netlink Acquisition is not completed
and the TV Guide Acquisition is completed, the TV Guide Equity will be adjusted
by decreasing the number of shares of Class B common stock to be issued by
12,750,000 shares (the same number of such shares as would have comprised the
Netlink Equity) and increasing the number of shares of Class A common stock to
be issued by 12,750,000. In that case, after completion of the TV Guide
Acquisition,
(1) News Corp., through its subsidiaries, would own 35,253,412 shares of
Class A common stock and 24,746,588 shares of Class B common stock which
would be approximately 45% of the total number of shares of the common
stock and approximately 49% of the total voting power of the common stock,
and
(2) TCI would continue to own 29,037,520 shares of Class A common stock
and 24,746,588 shares of Class B common stock which would then represent
approximately 41% of the total number of shares of the common stock and
approximately 48% of the total voting power of the common stock.
Equalization Shares. News Corp., TCI and UVSG have agreed that if, after the
TV Guide Acquisition, TCI and News Corp. do not hold an equal number of shares
of Class A common stock, then TCI or News Corp., as applicable, will acquire
the Equalization Shares, either through open market purchases or from UVSG, so
that the number of shares of Class A common stock held by each of them is
equal. The Company has agreed to sell the Equalization Shares at $20 per share
if such purchase is made prior to 90 days after completion of the TV Guide
Acquisition or at an average market price if such purchase is made thereafter.
The chart below depicts the ownership of UVSG, the Netlink Corporations,
Netlink USA, SNG, Publications and TVSM after the completion of the Netlink
Acquisition and the TV Guide Acquisition and after giving effect to the
equalization of the ownership of Class A common stock by TCI and News Corp.,
but assuming that there are no other adjustments to the number of shares of
Class A common stock and Class B common stock issued in the planned
transactions. Certain entities that appear in this chart are owned by various
holding companies or subsidiaries which are not shown in the chart.
8
<PAGE>
[FLOW CHART APPEARS HERE]
[Organization chart depicting direct and/or indirect ownership, after the
Acquisitions, (a) of SNG by Turner Vision and UVSG, (b) of Publications, TVSM,
Netlink USA and the Netlink Corporations by UVSG and (c) of UVSG by News Corp.,
public shareholders and TCI.]
9
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
United Video Satellite Group, Inc.
Selected Historical Financial Data
(Dollars in thousands, except per share data)
The following selected historical financial data of the Company as of
September 30, 1998 and 1997 and for the nine-month periods then ended are
derived from the unaudited condensed consolidated financial statements of the
Company included in the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, incorporated by reference into this Proxy Statement,
and include all adjustments (consisting only of normal, recurring adjustments)
which management considers necessary for a fair presentation of the results of
such periods. The following selected historical financial data of the Company
as of December 31, 1997 and 1996 and for each of the years in the three- year
period ended December 31, 1997 are derived from the audited consolidated
financial statements of the Company included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, as amended, incorporated by
reference into this Proxy Statement. The following selected historical
financial data of the Company as of December 31, 1995, 1994 and 1993 and for
each of the years in the two-year period ended December 31, 1994 are derived
from the audited consolidated financial statements of the Company not included
or incorporated by reference in this Proxy Statement. The selected historical
financial data presented below should be read in conjunction with the financial
statements of the Company, including the notes thereto, incorporated by
reference into this Proxy Statement. See "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
------------------ ------------------------------------------------
1998(1) 1997 1997 1996(2) 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues................ $443,177 $376,882 $507,598 $437,168 $262,919 $196,679 $114,384
Income from continuing
operations............. 47,125 32,580 45,760 30,084 23,172 16,307 7,259
Earnings per share(3)
Basic.................. .64 .44 .62 .42 .32 .23 .08
Diluted................ .63 .44 .62 .41 .32 .23 .08
Cash dividends declared
per common share....... -- -- -- -- -- -- --
Cash Flow Data:
Net cash provided by
operating activities... $ 78,595 $ 62,689 $ 77,986 $ 51,111 $ 33,534 $ 38,571 $ 43,871
Net cash provided by
(used in) investing
activities............. 23,967 (62,142) (66,924) (42,141) (35,956) (51,388) (8,916)
Net cash provided by
(used in) financing
activities............. (28,478) (19,201) (23,106) 5,341 (1,617) (2,549) 2,541
<CAPTION>
September 30, December 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $401,685 $283,473 $294,452 $250,104 $185,880 $147,048 $119,136
Long term obligations... 29,804 18,912 20,815 22,935 28,261 29,510 31,276
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
EBITDA (4).............. $ 92,752 $ 74,645 $103,995 $ 71,543 $ 50,185 $ 35,493 $ 18,042
</TABLE>
- --------
(1) Effective February 1, 1998, the Company's consolidated operating results
include the operating results of Turner Vision's retail C-band business.
Turner Vision contributed its retail C-band business to SNG in return for
an approximate 20% interest in SNG.
10
<PAGE>
(2) Effective April 1, 1996, the Company's consolidated operating results
include the operating results of SNG, a joint venture formed to combine the
retail C-band business of the Company's Superstar division and Liberty's
Netlink USA division. Prior to the formation of SNG, Superstar's retail C-
band business operated as a division of the Company.
(3) Earnings per share have been restated for all periods presented to reflect
the adoption of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" in 1997 and have been further adjusted for the two-
for-one split of the Company's common stock which was effected on August
20, 1998.
(4) EBITDA means operating income before depreciation and amortization. EBITDA
is presented supplementally as management believes it allows for the most
appropriate measure for evaluating operating performance. The Company
believes EBITDA is a standard measure commonly reported and widely used by
analysts, investors and others associated with the media and entertainment
industry. However, EBITDA does not take into account substantial costs of
doing business, such as income taxes and interest expense. While many in
the financial community consider EBITDA to be an important measure of
comparative operating performance, it should be considered in addition to,
but not as a substitute for, operating income, net income, cash flow and
other measures of financial performance prepared in accordance with
generally accepted accounting principles ("GAAP") which are presented in
the financial statements incorporated by reference into this Proxy
Statement. Additionally, the Company's calculation of EBITDA may be
different than the calculation used by other companies and therefore,
comparability may be affected.
11
<PAGE>
Netlink USA Wholesale Division
Selected Historical Financial Data
(Dollars in thousands, except per share data)
The following selected historical financial data as of and for the year ended
December 31, 1997 of the Denver 6 Service, the WGN Interests and the SMATV
Service (the "Netlink USA Wholesale Division") are derived from the audited
combined financial statements of the Netlink USA Wholesale Division included in
this Proxy Statement. The selected historical financial data of the Netlink USA
Wholesale Division as of and for the nine-month periods ended September 30,
1998 and 1997 and as of and for the years ended December 31, 1996, 1995, 1994
and 1993 have been derived from the unaudited combined financial statements of
the Netlink USA Wholesale Division and include all adjustments (consisting only
of normal, recurring adjustments) which management considers necessary for a
fair presentation of the results of such periods. The selected historical
financial data presented below should be read in conjunction with the combined
financial statements, including the notes thereto, included elsewhere in this
Proxy Statement. The financial data with respect to SNG is not provided below
because SNG's historical financial conditions and results of operations are
included in the Company's financial statements.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
--------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues................ $29,922 $24,666 $33,683 $29,706 $27,896 $23,536 $15,446
Income from continuing
operations............. 6,130 7,819 10,068 9,877 7,255 6,468 4,119
Earnings per share
Basic.................. N/A N/A N/A N/A N/A N/A N/A
Diluted................ N/A N/A N/A N/A N/A N/A N/A
Cash dividends declared
per common share....... N/A N/A N/A N/A N/A N/A N/A
<CAPTION>
September 30, December 31,
--------------- ---------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $10,268 $10,927 $12,343 $10,384 $ 9,709 $10,788 $17,991
Long term obligations... N/A N/A N/A N/A N/A N/A N/A
</TABLE>
12
<PAGE>
News America Publications Inc.
Selected Historical Financial Data
(Dollars in thousands, except per share data)
The following selected financial data as of June 30, 1998 and 1997 and for
each of the three years in the period ended June 30, 1998 are derived from the
audited Combined Financial Statements of Publications included elsewhere in
this Proxy Statement. The following selected financial data as of September 30,
1998 and 1997, June 30, 1996, 1995 and 1994, for the three-month periods ended
September 30, 1998 and 1997 and for the years ended June 30, 1995 and 1994 are
derived from the unaudited combined financial statements of Publications and
include all adjustments which management considers necessary for a fair
presentation. The Combined Financial Statements of Publications include the
consolidated financial statements of Publications, combined with those of TVGEN
(since inception on July 1, 1996), a division of News America Digital
Publishing, Inc., a subsidiary of News Corp., and TVSM (since its acquisition
on June 26, 1998). The financial information presented below was derived from
the consolidated financial statements of News Corp. using historical bases in
the assets and liabilities of Publications and TVSM (collectively, the "NAI
Contributed Entities"). Such financial information may not necessarily reflect
the results of operations or financial position of the NAI Contributed Entities
had the NAI Contributed Entities been separate entities during the periods
presented. The selected financial data presented below should be read in
conjunction with the combined financial statements, including the notes
thereto, included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
---------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues................ $ 165,043 $ 158,632 $ 616,798 $ 650,176 $ 636,761 $ 627,490 $ 618,903
Depreciation and
amortization........... 25,839 24,945 100,022 100,917 100,206 96,906 97,644
Operating income........ 4,255 12,439 51,387 84,112 83,893 100,647 105,627
Intercompany charges for
interest............... (70,251) (61,335) (250,855) (234,581) (232,986) (249,659) (185,714)
Loss from continuing
operations............. (59,076) (42,132) (172,412) (123,413) (122,037) (121,956) (55,483)
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
---------------------- ----------------------------------
1998 1997 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flow Data:
Net cash provided by
(used in) operating
activities............. $ (6,662) $ 3,083 $ 121,415 $ 179,197 $ 189,743
Net cash used in
investing activities... (1,324) (769) (2,573) (4,396) (19,541)
Net cash provided by
(used in) financing
activities............. 8,288 (2,313) (118,840) (174,803) (170,199)
<CAPTION>
September 30, June 30,
---------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $2,610,234 $2,577,709 $2,602,698 $2,570,089 $2,646,837 $2,702,964 $2,760,623
Intercompany
indebtedness........... 2,747,083 2,748,583 2,669,416 2,537,401 2,477,623 2,414,836 2,316,339
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
---------------------- ----------------------------------
1998 1997 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Other Data:
EBITDA(1)............... $ 30,094 $ 37,384 $ 151,409 $ 185,029 $ 184,099
</TABLE>
- --------
(1) EBITDA represents operating income, before depreciation and amortization.
EBITDA is presented supplementally as management believes it allows for the
most appropriate measure for evaluating operating performance. Publications
believes EBITDA is a standard measure commonly reported and widely used by
analysts, investors and others associated with the media and entertainment
industry. However, EBITDA does not take into account substantial costs of
doing business, such as income taxes and interest expense. While many in
the financial community consider EBITDA to be an important measure of
comparative operating performance, it should be considered in addition to,
but not as a substitute for, operating income, net income, cash flow and
other measures of financial performance prepared in accordance with GAAP.
Additionally, Publications' calculation of EBITDA may be different than the
calculation used by other companies and therefore, comparability may be
affected.
13
<PAGE>
United Video Satellite Group, Inc.
Unaudited Selected Pro Forma Financial Data
(Dollars in thousands, except per share data)
The following table sets forth certain comparative data related to book value
and earnings per common share (i) on a historical basis for the Company as of
and for the nine months ended September 30, 1998 and for the year ended
December 31, 1997; (ii) on a pro-forma basis for the Company assuming that only
the Netlink Acquisition had occurred and was accounted for as a combination of
entities under common control in a manner similar to a pooling of interests for
the nine months ended September 30, 1998 and 1997 and the years ended December
31, 1997 and 1996 with respect to the income statement data and as of September
30, 1998 with respect to the balance sheet data; (iii) on a pro-forma basis for
the Company assuming that only the TV Guide Acquisition had occurred as of
January 1, 1997 and was accounted for as a purchase for the nine months ended
September 30, 1998 and the year ended December 31, 1997 with respect to the
income statement data and as of September 30, 1998 with respect to the balance
sheet data; (iv) on a pro forma basis for the Company assuming that both the
Netlink Acquisition and the TV Guide Acquisition had each occurred as of
January 1, 1997 for the nine months ended September 30, 1998 and the year ended
December 31, 1997 with respect to the income statement data and as of September
30, 1998 with respect to the balance sheet data. The following information
should be read in conjunction with the consolidated historical financial
statements and notes thereto of the Company, which are incorporated by
reference into this Proxy Statement, and the historical combined financial
statements and notes thereto of the Netlink Wholesale Division and
Publications, which are set forth elsewhere in this Proxy Statement. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
(i) (ii) (iii) (iv)
Pro Forma Pro Forma Pro Forma
Netlink TV Guide Netlink and TV Guide
Historical Acquisition Acquisition Acquisitions
------------------ ------------------------------------- --------------------- ---------------------
Nine Nine Nine Nine Nine
Months Year Months Months Year Year Months Year Months Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
Sept. 30, Dec. 31, Sept. 30, Sept. 30, Dec. 31, Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31,
1998 1997 1998 1997 1997 1996 1998 1997 1998 1997
--------- -------- --------- --------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Revenues.......... $443,177 $507,598 $460,641 $393,451 $530,420 $484,713 $ 945,585 $1,222,172 $ 963,049 $1,244,994
Income from
continuing
operations....... 47,125 45,760 62,381 48,097 67,435 46,302 41,637 59,540 56,893 81,215
Earnings per
share(1)
Basic............ .64 .62 .72 .56 .78 .54 .31 .45 .39 .56
Diluted.......... .63 .62 .72 .55 .78 .54 .31 .44 .39 .55
<CAPTION>
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1998 1998 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance Sheet
Data:
Total assets...... $401,685 $410,637 $3,752,069 $3,761,021
Long term
obligations...... 29,804 29,804 1,992,579 1,992,579
Book value per
share............ $ 2.60 $ 2.27 $ 9.86 $ 9.03
</TABLE>
- --------
(1) Pro forma earnings per share--basic are based on the historical number of
shares of common stock of the Company, 12,750,000 shares of common stock to
be issued in connection with the Netlink Acquisition and 60,000,000 shares
of common stock to be issued in connection with the TV Guide Acquisition.
Pro forma earnings per share--diluted are based on the historical number of
shares of common stock and dilutive potential shares of common stock of the
Company, 12,750,000 shares of common stock to be issued in connection with
the Netlink Acquisition and 60,000,000 shares of common stock to be issued
in connection with the TV Guide Acquisition.
14
<PAGE>
THE SPECIAL MEETING
Date, Time, Place and Purpose
The enclosed proxy is solicited by the Board of Directors of the Company for
use at the Special Meeting of Stockholders to be held on February 19, 1999, at
10:00 a.m., local time, at the Southern Hills Marriott Hotel, 1902 East 71st
Street South, Tulsa, Oklahoma, and at any adjournment or postponement thereof,
for the purposes set forth in the foregoing Notice of Special Meeting. This
Proxy Statement and the accompanying form of proxy will be mailed on or about
January 21 to all holders of Class A common stock and Class B common stock of
the Company entitled to vote at the meeting.
At the Special Meeting, stockholders will be asked to consider and act upon
the following: (1) a proposal to approve the issuance of the Netlink Equity in
connection with the Netlink Acquisition; (2) a proposal to approve the
issuance of the TV Guide Equity and, if applicable, the Equalization Shares in
connection with the TV Guide Acquisition; (3) a proposal to change the
Company's name to "TV Guide, Inc."; and (4) such other business as may
properly come before the Special Meeting.
Record Date; Voting at the Special Meeting
The Board has fixed January 7, 1999 as the Record Date for the determination
of the UVSG stockholders entitled to notice of and to vote at the Special
Meeting. Only stockholders of record of shares of common stock at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. At the close of business on the Record Date, there were
47,893,688 shares of Class A common stock outstanding and entitled to vote,
held by 103 holders of record, and 24,746,588 shares of Class B common stock
outstanding and entitled to vote, held by one holder of record. The holders of
shares of Class A common stock are entitled to one vote for each share of
Class A common stock held and the holders of shares of Class B common stock
are entitled to ten votes for each share of Class B common stock held on all
matters submitted to a vote of stockholders. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum
for the transaction of business. The presence, in person or by properly
executed proxy, of the holders of a majority of the total voting power of the
outstanding shares of common stock entitled to vote is necessary to constitute
a quorum at the Special Meeting.
Stockholders may vote in favor or against or abstain from voting with
respect to the Netlink Acquisition Proposal, the TV Guide Acquisition
Proposal, the Name Change Proposal or any of these proposals. Approval of each
of the proposals requires the affirmative vote of a majority of the votes cast
(in person or by proxy) on such proposal at the Special Meeting with respect
to the shares of Class A common stock and Class B common stock entitled to
vote at the Special Meeting, voting together as a single class. A proxy
submitted by a stockholder may indicate that all or a portion of the shares
represented by such proxy are not being voted by such stockholder with respect
to a particular matter. Further, a broker may not be permitted to vote shares
held in street name on certain matters in the absence of instructions from the
beneficial owner of the shares. The shares subject to any such proxy that are
not being voted with respect to a particular proposal may be considered
present and entitled to vote for other purposes and will count for purposes of
determining the presence of a quorum. Abstentions and broker non-votes will
not be considered votes cast on a proposal presented to the stockholders and
therefore will not count either for or against such proposal. All votes will
be tabulated by the inspector of election appointed for the meeting who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
Proxies
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 taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company before the taking of the vote at
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 a revocation of the proxy). Any written
15
<PAGE>
notice of revocation or subsequent proxy should be sent so as to be delivered
to the Company at 7140 South Lewis Avenue, Tulsa, Oklahoma, 74136-5422,
Attention: Secretary, at or before the taking of the vote at the Special
Meeting.
All shares of common stock that are entitled to vote and are represented at
the Special Meeting by properly executed proxies received prior to or at the
Special Meeting and not revoked will be voted at the Special Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted FOR (1) approval of the issuance of
the Netlink Equity in connection with the Netlink Acquisition, (2) approval of
the issuance of the TV Guide Equity and, if applicable, the Equalization
Shares in connection with the TV Guide Acquisition, and (3) approval to change
the Company's name to "TV Guide, Inc."
At the date of this Proxy Statement, the Board does not know of any business
to be presented at the Special Meeting other than as set forth in the notice
accompanying this Proxy Statement. If any other matters should properly be
presented at the Special Meeting for consideration, including, among other
things, consideration of a motion to adjourn the Special Meeting to another
time and/or place, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment.
Expenses incurred in connection with the printing and mailing of this Proxy
Statement will be paid 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 reasonable out-of-pocket expenses in
connection with such solicitation. Copies of this Proxy Statement and the
accompanying form of proxy will be furnished to brokers, fiduciaries,
custodians and nominees to forward to beneficial owners of the Class A common
stock held in their names, and the Company will reimburse such brokers,
fiduciaries, custodians and nominees and fiduciaries for their reasonable
expenses incurred in connection therewith.
If your shares of common stock are held in the name of a brokerage firm,
bank nominee or other institution, only it can sign a proxy card with respect
to your shares of common stock. Accordingly, please contact the person
responsible for your account and give instructions for a proxy card to be
signed representing your shares of common stock.
If you have any questions about giving your proxy or require assistance,
please contact the Company's Secretary at 7140 South Lewis Avenue, Tulsa,
Oklahoma, 74136-5422, telephone number: (918) 488-4000.
16
<PAGE>
PROPOSAL 1--THE NETLINK ACQUISITION PROPOSAL
Description of the Netlink Acquisition
The Netlink Acquisition Agreement provides that, at the Netlink Closing,
Liberty will sell to the Company all of the issued and outstanding stock of
the Netlink Corporations in exchange for the Netlink Equity consisting of
12,750,000 shares of the Company's Class B common stock. The aggregate value
of the Netlink Equity based on a price of $30.50 per share (the closing price
of the Company's Class A common stock on the National Market Tier of The
Nasdaq Stock Market on January 15, 1999) was approximately $389 million. As
the result of the Netlink Acquisition, the Company will own the SNG Interest
(which together with the Company's existing equity interest represents
approximately 80% of SNG), 100% of the Denver 6 Service, 100% of the WGN
Interests and 100% of the SMATV Service.
The Netlink Businesses
SNG Interest
General. SNG is a joint venture owned approximately 40% by Superstar,
approximately 40% by Netlink USA and approximately 20% by Turner Vision, and
managed by Superstar. SNG was formed effective April 1, 1996 and markets
satellite entertainment programming to C-band DTH satellite dish owners in the
United States. Superstar's retail subscriber base was approximately 150,000 at
January 1, 1990. SNG's retail subscriber base was approximately 1.2 million at
September 30, 1998. Approximately 750,000 of the increase in subscribers since
1990 resulted from Liberty's Netlink USA division and Turner Vision joining
SNG. The Company believes that much of the remainder of its growth is
attributable to the satellite transmission industry's utilization of a more
secure scrambling system that has eliminated the piracy of satellite signals
by some home satellite dish owners. Prior to the industry's use of these
improved systems, many home satellite dish owners were easily able to
circumvent the scrambling devices. The C-band DTH industry also experienced
rapid growth during 1990 through 1995; however, with the continued expansion
of cable systems and the introduction of DBS services, the C-band DTH industry
is shrinking. During the twelve-month period ended September 30, 1998, the
number of C-band subscribers in the industry decreased 8% to approximately 2.0
million subscribers.
Services. SNG acquires rights to market various satellite-transmitted
programming, including services such as HBO, Starz!, ESPN and USA, to home
satellite dish owners. SNG offers home satellite dish owners various packages
of programming for 1-, 3-, 6- or 12-month subscription periods. Once a
subscriber has ordered service by telephone, SNG transmits an authorization
code to the customer's descrambler via satellite, allowing customers to
receive programming within seconds after placing their order.
Sales and Marketing. Approximately 79% of SNG's new subscribers are
generated through direct sales, primarily as a result of advertising in
industry publications and direct mail campaigns targeting existing home
satellite dish owners. Through its telemarketing department, SNG also contacts
by telephone and mail existing customers prior to the end of a subscription
term in order to obtain renewals.
SNG also markets its C-band DTH satellite dish services through satellite
equipment dealers. While no significant number of new C-band home satellite
dishes are being sold, these dealers often have relationships with existing
home satellite dish owners. The dealer takes a customer's order and forwards
it electronically to SNG, which then authorizes the customer's descrambler to
receive programming. SNG pays the dealer an initial commission, as well as
variable residuals during the lifetime of the customers' subscriptions.
Competition. SNG competes for subscribers with other large C-band DTH
satellite dish program packagers, some of which are affiliated with well-
known, large programmers and cable television system operators. Because a
significant portion of SNG's sales are generated through home-satellite dish
dealers, SNG also competes for dealer relationships on the basis of commission
rates and quality of service offered to the dealer and its customers. In
addition, the C-band DTH satellite dish market faces competition from cable
television as
17
<PAGE>
well as technologies such as DBS services, which were launched in 1994. DBS
uses Ku-band digital frequencies that can be received by significantly smaller
and less expensive dish antenna and receiver terminals than those home
satellite dishes that receive C-band analog frequencies. Because of the
smaller dish size, DBS is more widely accepted than C-band DTH satellite dish
systems, particularly in urban markets. The Company believes that the
continued expansion of cable and DBS will decrease the size of the C-band
market in the short and long-term. However, due to the competitive nature of
the C-band market, retail prices of programming to the C-band consumer are
lower than in cable and DBS, which provides an incentive to existing C-band
home satellite dish owners to keep their systems active.
Denver 6 Service
General. Since 1986, Netlink USA has marketed and distributed to cable
television systems and DTH programming packagers various network television
programming. Netlink USA currently offers six Denver-based network affiliates
and other television channels known collectively as the Denver 6. As of
September 30, 1998, one or more of the Denver 6 channels were supplied to over
670 U.S. cable television, SMATV and other systems with an aggregate of
approximately 2 million Subscription Units and more than 515,000 DTH
households with approximately 3 million Subscription Units in the United
States and Canada.
Services. The Denver 6 Service includes four channels that are national
broadcast network affiliates: KCNC (CBS), KDVR (Fox), KMGH (ABC) and KUSA
(NBC). The Denver 6 Service also includes KWGN, an independent superstation
which also carries WB Network programming, as well as KRMA, a Denver-based
public broadcasting channel. The four network affiliates carry programming
from the respective national networks and locally-produced news and
entertainment programming. KRMA carries public broadcasting standards such as
Sesame Street, Wishbone and other children's programming as well as
entertainment and news programming such as The News Hour, Frontline,
Masterpiece Theater and Nova. KWGN carries syndicated programming, movies,
sports (Colorado Rockies major league baseball) and programming from the new
WB Network.
Sales and Marketing. Netlink USA uplinks the Denver 6 channels to satellite
transponders and receives fees from cable television, SMATV, multichannel
multipoint distribution systems (which deliver programming services over
microwave channels received by subscribers with a special antenna) and DTH
programming packagers, which resell the programming to their subscribers.
While the Denver 6 Service is sold to cable television systems in
approximately 30 states, the majority of sales are to systems located in the
Mountain Time Zone. Generally, the cable television systems that subscribe to
the Denver 6 Service are smaller systems in more rural locations. The Denver 6
Service is also available for sale to DTH customers in Canada. On July 22,
1997, Canadian authorities added the KWGN signal to a list of satellite
services eligible to be received by cable television systems in Canada. More
recently, a Canadian cable television system has requested that the other
channels comprising the Denver 6 Service be added to the eligible list as
well. If the Canadian regulatory authority grants approval to provide such
channels to small and medium-sized Canadian cable television systems, Netlink
USA plans to market the Denver 6 Service in Canada.
Approximately 40% of the cable television systems to which Denver 6 Service
is sold are systems owned by or affiliated with TCI. Denver 6 customers may
acquire any combination of the channels that comprise the Denver 6 Service,
with per-service pricing on a decreasing scale based on the number of channels
taken. Many of Netlink USA's customers take all six channels of the Denver 6
Service. DTH programming packagers also offer Denver 6 channels to their
customers in a variety of packages or "a la carte." Netlink USA enters into
agreements with each of its cable television system customers, which generally
have a one-year or three-year term. The foregoing agreements typically provide
for automatic renewal for successive one-year terms unless, at least 60 days
prior to the expiration of the initial or renewal term, either party provides
notice of termination to the other. For its DTH business, Netlink USA enters
into three-year agreements with DTH programming packagers.
18
<PAGE>
As of September 30, 1998, the Denver 6 Service had the following numbers of
Subscription Units:
<TABLE>
<CAPTION>
Cable Television, SMATV
and Other Systems DTH Market
-------------------------- ------------------
Channel Systems Subscription Units Subscription Units
------- ------- ------------------ ------------------
<S> <C> <C> <C>
KCNC (CBS)................... 515 348,326 474,539
KDVR (Fox)................... 259 206,869 514,672
KMGH (ABC)................... 671 374,737 481,510
KRMA (Pub.).................. 520 367,093 512,988
KUSA (NBC)................... 592 348,277 469,931
KWGN (Ind./WB)............... 413 403,164 513,809
</TABLE>
Operations. Netlink USA subleases six satellite transponders on an
"unprotected" basis on a GE American Communications, Inc. ("GE Americom")
satellite. "Unprotected" in this context means that service on such
transponders could be interrupted or terminated if any such transponder were
required by the lessor to provide service to another lessee that pays for
"protected" service. Netlink USA has "seniority status" on such satellite
transponders, however, which gives it favorable ranking should transponders be
required to restore a "protected" service. Netlink USA's lease of such
transponders has been pursuant to the assignment by National Digital
Television Center, Inc. ("NDTC"), a subsidiary of TCI, to Netlink USA of
NDTC's rights and obligations with respect to such transponders under the GE
Americom Agreement, which covers several transponders on the applicable GE
Americom satellite in addition to those used by Netlink USA. NDTC has also
historically provided uplinking and satellite transponder management services
to Netlink USA, including acting as Netlink USA's agent in connection with the
GE Americom Agreement. In connection with the execution of the Netlink
Acquisition Agreement, NDTC and Netlink USA entered into an amendment and
restatement of the existing agreements described above, principally (i) to
extend the term of the six satellite transponder leases from December 31, 1998
to December 31, 2000 and provide Netlink USA the option to extend such term
for two additional one-year periods, (ii) correspondingly to extend the terms
of the agreements pursuant to which the uplinking and transponder management
services were being provided by NDTC and (iii) to set the rates for such
leases and services during such extended terms. The rates set by this amended
and restated agreement are not significantly different than those set forth in
the original agreement and therefore the Company does not expect these new
rates to significantly impact Netlink USA's operations. The Company believes
that there is sufficient transponder availability for the Denver 6 Service to
continue to be transmitted following the expiration of such leases.
Competition. Netlink USA competes generally with other providers of
programming to the cable television and DTH wholesale markets. While there
currently are no other C-band satellite carriers uplinking signals of network
affiliates within the Mountain Time Zone, there are no specific statutory or
regulatory restrictions that would prevent another satellite carrier from
retransmitting the network signals comprising the Denver 6 Service or the
signals of competitive network affiliates so long as that carrier meets the
requirements of applicable law. In the cable television and DTH markets,
Netlink USA competes with PrimeTime 24, which retransmits other network
affiliate channels from the west and east coasts.
WGN Interests
General. The WGN Interests represent amounts payable by the Company to
Netlink USA pursuant to the WGN Agreements relating to the Company's formation
and consolidation of its WGN Wholesale Business. The Company, through its UVTV
division, markets and distributes the WGN Chicago superstation signal to
programming distributors, as well as other video and audio programming. On
January 1, 1998, when Turner Broadcasting System, Inc.'s superstation WTBS was
converted to a cable programming network, UVTV/WGN became the country's
largest superstation in terms of subscribers. Approximately 56% of the 65.5
million cable subscribers nationally subscribe to UVTV/WGN. As of September
30, 1998, UVTV/WGN was carried domestically by franchised and private cable
television systems that serve an aggregate of approximately 37 million
subscribers and was supplied to approximately 6.5 million DTH subscribers.
Outside of the United States, as of September 30, 1998, approximately 800,000
subscribers receive UVTV/WGN.
19
<PAGE>
The programming from UVTV/WGN consistently ranks among the most popular
satellite-delivered programming carried by cable television systems, with A.C.
Nielsen reports showing that approximately 50% of all households receiving
UVTV/WGN watch it at least once a week. On the cable television systems on
which it is carried, UVTV/WGN consistently ranks among the top eight
satellite-delivered cable networks in a 24-hour average weekly cumulative
viewership measurement. In 1998, UVTV/WGN will carry 92 Chicago Cubs and 52
Chicago White Sox baseball games and 15 Chicago Bulls basketball games.
UVTV/WGN also offers original programming, 26 hours per week of feature films
and over 25 hours per week of children's programming. In addition, UVTV/WGN
carries over ten hours per week of WB Network programming.
WGN Agreements. Pursuant to the WGN Acquisition Agreement, the Company
acquired Netlink USA's Wholesale Business. The assets acquired pursuant to the
WGN Acquisition Agreement consisted of: (i) Netlink USA's agreements with
distributors and (ii) Netlink USA's agreement with NDTC pursuant to which
Netlink USA provided the WGN signal to NDTC and NDTC would uplink a Ku-band
WGN signal for Primestar's predecessor. No equipment or other tangible assets
were acquired. Since the value of the Wholesale Business was difficult to
determine, the WGN Acquisition Agreement provided for the consideration for
the acquisition to consist of quarterly payments to be made over 20 years
based on a percentage of the quarterly cash flow from the combined Wholesale
Businesses of the Company and Netlink USA, subject to prepayment based upon a
multiple of cash flow for the preceding six months. For such purpose, cash
flow is defined in the WGN Acquisition Agreement as: (i) all revenues of the
Wholesale Business, including the fair market value of all barter
arrangements, minus (ii) all amounts properly charged to the Wholesale
Business in accordance with the WGN Acquisition Agreement, including copyright
fees, certain other fees, legal fees and costs, other miscellaneous third-
party costs and a management fee of 1.9% of gross revenues generated by the
Wholesale Business which is payable to the Company. To calculate the quarterly
payments due to Netlink USA, cash flow, as so determined, is multiplied by 50%
and then an uplink cost allowance of $111,000 per quarter is subtracted. Under
certain circumstances, the Company has the right to prepay, in full, amounts
owed under the WGN Acquisition Agreement for an amount equal to the sum of:
(i) twelve times the product of 50% and the cash flow as so determined for the
most recent six months, minus (ii) six times the annual uplink cost allowance,
plus (iii) one-half of the amount by which certain expenses for the applicable
six-month period exceed certain threshold amounts minus (iv) the amount, if
any, of the uplink cost allowance for all prior quarters that were not
recouped by the Company during the term of the WGN Acquisition Agreement. As
of September 30, 1998, the prepayment amount would have been approximately $26
million.
The Revenue-Sharing Agreement provides for Netlink USA to cease uplinking
WGN and selling it to cable television stations in Canada. In consideration
thereof, the Company agreed to make monthly payments to Netlink USA equal to
50% of the "Net Revenues" actually received by the Company from the Canadian
Operations. For such purpose, Net Revenues are defined as (i) cash and cash
equivalents or barter arrangements received by the Company for the sale of WGN
to cable televisions systems in Canada minus (ii) all direct, out-of-pocket,
third-party costs, expenses and liabilities incurred by the Company with
respect to sales by the Company of WGN to cable television systems in Canada,
including taxes on gross receipts from the Canadian Operations, but excluding
taxes on the net income of the Company or Netlink USA. Such expenses are
subject to an annual limitation which initially was $50,000 and is reviewed
annually by the Company and Netlink USA to determine whether any adjustments
are appropriate.
The aggregate amount paid to Netlink USA pursuant to the WGN Agreements
during 1997 was $3.9 million.
SMATV Service
General. SMATV systems are private cable television systems that serve
hotels and multi-unit dwellings such as condominiums, apartment complexes and
private residential communities. In its agreements with programming suppliers
for its and its subsidiaries' cable television systems, TCI generally has
obtained rights to sell such programming to SMATV systems located within the
operating area of such cable television systems and in counties contiguous
thereto. Netlink USA is the TCI affiliate that has operated the business of
providing
20
<PAGE>
programming to SMATV systems pursuant to rights obtained by Satelitte
Services, Inc., a subsidiary of TCI ("SSI"). As of September 30, 1998, Netlink
USA provided programming to approximately 2,100 SMATV systems with an
aggregate of approximately 425,000 subscribers.
Description of Services. Netlink USA offers programming services for which
SSI has obtained the right to sell to SMATV systems in specified geographic
areas. Netlink USA generally supplies approximately one-third of the
programming carried by its SMATV system customers. The term of its contracts
with SMATV system operators is generally one year. A substantial majority of
Netlink USA's SMATV customers are medium- or large-size SMATV systems operated
by national operators. Optel and Cable Plus, together, typically account for
approximately 80% of Netlink USA's annual SMATV sales.
Competition. Netlink USA competes with a number of other programming
suppliers that have targeted the SMATV market. In addition, Netlink USA's
SMATV system customers face competition from cable television systems and DTH
companies that provide alternative programming reception methods.
Regulation Affecting the Netlink Businesses
The satellite transmission, cable and telecommunications industries are
subject to federal regulation, particularly FCC requirements. The industries
are also often subject to extensive regulation by local and state authorities.
While most cable television and telecommunication industry regulations do not
apply directly to Netlink USA, they may affect programming distributors, a
significant customer for Netlink USA's products and services. In the past,
uncertainty about proposed or even rumored regulations has occasionally caused
programming distributor customers to postpone purchasing decisions and
actions. Both Netlink USA and the Company monitor pending legislation and
proposed regulations to ascertain relevance, analyze impact and develop
strategic direction surrounding regulatory trends and developments within the
industry.
Copyright Matters. Under the "cable compulsory license" provisions of the
Copyright Act, programming distributors are required to pay copyright fees
that arise from their reception and distribution of satellite-transmitted
television broadcasts such as WGN and the Denver 6. These provisions also
grant an exemption which allows the Company and Netlink USA to transmit and
market their stations without agreements with, or copyright payments to, the
broadcast station transmitted. The cable television and DBS systems that carry
the station broadcasts are responsible for obtaining consent from local
broadcasters and paying copyright fees to the U.S. Copyright Office, a federal
copyright fee collection agency. In contrast, under the satellite license
provided by SHVA (as defined below), Netlink USA and the Company must pay the
copyright royalty fees for their C-band DTH subscribers. Effective January 1,
1998, copyright fees were increased to 27 cents per signal per subscriber per
month, an increase of 21 cents for each network signal, an increase of 13
cents for WGN and an increase of 9.5 cents for KWGN. Retail prices to
subscribers have been correspondingly increased which may cause a decrease in
the number of subscribers to the Company's and Netlink USA's services, which
decrease could be substantial. On October 30, 1997, the Satellite Broadcasting
& Communications Association, of which Netlink USA is a member, filed a
Petition for Review of such increases in copyright fees with the United States
Court of Appeals for the District of Columbia Circuit which remains pending.
The Court of Appeals refused to grant an interim stay of the increase. Various
bills are being considered by Congress which, if enacted, would amend and
extend the satellite license and/or potentially change the copyright royalty
fee. For example, on June 24, 1998, the United States House of Representatives
Committee on Commerce ordered that H.R. 2921, which would defer the increase
in the copyright royalty fee pending an inquiry of the FCC, be reported to the
full House and on July 23, 1998, the United States Senate adopted an amendment
to an appropriations bill which would defer the increase until March 31, 1999.
However, neither bill was enacted into law. Legislation has been introduced
from time to time to repeal the cable compulsory license provision, although
no such legislation has been passed by Congress. Similar legislation will
likely be introduced in the near future to consider "reform" of both the cable
and satellite compulsory licenses, and, if adopted, such legislation could
hinder or prevent Netlink USA from marketing services such as the Denver 6
Service.
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The Copyright Act and U.S. Copyright Office regulations generally impose a
significantly higher copyright fee on cable television systems in certain
markets for carrying more than two distant independent television stations.
This copyright fee structure limits the extent to which cable television
systems are able to carry superstations. A reduction in competitive
superstations within the industry could potentially increase the distribution
potential of Netlink USA's KWGN signal as a replacement product without
increasing a cable operator's overall copyright payments.
On August 1, 1997, the United States Copyright Office released a "Review of
the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals"
in response to a request from the Chairman of the United States Senate
Committee on the Judiciary. The Copyright Office recommended a number of
significant changes in the laws regulating the copyright licensing of
broadcast retransmissions which, if adopted, would have a significant impact
on Netlink USA. Congressional committees have scheduled and held hearings on
such recommendations.
SHVA. The Satellite Home Viewer Act of 1994 ("SHVA") prohibits the
retransmission by a satellite carrier, such as Netlink USA, of a television
broadcast signal of a network television station to households that receive a
Grade B intensity over-the-air signal of a television broadcast station
affiliated with such network and to households that, within the past 90 days,
had received through a cable system the signal of a television station
affiliated with such network. The SHVA provides for remedies which can include
actual damages, injunctions, and statutory damages. Statutory damages per
individual claim are limited to $5.00 per subscriber, per month, and statutory
damages for a pattern or practice of violations are limited to $250,000 in a
six month period.
In complying with the SHVA, Netlink USA is required to discontinue network
service to certain of its subscribers who are able to receive network services
over the air. The broadcast networks and their affiliates have commenced
infringement actions against PrimeTime 24, another satellite carrier, for
violation of the network service restrictions. Netlink USA and Telluride
entered into the NAB Agreement with the NAB, certain network-affiliated
television stations, and their respective affiliate associations. See "--
National Association of Broadcasters Matters." At present, Netlink USA can not
assess the impact, if any, of future claims under the SHVA not covered by the
NAB Agreement on Netlink USA's results of operations or cash flow since it is
unable to determine the basis upon which damages claimed by network affiliate
stations which are not parties to the NAB Agreement might be calculated or
what their amount might be. See "--National Association of Broadcasters
Matters."
On November 17, 1998, in response to two petitions requesting the FCC to
initiate a proceeding to define separately "Grade B signal" for purposes of
SHVA, the FCC released a Notice of Proposed Rulemaking to address the methods
for determining whether a household is "unserved" under the SHVA.
1992 Cable Act. In October 1992, Congress enacted the 1992 Cable Act, which
provided a comprehensive regulatory framework for the operation of cable
television systems, including substantial rate regulation for certain services
and equipment provided by most cable television systems in the United States.
Pursuant to the 1992 Cable Act, the FCC adopted regulations with respect to
rates charged for certain cable television services and for equipment to
receive those services. Additional regulations and policies adopted by the FCC
under the 1992 Cable Act may impair SNG's ability to offer competitive rates
and volume discounts on certain of its products and services and may affect
the rates charged by Netlink USA and Superstar to home satellite dish
programming packagers.
Telecommunications Act of 1996. In February 1996, Congress enacted the
Telecommunications Act of 1996, which generally deregulates both the cable and
telephone industries, allowing each to compete with the other in local market
areas, and also enables electric utilities to enter the telecommunications
industries. While there are no provisions in the Telecommunications Act of
1996 that affect SNG directly, it indirectly may create more competition and
less regulation within the video services marketplace.
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National Association of Broadcasters Matters
In January 1997, Netlink USA entered into an agreement in principle with
representatives of the NAB and of its television network affiliate members to
identify by zip code those geographic areas which are "unserved" by network
affiliated stations, i.e. areas in which households cannot receive a signal of
at least Grade B intensity. On May 1, 1998, Netlink USA and Telluride entered
into the NAB Agreement.
Under the NAB Agreement, which became effective on July 1, 1998, the Grade B
signal contour is plotted for each network station (including any translators
or repeaters) using Longley-Rice data. Each zip code is classified as red
(served) or green (unserved) for each station in its designated market area.
For certain stations, zip codes in a limited number of additional counties
adjacent to the designated market areas for those stations will also be
classified as red or green. Zip codes which are partially served are
classified as red or green depending upon whether the majority of the
population in that zip code is served or unserved. However, the unserved
population reclassified as red and the served population reclassified as green
will be roughly equalized, subject to certain limitations. Netlink USA's
existing subscribers will be grandfathered for 14 months after the later of
July 1, 1998 or the effective date of a nationwide injunction enforcing the
SHVA against PrimeTime 24 or the effective date of an agreement between NAB
and PrimeTime 24 which is nationwide in scope. The earliest date on which the
"grandfathering" period could end would be August 31, 1999. Based upon recent
injunctive orders in the PrimeTime 24 litigation, Netlink USA does not expect
any significant delay in such date. Under the NAB Agreement, neither Netlink
USA nor any of its distributors may provide the network signals to new
subscribers in red area zip codes, and there are substantial reporting
requirements to enforce this obligation. Distribution of network signals in
violation of the NAB Agreement would result in liquidated damages and
potentially an injunctive action. However, the NAB Agreement releases Netlink
USA and Telluride from any liability arising from any violations of SHVA which
may have occurred prior to the effective date of the NAB Agreement. If any
other carrier receives a more favorable agreement, the NAB Agreement will be
amended to reflect such more favorable terms. If there are significant changes
in the law, any party may, on a prospective basis, terminate the NAB
Agreement. All parties agree, however, to make good faith efforts to establish
a new agreement in relation to any such significant regulatory changes.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Netlink Wholesale
Division. Information with respect to SNG is not provided below because SNG's
historical financial condition and results of operations are included in the
Company's financial statements.
Results of Operations
Nine Months Ended September 30, 1998 Compared to September 30, 1997
Revenue increased 21%, or $5,256,000, for the nine months ended September
30, 1998, as compared to the nine months ended September 30, 1997. This
increase was primarily attributable to a 13%, or $2,612,000, increase in
Denver 6 Service revenue and a 48%, or $2,154,000, increase in SMATV revenue.
The increase in the Denver 6 Service revenue was primarily attributable to
rate increases for DTH customers reflecting the copyright fee increase
described below. However, certain other adjustments to rates offset a portion
of this increase. The SMATV revenue increase was driven by a 7% rate increase
combined with subscribers buying additional channels and a 61% increase in
subscribers.
Operating expenses increased 61% , or $7,256,000, for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997,
primarily due to a 55%, or $1,965,000, increase in programming costs which
were directly related to the increase in SMATV revenue and a 213%, or
$5,150,000, increase in copyright fees. This increase in copyright fees was
primarily due to an increase in the monthly copyright fee from 6 cents for
network stations and 14 cents or 17.5 cents for superstations to the new 27
cents per channel per subscriber monthly copyright rate. Selling, general and
administrative costs increased 57%, or
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$398,000, primarily due to $151,000 related to stay pay bonuses paid during
the third quarter ended September 30, 1998, a $124,000 increase in legal fees
and a $138,000 increase in overhead. Bad debt expense decreased 64%, or
$225,000, mainly due to a reduced estimate of uncollectible accounts during
the nine months ended September 30, 1998 based on historical collection rates
compared to the same period in 1997. Depreciation and amortization was
consistent from 1997 to 1998.
As a result of the foregoing, operating income decreased by 19%, or
$2,173,000, for the nine months ended September 30, 1998, as compared to the
nine months ended September 30, 1997.
Year Ended December 31, 1997 Compared to December 31, 1996
Revenue increased 13%, or $3,977,000, for the year ended December 31, 1997,
as compared to the year ended December 31, 1996. This increase was primarily
attributable to an increase in revenue from SMATV systems, which represented
19% of revenue for the year ended December 31, 1997. The SMATV revenue
increase was driven by a 4% increase in rates combined with a 122% increase in
subscribers. The subscriber increase was largely attributable to an increase
in the number of SMATV systems operated by two of Netlink USA's SMATV
customers. Additionally, Netlink USA's share of revenue from the wholesale
marketing and distribution of WGN increased 10% as a result of increases in
rates charged wholesale customers. Revenue from WGN marketing and distribution
represented 12% of the Netlink Wholesale Division's revenue for the year ended
December 31, 1997. Denver 6 Service revenue decreased by less than 1% compared
to the prior year mainly due to a decrease in revenue related to Netlink USA's
decision to discontinue transmission of the Atlanta 3 stations during the
first quarter of 1996, offset by a 2% increase in revenue from SNG. Revenue
from SNG, which represented 47% and 44% of total Denver 6 Service revenue
during 1997 and 1996, respectively, increased primarily due to a 4% increase
in SNG subscribers, offset by credits received by SNG related to the sale of
certain packages to SNG subscribers.
Operating expenses increased 23%, or $3,039,000, for the year ended December
31, 1997, as compared to the year ended December 31, 1996, primarily due to a
126% increase in programming costs which were directly related to the increase
in SMATV revenue. Selling, general and administrative costs increased 5%, or
$52,000, primarily due to increased personnel costs. Bad debt expense
increased 10%, or $25,000, mainly due to an increase in accounts receivable of
13% in 1997 compared to 1996. Depreciation and amortization was consistent
from 1996 to 1997.
As a result of the foregoing, operating income increased 6%, or $860,000,
for the year ended December 31, 1997, compared to the year ended December 31,
1996.
Year Ended December 31, 1996 Compared to December 31, 1995
Revenue increased 6%, or $1,811,000, for the year ended December 31, 1996,
as compared to the year ended December 31, 1995. This increase was
substantially attributable to increases in revenue from SMATV, which
represented 10% of the revenue for the year ended December 31, 1996. The SMATV
revenue increase was driven by a 4% increase in rates combined with a 61%
increase in subscribers. The remaining increase in revenue was attributable to
a 4% increase in Denver 6 Service revenue. The increase in Denver 6 Service
revenue was primarily attributable to a 13% increase in revenue from SNG,
which represented 44% and 35% of total Denver 6 Service revenue during 1996
and 1995, respectively, offset by a 12% decrease in revenue and subscribers
resulting from Netlink USA's decision to discontinue transmission of the
Atlanta 3 stations during the first quarter of 1996. Revenue from SNG
increased primarily due to a rate increase for SNG subscribers.
Operating expenses decreased 12%, or $1,853,000, during 1996 compared to the
prior year. Such decrease is mainly due to a 24% decrease in transponder
expense, which represented 57% of operating expenses, related to the loss of
Atlanta 3 network subscribers. Selling, general and administrative expenses
increased 5%, or $46,000, for the year ended December 31, 1996, as compared to
the year ended December 31, 1995 primarily due to increased personnel costs.
Bad debt expense decreased 7%, or $19,000, due to higher SMATV accounts
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receivable write-offs in fiscal year 1995. Depreciation and amortization
increased 6%, or $12,000, due to additional capital expenditures during 1996
compared to 1995.
As a result of the foregoing, operating income increased 32%, or $3,624,000,
for the year ended December 31, 1996, compared to the year ended December 31,
1995.
Liquidity and Capital Resources
Net cash provided by operating activities for Netlink USA was $7,873,000,
$7,109,000, $9,680,000, $9,127,000 and $9,271,000 for the nine months ended
September 30, 1998 and 1997 and for the years ended December 31, 1997, 1996
and 1995, respectively. Amounts expended by Netlink USA for investing
activities was less than the cash provided by operating activities in each
such period. In the event Netlink USA were required to expend more on capital
or other investing activities, Netlink USA believes that net cash provided by
operating activities and its ability, if necessary, to obtain financing would
provide adequate sources of short-term and long-term liquidity in the future.
On October 28, 1997, the Librarian of Congress announced final rules
increasing the monthly copyright royalty fee for the secondary transmission of
superstations and network stations by satellite carriers, such as Netlink USA,
to 27 cents per channel per subscriber per month for distant superstations and
network stations. These monthly fees had been either 17.5 or 14 cents for
superstations and 6 cents for network stations. Consequently, the copyright
fees paid by Netlink USA for the retransmission of broadcast signals to home
satellite dish owners have increased significantly. The resulting increases in
retail prices to subscribers may cause a decrease in the number of subscribers
to the Netlink USA services, which decrease could be substantial. See "--
Regulation Affecting the Netlink Businesses."
In addition, in August 1997, the United States Copyright Office recommended
a number of significant changes in the laws regulating the copyright licensing
of broadcast retransmissions which, if adopted, would have a significant
impact on Netlink USA. Congressional committees have scheduled and held
hearings on such recommendations. See "--Regulation Affecting the Netlink
Businesses."
In uplinking and selling the signals of broadcast television stations in the
United States, Netlink USA is subject to certain FCC regulations and Copyright
Act provisions. Pursuant to such provisions, Netlink USA may only distribute
the signals of network broadcast stations to "unserved households," which
cannot receive a Grade B signal from a primary station affiliated with such
network. On May 1, 1998, Netlink USA and Telluride entered into the NAB
Agreement. The parties to the NAB Agreement identified by zip code those
geographic areas which are "unserved" by network affiliated stations.
Depending upon the locations of its subscribers on the July 1, 1998 effective
date of the NAB Agreement and the waiver and geocoding processes under the NAB
Agreement, Netlink USA may be required to disconnect a substantial number of
existing subscribers within 14 months after such effective date, which would
have a material adverse effect upon the operations of Netlink USA. See "--
National Association of Broadcasters Matters."
A preliminary assessment has been done by the Company concerning the year
2000 issue. In discussions with Netlink USA, it was preliminarily concluded
that the activity required for ensuring compliance on the systems, software
and equipment will not be significant. Upon completion of the Netlink
Acquisition by the Company, a more formalized and structured approach will be
used. This project is referred to as the Year 2000 Project.
The Year 2000 Project involves a four-phase approach to determining the year
2000 readiness of Netlink USA's systems, software and equipment. This approach
provides a detailed method for tracking the evaluation, repair and testing of
the systems, software and equipment. Phase 1, Assessment, involves the
inventory of all systems, software and equipment and the identification of any
year 2000 issues. Phase 1 is scheduled for completion by February 1999. Phase
2, Remediation, involves repairing, upgrading and/or replacing any non-
compliant equipment and systems. Phase 2 is scheduled for completion by May
1999. Phase 3, Testing, involves
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testing the systems, software and equipment for year 2000 readiness, or in
certain cases, relying on test results provided to Netlink USA. Phase 3 is
scheduled for completion by July 1999. Phase 4, Implementation, involves
placing compliant systems, software and equipment into production or service.
Phase 4 is scheduled for completion by September 1999. The completion dates
set forth above are based on current expectations. However, due to the
uncertainties inherent in year 2000 remediation, there can be no assurance
that the projects will be completed on such dates.
As part of the Year 2000 Project, significant suppliers and customers will
be contacted to determine the extent to which Netlink USA is vulnerable to
those third parties' failure to remediate their year 2000 compliance issues.
There can be no assurance that the systems of other companies on which Netlink
USA's business relies will be timely converted or that failure to convert by
another company, or a conversion that is incompatible with Netlink USA's
systems, would not have a material adverse effect on Netlink USA and its
operations.
The failure to resolve year 2000 issues on or before December 31, 1999 could
result in system failures causing disruption in routine business activities.
Also, if critical systems related to Netlink USA's services are not
successfully remediated, Netlink USA could face claims of breach of contract
from customers, certain programming providers and from other businesses that
rely on Netlink USA's programming services. Additionally, failure of third
parties upon whom Netlink USA relies to timely remediate their year 2000
issues could result in disruption in Netlink USA's daily operations and core
services. While the Company believes the Year 2000 Project will adequately
address the internal year 2000 issues, the overall risks associated with the
year 2000 issue remain difficult to accurately describe and quantify until
additional information is obtained regarding the remediation activities of
third party suppliers and customers. There can be no assurance that the year
2000 issue will not have a material adverse effect on Netlink USA and its
operations.
There are plans to develop contingency plans on all critical processes to
minimize the impact of any year 2000 related interruption. Plans are expected
to be in place by February 1999.
History and Background of the Netlink Acquisition
Throughout 1997, the Company analyzed alternatives for further development
of its UVTV/WGN business and concluded it should consider reacquiring the
interest in that business represented by the WGN Agreements in order to
simplify the ownership structure of that business. During that same period,
the Company investigated several opportunities to acquire additional C-band
subscribers and, as part of that process, also assessed the advantages to it
of consolidating Liberty's ownership of SNG with that of the Company and of
having access to the additional cash flows from operating activities that
would become available if it were to acquire the SNG Interest.
On January 8, 1998, Mr. Gary S. Howard, the Company's Chairman and Chief
Executive Officer and an Executive Vice President of TCI, and Mr. Peter C.
Boylan III, the Company's President and Chief Executive Officer, approached
Mr. Robert R. Bennett, President and Chief Executive Officer of Liberty, to
inquire as to Liberty's receptiveness to selling the SNG Interest and its
interest in the WGN Agreements.
On January 12, 1998, Mr. Bennett contacted Mr. Boylan and Mr. Howard to
determine whether the Company would be interested in acquiring a package that
included not only Netlink USA's interests in SNG and the WGN Agreements, but
also its Denver 6 Service and the SMATV Service.
Also, on January 12, 1998, Mr. Boylan contacted PaineWebber to solicit a
proposal from PaineWebber to act as the financial advisor in connection with
the proposed transaction and to provide a fairness opinion if one was
appropriate. Over the next few days, representatives of several recognized
investment banking firms were also contacted to solicit proposals to act as
the financial advisor to the Company for the proposed transaction and provide
a fairness opinion if one was appropriate.
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On January 21, 1998, Messrs. Howard and Boylan met with Mr. Bennett to
discuss the terms of a potential transaction and price. Mr. Bennett was
presented with a verbal offer for the Netlink USA assets to be acquired,
subject to, among other matters, due diligence and Board and stockholder
approval. Mr. Bennett provided a counterproposal as to price shortly
thereafter.
On January 26, 1998, a telephonic meeting of the Board was held to discuss
the then current terms of the proposed transaction and to consider the
appointment of a special committee to review such terms and to make a
recommendation to the Board whether to approve the proposed acquisition of
Netlink USA. The Board formally approved the continued pursuit of negotiations
with Liberty and the appointment of the Netlink Special Committee, consisting
of Mr. Lawrence Flinn, Jr., the Company's Chairman Emeritus who was formerly
Chairman and Chief Executive Officer of the Company, and Mr. J. David Wargo.
The Netlink Special Committee was authorized to engage a financial advisor for
the Company, to review the terms of the proposed acquisition of the Netlink
Businesses and to make a recommendation to the Board.
From January 28 through January 30, 1998, Mr. Wargo conducted interviews
with the firms proposing to act as the financial advisor to the Netlink
Special Committee. Based upon a review of the proposals and the interviews, on
February 6, 1998, the Netlink Special Committee selected PaineWebber to act as
the financial advisor to the Netlink Special Committee in connection with the
Netlink Acquisition. On that same date, Mr. Wargo, in consultation with Mr.
Flinn, engaged the firm of Patterson, Belknap, Webb and Tyler LLP to act as
legal counsel to provide assistance to the Netlink Special Committee in
reviewing the Netlink Acquisition.
During February and March 1998, the Company made due diligence inquiries of
Liberty and Netlink USA personnel with respect to the Netlink Wholesale
Division. SNG was already under the control of the Company. Representatives of
the Company coupled these inquiries with several due diligence trips.
On February 9, 1998, the Netlink Special Committee reviewed with the Board
their actions to date. At that same meeting, Mr. Bennett was appointed a
director of the Company. Discussions between Messrs. Howard, Boylan and
Bennett as to the consideration to be paid by the Company for the Netlink
Businesses continued at various times throughout the day and into the next
day, with both parties ultimately concluding that the consideration would be
12,750,000 shares of the Company's common stock. The number of shares of
common stock was set as part of the negotiations and is not subject to
adjustment.
The Company valued the Netlink Businesses based upon a multiple of their
cash flow. The aggregate value, approximately $210 million, was converted into
shares of common stock at $16.50 per share, the last sale price of the common
stock on February 9, 1998. While the parties initially discussed the issuance
to Liberty of Class A common stock, higher voting Class B common stock was
ultimately agreed upon. The Class B common stock has the same underlying
economic characteristics as the Class A common stock, and the percentage of
voting power of the common stock held by TCI would not change materially as a
result of the issuance of Class B common stock in lieu of Class A common
stock. Accordingly, the Company believed the Class B common stock to have the
same value as the Class A common stock. Moreover, issuance of Class B common
stock to TCI would permit the Company to issue additional shares of Class A
common stock without materially affecting TCI's control of the Company.
Negotiation of definitive agreements was conducted between the Company and
Liberty and their counsel during March, April and May, 1998. In April 1998,
the Company announced an agreement in principle with respect to a transaction
in which Primestar would acquire 100% of the membership interests in SNG (the
"Primestar Transaction"). As a result, the form of the definitive agreements
being negotiated with Liberty was modified to permit such a transaction with
Primestar, if it could be consummated, prior to the Netlink Acquisition.
On May 1, 1998, the Board met and authorized the Netlink Acquisition based
in part on the recommendation of the Netlink Special Committee which was given
to the Board subject to receipt of an acceptable fairness opinion by the
Netlink Special Committee and approval of definitive agreements by the Netlink
Special Committee.
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On May 14, 1998, representatives of PaineWebber met with the Netlink Special
Committee and delivered the PaineWebber Opinion.
On June 5, 1998, the Netlink Special Committee met in order to consider and
make a recommendation to the Board with respect to the Netlink Acquisition.
Mr. Wargo presented the structure of the Netlink Acquisition and briefly
described the presentation made by PaineWebber at the May 14th meeting of the
Netlink Special Committee. Patterson, Belknap, Webb & Tyler LLP, legal advisor
to the Netlink Special Committee, described the legal standards under Delaware
law which applied to the Netlink Special Committee's consideration of the
Netlink Acquisition, reviewed certain features of the Netlink Acquisition
Agreement and answered questions from the members of the Netlink Special
Committee. Following discussion, the Netlink Special Committee unanimously
recommended approval of the Netlink Acquisition by the full Board of the
Company; provided however, that the Netlink Special Committee did not consider
and made no recommendation with respect to the Primestar Transaction.
Documentation for the Netlink Acquisition was finalized in all material
respects on May 18, 1998. Following completion of documentation for the
Netlink Acquisition, the Company completed negotiations with respect to the
terms of the TV Guide Acquisition and, on June 10, 1998, entered into the TV
Guide Letter Agreement. The Company and Liberty commenced negotiations for an
amendment to the agreement for the Netlink Acquisition to provide, among other
things, for the simultaneous closing of the Netlink Acquisition and the TV
Guide Acquisition.
On October 15, 1998, Primestar announced that it had terminated an agreement
for the proposed acquisition of certain direct broadcast satellite assets. The
acquisition had been opposed by the U.S. Department of Justice, which had
filed suit to block the transaction. The Company viewed Primestar's
acquisition of those assets to be an essential element for the success of the
Primestar Transaction. Accordingly, on October 19, 1998, the Company announced
as part of its regular third quarter earnings release that it had terminated
the Primestar Transaction. Rather than amend the May 18, 1998 agreement for
the Netlink Acquisition, the parties negotiated an Amended and Restated Stock
Purchase Agreement to be effective as of May 18, 1998. The Netlink Acquisition
Agreement, which was executed by the Company and Liberty on November 30, 1998,
deleted references to the Primestar Transaction and provisions that had been
included to facilitate the Primestar Transaction and added terms to coordinate
the closings of the Netlink Acquisition and the TV Guide Acquisition. See
"Description of the Netlink Acquisition Agreement and Related Agreements--The
Netlink Acquisition Agreement--General."
Reasons for the Netlink Acquisition; Recommendation of the Board
The Board considered the terms and structure of the Netlink Acquisition,
reviewed with its financial and legal advisors the financial and legal aspects
of the Netlink Acquisition and considered with the Company's senior management
the financial and operational considerations relating to the Netlink
Acquisition. In its review of the Netlink Acquisition, the Board recognized
that the Netlink Acquisition is an affiliate transaction because both the
Company and Liberty are controlled by TCI and a majority of the members of the
Board are affiliated with TCI. As a result, the Board established the Netlink
Special Committee consisting of Messrs. Wargo and Flinn, two independent
directors, to review the Netlink Acquisition on an impartial basis. The
Netlink Special Committee hired PaineWebber to act as its financial advisor
and Patterson, Belknap, Webb & Tyler LLP to act as its legal advisor in doing
so. The Netlink Special Committee received the PaineWebber Opinion to the
effect that, as of May 14, 1998, based upon PaineWebber's review and
assumptions and subject to the limitations summarized below, the Netlink
Equity to be issued by the Company in the Netlink Acquisition is fair to the
unaffiliated stockholders of the Company from a financial point of view. The
Netlink Special Committee unanimously recommended approval of the Netlink
Acquisition by the full Board of the Company.
The Board believes that the Netlink Acquisition provides an opportunity to
fulfill the Company's objective of developing the full potential of the
Company's existing DTH and distant signal businesses. The Board believes that
the terms of the Netlink Acquisition are fair to, and in the best interests
of, the Company and the Company's
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unaffiliated stockholders. Based on these considerations, the Board
unanimously approved the Netlink Acquisition and unanimously recommends that
stockholders vote FOR the Netlink Acquisition Proposal.
In reaching these conclusions and recommendations, the Board considered,
among other things, the following factors, none of which were quantified or
assigned relative weight as compared to any other factor:
(i) industry and market conditions, including the increasing competition
in the multi-channel television services business, particularly competition
from other C-band satellite service providers, DBS satellite service
providers and cable television system operators that resulted in the number
of SNG subscribers continuing to decline;
(ii) the opportunity for the Company to increase its participation in,
and thereby become the majority owner of, the largest national provider of
satellite entertainment programming to C-band home satellite dish owners;
(iii) the terms of the Netlink Acquisition, including the consideration
to be paid by the Company in the Netlink Acquisition and the fact that the
Company is entitled to all benefits of the operation of the Netlink
Corporations as of April 1, 1998;
(iv) the opportunity to increase the Company's earnings while
strengthening its balance sheet and increasing its capacity to generate
capital for future growth;
(v) the opportunity to gain economies of scale by combining certain
functions of the Company's UVTV division, which distributes superstations
and other programming to cable television systems and other multi-channel
video programming providers, with Netlink USA's Denver 6 Service, which is
substantially the same line of business;
(vi) the relatively limited number of conditions to the closing of the
Netlink Acquisition which provides increased certainty that the Netlink
Acquisition will be consummated; and
(vii) the fairness of the consideration to be paid by the Company in the
Netlink Acquisition, based in part on PaineWebber's written opinion.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive, but it does include the factors that
the Board considered material to its decision to approve the Netlink
Acquisition. In view of the factors considered in connection with its
evaluation, the Board did not find it practicable to and did not quantify or
attempt to assign relative weights to the specific factors considered in
reaching its decision. In addition, individual members of the Board may have
given different weight to different factors.
Opinion of PaineWebber
The full text of the PaineWebber Opinion, which sets forth the assumptions
made, procedures followed, matters considered and limitations on the review
undertaken, is attached as Appendix III to this Proxy Statement. Holders of
the Company's common stock are urged to read the PaineWebber Opinion carefully
and in its entirety. The summary of the PaineWebber Opinion set forth in this
Proxy Statement is qualified in its entirety by reference to the full text of
the PaineWebber Opinion. PaineWebber has consented to the description and
publication of the PaineWebber Opinion in this Proxy Statement and in Appendix
III hereto.
The terms used below and defined in the PaineWebber Opinion have the
following meanings:
"Revised Consideration" refers to the form of consideration contemplated by
the Company and Liberty as of the date of the PaineWebber Opinion which was
equal to 6,375,000 shares of the Company's Class B common stock. The parties
had initially discussed the issuance of the Company's Class A common stock but
subsequently concluded that Class B common stock would be issued in connection
with the Netlink Acquisition. The PaineWebber Opinion was rendered prior to
the Company's 2-for-1 stock split and the share numbers and per share amounts
set forth below take into account such stock split.
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"Revised Purchase Transaction" refers to the form of transaction
contemplated by the Company and Liberty whereby the Company was to acquire all
of the capital stock of the Netlink Corporations in exchange for 6,375,000
shares (on a pre-split basis) of the Company's Class B common stock. The
Revised Purchase Transaction did not take into account the then-proposed
Primestar Transaction.
The Netlink Special Committee retained PaineWebber as its financial advisor
in connection with the Revised Purchase Transaction (as defined in the
PaineWebber Opinion). In connection with such engagement, the Netlink Special
Committee requested PaineWebber to render an opinion as to whether or not the
proposed Revised Consideration (as defined in the PaineWebber Opinion) to be
paid by the Company in the Revised Purchase Transaction is fair to the
unaffiliated stockholders of the Company from a financial point of view.
In connection with the Netlink Special Committee's consideration of the
Netlink Acquisition, PaineWebber delivered the PaineWebber Opinion on May 14,
1998 to the effect that, as of such date, and based upon its review and
assumptions and subject to the limitations summarized below, the Revised
Consideration to be paid by the Company, pursuant to the Netlink Acquisition,
is fair to the unaffiliated stockholders of the Company from a financial point
of view. The PaineWebber Opinion was prepared at the request of and for the
information of the Netlink Special Committee in connection with the Revised
Purchase Transaction and does not constitute a recommendation to any
stockholder of the Company as to how any such stockholder should vote with
respect to the Revised Purchase Transaction or the Netlink Acquisition. It
should be understood that subsequent developments may affect the conclusions
reached in the PaineWebber Opinion.
In connection with the PaineWebber Opinion, PaineWebber was not requested
to, and has not, pursuant to the Netlink Special Committee's instructions,
reviewed any documents (other than the May 13, 1998 draft agreement) in
connection with, or expressed any opinion as to the fairness from a financial
point of view of, the then proposed Primestar Transaction. Pursuant to the
Netlink Special Committee's instructions, PaineWebber expressed an opinion
only as to the fairness from a financial point of view of the Revised
Consideration which is to be paid by the Company in the Revised Purchase
Transaction and did not express any opinion as to any aspect of the then
proposed Primestar Transaction.
In arriving at its opinion, PaineWebber, among other things: (i) reviewed
SNG's audited financial statements for the fiscal year ended December 31,
1997; the related unaudited financial information for the two fiscal years
ended December 31, 1997 and 1996; and the related unaudited financial
information for the three months ended March 31, 1998; (ii) reviewed the
Netlink Businesses' (as defined in the PaineWebber Opinion) audited financial
statements for the fiscal year ended December 31, 1997; the related unaudited
financial information for the fiscal years ended December 31, 1997 and 1996;
and the related unaudited financial information for the three months ended
March 31, 1998; (iii) reviewed the Company's Annual Reports, Forms 10-K and
related financial information for the three fiscal years ended December 31,
1997; the Company's draft Form 10-Q for the three months ended March 31, 1998;
and the related unaudited financial information for the three months ended
March 31, 1998 and 1997; (iv) reviewed certain information, including
financial forecasts, relating to the business, earnings, cash flow, assets and
prospects of the Subject Companies (as defined in the PaineWebber Opinion) and
the Company, furnished to PaineWebber by the Company and Liberty; (v)
conducted discussions with members of senior management of each of the Subject
Companies and the Company concerning their respective businesses and
prospects; (vi) reviewed the historical market prices and trading activity for
the Company's Class A common stock and compared them with those of certain
publicly traded companies which PaineWebber deemed to be reasonably similar to
the Subject Companies and the Company, respectively; (vii) compared the
results of operations of the Subject Companies and the Company with those of
certain companies which PaineWebber deemed to be reasonably similar to the
Subject Companies and the Company, respectively; (viii) compared the proposed
financial terms of the transactions contemplated by the Netlink Acquisition
with the financial terms of certain other mergers and acquisitions which
PaineWebber deemed to be relevant; (ix) reviewed a draft of the May 18, 1998
agreement dated May 13, 1998; and (x) reviewed such other financial studies
and analyses and performed such other investigations and took into account
such other matters as PaineWebber deemed necessary, including PaineWebber's
assessment of general economic, market and monetary conditions.
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PaineWebber noted in the PaineWebber Opinion that the Company's Class B
common stock differs from its Class A common stock in that the Class B common
stock entitles the holder thereof to ten (10) votes per share and the Class B
common stock is not publicly traded. PaineWebber also noted that each share of
Class B common stock is convertible into one share of Class A common stock at
the option of the holder thereof. PaineWebber valued the Company's Class B
common stock the same as the Company's Class A common stock.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by or on behalf of the Subject
Companies, Liberty and the Company, and PaineWebber did not assume any
responsibility to independently verify such information. With respect to the
financial forecasts examined by PaineWebber (the "Projections"), PaineWebber
assumed, with the Company's consent, that they were reasonably prepared on
bases reflecting the best currently available estimates and good faith
judgments of the management of the Company, Liberty and the Subject Companies,
respectively, as to the future performance of the Company and the Subject
Companies. PaineWebber also relied upon the assurances of the management of
the Company, Liberty and the Subject Companies that they were unaware of any
facts that would make the information or Projections provided to PaineWebber
incomplete or misleading. PaineWebber did not undertake, and was not provided
with, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise, known or unknown) of the Company or the Subject
Companies and assumed that (i) the purchase method of accounting will be used
for the Revised Purchase Transaction; (ii) the Revised Purchase Transaction
will qualify as a tax-free exchange under Section 351 of the Code; and (iii)
all material assets and liabilities (contingent or otherwise, known or
unknown) of the Company and the Subject Companies are as set forth in their
respective consolidated financial statements. The PaineWebber Opinion does not
address the relative merits of the Revised Purchase Transaction and any other
transactions or business strategies that may have been discussed by the
Netlink Special Committee as alternatives to the Revised Purchase Transaction
or the decision of the Netlink Special Committee to proceed with the Revised
Purchase Transaction. The Netlink Special Committee did not place any
limitations upon PaineWebber with respect to the procedures followed or
factors considered in rendering the PaineWebber Opinion. Because of the nature
of the Revised Purchase Transaction, the Netlink Special Committee instructed
PaineWebber to view, as a whole, the Revised Consideration. The PaineWebber
Opinion is based on economic, monetary and market conditions on the date
thereof. Furthermore, PaineWebber expressed no opinion as to the price at
which the securities to be issued by the Company in the Revised Purchase
Transaction or the shares of the Company's Class A common stock may trade at
any time.
The following paragraphs summarize the significant analyses with respect to
the Subject Companies performed by PaineWebber in arriving at the PaineWebber
Opinion.
Selected Comparable Public Company Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial
and operating and stock market performance data of the Comparable Companies
(as defined below) to the corresponding data of the Subject Companies. The
Comparable Companies consisted of Adelphia Communications Corp.; Cablevision
Systems Corporation; Comcast Corporation; Cox Communications, Inc.; Jones
Intercable, Inc.; Tele-Communications, Inc.; Century Communications Corp.;
LodgeNet Entertainment Corp.; and On Command Corporation (collectively, the
"Comparable Companies"). PaineWebber noted that there are no directly
comparable companies to the Subject Companies.
PaineWebber reviewed, among other information, the Comparable Companies'
multiples of total enterprise value (market value of equity based on stock
market prices as of May 12, 1998 plus total debt and total preferred stock
less cash and cash equivalents) to (i) latest twelve months ("LTM") net
revenue, (ii) LTM EBITDA, and (iii) 1998 projected EBITDA ("1998E EBITDA").
The Comparable Companies' (i) LTM net revenue multiples ranged from 2.3x to
7.1x; (ii) LTM EBITDA multiples ranged from 8.1x to 17.0x; and (iii) 1998E
EBITDA multiples ranged from 6.3x to 14.2x. Based on this analysis,
PaineWebber applied an LTM EBITDA multiple range of 6.5x to 8.5x and a 1998E
EBITDA multiple range of 5.0x to 7.0x to the LTM EBITDA and 1998E EBITDA of
each of SNG and the Netlink Businesses which resulted in derived aggregate
equity valuations (for 100% of the equity) of $300.0 million to $330.0 million
and $90.0 million to $110.0 million, respectively. These
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derived aggregate equity valuations, when adjusted to reflect the acquisition
of a 39.8% interest in SNG and a 100% interest in the Netlink Businesses,
equate to an implied valuation range of $209.4 million to $241.3 million. The
value of the Revised Consideration to be paid was $229.5 million, based on the
February 17, 1998 (the date the Netlink Acquisition was announced) pre-
announcement Class A common stock price of $18.00 per share as used in
PaineWebber's analysis.
Premiums Paid Analysis. PaineWebber analyzed purchase price per share
premiums paid by domestic companies in 145 selected publicly-disclosed merger
transactions involving the purchase of a majority interest announced and
completed between January 1, 1997 and April 28, 1998 with market values
between $50 million and $500 million. This analysis indicated median premiums
to the target's closing stock price one day, one week and one month prior to
the announcement of the transaction of 22.6%, 29.2% and 34.6%, respectively.
Based on this analysis, PaineWebber applied a purchase price premium range of
20% to 30% to the aggregate equity valuations derived in the Selected
Comparable Public Company Analysis for SNG and the Netlink Businesses. For
SNG, an aggregate equity valuation (for 100% of the equity) of $370.0 million
to $410.0 million was derived and, for the Netlink Businesses, an aggregate
equity valuation of $115.0 million to $130.0 million was derived. These
derived aggregate equity valuations, when adjusted to reflect the acquisition
of a 39.8% interest in SNG and a 100% interest in the Netlink Businesses,
equate to an implied valuation range of $262.3 million to $293.2 million. The
value of the Revised Consideration to be paid was $229.5 million, based on the
February 17, 1998 (the date the Netlink Acquisition was announced) pre-
announcement Class A common stock price of $18.00 per share as used in
PaineWebber's analysis.
Selected Comparable Mergers and Acquisitions Analysis: PaineWebber reviewed
publicly available financial information for selected mergers and acquisitions
involving target companies in the cable television business. PaineWebber
reviewed the consideration paid in 216 selected cable television transactions
for the period from February 1, 1994 to April 1, 1998 with purchase prices
ranging from $25 million to $750 million (collectively, the "Comparable
Transactions"). PaineWebber compared the Comparable Transactions' multiples of
total enterprise value to one year forward EBITDA ("Forward EBITDA"). The
Comparable Transactions' low, high and median multiples of Forward EBITDA were
6.2x, 14.0x and 9.5x, respectively. Of the Comparable Transactions reviewed,
PaineWebber noted that only two transactions were directly comparable to the
Revised Purchase Transaction. Based on this analysis, PaineWebber applied a
multiple of Forward EBITDA range of 6.2x to 9.5x to the 1998E EBITDA of SNG
and the Netlink Businesses. For SNG, an aggregate equity valuation (for 100%
of the equity) of $358.4 million to $549.1 million was derived, while for the
Netlink Businesses, an aggregate equity valuation of $86.2 million to $132.1
million was derived. PaineWebber also analyzed the publicly available
financial information for Primestar's proposed acquisition of SNG. This
analysis resulted in an aggregate equity valuation (for 100% of the equity) of
SNG of $480.0 million or 8.3x 1998E EBITDA and also resulted in an aggregate
equity valuation of the Netlink Businesses of $115.4 million or 8.3x 1998E
EBITDA. The derived aggregate equity valuation range based on the Comparable
Transactions, when adjusted to reflect the acquisition of a 39.8% interest in
SNG and a 100% interest in the Netlink Businesses, equates to an implied
valuation range of $228.8 million to $350.6 million. Likewise, the derived
aggregate equity valuation range based on the Primestar Transaction, when
adjusted to reflect the acquisition of a 39.8% interest in SNG and a 100%
interest in the Netlink Businesses, equates to an implied valuation of $306.4
million. The value of the Revised Consideration to be paid was $229.5 million,
based on the February 17, 1998 (the date the Netlink Acquisition was
announced) pre-announcement Class A common stock price of $18.00 per share as
used in PaineWebber's analysis.
Discounted Cash Flow Analysis. PaineWebber analyzed each of SNG and the
Netlink Businesses based on a discounted cash flow analysis of the projected
financial performance of SNG and the Netlink Businesses, respectively.
PaineWebber analyzed SNG based on a discounted cash flow analysis of the
projected financial performance of SNG for fiscal years 1998 to 2002. Such
projected financial performance was based upon the historical financial
results of SNG and the Projections provided by the Company's management.
PaineWebber used a range of discount rates from 11.5% to 13.0% in conducting
its discounted cash flow analysis. These discount rates were
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determined through the use of the capital asset pricing model and, in
conducting its analysis, PaineWebber reviewed with the Company's management
SNG's projected financial performance and the risks associated with SNG's
business to derive what it believes are appropriate discount rates. This
analysis resulted in an aggregate equity valuation range (for 100% of the
equity) of approximately $377.0 million to $480.7 million. PaineWebber also
analyzed the Netlink Businesses based on a discounted cash flow analysis of
the projected financial performance of the Netlink Businesses for fiscal years
1998 to 2002. Such projected financial performance was based upon the
historical financial results of the Netlink Businesses and the Projections
provided by the management of the Company and Liberty. PaineWebber used a
range of discount rates from 12.75% to 14.25% in conducting its discounted
cash flow analysis. These discount rates were determined through the use of
the capital asset pricing model and in conducting its analysis, PaineWebber
reviewed with the management of the Company and Liberty the Netlink
Businesses' projected financial performance and the risks associated with the
Netlink Businesses to derive what it believes are appropriate discount rates.
This analysis resulted in an aggregate equity valuation range of approximately
$63.9 million to $77.8 million. These derived aggregate equity valuations,
when adjusted to reflect the acquisition of a 39.8% interest in SNG and a 100%
interest in the Netlink Businesses, equate to an implied valuation range of
$213.9 million to $269.1 million. The value of the Revised Consideration to be
paid was $229.5 million, based on the February 17, 1998 (the date the Netlink
Acquisition was announced) pre-announcement Class A common stock price of
$18.00 per share as used in PaineWebber's analysis.
The following paragraphs summarize the significant analyses with respect to
the Company performed by PaineWebber in arriving at the PaineWebber Opinion.
All share and per share amounts, including per share values, included or
reflected in PaineWebber's analysis described herein have been adjusted to
reflect the two-for-one split of the Company's common stock effected on August
20, 1998.
Historical Stock Performance. PaineWebber reviewed the history of the
trading prices and volume for the shares of the Company's Class A common
stock. This stock performance review indicated that for the latest twelve
months ended May 12, 1998, the low, high, 30-day average, 90-day average and
180-day average trading prices per share were $7.94, $22.065, $21.125, $18.595
and $16.145, respectively. PaineWebber also noted that the closing price of
the Company's Class A common stock as of May 12, 1998 was $20.015 and the pre-
announcement, closing stock price on February 17, 1998 was $18.00 per share.
Selected Comparable Public Company Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial
and operating and stock market performance data of the Comparable Companies to
the corresponding data of the Company. PaineWebber noted that there are no
directly comparable companies to the Company. PaineWebber reviewed, among
other information, the Comparable Companies' multiples of total enterprise
value to (i) LTM net revenue, (ii) LTM EBITDA, and (iii) 1998E EBITDA. The
Comparable Companies' (i) LTM net revenue multiples ranged from 2.3x to 7.1x;
(ii) LTM EBITDA multiples ranged from 8.1x to 17.0x; and (iii) 1998E EBITDA
multiples ranged from 6.3x to 14.2x. For the Company, PaineWebber computed the
multiples of total enterprise value to (i) LTM net revenue, (ii) LTM EBITDA,
and (iii) 1998E EBITDA to be 2.8x, 13.8x and 11.5x, respectively. This
analysis resulted in a valuation range of $17.775 to $19.46 per share.
Discounted Cash Flow Analysis. PaineWebber analyzed the Company based on a
discounted cash flow analysis of the projected financial performance of the
Company for fiscal years 1998 to 2002. Such projected financial performance
was based upon the historical financial results of the Company and the
Projections provided by the Company's management. PaineWebber used a range of
discount rates from 11.5% to 13.0% in conducting its discounted cash flow
analysis. These discount rates were determined through the use of the capital
asset pricing model and in conducting its analysis, PaineWebber reviewed with
the Company's management the Company's projected financial performance and the
risks associated with the Company's business to derive what it believes are
appropriate discount rates. This analysis resulted in a valuation range of
$19.075 to $23.265 per share.
Pro Forma Purchase Analysis. PaineWebber performed an analysis of the
potential pro forma effect of the Revised Purchase Transaction on the
Company's earnings per share ("EPS") for the fiscal year ending December 31,
1997. PaineWebber combined the operating results of the Company (provided by
the Company's
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management) with the corresponding operating results of the Subject Companies
(provided by the Company's and Liberty's management) to arrive at the
Company's pro forma net income. PaineWebber divided the Company's pro forma
net income by the pro forma shares outstanding to arrive at the Company's pro
forma EPS. PaineWebber then compared the Company's pro forma EPS to the
Company's stand-alone EPS (provided by the Company's management) to determine
the pro forma impact on the Company's EPS. This analysis suggested that the
Revised Purchase Transaction would have resulted in accretion to the Company's
EPS for the fiscal year ending December 31, 1997. PaineWebber noted that this
analysis did not include any adjustments for the Company's recently closed
transaction with Turner Vision.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of such analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the
PaineWebber Opinion. In its analyses, PaineWebber made, with the Company's
consent, 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 contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and none of the Company, Liberty or
PaineWebber assumes responsibility for the accuracy of such analyses and
estimates.
The Netlink Special Committee selected PaineWebber to be its financial
advisor in connection with the Revised Purchase Transaction because
PaineWebber is a prominent investment banking and financial advisory firm with
experience in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for corporate
purposes.
Pursuant to an engagement letter between the Company and PaineWebber dated
March 2, 1998 and as amended on May 11, 1998, PaineWebber was paid a fee of
$650,000 upon rendering of the PaineWebber Opinion. In addition, PaineWebber
will be reimbursed for certain of its related expenses. PaineWebber will not
be entitled to any additional fees or compensation in the event the Netlink
Acquisition Agreement or the Revised Purchase Transaction is approved or
otherwise consummated. The Company also agreed, under separate agreement, to
indemnify PaineWebber, its affiliates and each of its directors, officers,
agents and employees and each person, if any, controlling PaineWebber or any
of its affiliates against certain liabilities, including liabilities under
federal securities laws.
In the ordinary course of its business, PaineWebber may trade the securities
of the Company and its affiliates for its own account and for the accounts of
customers and, accordingly, may at any time hold long or short positions in
such securities.
Regulatory Approvals
The Company is not aware of any federal or state approvals that must be
obtained in order to consummate the Netlink Acquisition other than approvals
obtained prior to the date hereof.
Tax and Accounting Treatment
The Netlink Acquisition has been structured so that it will qualify as a
tax-free reorganization under Sections 351 and 368(a) of the Code. Although
the parties believe that the Netlink Acquisition will qualify as a tax-free
reorganization, no tax opinion will be received with respect to the Netlink
Acquisition. The Netlink Acquisition will be accounted for as a combination of
entities under common control in a manner similar to a pooling of interests.
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Vote Required
Under the Nasdaq Stock Market Rules, approval of the Company's stockholders
is required for any transaction or series of transactions in which a
substantial stockholder of the Company has a 5% or greater interest, directly
or indirectly, in the assets to be acquired or the consideration to be paid in
a transaction or series of transactions in which 5% or more of the voting
stock of the Company is to be issued. Accordingly, to be adopted, the Netlink
Acquisition Proposal must be approved by a majority of votes cast at the
Special Meeting, assuming a quorum is present. TCI and its subsidiaries own
approximately 74% of the outstanding shares of the Company's common stock
representing approximately 94% of the total voting power of the Company's
common stock as of the date hereof. TCI has indicated that it intends, and
intends to cause its subsidiaries holding shares of the Company's common
stock, to vote in favor of the Netlink Acquisition Proposal, thus assuring its
approval at the Special Meeting.
Other Material Arrangements Between the Company and TCI
TCI /UVSG Merger. During 1994 and 1995, representatives of the Company and
TCI met on several occasions to discuss various transactions, including joint
ventures in the electronic television programming guide business and the DTH
satellite business. During the course of such discussions, a business
combination transaction between the Company and TCI was proposed. In July
1995, UVSG and TCI entered into an Agreement and Plan of Merger providing for
a merger of the Company with a subsidiary of TCI. The merger was approved by
the requisite vote of stockholders of the Company at a special meeting held on
January 25, 1996 and was completed on the same day. As a result of the merger,
TCI became the beneficial owner of approximately 40% of the Company's
outstanding shares of common stock, representing approximately 86% of the
total voting power of the then outstanding common stock.
Formation of SNG. In early February 1996, Messrs. Bennett and Boylan met to
discuss a possible joint venture combining Superstar's and Netlink USA's
retail DTH satellite businesses. These discussions were consistent in nature
with those that occurred during 1994 and 1995. During a meeting of the
Company's Board on February 8, 1996, Mr. Boylan apprised the Board of his
discussions with Mr. Bennett. At that meeting, the Board considered certain
procedural matters should discussions between the Company and Liberty
continue.
In early March 1996, Mr. Boylan sent Mr. Bennett a term sheet outlining a
transaction whereby the Company and Netlink USA would each contribute their
retail DTH satellite business assets, obligations and operations, effective
April 1, 1996, to a new entity that would be jointly owned by the Company and
Liberty. Subsequently, Mr. Bennett contacted Mr. Boylan to discuss revisions
to the term sheet satisfactory to both parties.
Mr. Boylan, Roy L. Bliss, then the Company's President and Chief Operating
Officer, and Mr. Flinn, then the Company's Chairman and Chief Executive
Officer, met with Mr. Bennett on March 5, 1996 to discuss several of the open
issues relating to the proposed transaction. Discussions between Mr. Boylan
and Mr. Bennett continued intermittently over the next few days with respect
to various provisions of the term sheet. Participating in certain of the
discussions were counsel for the Company and Liberty and independent auditors
for the Company and Liberty.
On March 8, 1996, the Board appointed a special committee, consisting of Mr.
Wargo, Paul A. Gould, a former director of the Company, and Messrs. Bliss,
Boylan and Flinn, to review and approve the terms and conditions of the term
sheet. On that same date, that special committee met telephonically to review
the term sheet and formally approved the term sheet and authorized the Company
to proceed with the transaction.
On March 11, 1996, UVSG and Liberty executed a binding letter agreement
setting forth the principal terms of the formation of SNG. Discussions between
Mr. Boylan and Mr. Bennett continued intermittently over the next several
months as to the appropriate provisions to be included in the definitive
agreements. On August 9, 1996, the letter agreement was amended and restated
to include the necessary elements of the basis upon which Superstar's and
Netlink USA's retail C-band home satellite dish businesses were combined into
SNG, effective as of April 1, 1996. In December 1997, the letter agreement was
amended once again to reflect the acquisition of
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an approximate 20% interest in SNG by Turner Vision. Since that time, no
further action has been taken to complete further documentation governing SNG.
The Flinn Transaction. During and prior to December 1997, TCI had
discussions with Messrs. Howard and Boylan concerning the basis upon which Mr.
Flinn might be willing to sell to TCI the remaining shares of common stock
held by him. Mr. Howard communicated a proposal to Mr. Flinn in mid December
that Mr. Flinn found acceptable. On January 8, 1998, Mr. Flinn entered into a
Stock Purchase Agreement with TCI and on January 12, 1998 sold 24,746,588
shares of Class A common stock, which were all the shares of common stock then
owned by him, to a subsidiary of TCI in exchange for 7,336,745 shares of TCI's
Series A Liberty Media Group common stock and 12,688,812 shares of TCI's
Series A TCI Ventures Group common stock (which share numbers are adjusted to
reflect stock dividends effected by TCI in February 1998). As a result of that
transaction, TCI's beneficial ownership of the Company's common stock
increased to approximately 73%, representing approximately 93% of the total
voting power of the Company's common stock.
DESCRIPTION OF THE NETLINK ACQUISITION AGREEMENT
AND RELATED AGREEMENTS
The Netlink Acquisition Agreement
The following summary of the Netlink Acquisition Agreement is qualified in
its entirety by the full text of the Netlink Acquisition Agreement attached as
Appendix I to this Proxy Statement.
General. The Netlink Acquisition Agreement provides for the acquisition by
the Company of all of the outstanding capital stock of the Netlink
Corporations. The Netlink Corporations own all of the interests in Netlink
USA. Netlink USA, in turn, (i) owns the SNG Interest consisting of 40% of SNG,
(ii) markets and distributes the Denver 6 Service, (iii) holds the WGN
Interests and (iv) markets and distributes the SMATV Service.
Closing. The Netlink Acquisition will be consummated and the Netlink Closing
will occur as promptly as practicable after the issuance of the Netlink Equity
is approved at the Special Meeting and all other conditions to the parties'
respective obligations to consummate the Netlink Acquisition have been
satisfied or waived, or at such later time as the parties agree.
Notwithstanding the foregoing, unless the TV Guide Acquisition Agreement has
been terminated and the transactions contemplated thereby abandoned, the
Netlink Closing will occur on the same day as the closing under the TV Guide
Acquisition Agreement, provided that the other conditions to the Netlink
Closing are satisfied or waived.
Consideration. The aggregate number of shares of the Class B common stock
constituting the Netlink Equity is fixed pursuant to the Netlink Acquisition
Agreement at 12,750,000 shares. When issued in accordance with the Netlink
Acquisition Agreement, but before giving effect to the TV Guide Acquisition,
the Netlink Equity will represent approximately 15% of the outstanding common
stock of the Company and 30% of the total voting power of the common stock.
After giving effect to the Netlink Acquisition, but without giving effect to
the TV Guide Acquisition, TCI will own 29,037,520 shares of Class A common
stock and 37,496,588 shares of Class B common stock which would represent
approximately 78% of the outstanding shares of common stock and approximately
96% of the voting power of the common stock. After giving effect to the TV
Guide Acquisition, assuming the Netlink Acquisition is completed and assuming
no adjustments, the shares of common stock owned by TCI will represent
approximately 46% of the outstanding shares of common stock and approximately
49% of the total voting power of the common stock.
Conditions to Completion of the Netlink Acquisition. The Company and Liberty
are not obligated to consummate the transactions contemplated by the Netlink
Acquisition Agreement unless the Company's stockholders approve the Netlink
Acquisition Proposal and there is no judicial, regulatory or other legal
prohibition preventing the completion of the Netlink Acquisition in effect.
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The obligation of the Company to consummate the transactions contemplated by
the Netlink Acquisition Agreement is subject to, among other things: (1)
Liberty's performance in all material respects of all its covenants under the
Netlink Acquisition Agreement; (2) the accuracy in all material respects of
Liberty's representations and warranties in the Netlink Acquisition Agreement
when made; (3) receipt of consents or approvals of certain persons whose
consents or approvals are required in connection with the Netlink Acquisition;
(4) the receipt of officers' certificates and other instruments and documents;
and (5) the resignation, effective as of the Netlink Closing, of the then
incumbent directors of the Netlink Corporations. The Company may, at its
option, waive any of such conditions.
The obligation of Liberty to consummate the transactions contemplated by the
Netlink Acquisition Agreement is subject to, among other things: (1) the
Company's performance in all material respects of all its covenants under the
Netlink Acquisition Agreement; (2) the accuracy in all material respects of
the Company's representations and warranties in the Netlink Acquisition
Agreement when made and as of the date of the Netlink Closing as though such
representations and warranties were made as of such date; (3) receipt of
consents or approvals of certain persons whose consents or approvals are
required in connection with the Netlink Acquisition; (4) the receipt by
Liberty of officers' certificates and other instruments and documents; and (5)
no event having occurred that has had or is reasonably likely to have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
other then events affecting the cable or satellite television industries
generally or affecting general business or economic conditions. Liberty may,
at its option, waive any of such conditions.
Representations and Warranties. The Netlink Acquisition Agreement contains
various representations and warranties customary for transactions similar to
the Netlink Acquisition. The Netlink Acquisition Agreement contains
representations and warranties of Liberty as to, among other things: (1) the
corporate organization, capitalization and authority of Liberty and the
Netlink Corporations; (2) the absence of conflicts between the terms of the
Netlink Acquisition and either the charter documents of Liberty and the
Netlink Corporations or certain laws, regulations or agreements to which
Liberty or the Netlink Corporations are subject; (3) the financial information
concerning the Netlink Corporations provided to the Company; (4) certain
liabilities, litigations, contracts, customers, suppliers and other aspects of
the Netlink Corporations; (5) compliance with certain regulatory requirements;
(6) certain matters relating to the tax attributes of the Netlink
Corporations; (7) the programming supply and affiliation agreements between
Telluride and SSI relating to the basis upon which SSI would continue to
provide programming for the SMATV Service and the basis upon which SSI may
purchase the Denver 6 Service following the completion of the Netlink
Acquisition; and (8) the terms of certain employee benefit plans. The Netlink
Acquisition Agreement contains certain representations and warranties of the
Company as to, among other things: (a) the corporate organization,
capitalization and authority of the Company; (b) the absence of conflicts
between the terms of the Netlink Acquisition Agreement and either the charter
documents of the Company or certain laws, regulations or agreements to which
the Company is subject; (c) the Company's publicly-filed documents and
financial statements; (d) certain liabilities, litigations, and other aspects
of the Company; (e) the Company's management of SNG; (f) compliance with
certain regulatory requirements; and (g) certain matters relating to the tax-
free nature of the Netlink Acquisition and the tax attributes of the Company.
Covenants. Until the Netlink Closing, Liberty and the Company have agreed,
among other things, that, commencing April 1, 1998, the Company will be
entitled to all benefits of the operation of the Netlink Corporations and
that, commencing on May 18, 1998, Liberty will cause the management and
employees of the Netlink Corporations to operate at the direction of the
Company. Subject to the direction by the Company, pending completion of the
Netlink Acquisition, Liberty has agreed to cause each of the Netlink
Corporations (i) to operate its business in the ordinary course, consistent
with past practice, except that the Netlink Corporations will not make any
cash dividends or distributions other than certain tax-related distributions;
(ii) to use commercially reasonable efforts in the ordinary course consistent
with past practice to preserve intact their present business organization and
relationships with suppliers, customers and others having business dealings
with them; (iii) to notify the Company of the occurrence of any event that is
not in the ordinary course of business or is reasonably likely to have a
material adverse effect on the business, assets or liabilities of Netlink USA
(other than Netlink USA's interest in SNG and any assets and liabilities of
Netlink USA that relate solely
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to SNG or such interest in SNG); (iv) to use commercially reasonable efforts
to pursue the request by a Canadian cable television system that the remaining
channels comprising the Denver 6 Service be added by the Canadian regulatory
authorities to the list of satellite services eligible to be received by small
to medium-sized cable television systems in Canada; and (v) if requested by
the Company, to use commercially reasonable efforts to obtain a two-year
extension of the term of the satellite transponder leases under the GE
Americom Agreement to December 31, 2000.
Until the Closing, Liberty also has agreed not to permit any of the Netlink
Corporations, among other things: (a) to amend its articles of incorporation
or bylaws; (b) to adopt, accelerate, amend or change any employee or director
stock option plan or options or rights thereunder that is applicable to the
Netlink Corporations; (c) to enter into or amend any employment agreements or
grant any special remuneration to any employee or director, or grant any
increase in the salaries, wages, bonuses or other benefits payable to its
employees, other than in the ordinary course of business or which do not
materially increase the compensation expense of the Netlink Corporations; (d)
to commence lawsuits other than certain routine collection suits; (e) to
acquire or agree to merge with any entity; (f) to make any capital
expenditures in excess of the Netlink Corporations' capital budget; (g) to
sell, lease or otherwise transfer or dispose of assets of substantial value;
(h) to modify or change in any material respect any material contract other
than in the ordinary course; (i) to revalue or write down any assets except as
required by generally accepted accounting principles; (j) to pay or release
any claims other than in the ordinary course; (k) to issue capital stock; (l)
to incur any indebtedness other than in the ordinary course; (m) to declare or
pay a dividend or other distribution to Liberty, or to redeem or otherwise
acquire any of its capital stock; provided that, immediately prior to the date
of the Netlink Closing, the Netlink Corporations shall pay Liberty an amount
equal to the estimated amount of taxes accrued on the earnings of the Netlink
Corporations from April 1, 1998 through the date of the Netlink Closing; or
(n) to engage in any transaction with any director or officer of the Netlink
Corporations not required by the terms of an existing contract, except in each
case as permitted by the Netlink Acquisition Agreement.
Liberty has also agreed to provide the Company with access to certain
information, including the books and records of the Netlink Corporations,
which the Company has agreed to keep confidential. The Company has agreed not
to take any action which would cause the Netlink Acquisition not to qualify as
a tax-free transaction.
Employment Matters. Liberty has assumed certain obligations for severance
benefits and for stay pay bonuses payable to those persons who were employees
of the Netlink Corporations prior to September 30, 1998. All liability for
performance bonuses accrued under Netlink USA's 1998 bonus award plan from
January 1, 1998 through the date of the Netlink Closing will be the liability
of the Netlink Corporations. If the Netlink Closing occurs prior to January
31, 1999, immediately prior to the Netlink Closing, the then remaining
employees of the Netlink Corporations will become employees of Liberty. If the
Netlink Closing occurs prior to January 31, 1999, then following the Closing
and through January 31, 1999, Liberty will provide to the Company, at the
Company's request and at the Company's cost, the services of such employees
who had been providing services exclusively to the Netlink Corporations and
who continue to be employed by Liberty.
No Solicitation. The Netlink Acquisition Agreement also provides that
Liberty will not directly or indirectly solicit, initiate or encourage
inquiries or submission of proposals or offers from any person relating to any
sale of an equity interest in, or any of the assets (other than insubstantial
assets) of any of the Netlink Corporations or participate in any negotiation,
furnish information or otherwise cooperate in any attempt to do any of the
foregoing.
Indemnification. Under the Netlink Acquisition Agreement, Liberty has agreed
to indemnify the Company with respect to certain liabilities and losses
arising out of breaches of covenants and representations and warranties made
by Liberty in the Netlink Acquisition Agreement and certain matters related to
the operations of the SMATV Service and the Denver 6 Service prior to April 1,
1998. Liberty also agreed to assume certain
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surviving indemnification obligations of Netlink USA pursuant to the letter
agreement providing for the formation of SNG. Under the Netlink Acquisition
Agreement, the Company has agreed to indemnify Liberty with respect to certain
liabilities and losses arising out of, among other things, breaches of
covenants, representations and warranties made by the Company in the Netlink
Acquisition Agreement; any obligation or liability of the Netlink Corporations
other than those Liberty has expressly agreed to pay or perform or that arise
out of a breach of a representation or warranty made by Liberty.
The Netlink Acquisition Agreement also provides for Liberty to be
responsible for all income taxes of the Netlink Corporations for taxable
periods ending on or prior to the date of the Netlink Closing (subject to the
following sentences with respect to the period from April 1, 1998 through the
date of the Netlink Closing) and for the Company to be responsible for all
income taxes of the Netlink Corporations for taxable periods ending after the
date of the Netlink Closing. Prior to the Netlink Closing, the Netlink
Corporations will pay Liberty an amount in cash equal to the estimated amount
of taxes accrued on the earnings of the Netlink Corporations during the period
beginning on April 1, 1998 through and including the date of the Netlink
Closing. In the event that the actual liability for taxes attributable to the
Netlink Corporations with respect to such periods exceeds the amount of the
estimated tax payment, the Company will indemnify and hold Liberty harmless
against such difference. Sales, use, transfer and similar taxes arising out of
the Netlink Acquisition will be shared equally by the Company and Liberty.
Termination; Amendment. The Netlink Acquisition Agreement may be terminated
and the Netlink Acquisition abandoned at any time prior to the Netlink
Closing, whether before or after approval by the stockholders of the Company:
(1) by mutual consent of the Company and Liberty; (2) at any time prior to the
Netlink Closing, by Liberty, if the Company breaches in any material respect
any of its representations, warranties or covenants and such breach continues
for a period of 30 days after notice of the breach is given to the Company;
(3) at any time after January 31, 1999, by Liberty, if without any fault by
it, the Netlink Closing shall not have occurred on or before such date; and
(4) at any time prior to the Netlink Closing by the Company, if Liberty shall
have breached in any material respect any of its covenants or if Liberty was
in breach in any material respect of any of its representations and warranties
when made and, in either case, such breach continues for a period of 30 days
after notice of the breach is given to Liberty (except that any such breach of
a representation or warranty by Liberty shall be deemed cured if as of the end
of such 30-day period such representation or warranty would be true if then
made).
In the event of termination of the Netlink Acquisition Agreement before the
Netlink Closing, the Netlink Equity will not be issued and the Netlink
Acquisition Agreement will become void and there will be no liability or
obligation on the part of the Company or Liberty or their respective officers,
directors, stockholders or affiliates, except to the extent that termination
results from the breach by a party to the Netlink Acquisition Agreement of any
of its representations, warranties or covenants and except that certain
specified provisions of the Netlink Acquisition Agreement will survive such
termination.
The Netlink Acquisition Agreement may be amended by a written instrument
signed by both the Company and Liberty; provided that, following the approval
of the Netlink Acquisition Proposal by the Company's stockholders, no such
amendment required by law to be approved by the Company's stockholders may be
made unless the Company first obtains such approval.
Other Agreements
Programming and Affiliation Agreements. In connection with the negotiation
of the Netlink Acquisition Agreement, Telluride entered into programming and
affiliation agreements with SSI which provide, among other things, for SSI to
continue providing programming for the term of the applicable agreement for
Telluride to sell in connection with the SMATV Service to the extent permitted
by SSI's agreements with suppliers of programming services and pursuant to
which SSI may purchase the Denver 6 Service from Telluride for redistribution
within the service area of certain of TCI's cable systems. Telluride has
assigned its rights and obligations under these agreements to Netlink USA with
the consent of SSI.
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PROPOSAL 2--THE TV GUIDE ACQUISITION PROPOSAL
Description of the TV Guide Acquisition
The TV Guide Acquisition Agreement provides that Holdings will sell to the
Company all of the issued and outstanding stock of the NAI Contributed
Entities in exchange for the TV Guide Equity, consisting of 22,503,412 shares
of the Company's Class A common stock and 37,496,588 shares of the Company's
Class B common stock, in each case subject to adjustments in certain
circumstances, and the TV Guide Cash Consideration consisting of $800 million
in cash. The aggregate value of the TV Guide Equity based on a price of $30.50
per share (the closing price of the Company's Class A common stock on the
National Market Tier of The Nasdaq Stock Market on January 15, 1999) was
approximately $1.8 billion.
The TV Guide Businesses
TV Guide
Publications publishes TV Guide, the largest selling weekly magazine in the
United States, with a weekly paid circulation of approximately 12 million. TV
Guide provides both comprehensive television listings, including guides
related to cable and satellite programming, and feature articles written by
the TV Guide editorial staff relating to programming, entertainers and the
entertainment industry. Publications publishes 184 separate editions of TV
Guide each week, including geographic and cable specific editions.
Publications is also a distributor of magazines for newsstand sales on behalf
of third-party publishers. Publications had revenues of $616.8 million in
fiscal year 1998.
Circulation. TV Guide's circulation is derived from four primary sources:
new subscriptions (through insert cards in TV Guide, direct mail and direct
mail agents), subscription renewals, cable television and satellite customer
subscriptions and newsstand sales. TV Guide attracts new subscribers to its
cable specific editions through the continued customization of the magazine
for regional cable systems and through customer marketing programs in
conjunction with the country's largest cable system operators. Approximately
77% of TV Guide's weekly circulation represents subscriptions while the
remaining 23% represents newsstand sales.
Advertising. In the fiscal year ended June 30, 1998, TV Guide carried 2,976
total advertising pages. The national feature section carried approximately
31% of such pages. Network and cable tune-in advertising comprised 39% of
total advertising pages and local and insert advertising represented
approximately 30% of such pages. TV Guide sells advertising principally
through an internal advertising sales force. Advertisers may purchase pages on
either a national or regional basis (i.e. in some but not all of TV Guide's
184 editions) in accordance with their needs.
Production and Fulfillment. All editions of TV Guide are printed by
independent commercial printers. TV Guide is printed at six primary printing
facilities located throughout the United States. Publications believes that
there is an adequate supply of alternative printing services available to
publish TV Guide at competitive prices should the need arise.
The principal raw materials used in the publication of TV Guide are coated
and uncoated paper. Paper prices are affected by a variety of factors,
including demand, capacity, pulp supply and general economic conditions. News
Corp., the parent of Publications, negotiated paper contracts on behalf of
Publications, together with all its other worldwide publishing businesses.
News Corp. has agreed that following the TV Guide Closing, the Company will
have the right to continue to use News Corp's bulk paper procurement services
with respect to the NAI Contributed Entities and their respective businesses,
consistent with past practice. See "Description of the TV Guide Acquisition
Agreement and Related Agreements--Other Agreements--Continuing Services."
Murdoch Magazines Distribution, Inc., a wholly-owned subsidiary of
Publications, provides newsstand distribution for TV Guide as well as for
third-party magazine publishers.
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New Business Developments. Publications also produces special interest
publications sold on a stand-alone basis, under the TV Guide name. During
fiscal year 1999, Publications plans to publish at least four special interest
magazines to highlight successful movies, sports playoffs, television award
ceremonies and celebrity tributes. In addition, the first annual TV Guide
Awards show is expected to be broadcast live on the Fox Television network in
February 1999.
Competition and Business Risks. TV Guide has four primary sources of
competition: television listings included in local newspapers; niche cable-
guide publications; general entertainment magazines and other magazines and
television programming focused on television stars and programs; and
electronic programming guides. While TV Guide continues to enjoy widespread
circulation, competition from all of these services, in particular, the
electronic programming guides, has increased over the past several years and
is expected to continue to increase.
TV Guide's business may also be affected by a number of external factors. In
particular, unexpected increases in the cost of paper or postal rates could
adversely affect TV Guide's profitability. Similarly, changes in advertising
trends, which tend to be highly sensitive to economic conditions, are also
sources of potential business volatility.
TVSM, Inc.
In June 1998, NAI acquired for $75 million in cash all of the outstanding
capital stock of TVSM through a merger of TVSM with a wholly-owned subsidiary
of NAI. TVSM is the largest publisher of comprehensive cable-based television
listings guides in the United States. TVSM produces customized, system-
specific guides covering basic and premium cable channels for cable system
operators.
TVSM primarily publishes two types of cable system-specific guides. TVSM's
weekly publication has been converted into a large-size TV Guide magazine,
which has more than 50 different cable system-specific editions and over
800,000 subscribers. The Cable Guide, TVSM's monthly publication, has
approximately 3.7 million subscribers. In addition, TVSM's custom publishing
unit produces a monthly pay-per-view guide for more than 200 cable systems in
the United States. Revenues for TVSM for the year ended December 31, 1997 were
$70.5 million.
TVGEN Business
TVGEN is a business division of News America Digital Publishing, Inc., which
is a subsidiary of NAI. TVGEN operates an entertainment website which can be
found on the World Wide Web at www.tvgen.com. TVGEN includes an online TV
listings service, movie database, soap opera news and updates, general
entertainment news and gossip, photos, games, chat rooms and bulletin boards.
In addition, TVGEN publishes TV Guide content on its website. TVGEN has over
30,000,000 page views per month.
Transfer of Certain Businesses to Holdings
Prior to the TV Guide Closing, News America Digital Publishing, Inc. will
transfer the assets relating to TVGEN to Publications and NAI will sell all of
the outstanding capital stock of the NAI Contributed Entities to Holdings.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Combined
Financial Statements of News America Publications Inc., and related notes
thereto, and "Selected Combined Financial Data of News America Publications
Inc." set forth elsewhere in this Proxy Statement. The Combined Financial
Statements of Publications combine the consolidated financial statements of
Publications, TVSM (since its acquisition on June 26, 1998) and the TVGEN
division of News America Digital Publishing, Inc. (since its formation on July
1, 1996), which are subject to common control.
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Use of Earnings Before Interest, Taxes, Depreciation and Amortization
The following discussion of the results of operations and financial position
of Publications includes, among other factors, an analysis of changes in
EBITDA to eliminate the effect of significant amounts of amortization of
intangible assets recognized in the acquisition of Triangle Publications by
News Corp. in 1988 (see Note 1 to the Combined Financial Statements of News
America Publications Inc.). EBITDA represents operating income before
depreciation and amortization. Publications believes EBITDA is a standard
measure commonly reported and widely used by analysts, investors and others
associated with the media and entertainment industry. However, EBITDA does not
take into account substantial costs of doing business, such as income taxes
and interest expense. While many in the financial community consider EBITDA to
be an important measure of comparative operating performance, it should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow and other measures of financial performance prepared in
accordance with GAAP which are presented in the financial statements included
in this Proxy Statement. Additionally, Publications' calculation of EBITDA may
be different than the calculation used by other companies and therefore,
comparability may be affected.
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
In the fiscal quarter ended September 30, 1998, Publications had combined
revenues of $165.0 million compared to combined revenues of $158.6 million in
the fiscal quarter ended September 30, 1997, representing a net increase of
approximately 4.0%. The increase was principally due to the inclusion of
TVSM's revenues in the current quarter (approximately $13.3 million) which
were not included in the quarter ended September 30, 1997. The increase in
revenues attributable to TVSM was partially offset by a continued decline in
revenues for TV Guide which was primarily attributable to the continued
effects of increased competition from television listings included in local
newspapers, electronic program guides and other sources. Advertising revenues
increased slightly in the current quarter compared to the quarter ended
September 30, 1997, principally due to the inclusion of advertising revenues
from TVSM. Advertising revenues for TV Guide were comparable quarter to
quarter. Operating expenses increased approximately 12.1% to $119.7 million
from $106.8 million for the comparable period in fiscal 1998. The increase in
operating expenses was principally related to higher promotion expenses and
other operating expenses caused by a shift in product mix. Selling, general
and administrative expenses increased by 5.3% from $14.4 million to $15.2
million due primarily to the inclusion of the results of TVSM in the quarter
ended September 30, 1998.
For the reasons described above, EBITDA decreased $7.3 million, or 19.5%, to
$30.1 million for the quarter from $37.4 million in the comparable quarter in
the prior fiscal year, and combined operating income before amortization of
intangible assets decreased $7.6 million, or approximately 21.2%, to $28.3
million for the quarter from $35.9 million in the comparable quarter of the
prior fiscal year. Publications had an intercompany interest charge of $70.3
million for the quarter, compared to $61.3 million in the comparable quarter
of the prior fiscal year, an increase of $8.9 million, or approximately 14.5%.
For the foregoing reasons, Publications experienced a net loss of $59.1
million for the quarter, compared to a net loss of $42.1 million in the
comparable quarter of the prior fiscal year.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
In the fiscal year ended June 30, 1998, Publications had combined revenues
of $616.8 million compared to combined revenues of $650.2 million in the
fiscal year ended June 30, 1997, representing a decrease of approximately
5.1%. The decrease was principally due to a decline in TV Guide's circulation,
which was primarily attributable to the effects of increased competition from
television listings included in local newspapers, electronic program guides
and other sources. Advertising revenues were comparable to the prior year.
Operating expenses increased approximately 0.5% to $410.7 million in fiscal
1998 from $408.9 million in
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fiscal 1997. The increase in operating expenses was principally related to
higher production and distribution expenses caused by a shift in product mix.
Selling, general and administrative expenses decreased by 2.9% from $56.3
million to $54.7 million due primarily to lower compensation and other
administrative expenses.
For the reasons described above, EBITDA decreased $33.6 million or 18.2% to
$151.4 million in fiscal 1998 from $185.0 million in fiscal 1997 and combined
operating income before amortization of intangible assets decreased $32.7
million, or approximately 18.4%, to $145.1 million in fiscal 1998 from $177.8
million in fiscal 1997. Publications had an intercompany interest charge of
$250.9 million in fiscal 1998, compared to $234.6 million in fiscal 1997, an
increase of $16.3 million, or approximately 6.9%.
For the foregoing reasons, Publications experienced a net loss of $172.4
million in fiscal 1998, compared to a net loss of $123.4 million in fiscal
1997.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Publications had combined revenues of $650.2 million in fiscal 1997 compared
to combined revenues of $636.8 million in the fiscal year ended June 30, 1996,
representing an increase of approximately 2.1%. The increase was due to
improved advertising revenue, offset by a slight decrease in circulation
revenue. Operating expenses increased approximately 1.4% to $408.8 million in
fiscal 1997 from $403.1 million in fiscal 1996. The increase in operating
expenses was principally related to the variable costs associated with the
increased revenues. Selling, general and administrative expenses increased by
13.4% from $49.6 million to $56.3 million, principally due to the inclusion of
the operating results of TVGEN which began operations on July 1, 1996.
For the reasons described above, EBITDA increased slightly to $185.0 million
in fiscal 1997 from $184.1 million in fiscal 1996, and combined operating
income before amortization of intangible assets increased slightly to $177.8
million in fiscal 1997 from $177.6 million in fiscal 1996. Publications had an
intercompany interest charge of $234.6 million in fiscal 1997, compared to
$233.0 million in fiscal 1996.
For the foregoing reasons, Publications experienced a net loss of $123.4
million in fiscal 1997, compared to a net loss of $122.0 million in fiscal
1996.
Liquidity and Capital Resources
During the quarter ended September 30, 1998, Publications used approximately
$6.7 million of cash in its operations compared to cash provided by operations
of $3.1 million in the comparable period in the prior fiscal year. Operating
cash flows in each period were principally due to Publications' EBITDA for the
period, net of seasonal working capital requirements. Cash used in investing
activities was $1.3 million in the quarter compared to $0.8 million in the
comparable period in the prior fiscal year. The increase in cash used in
investing activities related to expenditures incurred in connection with the
acquisition of TVSM, partially offset by lower capital expenditures. Net cash
provided by financing activities was $8.3 million in the quarter compared to
net cash used in financing activities of $2.3 million in the comparable period
in the prior fiscal year. The change in cash related to financing activities
was due to increased borrowings from affiliates principally to fund
operations.
During fiscal 1998 and fiscal 1997, Publications' cash provided by
operations amounted to $121.4 million and $179.2 million, respectively.
Operating cash flows in each period were principally due to Publications'
EBITDA for the period.
Cash used in investing activities was $2.6 million in fiscal 1998 compared
to $4.4 million in fiscal 1997. The decrease in cash used in investing
activities related to reduced capital expenditures in fiscal 1998.
Net cash used in financing activities was $118.8 million in fiscal 1998
compared to $174.8 million in fiscal 1997. The decrease in cash used in
financing activities was due to lower repayments of intercompany indebtedness
in 1998.
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Publications relies on its parent corporation, News Corp., to provide
financing for its operations. At September 30, 1998 and June 30, 1998,
Publications' intercompany indebtedness to News Corp. and its affiliates was
approximately $2.7 billion. In connection with the TV Guide Acquisition (see
Note 1 of the Combined Financial Statements of Publications), the intercompany
indebtedness will be satisfied by way of an indirect capital contribution from
News Corp. or a subsidiary of News Corp. The increase in intercompany
indebtedness during fiscal 1998 of approximately $132 million was principally
related to noncash interest charges ($250.9 million), offset by debt
repayments of $118.8 million. Publications' operating cash flow of $121.4
million was the principal source of cash during fiscal 1998.
Publications is a guarantor in connection with several of News Corp.'s and
its subsidiaries' financing arrangements. In connection with the consummation
of the TV Guide Acquisition, Publications will be released from its contingent
obligations related to these financing arrangements.
Inflation and Volatility of Paper Prices and Postal Rates
Publications continually reviews the impact and the volatility of paper
prices and postal rates. Postal rates will increase by approximately 3.5%,
effective January, 1999. Paper prices rose significantly in 1995, dropped in
1996, and increased moderately in 1997 and 1998. Publications monitors the
impact of changes in these costs and will consider such changes in managing
its business.
Year 2000
Publications is undertaking an enterprisewide project to assess and address
the potential impact of the Year 2000 on the processing of date-sensitive
information by Publications' computerized information systems. The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year. Certain programs may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures.
Publications' capital spending plan provides for technology investments in
the periods prior to December 31, 1999, for systems which would be operational
after December 31, 1999. As a result of its assessment and capital planning,
no acceleration of material planned system replacements were made due to Year
2000 issues.
The objective of Publications' Year 2000 efforts is to determine and assess
the risks of the Year 2000 issue and to plan and institute mitigating actions
to reduce those risks to acceptable levels. Publications' standard for
compliance requires that a computer system or business process be designed to
be used prior to, on and after January 1, 2000. Such systems or processes must
be able to operate without error in dates and date related data, including
without limitation, calculating, comparing, indexing and sequencing prior to,
on and after January 1, 2000.
Publications' Year 2000 project team is focusing on the following major
areas:
Core Computer Systems. Information technology systems account for much of
the Year 2000 work and include all computer systems and technology managed by
Publications. Publications' core computer systems relate to editorial,
fulfillment and production functions. All core systems have been assessed,
plans are in place and work is being undertaken to test and implement changes
where required.
Equipment and Facilities. An inventory of all critical office equipment and
infrastructure has been completed and Publications has developed plans to
assess any Year 2000 issues related to critical items.
Customers and Vendors. Publications is developing a plan to contact its
major customers and vendors. To date, no significant customers or vendors have
informed Publications that a material Year 2000 issue exists which could have
a material effect on Publications. There can be no assurance that the systems
of other companies on which Publications' business relies will be timely
converted or that failure to convert by another company, or a conversion that
is incompatible with Publications' systems, would not have a material adverse
effect on Publications and its operations.
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During the remainder of calendar 1998 and in calendar 1999, Publications
will continually review its progress against its Year 2000 plans and conclude
on the appropriate and feasible contingency plans to reduce its exposure to
Year 2000 related issues. Based on information developed to date, costs of
addressing potential problems are not currently expected to have a material
adverse impact on Publications' financial position, results of operations or
cash flows in future periods. However, if Publications, its customers or
vendors are unable to resolve any material Year 2000 issues in a timely
manner, such inability could result in a material financial risk.
History and Background of the TV Guide Acquisition
During 1992, subsidiaries of News Corp., TCI and another corporation formed
a joint venture to develop and exploit electronic programming guide
technologies. The joint venture was terminated by the joint venture partners
in the last half of 1996. The Company, News Corp. and TCI held discussions
during early 1996 to consider forming a strategic joint venture that would
combine and further develop their respective operations with respect to
electronic programming guides, but they were unable to reach agreement and
discussions were terminated in August 1996.
In May 1998, News Corp.'s executive management considered approaching TCI
regarding a possible business combination involving the TV Guide Businesses
and the Company to create a multi-platform, global TV program guide business.
On May 27 and 28, 1998, representatives of News Corp. contacted Mr. Leo
Hindery, President and Chief Operating Officer of TCI, to inquire about TCI's
interest in such a business combination.
On May 29, 1998, certain members of News Corp.'s executive management,
including Mr. Chase Carey, Co-Chief Operating Officer, Mr. David DeVoe, Senior
Executive Vice President and Chief Financial Officer and Mr. Lawrence Jacobs,
Senior Vice President-Deputy General Counsel, met in Denver, Colorado with
Messrs Boylan, Hindery, and Bennett to discuss the strategic direction of the
business of the Company and TV Guide and to further explore the possibility of
a business combination. The discussions continued through June 2, 1998, at
which time the respective representatives decided to proceed with the
negotiation of a binding letter agreement. On that date, the parties agreed
that the consideration would consist of $800,000,000 in cash and 60,000,000
shares of the Company's common stock. It was also agreed that TCI and News
Corp. should have equal equity as well as equal voting and governance rights
in the Company through the ownership of the same number of shares of Class A
common stock and Class B common stock of the Company.
The Company engaged Merrill Lynch on May 29, 1998 to act as a financial
advisor to the Board of Directors and the Company in connection with the TV
Guide Acquisition.
From June 2, 1998 through June 7, 1998, each of the Company and News Corp.
(and their respective counsel) made due diligence inquiries of the other's
personnel concerning their respective businesses. During the same time,
management and advisors of the Company, TCI and News Corp. negotiated the
terms of the TV Guide Letter Agreement.
On June 8, 1998, the Board of Directors of the Company met and reviewed the
proposed transaction and was presented with the Merrill Lynch Opinion stating
that, as of the date thereof and subject to the factors and assumptions set
forth therein, the TV Guide Consideration to be paid by the Company in the TV
Guide Acquisition was fair, from a financial point of view, to the Company. At
that meeting, the Board of Directors authorized the Company's management to
proceed with the TV Guide Acquisition Proposal.
The TV Guide Letter Agreement, a binding letter agreement which included the
significant terms of the business combination agreed to by the representatives
of the Company, TCI and News Corp., was executed on June 10, 1998.
On January 20, 1999, the Company, NAI and Holdings executed the TV Guide
Acquisition Agreement and News Corp., TCI and the Company executed the Parent
Agreement, each of which is effective as of June 10, 1998.
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The last reported sale price for the Company's Class A common stock on the
National Market tier of The Nasdaq Stock Market on June 2, 1998 (the date the
consideration to be paid by the Company in connection with the TV Guide
Acquisition was decided), June 8, 1998 (the date the Board authorized the
Company's management to proceed with the TV Guide Acquisition) and June 10,
1998 (the date the parties executed a binding letter agreement) was $18.9063,
$19.0625 and $18.50, respectively.
Reasons for the TV Guide Acquisition; Recommendation of the Board
The Board has considered the terms and structure of the TV Guide
Acquisition, has reviewed with its financial and legal advisors the financial
and legal aspects of the TV Guide Acquisition and has considered with the
Company's senior management the financial and operational considerations
relating to the TV Guide Acquisition. The Board believes that the TV Guide
Acquisition provides an opportunity to fulfill the Company's objective of
developing the full potential of the Company's global program listing guide
businesses. The Board believes that the terms of the TV Guide Acquisition are
fair to, and in the best interests of, the Company and the Company's
stockholders. Based on these considerations, the Board unanimously approved
the TV Guide Acquisition and unanimously recommends that the stockholders vote
FOR the TV Guide Acquisition Proposal.
In reaching these conclusions and recommendations, the Board considered,
among other things, the following factors, none of which were quantified or
assigned relative weight as compared to any other factor:
(i) industry and market conditions, including the developing interactive
program listing guide business;
(ii) the opportunity for UVSG to combine with a strategic partner with
similar business plans which will allow the Company to have product offerings
across multiple global platforms;
(iii) the terms of the TV Guide Acquisition, including the consideration to
be paid by the Company in the TV Guide Acquisition;
(iv) the opportunity to increase the Company's earnings while strengthening
its balance sheet and increasing its capacity to generate capital for future
growth;
(v) the opportunity to gain economies of scale by combining certain
functions of the Company's Prevue Channel division, which distributes on-
screen cable television programming guides, with TV Guide's print and Internet
television programming guides, which are substantially the same line of
business;
(vi) the benefits of the well-known and highly-regarded TV Guide brand name;
(vii) access to News Corp.'s global DTH platforms; and
(viii) the fairness of the consideration to be paid by the Company in the TV
Guide Acquisition, based in part on Merrill Lynch's written opinion, described
below.
The Board also considered Publications' declining EBITDA and circulation,
the negative perception in the equity markets of TV Guide's growth prospects,
and competitive factors, including competition from free Sunday newspaper
supplements. The Board concluded that these negative factors should be
overcome by the positive factors described above, including particularly the
opportunities for cross-selling and cross-promotion of product offerings
across multiple platforms, the ability to drive magazine distribution into the
cable and satellite industries, the benefit of News Corp.'s and TCI's
commitment to the Company and the marketing advantages for new products of a
well-known and highly-regarded brand name. The fact that TCI and News Corp.
would share control of the Company following the TV Guide Acquisition was
considered and discussed but was not a material factor in the Board's
determination to pursue the transaction.
The foregoing discussion of the information and factors considered by the
Board with respect to the TV Guide Acquisition is not intended to be
exhaustive, but it does include the factors that the Board considered material
to its decision to approve the TV Guide Acquisition. In view of the factors
considered in connection with its evaluation, the Board did not find it
practicable to and did not quantify or attempt to assign relative weights to
the specific factors considered in reaching its decision. In addition,
individual members of the Board may have given different weight to different
factors.
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Opinion of Merrill Lynch
The Company retained Merrill Lynch to act as its exclusive financial advisor
in connection with the TV Guide Acquisition. Merrill Lynch rendered to the
Board its written opinion (the "Merrill Lynch Opinion") dated June 8, 1998
that, as of such date and based upon and subject to the factors and
assumptions set forth therein, the TV Guide Consideration to be paid by the
Company in the TV Guide Acquisition was fair, from a financial point of view,
to the Company.
The full text of the Merrill Lynch Opinion, which sets forth the assumptions
made, matters considered, and qualifications and limitations on the review
undertaken by Merrill Lynch, is attached as Appendix IV to this Proxy
Statement and is incorporated herein by reference. The summary of the Merrill
Lynch Opinion set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of such opinion. Stockholders of the Company are
urged to read such opinion in its entirety. The Merrill Lynch Opinion was
provided to the Board for its information and is directed only to the fairness
from a financial point of view of the TV Guide Consideration to the Company,
and does not address the merits of the underlying decision by the Company to
engage in the TV Guide Acquisition and does not constitute a recommendation to
any stockholder of the Company as to how such stockholder should vote on the
TV Guide Acquisition Proposal or any matter related thereto. Merrill Lynch has
consented to the description and publication of the Merrill Lynch Opinion in
this Proxy Statement and in Appendix IV hereto.
The TV Guide Consideration was determined through negotiations between News
Corp. and the Company and was approved by the Board. Merrill Lynch provided
advice to the Company during the course of such negotiations.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Board. 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 partial analysis or summary description. In arriving at
its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly,
Merrill Lynch believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses,
would create an incomplete view of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, News Corp., the TV Guide Businesses or the Company. Any estimates
contained in the analyses performed by Merrill Lynch are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Additionally, estimates of
the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which such businesses or securities might actually be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. In addition, as described above, the Merrill Lynch
Opinion was among several factors taken into consideration by the Board in
making its determination to approve the TV Guide Letter Agreement and the TV
Guide Acquisition. Consequently, the Merrill Lynch analyses described below
should not be viewed as determinative of the decision of the Board with
respect to the fairness of the TV Guide Consideration.
Merrill Lynch expressed no opinion as to the prices at which common stock or
any other securities of the Company would trade following the announcement or
consummation of the TV Guide Acquisition, or as to the allocation of the TV
Guide Consideration or any components thereof among any of the components of
the TV Guide Acquisition.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information relating to the
Company which Merrill Lynch deemed to be relevant, (ii) reviewed certain
information, including financial forecasts, relating to the business,
earnings, cash flow, assets, liabilities
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and prospects of the Company and the TV Guide Businesses, as well as the
amount and timing of the cost savings, related expenses and synergies and
other benefits expected to result from the TV Guide Acquisition (the "Expected
Synergies"), furnished to Merrill Lynch by the Company and News Corp., (iii)
conducted discussions with members of senior management and representatives of
the Company and News Corp. concerning the matters described in clauses (i) and
(ii) above as well as the respective businesses and prospects of the Company
and the TV Guide Businesses before and after giving effect to the TV Guide
Acquisition and the Expected Synergies, (iv) reviewed the market prices and
valuation multiples for common stock and compared them with those of certain
publicly traded companies which Merrill Lynch deemed to be relevant, (v)
reviewed the results of operations of the Company and the TV Guide Businesses
and compared them with those of certain publicly traded companies which
Merrill Lynch deemed to be relevant, (vi) compared the proposed financial
terms of the TV Guide Acquisition with the financial terms of certain other
transactions which Merrill Lynch deemed to be relevant, (vii) participated in
certain discussions and negotiations among representatives of the Company and
News Corp., and their financial and legal advisers, (viii) reviewed the
potential pro forma impact of the TV Guide Acquisition, (ix) reviewed the TV
Guide Letter Agreement and (x) reviewed such other financial studies and
analyses and took into account such other matters as Merrill Lynch deemed
necessary, including Merrill Lynch's assessment of general economic, market
and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for
independently verifying such information and has not undertaken an independent
evaluation or appraisal of any of the assets or liabilities of the Company or
the TV Guide Businesses or been furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct
any physical inspection of the properties or facilities of the Company or the
TV Guide Businesses. With respect to the financial forecast information and
the Expected Synergies furnished to or discussed with Merrill Lynch by the
Company or News Corp., Merrill Lynch assumed that they were reasonably
prepared and reflected the best currently available estimates and judgment of
the Company's or News Corp.'s management as to the expected future financial
performance of the Company or the TV Guide Businesses, as the case may be, and
the Expected Synergies. In presenting its analyses, Merrill Lynch noted that
the financial forecast information for the Company provided by the Company's
management and employed in Merrill Lynch's analyses was pro forma to reflect
consummation of all transactions consummated or announced prior to June 8,
1998, including the Netlink Acquisition and the related Primestar Transaction.
Following the termination of the Primestar Transaction, Merrill Lynch
discussed the effects of such termination with the Company's management and,
based on such discussions, concluded that no change in the Merrill Lynch
Opinion was necessary as a result of such termination. Merrill Lynch further
assumed that the terms and conditions of any definitive agreements entered
into pursuant to the TV Guide Letter Agreement would not differ from the terms
and conditions specified in the TV Guide Letter Agreement in any respect
material to Merrill Lynch's analysis. The Merrill Lynch Opinion is necessarily
based upon market, economic and other conditions as they existed on, and could
be evaluated as of, the date of such opinion. Merrill Lynch assumed that in
the course of obtaining the necessary regulatory or other consents or
approvals (contractual or otherwise) for the TV Guide Acquisition, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the TV Guide Acquisition.
The TV Guide Acquisition provides for aggregate TV Guide Consideration to be
paid to Holdings of (i) $800 million in cash and (ii) 60 million shares of
common stock, expected to consist of 22,503,412 shares of Class A common stock
and 37,496,588 shares of Class B common stock. Based on the closing price of
the Class A common stock on June 5, 1998 (the last trading day prior to
preparation of materials for Merrill Lynch's presentation to the Board), of
$18.32, and applying such closing price to all the common stock to be
delivered in the TV Guide Acquisition, the TV Guide Consideration resulted in
an implied aggregate value of approximately $1.9 billion (the "TV Guide
Consideration Implied Value"). All share and per share amounts, including per
share values, included or reflected in Merrill Lynch's analysis described
herein have been adjusted to reflect the two-for-one split of the Company's
common stock effected on August 20, 1998.
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The following is a brief summary of the material analyses presented by
Merrill Lynch to the Board in connection with the rendering of the Merrill
Lynch Opinion. No company or transaction used as a comparison in the analyses
summarized below is identical to the TV Guide Businesses, the Company or any
of its business segments, or the TV Guide Acquisition. Accordingly, an
analysis of the results of any such comparison is not purely mathematical;
rather it necessarily involves complex considerations and judgments concerning
differences in historical and projected financial, trading and operating
characteristics of the companies and segments involved and other factors that
could affect the public trading value of such companies and segments, the
circumstances surrounding such transactions and other factors that could
affect the values of such companies and segments.
The TV Guide Businesses Comparable Public Companies Valuation
Analysis. Merrill Lynch concluded that there were no publicly traded companies
that were directly comparable to the TV Guide Businesses. Accordingly, as a
proxy for publicly traded companies comparable to the TV Guide Businesses,
Merrill Lynch analyzed the trading multiples of a group of public publishing
companies consisting of The Reader's Digest Association, Inc., The Petersen
Companies, Inc., Meredith Corporation, PRIMEDIA Inc., The McGraw-Hill
Companies, Inc., Ziff-Davis Inc. and CMP Media Inc. (the "Publishing Group").
Merrill Lynch calculated that the Publishing Group's market capitalization as
a multiple of estimated 1998 calendar year EBITDA (earnings before interest,
taxes, depreciation and amortization) ranged from 7.5x to 15.9x, with a median
of 12.6x. Based on the above analysis and estimates of 1998 calendar year
stand-alone EBITDA for the TV Guide Businesses provided by the managements of
News Corp. and the Company, Merrill Lynch derived a summary reference range of
multiples of calendar year 1998 EBITDA for the TV Guide Businesses of 9.0x to
10.5x, resulting in a summary reference range of implied values (excluding the
effects of the Expected Synergies) of $1.5 billion to $1.8 billion as compared
to the TV Guide Consideration Implied Value of $1.9 billion.
The TV Guide Businesses Comparable Transaction Valuation Analysis. Merrill
Lynch reviewed certain publicly available information regarding 12 selected
publishing sector related acquisitions, focusing on acquisitions of mature,
branded publishers (the "Comparable Transactions"), and calculated the
transaction values as multiples of calendar year 1998 revenue and EBITDA. For
the Comparable Transactions, the range of transaction value as a multiple of
the current year's revenues was 1.4x to 3.9x, and the range of transaction
value as a multiple of current year EBITDA was 8.9x to 16.4x. Based on the
above analysis, Merrill Lynch derived a summary reference range for the TV
Guide Businesses of implied value as a multiple of estimated calendar year
1998 revenues of 2.5x to 3.2x, and as a multiple of estimated calendar year
1998 EBITDA of 10.0x to 12.5x. Based on these summary reference ranges and
estimates of 1998 calendar year stand-alone revenue and EBITDA for the TV
Guide Businesses provided by managements of News Corp. and the Company
(without giving effect to the Expected Synergies), Merrill Lynch derived a
summary reference range of implied values of $1.7 billion to $2.1 billion as
compared to the TV Guide Consideration Implied Value of $1.9 billion.
The TV Guide Businesses Discounted Cash Flow Analysis. Merrill Lynch
performed discounted cash flow analyses of the TV Guide Businesses using
projections prepared by the managements of News Corp. and the Company, both
including and excluding the effect of the Expected Synergies. Merrill Lynch
calculated the theoretical unlevered discounted present value for the TV Guide
Businesses by adding together the present value of (i) the projected stream of
unlevered free cash flow through the year ended June 30, 2003 for the TV Guide
Businesses and (ii) the projected value of the TV Guide Businesses for the
year ended June 30, 2003. The terminal value was calculated based upon EBITDA
multiples ranging from 9.0x to 11.0x, and the unlevered after tax discount
rate used in the analysis ranged from 10.0% to 12.0%. Based on its analysis,
Merrill Lynch derived a summary reference range of implied value of the TV
Guide Businesses of $1.5 billion to $1.9 billion excluding the effect of the
Expected Synergies, and $2.0 billion to $2.5 billion including the effect of
the Expected Synergies, in each case, as compared to the TV Guide
Consideration Implied Value of $1.9 billion.
The Company Comparable Public Companies Valuation Analysis. Merrill Lynch
concluded that there were no publicly traded companies that were directly
comparable to the Company. Accordingly, as a proxy for publicly traded
companies comparable to the Company, Merrill Lynch analyzed the trading
multiples of a group
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of public programming and diversified media companies consisting of USA
Networks, Inc., The Walt Disney Company, Time Warner Inc., TCI's Liberty Media
Group, Viacom Inc., The E.W. Scripps Company and News Corp. (the "Diversified
Media Group"). Merrill Lynch calculated that the Diversified Media Group's
market capitalization as a multiple of estimated 1998 calendar year EBITDA
ranged from 8.4x to 14.1x. Merrill Lynch derived a summary reference range of
implied value as a multiple of calendar year 1998 EBITDA for the Company of
11.0x to 14.0x, which, based on the estimates of the Company's management of
1998 EBITDA, resulted in a summary reference range of implied fully diluted
equity value per share of common stock of $16.80 to $19.85, as compared to the
$18.32 closing price of the Class A common stock on June 5, 1998 used to
determine the TV Guide Consideration Implied Value of $1.9 billion.
The Company Segment Valuation Analysis. Merrill Lynch analyzed the implied
value of the Company indicated by the implicit value of its individual
segments, as reduced by general corporate overhead. Segments values were
generally derived by applying a range of multiples to the portion of estimated
calendar year 1998 EBITDA estimated by the Company's management to be
attributable to such segment, or in certain cases were instead based on
valuations by the Company's management. Based on its analysis, Merrill Lynch
derived a total enterprise value range of $0.98 billion to $1.2 billion,
resulting in a summary reference range of implied fully diluted equity value
per share of common stock of $16.50 to $19.45, as compared to the $18.32
closing price of the Class A common stock on June 5, 1998 used to determine
the TV Guide Consideration Implied Value of $1.9 billion.
The Company Discounted Cash Flow Analysis. Merrill Lynch performed a
discounted cash flow analysis of the Company using projections prepared by
management of the Company. Merrill Lynch calculated the theoretical unlevered
discounted present value for the Company by adding together the present value
of (i) the projected stream of unlevered free cash flow through the year ended
December 31, 2002 for the Company and (ii) the projected value of the Company
for the year ended December 31, 2002. The terminal value was calculated based
upon EBITDA multiples ranging from 11.0x to 14.0x, and the unlevered after tax
discount rate used in the analysis ranged from 10.0% to 12.0%. Based on its
analysis, Merrill Lynch derived a summary reference range of implied fully
diluted equity value per share of common stock of $16.90 to $20.575, as
compared to the $18.32 closing price of the Class A common stock on June 5,
1998 used to determine the TV Guide Consideration Implied Value of $1.9
billion.
Analysis of Business Combination
Pro Forma Combination Analysis. Based on 1999 estimates and 1999-2002
projections of earnings and Expected Synergies provided by the Company's and
News Corp.'s managements, Merrill Lynch analyzed certain pro forma effects of
the TV Guide Acquisition. Merrill Lynch calculated that the TV Guide
Acquisition would result in significant per share accretion in after-tax cash
flow for the stockholders of the Company in calendar years 1998 through 2002,
and that the TV Guide Acquisition would result in earnings per share ("EPS")
dilution of 19.1% for the stockholders of the Company in calendar year 1998,
marginal EPS dilution in 1999 and EPS accretion in calendar years 2000 through
2002.
Illustrative Calculations of Equity Values. Merrill Lynch calculated
illustrative estimated equity values for the combined entity. Merrill Lynch
noted that the Publishing Group's market capitalization as a multiple of
estimated 1999 calendar year EBITDA ranged from 7.0x to 11.9x, with multiples
for two companies below 10.0x and multiples for the remaining five companies
above 10.0x, and also noted that the Diversified Media Group's market
capitalization as a multiple of estimated 1999 calendar year EBITDA ranged
from 7.6x to 12.9x, with multiples for two companies below 10.0x and multiples
for the remaining companies above 10.0x. Based on estimates of pro forma 1999
combined EBITDA (including the effects of the Expected Synergies) provided by
the managements of the Company and News Corp., and assuming solely for
illustrative purposes multiples of 10.0x and 12.0x, Merrill Lynch calculated
illustrative estimated total enterprise values for the combined entity.
Merrill Lynch then added the amount of the Primestar stock which would have
been received in the Primestar Transaction and subtracted the amount of pro
forma net debt estimated by the Company's management to derive illustrative
estimated total equity trading values of $2.9 billion and $3.54 billion,
respectively, and divided by
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the number of pro forma fully diluted shares outstanding of common stock to
derive illustrative fully diluted per share equity values of common stock of
$19.45 and $23.68, respectively, as compared to the $18.32 closing price of
the Class A common stock on June 5, 1998 used to determine the TV Guide
Consideration Implied Value of $1.9 billion. However, it should be noted that
these calculations assumed the consummation of the Primestar Transaction,
which was contemplated at the time the Merrill Lynch Opinion was rendered but
which has since been terminated.
Pro Forma Discounted Cash Flow Analysis. Merrill Lynch performed a pro
forma discounted cash flow analysis of the combined entity using projections
(including the effects of the Expected Synergies) prepared by the managements
of the Company and News Corp. Merrill Lynch calculated the theoretical
unlevered discounted present value for the combined entity by adding together
the present value of (i) the projected stream of unlevered free cash flow
through the year ended December 31, 2002 for the combined entity and (ii) the
projected value of the combined entity as of December 31, 2002. The terminal
value was calculated based upon EBITDA multiples ranging from 11.0x to 13.0x,
and the unlevered after tax discount rate used in the analysis ranged from
10.0% to 12.0%. Based on its analysis, Merrill Lynch derived a summary
reference range of implied enterprise value of the combined entity of $3.4 to
$4.2 billion, and an implied equity value range of $2.9 billion to $3.5
billion. Merrill Lynch noted that the equity value range implied by this
analysis indicated a premium over the illustrative valuation of the combined
entity summarized above ranging from 6.6% to 10.1%. Merrill Lynch further
noted that the equity value range implied by this analysis indicated a premium
over the stand-alone discounted cash flow valuation of the Company summarized
above ranging from 22.7% to 26.7%.
Pursuant to a letter agreement between the Company and Merrill Lynch, the
Company paid Merrill Lynch a fee of $1,000,000 upon the execution of the TV
Guide Letter Agreement and has agreed to pay Merrill Lynch an additional fee
of $1,000,000 upon the consummation of the TV Guide Acquisition or certain
other business combinations involving the Company and the TV Guide Businesses.
Pursuant to such letter agreement, the Company also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including reasonable
fees and disbursements of its legal counsel. Additionally, the Company agreed
to indemnify Merrill Lynch and certain related persons for certain liabilities
related to or arising out of its engagement, including liabilities under the
federal securities laws.
The Company retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business,
is continuously engaged in the valuation of businesses and 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.
Merrill Lynch acted as financial advisor to Primestar in connection with the
now abandoned acquisition of SNG from the Company and the other owners thereof
in the Primestar Transaction and is providing, and has in the past provided
and may in the future provide, financial advisory and financing services to
the Company, News Corp. and/or their affiliates and may receive fees for the
rendering of such services. In the ordinary course of its business, Merrill
Lynch and its affiliates may actively trade securities of News Corp. and its
affiliates, as well as common stock and other securities of the Company and
its affiliates, for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Credit Facility
In connection with the Acquisitions, UVSG has negotiated a commitment letter
for $1 billion in senior secured credit facilities comprised of a $300 million
reducing revolving credit facility and a $700 million term loan, each maturing
six years from the closing of the credit facilities (which is expected to
occur as soon as possible upon the completion of a successful syndication).
The proceeds of the revolving facility may be used for general corporate
purposes, including payment of transaction fees and expenses, working capital,
capital expenditures and other permitted investments and acquisitions
(including the Acquisitions). The proceeds of the term loan may be used to
finance, in part, the TV Guide Acquisition, including part of the TV Guide
Cash
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Consideration, but excluding transaction fees and expenses. The credit
facilities will bear interest, at the option of UVSG, at a rate per annum
equal to either (a) LIBOR for interest periods of 1, 2, 3 or 6 months plus an
applicable margin based on UVSG's then-existing leverage ratio or (b) the
prime rate (or the federal funds effective rate plus 0.5%, if greater) plus
the applicable margin. Borrowings on the revolving facility will be available
on a revolving basis commencing on the closing date of the credit facilities
through the final maturity date of the revolving facility, subject to any
mandatory commitment reductions and applicable conditions of borrowing.
Borrowings on the term loan will be available in one drawing on the closing
date of the credit facilities. The credit facilities will be secured by a
negative pledge on assets and a pledge of stock of all of UVSG's subsidiaries
except SSDS, with the stock pledge to be released upon the satisfaction of
certain financial conditions. In addition, the obligations of UVSG under the
credit facilities will be guaranteed by each of UVSG's present and future
subsidiaries except SSDS.
The final documentation of the credit facilities is expected to contain: (1)
usual and customary representations and warranties for credit facilities of
like size, type and purpose, including with respect to organization and
authority, compliance with laws, accuracy of financial statements, absence of
material adverse change in the business conditions, operations, properties or
prospects, solvency, absence of material litigation, environmental hazards,
and Year 2000 compliance; (2) usual and customary affirmative covenants
applicable to both UVSG and its subsidiary/guarantors including with respect
to delivery of financial information, maintenance of corporate existence,
patents, trademarks, copyrights, licenses and permits, compliance with laws,
maintenance of applicable insurance, and payment of taxes; (3) usual and
customary restrictive covenants including with respect to limitations on
investments and acquisitions, indebtedness (including guaranties and
contingent obligations), liens, mergers and consolidations, asset sales,
distributions and dividends, transactions with affiliates, and lines of
business; and (4) usual and customary financial covenants including with
respect to the following ratios: (i) total debt to EBITDA for the immediately
preceding four quarters, (ii) trailing four quarters EBITDA to interest
expense, and (iii) trailing four quarters EBITDA to fixed charges. The
availability of funds under the credit facilities is subject to the
negotiation of definitive documents. There can be no assurance that definitive
documents for the credit facilities can be completed in a timely fashion on
terms satisfactory to the Company.
Regulatory Approvals
The TV Guide Acquisition is subject to the notification and waiting period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. The parties filed the required notifications and the waiting period
has expired.
The Company and News Corp., through one of its subsidiaries, have submitted
a Voluntary Joint Notice to the Committee on Foreign Investment in the United
States ("CFIUS"), which is chaired by the Secretary of the Treasury, with
respect to the TV Guide Acquisition pursuant to the Exon-Florio Amendment to
the Defense Production Act of 1950, as amended (the "Exon-Florio Amendment").
The Exon-Florio Amendment provides that foreign acquisitions, mergers and
takeovers of U.S. businesses that would impair the national security may be
suspended, prohibited or dissolved. Notification of the TV Guide Acquisition
under the Exon-Florio Amendment was made since SSDS, a subsidiary of the
Company, has both classified and unclassified contracts with the United States
government. After the TV Guide Acquisition is completed, News Corp. indirectly
will own approximately 48% of the voting power of the common stock of the
Company and, pursuant to the terms of the Stockholders Agreement, will have
the right to elect certain directors of the Company. On November 2, 1998, the
Company and News Corp. received a letter from the Department of the Treasury
indicating that the TV Guide Acquisition does not raise issues of national
security sufficient to warrant an investigation by CFIUS.
Since SpaceCom Systems, Inc. and Prevue Networks, Inc., subsidiaries of the
Company, hold licenses from the FCC for transmit/receive satellite earth
stations, prior FCC approval of the TV Guide Acquisition is required under the
Communications Act and FCC rules. Approval of the TV Guide Acquisition has
been received from the FCC.
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The Company is not aware of any other federal or state approvals or filings
that must be obtained or made in order to consummate the TV Guide Acquisition.
Tax and Accounting Treatment
The TV Guide Acquisition has been structured to qualify as a tax-free
contribution under Section 351 of the Code to the extent of the common stock
issued. Although the Company believes that the TV Guide Acquisition will so
qualify, no tax opinion will be received with respect to the TV Guide
Acquisition. The TV Guide Acquisition will be accounted for by the purchase
method of accounting by the Company.
Vote Required
Under the Nasdaq Stock Market Rules, approval of the Company's stockholders
is required for any transaction or series of transactions in which 20% or more
of the voting stock of the Company is to be issued. To be adopted, the TV
Guide Acquisition Proposal must be approved by a majority of the votes cast at
the Special Meeting, assuming a quorum is present. TCI, through its
subsidiaries, owns approximately 74% of the outstanding shares of the
Company's common stock representing approximately 94% of the total voting
power of the Company's common stock as of the date hereof. TCI has agreed,
pursuant to the Parent Agreement, to cause its subsidiaries holding shares of
the Company's common stock to vote in favor of the TV Guide Acquisition
Proposal, thus assuring its approval at the Special Meeting.
DESCRIPTION OF THE TV GUIDE ACQUISITION AGREEMENT
AND RELATED AGREEMENTS
The TV Guide Acquisition Agreement
The following summary of the TV Guide Acquisition Agreement is qualified in
its entirety by the full text of the TV Guide Acquisition Agreement attached
as Appendix II to this Proxy Statement.
General. The TV Guide Acquisition Agreement provides for the acquisition by
the Company of all of the outstanding capital stock of the NAI Contributed
Entities. Together, the NAI Contributed Entities (i) own and publish TV Guide,
(ii) own and publish print cable television programming guides and (iii) own
and operate the TVGEN Internet web site. See "Proposal 2- The TV Guide
Acquisition Proposal--The TV Guide Businesses."
Closing. The TV Guide Acquisition will be consummated and the TV Guide
Closing will occur on the fifth business day after the issuance of the TV
Guide Equity is approved at the Special Meeting and all other conditions to
the TV Guide Closing have been satisfied or waived, or at such later time as
the parties agree.
Consideration. As consideration for the TV Guide Acquisition, at the TV
Guide Closing, the Company will issue 22,503,412 shares of Class A common
stock and 37,496,588 shares of Class B common stock, in each case subject to
adjustment in certain circumstances, and will pay $800 million in cash. After
giving effect to the Netlink Acquisition and the TV Guide Acquisition and
assuming no adjustments, News Corp., through its subsidiaries, will own
22,503,412 shares of Class A common stock and 37,496,588 shares of Class B
common stock which would be approximately 41% of the total number of the
outstanding shares of common stock and approximately 48% of the total voting
power of the common stock. After giving effect to the Netlink Acquisition and
the TV Guide Acquisition and assuming no adjustments, TCI, through its
subsidiaries, will own 29,037,520 shares of Class A common stock and
37,496,588 shares of Class B common stock which would be approximately 46% of
the total number of the outstanding shares of common stock and approximately
49% of the total voting power of the common stock.
Adjustments to TV Guide Equity. If the Netlink Acquisition is not completed
on or before the TV Guide Closing and is abandoned, the TV Guide Equity will
be adjusted by decreasing the number of shares of Class B common stock to be
issued by 12,750,000 shares (the same number of such shares as would have
comprised the
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Netlink Equity) and increasing the number of shares of Class A common stock to
be issued by 12,750,000. After such adjustment, News Corp., through its
subsidiaries, would own 35,253,412 shares of the Class A common stock and
24,746,588 shares of the Class B common stock which would be approximately 45%
of the total number of outstanding shares of common stock and approximately
49% of the total voting power of the common stock. After such adjustment, TCI,
through its subsidiaries, would own 29,037,520 shares of the Class A common
stock and 24,746,588 shares of the Class B common stock which would be
approximately 41% of the total number of shares of the outstanding common
stock and approximately 48% of the total voting power of the common stock.
In addition, pursuant to the Parent Agreement, if, as of the 90th day after
the TV Guide Closing, TCI and News Corp., directly or through their respective
subsidiaries, do not hold an equal number of shares of Class A common stock,
then TCI or News Corp., as applicable, either directly or through their
respective subsidiaries, shall acquire the Equalization Shares either through
open market purchases or from the Company such that the number of shares of
Class A common stock held by each of them is equal. The Company has agreed to
sell the Equalization Shares at $20 per share if such purchase is made prior
to 90 days after the TV Guide Closing or at an average market price if such
purchase is made more than 90 days after the TV Guide Closing.
Conditions to Completion of the TV Guide Acquisition. The obligations of the
Company, Holdings and NAI to complete the TV Guide Acquisition are subject to
the following conditions, among others:
(1) The Company shall have received all necessary approvals of the
stockholders and all other necessary governmental and third party consents
and approvals required in connection with to the completion of the TV Guide
Acquisition shall have been obtained except to the extent that the failure
to obtain any such consent or approval would not have a material adverse
effect on the Company or on the businesses of the NAI Contributed Entities.
(2) There shall be no provision of applicable law or regulation and no
judgment, injunction, order or decree shall have been entered prohibiting
the TV Guide Acquisition or imposing a materially burdensome obligation on
the Company, Holdings, NAI, TCI, News Corp. or their respective
subsidiaries, as the result of the TV Guide Acquisition.
(3) The Netlink Acquisition shall have been completed substantially
contemporaneously with the TV Guide Closing, unless the Netlink Acquisition
has been abandoned. Notwithstanding the foregoing, if, after November 1,
1998, all other conditions to the TV Guide Closing have been met, the TV
Guide Acquisition will close on a business day selected by the parties that
is on or prior to the fifth business day after the date on which the last
of the other conditions has been satisfied.
(4) The respective representations and warranties of the Company, NAI and
Holdings shall have been true and correct on and as of the effective date
of the TV Guide Acquisition Agreement and on and as of the date of the TV
Guide Closing.
(5) The parties to the TV Guide Acquisition Agreement and the Parent
Agreement shall have performed and complied in all material respects with
all agreements and covenants contained in the TV Guide Acquisition
Agreement and the Parent Agreement that are to be performed or complied
with by them prior to or at the TV Guide Closing.
(6) Neither Publications, the NAI Contributed Entities taken as a whole,
nor the Company shall have experienced any material adverse change to their
businesses, assets, properties, operations or condition (financial or
otherwise) since March 31, 1998.
(7) The number of directors of the Company shall have been increased to
ten; three of the current directors shall have resigned so that, effective
immediately following the TV Guide Closing, no more than four designees of
TCI shall remain on the Company's Board and four designees of Holdings
shall have been duly appointed to the Company's Board. The eight directors
designated by TCI and Holdings will approve two independent directors to
fill the remaining seats on the Board. The directors of the NAI Contributed
Entities shall have resigned.
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(8) The Stockholders Agreement shall have been executed and delivered by
the respective parties thereto.
(9) SSI and the Company shall have entered into a mutually satisfactory
affiliation agreement for the carriage of Prevue Interactive by the cable
systems of certain of TCI's controlled affiliates, the terms of which are
reasonably satisfactory to NAI.
(10) Certain other customary conditions relating to the delivery of
certificates, legal opinions and other documents shall have been satisfied.
Representations and Warranties. The TV Guide Acquisition Agreement contains
representations and warranties of NAI and Holdings as to, among other things,
(1) the corporate organization and authority of NAI, Holdings and the NAI
Contributed Entities and the nature and adequacy of the assets of the NAI
Contributed Entities; (2) the capitalization of the NAI Contributed Entities;
(3) the absence of conflicts between the terms of the TV Guide Acquisition
Agreement and either the charter documents of NAI, Holdings and the NAI
Contributed Entities or certain laws, regulations or agreements to which NAI
or the NAI Contributed Entities are subject; (4) the financial information
concerning the NAI Contributed Entities provided to the Company; (5) the
absence of any material default by the NAI Contributed Entities with respect
to certain contractual obligations; (6) the absence of any material adverse
change in the business, assets, results of operations or condition (financial
or otherwise) of the businesses of the NAI Contributed Entities; (7) the
absence of issuances of capital stock and certain other changes in the
business and operations of the NAI Contributed Entities; (8) the absence of
certain liabilities, litigation and restrictions on the business of the NAI
Contributed Entities; (9) compliance with certain legal, regulatory and
licensing requirements; (10) certain matters relating to the tax attributes of
the NAI Contributed Entities; (11) the status of certain employee benefit
plans and obligations of the NAI Contributed Entities; and (12) their belief
that potential "Year 2000" computer failures will not have a material adverse
effect on the businesses of the NAI Contributed Entities.
The TV Guide Acquisition Agreement contains certain representations and
warranties of the Company as to, among other things, (1) the corporate
organization, capitalization and authority of the Company; (2) the absence of
conflicts between the terms of the TV Guide Acquisition Agreement and either
the charter documents of the Company or certain laws, regulations or
agreements to which the Company is subject; (3) the absence of any material
default by the Company with respect to certain contractual obligations; (4)
the absence of any material adverse change in the business, assets, results of
operations or condition (financial or otherwise) of the Company; (5) the
absence of certain liabilities, litigation and restrictions on the business of
the Company; (6) compliance with certain legal, regulatory and licensing
requirements; (7) certain matters relating to the tax attributes of the
Company; and (8) the Company's publicly- filed documents and financial
statements.
Covenants. Pending completion of the TV Guide Acquisition, NAI and Holdings
have agreed to cause each of the NAI Contributed Entities, and the Company has
agreed, to carry on its business in the ordinary course and in accordance with
past custom and practice, except as otherwise expressly contemplated by the TV
Guide Acquisition Agreement.
In addition, the Company, NAI and Holdings have made the following
agreements, among others:
(1) Such parties will use all reasonable efforts to obtain all necessary
consents, approvals and to satisfy all of the conditions to the TV Guide
Closing, except that no party will be required to take any action that is
reasonably likely to be materially burdensome to such party or to
materially adversely affect the economic or business benefits of the TV
Guide Acquisition.
(2) Such parties will take certain actions and refrain from taking other
actions that would affect the anticipated treatment of the TV Guide
Acquisition for federal income tax purposes.
(3) NAI and Holdings will take or cause to be taken all actions necessary
to ensure that as of the TV Guide Closing, (i) the NAI Contributed Entities
(x) will have no indebtedness for borrowed money, no outstanding debt
securities or obligation to issue the same and no liability or obligation
(as guarantor or otherwise) with respect to the indebtedness of others
(with certain limited exceptions), and (y) will have aggregate positive
working capital, calculated as provided in the TV Guide Acquisition
Agreement (before deduction of net deferred subscription income but after
giving effect to the cash distributions described below), of not less than
$48 million, (ii) any net intercompany amount owed by any NAI Contributed
Entity
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will be contributed to its capital or canceled, and (iii) all rights with
respect to certain escrowed funds, will be assigned to the NAI Contributed
Entities.
(4) Pending the TV Guide Closing, the Company will not, and NAI and
Holdings will cause each of the NAI Contributed Entities not to, remove any
of its assets by way of dividend, distribution or otherwise, except for
dispositions of immaterial assets in the ordinary course of business
consistent with past practice in transactions with nonaffiliates and except
that, subject to compliance with other requirements of the TV Guide
Acquisition Agreement, Publications may distribute, prior to or at the TV
Guide Closing, all of its cash (other than cash necessary to cover
outstanding checks). The Company has also agreed that it will not effect
any stock split, stock dividend, combination, recapitalization or
reclassification prior to the TV Guide Closing, other than the two-for-one
split of the common stock effected on August 20, 1998, without the prior
written consent of NAI which will not be unreasonably withheld, and also
will not issue any equity securities prior to the TV Guide Closing that
would cause its equity capitalization to differ in any material respect
from that set forth in the TV Guide Acquisition Agreement.
(5) At the TV Guide Closing or as soon thereafter as may be practicable,
News Corp. will cause certain licenses granting News Corp. and its
affiliates other than the NAI Contributed Entities the right to use the
name TV Guide or associated trademarks to be terminated.
(6) NAI and Holdings will take certain actions with respect to various
retirement and employee benefit plans (i) to provide for the NAI
Contributed Entities to cease to be participating employers in certain of
such plans, (ii) to establish new plans to benefit solely employees of the
NAI Contributed Entities and provide for the segregation and transfer to
the new plan or plans of assets allocable to employees and former employees
of the NAI Contributed Entities under certain existing plans and (iii) to
provide for the vesting of certain employee benefits.
No Solicitation. The TV Guide Acquisition Agreement also provides that NAI
and Holdings will not, and will cause their respective affiliates not to,
negotiate to sell, sell or solicit or entertain any offers to purchase the NAI
Contributed Entities or their respective businesses except pursuant to the TV
Guide Acquisition Agreement.
Indemnification. The Company, on the one hand, and NAI and Holdings, on the
other hand, have each agreed to indemnify the other, subject to certain
limitations, against losses, damages and liabilities arising from any breach
of a representation, warranty or covenant made by such party in or pursuant to
the TV Guide Acquisition Agreement. NAI and Holdings have also agreed, subject
to certain limitations, to indemnify the Company against (1) certain
liabilities of NAI or any of its affiliates to former stockholders or
employees of TVSM arising in connection with the acquisition of TVSM by NAI;
(2) certain liabilities to current and former employees or independent
contractors of NAI or any affiliate of NAI (including the NAI Contributed
Entities); and (3) certain liabilities under applicable environmental and
health laws. The Company has also agreed to indemnify NAI and Holdings against
any claim brought against them relating to any material untrue statement or
omission in this Proxy Statement with respect to the Netlink Acquisition.
Termination. The TV Guide Acquisition Agreement may be terminated and the TV
Guide Acquisition abandoned by either (i) mutual consent of the parties or
(ii) NAI and Holdings or the Company if the TV Guide Acquisition has not been
completed by March 31, 1999, provided that the failure to complete the TV
Guide Acquisition by such date is not the result of any breach of the TV Guide
Acquisition Agreement by the party seeking termination. Neither party has the
right to terminate the TV Guide Acquisition Agreement due to changes in the
price of the Company's Class A common stock.
Change in the Company's Board
Effective as of the TV Guide Closing, the Company's by-laws will be amended
to (i) fix the number of directors at ten, (ii) require that two of the ten
members of the Board be independent directors within the meaning of the Nasdaq
Stock Market Rules, (iii) require that the approval of any action by the Board
will require the affirmative vote of at least seven of the ten directors,
except for the removal of the chief executive officer, president or any vice
president of the Company which will require approval of six of the ten
directors and (iv)
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establish an Executive Committee, to be comprised of four directors designated
by the holders of Class B common stock, which committee shall have such duties
and powers as shall be delegated to it from time to time by the Board of
Directors and shall act by unanimous vote or unanimous written consent. At the
effective time of the TV Guide Closing, three of the current directors shall
resign so that, effective immediately following the TV Guide Closing, no more
than four designees of TCI shall remain on the Board and the Board will
appoint four members designated by Holdings to serve until the next annual
meeting of the Company's stockholders. The eight directors designated by TCI
and Holdings will appoint two additional directors who qualify as independent
directors to fill the remaining seats on the Board.
Other Agreements
Stockholders Agreement. At the TV Guide Closing, the Company, TCI, TCI Sub,
Liberty, News Corp., and Holdings will enter into the TV Guide Stockholders
Agreement, which will provide, among other things, that, subject to certain
limited exceptions, the Company will be the exclusive vehicle through which
TCI and News Corp. will directly or indirectly conduct programming guide
businesses (print, electronic or otherwise) worldwide for so long as such
party and its controlled affiliates continue to be entitled to appoint at
least one director of the Company. Pursuant to the TV Guide Stockholders
Agreement, for so long as TCI and its controlled affiliates or News Corp. and
its controlled affiliates, as the case may be, are entitled to designate at
least one director to the Company's Board, the other party and its controlled
affiliates shall be subject to certain restrictions on its ability to sell any
of its shares of common stock to an unaffiliated third party or to convert any
of its shares of Class B common stock to Class A common stock unless it first
offers such common stock for sale to the first party. If the non-transferring
party elects not to purchase such common stock, the transferring party will
convert any Class B common stock to be sold into Class A common stock unless
such Class B common stock is to be sold to a third party that has offered to
purchase at least 12.5% of the aggregate number of shares of Class B common
stock outstanding. Pursuant to the TV Guide Stockholders Agreements so long as
there continues to be at least two stockholders or groups of related
stockholders that each own in the aggregate 30% or more of the outstanding
Class B common stock, such stockholders or the members of each such
stockholder group will vote their shares of common stock on all matters
submitted to a vote of the Company's stockholders only as shall be mutually
agreed upon by such stockholders or stockholder groups and, if they are unable
to agree on how to vote with respect to any such proposal, they will each be
obligated to vote against such proposal. Under the TV Guide Stockholders
Agreement, TCI and its controlled affiliates, on the one hand, and News Corp.
and its controlled affiliates, on the other hand, will be entitled to
designate one director for each 12.5% of the outstanding shares of Class B
common stock owned by such party and its controlled affiliates in the
aggregate (rounded to the nearest 12.5%, with more than 6.25% being rounded
up, and 6.25% or less being rounded down), and the other party will vote or
cause to be voted all shares of common stock owned by such party and its
controlled affiliates for the election of such designee(s) as director.
In addition, the TV Guide Stockholders Agreement will provide for the grant
to TCI Sub, Holdings and their respective affiliates of certain registration
rights with respect to the resale of the Class A common stock held directly or
indirectly by TCI Sub, Holdings and their respective affiliates including
shares of Class A common stock issuable upon conversion of shares of Class B
common stock. Such demand registration rights will be subject to (1) holdback
provisions restricting the rights of TCI Sub, Holdings and their respective
affiliates to request registration of shares of Class A common stock in the
event that the amount of shares to be registered exceeds the amount that can
be readily sold in the market at the time; (2) blackout provisions that will
enable the Company, subject to various limitations, to delay the registration
of Class A common stock under certain circumstances, for example when a
possible transaction or other news is pending that would have to be disclosed
in connection with a registration, but the disclosure of which would have a
material adverse effect on the Company; and (3) indemnification provisions
providing, among other things, for indemnification by the Company against
certain misstatements or omissions in any registration statement covering the
resale of Class A common stock held by TCI Sub, Holdings or their respective
affiliates.
Parent Agreement. News Corp., TCI and the Company are also parties to the
Parent Agreement pursuant to which TCI and News Corp. each have agreed to
purchase, and UVSG has agreed to sell, the Equalization Shares if necessary
for TCI and News Corp. to hold an equal number of shares of Class A common
stock after
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the TV Guide Closing. TCI has also agreed to vote or cause to be voted all of
its shares of common stock in favor of the TV Guide Acquisition Proposal at
the Special Meeting. The Parent Agreement also provides that (1) until the
Closing, the Company (in the case of TCI) and the NAI Contributed Entities (in
the case of News Corp.) will be the exclusive vehicles through which TCI and
News Corp. directly or indirectly conduct program guide businesses (print,
electronic or otherwise), subject to certain exceptions; (2) News Corp. will
not negotiate to sell, sell or solicit or entertain any offers to purchase the
NAI Contributed Entities or their respective businesses except as provided in
the TV Guide Acquisition Agreement; (3) TCI and News Corp. will (and will
cause their respective controlled affiliates to) take certain actions and
refrain from taking certain other actions that would affect the anticipated
federal income tax treatment of the TV Guide Acquisition; and (4) News Corp.
will cause certain licenses granting it and its affiliates (other than the NAI
Contributed Entities) the right to use the TV Guide brand or associated
trademarks to be terminated at the TV Guide Closing or as soon thereafter as
may be practicable.
Continuing Services. Following the TV Guide Closing, for so long as News
Corp. and its affiliates beneficially own in the aggregate at least 12.5% of
the Class B common stock of UVSG, News Corp. will and will cause its
controlled affiliates to continue to make available to the NAI Contributed
Entities and their respective businesses, at the Company's request from time
to time, services (including bulk paper procurement and the benefits of
certain agreements (to the extent permitted thereunder)) consistent with past
practice and in any event on terms no less favorable to the Company than "most
favored nation" terms, unless the Company shall otherwise agree, provided that
the right to use services that require the involvement of executives of News
Corp. will be subject to agreement upon allocation of costs (including
services of senior management). News Corp., NAI and the Company have agreed to
negotiate to enter into a definitive services agreement containing the
foregoing terms and such other terms and conditions as may be customary or
appropriate under the circumstances.
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PROPOSAL 3--CHANGE OF THE COMPANY'S NAME
The Board of Directors has determined that it is in the best interests of
the Company to amend the Company's Restated Certificate of Incorporation to
change the Company's name to "TV Guide, Inc." and has recommended that such
name change proposal be submitted to the stockholders for approval. The Board
and management of the Company believe that using the well known TV Guide name
will enhance the recognition of the Company and its products in the
marketplace.
If the change is approved, a Certificate of Amendment to the Company's
Restated Certificate of Incorporation will be filed with the Delaware
Secretary of State to give effect to the name change as promptly as practical
following the special meeting. The resolution adopted by the Board provides
that, even if the stockholders approve the Name Change Proposal at the special
meeting, the name change may be abandoned by the Board at any time prior to
filing the amendment to the Company's Restated Certificate of Incorporation
with the Secretary of State of Delaware.
The Board of Directors recommends a vote FOR this Proposal 3 to approve the
amendment to the Company's Restated Certificate of Incorporation to change the
Company's name to TV Guide, Inc.
CERTAIN MATTERS TO BE CONSIDERED BY STOCKHOLDERS
Relationships of UVSG with Liberty and its Affiliates
As of the date of this Proxy Statement, TCI, through its subsidiaries,
beneficially owns 29,037,520 shares of the Company's Class A common stock and
24,746,588 shares of the Company's Class B common stock, representing
approximately 74% of the total number of outstanding shares of common stock
and approximately 94% of the total voting power of the common stock. Four of
the Company's seven directors are also employees, officers and/or directors of
TCI or its affiliates, other than the Company.
TCI has indicated that it intends to cause its subsidiaries holding shares
of the Company's common stock to vote in favor of the Netlink Acquisition
Proposal and the TV Guide Acquisition Proposal, thus assuring approval of such
proposals at the Special Meeting whether or not any other stockholder votes in
favor of any such proposal.
After giving effect to the Netlink Acquisition, but without giving effect to
the TV Guide Acquisition, TCI, through its subsidiaries, will own 29,037,520
shares of Class A common stock and 37,496,588 shares of Class B common stock
which will represent approximately 78% of the outstanding shares of common
stock of the Company and approximately 96% of the total voting power of the
common stock. After giving effect to the Netlink Acquisition and the TV Guide
Acquisition, TCI, through its subsidiaries, will own 29,037,520 shares of
Class A common stock and 37,496,588 shares of Class B common stock, assuming
no adjustments. Therefore, after giving effect to the TV Guide Acquisition,
assuming the Netlink Acquisition is completed and assuming no adjustments,
TCI, through its subsidiaries, will own approximately 46% of the outstanding
shares of common stock, which will represent approximately 49% of the total
voting power of the common stock and News Corp., through its subsidiaries,
will own approximately 41% of the outstanding shares of common stock, which
will represent approximately 48% of the total voting power of the common
stock.
Stockholder Agreement with TCI
In connection with the merger of the Company with a subsidiary of TCI, the
Company and TCI entered into a Stockholder Agreement dated as of January 25,
1996, which currently requires TCI to vote its shares of the Company's equity
securities in any general election of directors in favor of the election of
Mr. Boylan as a director so long as he is an executive officer of the Company.
The Stockholder Agreement also limits TCI's ability, in certain circumstances,
to vote its equity securities of the Company at a stockholders' meeting in
favor of certain transactions requiring stockholder approval. Pursuant to the
TV Guide Acquisition Agreement, the Company and TCI have agreed to terminate
the Stockholder Agreement at the TV Guide Closing.
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Dilution
The issuance of the Netlink Equity and the TV Guide Equity will cause a
disproportionate dilution in the voting rights of the existing stockholders of
the Company. Following the Netlink Closing, but not considering the TV Guide
Acquisition, the issued and outstanding shares of the common stock held by the
unaffiliated stockholders will be reduced from approximately 26% to
approximately 22% of the total issued and outstanding shares of the common
stock which will represent approximately 4% of the total voting power of the
common stock. Considering both the Netlink Acquisition and the TV Guide
Acquisition, the issued and outstanding shares of the common stock held by the
unaffiliated stockholders will be reduced to approximately 13% of the total
issued and outstanding shares of the common stock, which will represent
approximately 2% of the total voting power of the common stock.
At January 7, 1999, the Record Date, the Company had 47,893,688 shares of
Class A common stock and 24,746,588 shares of Class B common stock outstanding
and after the completion of the Netlink Acquisition and the TV Guide
Acquisition, assuming no adjustments, there will be approximately 70,397,100
shares of Class A common stock and 74,993,176 shares of Class B common stock
outstanding.
On September 30, 1998, each share of common stock had a net book value of
$2.60 per share, calculated on a historical basis. After giving effect to the
Netlink Closing, but not considering the TV Guide Acquisition, as of September
30, 1998, each share of common stock would have a pro forma net book value of
$2.27 per share. Considering both the Netlink Acquisition and the TV Guide
Acquisition, as of September 30, 1998, each share of common stock would have a
pro forma net book value of $9.03 per share. See "Unaudited Pro Forma
Condensed Financial Information."
FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion of the federal income tax consequences to the
Company resulting from the Netlink Acquisition and the TV Guide Acquisition is
for general information only. This summary is based upon the current
provisions of the Code, the applicable regulations and the public
administrative and judicial interpretation of the Code and such regulations,
all of which are subject to change (which changes could be applied
retroactively) and upon the terms of the Acquisitions as described herein.
This discussion does not cover all aspects of federal taxation that may be
relevant to the Company and it does not address state, local, foreign or other
tax laws.
The Netlink Acquisition
Section 1032 of the Code provides that no gain or loss is recognized by a
corporation upon the receipt of property in exchange for its stock.
Accordingly, the Company should not recognize any taxable income from the
issuance of the shares of Class B common stock constituting the Netlink Equity
in the Netlink Acquisition. It is expected that the Company's tax basis for
the stock of the Netlink Corporations received will be equal to the tax basis
of such stock to Liberty immediately before the transfer, rather than the fair
market value of the Netlink Equity issued as consideration for the properties.
The Company believes that the tax basis to Liberty for the stock of the
Netlink Corporations is relatively low.
The TV Guide Acquisition
Section 1032 of the Code provides that no gain or loss is recognized by a
corporation upon the receipt of property in exchange for its stock.
Accordingly, the Company should not recognize any taxable income from the
issuance of the shares of Class A common stock and Class B common stock
constituting the TV Guide Equity and the payment of $800 million constituting
the TV Guide Cash Consideration in the TV Guide Acquisition. It is expected
that the Company's tax basis for the stock of the NAI Contributed Entities
received will be equal to the tax basis of such stock to Holdings immediately
before the transfer (increased by any gain recognized by Holdings on the
transfer) rather than the fair market value of the TV Guide Consideration.
60
<PAGE>
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders of the Company who do not vote in favor of the Netlink
Acquisition Proposal or the TV Guide Acquisition Proposal will not have the
right to seek payment in cash of the fair market value of their shares of
common stock.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction to the Pro Forma Financial Statement Pages
Pro Forma Financial Statements
Shareholders are being asked to consider and vote separately on each of the
Netlink Acquisition Proposal and the TV Guide Acquisition Proposal.
Assuming only the Netlink Acquisition--The Netlink Acquisition will be
accounted for as a combination of entities under common control, in a manner
similar to a pooling-of-interests. The combined financial statements of the
Company and the Netlink Wholesale Division on an as-if-pooled basis as of
September 30, 1998, for the nine months ended September 30, 1998 and 1997 and
the years ended December 31, 1997 and 1996 are presented on pages 62 through
69. These financial statements include the financial statements of the Netlink
Wholesale Division for periods subsequent to January 25, 1996, the date the
Company and the Netlink Wholesale Division were first under common control.
Assuming only the TV Guide Acquisition--The TV Guide Acquisition will be
accounted for as a purchase. The pro forma financial statements of the Company
for the TV Guide Acquisition as of September 30, 1998 and for the nine months
ended September 30, 1998 and the year ended December 31, 1997 are presented on
pages 70 through 75.
Assuming both the Netlink Acquisition and the TV Guide Acquisition--The pro
forma financial statements of the Company assuming both the Netlink
Acquisition and the TV Guide Acquisition as of September 30, 1998 and for the
nine months ended September 30, 1998 and the year ended December 31, 1997 are
presented on pages 62 through 69.
61
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Assuming both the Netlink Acquisition and the TV Guide Acquisition
------------------------------------------------------------------------------------------
Assuming only the Netlink Acquisition
-------------------------------------------------
UVSG Netlink Pooled Publications Pro Forma UVSG
Historical Historical Adjustments Balance Sheet Historical Adjustments Pro Forma
---------- ---------- ----------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash, cash equivalents and
marketable securities.... $159,693 $ 16 $ -- $159,709 $ 305 $ (800,000)(2) $ 47,514
700,000 (1)
(12,500)(6)
Accounts receivable....... 55,648 4,476 (1,316)(a) 58,808 148,052 -- 206,860
Prepaid expenses and
other.................... 10,711 99 -- 10,810 41,061 -- 51,871
Deferred tax asset........ 2,135 -- -- 2,135 -- -- 2,135
-------- ------- ------- -------- ----------- ----------- ----------
Total current assets.... 228,187 4,591 (1,316) 231,462 189,418 (112,500) 308,380
Property, plant and
equipment, net of
accumulated depreciation
and amortization......... 45,245 610 -- 45,855 17,287 -- 63,142
Goodwill and other
intangible assets, net of
accumulated
amortization............. 113,240 2,125 -- 115,365 2,382,900 $ 840,150 (2) 3,338,415
Deferred tax asset........ -- 2,942 -- 2,942 -- -- 2,942
Other assets, net of
accumulated
amortization............. 15,013 -- -- 15,013 20,629 12,500 (6) 48,142
-------- ------- ------- -------- ----------- ----------- ----------
Total assets............. $401,685 $10,268 $(1,316) $410,637 $ 2,610,234 $ 740,150 $3,761,021
======== ======= ======= ======== =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and
accrued liabilities...... $ 59,772 $ 3,832 $(1,316)(a) $ 62,288 $ 109,699 $ -- $ 171,987
Other current
indebtedness............. 3,871 -- -- 3,871 -- -- 3,871
Customer
prepayments/deferred
revenue.................. 115,688 1,176 -- 116,864 160,480 -- 277,344
-------- ------- ------- -------- ----------- ----------- ----------
Total current
liabilities............ 179,331 5,008 (1,316) 183,023 270,179 -- 453,202
Deferred compensation..... 688 -- -- 688 -- -- 688
Deferred tax liability.... 15,149 -- -- 15,149 628,866 562,051 (2) 1,206,066
Other non-current
liabilities and
indebtedness............. 13,967 -- -- 13,967 68,488 700,000 (1) 782,455
Intercompany
indebtedness............. -- -- -- -- 2,747,083 (2,747,083)(5) --
Minority interest......... 3,370 -- -- 3,370 -- -- 3,370
Stockholders' equity
(deficit):
Capital stock............ 728 -- 128 (b) 856 -- 600 (2) 1,456
Additional paid-in
capital................. 25,863 -- (128)(b) 25,735 445,404 (2,072,287)(2) 1,145,935
2,747,083 (5)
Accumulated other
comprehensive earnings,
net of tax.............. 7,655 -- -- 7,655 -- -- 7,655
Retained earnings (accu-
mulated deficit)........ 162,945 5,260 (8,011)(c) 160,194 (1,549,786) 1,549,786 (2) 160,194
-------- ------- ------- -------- ----------- ----------- ----------
197,191 5,260 (8,011) 194,440 (1,104,382) 2,225,182 1,315,240
Minority interest deficit
in Superstar/Netlink
Group LLC............... (8,011) -- 8,011 (c) -- -- -- --
-------- ------- ------- -------- ----------- ----------- ----------
Total stockholders'
equity (deficit)....... 189,180 5,260 -- 194,440 (1,104,382) 2,225,182 1,315,240
-------- ------- ------- -------- ----------- ----------- ----------
Total liabilities and
stockholders' equity
(deficit).................$401,685 $10,268 $(1,316) $410,637 $ 2,610,234 $ 740,150 $3,761,021
======== ======= ======= ======== =========== =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
62
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming both the Netlink Acquisition and the TV Guide Acquisition
-----------------------------------------------------------------------------------------------
Assuming only the Netlink Acquisition
---------------------------------------------
UVSG Netlink Pooled Publications TVSM Pro Forma UVSG
Historical Historical Adjustments Results Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $443,177 $29,922 $(12,458)(a) $460,641 $ 466,219 $36,189 $ -- $963,049
Operating expenses:
Programming and
delivery.............. 240,776 19,121 (12,458)(a) 247,439 318,883 29,715 -- 596,037
Selling, general and
administrative........ 109,649 1,221 -- 110,870 41,101 6,688 -- 158,659
Depreciation and
amortization.......... 20,750 150 -- 20,900 76,183 432 585 (3) 98,100
-------- ------- -------- -------- --------- ------- -------- --------
371,175 20,492 (12,458) 379,209 436,167 36,835 585 852,796
-------- ------- -------- -------- --------- ------- -------- --------
Operating income........ 72,002 9,430 -- 81,432 30,052 (646) (585) 110,253
Gain on issuance of
equity by subsidiary... 14,700 -- -- 14,700 -- -- -- 14,700
Other income (expense).. 3,318 -- -- 3,318 (197,218) (358) (36,475)(4) (33,515)
197,218 (5)
-------- ------- -------- -------- --------- ------- -------- --------
Income (loss) before
income taxes and
minority interest...... 90,020 9,430 -- 99,450 (167,166) (1,004) 160,158 91,438
(Provision) benefit for
income taxes........... (28,294) (3,300) (5,349)(c) (36,943) 20,448 -- (17,924)(7) (34,419)
Minority interest in
earnings............... (14,601) -- 14,475 (c) (126) -- -- -- (126)
-------- ------- -------- -------- --------- ------- -------- --------
Net income.............. $ 47,125 $ 6,130 $ 9,126 $ 62,381 $(146,718) $(1,004) $142,234 $ 56,893
======== ======= ======== ======== ========= ======= ======== ========
Earnings per share:
Basic.................. $ 0.64 $ 0.72 $ 0.39
Diluted................ $ 0.63 $ 0.72 $ 0.39
Number of shares:
Basic.................. 73,323 86,073 146,073
Diluted................ 74,299 87,049 147,049
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
63
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming only the Netlink Acquisition
--------------------------------------------
UVSG Netlink Pooled
Historical Historical Adjustments Results
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues........................ $376,882 $24,666 $(8,097)(a) $393,451
Operating expenses:
Programming and delivery...... 193,587 11,865 (8,097)(a) 197,355
Selling, general and
administrative............... 108,650 1,047 -- 109,697
Depreciation and
amortization................. 13,833 150 -- 13,983
-------- ------- ------- --------
316,070 13,062 (8,097) 321,035
-------- ------- ------- --------
Operating income................ 60,812 11,604 -- 72,416
Gain on issuance of equity by
subsidiary..................... -- -- -- --
Other income (expense).......... 3,048 70 -- 3,118
-------- ------- ------- --------
Income (loss) before income
taxes and minority interest.... 63,860 11,674 -- 75,534
(Provision) benefit for income
taxes.......................... (18,983) (4,224) (4,728)(c) (27,935)
Minority interest in earnings... (12,297) -- 12,795 (c) 498
-------- ------- ------- --------
Net income...................... $ 32,580 $ 7,450 $ 8,067 $ 48,097
======== ======= ======= ========
Earnings per share:
Basic......................... $0.44 $0.56
Diluted....................... $0.44 $0.55
Number of shares:
Basic......................... 73,268 86,018
Diluted....................... 73,947 86,697
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
64
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming both the Netlink Acquisition and the TV Guide Acquisition
------------------------------------------------------------------------------------------------
Assuming only the Netlink Acquisition
---------------------------------------------
UVSG Netlink Pooled Publications TVSM Pro Forma UVSG
Historical Historical Adjustments Results Historical Historical Adjustments Pro Forma
---------- ---------- ----------- -------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $507,598 $33,683 $(10,861)(a) $530,420 $ 644,100 $70,474 $ -- $1,244,994
Operating expenses:
Programming and
delivery.............. 260,584 16,396 (10,861)(a) 266,119 413,329 64,559 -- 744,007
Selling, general and
administrative........ 143,019 1,306 -- 144,325 55,591 3,700 -- 203,616
Depreciation and
amortization.......... 18,651 199 -- 18,850 100,548 910 1,647 (3) 121,955
-------- ------- -------- -------- --------- ------- -------- ----------
422,254 17,901 (10,861) 429,294 569,468 69,169 1,647 1,069,578
-------- ------- -------- -------- --------- ------- -------- ----------
Operating income........ 85,344 15,782 -- 101,126 74,632 1,305 (1,647) 175,416
Other income (expense).. 4,090 30 -- 4,120 (242,896) (1,048) (48,633)(4) (45,561)
242,896 (5)
-------- ------- -------- -------- --------- ------- -------- ----------
Income (loss) before
income taxes and
minority interest...... 89,434 15,812 -- 105,246 (168,264) 257 192,616 129,855
(Provision) benefit for
income taxes........... (25,892) (5,744) (6,802)(c) (38,438) 27,056 -- (37,885)(7) (49,267)
Minority interest in
earnings............... (17,782) -- 18,409 (c) 627 -- -- -- 627
-------- ------- -------- -------- --------- ------- -------- ----------
Net income.............. $ 45,760 $10,068 $ 11,607 $ 67,435 $(141,208) $ 257 $154,731 $ 81,215
======== ======= ======== ======== ========= ======= ======== ==========
Earnings per share:
Basic.................. $ 0.62 $ 0.78 $ 0.56
Diluted................ $ 0.62 $ 0.78 $ 0.55
Number of shares:
Basic.................. 73,348 86,098 146,098
Diluted................ 74,058 86,808 146,808
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
65
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming only the Netlink Acquisition
--------------------------------------------
UVSG Netlink Pooled
Historical Historical Adjustments Results
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues........................ $437,168 $55,883 $(8,338)(a) $484,713
Operating expenses:
Programming and delivery...... 227,938 34,931 (8,338)(a) 254,531
Selling, general and
administrative............... 137,687 6,399 -- 144,086
Depreciation and
amortization................. 16,323 409 -- 16,732
-------- ------- ------- --------
381,948 41,739 (8,338) 415,349
-------- ------- ------- --------
Operating income................ 55,220 14,144 -- 69,364
Other income (expense).......... 1,684 (11) -- 1,673
-------- ------- ------- --------
Income (loss) before income
taxes and minority interest.... 56,904 14,133 -- 71,037
(Provision) benefit for income
taxes.......................... (17,122) (4,696) (3,974)(c) (25,792)
Minority interest in earnings... (9,698) -- 10,755 (c) 1,057
-------- ------- ------- --------
Net income...................... $ 30,084 $ 9,437 $ 6,781 $ 46,302
======== ======= ======= ========
Earnings per share:
Basic......................... $ 0.41 $ 0.54
Diluted....................... $ 0.41 $ 0.54
Number of shares:
Basic......................... 73,020 85,770
Diluted....................... 73,522 86,272
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation
As-if-pooled for the Netlink Acquisition. Pursuant to the Netlink
Acquisition Agreement, the Company will acquire from Liberty all of the
outstanding capital stock of the Netlink Corporations which own Liberty's
interest in SNG, the Denver 6 Service and certain other programming interests
in exchange for 12,750,000 shares of the Company's Class B common stock. The
Netlink Acquisition will be accounted for as a merger of entities under common
control, similar to a pooling-of-interests. Periods subsequent to January 25,
1996, the date the Company and the Netlink Wholesale Division came under
common control, are presented on an as-if-pooled basis.
The historical operating results of SNG are included within the consolidated
operating results of the Company subsequent to April 1, 1996 as the Company
has control over SNG's operations. Excluding Liberty's interest in SNG, the
remainder of the business interests being acquired by the Company are held by
the Netlink Wholesale Division. The presentation of the combined financial
statements of the Company and the Netlink Wholesale Division, including the
operations of Netlink's retail C--band business for the period from January
25, 1996 through March 31, 1996, the period from the date common control was
established through the formation of SNG, include an adjustment to (a)
eliminate the sales of programming from the Netlink Wholesale Division to SNG
and related accounts receivable/payable; (b) record the issuance of stock to
Liberty; and (c) eliminate the minority interest in SNG's earnings
attributable to Liberty's interest in SNG that is being acquired by the
Company as a part of the Netlink Acquisition and reflect taxes on the
associated earnings at the effective rate of the Netlink Corporations.
The as-if-pooled financial statements have been derived from the historical
consolidated financial statements of the Company incorporated by reference
into this Proxy Statement and the historical combined financial statements of
Netlink Wholesale Division set forth elsewhere in this Proxy Statement and are
qualified in their entirety by reference to, and should be read in conjunction
with, such historical financial statements and related notes thereto.
TV Guide Acquisition and As-if-pooled for the Netlink Acquisition. Pursuant
to the TV Guide Acquisition Agreement, the Company will acquire all of the
outstanding stock of the NAI Contributed Entities which own and publish TV
Guide, publish cable-based television listing guides, operate the web site
known as TVGEN and hold certain other assets, in exchange for 22,503,412
shares of the Company's Class A common stock, 37,496,588 shares of the
Company's Class B common stock and $800 million in cash. For purposes of the
pro forma condensed combined financial statements, it is assumed that the
Company will borrow $700 million at an interest rate of 6.65%, the proceeds of
which, along with existing cash balances, will be used to fund the cash
portion of the TV Guide Acquisition. The TV Guide Acquisition will be
accounted for as a purchase.
In June 1998, NAI acquired all of the outstanding stock of TVSM which owns
and publishes weekly and monthly proprietary program listings for certain
cable television systems and satellite programming distributors. The operating
results of TVSM subsequent to June 26, 1998, the acquisition date, are
included with those of Publications and not with the "TVSM Historical"
financial information.
The pro forma condensed combined financial statements have been derived from
the as--if--pooled financial statements of the Company and the Netlink
Wholesale Division, the historical combined financial statements of
Publications, set forth elsewhere in this Proxy Statement, as adjusted to be
presented on a calendar year basis, and the historical financial statements of
TVSM, not included in this Proxy Statement; and are qualified in their
entirety by reference to, and should be read in conjunction with, such
historical financial statements and related notes thereto. The pro forma
information has been compiled as if the TV Guide Acquisition occurred on the
date of the pro forma condensed combined balance sheet or as of January 1,
1997 for pro forma condensed combined income statement purposes.
67
<PAGE>
The pro forma condensed combined financial statements may not be indicative
of the results that actually would have occurred if the Netlink Acquisition
and the TV Guide Acquisition had occurred on the dates indicated or which may
be obtained in the future.
The pro forma adjustments are based on available financial information and
certain estimates and assumptions, therefore the actual adjustments could
differ from the pro forma adjustments. The Company has not yet completed its
analysis of the allocation of the purchase price in the TV Guide Acquisition
among identifiable intangible assets and goodwill. In the pro forma financial
information presented, the Company has allocated amounts to identifiable
intangible assets as follows:
<TABLE>
<CAPTION>
Intangible Asset Life (in thousands)
---------------- -------- --------------
<S> <C> <C>
Publishing rights.................................. 40 years $2,931,121
Acquired subscriber accounts....................... 15 years 291,929
----------
$3,223,050
==========
</TABLE>
Publishing rights include the rights associated with publishing TV Guide,
including the use of the TV Guide trademark. Acquired subscriber accounts
include the value attributable to the customer list of subscribers to TV
Guide.
After closing the TV Guide Acquisition, the Company, with the assistance of
valuation consultants, will complete its evaluation of the fair value and the
lives of the assets acquired. Accordingly, the allocation of the purchase
price and the lives of the assets acquired, which are based on preliminary
estimates, may differ from the final purchase price allocation and the final
lives assigned to the assets.
The pro forma adjustments necessary to present the financial position and
results of operations of the Company are as follows:
(1) To reflect the borrowing of $700 million from a bank, the proceeds of
which will be used to fund the cash portion of the TV Guide Acquisition.
(2) To reflect the issuance of 22,503,412 shares of Class A common stock
and 37,496,588 shares of Class B common stock, both at $18.68 per share, as
adjusted for the two-for-one stock split effected on August 20, 1998, and
the payment of $800 million in cash for a total consideration of
$1,920,800, in exchange for all of the outstanding capital stock of the NAI
Contributed Entities. The $18.68 per share value of the Company's common
stock was determined based on an analysis of the market prices (without
adjustment for premium or discount) of the Company's common stock for a few
days before and after the agreement on the TV Guide Acquisition was reached
and the TV Guide Acquisition was announced:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Class A common stock........................................ $ 225
Class B common stock........................................ 375
Paid in capital............................................. 1,120,200
Cash........................................................ 800,000
----------
Total consideration....................................... $1,920,800
==========
</TABLE>
The excess of the consideration over the fair value of the net identifiable
tangible assets acquired was allocated to intangible assets as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Total consideration....................................... $ 1,920,800
NAI Contributed Entities net tangible liabilities
assumed.................................................. 740,199
Deferred income taxes..................................... 562,051
-----------
Identifiable intangible assets related to TV Guide
acquisition.............................................. 3,223,050
Historical TV Guide intangible assets..................... (2,382,900)
-----------
Pro Forma adjustment to intangible assets................. $ 840,150
===========
</TABLE>
68
<PAGE>
(3) To adjust amortization of the intangible assets associated with the
TV Guide Acquisition. The Company intends to amortize these assets over
lives ranging from 15 to 40 years on a straight-line basis.
(4) To reflect interest, at the rate of 6.65% per annum, based on current
interest rates under committed financing agreements, on the debt incurred
of $700 million to fund the TV Guide Acquisition and amortization of debt
issuance costs. A change in the interest rate of 1/8 of a percent would
result in a change in interest expense of approximately $900,000 annually.
(5) To eliminate the intercompany debt (and related interest expense),
which will be contributed at the TV Guide Closing.
(6) To reflect the payment and capitalization of debt issuance costs. The
Company intends to amortize this asset over six years.
(7) To reflect income taxes resulting from the above pro forma
adjustments.
Earnings per Share
The following information reconciles the number of shares used to compute
historical basic and diluted earnings per share to pro forma basic and diluted
earnings per share (in thousands):
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended Year Ended Year Ended
September 30, September 30, December 31, December 31,
1998 1997 1997 1996
--------------- -------------- --------------- --------------
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
------- ------- ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average number
of shares of common
stock and dilutive
potential shares of
common stock--
historical............ 73,323 74,299 73,268 73,947 73,348 74,058 73,020 73,522
Common shares to be
issued in connection
with the Netlink
Acquisition........... 12,750 12,750 12,750 12,750 12,750 12,750 12,750 12,750
------- ------- ------ ------ ------- ------- ------ ------
Weighted average number
of shares of common
stock and dilutive
potential shares of
common stock--pro
forma--Netlink
Acquisition only...... 86,073 87,049 86,018 86,697 86,098 86,808 85,770 86,272
====== ====== ====== ======
Common shares to be
issued in connection
with the TV Guide
Acquisition........... 60,000 60,000 60,000 60,000
------- ------- ------- -------
Weighted average number
of shares of common
stock and dilutive
potential shares of
common stock--pro
forma--both Netlink
Acquisition and TV
Guide Acquisition..... 146,073 147,049 146,098 146,808
======= ======= ======= =======
</TABLE>
The above amounts assume that the Equalization Shares are acquired through
open market purchases of the Company's common stock. Should the Company issue
Equalization Shares pursuant to the Parent Agreement, the weighted average
number of shares of common stock and dilutive potential shares of common
stock-pro forma-both Netlink Acquisition and TV Guide Acquisition would
increase by 6,534 both on a basic and diluted basis for all periods presented,
resulting in the following earnings per share:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic........................................... $0.37 $0.53
Diluted......................................... $0.37 $0.53
</TABLE>
69
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
September 30, 1998
<TABLE>
<CAPTION>
Assuming only the TV Guide Acquisition
---------------------------------------------------
UVSG Publications Pro Forma UVSG
Historical Historical Adjustments Pro Forma
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash, cash equivalents
and marketable
securities.............. $159,693 $ 305 $ (800,000)(2) $ 47,498
700,000 (1)
(12,500)(6)
Accounts receivable...... 55,648 148,052 -- 203,700
Prepaid expenses and
other................... 10,711 41,061 -- 51,772
Deferred tax asset....... 2,135 -- -- 2,135
-------- ----------- ----------- ----------
Total current assets... 228,187 189,418 (112,500) 305,105
Property, plant and
equipment, net of
accumulated depreciation
and amortization........ 45,245 17,287 -- 62,532
Goodwill and other
intangible assets, net
of accumulated
amortization............ 113,240 2,382,900 840,150 (2) 3,336,290
Other assets, net of
accumulated
amortization............ 15,013 20,629 12,500 (6) 48,142
-------- ----------- ----------- ----------
Total assets........... $401,685 $ 2,610,234 $ 740,150 $3,752,069
======== =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and
accrued liabilities..... $ 59,772 $ 109,699 $ -- $ 169,471
Other current
indebtedness............ 3,871 -- -- 3,871
Customer
prepayments/deferred
revenue................. 115,688 160,480 -- 276,168
-------- ----------- ----------- ----------
Total current
liabilities........... 179,331 270,179 -- 449,510
Deferred compensation.... 688 -- -- 688
Deferred tax liability... 15,149 628,866 562,051 (2) 1,206,066
Other non-current
liabilities and
indebtedness............ 13,967 68,488 700,000 (1) 782,455
Intercompany
indebtedness............ -- 2,747,083 (2,747,083)(5) --
Minority interest........ 3,370 -- -- 3,370
Stockholders' equity
(deficit):
Capital stock............ 728 -- 600 (2) 1,328
Additional paid-in
capital................. 25,863 445,404 (2,072,287)(2) 1,146,063
2,747,083 (5)
Accumulated other
comprehensive earnings,
net of tax.............. 7,655 -- -- 7,655
Retained earnings
(accumulated deficit)... 162,945 (1,549,786) 1,549,786 (2) 162,945
-------- ----------- ----------- ----------
197,191 (1,104,382) 2,225,182 1,317,991
Minority interest deficit
in Superstar/Netlink
Group LLC............... (8,011) -- -- (8,011)
-------- ----------- ----------- ----------
Total stockholders'
equity (deficit)........ 189,180 (1,104,382) 2,225,182 1,309,980
-------- ----------- ----------- ----------
Total liabilities and
stockholders' equity
(deficit) $401,685 $ 2,610,234 $ 740,150 $3,752,069
======== =========== =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
70
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming only the TV Guide Acquisition
-----------------------------------------------------------
UVSG Publications TVSM Pro Forma UVSG
Historical Historical Historical Adjustments Pro Forma
---------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ $443,177 $ 466,219 $36,189 $ -- $945,585
Operating expenses:
Programming and
delivery............. 240,776 318,883 29,715 -- 589,374
Selling, general and
administrative....... 109,649 41,101 6,688 -- 157,438
Depreciation and
amortization......... 20,750 76,183 432 585 (3) 97,950
-------- --------- ------- -------- --------
371,175 436,167 36,835 585 844,762
-------- --------- ------- -------- --------
Operating income........ 72,002 30,052 (646) (585) 100,823
Gain on issuance of
equity by subsidiary... 14,700 -- -- -- 14,700
Other income (expense).. 3,318 (197,218) (358) (36,475)(4) (33,515)
197,218 (5)
-------- --------- ------- -------- --------
Income (loss) before
income taxes and
minority interest...... 90,020 (167,166) (1,004) 160,158 82,008
(Provision) benefit for
income taxes........... (28,294) 20,448 -- (17,924)(7) (25,770)
Minority interest in
earnings............... (14,601) -- -- -- (14,601)
-------- --------- ------- -------- --------
Net income.............. $ 47,125 $(146,718) $(1,004) $142,234 $ 41,637
======== ========= ======= ======== ========
Earnings per share:
Basic................. $ 0.64 $ 0.31
Diluted............... $ 0.63 $ 0.31
Number of shares:
Basic................. 73,323 133,323
Diluted............... 74,299 134,299
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
71
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Assuming only the TV Guide Acquisition
------------------------------------------------------------
UVSG Publications TVSM Pro Forma UVSG
Historical Historical Historical Adjustments Pro Forma
---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $507,598 $ 644,100 $70,474 $ -- $1,222,172
Operating expenses:
Programming and
delivery............. 260,584 413,329 64,559 -- 738,472
Selling, general and
administrative....... 143,019 55,591 3,700 -- 202,310
Depreciation and
amortization......... 18,651 100,548 910 1,647 (3) 121,756
-------- --------- ------- -------- ----------
422,254 569,468 69,169 1,647 1,062,538
-------- --------- ------- -------- ----------
Operating income........ 85,344 74,632 1,305 (1,647) 159,634
Other income (expense).. 4,090 (242,896) (1,048) (48,633)(4) (45,591)
242,896 (5)
-------- --------- ------- -------- ----------
Income (loss) before
income taxes and
minority interest...... 89,434 (168,264) 257 192,616 114,043
(Provision) benefit for
income taxes........... (25,892) 27,056 -- (37,885)(7) (36,721)
Minority interest in
earnings............... (17,782) -- -- -- (17,782)
-------- --------- ------- -------- ----------
Net income.............. $ 45,760 $(141,208) $ 257 $154,731 $ 59,540
======== ========= ======= ======== ==========
Earnings per share:
Basic................. $ 0.62 $ 0.45
Diluted............... $ 0.62 $ 0.44
Number of shares:
Basic................. 73,348 133,348
Diluted............... 74,058 134,058
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation
Pursuant to the TV Guide Acquisition Agreement, the Company will acquire all
of the outstanding stock of the NAI Contributed Entities which own and publish
TV Guide, publish cable-based television listing guides, operate the web site
known as TVGEN and hold certain other assets, in exchange for 22,503,412
shares of the Company's Class A common stock, 37,496,588 shares of the
Company's Class B common stock and $800 million in cash. For purposes of the
pro forma condensed combined financial statements, it is assumed that the
Company will borrow $700 million at an interest rate of 6.65%, the proceeds of
which, along with existing cash balances, will be used to fund the cash
portion of the TV Guide Acquisition. The TV Guide Acquisition will be
accounted for as a purchase.
In June 1998, NAI acquired all of the outstanding stock of TVSM, which owns
and publishes weekly and monthly proprietary program listings for certain
cable television systems and satellite programming distributors. The operating
results of TVSM subsequent to June 26, 1998, the acquisition date, are
included with those of Publications and not with the "TVSM Historical"
financial information.
The pro forma condensed combined financial statements have been derived from
the historical consolidated financial statements of the Company incorporated
by reference into this Proxy Statement, the historical combined financial
statements of Publications set forth elsewhere in this Proxy Statement, as
adjusted to be presented on a calendar year basis, and the historical
financial statements of TVSM not included in this Proxy Statement; and are
qualified in their entirety by reference to, and should be read in conjunction
with, such historical financial statements and related notes thereto. The pro
forma information has been compiled as if the TV Guide Acquisition occurred on
the date of the pro forma condensed combined balance sheet or as of January 1,
1997 for pro forma condensed combined income statement purposes.
The pro forma condensed combined financial statements may not be indicative
of the results that actually would have occurred if the TV Guide Acquisition
had occurred on the dates indicated or which may be obtained in the future.
The pro forma adjustments are based on available financial information and
certain estimates and assumptions; therefore the actual adjustments could
differ from the pro forma adjustments. The Company has not yet completed its
analysis of the allocation of the purchase price in the TV Guide Acquisition
among identifiable intangible assets and goodwill. In the pro forma financial
information presented, the Company has allocated amounts to identifiable
intangible assets as follows:
<TABLE>
<CAPTION>
Intangible Asset Life (in thousands)
---------------- -------- --------------
<S> <C> <C>
Publishing rights.................................. 40 years $2,931,121
Acquired subscriber accounts....................... 15 years 291,929
----------
$3,223,050
==========
</TABLE>
Publishing rights include the rights associated with publishing TV Guide,
including the use of the TV Guide trademark. Acquired subscriber accounts
include the value attributable to the customer list of subscribers to
TV Guide.
After closing the TV Guide Acquisition, the Company, with the assistance of
valuation consultants, will complete its evaluation of the fair value and the
lives of the assets acquired. Accordingly, the allocation of the purchase
price and the lives of the assets acquired, which are based on preliminary
estimates, may differ from the final purchase price allocation and the final
lives assigned to the assets.
The pro forma adjustments necessary to present the financial position and
results of operations of the Company are as follows:
73
<PAGE>
(1) To reflect the borrowing of $700 million from a bank, the proceeds of
which will be used to fund the cash portion of the TV Guide Acquisition.
(2) To reflect the issuance of 22,503,412 shares of Class A common stock
and 37,496,588 shares of Class B common stock, both at $18.68 per share, as
adjusted for the two--for--one stock split effected on August 20, 1998, and
the payment of $800 million in cash for a for a total consideration of
$1,920,800, in exchange for all of the outstanding capital stock of the NAI
Contributed Entities. The $18.68 per share value of the Company's common
stock was determined based on an analysis of the market prices (without
adjustment for premium or discount) of the Company's common stock for a few
days before and after the agreement on the TV Guide Acquisition was reached
and the TV Guide Acquisition was announced:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Class A common stock...................................... $ 225
Class B common stock...................................... 375
Paid in capital........................................... 1,120,200
Cash...................................................... 800,000
-----------
Total consideration..................................... $ 1,920,800
===========
The excess of the consideration over the fair value of the net identifiable
tangible assets acquired was allocated as follows:
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Total consideration....................................... $ 1,920,800
NAI Contributed Entities net tangible liabilities as-
sumed.................................................... 740,199
Deferred income taxes..................................... 562,051
Identifiable intangible assets related to TV Guide Acqui-
sition................................................... 3,223,050
Historical TV Guide intangible assets..................... (2,382,900)
-----------
Pro Forma adjustment to intangible assets................. $ 840,150
===========
</TABLE>
(3) To adjust amortization of the intangible assets associated with the
TV Guide Acquisition. The Company intends to amortize these assets over
lives ranging from 15 to 40 years on a straight-line basis.
(4) To reflect interest, at the rate of 6.65% per annum, based on current
interest rates under committed financing agreements, on the debt incurred
of $700 million to fund the TV Guide Acquisition and amortization of debt
issuance costs. A change in the interest rate of 1/8 of a percent would
result in a change in interest expense of approximately $900,000 annually.
(5) To eliminate the intercompany debt (and related interest expense),
which will be contributed at the TV Guide Closing.
(6) To reflect the payment and capitalization of debt issuance costs. The
Company intends to amortize this asset over six years on a straight-line
basis.
(7) To reflect income taxes resulting from the above pro forma
adjustments.
74
<PAGE>
Earnings per Share
The following information reconciles the number of shares used to compute
historical basic and diluted earnings per share to pro forma basic and diluted
earnings per share (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
--------------------------------------
Basic Diluted Basic Diluted
--------- ------------------ ---------
<S> <C> <C> <C> <C>
Weighted average number of shares of
common stock and dilutive potential
shares of common stock--historical...... 73,323 74,299 73,348 74,058
Common shares to be issued in connection
with the TV Guide Acquisition........... 60,000 60,000 60,000 60,000
--------- --------- -------- --------
Weighted average number of shares of
common stock and dilutive potential
shares of common stock--pro forma--TV
Guide Acquisition Only.................. 133,323 134,299 133,348 134,058
========= ========= ======== ========
</TABLE>
The above amounts assume that the Equalization Shares are acquired through
open market purchases of the Company's common stock. Should the Company issue
Equalization Shares pursuant to the Parent Agreement, the weighted average
number of shares of common stock and dilutive potential shares of common
stock--pro forma--TV Guide Acquisition would increase by 6,216 both on a basic
and diluted basis for all periods presented, resulting in the following
earnings per share:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Basic................................. $0.30 $0.43
Diluted............................... $0.30 $0.42
</TABLE>
75
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 7, 1999
regarding ownership of the common stock by (1) each person believed by the
Company to be the beneficial owner of more than five percent of its
outstanding common stock; (2) each Director, the Chief Executive Officer and
each of the four other most highly compensated executive officers of the
Company for the fiscal year 1998; and (3) all current executive officers and
directors of the Company as a group. The table also sets forth information
regarding ownership of the common stock on a pro forma basis following the
Netlink Acquisition and the TV Guide Acquisition. Shares of Class B common
stock are convertible immediately into shares of Class A common stock on a
one-for-one basis and, accordingly, holders of Class B common stock are deemed
to own beneficially the same number of shares of Class A common stock. The
table below does not reflect such beneficial ownership of Class A common
stock.
<TABLE>
<CAPTION>
Actual Adjusted for the Acquisitions (15)
---------------------------------------------------- -----------------------------------------------------
UVSG Class A UVSG Class B Percent of UVSG Class A UVSG Class B Percent of
Common Stock Common Stock Vote of All Common Stock Common Stock Vote of All
------------------- ------------------- Outstanding -------------------- ------------------- Outstanding
Number Percent Number Percent UVSG Number Percent Number Percent UVSG
Beneficial Owner of Shares of Class of Shares of Class Common Stock of Shares of Class of Shares of Class Common Stock
- ---------------- ---------- -------- ---------- -------- ------------ ----------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tele-
Communications,
Inc.(1)(2)...... 29,037,520 60.6% 24,746,588 100% 93.6% 29,037,520 41.2% 37,496,588 50.0% 49.2%
Capital Research
and
Management(3)... 3,000,000 6.3% -- -- 1.0% 3,000,000 4.3% -- -- *
The News
Corporation
Limited(4)...... -- -- -- -- -- 22, 503,412 32.0% 37,496,588 50.0% 48.5%
Robert R.
Bennett(5)...... 6,000 * -- -- * 6,000 * -- -- *
Leo J. Hindery,
Jr.(6).......... 6,000 * -- -- * 6,000 * -- -- *
Larry E.
Romrell(7)...... 12,000 * -- -- * 12,000 * -- -- *
J. David
Wargo(7)........ 12,000 * -- -- * 12,000 * -- -- *
Lawrence Flinn,
Jr.(8).......... 118,002 * -- -- * 118,002 * -- -- *
Gary S.
Howard(9)....... 40,000 * -- -- * 40,000 * -- -- *
Peter C. Boylan
III(10)......... 574,888 1.2% -- -- * 574,888 * -- -- *
Charles Butler
Ammann(11)...... 24,800 * -- -- * 24,800 * -- -- *
Craig M.
Waggy(12)....... 34,000 * -- -- * 34,000 * -- -- *
Toby
DeWeese(13)..... 8,000 * -- -- * 8,000 * -- -- *
All Directors
and Executive
Officers as a
Group (10
persons)(14).... 835,690 1.7% -- -- * 835,690 1.2% -- -- *
</TABLE>
- ----
* Less than 1%
(1) The address of Tele-Communications, Inc. is 5619 DTC Parkway, Englewood,
Colorado 80111-3000.
(2) TCI is party to a Stockholder Agreement with the Company providing for
certain matters relating to the voting of equity securities of the
Company held by it. See "Certain Matters to be Considered by
Stockholders--Stockholder Agreement with TCI."
(3) The address of Capital Research and Management is 333 South Hope Street,
Los Angeles, California 90071.
(4) The address of The News Corporation Limited is 1211 Avenue of the
Americas, New York, New York 10036.
(5) Includes 6,000 shares of Class A common stock subject to options that
will become exercisable within 60 days.
(6) Includes 6,000 shares of Class A common stock subject to presently
exercisable options.
(7) Includes 12,000 shares of Class A common stock subject to presently
exercisable options.
(8) Includes 118,002 shares of Class A common stock owned by the Lawrence
Flinn, Jr., Charitable Trust of which Mr. Flinn is Trustee. Mr. Flinn
disclaims beneficial ownership of such shares.
(9) Includes 40,000 shares of Class A common stock subject to presently
exercisable options.
(10) Includes 506,584 shares of Class A common stock subject to presently
exercisable options and 40,000 shares of Class A common sto;ck subject to
options that will become exercisable within 60 days.
(11) Includes 11,200 shares of Class A common stock subject to presently
exercisable options and 13,600 shares of Class A common stock subject to
options that will become exercisable within 60 days.
(12) Includes 18,400 shares of Class A common stock subject to presently
exercisable options and 15,600 shares of Class A common stock subject to
options that will become exercisable within 60 days.
(13) Includes 8,000 shares of Class A common stock subject to presently
exercisable options.
(14) Includes 614,184 shares of Class A common stock subject to presently
exercisable options and 75,200 shares of Class A common stock subject to
options that will become exercisable within 60 days.
(15) Adjusted for the issuance of 12,750,000 shares of Class B common stock
pursuant to the terms of the Netlink Acquisition Agreement, and for the
issuance of 22,503,412 shares of Class A common stock and 37,496,588
shares of Class B common stock pursuant to the TV Guide Acquisition
Agreement. After giving effect to the Netlink Acquisition, but without
giving effect to the TV Guide Acquisition, TCI, through its subsidiaries,
will own 29,037,520 shares of Class A common stock and 37,469,588 shares
of Class B common stock which will represent approximately 78% of the
outstanding shares of common stock of the Company and approximately 96%
of the voting power of the Company. After giving effect to the Netlink
Acquisition and the TV Guide Acquisition, assuming no adjustments, the
shares beneficially owned by TCI, through its subsidiaries, will
represent approximately 49% of the total voting power of the common stock
and the shares beneficially owned by News Corp., through its
subsidiaries, will represent approximately 48% of the voting power of the
common stock. In addition, if 90 days after the TV Guide Closing TCI and
News Corp., either directly or through their respective subsidiaries, do
not hold an equal number of shares of Class A common stock, either TCI or
News Corp., as applicable, either directly or through its subsidiaries,
shall acquire the Equalization Shares either through open market
purchases or from the Company such that the number of shares of Class A
common stock held by each of them is equal.
76
<PAGE>
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, the Company's independent public
accountants, are expected to be present at the Special Meeting, will have the
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Secretary of the
Company not later than March 10, 1999 in order to be included in the proxy
statement and proxy relating to the 1999 Annual Meeting. If a stockholder
wishes to bring a proposal before the 1999 Annual Meeting of Stockholders, but
does not wish to have such proposal included in the Company's proxy materials
relating to such meeting, the Company's form of proxy relating to such meeting
will confer discretionary authority to vote with respect to such stockholder's
proposal unless the Company receives notice of such proposal (1) not later
than May 21, 1999 or (2) if the date of the Company's 1999 Annual Meeting
changes more than 30 days from the date of the Company's 1998 annual meeting,
which was July 28, 1998, a reasonable time before the Company mails its proxy
statement relating to the 1999 annual meeting.
OTHER BUSINESS
The Company does not anticipate that any other matters will be brought
before the Special Meeting. However, if any additional matters shall properly
come before the Meeting, it is intended that the persons authorized under
proxies may, in the absence of instructions to the contrary, vote or act
thereon in accordance with their best judgment.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
(File No. 000--22662) and are incorporated in this Proxy Statement by
reference and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended by the Company's Amendment to Annual Report on Form
10-K/A for the fiscal year ended December 31, 1997, which was filed with
the Commission on April 30, 1998.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement
and prior to the closing or termination of the Netlink Acquisition and the TV
Guide Acquisition, shall be deemed to be incorporated by reference in this
Proxy Statement and to be a part hereof from the dates of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Proxy Statement 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 or is deemed to be incorporated by reference in this Proxy Statement
modifies or supersedes such previous statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
All information appearing in this Proxy Statement is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference.
77
<PAGE>
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
BY ANY PERSON TO WHOM THIS PROXY STATEMENT HAS BEEN DELIVERED, FROM MANAGER OF
INVESTOR RELATIONS, UNITED VIDEO SATELLITE GROUP, INC., 7140 SOUTH LEWIS
AVENUE, TULSA, OKLAHOMA 74136-5422 (TELEPHONE 918-488-4000). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE RECEIVED
BY FEBRUARY 10, 1999.
By the Board of Directors
/s/ Peter C. Boylan
Peter C. Boylan III
President and Chief Operating
Officer
Tulsa, Oklahoma
January 20, 1999
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Netlink Wholesale Division
Independent Auditors' Report............................................ F-2
Combined Balance Sheets as of September 30, 1998 (unaudited), December
31,
1997 and December 31, 1996 (unaudited)................................. F-3
Combined Statements of Operations and Combined Equity for the Nine
Months
Ended September 30, 1998 and 1997 (unaudited), and for the Years Ended
December 31, 1997 and December 31, 1996 and 1995 (unaudited)........... F-4
Combined Statements of Cash Flows for the Nine Months Ended September
30,
1998 and 1997 (unaudited), and for the Years Ended December 31, 1997
and
December 31, 1996 and 1995 (unaudited)................................. F-5
Notes to Combined Financial Statements.................................. F-6
News America Publications Inc.
Report of Independent Public Accountants................................ F-11
Combined Balance Sheets as of September 30, 1998 (unaudited), June 30,
1998 and 1997.......................................................... F-12
Combined Statements of Operations for the Three Months Ended September
30,
1998 and 1997 (unaudited), and for the Years Ended June 30, 1998, 1997
and 1996............................................................... F-13
Combined Statements of Cash Flows for the Three Months Ended September
30,
1998 and 1997 (unaudited), and for the Years Ended June 30, 1998, 1997
and 1996............................................................... F-14
Notes to Combined Financial Statements.................................. F-15
Schedule II--Valuation and Qualifying Accounts for the Years Ended June
30,
1998, 1997 and 1996.................................................... F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Liberty Media Corporation:
We have audited the accompanying combined balance sheet of the Netlink
Wholesale Division (as defined in Note 1 to the combined financial statements)
as of December 31, 1997, and the related combined statements of operations and
combined equity and combined cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Netlink
Wholesale Division as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 25, 1998
F-2
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
September 30, ------------------
1998 1997 1996
------------- ------- ---------
Unaudited Unaudited
(amounts in thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................... $ 16 $ 1,804 $ 114
Accounts receivable,
including amounts from
affiliates, net (note
5)....................... 4,476 4,156 3,666
Prepaid expenses.......... 99 560 584
------- ------- -------
Total current assets.... 4,591 6,520 4,364
Property and equipment (note
3)......................... 1,324 1,319 1,311
Less accumulated
depreciation............. (714) (631) (524)
------- ------- -------
610 688 787
Deferred income taxes (note
4)......................... 2,942 2,942 2,950
Excess cost over acquired
net assets, net............ 2,125 2,193 2,283
------- ------- -------
$10,268 $12,343 $10,384
======= ======= =======
LIABILITIES AND COMBINED
EQUITY
Current liabilities:
Accrued liabilities....... $ 2,675 $ 1,768 $ 2,271
Program rights payable.... 1,157 1,125 438
Deferred revenue from
affiliate................ 1,176 663 976
------- ------- -------
Total current
liabilities............ 5,008 3,556 3,685
Combined equity............. 5,260 8,787 6,699
------- ------- -------
Commitments (note 6)
$10,268 $12,343 $10,384
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
COMBINED STATEMENTS OF OPERATIONS AND COMBINED EQUITY
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
-------------------- -------------------------
1998 1997 1997 1996 1995
--------- --------- ------- ------- -------
Unaudited Unaudited
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Revenue:
Affiliates (note 5)......... $ 17,146 $ 12,275 $16,780 $15,996 $15,912
Other....................... 12,776 12,391 16,903 13,710 11,984
--------- --------- ------- ------- -------
29,922 24,666 33,683 29,706 27,896
Operating costs and expenses:
Operating, including amounts
from affiliates (note 5)... 19,121 11,865 16,396 13,357 15,210
Selling, general and
administrative, including
amounts from affiliates
(note 5)................... 1,094 695 1,021 969 923
Bad debt expense............ 127 352 285 260 279
Depreciation and
amortization............... 150 150 199 198 186
--------- --------- ------- ------- -------
20,492 13,062 17,901 14,784 16,598
--------- --------- ------- ------- -------
Operating income.......... 9,430 11,604 15,782 14,922 11,298
Other income (expense)........ -- 70 30 (3) --
--------- --------- ------- ------- -------
Earnings before income
taxes.................... 9,430 11,674 15,812 14,919 11,298
Income tax expense (note 4)... (3,300) (4,224) (5,744) (5,042) (4,073)
--------- --------- ------- ------- -------
Net earnings.............. 6,130 7,450 10,068 9,877 7,225
Combined equity, beginning of
period....................... 8,787 6,699 6,699 5,776 7,688
Net advances to parent........ (9,657) (6,482) (7,980) (8,954) (9,137)
--------- --------- ------- ------- -------
Combined equity, end of
period....................... $ 5,260 $ 7,667 $ 8,787 $ 6,699 $ 5,776
========= ========= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31
-------------------- -------------------------
1998 1997 1997 1996 1995
--------- --------- ------- ------- -------
Unaudited Unaudited
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings................. $ 6,130 $ 7,450 $10,068 $ 9,877 $ 7,225
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation and
amortization............... 150 150 199 198 186
Deferred tax expense
(benefit).................. -- 1,221 8 (1,597) 843
Changes in operating assets
and liabilities:
Change in accounts
receivable................ (320) (1,611) (490) 906 199
Change in prepaid
expenses.................. 461 (45) 24 (9) (42)
Change in accounts payable
and accrued liabilities... 939 (628) 184 (177) 469
Change in deferred
revenue................... 513 203 (313) (71) 391
--------- --------- ------- ------- -------
Net cash provided by
operating activities..... 7,873 6,740 9,680 9,127 9,271
--------- --------- ------- ------- -------
Cash flows used in investing
activities:
Capital expended for property
and equipment............... (4) (4) (12) (61) (134)
Other........................ -- -- 2 2 --
--------- --------- ------- ------- -------
Net cash used in investing
activities............... (4) (4) (10) (59) (134)
--------- --------- ------- ------- -------
Cash flows used in financing
activities:
Net change in advances to
parent...................... (9,657) (6,482) (7,980) (8,954) (9,137)
--------- --------- ------- ------- -------
Net increase (decrease) in
cash..................... (1,788) 254 1,690 114 --
Cash at beginning of period... 1,804 114 114 -- --
--------- --------- ------- ------- -------
Cash at end of period......... $ 16 $ 368 $ 1,804 $ 114 $ --
========= ========= ======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 1998 and December 31, 1997, 1996 and 1995
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1998 and 1997 and as of December 31, 1996 and for the Years Ended December
31, 1996 and 1995 is Unaudited)
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of Liberty Media
Corporation's ("Liberty") businesses which are engaged in selling satellite
distributed video programming and ancillary services to wholesale customers in
the United States and Canada (the "Netlink Wholesale Division"). Such
businesses are held by Netlink USA, an indirect wholly-owned partnership of
Liberty. Liberty is a subsidiary of Tele-Communications, Inc. ("TCI"). The
partnership interests in Netlink USA are held by three wholly-owned
subsidiaries of Liberty, LMC Netlink Corporation, Telluride Cablevision, Inc.,
and Westlink, Inc. (the "Corporate Owners"). All significant inter-entity
accounts and transactions have been eliminated in combination.
The accompanying interim combined financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year. The unaudited interim combined
financial statements should be read in conjunction with the Netlink Wholesale
Division's December 31, 1997 audited financial statements and notes thereto.
Proposed Transaction
On February 17, 1998, Liberty and United Video Satellite Group, Inc.
("UVSG"), a consolidated subsidiary of TCI, entered into an agreement pursuant
to which UVSG will acquire, among other assets, Liberty's interest in the
Netlink Wholesale Division in a tax-free stock transaction. Consummation of
the transaction is subject to a UVSG fairness opinion being obtained, UVSG
shareholder approval and other customary regulatory approvals.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance was $180,000 and $243,000 at December 31, 1997 and 1996,
respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from 5 to 15 years.
Excess Cost
The excess of cost over net assets acquired is being amortized on a
straight-line basis over 30 years. Accumulated amortization was $494,000 and
$404,000 at December 31, 1997 and 1996, respectively.
Recognition
The Company recognizes revenue on the accrual basis in the period the
service is provided. The Company receives annual payments in advance from
certain subsidiaries of TCI for programming services. Such amounts are
amortized to revenue on a straight-line basis over the period the programming
is provided.
F-6
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and December 31, 1997, 1996 and 1995
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1998 and 1997
and as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995
is Unaudited)
Combined Statement of Cash Flows
Transactions effected through the advances to parent account have been
considered constructive cash receipts and payments for purposes of the
combined statement of cash flows.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company evaluates the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable as measured by estimated
undiscounted future cash flows. If such assets are impaired, the impairment to
be recognized is measured by the amounts by which the carrying amount of the
assets exceeds the fair value of the assets.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 is summarized as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
Unaudited
<S> <C> <C>
Distribution and support equipment.......................... $1,169 $1,068
Furniture and fixtures...................................... 150 243
------ ------
$1,319 $1,311
====== ======
</TABLE>
F-7
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and December 31, 1997, 1996 and 1995
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1998 and 1997
and as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995
is Unaudited)
(4) INCOME TAXES
The Netlink Wholesale Division is included in the consolidated federal
income tax return of TCI. Income tax expense for the Netlink Wholesale
Division is based on those items in the consolidated calculation applicable to
the Netlink Wholesale Division. Intercompany tax allocation represents an
apportionment of tax expense or benefit (other than deferred taxes) among
subsidiaries of TCI in relation to their respective amounts of taxable
earnings or losses. The payable or receivable arising from the intercompany
tax allocation is recorded as an increase or decrease in advances to parent.
Deferred income taxes are based on the financial statement and tax basis
differences of the Corporate Owners' investments in the Netlink USA
partnership and tax loss carryforwards.
Income tax benefit (expense) for the years ended December 31, 1997, 1996 and
1995 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
(amounts in thousands)
<S> <C> <C> <C>
Year ended December 31, 1997:
Intercompany allocation........................ $(5,736) $ -- $(5,736)
Federal........................................ -- (7) (7)
State and local................................ -- (1) (1)
------- ------ -------
$(5,736) $ (8) $(5,744)
======= ====== =======
Year ended December 31, 1996 (Unaudited):
Intercompany allocation........................ $(6,639) $ -- $(6,639)
Federal........................................ -- 1,314 1,314
State and local................................ -- 283 283
------- ------ -------
$(6,639) $1,597 $(5,042)
======= ====== =======
Year ended December 31, 1995 (Unaudited):
Intercompany allocation........................ $(3,230) $ -- $(3,230)
Federal........................................ -- (694) (694)
State and local................................ -- (149) (149)
------- ------ -------
$(3,230) $ (843) $(4,073)
======= ====== =======
</TABLE>
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 35% as a result of state and local income taxes, net of
federal income tax benefit, and non-deductible meals and entertainment
expenses.
The tax effect of temporary differences that give rise to the net deferred
tax asset includes net operating loss carryforwards of $3,196,000 at both
December 31, 1997 and 1996, offset by an excess of the financial statement
basis over the tax basis of the Corporate Owners' investments in the Netlink
USA partnership aggregating $254,000 and $246,000, respectively.
F-8
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and December 31, 1997, 1996 and 1995
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1998 and 1997
and as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995
is Unaudited)
(5) RELATED PARTY TRANSACTIONS
The Netlink Wholesale Division distributes programming to subsidiaries of
TCI and others. Charges to subsidiaries of TCI are based upon customary rates
charged to others and aggregated approximately $13,956,000, $9,570,000,
$12,819,000, $12,560,000 and $11,385,000 for the nine months ended September
30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995,
respectively. Accounts receivable at September 30, 1998 and December 31, 1997
and 1996 includes approximately $1,964,000, $1,863,000 and $1,802,000,
respectively, due from affiliates for programming.
During 1991, the Netlink Wholesale Division entered into an agreement to
sell to UVSG its business of marketing and distributing WGN, a satellite
delivered television "superstation" on a wholesale basis (the "Business"). The
consideration for this sale is paid in the form of quarterly royalty payments
which are based on cash flows, as defined, from the acquired Business times a
certain consideration percentage. These payments are to continue for 20 years
from the effective date of the agreement. Revenue from this agreement for the
nine months ended September 30, 1998 and 1997 and for the years ended December
31, 1997, 1996 and 1995 was approximately $3,190,000, $2,705,000, $3,961,000,
$3,436,000 and $4,527,000, respectively.
A subsidiary of TCI provides satellite transponder facilities and uplink
services to the Netlink Wholesale Division. Such charges aggregated
approximately $942,000, $913,000, $1,227,000, $1,363,000 and $4,006,000 for
the nine months ended September 30, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995, respectively, and are included in operating
expenses in the accompanying combined statements of operations and combined
equity.
During 1998 and 1997, certain services were purchased by the Netlink
Wholesale Division from affiliates of Liberty and TCI. Charges aggregated
approximately $40,000, $48,000 and $64,000 for the nine months ended September
30, 1998 and 1997 and for the year ended December 31, 1997, respectively and
are included in selling, general and administrative expenses in the
accompanying combined statements of operations and combined equity.
Liberty manages certain treasury activities for the Netlink Wholesale
Division on a centralized basis. Cash receipts are remitted to Liberty and
cash disbursements are funded by Liberty on a daily basis. The net amount of
such cash activities are included as a component of combined equity.
In 1996, the Netlink Wholesale Division entered into a management
arrangement whereby Fox Sports Direct, an affiliate of Liberty, would supply
certain management services to Netlink Wholesale Division for a monthly fee
equal to approximately $33,000. Total fees paid to Fox Sports Direct during
1996 were approximately $183,000. During 1997, this fee arrangement was
amended, based on changes in management services provided, to $11,650 per
month. Total fees paid to Fox Sports Direct during 1997 were approximately
$363,000. This arrangement was terminated as of the end of January 1998. Total
fees paid to Fox Sports Direct were approximately $35,000 and $317,000 during
the nine months ended September 30, 1998 and 1997, respectively.
F-9
<PAGE>
NETLINK WHOLESALE DIVISION
(Defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and December 31, 1997, 1996 and 1995
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1998 and 1997
and as of December 31, 1996 and for the Years Ended December 31, 1996 and 1995
is Unaudited)
(6) COMMITMENTS
The Company leases office facilities, transponders and equipment. These
leases, which are classified as operating leases, expire at various dates
through December 2003.
Future minimum payments under noncancelable operating leases with a term of
one year or more consist of the following as of December 31, 1997:
<TABLE>
<CAPTION>
Minimum
Year Payment
---- ----------
<S> <C>
1998.............................. $6,833,000
1999.............................. 7,193,000
2000.............................. 7,265,000
2001.............................. 1,249,000
2002.............................. 1,200,000
</TABLE>
Total rent expense was $6,378,000, $5,911,000 and $8,251,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, including $60,800 paid
to related parties in 1997.
During October 1997, new copyright rates were established for the
retransmission of distant superstation and network signals. The new copyright
rates were set at $.27 per subscriber and go into effect as of January 1,
1998. Copyright rates paid on a per subscriber basis in 1997 were equal to
$.06 for the retransmission of distant network signals and $.18 for
superstation signals. Total copyright expenses in 1997, 1996 and 1995 were
approximately $3,218,000, $3,212,000 and $2,980,000, respectively.
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
News America Publications Inc.:
We have audited the accompanying combined balance sheets of the Companies
identified in Note 1 as of June 30, 1998 and 1997 and the related combined
statements of operations and cash flows for each of the three years in the
period ended June 30, 1998. These combined financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these combined financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Companies
identified in Note 1 as of June 30, 1998 and 1997 and the combined results of
their operations and their cash flows for each of the three years in the
period ended June 30, 1998 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II--Valuation and
Qualifying Accounts is presented for purposes of additional analysis and is
not a required part of the basic financial statements. This information has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, New York
July 28, 1998
F-11
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
COMBINED BALANCE SHEETS
As of September 30, 1998 (unaudited),
June 30, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30,
September 30, ------------------------
1998 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................. $ 305 $ 3 $ 1
Accounts and notes receivables (net
of allowance of $55,451 (unaudited),
$53,495 and $53,126, respectively).. 148,052 112,674 95,178
Inventories.......................... 38,307 37,914 34,265
Prepaid expenses and other current
assets.............................. 2,754 1,928 2,076
----------- ----------- -----------
Total current assets............... 189,418 152,519 131,520
PROPERTY, PLANT AND EQUIPMENT, net..... 17,287 21,161 21,627
INTANGIBLES, net....................... 2,382,900 2,407,019 2,396,494
OTHER NONCURRENT ASSETS................ 20,629 21,999 20,448
----------- ----------- -----------
Total assets....................... $ 2,610.234 $ 2,602,698 $ 2,570,089
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses............................ $ 67,405 $ 73,699 $ 65,801
Deferred subscription income......... 160,480 162,967 178,333
Due to other publishers.............. 42,294 39,815 41,280
----------- ----------- -----------
Total current liabilities.......... 270,179 276,481 285,414
DUE TO AFFILIATES, net................. 2,747,083 2,669,416 2,537,401
DEFERRED SUBSCRIPTION INCOME........... 54,149 52,711 51,088
DEFERRED INCOME TAXES.................. 628,866 635,785 633,065
OTHER NONCURRENT LIABILITIES........... 14,339 14,514 11,918
----------- ----------- -----------
Total liabilities.................. 3,714,616 3,648,907 3,518,886
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $2.50 par value, 3,000
shares authorized, 100 shares issued
and outstanding..................... -- -- --
Additional paid-in capital........... 445,404 444,500 369,500
Accumulated deficit.................. (1,549,786) (1,490,709) (1,318,297)
----------- ----------- -----------
Total stockholder's equity
(deficit)......................... (1,104,382) (1,046,209) (948,797)
----------- ----------- -----------
Total liabilities and stockholder's
equity (deficit).................. $ 2,610,234 $ 2,602,698 $ 2,570,089
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
COMBINED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1998 and 1997 (unaudited) and For the
Years Ended June 30, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30, Year Ended June 30,
-------------------- -------------------------------
1998 1997 1998 1997 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 165,043 $ 158,632 $ 616,798 $ 650,176 $ 636,761
OPERATING EXPENSES...... 119,746 106,805 410,691 408,842 403,013
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 15,203 14,443 54,698 56,305 49,649
DEPRECIATION AND
AMORTIZATION OF
PROPERTY, PLANT &
EQUIPMENT.............. 1,765 1,521 6,329 7,224 6,513
AMORTIZATION OF
INTANGIBLE ASSETS...... 24,074 23,424 93,693 93,693 93,693
--------- --------- --------- --------- ---------
Operating income
before intercompany
interest charge...... 4,255 12,439 51,387 84,112 83,893
INTERCOMPANY INTEREST
CHARGE................. (70,251) (61,335) (250,855) (234,581) (232,986)
Loss before benefit in
lieu of income
taxes................ (65,996) (48,896) (199,468) (150,469) (149,093)
BENEFIT IN LIEU OF
INCOME TAXES........... 6,920 6,764 27,056 27,056 27,056
--------- --------- --------- --------- ---------
Net loss.............. $ (59,076) $ (42,132) $(172,412) $(123,413) $(122,037)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-13
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30, 1998 and 1997 (unaudited) and For the
Years Ended June 30, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended September 30, Year Ended June 30,
-------------------- -------------------------------
1998 1997 1998 1997 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (59,076) $ (42,132) $(172,412) $(123,413) $(122,037)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization of
intangible assets and
property, plant &
equipment............ 25,839 24,945 100,022 100,917 100,206
Non-cash intercompany
charge for interest.. 70,251 61,335 250,855 234,581 232,986
Benefit in lieu of
income taxes......... (6,919) (6,764) (27,056) (27,056) (27,056)
Changes in assets and
liabilities:
Accounts and notes
receivables.......... (35,378) (29,609) (11,396) (17,468) (19,109)
Inventories........... (393) (1,730) (449) (3,120) (6,964)
Other non-current
assets............... 523 (473) (492) 546 1,169
Accounts payable and
accrued expenses and
due to other
publishers........... 540 (4,816) (5,959) 27,522 2,285
Prepaid expenses and
other current
assets............... (826) 17 549 267 369
Deferred subscription
income............... (1,048) 2,310 (13,743) (15,852) 20,539
Other noncurrent
liabilities.......... (175) -- 1,496 2,273 7,355
--------- --------- --------- --------- ---------
Net cash (used
in)/provided by
operating
activities......... (6,662) 3,083 121,415 179,197 189,743
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Investment in property,
plant and equipment... (297) (668) (2,364) (3,844) (5,300)
Other.................. (1,027) (101) (209) (552) (14,241)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities......... (1,324) (769) (2,573) (4,396) (19,541)
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of advances
from affiliates....... 8,288 (2,313) (118,840) (174,803) (170,199)
--------- --------- --------- --------- ---------
Net cash (used
in)/provided by
financing
activities......... 8,288 (2,313) (118,840) (174,803) (170,199)
--------- --------- --------- --------- ---------
Net
increase/(decrease)
in cash............ 302 1 2 (2) 3
--------- --------- --------- --------- ---------
CASH BALANCE, beginning
of year/period......... 3 1 1 3 --
--------- --------- --------- --------- ---------
CASH BALANCE, end of
year/period............ $ 305 $ 2 $ 3 $ 1 $ 3
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-14
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS,
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
News America Publications Inc., a Delaware corporation (together with its
subsidiaries, "Publications"), is a wholly owned subsidiary of News America
Incorporated ("NAI"), whose ultimate parent is The News Corporation Limited
("TNCL"), an Australian registered company with American Depositary Receipts
traded on the New York Stock Exchange.
On October 31, 1988, TNCL acquired Triangle Publications, Inc., the
publisher of TV Guide, Seventeen Magazine and The Daily Racing Form for $2.8
billion in cash and changed its name to News America Publications Inc. In June
1991, TNCL sold Seventeen Magazine, The Daily Racing Form and several other
consumer publications. Publications operates the guide business of TV Guide, a
weekly entertainment magazine. Its wholly owned subsidiary, Murdoch Magazines
Distribution, Inc., provides newsstand distribution for TV Guide as well as
for third-party magazine publishers. In connection with the United Video
Satellite Group ("UVSG") Transaction (see below), NAI will transfer certain
assets and liabilities of TV Guide Entertainment Network ("TVGEN"), a division
of News America Digital Publishing, Inc., to Publications. TVGEN commenced
operations effective July 1, 1996. In the accompanying financial statements,
TVGEN's financial position and results of operations have been combined with
those of Publications from July 1, 1996 onward.
Publications publishes and distributes magazines for other magazine
publishers. Over 90% of Publications' revenues are generated from the
advertising included in, and circulation of, the TV Guide magazine. TVGEN
maintains an interactive entertainment site on the worldwide web.
On June 10, 1998, NAI entered into a letter of agreement (the "Letter
Agreement") to sell all of the outstanding stock of Publications and all of
the outstanding stock of TVSM (see Note 6) (the "UVSG Transaction") for
consideration of 30 million shares of USVG common stock, subject to certain
adjustments (see Note 12), and $800 million in cash. The USVG Transaction is
subject to shareholder and regulatory approval.
The accompanying combined financial statements include the consolidated
financial statements of Publications, combined with those of TVGEN (since
inception on July 1, 1996) and TVSM (since its acquisition on June 26, 1998)
(collectively the "Companies"), and reflect the results of operations,
financial position and cash flows of the Companies as if the Companies were
separate entities, and were derived from the consolidated financial statements
of TNCL using historical bases in the assets and liabilities of the Companies.
The financial information for the years ended June 30, 1998, 1997 and 1996,
may not necessarily reflect the results of operations, financial position,
changes in shareholders' equity and cash flows of the Companies had the
Companies been separate entities during those periods.
All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited combined financial statements as of September 30,
1998, and for the three months ended September 30, 1998 and 1997, have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the three-month
periods ended September 30, 1998 and 1997 are not necessarily indicative of
the results that may be expected for the fiscal year.
F-15
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are summarized below.
Revenue Recognition:
Advertising revenues are recorded upon release of magazines for sale to
consumers and are stated net of agency commissions and cash and sales
discounts. Allowances for estimated bad debts, frequency discounts and rebates
are provided based upon historical experience. Actual bad debts, discounts and
rebates may differ from estimates. Management does not expect such differences
to have a material effect on the combined financial statements.
A proportionate share of magazine subscription revenue is recognized as
magazines are delivered to subscribers.
Newsstand revenues are recognized based on the on-sale dates of magazines.
Allowances for estimated returns are recorded based upon historical
experience. Actual returns for the last issues of the year may differ from
estimates. Management does not expect such differences to have a material
effect on the Companies' combined financial statements.
Distribution revenues are recognized as commissions are earned.
TVGEN recognizes advertising revenues based on the number of page/views
(impressions) for its website pursuant to advertiser contracts and sponsorship
revenues are recognized over the period of the sponsorship contract.
Deferred Subscription Income:
Deferred subscription income results from advance orders and payments for
magazine subscriptions received from subscribers. Allowances for estimated
subscription cancellations are provided based upon historical experience.
Publication/Issuance Costs:
Substantially all external direct costs incurred prior to on-sale dates are
deferred and charged to cost of sales upon on-sale dates of magazines. All
internal costs are expensed as incurred.
Inventories:
Inventories consist of paper and are stated at the lower of cost or market.
Cost is determined on an average cost basis for all inventory. Average cost
approximates the first-in, first-out cost method.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation is calculated
using the straight-line method over estimated useful lives of assets.
Leasehold improvements are amortized over shorter of the remaining lease terms
or estimated useful lives of related improvements. The cost and accumulated
depreciation of property sold or retired are removed from the accounts upon
disposition.
F-16
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
Estimated useful lives for major categories are as follows:
<TABLE>
<S> <C>
Leasehold Improvements........ Shorter of lease term or remainder of lease
Machinery and Equipment....... 5 Years
Data Processing Equipment..... 7 Years
</TABLE>
Intangibles:
The excess of costs over the fair value of net tangible assets acquired
represents the portion of the acquisition costs of TNCL's purchase of Triangle
Publications, Inc. specifically related to Publications' businesses and the
acquisition of TVSM by NAI (see Note 6). Such amounts have been allocated to
publishing rights and acquired subscriber accounts. Publishing rights and
excess of cost over net assets acquired are being amortized on a straight-line
basis over 40 years. Acquired subscriber accounts are being amortized over
various periods through 2001. In evaluating the value of future benefit of
these assets, the recoverability from operating income is measured. Under this
approach, the estimated future undiscounted cash flows associated with these
assets is compared to the assets' carrying values to determine if a reduction
is required. No such reductions in carrying values have been recorded.
As a result of adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), Publications and TVSM
increased the excess of cost over net assets acquired and deferred tax
liabilities to provide for deferred taxes on basis differences related to the
respective acquisitions. Such amounts are being amortized over 40 years using
the straight-line method.
Income Taxes:
SFAS No. 109 requires an asset and liability approach for financial
accounting and reporting for income taxes and allows the recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years. The Companies are included in the consolidated
federal tax returns of their ultimate United States parent, News Publishing
Australia Limited ("NPAL"), a subsidiary of TNCL. The Companies have provided
for income taxes in the accompanying combined financial statements as if they
were separate taxpayers. As discussed above, deferred tax liabilities were
established in connection with the adoption of SFAS No. 109. The benefit in
lieu of income taxes in each of the three years included in the accompanying
combined financial statements results from changes in the basis differences
that have occurred since the acquisitions of Publications and TVSM.
Due to Other Publishers:
The amounts due to other publishers represent sales from distribution of
other publishers' publications, net of Publications' commission revenue and
reserves for returns.
Use of Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and assumptions
by management. As a result, reported amounts of assets, liabilities, revenues
and expenses, as well as disclosures of contingent liabilities, may differ
from actual results.
F-17
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
3. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at June 30, 1998 and 1997
was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Leasehold Improvements................................. $ 5,335 $ 5,169
Machinery and Equipment................................ 40,007 35,462
Data Processing Equipment.............................. 9,988 8,836
-------- --------
55,330 49,467
Accumulated Depreciation and Amortization.............. (34,169) (27,840)
-------- --------
$ 21,161 $ 21,627
======== ========
</TABLE>
4. INTANGIBLE ASSETS
The composition of intangible assets at June 30, 1998 and 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Publishing Rights.................................. $2,270,202 $2,195,760
Excess of Costs Over Net Assets Acquired........... 899,263 869,487
Acquired Subscriber Accounts....................... 154,830 154,830
---------- ----------
3,324,295 3,220,077
Accumulated Amortization........................... (917,276) (823,583)
---------- ----------
$2,407,019 $2,396,494
========== ==========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The composition of accounts payable and accrued expenses at June 30, 1998
and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Trade Payables............................................ $38,852 $36,047
Overdraft Payable......................................... 16,388 11,914
Payroll and Employee Benefits............................. 6,505 7,469
Other Accrued Expenses.................................... 11,954 10,371
------- -------
$73,699 $65,801
======= =======
</TABLE>
6. ACQUISITION OF TVSM
On June 26, 1998, NAI acquired all of the outstanding stock of TVSM, Inc.
("TVSM"), a magazine publisher of monthly and weekly programming guides
designed specifically for and sold through companies in the cable television
industry, for cash of approximately $75 million. The acquisition has been
recorded as a purchase and the Companies have recorded a capital contribution
of $75 million from TNCL related to this acquisition. The excess of costs over
the fair value of net assets acquired of approximately $74 million has been
allocated to publishing rights and is being amortized on a straight-line basis
over 40 years. In accordance with SFAS No. 109, TVSM increased the excess of
cost over net assets acquired and deferred tax liabilities by
F-18
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
approximately $30 million to provide for deferred taxes on basis differences
related to the acquisition. The allocation of the purchase price is based upon
preliminary estimates of useful lives, expenses and liabilities and may differ
from the final purchase price allocation.
7. COMMITMENTS AND CONTINGENCIES
The Companies utilize office and warehouse space and certain equipment under
operating lease arrangements. The following table summarizes the Companies'
future obligations under these leases at June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999........................................................... $ 2,584
2000........................................................... 2,414
2001........................................................... 2,379
2002........................................................... 2,439
2003........................................................... 2,477
2004 and thereafter............................................ 4,594
-------
Total minimum lease payments................................... $16,887
=======
</TABLE>
Rent expense for operating leases amounted to approximately $5 million in
1998, 1997 and 1996, respectively.
TNCL has negotiated several contracts with paper manufacturers on behalf of
its subsidiaries. Publications has purchased the paper utilized in its
operations pursuant to such contracts. TNCL has agreed to continue such bulk
paper procurement for Publications after its sale to UVSG; however, there can
be no assurance that TNCL will continue to provide such paper procurement
services for Publications in the future.
The Companies are involved in certain litigation and claims arising in the
normal course of business. In the opinion of management, any liabilities
arising from such litigation and claims are not expected to be material to the
financial position and results of operations of the Companies.
F-19
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
8. INCOME TAXES
The Companies are included in a consolidated tax return with other NPAL
owned companies. The Companies' financial statements are prepared on a
separate return basis. Therefore the income tax accounts are based on what the
Companies' current and deferred tax provision would have been if the Companies
filed a separate tax return.
Significant components of the benefit in lieu of income taxes for the years
ended June 30, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current
Federal......................................... $ 60,231 $ 3,035 $23,505
State........................................... 15,105 5,575 8,376
-------- ------- -------
75,336 8,610 31,881
Deferred
Federal......................................... (48,661) 11,646 (7,754)
State........................................... 381 6,800 2,929
-------- ------- -------
(48,280) 18,446 (4,825)
-------- ------- -------
Total benefit in lieu of income taxes............. $ 27,056 $27,056 $27,056
======== ======= =======
</TABLE>
Net deferred tax liabilities as of June 30, 1998, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets
NOLs attributed on a stand-alone basis... $ 202,460 $ 127,124 $ 123,648
Other.................................... 6,763 31,786 7,004
Deferred tax liabilities
Basis differences on acquisitions........ (632,087) (629,372) (656,428)
Other.................................... (7,375) (8,098) (10,697)
Valuation allowance........................ (205,546) (154,505) (123,648)
--------- --------- ---------
$(635,785) $(633,065) $(660,121)
========= ========= =========
</TABLE>
The Companies have an NOL of approximately $200 million. The ultimate
utilization of this NOL is subject to review by the Internal Revenue Service
as future tax returns are filed. The Companies have a valuation allowance for
the full amount of all NOLs since, on a stand alone basis, realization is not
more likely than not.
F-20
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
A reconciliation of the benefit in lieu of income taxes included in the
combined statements of operations and the benefit in lieu of income taxes
assuming the Federal statutory income tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Benefit assuming federal income tax rate....... $ 69,815 $ 52,664 $ 52,165
Amortization of intangibles.................... (9,469) (9,469) (9,469)
State income tax, net of federal benefit....... 15,485 12,375 11,304
Other.......................................... 2,266 2,343 (887)
Increase in valuation allowance................ (51,041) (30,857) (26,057)
-------- -------- --------
$ 27,056 $ 27,056 $ 27,056
======== ======== ========
</TABLE>
9. EMPLOYEE BENEFITS
News America Incorporated Defined Benefit Plan
Publications and TVGEN participate in the News America Incorporated Employee
Pension and Retirement Plan (the "NAI Plan"), a defined benefit plan covering
substantially all Publications and TVGEN employees. The NAI Plan provides
retirement benefits to all non-union salaried employees based on average
earnings, length of service, and other considerations. Pension costs charged
to Publications and TVGEN are based upon an actuarial study performed by an
independent actuarial firm. Pension expense was $1.8 million in 1998, $1.8
million in 1997, and $2.3 million in 1996.
In connection with the UVSG transaction, Publications and TVGEN will no
longer be participating employers under the NAI Plan and, as a result,
Publications' and TVGEN's employees will no longer accrue benefits in the NAI
Plan.
Other Plans
Publications' and TVGEN's employees participate in the News America
Incorporated Savings Plan, (the "Savings Plan"), a defined contribution plan.
Publications and TVGEN match contributions to the Savings Plan up to 3% of
each participant's eligible compensation. Contributions by Publications and
TVGEN under the Savings Plan were $1.1 million in 1998, $1.1 million in 1997,
and $1.0 million in 1996.
In connection with the UVSG Transaction, NAI will segregate the assets
allocable to accrued benefits of present and former employees of Publications
and TVGEN and transfer such assets to a newly created plan containing
substantially identical provisions.
TVSM's employees participate in a 401(K) retirement plan. TVSM makes
matching contributions at the rate of 8% of employees' qualified contributions
to a maximum of 3% of employees' qualifying wages. TVSM may also make, at its
discretion, contributions allocated based upon each participant's share of
total compensation paid to all employees eligible to participate in the plan.
F-21
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
September 30, 1998 and 1997 (unaudited) and
June 30, 1998, 1997 and 1996
10. RELATED PARTY TRANSACTIONS
NAI provides general managerial assistance to Publications and TVGEN
including assistance relating to centralized medical, dental and pension
plans, tax matters, paper purchasing, travel arrangements, legal matters and
insurance and allocates a proportionate share of these costs and corporate
rent expense to Publications and TVGEN. The basis for such allocation varies
depending upon the nature of the cost and includes such factors as headcount
and square footage. Allocated costs totaled approximately $4.0 million, $4.0
million and $4.8 million in the years ended June 30, 1998, 1997 and 1996,
respectively, and $1.2 million (unaudited) and $1.1 million (unaudited) in the
three months ended September 30, 1998 and 1997, respectively. The Companies'
management believes that such allocations are reasonable.
Publications is a guarantor of a number of NAI's financing arrangements.
Publications will be released from its obligations under these guarantees when
the UVSG Transaction is consummated.
Publications had intercompany debt from affiliates in the amount of
approximately $2.7 billion and $2.5 billion at June 30, 1998 and 1997, and
approximately $2.7 billion (unaudited) at September 30, 1998. Interest expense
with respect to such debt was charged at the prime rate. The prime rate was
8.50%, 8.50% and 8.25% for the years ended June 30, 1998, 1997 and 1996,
respectively.
Accounts receivable from affiliates of approximately $1.9 million, $0.5
million, and $4.4 million (unaudited) are included in accounts and notes
receivable on the accompanying combined balance sheets as of June 30, 1998 and
1997, and September 30, 1998, respectively. Amounts due to affiliates of TNCL
will be contributed to equity in connection with the UVSG Transaction.
11. SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Companies extend credit to various companies in the broadcast television
and advertising industry for the purchase of its advertising space, which
results in a concentration of credit risk. This concentration of credit risk
may be affected by changes in economic or other industry conditions and may,
accordingly, impact the Companies' overall credit risk. Although the Companies
generally do not require collateral, the Companies perform ongoing credit
evaluations of their customers and provide for potential losses, if necessary.
During 1998, 1997 and 1996, the Companies earned approximately 13.2%, 9.9%
and 11.4%, respectively, of their advertising revenues from TNCL affiliates.
12. SUBSEQUENT EVENT
On July 28, 1998, UVSG announced a two-for-one stock split. Shareholders of
record on August 10, 1998, will receive two shares for each share owned. In
accordance with the Letter Agreement (see Note 1), the number of shares to be
received by NAI as consideration will be adjusted for the stock split.
F-22
<PAGE>
NEWS AMERICA PUBLICATIONS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance-- Charged to Balance--
Beginning Costs and End of
Description of Year Expenses Deductions Year
- ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
June 30, 1998..................... $ 2,518 $ 7,323 $ (6,225) $ 3,616
June 30, 1997..................... 3,058 9,866 (10,406) 2,518
June 30, 1996..................... 5,960 8,486 (11,388) 3,058
Reserve for volume rebates:
June 30, 1998..................... 1,427 622 (281) 1,768
June 30, 1997..................... 2,142 960 (1,675) 1,427
June 30, 1996..................... 3,079 627 (1,564) 2,142
Reserve for returns:
June 30, 1998..................... 49,181 490,232 (491,302) 48,111
June 30, 1997..................... 39,676 394,578 (385,073) 49,181
June 30, 1996..................... 29,074 307,484 (296,882) 39,676
</TABLE>
F-23
<PAGE>
APPENDIX I
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
between
UNITED VIDEO SATELLITE GROUP, INC.
and
LIBERTY MEDIA CORPORATION
Effective as of May 18, 1998
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
RECITALS................................................................ I-7
AGREEMENT............................................................... I-8
ARTICLE I PURCHASE AND SALE............................................. I-8
1.1 Sale of Stock................................................. I-8
1.2 Purchase of Stock............................................. I-8
1.3 Tax Treatment................................................. I-8
1.4 The Closing................................................... I-8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER..................... I-9
2.1 Organization--Seller.......................................... I-9
Corporate Power, Authorization and Validity of Agreement, No
2.2 Conflicts..................................................... I-10
2.3 Shares........................................................ I-10
2.4 Organization--Netlink Subsidiaries............................ I-10
2.5 Capitalization................................................ I-11
2.6 Subsidiaries.................................................. I-11
2.7 No Conflicts, Notices......................................... I-11
2.8 Financial Statements.......................................... I-12
2.9 Absence of Certain Changes.................................... I-12
2.10 Liabilities................................................... I-13
2.11 Litigation.................................................... I-13
2.12 Restrictions on Business Activities........................... I-14
2.13 Tax Matters................................................... I-14
2.14 Contracts and Commitments..................................... I-15
2.15 Adequacy of Assets; Intangible Property....................... I-15
2.16 Licenses; Compliance with Regulatory Requirements............. I-16
2.17 Employee Benefit Plans........................................ I-17
2.18 Employee Matters.............................................. I-19
2.19 Interested Party Transactions................................. I-19
2.20 Insurance..................................................... I-19
2.21 Major Customers............................................... I-20
2.22 Suppliers and Broadcast Stations.............................. I-20
2.23 Minute Books.................................................. I-20
2.24 Brokers' and Finders' Fees.................................... I-20
2.25 Disclosure.................................................... I-20
2.26 Programming Supply and Affiliation Agreements................. I-20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER................. I-21
3.1 Organization.................................................. I-21
3.2 Corporate Power, Authorization and Validity of Agreement...... I-21
3.3 Capitalization of Purchaser................................... I-21
3.4 Purchaser Reports and Financial Statements.................... I-22
No Approvals or Notices Required; No Conflict with
3.5 Instruments................................................... I-23
3.6 Absence of Certain Changes or Events.......................... I-23
3.7 Information................................................... I-23
3.8 Brokers' and Finders' Fees.................................... I-24
3.9 Investment.................................................... I-24
3.10 Litigation.................................................... I-24
3.11 Disclosure.................................................... I-24
3.12 Fairness Opinion.............................................. I-24
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.13 Tax-Free Transaction........................................ I-24
Licenses; Compliance with Regulatory Requirements;
3.14 Intangible Property......................................... I-24
3.15 Tax Matters................................................. I-25
3.16 Management of SNG........................................... I-25
ARTICLE IV CONDUCT PENDING THE CLOSING................................. I-25
4.1 Conduct of Business of the Netlink Subsidiaries............. I-25
4.2 No Solicitation; Acquisition Proposals...................... I-28
4.3 Proxy Statement............................................. I-28
4.4 Notice of Breach............................................ I-28
ARTICLE V OTHER COVENANTS.............................................. I-28
5.1 Access to Information....................................... I-28
5.2 Confidentiality............................................. I-29
5.3 Publicity................................................... I-29
5.4 Proxy Statement; Other Filings; Cooperation................. I-29
5.5 Employment Matters.......................................... I-30
5.6 Tax-Free Transaction........................................ I-30
ARTICLE VI CONDITIONS PRECEDENT........................................ I-30
6.1 Conditions to Obligations of Each Party..................... I-30
6.2 Additional Conditions to Obligations of Seller.............. I-30
6.3 Additional Conditions to the Obligations of Purchaser....... I-31
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.......................... I-32
7.1 Termination................................................. I-32
7.2 Effect of Termination....................................... I-32
7.3 Amendment................................................... I-32
7.4 Extension; Waiver........................................... I-32
ARTICLE VIII INDEMNIFICATION........................................... I-33
8.1 Indemnification by Seller................................... I-33
8.2 Indemnification by Purchaser................................ I-33
8.3 Defense of Action........................................... I-34
8.4 Insurance Proceeds.......................................... I-35
ARTICLE IX TAX MATTERS................................................. I-35
9.1 Tax Returns................................................. I-35
9.2 Termination of Prior Tax Settlement Agreements.............. I-35
9.3 Pre-Closing Taxes...........................................
9.4 Transfer Taxes.............................................. I-36
9.5 Post-Closing Taxes.......................................... I-36
9.6 Tax Cooperation............................................. I-37
9.7 Indemnification............................................. I-37
9.8 Notification of Proceedings, Control; Refunds............... I-38
9.9 Tax Effect of Payments...................................... I-38
9.10 Withholding................................................. I-38
ARTICLE X GENERAL PROVISIONS........................................... I-38
10.1 Survival.................................................... I-38
10.2 Notices..................................................... I-39
10.3 Interpretation.............................................. I-39
10.4 Counterparts................................................ I-40
10.5 Entire Agreement; Nonassignability; Parties in Interest..... I-40
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.6 Severability................................................. I-40
10.7 No Waiver.................................................... I-40
10.8 Governing Law................................................ I-40
10.9 Rules of Construction........................................ I-40
10.10 Expenses..................................................... I-40
10.11 Attorneys Fees............................................... I-41
10.12 Further Assurances........................................... I-41
</TABLE>
I-4
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Terms Page
----- -------
<S> <C>
1998 Capital Budget.................................................... I-6
Addition to Taxable Income............................................. I-30
Agreement.............................................................. I-1
Annual Financial Statements............................................ I-5
Bonus Plan............................................................. I-12
Class A Common Stock................................................... I-14
Class B Common Stock................................................... I-1
Closing................................................................ I-2
Closing Date........................................................... I-2
COBRA.................................................................. I-12
Code................................................................... I-1-I-2
Commission............................................................. I-8
Commission Filings..................................................... I-15
Companies.............................................................. I-29
Contract Consent....................................................... I-4
Contract Notice........................................................ I-5
CRTC................................................................... I-19
Denver 6 Business...................................................... I-1
Employee Plans......................................................... I-11
Environmental and Health Laws.......................................... I-10
Equity Affiliate....................................................... I-14
ERISA.................................................................. I-11
Estimated Tax Payment.................................................. I-20
Exchange Act........................................................... I-8
FCC.................................................................... I-10
FCC Licenses........................................................... I-10
GAAP................................................................... I-5
GE Transponder Agreement............................................... I-19
Governmental Entity.................................................... I-5
Hazardous Substances................................................... I-10
Indemnified Party...................................................... I-27
Indemnifying Party..................................................... I-27
Intellectual Property.................................................. I-9
Interim Financial Statements........................................... I-5
knowledge.............................................................. I-32
Licenses............................................................... I-10
Lien................................................................... I-4
LMC Netlink............................................................ I-1
LMC Netlink Shares..................................................... I-2
Losses................................................................. I-26
Material Adverse Change................................................ I-32
Material Adverse Effect................................................ I-32
Minimum Amount......................................................... I-26
Netlink Businesses..................................................... I-3
Netlink Interests...................................................... I-5
Netlink International.................................................. I-5
Netlink Licenses....................................................... I-10
Netlink USA............................................................ I-1
New Holdco............................................................. I-1
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
Terms Page
----- ----
<S> <C>
Non-Return Taxes........................................................... I-28
Nondisclosure Agreement.................................................... I-21
Overpayment Rate........................................................... I-30
Permits.................................................................... I-10
Permitted Encumbrances..................................................... I-9
Post-Closing Returns....................................................... I-29
Post-Closing Taxes......................................................... I-29
Pre-Closing Companies Separate Tax Amounts................................. I-30
Pre-Closing Consolidated Returns........................................... I-28
Pre-Closing Non-Consolidated Returns....................................... I-28
Pre-Closing Tax Period..................................................... I-29
Pre-Signing Period......................................................... I-29
Preferred Stock............................................................ I-14
Primestar.................................................................. I-1
Primestar Transaction...................................................... I-1
Proxy Statement............................................................ I-16
Purchaser.................................................................. I-1
Purchaser Licenses......................................................... I-17
Purchaser Stock Option Plans............................................... I-14
Purchaser Stockholders Meeting............................................. I-16
Refund..................................................................... I-29
Requested Employee......................................................... I-22
Restrictions............................................................... I-4
Revenue Sharing Agreement.................................................. I-9
Securities Act............................................................. I-4
Seller..................................................................... I-1
Seller Disclosure Schedule................................................. I-3
Selling Affiliated Group................................................... I-28
Settlement Agreements...................................................... I-28
SHVA....................................................................... I-3
SHVA Agreement............................................................. I-3
SMATV Business............................................................. I-1
SNG........................................................................ I-1
SNG Agreement.............................................................. I-1
SNG Corporations........................................................... I-1
SNG Interest............................................................... I-9
SNG Subsidiaries........................................................... I-2
SNG Subsidiary............................................................. I-2
SSI........................................................................ I-13
Superstar Connection Agreement............................................. I-9
Tax Partnerships........................................................... I-29
Tax Returns................................................................ I-8
Taxes...................................................................... I-8
TCI Benefit Contributions.................................................. I-11
TCI Plans.................................................................. I-11
Telluride.................................................................. I-1
Telluride Shares........................................................... I-2
Turner..................................................................... I-1
UVSG Shares................................................................ I-2
Westlink................................................................... I-1
WGN Agreements............................................................. I-9
</TABLE>
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<PAGE>
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (this "Agreement") is
being entered into on November 30, 1998, effective as of May 18, 1998, between
UNITED VIDEO SATELLITE GROUP, INC., a Delaware corporation ("Purchaser"), and
LIBERTY MEDIA CORPORATION, a Delaware corporation ("Seller").
RECITALS
Seller owns all of the issued and outstanding shares of capital stock of (i)
Telluride Cablevision, Inc., a Delaware corporation ("Telluride"), (ii) LMC
Netlink Corporation, a Colorado corporation ("LMC Netlink") and (iii)
Westlink, Inc., a Colorado corporation ("Westlink"). LMC Netlink and West link
are referred to herein collectively as the "SNG Corporations," and Telluride
and the SNG Corporations are sometimes referred to herein collectively as the
"Netlink Corporations." Telluride, LMC Netlink and Westlink are each general
partners of Netlink USA, a Colorado general partnership ("Netlink USA"), with
20%, 40% and 40% partnership interests therein, respectively. Netlink USA owns
an approximate 40% membership interest in Superstar/Netlink Group LLC, a
Delaware limited liability company ("SNG") and owns and operates certain other
assets and businesses, including the business of providing certain programming
services to certain satellite master antenna television operations (the "SMATV
Business") and the business of distributing on a wholesale basis, the signals
of the broadcast stations known as the "Denver 6" (the "Denver 6 Business").
Purchaser owns an approximate 40% membership interest in SNG and, pursuant to
that certain agreement between Seller and Purchaser, dated March 11, 1996, as
amended and restated on August 9, 1996, relating to the formation of SNG
(including any amendments thereto, the "SNG Agreement"), has day-to-day
management control of SNG. The remaining approximately 20% membership interest
in SNG is owned by Turner Vision, Inc. ("Turner").
In February 1998, Seller and Purchaser announced their agreement in
principle with respect to the sale by Seller and the purchase by Purchaser, of
all the capital stock of the Netlink Corporations in consideration for the
issuance to Seller of 6,375,000 shares of Purchaser's common stock. Subsequent
thereto, Purchaser, Seller and Turner commenced negotiations with PRIMESTAR,
Inc. ("Primestar"), for the acquisition by a new holding company to be formed
by Primestar ("New Holdco") of beneficial ownership of 100% of the membership
interests in SNG, through a series of reverse triangular mergers of the SNG
Corporations, Turner and the subsidiary of Purchaser that owns its interest in
SNG (the "Primestar Transaction"), in exchange for shares of Series A
Convertible Preferred Stock of New Holdco (the "Primestar Shares").
Thereafter, Purchaser and Seller entered into a Stock Purchase Agreement
dated as of May 18, 1998 (the "Stock Purchase Agreement"), which provided that
in consideration for the issuance to Seller of 6,375,000 shares of Class B
Common Stock, par value $.01 per share, of Purchaser (the "Class B Common
Stock") Seller would sell and Purchaser would buy either all the capital stock
of the Netlink Corporations or, if the Primestar Transaction were consummated,
the stock of Telluride and the Primestar Shares into which the stock of the
SNG Corporations would be converted in the Primestar Transaction.
In June 1998, Purchaser entered into a Letter Agreement, dated as of June
10, 1998 (the "TV Guide Agreement"), with News America Incorporated ("NAI"),
The News Corporation Limited and Tele-Communications, Inc. ("TCI"), pursuant
to which NAI agreed to sell, and Purchaser agreed to buy, on the terms and
conditions set forth therein, all of the outstanding stock of NAI's subsidiary
that owns and publishes TV Guide and that as of the closing under the TV Guide
Agreement will own the assets of NAI's entertainment web site known as TVGEN,
and all of the outstanding stock of TVSM, Inc., a newly acquired subsidiary of
NAI which owns and publishes print cable television guides, for $800 million
in cash and 30 million shares of Purchaser's common stock (collectively, the
"NAI Transaction"). The TV Guide Agreement states the intention of the parties
thereto that the NAI Transaction and the transactions contemplated by the
Stock Purchase Agreement be consummated on the same day and be treated as a
tax-free exchange under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code").
I-7
<PAGE>
Purchaser subsequently advised Seller that the negotiations relating to the
potential Primestar Transaction had not been successful and were abandoned.
The parties hereto desire to amend and restate the Stock Purchase Agreement
in its entirety to eliminate all references to the Primestar Transaction and
to provide for the simultaneous closing of the NAI Transaction and the sale by
Seller and purchase by Purchaser of the stock of the Netlink Corporations on
and subject to the terms and conditions hereof.
The Netlink Corporations and Netlink USA are sometimes referred to herein
individually as a "Netlink Subsidiary" and collectively as the "Netlink
Subsidiaries."
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
Purchase and Sale
1.1 Sale of Stock. Upon the terms and subject to the conditions of this
Agreement and for the consideration set forth herein, Seller hereby agrees to
sell, transfer, assign and deliver to Purchaser at the Closing (as defined in
Section 1.4(a)), (i) 100 shares of common stock, par value, $1.00 per share of
Telluride (the "Telluride Shares"), (ii) 1,000 shares of common stock, par
value $1.00 per share, of LMC Netlink ("LMC Netlink Shares") and (iii) 1,000
shares of common stock, par value $1.00 per share, of Westlink ("Westlink
Shares" and together with the LMC Netlink Shares and the Telluride Shares, the
"Purchased Shares"), in each case, together with the right to receive all
unpaid dividends or other distributions declared or otherwise payable with
respect to such Purchased Shares, free and clear of all Liens and Restrictions
(other than Liens and Restrictions created pursuant to this Agreement).
1.2 Purchase of Stock. Upon the terms and subject to the conditions of this
Agreement, Purchaser hereby agrees to purchase at the Closing all, but not
less than all, of the Purchased Shares and to issue in exchange therefor an
aggregate of 6,375,000 newly issued, fully paid and nonassessable shares of
Class B Common Stock (the shares of Class B Common Stock to be issued pursuant
to this sentence being sometimes referred to herein collectively as the "UVSG
Shares"). The number and type of Purchased Shares and UVSG Shares shall be
appropriately adjusted to reflect any stock split, reverse split, stock
dividend or other reclassification or reorganization affecting the capital
stock of the applicable issuer, the record date for which occurs after May 18,
1998, including in the case of the UVSG Shares the Stock Split (as defined in
Section 3.3). By way of example, after giving effect to the Stock Split the
aggregate number of shares of Class B Common Stock comprising the UVSG Shares
is 12,750,000.
1.3 Tax Treatment. The parties intend that the transfer of the Purchased
Shares in exchange for the UVSG Shares as contemplated by this Agreement will
qualify as a tax-free transaction pursuant to Section 351 of the Code.
1.4 The Closing.
(a) Subject to the terms and conditions of this Agreement, the closing of
the purchase by Purchaser of the Purchased Shares (the "Closing") shall take
place (i) at the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street,
Suite 4100, Denver, Colorado 80203, at 10:00 a.m., local time, on the first
business day following the day on which the conditions set forth in Article VI
shall be fulfilled or waived in accordance herewith or (ii) at such other
time, date or place as the parties hereto agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date." Notwithstanding the
foregoing, unless the TV Guide Agreement has
I-8
<PAGE>
theretofore been terminated and the transactions contemplated thereby
abandoned, the Closing shall occur on the same day as the closing under the TV
Guide Agreement (the "TV Guide Closing Date"), provided that the conditions
set forth in Article VI (other than any conditions which may only be satisfied
at the Closing) shall have theretofore been satisfied or waived.
(b) At the Closing, (i) Seller shall deliver to Purchaser stock certificates
representing the Purchased Shares, duly endorsed in blank, or with separate
notarized stock transfer powers attached thereto and signed in blank, together
with all other instruments of transfer necessary or appropriate to transfer
the Purchased Shares to Purchaser and (ii) Purchaser in exchange therefor
shall deliver or cause to be delivered to Seller newly issued stock
certificates representing the UVSG Shares registered in the name of Seller.
(c) At the Closing, the parties shall deliver or cause to be delivered the
certificates and other documents required to be delivered pursuant to Article
VI hereof.
(d) At the Closing, Seller shall be deemed to have assumed the obligations
of Netlink USA under Section 10 of the Joint Venture Terms incorporated into
the SNG Agreement, and Netlink USA shall thereupon be released from such
obligations.
ARTICLE II
Representations and Warranties of Seller
It is expressly understood and agreed by the parties that Seller is not
making any representation or warranty with respect to (i) SNG, including,
without limitation, its condition (financial or otherwise), assets,
liabilities, business, operations, results of operations, customers,
management, employees or prospects (other than Seller's representation in
Section 2.15(b) as to Netlink USA's ownership of its interest in SNG), (ii)
compliance by Seller or the Netlink Subsidiaries with the Satellite Home
Viewer Act of 1994, as amended (the "SHVA") or (iii) the effect on the Netlink
Subsidiaries and their respective condition (financial or otherwise), assets,
liabilities, business, operations, results of operations, customers,
management, employees or prospects of entering into (upon its becoming
effective) or not entering into the Settlement and Compliance Agreement,
executed by Netlink USA and Telluride as of May 1, 1998, among ABC, Inc., CBS
Broadcasting Inc., Fox Broadcasting Company, National Broadcasting Company,
and certain ABC, CBS, Fox, and NBC Network Stations; the National Association
of Broadcasters; the ABC Television Affiliates Association, the CBS Television
Affiliates Association, the Fox Television Affiliates Association, and the NBC
Television Affiliates Association and Primestar Partners, L.P. and Netlink USA
and Telluride (the "SHVA Agreement").
Except as disclosed in the document dated as of May 18, 1998 delivered by
Seller to Purchaser prior to the execution and delivery of the Stock Purchase
Agreement (the "Seller Disclosure Schedule"), Seller represents and warrants
to Purchaser as follows (such representations and warranties being deemed made
as of May 18, 1998):
2.1 Organization--Seller. Seller (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(ii) has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted and (iii)
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except in the case of each of clauses (i), (ii) and (iii) where the failure to
be in good standing, to have such power and authority or to be so duly
qualified or licensed and in good standing has not had and is not reasonably
likely to have a Material Adverse Effect on the Netlink Subsidiaries or the
Netlink Businesses, in either case taken as a whole. As used herein, the term
"Netlink Businesses" means all of the businesses, assets and liabilities of
Netlink USA, including the SMATV Business, the Denver 6 Business, and Netlink
USA's interest in the WGN Agreements (as defined herein), but excluding
Netlink USA's interest in SNG and any assets and liabilities of any Netlink
Subsidiary that relate solely to SNG or such interest in SNG (the "Excluded
Assets and Liabilities") (it being
I-9
<PAGE>
understood that the Excluded Assets and Liabilities include any liability of
Netlink USA under the SNG Agreement).
2.2 Corporate Power, Authorization and Validity of Agreement, No
Conflicts. Seller has all requisite corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. Subject to the satisfaction of the
conditions set forth in Article VI, the execution, delivery and performance by
Seller of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on its part. This Agreement has been duly executed and delivered by
Seller and is a valid and binding obligation of Seller, enforceable in
accordance with its terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, (a) violate or conflict with any permit, order, license, decree,
judgment, statute, law, ordinance, rule or regulation applicable to Seller or
(b) result in any breach or violation of, or constitute a default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, or result in the creation of any
mortgage, pledge, lien, encumbrance, charge, or other security interest (a
"Lien") on any of the properties or assets of Seller pursuant to, or require
any consent by or approval or authorization of (a "Contract Consent") any
party to any mortgage, indenture, lease, contract or other agreement or
instrument, bond, note, concession or franchise applicable to Seller or any of
its properties or assets, except, in each case, where such conflict,
violation, default, termination, cancellation, acceleration, Lien or lack of
consent would not have and is not reasonably likely to have a Material Adverse
Effect on the Netlink Subsidiaries or the Netlink Businesses, in either case
taken as a whole, or to prevent the consummation of the transactions
contemplated hereby.
2.3 Shares. Seller has good title to the Purchased Shares, which constitute
all of the outstanding shares of capital stock of the Netlink Corporations.
Seller is the record and the beneficial owner of the Purchased Shares, with
the sole right to vote, dispose of, and receive dividends or distributions
with respect to such shares. All of the Purchased Shares are duly authorized,
validly issued, fully paid and non-assessable and are free and clear of any
Lien and are not subject to any Restrictions (other than any Liens or
Restrictions created by this Agreement or that may arise as a result of the
negotiations with respect to the Primestar Transaction and other than any
restrictions on transfer arising under the Securities Act of 1933, as amended
(the "Securities Act") and state securities laws). In this Agreement, any
reference to "Restrictions", with respect to any capital stock, partnership
interest, membership interest in a limited liability company or other
security, shall mean any voting or other trust or agreement, option, warrant,
preemptive right, right of first offer, right of first refusal, escrow
arrangement, proxy, buy-sell agreement, power of attorney or other contract,
any law, rule, regulation, order, judgment or decree which, conditionally or
unconditionally, (i) grants to any Person the right to purchase or otherwise
acquire, or obligates any Person to sell or otherwise dispose of or issue, or
otherwise results or, whether upon the occurrence of any event or with notice
or lapse of time or both or otherwise, may result in any person acquiring, (A)
any of such capital stock or other security; (B) any of the proceeds of, or
any distributions paid or which are or may become payable with respect to, any
of such capital stock or other security; or (C) any interest in such capital
stock or other security or any such proceeds or distributions; (ii) restricts
or, whether upon the occurrence of any event or with notice or lapse of time
or both or otherwise, is reasonably likely to restrict the transfer or voting
of, or the exercise of any rights or the enjoyment of any benefits arising by
reason of ownership of, any such capital stock or other security or any such
proceeds or distributions; or (iii) creates or, whether upon the occurrence of
any event or with notice or lapse of time or both or otherwise, is reasonably
likely to create a Lien or purported Lien affecting such capital stock or
other security, proceeds or distributions.
2.4 Organization--Netlink Subsidiaries. Each of the Netlink Corporations is
a corporation duly organized and validly existing and in good standing under
the laws of its jurisdiction of organization, has all requisite corporate
power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on the
Netlink
I-10
<PAGE>
Subsidiaries taken as a whole. Netlink USA is a general partnership duly
organized and validly existing and in good standing under the laws of the
State of Colorado, has all requisite partnership power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on the Netlink Subsidiaries taken as a
whole. Seller has delivered to Purchaser true and correct copies of the
Certificate or Articles of Incorporation and Bylaws of each of the Netlink
Corporations and the Partnership Agreement of Netlink USA, each as amended to
the effective date hereof. No Netlink Subsidiary is in violation of any of the
provisions of its Certificate or Articles of Incorporation or Bylaws or
equivalent organizational documents.
2.5 Capitalization. The authorized capital stock of LMC Netlink consists of
10,000 shares of common stock, par value $1.00 per share, of which there are
issued and outstanding 1,000 shares. The authorized capital stock of Westlink
consists of 10,000 shares of common stock, par value $1.00 per share, of which
there are issued and outstanding 1,000 shares. The authorized capital stock of
Telluride consists of 50,000 shares of common stock, par value $1.00 per
share, of which there are issued and outstanding 100 shares. There are no
other outstanding shares of capital stock or other securities or other
ownership interests of any of the Netlink Corporations and no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any nature
relating to the capital stock or other securities or ownership interests of
any of the Netlink Corporations, or otherwise obligating any of the Netlink
Corporations to issue, transfer, sell, purchase, redeem or otherwise acquire
such stock, securities or ownership interests.
2.6 Subsidiaries. None of the Netlink Subsidiaries owns, directly or
indirectly, any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity, other than the respective partnership interests of the Netlink
Corporations in Netlink USA and the membership interest of Netlink USA in SNG.
The record and beneficial ownership of the partnership interests in Netlink
USA (the "Netlink Interests"), is as set forth on Schedule 2.6 of the Seller
Disclosure Schedule. There are no outstanding partnership, ownership or other
interests or securities of Netlink USA other than the Netlink Interests, and
no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of
any nature relating to the partnership, ownership or other interests or
securities of Netlink USA, or otherwise obligating Netlink USA to issue,
transfer, sell, purchase, redeem or otherwise acquire such interests or
securities. All of the Netlink Interests are duly authorized, validly issued,
fully paid and non-assessable and are free and clear of any Lien and are not
subject to any Restrictions, other than any Liens or Restrictions created by
this Agreement or that may arise as a result of the negotiations with respect
to the Primestar Transaction and other than any restrictions on transfers
arising under the Securities Act or state securities laws. Netlink
International, Inc., a Colorado corporation ("Netlink International"), was
dissolved effective April 30, 1998, and did not conduct any operations or have
any employees since its inception.
2.7 No Conflicts, Notices. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
(a) conflict with or violate any provision of the Certificate or Articles of
Incorporation or Bylaws of any of the Netlink Corporations or the partnership
agreement of Netlink USA, (b) violate or conflict with any permit, order,
license, decree, judgment, statute, law, ordinance, rule or regulation
applicable to any of the Netlink Subsidiaries or the properties or assets of
any of the Netlink Subsidiaries, or (c) result in any breach or violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of, or result in the creation of any Lien on any of the properties or assets
of any of the Netlink Subsidiaries pursuant to, or require any Contract
Consent of any party to any material mortgage, indenture, lease, contract or
other agreement or instrument, bond, note, concession or franchise applicable
to any of the Netlink Subsidiaries or any of their properties or assets,
except in the case of clauses (b) and (c), where such conflict, violation,
breach, default, termination, cancellation, acceleration, Lien or lack of
consent would not have and is not reasonably likely to have a Material Adverse
Effect on either the Netlink Subsidiaries or the Netlink Businesses, in either
case taken as a whole. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court,
I-11
<PAGE>
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to
Seller or the Netlink Subsidiaries in connection with the execution and
delivery of this Agreement by Seller or the consummation by Seller and the
Netlink Subsidiaries of the transactions contemplated hereby, except for (i)
any filings as may be required under applicable state or federal securities
laws and the securities laws of any foreign country and (ii) such other
consents, authorizations, filings, approvals, orders and registrations which,
if not obtained or made, would not have a Material Adverse Effect on either
the Netlink Subsidiaries or the Netlink Businesses, in either case taken as a
whole, and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement. None of Seller, the Netlink
Subsidiaries or any of their affiliates is or will be required to give any
notice (a "Contract Notice") to any party (other than Purchaser and its
subsidiaries) to any material mortgage, indenture, lease, contract or other
agreement or instrument, bond, note, concession or franchise applicable to any
of the Netlink Subsidiaries or any of their properties or assets in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
2.8 Financial Statements. Seller has heretofore delivered to Purchaser a
true and complete copy of the Combined Financial Statement of the Netlink
Wholesale Division as of December 31, 1997 and for the calendar year then
ended (including the notes thereto, the "Annual Financial Statements") and a
true and complete copy of the Combined Financial Statement of the Netlink
Wholesale Division as of March 31, 1998 and for the quarterly period then
ended (including the notes thereto, the "Interim Financial Statements"). The
Annual Financial Statements and the Interim Financial Statements were each
prepared in accordance with generally accepted accounting principles (as
accepted by the accounting profession in the United States) as in effect as of
the relevant time ("GAAP") consistently applied (except as indicated in the
notes thereto) and on that basis fairly present (subject in the case of the
Interim Financial Statements, to normal year end adjustments) the financial
condition and operating results of the Netlink Businesses at the dates and
during the periods indicated therein.
2.9 Absence of Certain Changes. Since December 31, 1997, other than as
contemplated or required by this Agreement and other than the negotiations
with respect to the Primestar Transaction, each of the Netlink Subsidiaries
has conducted its business in the ordinary course consistent with past
practice and there has not occurred:
(a) any Material Adverse Change in the Netlink Businesses taken as a
whole (excluding changes, events or conditions generally affecting the
cable television industry or satellite television industry in the United
States or affecting general business or economic conditions in the United
States);
(b) any sale, lease or other transfer or disposition of any material
asset of any of the Netlink Subsidiaries;
(c) any change in accounting methods, practices or policies (including
any change in depreciation or amortization policies or rates) by any of the
Netlink Subsidiaries or any revaluation by any of the Netlink Subsidiaries
of any of its assets;
(d) any declaration, setting aside, or payment of any dividend or other
distribution to Seller (other than dividends and distributions consistent
with past practice), or any direct or indirect redemption, retirement,
purchase or other acquisition by any Netlink Subsidiary of any of its
capital stock or other securities or options, warrants or other rights to
acquire capital stock;
(e) any material modification or change to any material contract by any
of the Netlink Subsidiaries, other than in the ordinary course of business;
(f) any commitment or transaction (including any capital expenditure or
capital financing) by any of the Netlink Subsidiaries for any amount that
requires payments in excess of $100,000 with respect to any individual
contract or a series of related contracts other than (x) any commitment or
transaction in the ordinary course of business consistent with past
practice or (y) capital expenditures not in excess of the amount provided
for capital expenditures in the Netlink International Fiscal 1998 Operating
Income Budget--Capital Costs (the "1998 Capital Budget"), a complete and
correct copy of which has been provided to Purchaser;
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<PAGE>
(g) any written waiver or written release of any right or claim of
substantial value by any of the Netlink Subsidiaries;
(h) any payment, discharge or satisfaction of any material claim,
liability or obligation by any of the Netlink Subsidiaries, other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against
in its latest balance sheet included in the Annual Financial Statements or
incurred since the date of such balance sheet in the ordinary course of
business and consistent with past practice and other than scheduled
repayments of indebtedness reflected on the latest balance sheet included
in the Annual Financial Statements;
(i) any issuance or sale of capital stock or other securities or
membership or other ownership interests, exchangeable or convertible
securities, options, warrants, puts, calls or other rights to acquire
capital stock or other securities or other ownership interests of any of
the Netlink Corporations or Netlink USA;
(j) any incurrence, assumption or guarantee by any Netlink Subsidiary of
any indebtedness for borrowed money;
(k) the making of any loan or advance by any Netlink Subsidiary (other
than in the ordinary course of business consistent with past practice) to
any director, officer or affiliate of any Netlink Subsidiary (other than
any other Netlink Subsidiary), other than as contemplated or otherwise
permitted by this Agreement and other than as required by the terms of an
existing contract described on the Seller Disclosure Schedule;
(l) any increase in salary, wage, benefit or other remuneration payable
or to become payable to any current or former officer, director, employee
or agent of any of the Netlink Subsidiaries or any increase in any bonus or
severance payment or arrangement made to, for or with any of its officers,
directors, employees or agents or any grant of a supplemental retirement
plan or program or special remuneration for any officer, director, employee
or agent of any of the Netlink Subsidiaries, in each case other than in the
ordinary course of business and consistent with past practice (including
regular annual salary and performance bonus increases);
(m) any material change in the policies or practices of the Netlink
Subsidiaries with respect to the granting of credit or the provision of
services;
(n) any delay in the payment of any trade or other payables other than in
the ordinary course of business and consistent with past practice; or
(o) any agreement by Seller or any of the Netlink Subsidiaries to do any
of the foregoing.
2.10 Liabilities. Except as reflected in the Interim Financial Statements
and except for liabilities or obligations that are not in the aggregate
material to the business, assets, results of operations or financial condition
of the Netlink Subsidiaries or the Netlink Businesses, in either case taken as
a whole, or that arise in the ordinary course of business after the date of
the Interim Financial Statements or that arise from changes or events
affecting the satellite television industry generally or that arise out of the
SNG Agreement or Netlink USA's interest in SNG, (a) no Netlink Subsidiary has
any actual or potential liability or obligation of any nature, whether due or
to become due, whether absolute, accrued, fixed or contingent or otherwise;
and (b) neither Seller nor any of the Netlink Subsidiaries has knowledge of
any existing fact or circumstances that will or are reasonably likely to give
rise in the future to any liability or obligation of any Netlink Subsidiary.
2.11 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending or, to the knowledge
of Seller or any of the Netlink Subsidiaries, threatened before any agency,
court or tribunal, foreign or domestic, against Seller or any of the Netlink
Subsidiaries or any of their assets and properties or any of their officers or
directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
the Netlink Subsidiaries or the Netlink Businesses, in either case taken as a
whole. There is no judgment, decree or order outstanding against Seller or any
Netlink Subsidiary or any director or officer of any Netlink Subsidiary (in
their capacities as such), that is reasonably likely to prevent consummation
of the transactions contemplated by this Agreement or that is reasonably
likely to have a Material Adverse Effect on the Netlink Subsidiaries or the
Netlink Businesses, in either case taken as a whole.
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2.12 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon any Netlink Subsidiary
which has or could have the effect of prohibiting or materially impairing any
current business practice of any of the Netlink Subsidiaries or the conduct of
business by any Netlink Subsidiary as currently conducted.
2.13 Tax Matters. For purposes of this Section 2.13, any tax item shown on a
return or report furnished by SNG to any Netlink Subsidiary shall be presumed
correct.
(a) Since January 1, 1993, each of the Netlink Subsidiaries and any
predecessors of any of them has duly and timely filed all returns and
reports with respect to Taxes required to be filed by it for all taxable
years or portions thereof through May 18, 1998. Such Tax Returns and
reports have been prepared in accordance with all applicable government
regulations and are accurate and complete in all material respects. Each of
the Netlink Subsidiaries and their respective predecessors, as applicable,
have each timely paid or adequately provided for all Taxes due and payable
in respect of any transaction for which Taxes are due or any Taxes
chargeable against its or their revenue, assets or income through May 18,
1998 (whether or not shown on any Tax Returns).
(b) There are no recorded tax liens upon any of the assets of the Netlink
Subsidiaries except Liens for current Taxes not yet due or Liens that are
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on the
books of the applicable Netlink Subsidiary.
(c) Since its formation Netlink USA has qualified as a partnership for
Federal income tax purposes.
(d) No proposed Taxes or Tax deficiencies have been asserted and no
proceedings with respect to Taxes have been commenced against, in each
case, the Netlink Subsidiaries and their respective predecessors. None of
the Netlink Subsidiaries has waived any statute of limitation in respect of
any Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) None of the Netlink Subsidiaries has filed a consent under Section
341(f) of the Code.
(f) None of the Netlink Subsidiaries has made any payments, nor are any
of them obligated to make any payments, and none of them is a party to any
agreement that under certain circumstances could obligate it to make any
payments as a result of the transactions contemplated by this Agreement to
any employee, member, officer or director of, or any independent contractor
or other person who performs personal services for, any of the Netlink
Subsidiaries or any of their respective affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination agreement,
other compensation arrangement or employee benefit plan currently in effect
which would be characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code).
(g) Since September 1, 1994, none of the Netlink Subsidiaries is or has
been a member of an affiliated group filing a consolidated federal income
Tax Return other than a group of which TCI is the common parent.
(h) None of the Netlink Corporations has agreed to, nor is any Netlink
Corporation required to make, any adjustment under Section 481(a) of the
Code by reason of a change in accounting method made in contemplation of
this transaction which would have a Material Adverse Effect on such Netlink
Corporation after the closing (for this purpose any accounting method
change made by SNG itself shall not be taken into account).
(i) In this Agreement, any reference to
(i) the term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes,
payroll and employee withholding taxes, unemployment insurance, social
security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes,
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occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which any of the Netlink Subsidiaries is required to pay,
withhold or collect; and
(ii) the term "Tax Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
2.14 Contracts and Commitments. Seller has provided Purchaser with a true
and complete list of all of the affiliation agreements between each of the
Netlink Subsidiaries and its customers (other than Purchaser and its
subsidiaries). Other than such affiliation agreements and other than any
agreements with Purchaser or its subsidiaries, Schedule 2.14 of the Seller
Disclosure Schedule lists all material contracts to which a Netlink Subsidiary
is a party that are to be performed in whole or in part after the effective
date hereof and that would be required to be filed with the Securities and
Exchange Commission (the "Commission") as "material contracts" pursuant to
Item 601 of Regulation S-K of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") if the Netlink Businesses were a single registrant
registered under Section 12(g) of the Exchange Act. Schedule 2.14 of the
Seller Disclosure Schedule also lists (a) all agreements, bonds, notes,
debentures or similar instruments evidencing (i) indebtedness of any Netlink
Subsidiary for borrowed money or for the deferred purchase price of any
material property or service (other than trade accounts arising in the
ordinary course of business), (ii) obligations of any Netlink Subsidiary under
capital leases, (iii) guaranties by any Netlink Subsidiary of liabilities or
obligations of others (other than any other Netlink Subsidiary), and (iv) any
Liens on the assets of any Netlink Subsidiary securing the indebtedness of
others (other than any other Netlink Subsidiary), (b) agreements that limit
the right of any Netlink Subsidiary to compete in any line of business; or (c)
agreements which, after giving effect to the transactions contemplated hereby,
purport to restrict or bind Purchaser or any of its subsidiaries, other than
the Netlink Subsidiaries, in each case, other than any of the foregoing with
Purchaser or its subsidiaries. True and complete copies of all agreements
listed in Schedule 2.14 of the Seller Disclosure Schedule have been made
available to Purchaser. Each of the Netlink Subsidiaries has fulfilled in all
material respects, or taken all actions necessary to enable it to fulfill in
all material respects when due, its obligations under each of such agreements
to which it is a party. To the knowledge of Seller, all parties thereto other
than the Netlink Subsidiaries have complied in all material respects with the
provisions thereof and no party is in breach or violation of, or in default
(with or without notice or lapse of time, or both) under such agreements which
breach, violation or default would reasonably be expected to have a Material
Adverse Effect on the Netlink Subsidiaries or the Netlink Businesses, in
either case taken as a whole. No Netlink Subsidiary has received any notice of
termination, cancellation or acceleration of any such agreement.
2.15 Adequacy of Assets; Intangible Property.
(a) The assets owned or leased by the Netlink Subsidiaries are suitable and
adequate for the conduct of their respective businesses and the Netlink
Subsidiaries have good and, with respect to real property owned in fee,
marketable title to or valid leasehold or other contractual interests in all
such assets that are material to the Netlink Businesses taken as a whole, free
and clear of all Liens other than Permitted Encumbrances. For purposes of this
Agreement, "Permitted Encumbrances" means the following Liens: (i) Liens for
Taxes, assessments or other governmental charges or levies not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and for which adequate reserves shall have
been set aside on the books of the applicable Netlink Subsidiary in accordance
with GAAP; (ii) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on the
books of the applicable Netlink Subsidiary; (iii) Liens incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or benefits,
or to secure performance of tenders, statutory obligations, leases and
contracts (other than for borrowed money) entered into in the ordinary course
of business or to secure obligations
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on surety or appeal bonds; (iv) purchase money security interests or Liens on
property acquired or held by a Netlink Subsidiary in the ordinary course of
business to secure the purchase price of such property or to secure
indebtedness incurred solely for the purpose of financing the acquisition of
such property; and (v) easements, restrictions and other minor defects of
title which are not, in the aggregate, material or which do not, individually
or in the aggregate, materially and adversely affect the value of the property
affected thereby.
(b) Netlink USA owns an approximate 39.805% record and beneficial membership
interest (the "SNG Interest") in SNG. The SNG Interest is owned by Netlink USA
free and clear of any Liens and is not subject to any Restrictions, in each
case, created by Seller or any of the Netlink Subsidiaries, except for Liens
or Restrictions created by this Agreement or the SNG Agreement or that may
arise as a result of the negotiations with respect to the Primestar
Transaction and other than any restrictions on transfers under the Securities
Act and state securities laws. Netlink USA holds its interest in that certain
Revenue Sharing Agreement dated as of September 1, 1991, between Purchaser
(formerly known as United Video, Inc.) and Netlink USA (the "Revenue Sharing
Agreement"), and that certain Agreement for Acquisition of Wholesale Business
dated as of September 1, 1991, between Superstar Connection, a Delaware
general partnership, and Netlink USA (the "Superstar Connection Agreement"
and, together with the Revenue Sharing Agreement, the "WGN Agreements"), free
and clear of any Lien, except for Liens created by the WGN Agreements.
(c) One or more of the Netlink Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and trade secrets
(collectively, "Intellectual Property") that are used in the Netlink
Businesses as currently conducted, except to the extent that the failure to
have such rights has not had and is not reasonably likely to have a Material
Adverse Effect on the Netlink Businesses taken as a whole. Neither Seller nor
the Netlink Subsidiaries has received notice of any claim of infringement of
the rights of others with respect to any patents, trademarks, service marks,
trade names or copyrights used or owned by the Netlink Subsidiaries, the loss
of which is reasonably likely to have a Material Adverse Effect on the Netlink
Businesses taken as a whole. Neither Seller nor the Netlink Subsidiaries has
any knowledge that any of the Netlink Subsidiaries is infringing upon or
otherwise violating, or has since January 1, 1995 infringed upon or otherwise
violated, the rights of any third party with respect to any patent, trademark,
trade name, service mark or copyright. To the best knowledge of Seller, no
current or former employee of any Netlink Subsidiary is or was a party to any
confidentiality agreement and/or agreement not to compete which restricts or
forbids or restricted or forbade at any time during such employee's employment
by such Netlink Subsidiary, such employee's performance of any activity that
such employee was hired to perform. To the best knowledge of Seller, no
Netlink Subsidiary is currently using or has in the past used without
appropriate authorization, any confidential information or trade secrets of
any third party. Since January 1, 1995, Seller has not received any notice
alleging such conduct.
2.16 Licenses; Compliance with Regulatory Requirements.
(a) The Netlink Subsidiaries hold all licenses, franchises, ordinances,
authorizations, permits, certificates, variances, exemptions, concessions,
leases, rights of way, easements, instruments, orders and approvals, domestic
or foreign ("Licenses") which are material to the ownership of the assets that
are material to the Netlink Businesses, taken as a whole (collectively, the
"Netlink Licenses"). Each Netlink Subsidiary is in compliance with, and has
conducted its business so as to comply with, the terms of their respective
Netlink Licenses and with all applicable laws, rules, regulations, ordinances
and codes, domestic or foreign, except where the failure so to comply has not
had and, insofar as reasonably can be foreseen, in the future will not have,
either individually or in the aggregate, a Material Adverse Effect on the
Netlink Businesses taken as a whole. Without limiting the generality of the
foregoing, the Netlink Subsidiaries, (i) have all Licenses (the "FCC
Licenses") issued by the Federal Communications Commission (the "FCC") and all
other Licenses of foreign, federal, state and local governmental authorities
(the "Permits") required for the operation of the facilities being operated by
the Netlink Subsidiaries in the conduct of the Netlink Businesses, and all
such FCC Licenses and Permits are identified on Schedule 2.16 on the Seller
Disclosure Schedule, (ii) have duly and currently filed all reports and other
information required to be filed by the FCC or any other Governmental Entity
in connection with such FCC Licenses and Permits, and (iii) are not in
violation of any of such FCC Licenses or Permits, other than the
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lack of FCC Licenses or Permits, delays in filing reports or possible
violations which have not had and, insofar as can reasonably be foreseen, in
the future will not have a Material Adverse Effect on the Netlink Businesses
taken as a whole. Notwithstanding the foregoing, Seller makes no
representation as to whether or not the Netlink Subsidiaries are transmitting
the signals of broadcast network stations to households which are not
"unserved households" under SHVA.
(b) The Netlink Subsidiaries have duly complied with, and the operation of
its business, equipment and other assets and the facilities owned or leased by
any Netlink Subsidiary are in compliance with, the provisions of all
applicable Environmental and Health Laws, except for non-compliance which
would not reasonably be expected to have a Material Adverse Effect on any of
the Netlink Businesses taken as a whole. For purposes of this Agreement, the
term "Environmental and Health Laws" means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment or
occupational health and safety, including any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and transportation
of pollutants, contaminants, chemicals, industrial, toxic or hazardous
substances, oil or petroleum products or solid or hazardous waste
(collectively referred to hereinafter as "Hazardous Substances"); (ii) air,
water and noise pollution; (iii) groundwater and surface water contamination;
(iv) the release into the environment of Hazardous Substances, including
without limitation emissions, discharges, injections, spills, escapes or
dumping of pollutants, contaminants or chemicals; (v) the protection of wild
life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers
containing Hazardous Substances; (vii) underground storage tanks, abandoned,
disposed or discarded barrels and other closed receptacles containing
Hazardous Substances; (viii) health and safety of employees; and (ix)
manufacture, processing, use, distribution, treatment, storage, disposal,
transportation or handling of Hazardous Substances. As used herein, the terms
"release" and "environment" have the meanings set forth in the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended. To the knowledge of Seller, there are no investigations,
administrative proceedings, judicial actions, orders, claims or notices that
are pending, anticipated or threatened against any Netlink Subsidiary relating
to any Environmental and Health Laws. Neither Seller nor any Netlink
Subsidiary has received a notice of or knows any facts which constitute a
violation by any Netlink Subsidiary of or give rise to liability of any
Netlink Subsidiary under any Environmental and Health Laws that in either case
would or would be reasonably likely to have a Material Adverse Effect on the
Netlink Businesses taken as a whole.
2.17 Employee Benefit Plans.
(a) Schedule 2.17 of the Seller Disclosure Schedule lists, with respect to
the Netlink Subsidiaries, (i) all material employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), (ii) any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria
benefit (Section 125 of the Code) or dependent care (Section 129 of the Code),
life insurance or accident insurance plans, programs or arrangements, (iii)
all bonus, pension, profit sharing, savings, deferred compensation or
incentive plans, programs or arrangements, (iv) other fringe or employee
benefit plans, programs or arrangements that apply to senior management of the
Netlink Subsidiaries and that do not generally apply to all employees of the
Netlink Subsidiaries, in each case, that are currently maintained or directly
contributed to by the Netlink Subsidiaries or have been maintained or
contributed to by the Netlink Subsidiaries since January 1, 1995
(collectively, the "Employee Plans"). The parties agree that the term
"Employee Plans" shall not include any of the foregoing which are contributed
to or maintained by TCI or Seller and which cover any present or former
employee, consultant or director of the Netlink Subsidiaries in addition to
other employees of TCI, Seller or their respective subsidiaries (the "TCI
Plans"). Except as set forth in the following sentence, Seller is making no
representation or warranty in this Agreement regarding the TCI Plans. Other
than (i) an annual payment not in excess of $2,000 per employee by the Netlink
Subsidiaries to TCI for each employee of the Netlink Subsidiaries covered by
the TCI Plans, (ii) reimbursements for matching contributions to 401(k) plans
made with respect to employees of the Netlink Subsidiaries and (iii)
reimbursements for amounts paid with respect to employees of the Netlink
Subsidiaries under TCI's education assistance program (collectively the
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"TCI Benefit Contributions"), the Netlink Subsidiaries have no liability to
TCI or any other party with respect to the TCI Plans.
(b) Seller has furnished to Purchaser a copy of each of the Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and, to the extent still in its possession, any material employee
communications relating thereto) and has, with respect to each Employee Plan
that is subject to ERISA reporting requirements, provided copies of the Form
5500, including all schedules attached thereto and actuarial reports, if any,
filed for the last three plan years. Any Employee Plan intended to be
qualified under Sections 401(a) or 501(c)(9) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Tax Reform Act of 1986 and subsequent legislation,
or the time for applying to the Internal Revenue Service for such a
determination letter has not expired under applicable Treasury Regulations.
Seller has also furnished Purchaser with the most recent Internal Revenue
Service determination letter issued with respect to each such Employee Plan
(and nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Employee Plan subject to Section 401(a) of the Code), and all prohibited
transaction exemptions (or requests for such exemptions), private letter
rulings, opinions, information letters or compliance statements issued with
respect to any Employee Plan by the Internal Revenue Service, the Department
of Labor or the Pension Benefit Guaranty Corporation.
(c) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect on
the Netlink Businesses taken as a whole; (iii) each Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have a Material Adverse
Effect on the Netlink Subsidiaries taken as a whole, and the Netlink
Subsidiaries have performed all obligations required to be performed by them
under, are not in any respect in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the
Employee Plans, which failure to perform, default or violation could
reasonably be expected to have a Material Adverse Effect on the Netlink
Businesses taken as a whole; (iv) no Netlink Subsidiary is subject to any
liability or penalty under Sections 4976 through 4980 of the Code or Title I
of ERISA with respect to any of the Employee Plans that has had a Material
Adverse Effect on any such parties; (v) all material contributions required to
be made by the Netlink Subsidiaries to any Employee Plan have been made on or
before their due dates and a reasonable amount has been accrued for
contributions to each Employee Plan for the current plan years; (vi) with
respect to each Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the 30-day notice
requirement has been waived under the regulations to Section 4043 of ERISA)
nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred;
and (vii) no Employee Plan is covered by, and no Netlink Subsidiary has
incurred or expects to incur any liability under Title IV of ERISA or Section
412 of the Code. With respect to each Employee Plan subject to ERISA as either
an employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
each Netlink Subsidiary has prepared in good faith and timely filed all
requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Employee Plan except where the failure to timely file,
distribute or post such documents would not, in the aggregate, have a Material
Adverse Effect on the Netlink Businesses taken as a whole. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Seller, is threatened, against or with respect to any such
Employee Plan, including any audit or inquiry by the Internal Revenue Service
or United States Department of Labor. No Netlink Subsidiary is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Employee Plan, each Netlink Subsidiary has complied
with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985
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("COBRA") and the regulations thereunder and (ii) the applicable requirements
of the Family and Medical Leave Act of 1993 and the regulations thereunder,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect on the Netlink Subsidiaries taken as a whole.
(e) The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (i) entitle any current or former
employee or other service provider or any director of any Netlink Subsidiary
to severance benefits or any other similar payment (including unemployment
compensation, golden parachute, bonus or otherwise), (ii) increase any
benefits otherwise payable or (iii) accelerate the time of payment or vesting,
or increase the amount of compensation due any such employee, service provider
or director, except for the severance payments and "sticking bonuses" that
Seller has agreed to pay and be solely responsible for as contemplated by
Section 5.5.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by any Netlink Subsidiary relating to, or change in
participation or coverage under, any Employee Plan which would materially
increase the expense of maintaining such Employee Plan above the level of
expense incurred with respect to that Employee Plan for the most recent fiscal
year included in the Annual Financial Statements, except as a result of the
adoption and amendment of the 1998 Bonus Award Program described on Schedule
2.17 of the Seller Disclosure Schedule (the "Bonus Plan").
2.18 Employee Matters. Schedule 2.18 of the Seller Disclosure Schedule lists
each employment, consulting, agency or commission agreement to which any of
the Netlink Subsidiaries is a party which is not terminable without liability
to the Netlink Subsidiaries upon 60 days' or less prior notice to the
employee, consultant or agent and involves compensation or remuneration of
more than $50,000 per annum. True and complete copies of such agreements have
been made available to Purchaser. All of such contracts and arrangements are
in full force and effect, and neither the Netlink Subsidiaries nor, to the
knowledge of Seller, any other party is in default under them. To the
knowledge of Seller, (i) there have been no claims of defaults and (ii) there
are no facts or conditions which if continued, or on notice, will result in a
default under these contracts or arrangements. There is no pending or, to the
knowledge of Seller, threatened labor dispute, strike, or work stoppage that
would have a Material Adverse Effect on the Netlink Businesses taken as a
whole. Each Netlink Subsidiary is in compliance in all material respects with
all current applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and are not
engaged in any unfair labor practice. There are no pending claims against any
Netlink Subsidiary under any workers compensation plan or policy or for long
term disability.
2.19 Interested Party Transactions. Schedule 2.19 of the Seller Disclosure
Schedule lists all transactions between any Netlink Subsidiary on the one hand
and TCI, Seller, any of their respective subsidiaries (other than any other
Netlink Subsidiary and other than Purchaser and its subsidiaries) or any
director or executive officer of any of the Netlink Subsidiaries on the other
hand in which the amount involved exceeds $60,000 that would be required to be
disclosed pursuant to Item 404 of Regulation S-K under the Securities Act or
the Exchange Act if the Netlink Businesses were a single registrant registered
under Section 12(g) of the Exchange Act, other than transactions pursuant to
the contracts listed on the Seller Disclosure Schedule in accordance with
their respective terms. No Netlink Subsidiary is indebted to TCI, Seller, any
of their respective subsidiaries (other than Purchaser and its subsidiaries),
or any director, officer, employee or agent of any of the Netlink Subsidiaries
for borrowed money.
2.20 Insurance. The Netlink Subsidiaries, through one or more affiliates,
have the benefit (through TCI, Seller or otherwise) of policies of fire and
casualty, liability and other forms of insurance (including self insurance) in
such amounts, with such deductibles and against such risks and losses as are,
in Seller's judgment, reasonable for the operation of the businesses of the
Netlink Subsidiaries under the circumstances in which they are being
conducted. All such policies are in full force and effect, all premiums due
and payable thereon as of the effective date hereof, have been paid (other
than retroactive or retrospective premium adjustments that may be required to
be paid with respect to any period ending prior to the effective date hereof
under comprehensive
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general liability and workmen's compensation insurance policies), and no
notice of cancellation or termination has been received with respect to any
such policy which policy has not been replaced prior to the date of such
cancellation. To the knowledge of Seller, the activities and operations of the
Netlink Subsidiaries have been conducted in a manner so as to conform in all
material respects to all applicable provisions of such insurance policies,
except for any failures so to conform that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Netlink Businesses taken as a whole. The coverage of such policies will cease
upon the Closing, but the Netlink Subsidiaries will continue to be entitled to
the benefit of such policies with respect to any covered event that occurs
prior to the Closing.
2.21 Major Customers. Schedule 2.21 of the Seller Disclosure Schedule lists
each customer of the Netlink Subsidiaries that individually accounted for more
than ten percent of the total dollar amount of revenues of the Netlink
Businesses on a combined basis in either of the two most recent fiscal years,
showing the total dollar amount of revenues for each such customer during each
such year. Seller has not received written notice from any customer listed in
such Schedule 2.21 of such customer's intent not to remain a customer of the
Netlink Subsidiaries after the Closing.
2.22 Suppliers and Broadcast Stations. Netlink USA either has the valid
consent of each broadcast station that is included within the "Denver 6" or
such consent is not required for retransmission of such station's signals. As
of the effective date hereof, except as contemplated by the SHVA Agreement, no
broadcast station included within the "Denver 6" with which any Netlink
Subsidiary has an agreement or consent for retransmission has given notice to
Seller or any Netlink Subsidiary of such station's intent to change the terms
upon which it consents to the retransmission of its signal or to cease
permitting the Netlink Subsidiaries to retransmit such signal.
2.23 Minute Books. Seller has made available to Purchaser true and complete
copies of the minute books of the Netlink Corporations. Such minute books
contain summaries of all meetings of directors and shareholders or actions by
written consent since the later of (i) April 1, 1996 and (ii) the time of the
applicable entity's date of incorporation, and such summaries are true and
complete in all material respects and reflect all transactions referred to in
such minutes accurately in all material respects.
2.24 Brokers' and Finders' Fees. Neither Seller nor any Netlink Subsidiary
has incurred, or will incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.25/ Disclosure. None of the representations or warranties made by Seller
herein or in the Seller Disclosure Schedule, when read together in their
entirety, contain any untrue statement of a material fact, or omit to state
any material fact necessary in order to make the statements contained herein
or therein, in the light of the circumstances under which made, not
misleading. Seller has provided or made available to Purchaser all written
information and materials in Seller's possession requested by Purchaser or its
counsel regarding the negotiations for the SHVA Agreement, other than
superseded drafts of agreements.
2.26 Programming Supply and Affiliation Agreements. Telluride and Satellite
Services, Inc. ("SSI") have entered into programming supply and affiliation
agreements setting forth the basis upon which the satellite master antenna
television services business operated by the Netlink Subsidiaries will be
provided programming by SSI following the Closing and of the basis upon which
SSI purchases the "Denver 6" service from the Netlink Subsidiaries, such
basis, in each case, being on the same terms as those on which such services
were, during the first quarter of 1998, provided by SSI to the Netlink
Subsidiaries or provided by the Netlink Subsidiaries to SSI, as applicable
(except, in each case, that either party had the right to terminate the
provision or use of such services at any time). True and complete copies of
such agreements have been provided to Purchaser.
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ARTICLE III
Representations and Warranties of Purchaser
Except as disclosed in the Commission Filings (as defined herein) filed and
publicly available prior to April 1, 1998, Purchaser hereby represents and
warrants to Seller as follows (such representations and warranties being
deemed made as of the effective date hereof, except that the representations
and warranties in Section 3.3 shall be deemed made as of the date of execution
hereof):
3.1 Organization. Each of Purchaser and Purchaser's "significant
subsidiaries" (as defined in Rule 1-02 of Regulation S-X of the Rules and
Regulations of the Commission) (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and (iii) is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing is not reasonably likely to have a
Material Adverse Effect on Purchaser and its subsidiaries taken as a whole.
Purchaser has no investment accounted for by the equity method that is
material to the business, assets, results of operations or financial condition
of Purchaser and its subsidiaries taken as a whole. Each entity in which
Purchaser, directly or through one or more of its subsidiaries, has an
investment accounted for by the equity method (an "Equity Affiliate") (A) is a
corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, (B) has all requisite corporate or partnership power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and (C) is duly qualified to do business
and is in good standing in each jurisdiction in which the properties owned,
leased or operated by it, or the nature of its activities, makes such
qualification necessary, except in each case where such failure to be so
existing and in good standing or to have such power and authority or to be so
qualified to do business and be in good standing has not had and is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Purchaser and its subsidiaries taken as a whole.
3.2 Corporate Power, Authorization and Validity of Agreement. This Agreement
has been duly executed and delivered by Purchaser. Purchaser has all requisite
corporate power and authority to enter into this Agreement and has all
requisite corporate power and authority to perform its obligations hereunder
and to consummate the transactions contemplated hereby. Subject to the
satisfaction of the conditions set forth in Article VI, the execution,
delivery and performance by Purchaser of this Agreement and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on its part; and this Agreement is a valid and
binding obligation of Purchaser, enforceable in accordance with its terms
(except insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by principles governing the availability of equitable
remedies).
3.3 Capitalization of Purchaser. As of May 18, 1998, the authorized capital
stock of Purchaser consisted of 60,000,000 shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock"), 30,000,000 shares of Class B
Common Stock, and two million shares of Preferred Stock, par value $.01 per
share ("Preferred Stock"), of which there were issued and outstanding as of
the close of business on December 31, 1997, 24,420,120 shares of Class A
Common Stock and 12,373,294 shares of Class B Common Stock and no shares of
Preferred Stock. As of the Closing Date, the authorized capital stock of
Purchaser will consist of 650,000,000 shares of Class A Common Stock,
300,000,000 shares of Class B Common Stock and two million shares of Preferred
Stock. On August 20, 1998, Purchaser paid to the holders of its common stock a
stock dividend of one share of Class A Common Stock for each outstanding share
of Class A Common Stock held by such holders and a stock dividend of one share
of Class B Common Stock for each outstanding share of Class B Common Stock
held by such holders (collectively, the "Stock Split"). There are no other
outstanding shares of capital stock or other securities or ownership interests
of Purchaser other than shares of Class A Common Stock issued after December
31, 1997, upon the exercise of options issued under Purchaser's Equity
Incentive Plan
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and its Stock Option Plan for Non-Employee Directors (collectively, the
"Purchaser Stock Option Plans"). All outstanding shares of Purchaser have been
duly authorized, validly issued, fully paid and are non-assessable and free
and clear of any Lien or Restriction, except Liens or Restrictions created by
or imposed upon the holders thereof. As of December 31, 1997, Purchaser had
reserved (i) 1,176,444 shares of Class A Common Stock for issuance upon
exercise of outstanding options issued pursuant to the Purchaser Stock Option
Plans and (ii) 2,031,671 shares of Class A Common Stock for issuance upon
exercise of stock options available for grant under the Purchaser Stock Option
Plans. Other than (i) the TV Guide Agreement, (ii) stock appreciation rights
related to subsidiaries or divisions of Purchaser that Purchaser has the
option to satisfy in shares of Class A Common Stock, (iii) the adoption or
amendment of any employee incentive or stock option plan subsequent to
December 31, 1997 that is approved by the stockholders of Purchaser, (iv) the
grant subsequent to December 31, 1997 of options pursuant to such plans or
pursuant to the Purchaser Stock Option Plans and (v) other than this Agreement
or shares of Class B Common Stock that may be converted to shares of Class A
Common Stock, there are no other subscriptions, options, warrants, puts,
calls, rights, exchangeable or convertible securities or other commitments or
agreements of any nature relating to the capital stock or other securities or
ownership interests of Purchaser, or otherwise obligating Purchaser to issue,
transfer, deliver, sell, repurchase, redeem or otherwise acquire, or cause to
be issued, transferred, delivered, sold, repurchased, redeemed or otherwise
acquired, any shares of the capital stock or any phantom shares, phantom
equity interests or stock or equity appreciation rights, or other ownership
interests of Purchaser or obligating Purchaser to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. The UVSG
Shares to be issued pursuant to this Agreement will, when issued, be duly
authorized, validly issued, fully paid, and non-assessable and free and clear
of any Liens and not subject to any Restrictions (other than any restrictions
on transfer arising under the Securities Act or state securities laws).
3.4 Purchaser Reports and Financial Statements. Purchaser has heretofore
made available to Seller true and complete copies of all reports, registration
statements, definitive proxy statements and other documents (in each case
together with all amendments thereto) filed by Purchaser with the Commission
since December 31, 1996 and Purchaser agrees to make available to Seller true
and complete copies of all reports, registration statements, definitive proxy
statements and other documents (in each case together with all amendments
thereto) filed by Purchaser with the Commission after the effective date
hereof and prior to the Closing Date (such reports, registration statements,
definitive proxy statements and other documents, together with any amendments
thereto, are sometimes collectively referred to as the "Commission Filings").
The Commission Filings constitute all of the documents (other than preliminary
material) that Purchaser was required to file with the Commission since
December 31, 1996. As of their respective dates, each of the Commission
Filings complied and, in the case of filings after the effective date hereof
will comply, in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations under each such
Act, and none of the Commission Filings contained as of such date any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When filed with the
Commission, the financial statements included in the Commission Filings
complied as to form in all material respects with the applicable rules and
regulations of the Commission and were prepared in accordance with GAAP
consistently applied (except as may be indicated therein or in the notes or
schedules thereto), and such financial statements fairly present the
consolidated financial position of Purchaser and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
their consolidated cash flows for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal, recurring year-end
audit adjustments. Except as and to the extent reflected or reserved against
in the financial statements included in Purchaser's Annual Report on Form 10-K
for the year ended December 31, 1997, none of Purchaser or any of its
subsidiaries or, to the knowledge of Purchaser, any Equity Affiliate had as of
such date any liability or obligation of any kind required to be reflected on
a balance sheet of Purchaser and its consolidated subsidiaries prepared in
accordance with the applicable rules and regulations of the Commission which
was material to the business, assets, results of operations or financial
condition of Purchaser and its subsidiaries taken as a whole. Except as
disclosed in the Commission Filings filed with the Commission prior to the
effective date hereof, none of Purchaser, Purchaser's subsidiaries or, to
Purchaser's knowledge, any Equity Affiliate has any actual or potential
liability or obligation
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of any kind (whether due or to become due, whether absolute, accrued, fixed or
contingent or otherwise) which, in any case or in the aggregate, is or may be
material to the business, assets, results of operations or financial condition
of Purchaser and its subsidiaries taken as a whole, except liabilities and
obligations that arose since December 31, 1997 in the ordinary course of
business.
3.5 No Approvals or Notices Required; No Conflict with Instruments. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, (a) conflict with or violate any
provision of the Certificate of Incorporation or Bylaws of Purchaser, or
equivalent charter documents of any of its subsidiaries or, to Purchaser's
knowledge, any Equity Affiliate, (b) violate or conflict with any permit,
order, license, decree, judgment, statute, law, ordinance, rule or regulation
applicable to Purchaser or any of its subsidiaries or, to Purchaser's
knowledge, any Equity Affiliate or the properties or assets of Purchaser or
any of its subsidiaries or to Purchaser's knowledge, any Equity Affiliate, or
(c) result in any breach or violation of, or constitute a default (with or
without notice or lapse of time, or both) under, or give rise to any right of
termination, cancellation or acceleration of, or result in the creation of any
Lien on any of the properties or assets of Purchaser or any of its
subsidiaries or, to Purchaser's knowledge, any Equity Affiliate pursuant to,
or require any Contract Consent of any party to, any mortgage, indenture,
lease, contract or other agreement or instrument, bond, note, concession or
franchise applicable to Purchaser or any of its subsidiaries or to Purchaser's
knowledge, any Equity Affiliate or their properties or assets, except, in the
case of clauses (b) and (c) only, where such conflict, violation, default,
termination, cancellation, acceleration, Lien or lack of consent would not
have and is not reasonably likely to have a Material Adverse Effect on
Purchaser and its subsidiaries taken as a whole or to prevent consummation of
the transactions contemplated hereby. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Purchaser or any of its
subsidiaries or to Purchaser's knowledge, any Equity Affiliate in connection
with the execution and delivery of this Agreement by Purchaser or the
consummation by Purchaser of the transactions contemplated hereby, except for
(i) the filing with the Commission and the National Association of Securities
Dealers, Inc. of the proxy statement to be sent to the stockholders of
Purchaser in connection with the meeting of Purchaser's stockholders (the
"Purchaser Stockholders Meeting") to consider the transactions contemplated
hereby (such proxy statement as amended or supplemented is referred to herein
as the "Proxy Statement"), (ii) the filing of a Form 8-K as required under the
Exchange Act, (iii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Purchaser
and its subsidiaries taken as a whole and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement. None of
Purchaser or its subsidiaries is or will be required to give any Contract
Notice to any party to any material mortgage, indenture, lease, contract or
other agreement or instrument, bond, note, concession or franchise applicable
to any of Purchaser's or its subsidiaries' properties or assets in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
3.6 Absence of Certain Changes or Events. Since December 31, 1997, there has
not been any material adverse change in, and no event has occurred and no
condition exists which, individually or together with other events or
conditions, has had or, insofar as Purchaser can reasonably foresee, is
reasonably likely to have, a Material Adverse Effect on Purchaser (excluding
events or conditions generally affecting the cable television industry or
satellite television industry in the United States or affecting general
business or economic conditions in the United States).
3.7 Information. Purchaser has been afforded the opportunity to review
written materials that Seller has made available to Purchaser pursuant to this
Agreement on or prior to the effective date hereof. Purchaser acknowledges
that Seller has afforded Purchaser the opportunity to make inquiries and
obtain additional information from Seller and its representatives and
advisors. Based upon its own investigation and upon information provided by
Seller, Purchaser has analyzed the potential effects that could result from an
SHVA Agreement and has relied on its own tax, legal, financial and regulatory
advisers with regard to all matters relating to the SHVA Agreement and not on
any advice or recommendation of Seller.
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3.8 Brokers' and Finders' Fees. Except for the engagement of Paine Webber
Incorporated as contemplated by Section 3.12, the fees and expenses of which
shall be borne by Purchaser, Purchaser has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.9 Investment. Purchaser or its advisors have such knowledge and experience
in financial and business matters to be capable of evaluating the merits of
the purchase of the Purchased Shares. Purchaser is purchasing the Purchased
Shares for investment for its own account, and not with a view to the
distribution, transfer or resale thereof in violation of the Securities Act,
or any applicable state securities law and Purchaser does not have any
contract, understanding, agreement or arrangement to dispose of the Purchased
Shares.
3.10 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Purchaser,
threatened against Purchaser or any of its subsidiaries or Equity Affiliates
or any of their assets and properties or any of their officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Purchaser and its
subsidiaries taken as a whole. There is no judgment, decree or order against
Purchaser or any of its subsidiaries or any of their respective directors or
officers (in their capacities as such), that could prevent consummation of the
transactions contemplated by this Agreement, or that could have a Material
Adverse Effect on Purchaser and its subsidiaries taken as a whole.
3.11 Disclosure. None of the representations or warranties made by Purchaser
herein contain any untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
3.12 Fairness Opinion. Purchaser has received a written opinion of Paine
Webber Incorporated satisfactory in form, scope and substance to Purchaser to
the effect that the consideration to be issued by Purchaser to Seller in
exchange for 100% of the capital stock of each of LMC Netlink, Westlink and
Telluride is fair from a financial point of view to the holders of the capital
stock of Purchaser other than TCI and its subsidiaries.
3.13 Tax-Free Transaction. Purchaser has not taken any action and has no
present plan or intention to take any action which would cause the exchange of
the Purchased Shares for UVSG Shares not to qualify as a tax-free transaction
pursuant to Section 351 of the Code; provided that, subject to compliance with
the last sentence of Section 1.4(a), the execution and delivery by Purchaser
of the TV Guide Agreement and the performance of its obligations thereunder
shall not constitute a breach of this representation.
3.14 Licenses; Compliance with Regulatory Requirements; Intangible
Property. Purchaser, its subsidiaries and, to the knowledge of Purchaser, its
Equity Affiliates hold all Licenses which are material to the operation of the
businesses of Purchaser and its subsidiaries taken as a whole ("Purchaser
Licenses"). Each of Purchaser, its subsidiaries and, to the knowledge of
Purchaser, its Equity Affiliates is in compliance with, and has conducted its
business so as to comply with, the terms of the respective Purchaser Licenses
and with all applicable laws, rules, regulations, ordinances and codes,
domestic or foreign, including Environmental and Health Laws, except where the
failure so to comply has not had and, insofar as reasonably can be foreseen,
in the future will not have, either individually or in the aggregate, a
Material Adverse Effect on Purchaser and its subsidiaries taken as a whole.
Without limiting the generality of the foregoing, Purchaser, its subsidiaries
and, to the knowledge of Purchaser, its Equity Affiliates (i) have all FCC
Licenses and Permits required for the operation of the facilities being
operated on the effective date hereof by Purchaser, any of its subsidiaries
or, to the knowledge of Purchaser, its Equity Affiliates, (ii) have duly and
currently filed all reports and other information required to be filed by the
FCC or any other Governmental Entity in connection with such FCC Licenses and
Permits and (iii) are not in violation of any of such FCC Licenses or Permits,
other than the lack of FCC Licenses or Permits, delays in filing reports or
possible violations which have not had and, insofar as can reasonably been
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<PAGE>
foreseen, in the future will not have a Material Adverse Effect on Purchaser
and its subsidiaries taken as a whole. Purchaser and its subsidiaries own or
have adequate rights to use all patents, trademarks, trade names, service
marks, trade secrets, copyrights and other proprietary intellectual property
rights as are material in connection with the businesses of Purchaser and its
subsidiaries taken as a whole.
3.15 Tax Matters.
(a) Each of Purchaser and its subsidiaries has duly and timely filed all
returns and reports with respect to Taxes required to be filed by it for all
taxable years or portions thereof. Such Tax Returns and reports have been
prepared in accordance with all applicable government regulations and are
accurate and complete in all material respects. Each of Purchaser and its
subsidiaries, as applicable, have each timely paid or adequately provided for
all Taxes due and payable in respect to any transaction for which Taxes are
due or any Taxes chargeable against its or their revenue, assets or income
(whether or not shown on any Tax Returns), and each of Purchaser and its
subsidiaries have adequately provided for all Taxes which would be due if the
current taxable year ended at the close of business on the Closing Date.
(b) There are no recorded Liens for Taxes upon any of the material assets of
Purchaser or its subsidiaries except Liens for current Taxes not due or Liens
that are being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on
the books of Purchaser or the applicable subsidiary.
(c) No material proposed Taxes or Tax deficiencies have been asserted, and
no proceedings with respect to Taxes have been commenced, against Purchaser or
any of its subsidiaries. None of Purchaser or its subsidiaries has waived any
statute of limitation in respect of any Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency, except for an extension
with respect to New York State through December 31, 1998 for tax periods from
1993 through 1996.
(d) None of Purchaser or its subsidiaries has filed, and none will file, at
any time prior to the Closing, a consent under Section 341(f) of the Code.
3.16 Management of SNG. Prior to the effective date hereof, Purchaser has
been managing SNG in the ordinary course of business consistent with past
practice and has caused SNG to make cash distributions to its members on a
regular basis consistent with past practice.
ARTICLE IV
Conduct Pending the Closing
It is expressly understood and agreed by the parties that (i) Seller is not
making any covenants or agreements in this Article IV or in any other part of
this Agreement with respect to matters relating to SNG, including, without
limitation, its condition (financial or otherwise), assets, liabilities,
business, operations, results of operations, customers, management, employees
or prospects and (ii) neither the negotiations nor the abandonment of the
negotiations with respect to the Primestar Transaction nor any action or
omission in connection therewith, in each case prior to the date of execution
hereof, shall be deemed a breach of any covenant herein.
4.1 Conduct of Business of the Netlink Subsidiaries. Except as otherwise
provided in this Agreement, Seller acknowledges that upon Closing Purchaser
will be entitled to the benefits of the operation of the Netlink Businesses
and cash distributions from SNG with respect to the period from April 1, 1998
through the Closing Date. Except as otherwise provided in this Agreement,
Purchaser acknowledges that upon Closing Purchaser will be subject to all the
risks and burdens of the operations of the Netlink Businesses with respect to
the same period. Seller will cause the Netlink Businesses to be operated in
the ordinary course consistent with past practice, except that, effective
April 1, 1998, instead of the customary practice of distributing to Seller all
cash generated by such
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businesses and not used in the payment of expenses, Seller shall cause the
Netlink Subsidiaries to retain such cash for their own use pending the
Closing. Nothing contained herein shall be construed to prevent the Netlink
Subsidiaries (a) from paying amounts due to Seller and its affiliates in the
ordinary course of business that do not constitute dividends, distributions or
advances (other than as provided in clause (ii) below and as permitted by
Section 4.1(b)(xv)), which permitted payments shall include (i) payment of the
TCI Benefit Contributions and (ii) payment of an allocable portion of Seller's
overhead expenses consistent with past practice or (b) from making
distributions with respect to tax liabilities as contemplated by Section
4.1(b)(vii). During the period prior to the Closing Date, Seller shall cause
the management and employees of the Netlink Subsidiaries to comply with all
reasonable requests of Purchaser or its designated representatives with
respect to the operation of the Netlink Businesses; provided, that neither
Seller nor the Netlink Subsidiaries shall be required to take any action that
would impair its ability to perform any of its covenants made in this
Agreement (unless such performance is expressly waived by Purchaser) or to
obtain any consents, authorizations or approvals required in connection with
the transactions contemplated hereby.
(a) Affirmative Covenants. In addition, after the effective date hereof and
prior to the Closing, except as expressly contemplated by this Agreement or
with the consent of Purchaser (which consent will not be unreasonably
withheld), Seller will cause each of the Netlink Subsidiaries to:
(i) use commercially reasonable efforts in the ordinary and usual course
of business and consistent with past practice to preserve intact its
present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, to the end that its goodwill and ongoing businesses shall
be unimpaired at the Closing, except that nothing contained herein shall
obligate Seller to take or cause any Netlink Subsidiary to take any action
inconsistent with its covenants in Section 4.1(b);
(ii) notify Purchaser of the occurrence of any event that is not in the
ordinary course of business or that is reasonably likely to have a Material
Adverse Effect on the Netlink Businesses taken as a whole;
(iii) use commercially reasonable efforts to actively and diligently
pursue the Application to the Canadian Radio-television and
Telecommunications Commission (the "CRTC") by the Battlefords Community
Cablevision Cooperative dated September 15, 1997, requesting that the CRTC
allow certain Canadian broadcasting licensees to distribute, at their
option, as part of their basic service, five of the programming services
received via satellite from the Netlink Businesses; and
(iv) if requested by Purchaser in writing prior to June 1, 1998, use
commercially reasonable efforts to extend to December 31, 2000 the SATCOM
F1R/C-1 Satellite Transponder Service Agreement, dated as of November 29,
1989 (the "GE Transponder Agreement"), between GE American Communications,
Inc. and Western Tele-Communications, Inc., which has been assigned to
Netlink USA pursuant to an Assignment and Assumption Agreement, dated
October 1, 1991, pursuant to the terms of the GE Transponder Agreement.
(b) Negative Covenants. Further, after the effective date hereof and prior
to the Closing, except as expressly contemplated by this Agreement or with the
consent of Purchaser (which consent will not be unreasonably withheld), Seller
will cause each of the Netlink Subsidiaries not to:
(i) cause or permit any amendments to its Certificate or Articles of
Incorporation or Bylaws or equivalent charter documents;
(ii) adopt any employee benefit, stock purchase or option plan for the
benefit of the employees of the Netlink Subsidiaries or amend any Employee
Plan or accelerate, amend or change the period of exercisability or vesting
of options or other rights granted under its Employee Plans or authorize
cash payments in exchange for any options or other rights granted under any
of such plans, except, in each case, to the extent required by any
applicable law or the existing terms of such Employee Plan or by the
provisions of this Agreement; provided, that nothing in this paragraph
shall restrict TCI, Seller or any of their respective subsidiaries other
than the Netlink Subsidiaries from taking any of the above actions other
than with respect to a plan which covers only employees of the Netlink
Subsidiaries;
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(iii) make any capital expenditures that individually or in the aggregate
exceed the amount provided therefor in the 1998 Capital Budget;
(iv) other than acquisitions in existing or related lines of business of
the entity making such acquisition not exceeding $100,000 in the aggregate,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets that are material, individually or in the aggregate, to the
Netlink Businesses taken as a whole (it being understood that any
acquisition that would constitute a capital expenditure within the meaning
of the 1998 Capital Budget shall be subject to the provisions of clause
(iii) of this Section and not to this clause (iv));
(v) commence a lawsuit other than (A) for the routine collection of bills
or (B) in such cases where it in good faith determines that failure to
commence suit would result in the material impairment of a valuable aspect
of its business, provided that it consults with Purchaser prior to the
filing of such a suit;
(vi) sell, lease or otherwise transfer or dispose of any of its assets of
substantial value;
(vii) declare, set aside, or pay any dividend or other distribution to
Seller, or directly or indirectly redeem, retire, purchase or otherwise
acquire any of its capital stock or other securities or options, warrants
or other rights to acquire its capital stock, provided that, immediately
prior to the Closing, the Netlink Subsidiaries shall pay to Seller an
amount in cash equal to the estimated amount of taxes accrued on the
earnings of the Netlink Subsidiaries during the period beginning on April
1, 1998 through and including the Closing Date based on an effective
combined federal, state and local tax rate of (x) 20% to the extent that
such taxable earnings of the Netlink Subsidiaries reduce the amount of the
excess loss accounts that Seller would otherwise be responsible for under
Section 9.3(a) or clause (ii) of Section 9.7(a) and (y) 40% of any
additional taxable earnings (the "Estimated Tax Payment");
(viii) modify or change in any material respect any material contract,
other than in the ordinary course of business;
(ix) revalue any of its assets, including without limitation writing down
the value of any assets or writing off notes or accounts receivable, except
as required by GAAP;
(x) create any Lien on any of its asset other than Permitted
Encumbrances;
(xi) waive in writing or release in writing any right or claim of
substantial value;
(xii) pay, discharge or satisfy claims, liabilities or obligations, other
than in the ordinary course of business consistent with past practice;
(xiii) issue or sell any of its capital stock or other securities or
membership or other ownership interests, exchangeable or convertible
securities, options, warrants, puts, calls or other rights to acquire
capital stock or other securities or other ownership interests of any of
the Netlink Corporations or Netlink USA;
(xiv) incur any indebtedness for borrowed money or assume or guarantee
any such indebtedness other than in the ordinary course of business and
consistent with past practice;
(xv) other than as contemplated or otherwise permitted by this Agreement
and other than in accordance with its normal cash management practices
conducted in the ordinary and usual course of its business and consistent
with past practice, make any advance or loan to or engage in any
transaction with any director, officer, or affiliate (other than any other
Netlink Subsidiary and other than Purchaser or any of its subsidiaries) of
such Netlink Subsidiary not required by the terms of an existing contract
described on the Seller Disclosure Schedule;
(xvi) enter into any new employment, consulting, agency or commission
agreement, make any amendment or modification to any existing such
agreement or grant any increases in salary, wage, benefit or other
remuneration payable or to become payable to any of its current or former
officers, directors, employees or agents or grant any increases in any
bonus or severance payment or arrangement made to, for
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or with any of its officers, directors, employees or agents or grant any
supplemental retirement plan or program or special remuneration for any of
its officers, directors, employees or agents, in each case, (x) other than
in the ordinary course of business and consistent with past practice
(including regular salary and performance bonus increases) or (y) which do
not, in the aggregate, materially increase the compensation or benefit
expense of the Netlink Subsidiaries taken as a whole; and the parties agree
that nothing in this paragraph or elsewhere in this Agreement shall prevent
the Netlink Subsidiaries from entering into agreements for temporary
employment of personnel substantially in the form previously provided to
Purchaser by Seller; or
(xvii) enter into an agreement to do any of the foregoing.
4.2 No Solicitation; Acquisition Proposals. Seller will not, and Seller will
cause each of the Netlink Subsidiaries not to, directly or indirectly, through
any officer, director, employee, representative, agent, financial advisor or
otherwise, solicit, initiate or encourage inquiries or submission of proposals
or offers from any person relating to any sale of all or any portion of the
assets, business, properties of (other than immaterial or insubstantial assets
or inventory in the ordinary course of business), or any equity interest in,
any Netlink Subsidiary or any business combination with any of the Netlink
Subsidiaries whether by merger, purchase of assets, tender offer or otherwise
or participate in any negotiation regarding, or furnishing to any other person
any information with respect to, or otherwise cooperate in any way with, or
assist in, facilitate or encourage, any effort or attempt by any other person
to do or seek to do any of the foregoing. Seller will vote all shares of
voting stock in the Netlink Corporations held by Seller against any
transaction of the nature described in this Section 4.2 that is presented to
it. Seller will notify Purchaser immediately if any inquiries or proposals are
received by, any information is requested from, or any negotiations or
discussions are sought to be initiated or continued with Seller or any Netlink
Subsidiary, in each case in connection with any of the foregoing. Seller shall
use its best efforts to cause all confidential materials previously furnished
to any third parties in connection with any of the foregoing to be promptly
returned to Seller and shall cease, or cause the Netlink Subsidiaries to
cease, any negotiations conducted in connection therewith.
4.3 Proxy Statement. To the extent information regarding Seller or the
Netlink Subsidiaries is required to be included in the Proxy Statement, Seller
hereby agrees to promptly supply such information to Purchaser upon request.
Seller further agrees that the information so supplied shall not contain any
statement which, at the time of delivery, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they are made, not false or misleading. Seller further agrees promptly to
supply such additional information to Purchaser as may be necessary to correct
any statement or omission regarding the Netlink Subsidiaries included in the
Proxy Statement that becomes false or misleading with respect to any material
fact prior to the Closing Date.
4.4 Notice of Breach. Each party hereto shall promptly give written notice
to the other upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event that is reasonably likely to
cause or constitute a breach of any of its representations, warranties or
covenants hereunder (in the case of Purchaser, as if its representations or
warranties were then being made).
ARTICLE V
Other Covenants
5.1 Access to Information. Upon reasonable notice, and subject to the terms
and conditions hereof, Seller will, and will cause each of the Netlink
Subsidiaries to, subject to the waiver of confidentiality obligations of TCI,
Seller or the Netlink Subsidiaries to third parties, afford Purchaser and its
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties hereto agree) during
the period prior to the Closing to (a) all of Seller's properties, books,
contracts, commitments and records relating to the Netlink Subsidiaries, (b)
all properties, books, contracts, commitments and records of the Netlink
Subsidiaries, and (c) all other information in the possession of Seller or the
Netlink Subsidiaries concerning the
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business, properties and personnel of the Netlink Subsidiaries as Purchaser
may reasonably request. Seller will provide, and will cause each of the
Netlink Subsidiaries to provide, to Purchaser and its accountants, counsel and
other representatives copies of any interim quarterly financial statements for
the Netlink Wholesale Division prepared prior to the Closing Date promptly
upon request. Purchaser shall cooperate with Seller in Seller's due diligence
review of Purchaser to the extent necessary to confirm the accuracy of
Purchaser's representations and warranties. No information or knowledge
obtained in any investigation pursuant to this Section 5.1 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties hereto to consummate the
transactions contemplated hereby.
5.2 Confidentiality. Purchaser agrees to treat as confidential and hold in
confidence all information provided by Seller or the Netlink Subsidiaries in
connection with the transactions contemplated by this Agreement concerning the
businesses and affairs of the Netlink Subsidiaries or Seller, and Seller
agrees to treat as confidential and hold in confidence all information
provided by Purchaser in connection with the transactions contemplated by this
Agreement concerning the businesses and affairs of Purchaser, in each case, in
accordance with the Nondisclosure Agreement, effective as of January 28, 1998,
between Purchaser and Seller (the "Nondisclosure Agreement"). Seller and
Purchaser agree that the provision of confidential information, if any, to NAI
in connection with the negotiation of the TV Guide Agreement shall not
constitute a breach of this Section 5.2.
5.3 Publicity. Each of Purchaser and Seller agrees not to, and to cause each
of its respective subsidiaries not to, issue, or cause or permit to be issued,
any press release regarding this Agreement and the transactions contemplated
hereby without consulting with the other party prior to making such release.
5.4 Proxy Statement; Other Filings; Cooperation.
(a) Prior to the date of execution of this Agreement, Purchaser prepared and
filed with the Commission a preliminary Proxy Statement for the Purchaser
Stockholders Meeting. Purchaser shall use reasonable efforts to respond to any
comments of the Commission and to cause the definitive Proxy Statement to be
filed with the Commission and mailed to its stockholders at the earliest
practicable time. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement, Purchaser shall promptly
inform Seller of such occurrence and shall file such amendment or supplement
with the Commission or its staff or any other applicable Government Entity,
and shall use reasonable efforts to mail such amendment or supplement to the
stockholders of Purchaser at the earliest practicable date. The Proxy
Statement shall include the recommendation of the Board of Directors of
Purchaser in favor of the issuance of the UVSG Shares. Purchaser shall call
the Purchaser Stockholders Meeting to be held as promptly as practicable for
the purpose of voting upon the issuance of the UVSG Shares and, unless the TV
Guide Agreement has theretofore been terminated and the transactions
contemplated thereby abandoned, the issuance of shares of Class A Common Stock
and Class B Common Stock pursuant to the TV Guide Agreement.
(b) The parties hereto shall (i) in the case of Seller, timely give the
Contract Notices identified on the Seller Disclosure Schedule, (ii) make, and
cause their affiliates (other than each other) to make, all other necessary
filings with respect to the transactions contemplated hereby including
registrations and filings with all applicable Governmental Entities and
filings required under the Securities Act and the Exchange Act and the rules
and regulations thereunder, and under applicable Blue Sky or similar
securities laws, and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto and to (A) comply as promptly as
practicable with all governmental requirements applicable to the transaction
and (B) obtain promptly all necessary permits, orders and other consents of
Governmental Entities necessary for the consummation of the transactions
contemplated hereby and (iii) use all commercially reasonable efforts to
obtain all Contract Consents identified on the Seller Disclosure Schedule or
otherwise necessary for the consummation of the transaction contemplated
hereby, and to take, or cause to be taken, all actions and to do, or cause to
be done, all other things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including using all commercially reasonable efforts to lift
any injunction or other legal bar to the transactions contemplated hereby
(and, in such case, to proceed with such transactions as expeditiously as
possible).
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5.5 Employment Matters. Seller has assumed and shall be responsible for (and
Purchaser shall have no liability for) all obligations for severance benefits
(other than as provided below) and for the sticking bonuses described in Item
(1) of Schedule 2.17 of the Seller Disclosure Schedule, in each case payable
to those persons who were employees of the Netlink Subsidiaries prior to
September 30, 1998. If the Closing occurs prior to January 31, 1999, then
immediately prior to the Closing, all persons then remaining employed by the
Netlink Subsidiaries shall become employees of Seller, so that immediately
following the Closing the Netlink Subsidiaries will have no employees. All
liability for that portion of the performance bonuses that have accrued
pursuant to the Bonus Plan during the period from and including January 1,
1998 through and including the Closing Date with respect to employees of the
Netlink Subsidiaries who are entitled to such bonuses pursuant to the Bonus
Plan shall be the liability of the Netlink Subsidiaries and not Seller
following the Closing (it being understood and agreed that such performance
bonuses will accrue on a twelve-month basis). If the Closing occurs prior to
January 31, 1999, then following the Closing through and until January 31,
1999, Seller will, at Purchaser's request and subject to Purchaser's
reimbursing Seller for the costs thereof, make available to Purchaser the
services of such of the persons who prior to the Closing had been providing
services exclusively to the Netlink Subsidiaries and their businesses and who
continue to be employed by Seller thereafter as Purchaser may request (each, a
"Requested Employee"). Purchaser shall reimburse Seller for all costs
associated with the Requested Employees during such period (including any
accruals under the Bonus Plan with respect to a Requested Employee during the
period following the Closing through and including January 31, 1999 or, if
earlier, the date that Purchaser notifies Seller that it no longer wants
Seller to employ such Requested Employee on behalf of Purchaser or the Netlink
Subsidiaries); provided that Purchaser shall not be required to reimburse
Seller for severance benefits (other than the accrued performance bonuses
referred to above) or the sticking bonuses described in Item (1) of Schedule
2.17 of the Seller Disclosure Schedule paid to Requested Employees who were
employees of the Netlink Subsidiaries prior to September 30, 1998.
Reimbursement pursuant to this Section 5.5 shall be paid within 10 days of
receipt of an invoice from Seller itemizing such reimbursable costs. If the
Closing has not occurred prior to January 31, 1999, then on and after January
31, 1999, employees of Purchaser shall provide the services to the Netlink
Subsidiaries and their businesses previously provided by the employees of the
Netlink Subsidiaries, all at Purchaser's sole cost and expense.
5.6 Tax-Free Transaction. Purchaser agrees not to take any action which
would cause the exchange of the Purchased Shares for the UVSG Shares not to
qualify as a tax-free transaction pursuant to Section 351 of the Code,
including any direct or indirect transfer of the SNG Interest to Primestar
after the Closing if such transfer could have such effect. Subject to
compliance with the last sentence of Section 1.4(a), the execution and
delivery by Purchaser of the TV Guide Agreement and the performance of its
obligations thereunder will not constitute a breach of Purchaser's obligations
under this Section 5.6.
ARTICLE VI
Conditions Precedent
6.1 Conditions to Obligations of Each Party. The respective obligations of
each party hereto to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived,
in writing, by agreement of Purchaser and Seller:
(a) Stockholder Approvals. The issuance of the UVSG Shares pursuant to
this Agreement shall have been approved and adopted by the requisite vote
of the stockholders of Purchaser.
(b) No Injunction. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect.
6.2 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by Seller:
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(a) Accuracy of Representations and Warranties; Performance of
Agreements. Purchaser shall have performed and complied in all material
respects with all of its covenants in this Agreement required to be
performed and complied with by it on or prior to the Closing and the
representations and warranties of Purchaser in this Agreement shall be true
and correct in all material respects (or in all respects in the case of any
representation or warranty that is qualified by its terms by a reference to
Material Adverse Effect or other concept of materiality) when made and on
and as of the Closing Date as though such representations and warranties
were made on and as of such date.
(b) Officers' Certificate. Seller shall have received a certificate
executed on behalf of Purchaser by its Chief Financial Officer certifying
that the conditions specified in Section 6.2(a) have been fulfilled.
(c) Contract Consents and Notices. All Contract Consents and Contract
Notices which are referred to in the Seller Disclosure Schedule or
otherwise required in connection with the consummation of the transactions
contemplated hereby and which, if not obtained or given, would have,
individually or in the aggregate, a Material Adverse Effect after the
Closing Date on Seller and its subsidiaries taken as a whole shall have
been obtained and given.
(d) No Material Adverse Change. Since the effective date hereof no event
shall have occurred that, individually or in the aggregate, has had or is
reasonably likely to have, a Material Adverse Effect, as of or after the
Closing Date, on Purchaser and its subsidiaries taken as a whole,
excluding, in all cases, events or conditions generally affecting the cable
television or satellite television industries or affecting general business
or economic conditions.
(e) Receipt of Licenses, Permits and Consents. The parties hereto shall
have obtained from each Governmental Entity all approvals, waivers and
consents identified on the Seller Disclosure Schedule or otherwise required
in connection with the consummation of the transactions contemplated
hereby, and such approvals, waivers and consents, as applicable, shall be
in full force and effect, and all filings with Governmental Entities, if
any, as are required in connection with the consummation of such
transactions shall have been made, other than those which, if not obtained,
in force or effect or made (as the case may be), would not, either
individually or in the aggregate, have a Material Adverse Effect, as of or
after the Closing Date, on Seller and its subsidiaries taken as a whole.
6.3 Additional Conditions to the Obligations of Purchaser. The obligations
of Purchaser to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by Purchaser:
(a) Accuracy of Representations and Warranties; Performance of
Agreements. Seller shall have performed and complied in all material
respects with all of its covenants in this Agreement required to be
performed and complied with by it on or prior to the Closing Date. The
representations and warranties of Seller in this Agreement shall have been
true and correct in all material respects (or in all respects in the case
of any representation or warranty that is qualified by its terms by a
reference to Material Adverse Effect or other concept of materiality) when
made.
(b) Officers' Certificate. Purchaser shall have received a certificate,
dated as of the Closing Date, from Seller by its President certifying that
the conditions specified in Section 6.3(a) have been fulfilled.
(c) Receipt of Licenses, Permits and Consents. The parties hereto shall
have obtained from each Governmental Entity all approvals, waivers and
consents, identified on the Seller Disclosure Schedule or otherwise
required in connection with the consummation of the transactions
contemplated hereby, and such approvals, waivers and consents, as
applicable, shall be in full force and effect, and all filings with
Governmental Entities, if any, as are required in connection with the
consummation of such transactions shall have been made, other than those
which, if not obtained, in force or effect or made (as the case may be),
would not, either individually or in the aggregate, have a Material Adverse
Effect, as of or after the Closing Date, on Purchaser and its subsidiaries
taken as a whole.
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(d) Contract Consents and Notices. All Contract Consents and Contract
Notices which are referred to in the Seller Disclosure Schedule or
otherwise required in connection with the consummation of the transactions
contemplated hereby and which, if not obtained or given, would have,
individually or in the aggregate, a Material Adverse Effect after the
Closing Date on Purchaser and its subsidiaries taken as a whole shall have
been obtained and given.
(e) Resignations. Purchaser shall have received letters of resignation,
effective as of the Closing Date, executed and tendered by each of the then
incumbent directors of the Netlink Corporations.
ARTICLE VII
Termination, Amendment and Waiver
7.1 Termination. This Agreement may be terminated, whether before or after
approval of the matters presented in connection with this Agreement by the
stockholders of Purchaser:
(a) at any time prior to the Closing Date, by mutual consent of Purchaser
and Seller;
(b) at any time prior to the Closing by Purchaser, if Seller shall have
breached in any material respect any of its covenants in Article IV or V or
if Seller was in breach in any material respect (or in any respect in the
case of any representation or warranty that is qualified by its terms by a
reference to Material Adverse Effect) of any of its representations and
warranties in Article II when made and, in either case, such breach
continues for a period of 30 days after notice of the breach is given to
Seller by Purchaser (provided that any such breach of a representation or
warranty in Article II shall be deemed cured if as of the end of such 30
day period such representation or warranty would be true if then made);
(c) at any time prior to the Closing by Seller, if Purchaser shall have
breached in any material respect any of its representations or warranties
in Article III (as if then being made), or any of its covenants in Article
IV or V and, in any such case, such breach continues for a period of 30
days after notice of the breach is given to Purchaser by Seller; and
(d) at any time after January 31, 1999, by Seller, if, without any fault
by it, the Closing shall not have occurred on or before such date.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of the parties hereto, except
to the extent that such termination results from the breach by a party hereto
of any of its representations, warranties or covenants set forth in this
Agreement; provided that, the provisions of this Section 7.2 and Article X
shall remain in full force and effect and survive any termination of this
Agreement.
7.3 Amendment. This Agreement may be amended at any time before or after
approval hereof by the stockholders of Purchaser; provided, however, that
after such stockholder approval there shall not be made any amendment that by
law requires further approval by the stockholders of Purchaser without the
further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
7.4 Extension; Waiver. The parties may (a) extend the time for the
performance of any of the obligations or other acts of the other party, (b)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement or (c)
subject to the proviso clause in the first sentence of Section 7.3, waive
compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing, signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver
of those rights.
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ARTICLE VIII
Indemnification
8.1 Indemnification by Seller.
(a) Subject to written notice of such claim for indemnification being given
to Seller within the appropriate survival period referred to in Section 10.1,
Seller covenants and agrees, on the terms and subject to the limitations set
forth in this Agreement, to indemnify, defend and hold Purchaser harmless from
and against:
(i) all losses, damages, liabilities, deficiencies, obligations, costs
and expenses resulting from or arising out of (A) any representation or
warranty of Seller in Article II not being true and correct when made, (B)
any nonperformance or breach of any covenant or agreement of Seller
contained in this Agreement, (C) any violation of SHVA resulting from the
conduct of the Denver 6 Business prior to April 1, 1998, (D) the failure to
obtain the consent described in Item (1) on Schedule 2.7 of the Seller
Disclosure Schedule, if applicable, (E) Item (2) on Schedule 2.10 of the
Seller Disclosure Schedule or (F) to the extent arising out of the conduct
of the SMATV Business prior to April 1, 1998, Items (2) and (4) on Schedule
2.11 of the Seller Disclosure Schedule; and
(ii) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts, and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
(b) From and after the Closing, Seller shall assume and be liable to
Purchaser for the obligations of Netlink USA under Section 10 of the Joint
Venture Terms incorporated and included in the SNG Agreement, on the same
terms and subject to the same conditions as were applicable to Netlink USA
thereunder.
(c) Notwithstanding the foregoing provisions of this Section 8.1, no claim
shall be made by Purchaser (i) under this Section 8.1 with respect to Taxes
for which Seller's obligations are governed by Article IX, (ii) for lost
profits, lost revenues or other indirect or consequential damages or (iii)
with respect to actions taken or required to be taken after April 1, 1998
pursuant to the SHVA Agreement. In addition, notwithstanding the foregoing
provisions of this Section 8.1, no claim shall be made by Purchaser for any
losses, damages, liabilities, deficiencies, obligations, costs and expenses
(and amounts incident or relating to or resulting from any or all of the
foregoing) (collectively, "Losses") referred to in Section 8.1(a) unless and
until any or all of such Losses exceed $1,725,000 (the "Minimum Amount");
provided, however, that (x) at such time as the aggregate amount of such
Losses exceeds the applicable Minimum Amount, Purchaser may assert a claim for
the full amount of the applicable of such Losses and (y) the foregoing
limitation shall not apply to Losses arising out of any breach of the
representations and warranties or covenants of Seller set forth in Sections
2.24 and 5.5.
(d) Purchaser acknowledges and agrees that following the Closing, its sole
and exclusive remedy with respect to any and all claims relating to this
Agreement and the transactions contemplated hereby (other than claims of, or
causes of action arising from, fraud) shall be pursuant to the indemnification
provisions set forth in this Article VIII or, with respect to Tax matters, the
indemnification provisions set forth in Article IX. In furtherance of the
foregoing, Purchaser hereby waives, from and after the Closing Date, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action (other than claims of, or causes of action arising from,
fraud) it or any of its affiliates may have against Seller and its affiliates
arising under or based upon any Federal, state, local or foreign statute, law,
ordinance, rule or regulation or otherwise (except pursuant to the
indemnification provisions set forth in this Article VIII or Article IX).
8.2 Indemnification by Purchaser.
(a) Subject to written notice of such claim for indemnification being given
to Purchaser within the appropriate survival period set forth in Section 10.1,
Purchaser covenants and agrees, on the terms and subject to the limitations
set forth in this Agreement, to indemnify, defend and hold harmless Seller
from and against:
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(i) all losses, damages, liabilities, deficiencies, obligations, costs
and expenses resulting from or arising out of (A) any misrepresentation or
breach of warranty of Purchaser contained in Article III or in any
certificate delivered pursuant to this Agreement by or on behalf of
Purchaser, (B) any nonperformance or breach of any covenant or agreement of
Purchaser contained in this Agreement, (C) any guarantee or obligation to
assure performance given or made by Seller or an affiliate of Seller with
respect to any obligation of the Netlink Subsidiaries set forth in clause
(D) below; and (D) all obligations and liabilities of whatever kind and
nature, primary or secondary, direct or indirect, absolute or contingent,
known or unknown, whether arising before, on or after the Closing Date, of
the Netlink Subsidiaries, in each case other than items which Seller has
expressly agreed to pay or perform after the Closing Date pursuant to this
Agreement and other than to the extent such obligation or liability arises
out of a breach of a representation or warranty of Seller contained in this
Agreement.
(ii) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts, and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
(b) Notwithstanding the foregoing provisions of this Section 8.2, no claims
shall be made by Seller (i) for any Losses referred to in clause (A) or (B) of
Section 8.2(a) unless and until any or all of such Losses exceed $1,725,000;
provided, however, that (x) at such time as the aggregate amount of such
Losses exceeds the applicable of the foregoing amounts, Seller may assert a
claim for the full amount of the applicable of such Losses and (y) the
foregoing limitation shall not apply to Losses arising out of any breach of
the representations and warranties or covenants of Purchaser set forth in
Sections 3.8 and 5.5; (ii) for lost profits, lost revenues or other indirect
or consequential damages.
(c) Seller acknowledges and agrees that following the Closing, its sole and
exclusive remedy with respect to any and all claims relating to this Agreement
and the transactions contemplated hereby (other than claims of, or causes of
action arising from, fraud) shall be pursuant to the indemnification
provisions set forth in this Article VIII or, with respect to Tax matters, the
indemnification provisions set forth in Article IX. In furtherance of the
foregoing, Seller hereby waives, from and after the Closing Date, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action (other than claims of, or causes of action arising from,
fraud) it or any of its affiliates may have against Purchaser and its
affiliates arising under or based upon any federal, state, local or foreign
statute, law, ordinance, rule or regulation or otherwise (except pursuant to
the indemnification provisions set forth in this Article VIII or Article IX).
8.3 Defense of Action.
(a) Any party seeking indemnification under Section 8.1 or 8.2 hereof will
give the party from whom such indemnification is sought prompt notice of any
third party claim, investigation, action, suit or proceeding with respect to
which such indemnification is sought. In the case of any such third party
claim, such party (the "Indemnified Party") shall be entitled, at the sole
expense and liability of the party from whom indemnification is sought (the
"Indemnifying Party"), to exercise full control of the defense, compromise or
settlement of any third party claim, investigation, action, suit or proceeding
unless the Indemnifying Party within a reasonable time after the giving of
such notice by the Indemnified Party shall: (a) deliver a written confirmation
to such Indemnified Party that the indemnification provisions of Section 8.1
or 8.2 (as the case may be) are applicable to such claim, investigation,
action, suit or proceeding and that the Indemnifying Party will indemnify such
Indemnified Party in respect of such claim, action or proceeding pursuant to
the terms of Section 8.1 or 8.2 (as the case may be), (b) notify such
Indemnified Party in writing of the Indemnifying Party's intention to assume
the defense thereof, and (c) retain legal counsel reasonably satisfactory to
such Indemnified Party to conduct the defense of such claim, investigation,
action, suit or proceeding.
(b) If the Indemnifying Party so assumes the defense of any such claim,
investigation, action, suit or proceeding in accordance herewith, then such
Indemnified Party shall cooperate with the Indemnifying Party in any manner
that the Indemnifying Party reasonably may request in connection with the
defense, compromise or
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settlement thereof. If the Indemnifying Party so assumes the defense of any
such claim, investigation, action, suit or proceeding, the Indemnified Party
shall have the right to employ separate counsel and to participate in (but not
control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel shall be the expense of such Indemnified Party unless
(i) the Indemnifying Party has agreed to pay such fees and expenses, (ii) any
relief other than the payment of money damages is sought against the
Indemnified Party or (iii) such Indemnified Party shall have been advised by
its counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Indemnifying Party,
and in any such case the reasonable fees and expenses of such separate counsel
shall be borne by the Indemnifying Party. The Indemnifying Party shall not,
without the written consent of such Indemnified Party, settle or compromise or
consent to entry of any judgment with respect to any such claim,
investigation, action, suit or proceeding (x) in which any relief other than
the payment of money damages is or may be sought against such Indemnified
Party, (y) in which the amount of money damages contemplated to be paid in
connection with such settlement, compromise or judgment, exceeds any dollar
limitations on the Indemnifying Party's obligations hereunder pursuant to
Section 8.1 or 8.2 or (z) which does not include as an unconditional term
thereof the giving by the claimant, party conducting such investigation,
plaintiff or petitioner to such Indemnified Party of a release from all
liability with respect to such claim, action, suit or proceeding.
(c) In the event that the indemnification provisions contained in this
Article VIII and the indemnification provisions contained in Section 9.7 are
both applicable or otherwise conflict with respect to any particular matter,
then the indemnification provisions contained in Section 9.7 shall be
controlling and shall apply for all purposes as to such matters.
8.4 Insurance Proceeds. The amount which each of Seller and Purchaser may be
required to pay to the other party pursuant to this Article VIII shall be
reduced (retroactively, if necessary) by any insurance proceeds or refunds
actually recovered by or on behalf of the applicable Indemnified Party in
reduction of the related Losses. If an Indemnified Party shall have received
the payment required by this Agreement from the Indemnifying Party in respect
of Losses and shall subsequently receive insurance proceeds or refunds in
respect of such Losses, then the Indemnified Party shall promptly repay to the
Indemnifying Party a sum equal to the amount of such insurance proceeds or
refunds actually received, net of costs and expenses, but not exceeding the
amount paid by the Indemnifying Party in respect of such Losses.
ARTICLE IX
Tax Matters
9.1 Tax Returns. Seller has made available (or, in the case of Tax Returns
filed after the Closing Date, will make available) to Purchaser (i) complete
and accurate copies of the portions applicable to the Netlink Corporations of
all Federal or state consolidated or combined income Tax Returns, and
amendments thereto and (ii) all other Tax Returns, and any amendments thereto,
filed by or on behalf of the Netlink Corporations (or with respect to its
assets or businesses) for all taxable years or applicable periods ending on or
prior to the Closing Date, in each case, to the extent such Tax Returns are
relevant in the preparation by or on behalf of the Netlink Corporations of Tax
Returns subsequent to the Closing Date.
9.2 Termination of Prior Tax Settlement Agreements. All tax settlement and
tax-sharing agreements, arrangements, policies and guidelines, formal or
informal, express or implied, that may exist between the Netlink Corporations
and any affiliate ("Settlement Agreements") and all obligations thereunder
shall terminate prior to April 1, 1998. After April 1, 1998, none of the
Netlink Corporations shall be bound by such Settlement Agreements or have any
liability thereunder.
9.3 Pre-Closing Taxes.
(a) Each of the Netlink Corporations shall continue to be included for all
taxable periods (or portions thereof) ending on or before the Closing Date in
the consolidated Federal income Tax Return and any required
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<PAGE>
state or local consolidated or combined income or franchise Tax Returns of any
affiliated group of which any of them is or was a member (each of which is
herein referred to as a "Selling Affiliated Group") which Tax Returns include
any of the Netlink Corporations (all such Tax Returns including taxable
periods (or portions thereof) of the Netlink Corporations ending on or before
the Closing Date are hereinafter referred to, collectively, as "Pre-Closing
Consolidated Returns"). Seller shall cause each Selling Affiliated Group to
timely prepare and file (or cause to be prepared and filed) all Pre-Closing
Consolidated Returns and shall timely pay all Taxes shown as due and payable
on Pre-Closing Consolidated Returns (including any Taxes with respect to any
deferred income triggered into income by Treasury Regulation (S) 1.1502-13 and
Treasury Regulation (S) 1.1502-14 and any excess loss accounts taken into
income under Treasury Regulations (S) 1.1502-19).
(b) Seller shall timely prepare (or cause to be so prepared) all other Tax
Returns of the Netlink Corporations required by law for all taxable periods
ending on or before the Closing Date ("Pre-Closing Non-Consolidated Returns").
All Pre-Closing Non-Consolidated Returns shall be prepared in a manner
consistent with prior practice and shall properly include and reflect the
income, activities, operations and transactions of the Netlink Corporations,
as applicable. Seller shall timely file (or cause to be so filed) all Pre-
Closing Non-Consolidated Returns which are due on or before the Closing Date
and shall pay (or cause the Netlink Corporations to pay as each may be liable)
all Taxes due thereon. Seller shall also pay (or cause the Netlink
Corporations to pay as each may be liable) the full amount of any Tax which is
payable by the Netlink Corporations without the filing of a Tax Return ("Non-
Return Taxes"), payment of which is due on or before the Closing Date. With
respect to each Pre-Closing Non-Consolidated Return due after the Closing
Date, Seller shall deliver (or cause to be so delivered) each such Pre-Closing
Non- Consolidated Return to Purchaser at least 15 days prior to the due date
of such Tax Return, together with a payment in an amount equal to the amount
of Tax shown as due and payable on such Pre-Closing Non-Consolidated Return
(after giving effect to any credits for the amount of Tax, if any, paid on or
prior to the Closing Date as shown on such Tax Return). Subject to the
foregoing, Purchaser shall cause the Netlink Corporations to file all such
Pre-Closing Non- Consolidated Returns that are due after the Closing Date and
to pay the amount of Tax shown as due and payable thereon to the extent each
is liable for such payment (after giving effect to any credits for the amount
of Tax, if any, previously paid as shown on such Tax Return).
9.4 Transfer Taxes. Each of Purchaser and Seller agrees to share equally in
the costs of all sales, use, transfer, stamp, value added, duty, excise, stock
transfer, real property transfer, recording, gains and other similar taxes and
fees arising out of or in connection with the transactions contemplated by
this Agreement.
9.5 Post-Closing Taxes.
(a) Purchaser shall timely prepare and file (or cause to be so prepared and
filed) all Tax Returns required by law for all Taxes, covering solely the
Netlink Corporations, for taxable periods ending after the Closing Date
("Post-Closing Returns"). Purchaser shall timely pay or cause to be paid all
Taxes relating to Post-Closing Returns ("Post-Closing Taxes"). Seller shall
reimburse Purchaser for (i) the amount of Post-Closing Taxes reported as
payable on each Post-Closing Return that is attributable to the portion of the
period covered by such Tax Return ending on the close of business on the
Closing Date (the "Pre-Closing Tax Period"), determined by treating the close
of business on the Closing Date as the last date of the taxable period, and
(ii) the amount of any Non-Return Tax payable after the Closing Date that is
attributable to the portion of the period covered by such payment which ends
on or before the close of business on the Closing Date (pro rata based upon
the number of days covered by such payment), in each case after giving effect
to any credits for the amount of such Post-Closing Tax or such Non-Return Tax,
if any, paid on or prior to the Closing Date by Seller, the Netlink
Corporations or any of their predecessors or affiliates. Such reimbursements
shall be made on or before the later of the date on which such return is filed
or 15 days after receipt of a copy of such return or evidence of such payment
and Purchaser shall provide Seller with copies of work papers which will
permit Seller to review and substantiate the accuracy of such return or such
payment.
(b) To the extent any determination of Taxes with respect to the Netlink
Subsidiaries, whether as the result of an audit or examination, a claim for
refund, the filing of an amended return, the application of an overpayment
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as an offset, or otherwise, results in a refund of Taxes paid (a "Refund"),
Seller shall be entitled to any part of such Refund attributable to any period
ending on or before April 1, 1998, and the applicable Netlink Subsidiary shall
be entitled to the balance of such Refund. The party receiving a Refund shall,
within 10 days after receipt, pay over to the other party the portion of the
Refund to which the other party is entitled under this paragraph (along with a
proportionate share of any interest amounts received with the Refund).
9.6 Tax Cooperation. After the Closing Date, Seller shall submit (or cause
to be submitted) to Purchaser blank Tax Return work paper packages. Purchaser
shall cause the Netlink Corporations to prepare completely and accurately all
information that Seller shall reasonably request in such work paper packages
and shall submit to Seller such packages within the later of 90 calendar days
after Purchaser's receipt thereof or 90 calendar days after the close of the
taxable period to which a work paper package relates. The parties shall
cooperate with each other in connection with any Tax investigation, audit or
other proceeding. Purchaser shall preserve all information, returns, books,
records and documents relating to any liabilities for Taxes with respect to a
taxable period until the later of the expiration of all applicable statutes of
limitation and extensions thereof, or a final determination with respect to
Taxes for such period.
9.7 Indemnification.
(a) After the Closing Date, Seller shall indemnify and hold harmless
Purchaser and its subsidiaries, successors and assigns from and against all
Taxes of the Netlink Corporations (the "Companies") allocable to any period
ending on or prior to April 1, 1998 (referred to as a "Pre-Signing Period")
whether such Taxes are due before or after Closing. The Taxes allocable to a
Pre-Signing Period shall be determined on the basis of a closing of the books
of the Companies at the end of the day on April 1, 1998. The Taxes
attributable to the Companies' direct and indirect interest in the Tax
Partnerships shall be determined by a closing of the books of each Tax
Partnership as of the end of the day on April 1, 1998, and all Taxes
attributable to the operations and activities of a Tax Partnership through the
end of the day on April 1, 1998 shall be considered Taxes of the Companies
allocable to a Pre-Signing Period. In this Agreement, any reference to "Tax
Partnerships" means Netlink USA, SNG, UVI Network WGN, Superstar Entertainment
Netlink WGN and any other entity treated as a partnership for federal income
tax purposes in which the Companies have a direct or indirect interest. Non-
Return Taxes shall be apportioned based upon the number of days covered by
such payment which are on or before April 1, 1998 and the total number of days
covered by such payment, in each case, to the extent such amount exceeds any
amount previously paid to Purchaser with respect to such Tax pursuant to
Section 9.3 or 9.5, as applicable. Seller shall pay such amounts as it is
obligated to pay to Purchaser within 10 calendar days after payment of any
applicable Tax liability by Purchaser or any subsidiary of Purchaser and to
the extent not paid by Seller within such 10-day period, the amount due shall
thereafter include interest thereon at a rate per annum equal to the
"overpayment rate" under Section 6621(a) of the Code (the "Overpayment Rate"),
adjusted as and when changes to such Overpayment Rate shall occur, compounded
semi-annually. Seller shall indemnify and hold harmless Purchaser or any
subsidiary of Purchaser, successors and assigns, from and against (i) any Tax
liability for periods prior to and including the Closing Date resulting solely
from the Netlink Subsidiaries being severally liable for any Taxes of any
consolidated group of which the Netlink Corporations is or was a member
pursuant to Treasury Regulations (S) 1.1502-6 or any analogous state or local
tax provision (including, without limitation, any Tax liability with respect
to any Pre-Closing Consolidated Return), and (ii) any Tax liability resulting
from the Netlink Corporations ceasing to be a member of any Selling Affiliated
Group filing consolidated or combined Tax Returns (including, without
limitation, Tax liability for excess loss accounts and deferred intercompany
gains).
(b) After the Closing Date, Purchaser and each of its subsidiaries, jointly
and severally shall indemnify and hold harmless Seller and its affiliates,
successors and assigns from and against (i) any Tax liability resulting from
any addition to the taxable income of the Netlink Corporations that is
attributable to the period ending after April 1, 1998 and on or before the
Closing Date, using for this purpose the taxable income as reflected on the
Federal consolidated income tax return filed by TCI, other than Tax liability
described in clause (ii) of Section 9.7(a) ("Addition to Taxable Income"),
provided, that such Tax liability shall be reduced by the amount of any
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payment made to Seller with respect to the Estimated Tax Payment pursuant to
Section 4.1(b)(vii), (ii) any Tax liability with respect to any Non-Return
Taxes, that are attributable to the portion of the period covered by any
payment of such Taxes which begins after April 1, 1998 and ends on or before
the Closing Date (determined on a pro rata basis based upon the number of days
covered by such payment which are both after April 1, 1998 and on or before
the Closing Date and the total number of days covered by such payment) and
(iii) any Tax liability with respect to the period beginning after the Closing
Date on a Post-Closing Return and with respect to any Non-Return Taxes
attributable to the portion of the period covered by any payment of such Taxes
which begins after the Closing Date (determined on a pro rata basis based upon
the number of days covered by such payment which are after the Closing Date
and the total number of days covered by such payment). For purposes of clause
(i) of the previous sentence, the amount of the Tax liability shall be deemed
to equal: (x) 20% of such Addition to Taxable Income to the extent that the
income resulting in the Addition to Taxable Income reduces the amount of the
excess loss accounts that Seller would otherwise be responsible for under
Section 9.3(a) or clause (ii) of Section 9.7(a); and (y) 40% of any remaining
Addition to Taxable Income not described in clause (x). Purchaser shall pay or
cause the appropriate Netlink Subsidiary to pay such amounts within 10
calendar days after payment of any such Tax liability by Seller and, to the
extent not paid within such 10-day period, the amount due shall thereafter
include interest thereon at the Overpayment Rate, compounded semi-annually.
9.8 Notification of Proceedings, Control; Refunds.
(a) In the event that Purchaser or any of the Netlink Subsidiaries receive
notice, whether orally or in writing, of any pending or threatened United
States Federal, state, local, municipal or foreign tax examinations, claims
settlements, proposed adjustments, assessments or reassessments or related
matters with respect to Taxes that could affect TCI, Seller or their
subsidiaries, or if TCI, Seller or any of their subsidiaries receive notice of
any matter that could affect Purchaser or any of the Netlink Subsidiaries, the
party receiving notice shall notify in writing the potentially affected party
within 10 calendar days thereof. The failure of any party to give the notice
required by this Section 9.8(a) shall not impair that party's rights under
this Agreement except to the extent that the other party demonstrates that it
has been damaged thereby.
(b) Subject to Section 9.9, each of Seller and Purchaser shall have the
right to control any audit or examination by any taxing authority, initiate
any claim for refund, file any amended return, contest, resolve and defend
against any assessment, notice of deficiency or other adjustment or proposed
adjustment relating or with respect to any Taxes, the ultimate liability for
which is the responsibility of that party or its affiliates under Section
9.7(a) or 9.7(b), and each of Seller and Purchaser shall be entitled to, and
to the extent received by the other shall be promptly paid by the other, all
refunds with respect to any such Taxes.
9.9 Tax Effect of Payments. The amount of any payments required to be made
under this Article IX shall be reduced by the amount of any tax benefit
actually received by (including by refund or by reduction of or offset against
Taxes otherwise payable) the recipient by reason of the payment or incurrence
by such recipient of the item for which the indemnity is being sought. Each
party shall notify the other of such receipt of any such tax benefits.
9.10 Withholding. For purposes of withholding under Section 1445 of the
Code, Seller represents that Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Code. Seller shall provide to Purchaser prior to the
Closing Date a certificate, substantially in the form of Exhibit 9.10 hereto,
or an affidavit necessary to substantiate exemption from such withholding.
ARTICLE X
General Provisions
10.1 Survival. The representations and warranties of Purchaser and Seller
contained herein and the covenants of the parties contained in Sections 5.2,
5.3, 5.4, and 5.5 shall survive the Closing and continue in full force and
effect for one year after the Closing Date; provided that the representations
and warranties of Purchaser
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contained in Sections 3.3 and 3.13 and of Seller contained in Sections 2.3 and
2.13 shall survive the Closing until the expiration of the statute of
limitations applicable to claims that may be asserted in respect of the
matters covered thereby. The obligations of the parties in Section 5.6,
Articles VIII, IX and X, shall survive the Closing without limitation (subject
to any applicable statute of limitations), except pursuant to their terms. No
covenant in any section not specified in the previous sentence shall survive
the Closing.
10.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail, return receipt
requested, or sent via facsimile, with confirmation of receipt, to the parties
at the following address or at such other address for a party as shall be
specified by notice hereunder:
(a) if to Purchaser, to:
United Video Satellite Group, Inc.
7140 South Lewis Avenue
Tulsa, Oklahoma 74136-5422
Attention: Peter C. Boylan
Telephone: (918) 488-4000
Facsimile No.: (918) 488-4928
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Francis R. Wheeler, Esq.
Facsimile No.: (303) 866-0200
(b) if to Seller, to:
Liberty Media Corporation
8101 East Prentice Avenue
Suite 500
Englewood, Colorado 80111
Attention: Robert R. Bennett
Telephone: (303) 721-5400
Facsimile No.: (303) 841-7344
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue, Suite 2900
New York, New York 10022-6030
Attention: Elizabeth Markowski, Esq.
Telephone: (212) 705-5000
Facsimile No.: (212) 705-5125
10.3 Interpretation. When a reference is made in this Agreement to Exhibits,
Articles or Sections, such reference shall be to an Exhibit, Article or
Section to this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party hereto to whom such information is to be
made available. The table of contents and Article and Section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. In this
Agreement, except as otherwise specifically provided, any reference to any
event, change, condition or effect being "material" with respect to any entity
or group of entities means any material event, change, condition or effect
related to the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities,
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<PAGE>
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Change" or
"Material Adverse Effect" with respect to any entity or group of entities
means any event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means
such party's actual knowledge after due and diligent inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. All references
herein to "the date of this Agreement," "the effective date of this Agreement"
and words of similar import (but excluding references to "the date of
execution of this Agreement" and words of similar import) refer to May 18,
1998, notwithstanding the fact that the parties executed this Agreement on a
later date.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective as of May 18, 1998 when one or more counterparts have
been signed by each of the parties hereto and delivered to the other parties
hereto, it being understood that all parties hereto need not sign the same
counterpart.
10.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement
and the documents and instruments and other agreements specifically referred
to herein or delivered pursuant hereto, including the Exhibits, the Seller
Disclosure Schedule, the Nondisclosure Agreement and the SNG Agreement (a)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties hereto with respect to the subject
matter hereof; (b) are not intended to confer upon any other person any rights
or remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
10.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties hereto
further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
10.7 No Waiver. No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be
a waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado (without regard to the
principles of conflicts of law thereof).
10.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
10.10 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including the fees and expenses of
its advisers, accountants and legal counsel), other than costs and expenses
incurred as contemplated by Article VIII or Article IX, shall be paid by the
party incurring such expense.
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10.11 Attorneys Fees. In the event of any proceeding to enforce this
Agreement, the prevailing party shall be entitled to receive from the losing
party all reasonable costs and expenses, including the reasonable fees of
attorneys, accountants and other experts, incurred by the prevailing party in
investigating and prosecuting (or defending) such action at trial or upon any
appeal.
10.12 Further Assurances. In case at any time after the Closing, any further
action is necessary or desirable to carry out the purposes of this Agreement
with respect to the transactions consummated at the Closing and vest Purchaser
and Seller with full title to the Purchased Shares and UVSG Shares,
respectively, delivered at the Closing, each party shall, at the request and
expense of the other party, and without further consideration, execute and
deliver such other instruments of conveyance and transfer, fully cooperate
with the requesting party and take such other actions as the requesting party
reasonably may request.
In Witness Whereof, the parties hereto have caused this Amended and Restated
Stock Purchase Agreement to be executed and delivered by their respective
officers thereunto duly authorized, on November 30, 1998, effective as of the
date first written above.
United Video Satellite Group, Inc.,
a Delaware corporation
/s/ Peter C. Boylan
By: _________________________________
Name: Peter C. Boylan
Title: President
Liberty Media Corporation, a
Delaware corporation
/s/ Robert R. Bennett
By: _________________________________
Name: Robert R. Bennett
Title: President
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APPENDIX II
SHARE EXCHANGE AGREEMENT
by and among
NEWS AMERICA INCORPORATED,
TVG HOLDINGS, INC.
and
UNITED VIDEO SATELLITE GROUP, INC.
Relating to All of the Capital Stock
of
NEWS AMERICA PUBLICATIONS INC.
and
TVSM, INC.
Effective as of June 10, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
1. Definitions.................................................... II-6
2. Sale and Purchase.............................................. II-11
3. Closing; Closing Date.......................................... II-12
4. Tax Treatment.................................................. II-12
5. Representations and Warranties of Holdings and NAI............. II-12
5.1 Organization................................................... II-13
5.2 Capitalization; Options and Other Rights....................... II-13
5.3 Authorization; Freedom to Contract............................. II-14
5.4 Subsidiaries................................................... II-15
5.5 Charter and Organizational Documents........................... II-15
5.6 Financial Statements........................................... II-15
5.7 Absence of Default............................................. II-16
5.8 Absence of Certain Developments................................ II-16
5.9 Liabilities.................................................... II-17
5.10 Litigation..................................................... II-17
5.11 Restrictions on Business Activities............................ II-17
5.12 Compliance with Law............................................ II-18
5.13 Taxes.......................................................... II-18
5.14 Employee Benefit Plans......................................... II-18
5.15 Contracts and Commitments...................................... II-21
5.16 Adequacy of Assets; Intangible Property........................ II-22
5.17 Licenses; Compliance with Regulatory Requirements.............. II-23
5.18 Employee Matters............................................... II-23
5.19 Interested Party Transactions.................................. II-24
5.20 Insurance...................................................... II-24
5.21 Major Advertisers and Suppliers................................ II-24
5.22 Minute Books................................................... II-24
5.23 Brokers' and Finders' Fees..................................... II-25
5.24 Year 2000 Compliance........................................... II-25
5.25 TVSM Merger Agreement.......................................... II-25
5.26 Acquisition for Investment..................................... II-25
5.27 Transfer of Shares to Holdings................................. II-25
6. Representations and Warranties of UVSG......................... II-25
6.1 Organization................................................... II-25
6.2 Capitalization; Options and Other Rights....................... II-25
6.3 Authorization; Freedom to Contract............................. II-26
6.4 Subsidiaries................................................... II-27
6.5 Charter and Organizational Documents........................... II-27
6.6 Absence of Default............................................. II-27
6.7 Absence of Certain Developments................................ II-27
6.8 Liabilities.................................................... II-28
6.9 Litigation..................................................... II-28
6.10 Restrictions on Business Activities............................ II-28
6.11 Compliance with Law............................................ II-29
6.12 Taxes.......................................................... II-29
6.13 Contracts and Commitments...................................... II-29
</TABLE>
II-2
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<TABLE>
<CAPTION>
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<C> <S> <C>
6.14 Intangible Property........................................... 30
6.15 Licenses; Compliance with Regulatory Requirements............. 30
6.16 Interested Party Transactions................................. 31
6.17 Minute Books.................................................. 31
6.18 Brokers' and Finders' Fees.................................... 31
6.19 SEC Filings; Financial Statements............................. 31
7. Certain Covenants of the Parties.............................. 31
7.1 Conduct of Business in Ordinary Course Pending Closing........ 32
7.2 Stockholders Meeting.......................................... 33
7.3 Proxy Statement............................................... 33
7.4 No Solicitation............................................... 33
7.5 Investigation; Confidentiality................................ 33
7.6 Consents and Approvals........................................ 34
7.7 No 338(h)(10) Election........................................ 34
7.8 Section 351 Tax-Free Exchange................................. 34
7.9 Benefit Plans--Pre-Closing Covenants.......................... 35
7.10 Benefit Plans--Post-Closing Covenants of NAI and Holdings..... 35
7.11 Benefit Plans--Post-Closing Covenant of UVSG.................. 36
7.12 Restructuring................................................. 36
7.13 Stockholders Agreement........................................ 37
7.14 Continuing Services........................................... 37
7.15 Listing Application........................................... 37
7.16 TV Guide Trademark Licenses................................... 37
7.17 Post-Closing Cooperation...................................... 38
7.18 UVSG By-laws.................................................. 38
8. Conditions Precedent to the Obligation of UVSG to Close....... 38
8.1 Representations and Warranties True as of the Closing Date.... 38
8.2 Compliance with this Agreement................................ 38
8.3 Officer's Certificate; TVSM Representations Certificate....... 38
8.4 Secretary's Certificate....................................... 39
8.5 Opinion of Counsel to Holdings and NAI........................ 39
8.6 Deliveries.................................................... 39
8.7 Stockholders Agreement........................................ 39
8.8 Parent Agreement.............................................. 39
8.9 Hart-Scott-Rodino............................................. 39
8.10 Other Consents................................................ 39
8.11 No Prohibition, Etc........................................... 39
8.12 Material Adverse Change....................................... 40
8.13 Resignations.................................................. 40
8.14 Netlink Transaction........................................... 40
Conditions Precedent to the Obligation of Holdings and NAI to
9. Close......................................................... 40
9.1 Representations and Warranties True as of the Closing Date.... 40
9.2 Compliance with this Agreement................................ 40
9.3 Officer's Certificate......................................... 40
9.4 Secretary's Certificate....................................... 40
9.5 Opinion of Counsel to UVSG.................................... 40
9.6 Deliveries.................................................... 40
9.7 Stockholders Agreement........................................ 40
9.8 Parent Agreement.............................................. 41
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
9.9 Hart-Scott-Rodino............................................. 41
9.10 Other Consents and Approvals.................................. 41
9.11 Listing of Shares............................................. 41
9.12 No Prohibition, Etc........................................... 41
9.13 Material Adverse Change....................................... 41
9.14 Affiliation Agreement......................................... 41
10. Tax Matters................................................... 41
10.1 Tax Returns................................................... 41
10.2 Termination of Prior Tax Settlement Agreements................ 41
10.3 Pre-Closing Taxes............................................. 42
10.4 Transfer Taxes................................................ 42
10.5 Post-Closing Taxes............................................ 42
10.6 Tax Cooperation............................................... 43
10.7 Notification of Proceedings, Control; Refunds................. 43
10.8 Indemnification............................................... 43
10.9 Publications Losses........................................... 44
10.10 Survival...................................................... 44
Survival of Representations, Warranties and Covenants;
11. Indemnification............................................... 44
11.1 Survival of Representations, Warranties and Covenants......... 44
11.2 Indemnification by Holdings and NAI........................... 44
11.3 Indemnification by UVSG....................................... 45
11.4 Limitations................................................... 46
11.5 Defense of Action............................................. 46
11.6 Insurance Proceeds............................................ 47
11.7 Exclusive Monetary Remedy; No Consequential Damages........... 47
12. Termination of Agreement...................................... 47
12.1 Termination................................................... 47
12.2 No Liabilities in the Event of Termination.................... 48
13. Miscellaneous................................................. 48
13.1 Expenses...................................................... 48
13.2 Further Assurances............................................ 48
13.3 Entire Agreement.............................................. 48
13.4 Governing Law................................................. 48
13.5 Headings...................................................... 48
13.6 Notices....................................................... 48
13.7 Separability.................................................. 49
13.8 Amendment; Waiver............................................. 49
13.9 Publicity..................................................... 50
13.10 Assignment and Binding Effect................................. 50
13.11 No Benefit to Others.......................................... 50
13.12 Counterparts.................................................. 50
13.13 Interpretation................................................ 50
EXHIBITS:
A--Form of Assignment Agreement
B--Form of Stockholders Agreement
</TABLE>
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<TABLE>
<CAPTION>
<C> <S>
SCHEDULES:
1--Actions Outside the Ordinary Course of Business Involving the NAI
Contributed Businesses
2--Actions Outside the Ordinary Course of Business Involving United Video
3--Resulting Capital Structure
4--Services
5--Fulfillment Severance
NAI Disclosure Schedules
UVSG Disclosure Schedules
</TABLE>
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SHARE EXCHANGE AGREEMENT
SHARE EXCHANGE AGREEMENT (the "Agreement"), effective as of June 10, 1998,
by and among NEWS AMERICA INCORPORATED, a Delaware corporation ("NAI"), TVG
HOLDINGS, INC., a Delaware corporation ("Holdings"), and UNITED VIDEO
SATELLITE GROUP, INC., a Delaware corporation ("UVSG"). Capitalized terms used
and not otherwise defined herein have the meaning ascribed thereto in Section
1 of this Agreement.
WITNESSETH:
WHEREAS, NAI and UVSG have entered into a letter agreement, dated June 10,
1998 (the "Letter Agreement"), setting forth the terms and conditions upon
which, among other things, NAI or another direct or indirect subsidiary of The
News Corporation Limited ("News Corp.") incorporated in the U.S. would (A)
sell to UVSG (i) all of the outstanding stock of News America Publications
Inc. (which owns and publishes TV Guide and to which NAI agreed to cause the
transfer, as a contribution to capital, of TVGEN), and (ii) all of the
outstanding stock of TVSM, Inc. (which owns and publishes print cable
television programming guides) and (B) assign to UVSG any and all unexpired
rights that NAI or any of its Affiliates may have under agreements pursuant to
which it acquired or (in the case of TVSM, Inc.) expected to acquire any NAI
Contributed Entity or any material portion of any NAI Contributed Entity's
business or assets (collectively, the "Transaction"); and
WHEREAS, NAI and UVSG expressed their intention in the Letter Agreement to
prepare and negotiate definitive agreements with respect to the Transaction,
including this Agreement; and
WHEREAS, on June 26, 1998, NAI acquired all of the outstanding stock of
TVSM, Inc. pursuant to the Agreement of Merger, dated as of June 22, 1998,
among TVSM, Inc., NAI and TVSM Acquisition, Inc. (the "TVSM Merger
Agreement"); and
WHEREAS, prior to the consummation of the Transaction, NAI will sell, or
cause to be sold, to Holdings (i) all of the issued and outstanding shares of
capital stock of News America Publications Inc. (the "Publications Shares"),
consisting of 100 shares of common stock, par value $2.50 per share, and (ii)
all of the issued and outstanding shares of capital stock of TVSM, Inc. (the
"TVSM Shares" and together with the Publications Shares, the "Shares"),
consisting of 100 shares of common stock, without par value, and, as a result
of such sales, Holdings will be the beneficial and record owner of all of the
issued and outstanding shares of capital stock of News America Publications
Inc. and TVSM, Inc. on the Closing Date; and
WHEREAS, NAI, Holdings and UVSG desire that Holdings transfer the Shares to
UVSG upon the terms and subject to the conditions of this Agreement and the
other NAI Transaction Documents; and
WHEREAS, subject to the terms and conditions of this Agreement, the parties
desire that the Transaction and the Netlink Transaction be treated as a tax-
free exchange under Section 351 of the Code.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
do hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
shall have the following meanings:
"1997 Form 10-K" shall have the meaning set forth in Section 6.19(a).
"Action" shall have the meaning set forth in Section 11.5(a).
"Affiliate" of a Person shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the Person in question.
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<PAGE>
"Agreement" shall mean this Share Exchange Agreement, including all
Schedules and Exhibits hereto.
"Assigned Rights" shall have the meaning set forth in Section 2(a).
"Assignment Agreement" shall have the meaning set forth in Section 3(b).
"Basket Amount" shall have the meaning set forth in Section 11.4.
"Basket Exceptions" shall have the meaning set forth in Section 11.4.
"Benefit Plan" shall have the meaning set forth in Section 5.14(b).
"Cash Consideration" shall have the meaning set forth in Section 2(b).
"Claims" shall have the meaning set forth in Section 11.2.
"Class A Common Stock" shall mean the Class A Common Stock, par value $.01
per share, of UVSG.
"Class B Common Stock" shall mean the Class B Common Stock, par value $.01
per share, of UVSG.
"Cloned Plan" shall have the meaning set forth in Section 7.9(b).
"Closing" shall have the meaning set forth in Section 3(a).
"Closing Date" shall have the meaning set forth in Section 3(a).
"COBRA" shall have the meaning set forth in Section 5.14(f).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" shall have the meaning set forth in Section 5.15.
"Contract Consent" shall have the meaning set forth in Section 5.3(b).
"Control" shall mean the ability to direct or cause the direction (whether
through the ownership of voting securities, by contract or otherwise) of the
management and policies of a Person or to control (whether affirmatively or
negatively and whether through the ownership of voting securities, by contract
or otherwise) the decision of such Person to engage in the particular conduct
at issue.
A "Controlled Affiliate" of a Person shall mean any other Person that the
first Person directly, or indirectly through one or more intermediaries,
controls.
"Convertible Securities" shall have the meaning set forth in Section 2(c).
"Definitive Services Agreement" shall have the meaning set forth in Section
7.14.
"DOJ" shall mean the U.S. Department of Justice.
"Employee Plans" shall have the meaning set forth in Section 5.14(c).
"Environmental and Health Laws" shall have the meaning set forth in Section
5.17(b).
"ERISA" shall have the meaning set forth in Section 5.14(a).
"Exchange Act" shall have the meaning set forth in Section 5.15.
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<PAGE>
"Filings" shall have the meaning set forth in Section 5.3(c).
"FTC" shall mean the U.S. Federal Trade Commission.
"GAAP" shall have the meaning set forth in Section 5.6.
"Governmental Authority" shall have the meaning set forth in Section 5.3(c).
"Hazardous Substances" shall have the meaning set forth in Section 5.17(b).
"Holdings" shall mean TVG Holdings, Inc., including, unless the context
indicates otherwise, its subsidiaries and, where applicable, Controlled
Affiliates.
"HSR Act" shall have the meaning set forth in Section 5.3(c).
"Indemnified Party" shall have the meaning set forth in Section 11.5.
"Indemnifying Party" shall have the meaning set forth in Section 11.5.
"Intellectual Property" shall have the meaning set forth in Section 5.16(b).
"Latest Balance Sheet" shall have the meaning set forth in Section 5.8(h).
"Legal Proceedings" shall have the meaning set forth in Section 5.10.
"Letter Agreement" shall have the meaning set forth in the Recitals to this
Agreement.
"Liberty" shall mean Liberty Media Corporation, a Delaware corporation and a
wholly-owned subsidiary of TCI.
"Licenses" shall have the meaning set forth in Section 5.17(a).
"Liens" shall have the meaning set forth in Section 5.3(b).
"Losses" shall have the meaning set forth in Section 11.2.
"March 31, 1998 Form 10-Q" shall have the meaning set forth in Section
6.19(a).
"NAI" shall mean News America Incorporated, including, unless the context
indicates otherwise, its subsidiaries and, where applicable, Controlled
Affiliates.
"NAI Contributed Businesses" shall mean the businesses conducted by the NAI
Contributed Entities.
"NAI Contributed Entities" shall mean Publications and TVSM, together with
each of their respective subsidiaries (and TVGEN, as if the contribution of
TVGEN to Publications had occurred on or before the effective date hereof).
"NAI Disclosure Schedule" shall mean, collectively, the disclosure schedules
delivered herewith by NAI.
"NAI Indemnified Parties" shall have the meaning set forth in Section 11.3.
"NAI Transaction Documents" shall have the meaning set forth in Section
5.3(a).
"NAPI Pension Plan" shall have the meaning set forth in Section 7.9(a).
"NASD" shall mean the National Association of Securities Dealers, Inc.
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<PAGE>
"NDS Business" shall mean the provision by News Digital Systems plc and its
subsidiaries of technology relating to electronic program guides solely in
conjunction with the development and sale of encryption and conditional access
services for television and data broadcasting.
"Netlink Transaction" shall mean the transactions contemplated by the Stock
Purchase Agreement, dated as of May 18, 1998, as amended, between UVSG and
Liberty.
"News Corp." shall mean The News Corporation Limited, including, unless the
context indicates otherwise, its subsidiaries and, where applicable,
Controlled Affiliates.
"Non-Return Taxes" shall have the meaning set forth in Section 10.3(b).
"Overpayment Rate" shall have the meaning set forth in Section 10.8(a).
"Parent Agreement" shall have the meaning set forth in Section 8.8.
"Pension Plans" shall have the meaning set forth in Section 5.14(a).
"Permits" shall have the meaning set forth in Section 5.3(c).
"Permitted Encumbrances" shall have the meaning set forth in Section
5.16(a).
"Person" shall have the meaning set forth in Section 5.4.
"Post-Closing Returns" shall have the meaning set forth in Section 10.5.
"Post-Closing Taxes" shall have the meaning set forth in Section 10.5.
"Pre-Closing Consolidated Returns" shall have the meaning set forth in
Section 10.3(a).
"Pre-Closing Non-Consolidated Returns" shall have the meaning set forth in
Section 10.3(b).
"Pre-Closing Tax Period" shall have the meaning set forth in Section 10.5.
"Program Guide Businesses" shall have the meaning set forth in Section
5.16(a).
"Proxy Statement" shall have the meaning set forth in Section 7.3(a).
"Publications" shall mean News America Publications Inc., including, unless
the context indicates otherwise, its subsidiaries and, where applicable,
Controlled Affiliates, and TVGEN (as if the contribution of TVGEN to
Publications had occurred on or prior to the effective date hereof).
"Publications Licenses" shall have the meaning set forth in Section 5.17(a).
"Publications Material Adverse Change" shall have the meaning set forth in
Section 5.8(a).
"Publications Material Adverse Effect" shall have the meaning set forth in
Section 5.1.
"Publications Shares" shall have the meaning set forth in the Recitals to
this Agreement.
"Restrictions" shall have the meaning set forth in Section 5.2.
"Savings Plan" shall have the meaning set forth in Section 7.9(b).
"Securities Act" shall have the meaning set forth in Section 5.15.
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"Selling Affiliated Group" shall have the meaning set forth in Section
10.3(a).
"SERP" shall have the meaning set forth in Section 7.9(a).
"Settlement Agreements" shall have the meaning set forth in Section 10.2.
"Shares" shall have the meaning set forth in the Recitals to this Agreement.
"Stockholders Agreement" shall have the meaning set forth in Section 7.13.
"Stockholders Meeting" shall have the meaning set forth in Section 7.2.
"Tax" shall mean any income, corporation, gross receipts, profits, gains,
capital stock, capital duty, franchise, business, license, payroll,
withholding, social security, unemployment, disability, property, wealth,
welfare, stamp, environmental, transfer, excise, occupation, sales, use, value
added, alternative minimum, estimated or other similar tax (including any fee,
assessment or other charge in the nature of any tax) imposed by any
governmental authority (whether national, federal, state, local, municipal,
foreign or otherwise) or political subdivision thereof, and any interest,
penalties, additions to tax or additional amounts in respect of the foregoing.
"Tax Returns" shall mean all reports, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
"TCI" shall mean Tele-Communications Inc., including, unless the context
indicates otherwise, its subsidiaries and, where applicable, Controlled
Affiliates.
"Transaction" shall have the meaning set forth in the Recitals to this
Agreement.
"Transaction Documents" shall mean the UVSG Transaction Documents and the
NAI Transaction Documents.
"Transferred Employees" shall have the meaning set forth in Section 7.9(b).
"TVGEN" shall have the meaning set forth in Section 7.12(a).
"TVSM" shall mean TVSM, Inc., including, unless the context indicates
otherwise, its subsidiaries and, where applicable, Controlled Affiliates.
"TVSM Financials" shall have the same meaning set forth in Section 5.6.
"TVSM Merger Agreement" shall have the meaning set forth in the Recitals to
this Agreement.
"TVSM Shares" shall have the meaning set forth in the Recitals to this
Agreement.
"Unaudited Contributed Business Financial Statements" shall have the meaning
set forth in Section 5.6.
"UVSG" shall mean United Video Satellite Group, Inc., including (except for
purposes of Section 6), unless the context indicates otherwise, its
subsidiaries, and, where applicable, Controlled Affiliates.
"UVSG Commission Filings" shall have the meaning set forth in Section
6.19(a).
"UVSG Common Stock" shall mean the Class A Common Stock and Class B Common
Stock.
"UVSG Consideration Shares" shall have the meaning set forth in Section
2(b).
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<PAGE>
"UVSG Disclosure Schedule" shall mean, collectively, the disclosure
schedules delivered herewith by UVSG.
"UVSG Indemnified Parties" shall have the meaning set forth in Section 11.2.
"UVSG Latest Balance Sheet" shall have the meaning set forth in Section 6.7.
"UVSG Licenses" shall have the meaning set forth in Section 6.15(a).
"UVSG Material Adverse Change" shall have the meaning set forth in Section
6.7(a).
"UVSG Material Adverse Effect" shall have the meaning set forth in Section
6.1.
"UVSG Stock Option Plans" shall have the meaning set forth in Section
6.2(a).
"UVSG Transaction Documents" shall have the meaning set forth in Section
6.3(a).
"Year 2000 Issues" shall have the meaning set forth in Section 5.24.
2. Sale and Purchase.
(a) At the Closing, upon the terms and subject to the conditions set forth
in this Agreement, NAI and Holdings, as applicable, shall sell, convey,
transfer, assign and deliver, or cause to be sold, conveyed, transferred,
assigned and delivered, to UVSG, free and clear of all Liens and Restrictions,
(i) all, but not less than all, of the Shares, which shall constitute 100% of
the issued and outstanding stock of Publications and TVSM, in each case
together with the right to receive all unpaid dividends and distributions
declared or otherwise payable with respect to the Shares, and (ii) any and all
unexpired rights that NAI or any of its Affiliates may have under agreements
pursuant to which NAI or such Affiliate acquired any NAI Contributed Entity or
any material portion of any NAI Contributed Entity's business or assets (the
"Assigned Rights").
(b) At the Closing, upon the terms and subject to the conditions set forth
in this Agreement, UVSG shall purchase all, but not less than all, of the
Shares and the Assigned Rights and shall issue, pay and deliver in exchange
therefor (i) $800 million in cash (the "Cash Consideration"), subject to
adjustment as provided below, and (ii) 30 million shares of UVSG Common Stock
(the "UVSG Consideration Shares"), allocated between Class A Common Stock and
Class B Common Stock as follows (subject to adjustment as provided below):
11,251,706 shares of Class A Common Stock and 18,748,294 shares of Class B
Common Stock. The Cash Consideration shall be reduced, on a dollar for dollar
basis, by an amount equal to the amount, if any, by which the aggregate price
paid by NAI to acquire TVSM (including amounts paid or payable to employees)
is less than the aggregate price contemplated to be so paid (before working
capital adjustments) by NAI in accordance with the draft (dated June 7, 1998)
of the Merger Agreement between NAI and TVSM provided to UVSG prior to the
execution and delivery of the Letter Agreement. The allocation of the UVSG
Consideration Shares between Class A Common Stock and Class B Common Stock
shall be adjusted as follows in the event that the Netlink Transaction is not
consummated on or before the Closing Date: the number of shares of Class B
Common Stock to be issued shall be reduced by 6,375,000 shares and the number
of shares of Class A Common Stock to be issued shall be increased by 6,375,000
shares. All references in this Agreement to any number of shares of UVSG
Common Stock shall be appropriately adjusted in the event of any stock
dividend or stock distribution, subdivision, combination or reclassification
affecting the capital stock of UVSG occurring after the effective date hereof.
(c) In the event that after the effective date hereof and prior to the
Closing, UVSG (i) pays a dividend or makes a distribution on its outstanding
shares of UVSG Common Stock (or any class of UVSG Common Stock) in UVSG Common
Stock or securities directly or indirectly convertible into or exchangeable
for UVSG Common Stock ("Convertible Securities"), (ii) subdivides its
outstanding shares of UVSG Common Stock (or any class of UVSG Common Stock)
into a greater number of shares, (iii) combines its outstanding shares of UVSG
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Common Stock (or any class of UVSG Common Stock) into a smaller number of
shares, or (iv) issues any shares and/or Convertible Securities by
reclassification of its shares of UVSG Common Stock (or any class of UVSG
Common Stock), then the number and type of UVSG Consideration Shares issuable
to Holdings pursuant to this Agreement shall be appropriately adjusted to
reflect such dividend, distribution, subdivision, combination or
reclassification.
3. Closing; Closing Date.
(a) Subject to the terms and conditions of this Agreement, the closing of
the Transaction (the "Closing") shall take place at the offices of Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York
10176, or at such other place as the parties may agree, at 10:00 a.m. local
time, on a business day selected by the parties that is on or prior to the
fifth business day following the day on which the last of the conditions to
Closing set forth in Sections 8 and 9 is satisfied or, when permissible under
applicable law or regulation, waived, or on such later date as may be agreed
to by UVSG and NAI; provided, however, that, unless the parties otherwise
agree, if all conditions to Closing other than the ability to close the
Netlink Transaction have been or can be satisfied on or before November 1,
1998, the Closing hereunder shall occur on November 2, 1998; provided,
further, that, unless the parties otherwise agree, if at any time after
November 1, 1998 all conditions to Closing other than the ability to close the
Netlink Transaction have been satisfied, the Closing shall occur on the fifth
business day after the date on which the last of the conditions to Closing
other than the ability to close the Netlink Transaction has been satisfied.
The date upon which the Closing shall occur is herein called the "Closing
Date."
(b) At the Closing, NAI and Holdings shall deliver or cause to be delivered
to UVSG (i) the stock certificates representing the Shares, all duly endorsed
in blank, or with separate notarized stock powers attached thereto duly
executed in blank, and otherwise in proper form for transfer with all
necessary documentary or transfer tax stamps affixed thereto, (ii) one or more
assignment agreements (collectively, the "Assignment Agreement"),
substantially in the form annexed as Exhibit A, duly executed by the
applicable assignor(s), pursuant to which such assignor effects the assignment
of the Assigned Rights and (iii) such other documents or instruments as may be
necessary or that UVSG may reasonably request in order to effectively transfer
to UVSG, and vest in UVSG good title to, the Shares, the right to receive
unpaid dividends and distributions in respect of the Shares and the Assigned
Rights.
(c) At the Closing, UVSG shall deliver or cause to be delivered (i) to
Holdings, newly issued stock certificates representing the UVSG Consideration
Shares registered in the name of Holdings and (ii) to an account or accounts
designated by Holdings at least five business days prior to the Closing Date
at a bank or other financial institution in the United States, an amount in
cash, by wire transfer of immediately available funds, equal to the Cash
Consideration, as the same may have been adjusted.
(d) At the Closing, the parties shall also deliver or cause to be delivered
the certificates and other documents required by Sections 8 and 9.
4. Tax Treatment. Unless UVSG and Liberty in their discretion have abandoned
the Netlink Transaction, but subject to the proviso clauses of Section 3(a),
the parties intend that the Transaction and the Netlink Transaction shall
constitute a tax-free exchange under Section 351 of the Code.
5. Representations and Warranties of Holdings and NAI. All representations
and warranties of Holdings and NAI contained in this Agreement are made
subject to Schedule 1 hereto. Holdings and NAI, jointly and severally, hereby
represent and warrant to UVSG as follows (such representations and warranties
being deemed made as of the effective date hereof, except that (i) the
representations and warranties with respect to Holdings that are contained in
Sections 5.1 and 5.3(a) are being made as of the date of execution hereof,
(ii) the representations and warranties made in Section 5.25, which relate to
TVSM, are being made as of the date of execution hereof (except that the
representation and warranty made in the first sentence of Section 5.25 shall
be deemed made as of June 10, 1998), and (iii) subject to Section 8.3(b), all
other representations and warranties with respect to TVSM (including as a
result of the inclusion of TVSM in the definition of the terms "NAI
Contributed Entities" and "NAI Contributed Businesses") shall be deemed made
as of June 26, 1998, the date
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the acquisition of TVSM by NAI was consummated, and relate solely to facts and
circumstances arising after the consummation of the transaction in which NAI
acquired ownership of TVSM):
5.1 Organization. Each of Holdings, NAI and the NAI Contributed Entities is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate
power and authority and all necessary licenses and permits to carry on its
business as it has been and is now being conducted and to own or lease and to
operate the properties used in connection therewith. Each of Holdings, NAI and
the NAI Contributed Entities is duly qualified or licensed and in good
standing to do business in each of the jurisdictions where the conduct of its
business or the ownership, leasing or operation of its properties requires
such qualification or licensing, except where the failure to be so duly
qualified or licensed and in good standing, individually or in the aggregate,
would not have a material adverse effect on (i) the business, operations,
properties or condition (financial or otherwise) of Publications or of the NAI
Contributed Entities taken as a whole, or (ii) the ability of Holdings or NAI
to consummate the transactions contemplated herein (each, a "Publications
Material Adverse Effect").
5.2 Capitalization; Options and Other Rights. The total authorized shares of
capital stock of each of the NAI Contributed Entities and the number of such
shares that are issued and outstanding are set forth in the NAI Disclosure
Schedule. All of the issued and outstanding shares of capital stock of the NAI
Contributed Entities have been duly and validly authorized and issued and are
fully paid and nonassessable, and are held of record and beneficially as of
the effective date hereof (or, in the case of TVSM, as of June 26, 1998) by
NAI or by direct or indirect wholly-owned U.S. subsidiaries of NAI and will be
held of record and beneficially by Holdings on the Closing Date, in each case,
free and clear of any Liens and Restrictions (other than any restrictions on
transfer arising under the Securities Act and state securities laws), with the
sole right to vote, dispose of, and receive dividends or distributions with
respect to such shares. The Publications Shares constitute all of the issued
and outstanding shares of capital stock of News America Publications Inc., and
the TVSM Shares constitute all of the issued and outstanding shares of TVSM,
Inc. There are no existing agreements, subscriptions, options, warrants,
calls, commitments, trusts (voting or otherwise), or rights of any kind
whatsoever granting to any Person (as hereinafter defined) any interest in or
the right to purchase or otherwise acquire, at any time, or upon the happening
of any stated event, any capital stock of the NAI Contributed Entities,
whether or not presently issued or outstanding, nor are there any outstanding
securities of the NAI Contributed Entities or any other entity which are
convertible into or exchangeable for shares of capital stock of the NAI
Contributed Entities, nor are there any agreements, subscriptions, options,
warrants, calls, commitments or rights of any kind whatsoever granting to any
person any interest in or the right to purchase or otherwise acquire from
Holdings, NAI or any of their respective Affiliates or any other entity any
securities so exercisable convertible or exchangeable, nor are there any
proxies, agreements or understandings with respect to the voting of such
shares. Upon consummation of the Transaction, UVSG will hold, directly or
indirectly, of record and beneficially all of the outstanding shares of
capital stock of each of the NAI Contributed Entities free and clear of any
Liens and Restrictions (other than any restrictions on transfer arising under
the Securities Act and state securities laws) with the sole right to vote,
dispose of, and receive dividends or distributions with respect to such
shares. In this Agreement, any reference to "Restrictions," with respect to
any capital stock, partnership interest, membership interest in a limited
liability company or other security, shall mean any voting or other trust or
agreement, option, warrant, preemptive right, right of first offer, right of
first refusal, escrow arrangement, proxy, buy-sell agreement, power of
attorney or other contract, any law, rule, regulation, order, judgment or
decree which, conditionally or unconditionally, (i) grants to any Person the
right to purchase or otherwise acquire, or obligates any Person to sell or
otherwise dispose of or issue, or otherwise results or, whether upon the
occurrence of any event or with notice or lapse of time or both or otherwise,
may result in any person acquiring, (A) any of such capital stock or other
security; (B) any of the proceeds of, or any distributions paid or which are
or may become payable with respect to, any of such capital stock or other
security; or (C) any interest in such capital stock or other security or any
such proceeds or distributions; (ii) restricts or, whether upon the occurrence
of any event or with notice or lapse of time or both or otherwise, is
reasonably likely to restrict the transfer or voting of, or the exercise of
any rights or the enjoyment of any benefits arising by reason of ownership of,
any such capital stock or other security or any such proceeds or
distributions; or (iii) creates or, whether upon the occurrence of any event
or with notice or
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lapse of time or both or otherwise, is reasonably likely to create a Lien or
purported Lien affecting such capital stock or other security, proceeds or
distributions. Notwithstanding anything to the contrary contained in these
representations and warranties, the parties acknowledge that the existing
stockholders of TVSM as of the effective date hereof may have statutory rights
of appraisal as a result of NAI's acquisition of TVSM.
5.3 Authorization; Freedom to Contract.
(a) Each of Holdings, NAI and each of their respective applicable Affiliates
has all requisite corporate power, authority and legal capacity to execute and
deliver this Agreement, the Parent Agreement, and each other agreement,
document, instrument or certificate contemplated by this Agreement or to be
executed by Holdings, NAI or any of their respective applicable Affiliates in
connection with the consummation of the Transaction (collectively with this
Agreement and the Parent Agreement, the "NAI Transaction Documents"), and to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery by Holdings,
NAI and each of their respective applicable Affiliates of this Agreement and
the other NAI Transaction Documents, the consummation by Holdings, NAI and
their respective applicable Affiliates of the transactions contemplated hereby
and thereby, and the performance by each of them of their respective
obligations hereunder and thereunder, have been duly authorized by the Board
of Directors of each of Holdings, NAI and each of their respective applicable
Affiliates, and, except as set forth in Schedule 5.3 of the NAI Disclosure
Schedule (which actions will be taken prior to the Closing), no further
corporate action is or will be necessary on the part of Holdings, NAI or their
respective Affiliates to authorize the execution and delivery of this
Agreement or the other NAI Transaction Documents, the consummation of the
transactions contemplated hereby and thereby and the performance of Holdings',
NAI's or their respective applicable Affiliates' obligations hereunder and
thereunder. This Agreement has been, and each of the other NAI Transaction
Documents will be at or prior to the Closing, duly and validly executed and
delivered by Holdings, NAI and each of their respective applicable Affiliates.
This Agreement constitutes, and each of the NAI Transaction Documents when so
executed and delivered will constitute, legal, valid and (assuming the due
execution of such agreements by the other parties hereto that are not
Affiliates of NAI) binding obligations of Holdings, NAI and/or their
respective applicable Affiliates, as the case may be, enforceable against
Holdings, NAI and/or their respective applicable Affiliates in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles
of equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(b) The execution and delivery of this Agreement and the other NAI
Transaction Documents by Holdings, NAI and/or their respective applicable
Affiliates do not, and the performance by Holdings, NAI and/or their
respective applicable Affiliates of their respective obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby will not, (i) violate or conflict with any provision of the
certificate or articles of incorporation or by-laws of Holdings, NAI and/or
their respective Affiliates or any amendments thereto or restatements thereof,
(ii) violate any of the terms, conditions or provisions of any law, rule or
regulation applicable to Holdings, NAI or their respective Affiliates or any
order, writ, injunction, judgment or decree of any Governmental Authority (as
hereinafter defined) to which any of Holdings, NAI or their respective
Affiliates is subject or by which any of the foregoing or their respective
assets are bound, or (iii) assuming that the releases described in Items 2, 3
and 4 of Schedule 5.15 of the NAI Disclosure Schedule are obtained, result in
a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
mortgage, pledge, lien, encumbrance, charge, or other security interest (a
"Lien") on any of the properties or assets of Holdings, NAI or their
respective Affiliates pursuant to, or require any consent by or approval or
authorization of (a "Contract Consent") any party under, any of the terms,
conditions or provisions of any note, bond, indenture, debenture, security
agreement, trust agreement, lien, mortgage, lease, agreement, license,
franchise, permit, guaranty, joint venture agreement, or other agreement,
instrument or obligation, oral or written, to which Holdings, NAI or any of
their respective Affiliates is a party (whether as an original party or as an
assignee or successor) or by which Holdings, NAI or any of their respective
Affiliates or any of their respective
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properties is bound, except for such breaches or defaults as are not
reasonably likely to have a Publications Material Adverse Effect.
(c) No governmental authorization, approval, order, license, franchise,
consent or permit (collectively, "Permits"), and no registration, declaration
or filing (collectively, "Filings") with any court, governmental department,
commission, authority, board, bureau, agency or other instrumentality
(collectively, "Governmental Authorities"), is required in connection with the
execution, delivery and performance of this Agreement by Holdings or NAI and
the consummation of the transactions contemplated hereby by Holdings or NAI,
except the requirements under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder (collectively,
the "HSR Act"), and except where the failure to obtain such Permits or to make
such Filings is not reasonably likely to have a Publications Material Adverse
Effect.
(d) There are no consents, authorizations or other approvals from or notices
to any Person other than a Governmental Authority (including, without
limitation, any Person that has entered into any contract, agreement,
arrangement or understanding with the NAI Contributed Entities) required to
permit the consummation of the transactions contemplated by this Agreement,
except where the failure to obtain such consents, authorizations or approvals
is not reasonably likely to have a Publications Material Adverse Effect.
5.4 Subsidiaries. Except as set forth in the NAI Disclosure Schedule, the
NAI Contributed Entities do not, directly or indirectly, have any ownership or
other interest in, or any equity or similar interest or other right
convertible into or exercisable or exchangeable for or control of, any
individual, corporation, limited liability company, partnership, joint
venture, business association or other entity (each, a "Person"). The NAI
Contributed Entities beneficially own all rights, title and interest that
Holdings, NAI or their respective Affiliates have or had in the EPG joint
venture (a/k/a "TV Guide On-Screen") with an Affiliate of TCI. Except as set
forth in the NAI Disclosure Schedule, each interest in any other Person owned
by an NAI Contributed Entity is owned by the applicable entity free and clear
of any Liens and Restrictions, and each such Person is duly organized, validly
existing and in good standing in its respective jurisdiction of organization
and has all requisite power and authority to carry on its business and to own
or lease its assets and to operate the properties used in connection
therewith.
5.5 Charter and Organizational Documents. NAI has furnished UVSG with true
and complete copies of the certificate of incorporation and by-laws of each of
the NAI Contributed Entities and, except as set forth in Schedule 5.22 of the
NAI Disclosure Schedule, accurate and complete records of all material
corporate proceedings of each of the NAI Contributed Entities.
5.6 Financial Statements. NAI has furnished to UVSG true and complete copies
of the following financial statements (which, except in the case of the
financial statements of TVSM that are set forth in subparagraph (f) below, are
unaudited) (the "Unaudited Contributed Business Financial Statements"):
(a) profit and loss statements of Publications (excluding TVGEN) for the
fiscal years ended June 30, 1995, 1996 and 1997 and the nine months period
ended March 31, 1998;
(b) balance sheet of Publications (excluding TVGEN) as of March 31, 1998;
(c) statements of cash flows of Publications (excluding TVGEN) for the
fiscal year ended June 30, 1997 and the nine month period ended March 31,
1998;
(d) profit and loss statements of TVSM for the three month period ended
March 31, 1998;
(e) balance sheet of TVSM as of March 31, 1998; and
(f) financial statements (which include balance sheets, statements of
cash flows and profit and loss statements) of TVSM as of and for the twelve
month period ended December 31, 1997.
The Unaudited Contributed Businesses Financial Statements were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with that of preceding accounting periods (except as may be
indicated therein or in the notes thereto) ("GAAP"), except that the financial
statements of Publications
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(excluding TVGEN) do not contain any provision for taxes, interest or
amortization of goodwill (none of which will represent any actual or
contingent liability or commitment of the NAI Contributed Entities at
Closing). Except with respect to the financial statements of TVSM that are set
forth in paragraphs (d), (e) and (f) above (the "TVSM Financials"), as to
which no representation or warranty is made, each of the financial statements
contained in the Unaudited Contributed Businesses Financial Statements was
prepared, and the audited financial statements of the NAI Contributed
Businesses that will be included in the Proxy Statement will be prepared, in
accordance with GAAP, and each of the financial statements contained in the
Unaudited Contributed Businesses Financial Statements fairly present, and the
audited financial statements of the NAI Contributed Businesses that will be
included in the UVSG Proxy Statement will fairly present (except as may be
indicated therein or in the notes thereto), the financial position of the NAI
Contributed Businesses and the NAI Contributed Entities as of the dates
thereof and the results of operations and changes in financial position of the
NAI Contributed Businesses and the NAI Contributed Entities for each of the
periods then ended.
5.7 Absence of Default. Except as set forth in the NAI Disclosure Schedule,
each of the NAI Contributed Entities has complied with and performed all of
its obligations required to be performed under all contracts, agreements and
leases to which it is a party (whether as an original party or as an assignee
or successor), and it is not in default in any respect under any contract,
agreement, lease, undertaking, commitment or other obligation, except for such
breaches or defaults that are not reasonably likely to have a Publications
Material Adverse Effect. Neither Holdings nor NAI has any knowledge that any
party has failed to comply in any material respect with or perform all of its
obligations required to be performed under any contract, agreement or lease to
which any of the NAI Contributed Entities is a party or by which any of the
NAI Contributed Entities or the NAI Contributed Businesses is bound or to
which any of their respective assets is subject (whether as an original party
or an assignee or successor).
5.8 Absence of Certain Developments. Since the date of the latest balance
sheet included in the Unaudited Contributed Businesses Financial Statements,
the NAI Contributed Businesses have been conducted in the ordinary course of
business consistent with past practice, and, except to the extent reflected or
otherwise disclosed in the NAI Disclosure Schedule, there has not been:
(a) any material adverse change in the business, assets, results of
operation or condition (financial or otherwise) of the NAI Contributed
Businesses (without regard to changes resulting from macroeconomic or
general industry conditions) (a "Publications Material Adverse Change"),
and there has not occurred any event which is reasonably likely to result
in a Publications Material Adverse Change;
(b) any declaration, setting aside, or payment of any dividend or
distribution (other than of cash) to Holdings, NAI or any of their
respective Affiliates, or any direct or indirect redemption, retirement,
purchase or other acquisition by any NAI Contributed Entity of any of its
capital stock or other securities or options, warrants or other rights to
acquire capital stock;
(c) any increase in salary, wage, benefit or other remuneration payable
or to become payable to any current or former officer, director, employee
or agent of any of the NAI Contributed Businesses or any increase in any
bonus or severance payment or arrangement made to, for or with any of its
officers, directors, employees or agents or any grant of a supplemental
retirement plan or program or special remuneration for any officer,
director, employee or agent of any of the NAI Contributed Businesses, in
each case other than in the ordinary course of business and consistent with
past practice (including regular annual salary and performance bonus
increases);
(d) any sale, lease or other transfer or disposition of any material
asset of any of the NAI Contributed Businesses;
(e) any change in accounting methods, practices or policies (including
any change in depreciation or amortization policies or rates) by any of the
NAI Contributed Businesses or any revaluation by any of the NAI Contributed
Businesses of any of its assets;
(f) any material modification or change to any material contract by any
of the NAI Contributed Businesses, other than in the ordinary course of
business;
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(g) any written waiver or written release of any right or claim of
substantial value by any of the NAI Contributed Businesses;
(h) any payment, discharge or satisfaction of any material claim,
liability or obligation by any of the NAI Contributed Businesses, other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in its balance sheet as of March 31, 1998 referred to in
Section 5.6(b) or (e) above, as applicable (the "Latest Balance Sheet"), or
incurred since the date of such balance sheet in the ordinary course of
business and consistent with past practice and other than scheduled
repayments of indebtedness reflected on the Latest Balance Sheet;
(i) any issuance or sale of capital stock or other securities or
membership or other ownership interests, exchangeable or convertible
securities, options, warrants, puts, calls or other rights to acquire
capital stock or other securities or other ownership interests of any of
the NAI Contributed Entities;
(j) any guarantee by any NAI Contributed Entity of any indebtedness for
borrowed money, except for guarantees of public indebtedness, which will
terminate as of the Closing;
(k) any delay in the payment of any trade or other payables other than in
the ordinary course of business and consistent with past practice; or
(l) any agreement by Holdings, NAI or any of their respective Affiliates
or any of the NAI Contributed Businesses to do any of the foregoing.
5.9 Liabilities. Except as reflected in the Unaudited Contributed Businesses
Financial Statements and except for liabilities or obligations that fall
within any of the exceptions contained in any of the other representations or
warranties contained in this Section 5 (e.g., knowledge, materiality and
disclosed liabilities) or that arose in the ordinary course of business after
March 31, 1998 (and which have not resulted and are not reasonably likely to
result in a Publications Material Adverse Change), no NAI Contributed Entity
has any actual or potential liability or obligation of any kind or nature,
whether due or to become due, whether absolute, accrued, fixed or contingent
or otherwise. TVGEN has no liabilities or other obligations of any nature
(other than current liabilities incurred in the ordinary course of business
and obligations under executory contracts which have been made available to
UVSG).
5.10 Litigation.
(a) Except as set forth in the NAI Disclosure Schedule: (i) there are no
private or governmental actions, suits, arbitrations, claims, legal or
administrative proceedings or investigations ("Legal Proceedings") pending or,
to the knowledge of Holdings or NAI, threatened against any of the NAI
Contributed Entities or the NAI Contributed Businesses, and (ii) none of the
NAI Contributed Entities or the NAI Contributed Businesses, nor any of their
respective assets, properties or business, is subject to any judgment, writ,
injunction or decree of any Governmental Authority, except in either case for
such Legal Proceedings as are not reasonably likely, individually or in the
aggregate, to have a Publications Material Adverse Effect.
(b) None of Holdings, NAI or any of their respective Affiliates is a party
to any Legal Proceedings pending or, to its knowledge, threatened which, if
adversely determined, would adversely affect or restrict the ability of
Holdings, NAI or their respective applicable Affiliates to consummate the
transactions contemplated by this Agreement or to perform their respective
obligations hereunder.
(c) There is no judgment, order, injunction or decree of any Governmental
Authority to which Holdings, NAI or any of their respective Affiliates is
subject which might adversely affect or restrict the ability of Holdings, NAI
or any of their respective applicable Affiliates to consummate the
transactions contemplated by this Agreement or to perform their respective
obligations hereunder.
5.11 Restrictions on Business Activities. There is no material agreement,
nor is there any judgment, injunction, order or decree, binding upon Holdings,
NAI or any of their respective Affiliates which has or could have the effect
of prohibiting or materially impairing any current business practice of any of
the NAI Contributed
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Businesses or the conduct of business by any NAI Contributed Entity as
currently conducted (including following the consummation of the transactions
contemplated by this Agreement).
5.12 Compliance with Law. Holdings, NAI and their respective Affiliates (i)
are in compliance with all federal, state, local or foreign laws (including
common law), statutes, codes, ordinances, rules, regulations or other
requirements applicable to the NAI Contributed Businesses or the NAI
Contributed Entities or to the conduct of the business or operations of the
NAI Contributed Businesses or the NAI Contributed Entities or the use of their
respective properties (including any leased properties) and assets, and (ii)
have all governmental permits and approvals from Governmental Authorities
which are required by the NAI Contributed Businesses or the NAI Contributed
Entities to operate their respective businesses, except in such cases where
the failure to comply or obtain is not reasonably likely to have a
Publications Material Adverse Effect.
5.13 Taxes. Except as otherwise set forth in the NAI Disclosure Schedule:
(a) Each of the NAI Contributed Entities has filed all material Tax
Returns that it was required to file. All such Tax Returns are correct and
complete in all material respects. All material Taxes owed by any of the
NAI Contributed Entities (whether or not shown on any Tax Return) have been
paid. There are no liens for material Taxes (other than for current Taxes
not yet due and payable or for items being contested in good faith and for
which there are adequate reserves in accordance with GAAP on the books of
the applicable entity) on any of the assets of any of the NAI Contributed
Entities.
(b) Each of the NAI Contributed Entities has withheld and paid all
material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor or other
third party.
(c) No material deficiencies for any Taxes have been proposed, asserted
or assessed against the NAI Contributed Entities that are not adequately
reserved for in accordance with GAAP in all cases applied on a consistent
basis with the NAI Latest Balance Sheet. The NAI Disclosure Schedule
indicates the Tax Returns of the NAI Contributed Entities that currently
are the subject of an audit.
(d) None of the NAI Contributed Entities has any current non-contingent
liability for the Taxes of any Person (other than any of the NAI
Contributed Entities) under Treasury Regulations Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(e) If the income of the NAI Contributed Entities is required under
federal, state, local or foreign tax rules to be included on a
consolidated, unitary, combined or other such Tax Return filed by an entity
other than any of the NAI Contributed Entities, each such group has filed
all Tax Returns that it was required to file with respect to any of the NAI
Contributed Entities for each period during which any NAI Contributed
Entity was a member of such group. All such Tax Returns were correct and
complete in all material respects in so far as they relate to any of the
NAI Contributed Entities. All material Taxes owed by such group with
respect to any of the NAI Contributed Entities (whether or not shown on a
Tax Return) have been paid for each taxable period during which any of the
NAI Contributed Entities was a member of its respective group.
(f) The normal period within which to examine and/or assess Taxes on the
income of the NAI Contributed Entities or any of them has not been extended
with respect to any such entity by waiver of, or agreement to extend, the
applicable statute of limitations or otherwise.
(g) None of the NAI Contributed Entities has made or is required to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payment that will not be
deductible under Code Section 280G.
(h) None of the NAI Contributed Entities is a party to any tax sharing or
allocation agreement.
5.14 Employee Benefit Plans.
(a) Except as set forth on the NAI Disclosure Schedule, the NAI Contributed
Entities do not maintain, contribute to, or have any liability to or in
connection with, nor, have the NAI Contributed Entities maintained,
contributed to, or had any liability to or in connection with, any employee
pension benefit plan, fund or program
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(exclusive of benefits contained in contracts disclosed pursuant to Section
5.18 hereof), as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), specifically
including any multiemployer plan, as defined in Section 3(37) of ERISA,
regardless of whether such pension plan, fund or program (i) is or is intended
to be covered or qualified under the Code, ERISA or any other applicable law,
(ii) is or is intended to be funded or unfunded, or (iii) covers any current
or former employee of or independent contractor to the NAI Contributed
Entities (the "Pension Plans"). The NAI Contributed Entities have not, within
the past six years, contributed to, maintained or been obligated to contribute
to any such multiemployer plan (as so defined).
(b) The NAI Disclosure Schedule contains a list (exclusive of benefits
contained in contracts disclosed pursuant to Section 5.18 hereof) of all other
employee benefit plans, funds or programs as such term is defined in Section
3(3) of ERISA which any NAI Contributed Entity has maintained, contributed to,
or in connection with which it has or has had any liability, specifically
including any multiemployer plan, as defined in Section 3(37) of ERISA,
regardless of whether such employee benefit plan, fund or program (i) is or is
intended to be covered or qualified under the Code, ERISA or any other
applicable law, (ii) is or is intended to be funded or unfunded, or (iii)
covers any current or former employee of or independent contractor to the NAI
Contributed Entities ("Benefit Plans").
(c) The NAI Disclosure Schedule lists (exclusive of benefits contained in
contracts disclosed pursuant to Section 5.18 hereof), with respect to the NAI
Contributed Entities, (i) any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
employee relocation, cafeteria benefit (Section 125 of the Code) or dependent
care (Section 129 of the Code), life insurance or accident insurance plans,
programs or arrangements, (ii) all deferred compensation, bonus, pension,
profit sharing, savings or incentive plans, programs or arrangements, (iii)
other fringe or employee benefit plans, programs or arrangements that apply to
employees of the NAI Contributed Entities, in each case, that are currently
maintained or contributed to by the NAI Contributed Entities or to which or in
connection with which the NAI Contributed Entities have any liability, or that
have been maintained or contributed to by the NAI Contributed Entities or to
which or in connection with which they had any liability since January 1, 1993
(collectively, with the plans, funds and programs referred to in (a) and (b)
above the "Employee Plans").
(d) NAI has furnished to UVSG a copy of each of the Employee Plans and
related plan documents (including trust documents, insurance policies or
contracts, employee booklets, summary plan descriptions and other authorizing
documents, and, to the extent still in its or Holdings' possession, any
material employee communications relating thereto) and has, with respect to
each Employee Plan that is subject to ERISA reporting requirements, provided
copies of the Form 5500, including all schedules attached thereto and
actuarial reports, if any, filed for the last three plan years. Any Employee
Plan intended to be qualified under Sections 401(a) or 501(c)(9) of the Code
is in fact so qualified and either there has been obtained from the Internal
Revenue Service a favorable determination letter as to its qualified status
under applicable Code provisions and subsequent legislation, or the time for
applying to the Internal Revenue Service for such a determination letter has
not expired under applicable Treasury Regulations. NAI has also furnished UVSG
with the most recent Internal Revenue Service determination letter issued with
respect to each such Employee Plan (and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Employee Plan subject to Section
401(a) of the Code), and all prohibited transaction exemptions (or requests
for such exemptions), private letter rulings, opinions, information letters or
compliance statements issued with respect to any Employee Plan by the Internal
Revenue Service, the Department of Labor or the Pension Benefit Guaranty
Corporation.
(e) In the case of any policies or binders of insurance that constitute or
are otherwise maintained in connection with an Employee Plan, to the knowledge
of Holdings and NAI, (i) such policies and binders are valid and enforceable
in accordance with their terms in all respects, and are in full force and
effect; (ii) none of Holdings, NAI or any of their respective Affiliates is in
default in any respect with respect to any material provisions contained in
any such policy or binder, nor has any of them failed to give any notice or
present any
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claim under any such policy or binder in a due and timely fashion; and (iii)
none of Holdings, NAI or any of their respective Affiliates has received any
notice of cancellation or non-renewal of any such policy or binder; except to
the extent that a failure with respect to any of the foregoing is not
reasonably likely to have, in the aggregate, a Publications Material Adverse
Effect.
(f) Except as set forth in the NAI Disclosure Schedule, and except to the
extent that any failure with respect to the following is not reasonably likely
to have, in the aggregate, a Publications Material Adverse Effect, no Employee
Plan exists which will result in the payment of money or any other property or
rights, or accelerate or provide any other rights or benefits, to any current
or former employee of Holdings or NAI (or other current or former service
provider thereto) that would not have been required but for the transactions
provided for herein and no NAI Contributed Entity is party to any plan,
program, arrangement or understanding that would result, separately or in the
aggregate, in the payment of any "excess parachute payment" within the meaning
of Section 280G of the Code, and except as disclosed in the NAI Disclosure
Schedule, no NAI Contributed Entity maintains any Employee Plan or Pension
Plan which provides severance benefits to current or former employees or other
services providers of Holdings or NAI. Except as disclosed in the NAI
Disclosure Schedule, no medical or life insurance benefits are provided by any
Employee Plan to any former employee or independent contractor, except to the
extent required by the Consolidated Omnibus Reconciliation Act of 1985, as
amended "COBRA"). Except as set forth in the NAI Disclosure Schedule, the NAI
Contributed Entities have no obligation to contribute to retiree life, health
and other benefits. Except as set forth in the NAI Disclosure Schedule, the
NAI Contributed Entities do not and have not been a party to any collective
bargaining (or other similar) agreement with respect to any employee of the
NAI Contributed Entities, nor is any such agreement presently being
negotiated.
(g) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any Person other than liabilities which have
been assumed by NAI and with respect to which none of the NAI Contributed
Entities will have any liability after the Closing Date; (ii) there has been
no "prohibited transaction," as such term is defined in Section 406 of ERISA
and Section 4975 of the Code, with respect to any Employee Plan; (iii) each
Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), and the NAI Contributed Entities
have performed all obligations required to be performed by them under, are not
in any respect in default under or violation of, and have no knowledge of any
default under or violation by any other party of any Employee Plan; (iv) no
NAI Contributed Entity is subject to any liability or penalty under Sections
4976 through 4980 of the Code or Title I of ERISA with respect to any of the
Employee Plans; (v) all material contributions required to be made by the NAI
Contributed Entities to any Employee Plan have been made on or before their
due dates; (vi) with respect to each Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for
which the 30-day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041
of ERISA has occurred; and (vii) no Employee Plan is covered by, and no NAI
Contributed Entity has incurred or expects to incur any liability under, Title
IV of ERISA or Section 412 of the Code, except, in the case of any failure to
comply with clauses (ii), (iii), (iv), (v), (vi) and/or (vii) above, for such
failures which are not reasonably likely to have, in the aggregate, a
Publications Material Adverse Effect. With respect to each Employee Plan
subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning
of Section 3(1) of ERISA, NAI or the applicable NAI Contributed Entity has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required
to be filed, distributed or posted with respect to each such Employee Plan
except where the failure to timely file, distribute or post such documents
would not, in the aggregate, have a Publications Material Adverse Effect. No
suit, administrative proceeding, action or other litigation has been brought,
or to the knowledge of Holdings and NAI, is threatened, against or with
respect to any such Employee Plan, including any audit or inquiry by the
Internal Revenue Service or United States Department of Labor which is
reasonably likely to have, in the aggregate, a Publications Material Adverse
Effect. No NAI Contributed Entity is a party to, or has made any contribution
to or otherwise incurred any obligation under, any "multiemployer plan" as
defined in Section 3(37) of ERISA.
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(h) With respect to each Employee Plan, each NAI Contributed Entity has
complied with (i) the applicable health care continuation and notice
provisions of COBRA and the regulations thereunder and (ii) the applicable
requirements of the Family and Medical Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply is not reasonably
likely to have in the aggregate, a Publications Material Adverse Effect.
(i) The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (i) entitle any current or former
employee or other service provider or any director of any NAI Contributed
Entity to severance benefits or any other similar payment (including
unemployment compensation, golden parachute, bonus or otherwise), (ii)
increase any benefits otherwise payable or (iii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, service provider or director except to the extent that any of the
foregoing are not reasonably likely to have, in the aggregate, a Publications
Material Adverse Effect.
(j) There has been no amendment to, written interpretation or announcement
(whether or not written) by Holdings, NAI or any NAI Contributed Entity
relating to, or change in participation or coverage under, any Employee Plan
which would materially increase the expense of maintaining such Employee Plan
above the level of expense incurred with respect to that Employee Plan for the
most recent fiscal year included in the Unaudited Contributed Businesses
Financial Statements.
5.15 Contracts and Commitments. The NAI Disclosure Schedule lists all
contracts to which any NAI Contributed Entity is a party or by which it or the
NAI Contributed Businesses or their respective assets are bound that are to be
performed in whole or in part after the effective date hereof and that would
be required to be filed with the Securities and Exchange Commission (the
"Commission") as "material contracts" pursuant to Item 601 of Regulation S-K
under the Securities Act of 1933, as amended (together with the rules and
regulations of the Commission thereunder, the "Securities Act") if such NAI
Contributed Entity was a registrant registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations of the Commission thereunder, the "Exchange Act"). The NAI
Disclosure Schedule also lists (a) all agreements, bonds, notes, debentures or
similar instruments evidencing (i) indebtedness of any NAI Contributed Entity
for borrowed money or for the deferred purchase price of any material property
or service (other than trade accounts arising in the ordinary course of
business), (ii) obligations of any NAI Contributed Entity under capital
leases, (iii) guaranties by any NAI Contributed Entity of liabilities or
obligations of others, and (iv) any Liens on the assets of any NAI Contributed
Entity, (b) agreements that limit the right of any NAI Contributed Entity to
compete in any line of business; (c) agreements which, after giving effect to
the transactions contemplated hereby, purport to restrict or bind UVSG or any
of its subsidiaries, other than the NAI Contributed Entities; (d) all
agreements not in the ordinary course of business pursuant to which there is
any continuing liability or obligation, including without limitation any
indemnification obligation; (e) merger, acquisition and similar agreements
that have any surviving obligations not performed in full, including without
limitation, any indemnity obligation; (f) agreements with any Affiliate of
such NAI Contributed Entity; (g) any agreements not terminable on less than 75
days notice without penalty and involving amounts in excess of $6,000,000
during the 1997 fiscal year, reasonably expected during 1998, or as projected
over the remainder of the stated fixed term of the applicable agreement; and
(h) any collective bargaining or similar agreements. True and complete copies
of all agreements listed in the NAI Disclosure Schedule have been made
available to UVSG. Each of the NAI Contributed Entities has fulfilled in all
material respects, or taken all actions necessary to enable it to fulfill in
all material respects when due, its obligations under each of such agreements
to which it is a party. To the knowledge of Holdings and NAI, all parties
thereto other than the NAI Contributed Entities have complied in all material
respects with the provisions thereof and no party is in breach or violation
of, or in default (with or without notice or lapse of time, or both) under
such agreements which breach, violation or default is reasonably likely to
have a Publications Material Adverse Effect. No NAI Contributed Entity has
received any notice of termination, cancellation or acceleration of any such
agreement.
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5.16 Adequacy of Assets; Intangible Property.
(a) The businesses conducted by the NAI Contributed Entities include all
businesses engaged in by Holdings, NAI and their respective Affiliates
relating to the print or electronic program guide business whether within or
outside the United States other than the NDS Business (the "Program Guide
Businesses"). Except for the assets and rights owned by NAI or an Affiliate
thereof (other than an NAI Contributed Entity) that are listed in items 1
through 7 of Schedule 4 or are used to provide the services so listed, all of
which services will be made available to the NAI Contributed Entities as
described in Section 7.14 hereof, and except for immaterial assets and rights
used in connection with general corporate overhead and administrative
activities of NAI and its Affiliates in the New York City offices of NAI and
its Affiliates, the assets and rights held by the NAI Contributed Entities
include all of the assets and other rights used, and all of the material
assets and rights usable, by Holdings, NAI and their respective Affiliates in
the Program Guide Businesses, the business of TVGEN and the business of
Murdoch Magazines Distribution, Inc., and the NAI Contributed Entities have no
other material assets or rights. The NAI Contributed Entities have no
liabilities, claims or other obligations other than (i) those arising out of
or incurred in connection with the Program Guide Business, the business of
TVGEN and the business of Murdoch Magazines Distribution, Inc., and (ii)
intercompany indebtedness to be canceled or contributed to the capital of the
applicable NAI Contributed Entities immediately prior to the Closing. The
assets owned or leased by the NAI Contributed Entities are suitable and
adequate for the conduct of their respective businesses and the NAI
Contributed Businesses have good and, with respect to real property owned in
fee, marketable title to or valid leasehold or other contractual interests in
all such assets that are material to the NAI Contributed Businesses as a
whole, free and clear of all Liens other than Permitted Encumbrances. For
purposes of this Agreement, "Permitted Encumbrances" means the following
Liens: (i) Liens for Taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on the Unaudited NAI Contributed
Businesses Financial Statements in accordance with GAAP; and (ii) Liens of
carriers, warehousemen, mechanics, materialmen and landlords incurred in the
ordinary course of business for sums not overdue or being contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on the Unaudited NAI Contributed
Businesses Financial Statements.
(b) One or more of the NAI Contributed Entities owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and trade secrets
(collectively, "Intellectual Property") that are used in the NAI Contributed
Businesses as currently conducted, except to the extent that the failure to
have such rights has not had and is not reasonably likely to have a
Publications Material Adverse Effect. The Intellectual Property includes (i)
all right, title and interest to the name "TV Guide" in the United States,
(ii) all right, title and interest to the name "TV Guide" outside the United
States, if any, held by Holdings, NAI and their respective Affiliates, (iii)
all related trademarks, service marks, trade names or copyrights used in the
conduct of the NAI Contributed Businesses and (iv) all right, title and
interest that Holdings, NAI or any of their respective Affiliates has in any
Intellectual Property of or arising out of the former EPG joint venture
formerly known as TV Guide On Screen with an Affiliate of TCI. Neither
Holdings, NAI nor any of their respective Affiliates has received notice of
any claim of infringement of the rights of others with respect to any patents,
trademarks, service marks, trade names or copyrights used or owned by the NAI
Contributed Entities, the loss of which is reasonably likely to have a
Publications Material Adverse Effect. Neither Holdings, NAI nor any of their
respective Affiliates has any knowledge that any of the NAI Contributed
Entities is infringing upon or otherwise violating, or has infringed upon or
otherwise violated, the rights of any third party with respect to any patent,
trademark, trade name, service mark or copyright, except to the extent that
the foregoing is not reasonably likely to have a Publications Material Adverse
Effect. No current or former employee of any NAI Contributed Entity is or was
a party to any confidentiality agreement and/or agreement not to compete which
restricts or forbids such employee's performance of any activity that such
employee was hired to perform, except to the extent that the foregoing is not
reasonably likely to have a Publications Material Adverse Effect. No NAI
Contributed Entity is currently using or has in the past used without
appropriate authorization, any confidential information or trade secrets of
any third party, except to the extent that any of the foregoing is not
reasonably likely to have a Publications Material Adverse Effect. Since
January 1, 1995, neither Holdings nor NAI has received any notice alleging
such conduct.
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5.17 Licenses; Compliance with Regulatory Requirements.
(a) The NAI Contributed Entities hold all licenses, franchises, ordinances,
authorizations, permits, certificates, variances, exemptions, concessions,
consents, leases, rights of way, easements, instruments, orders and approvals,
domestic or foreign ("Licenses") which are material to the ownership of the
assets that are material to the NAI Contributed Businesses (collectively, the
"Publications Licenses"). Each NAI Contributed Entity is in compliance with,
and has conducted its business so as to comply with, the terms of their
respective Publications Licenses and with all applicable laws, rules,
regulations, ordinances and codes, domestic or foreign, except where the
failure so to comply has not had and, insofar as reasonably can be foreseen,
in the future will not have, either individually or in the aggregate, a
Publications Material Adverse Effect. Without limiting the generality of the
foregoing, the NAI Contributed Entities, (i) have all Licenses of Governmental
Authorities required for the operation of the facilities being operated by the
NAI Contributed Entities or required in the conduct of the NAI Contributed
Businesses, and all such Licenses are identified on the NAI Disclosure
Schedule, (ii) have duly and currently filed all reports and other information
required to be filed by any Governmental Authority in connection with such
Licenses, and (iii) are not in violation of any of such Licenses, other than
the lack of Licenses, delays in filing reports or possible violations which,
in the aggregate, have not had and are not reasonably likely to have a
Publications Material Adverse Effect.
(b) Except as set forth in the NAI Disclosure Schedule, the NAI Contributed
Entities have duly complied with, and the operation of the business, equipment
and other assets and the facilities owned or leased by the NAI Contributed
Entities are in compliance with, the provisions of all applicable
Environmental and Health Laws, except for non-compliance which is not
reasonably likely to have a Publications Material Adverse Effect. For purposes
of this Agreement, the term "Environmental and Health Laws" means any federal,
state or local law, statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including any statute,
regulation or order pertaining to (i) treatment, storage, disposal, generation
and transportation of pollutants, contaminants, chemicals, industrial, toxic
or hazardous substances, oil or petroleum products or solid or hazardous waste
(collectively, "Hazardous Substances"); (ii) air, water and noise pollution;
(iii) groundwater and surface water contamination; (iv) the release into the
environment of Hazardous Substances, including without limitation emissions,
discharges, injections, spills, escapes or dumping of pollutants, contaminants
or chemicals; (v) the protection of wild life, marine sanctuaries and
wetlands, including without limitation all endangered and threatened species;
(vi) storage tanks, vessels and containers containing Hazardous Substances;
(vii) underground storage tanks, abandoned, disposed or discarded barrels and
other closed receptacles containing Hazardous Substances; (viii) health and
safety of employees; and (ix) manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of Hazardous
Substances. As used herein, the terms "release" and "environment" have the
meanings set forth in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended. There are no investigations,
administrative proceedings, judicial actions, orders, claims or notices that
are pending, anticipated or threatened against any NAI Contributed Entities
relating to any Environmental and Health Laws. Neither Holdings, NAI nor any
of their respective Affiliates has received a notice of or knows any facts
which constitute a violation by any NAI Contributed Entities of or give rise
to liability of any NAI Contributed Entities under any Environmental and
Health Laws that in either case would or would be reasonably likely to have a
Publications Material Adverse Effect.
(c) The NAI Contributed Businesses and the NAI Contributed Entities do not
own, lease or operate any printing facilities or otherwise conduct any
printing activities (other than printing services provided by Persons other
than the NAI Contributed Entities using facilities and materials that are
owned and operated by Persons other than the NAI Contributed Entities).
5.18 Employee Matters. The NAI Disclosure Schedule lists each employment,
consulting, agency or commission agreement to which any of the NAI Contributed
Entities is a party which is not terminable without liability to the NAI
Contributed Entities upon 60 days' or less prior notice to the employee,
consultant or agent and involves compensation or remuneration of more than
$50,000 per annum. True and complete copies of such agreements have been made
available to UVSG. All of such contracts and arrangements are in full force
and
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effect, and neither the NAI Contributed Entities nor, to the knowledge of
Holdings or NAI, any other party is in default under any of such contracts and
agreements. To the knowledge of Holdings or NAI, (i) there have been no claims
of defaults and (ii) there are no facts or conditions which if continued, or
on notice, will result in a default under these contracts or arrangements.
There is no pending or, to the knowledge of Holdings or NAI, threatened labor
dispute, strike, or work stoppage that could be expected to have a
Publications Material Adverse Effect. Each of the NAI Contributed Entities is
in compliance in all material respects with all current applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and are not engaged in any unfair labor practice. There
are no pending claims against any NAI Contributed Entities under any workers
compensation plan or policy or for long term disability. To the knowledge of
Holdings or NAI, none of the employees of the NAI Contributed Businesses are
members of a labor union or similar labor organization.
5.19 Interested Party Transactions. The NAI Disclosure Schedule lists all
transactions between any of the NAI Contributed Entities, on the one hand, and
Holdings, NAI, News Corp., any of their respective subsidiaries (other than
the NAI Contributed Entities) or any director or executive officer of any of
the foregoing (including any NAI Contributed Entity), on the other hand, in
which the amount involved exceeds $60,000 that would be required to be
disclosed pursuant to Item 404 of Regulation S-K under the Securities Act or
the Exchange Act if such NAI Contributed Entity was a registrant registered
under Section 12(g) of the Exchange Act. No NAI Contributed Entity is indebted
to Holdings, NAI, News Corp., any of their respective subsidiaries, or any
director, officer, employee or agent of any of the foregoing for borrowed
money, except for intercompany indebtedness to be canceled or contributed to
the capital of the applicable NAI Contributed Entity immediately prior to the
Closing.
5.20 Insurance. The NAI Contributed Entities, through one or more
Affiliates, have the benefit of policies of fire and casualty, liability and
other forms of insurance (including self insurance) in such amounts, with such
deductibles and against such risks and losses as are reasonable for the
operation of the businesses of the NAI Contributed Entities under the
circumstances in which they are being conducted. All such policies are in full
force and effect, all premiums due and payable thereon as of the effective
date hereof, have been paid (other than retroactive or retrospective premium
adjustments that may be required to be paid with respect to any events or
circumstances arising prior to the Closing under any of such insurance
policies, which, unless accrued for in the Latest Balance Sheet, shall accrue
to or be paid by NAI), and no notice of cancellation or termination has been
received with respect to any such policy which policy has not been replaced
prior to the date of such cancellation. To the knowledge of Holdings and NAI,
the activities and operations of the NAI Contributed Entities have been
conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies, except for any failures so
to conform that, individually or in the aggregate, are not reasonably likely
to have a Publications Material Adverse Effect. The coverage of such policies
will cease upon the applicable Closing, but the NAI Contributed Entities will
continue to be entitled to the benefit of such policies with respect to any
covered event that occurs prior to the Closing (including during any extended
reporting period under "claims made" policies or the like).
5.21 Major Advertisers and Suppliers. The NAI Disclosure Schedule lists each
advertiser of the NAI Contributed Entities that individually accounted for
more than one percent (1%) of the total dollar amount of revenues of the NAI
Contributed Businesses on a combined basis in 1997, showing the total dollar
amount of revenues for each such customer during each such year. None of the
NAI Contributed Entities has received written notice from any customer in the
NAI Disclosure Schedule of such customer's intent not to remain a customer of
the NAI Contributed Entities after the Closing. The NAI Disclosure Schedule
also lists each of the ten largest vendors to the NAI Contributed Businesses
(by dollar volume) during the most recently completed fiscal year.
5.22 Minute Books. Except as set forth in the NAI Disclosure Schedule, NAI
has made available to UVSG true and complete copies of the minute books of the
NAI Contributed Entities. Except as set forth in the NAI Disclosure Schedule,
such minute books contain summaries of all meetings of directors and
shareholders or actions by written consent since the later of (i) January 1,
1995 and (ii) the time of the applicable entity's date of
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incorporation, and such summaries are true and complete in all material
respects and reflect all transactions referred to in such minutes accurately
in all material respects.
5.23 Brokers' and Finders' Fees. Neither Holdings, NAI nor any of their
respective Controlled Affiliates has incurred, or will incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or the transactions contemplated hereby.
5.24 Year 2000 Compliance. NAI has conducted a preliminary assessment of the
possible impact of Year 2000 Issues (as hereinafter defined) on the business
and operations of Publications. Neither Holdings nor NAI believes that the
costs of required modifications to existing programs of Publications and
conversions to new programs required in order to remediate any Year 2000 Issue
are reasonably likely to result in a Publications Material Adverse Effect. For
purposes of this section, the term "Year 2000 Issues" means issues arising
from the failure or inability of any hardware, software or systems to
correctly process, provide and receive data within and between the years 1999
and 2000 and account for all required leap year calculations for the year
2000.
5.25 TVSM Merger Agreement. Prior to the execution of the Letter Agreement,
NAI furnished to UVSG or its representatives a true and complete copy of the
draft dated June 7, 1998 of the TVSM Merger Agreement, together with the draft
schedules thereto in the form delivered to NAI by TVSM. NAI has furnished UVSG
with a true and complete copy of the executed TVSM Merger Agreement, including
the schedules and exhibits thereto. There have been no amendments of or
material waivers under the TVSM Merger Agreement. NAI consummated the
acquisition of TVSM pursuant to the TVSM Merger Agreement on June 26, 1998.
5.26 Acquisition for Investment. Neither NAI nor Holdings has any present
plan or intention to sell, exchange or otherwise dispose of any of the UVSG
Consideration Shares.
5.27 Transfer of Shares to Holdings. NAI's transfer of the Shares to
Holdings will not have an effect on TCI, UVSG, or the NAI Contributed Entities
that is adverse in any material respect (determined without regard to any
other materiality provision hereof), except that the transfer of the
Publications Shares to Holdings will have the effect of reducing the basis of
the Publications Shares, such reduction in basis may have an effect on TCI,
UVSG or the NAI Contributed Entities that is adverse in a material respect
(determined without regard to any other materiality provision hereof), and
that NAI and Holdings are not making any representation or warranty with
respect to the effect of such reduction in basis.
6. Representations and Warranties of UVSG. All representations and
warranties of UVSG contained in this Agreement are made subject to Schedule 2
hereto. UVSG hereby represents and warrants to Holdings and NAI as follows
(such representations and warranties being deemed made as of the effective
date hereof):
6.1 Organization. Each of UVSG and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation and has all requisite corporate power and
authority and all necessary licenses and permits to carry on its business as
it has been and is now being conducted and to own or lease and to operate the
properties used in connection therewith. Each of UVSG and its subsidiaries is
duly qualified or licensed and in good standing to do business in each of the
jurisdictions where the conduct of its business or the ownership, leasing or
operation of its properties requires such qualification or licensing, except
where the failure to be so duly qualified or licensed and in good standing,
individually or in the aggregate, would not have a material adverse effect on
(i) the business, operations, properties or condition (financial or otherwise)
of UVSG and its subsidiaries taken as a whole, or (ii) the ability of UVSG to
consummate the transactions contemplated herein (each, a "UVSG Material
Adverse Effect").
6.2 Capitalization; Options and Other Rights.
(a) As of June 4, 1998, the total authorized shares of capital stock of UVSG
consist of 60,000,000 shares of Class A Common Stock, 30,000,000 shares of
Class B Common Stock, and 2,000,000 shares of Preferred Stock, par value $.01
per share, of which 24,303,874 shares of Class A Common Stock, 12,373,294
shares of
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Class B Common Stock and no shares of Preferred Stock were issued and
outstanding as of June 4, 1998. All of the issued and outstanding shares of
UVSG Common Stock have been duly and validly authorized and issued and are
fully paid and nonassessable. As of such date, there were no other outstanding
shares of capital stock or other securities or ownership interests of UVSG
other than shares of Class A Common Stock issuable upon the exercise of
options issued under UVSG's Equity Incentive Plan and its Stock Option Plan
for Non-Employee Directors (collectively, the "UVSG Stock Option Plans") and
options issued under such plans. As of December 31, 1997, UVSG had reserved
(i) 1,176,444 shares of Class A Common Stock for issuance upon exercise of
outstanding options issued pursuant to the UVSG Stock Option Plans and (ii)
2,031,671 shares of Class A Common Stock for issuance upon exercise of stock
options available for grant under the UVSG Stock Option Plans. Other than
stock appreciation rights related to subsidiaries or divisions of UVSG that
UVSG has the option to satisfy in shares of Class A Common Stock, options
outstanding at December 31, 1997, the adoption of any employee incentive or
stock option plan subsequent to December 31, 1997 that is approved by the
stockholders of UVSG, the grant subsequent to December 31, 1997 of options
pursuant to such plans or pursuant to the UVSG Stock Option Plans, and other
than this Agreement or shares of Class B Common Stock that may be converted to
shares of Class A Common Stock, as of the effective date hereof there are no
existing agreements, subscriptions, options, warrants, calls, commitments,
trusts (voting or otherwise), or rights of any kind whatsoever to which UVSG
is a party or by which it is bound granting to any person any interest in or
the right to purchase or otherwise acquire from UVSG, at any time, or upon the
happening of any stated event, any capital stock of UVSG, whether or not
presently issued or outstanding, nor are there any outstanding securities of
UVSG or any other entity which are convertible into or exchangeable for shares
of capital stock of UVSG, nor are there any agreements, subscriptions,
options, warrants, calls, commitments or rights of any kind whatsoever to
which UVSG is party or by which it is bound granting to any Person any
interest in or the right to purchase or otherwise acquire from UVSG any
securities so convertible or exchangeable.
(b) Upon consummation of the Transaction, the UVSG Consideration Shares
issued to Holdings will have been duly and validly authorized and issued and
will be fully paid and nonassessable.
6.3 Authorization; Freedom to Contract.
(a) UVSG has all requisite corporate power, authority and legal capacity to
execute and deliver this Agreement, the Parent Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement
or to be executed by UVSG, as the case may be, in connection with the
consummation of the Transaction (collectively with this Agreement, the "UVSG
Transaction Documents," it being understood that such definition does not
include agreements, documents, instruments or certificates executed solely in
connection with the Netlink Transaction), and to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery by UVSG of this Agreement and the other
UVSG Transaction Documents, the consummation of the transactions contemplated
hereby and thereby and the performance by it of its obligations hereunder and
thereunder have been duly authorized by the Board of Directors of UVSG, and,
except for the approval of the stockholders of UVSG, and except for the
actions contemplated by Section 7.18 (which actions will be taken prior to the
Closing), no further corporate action will be necessary on the part of UVSG or
its Affiliates to authorize the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and thereby and the
performance of UVSG's obligations hereunder and thereunder. This Agreement has
been, and each of the other UVSG Transaction Documents will be at or prior to
the Closing, duly and validly executed and delivered by UVSG. This Agreement
constitutes, and each of the UVSG Transaction Documents when so executed and
delivered will constitute, legal, valid and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) binding
obligations of UVSG, enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles
of equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(b) Except as set forth on the UVSG Disclosure Schedule, the execution and
delivery of this Agreement and the other UVSG Transaction Documents by UVSG do
not, and the performance by UVSG of its obligations
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hereunder and thereunder will not, (i) violate or conflict with any provision
of the Certificate of Incorporation or By-Laws of UVSG or any of its
subsidiaries or any amendments thereto or restatements thereof, (ii) violate
any of the terms, conditions or provisions of any law, rule or regulation
applicable to UVSG or any of its subsidiaries, or any order, writ, injunction,
judgment or decree of any court, governmental authority, or regulatory agency
to which UVSG or any of its subsidiaries is subject or by which any of them or
their respective assets are bound, or (iii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien,
mortgage, lease, agreement, license, franchise, permit, guaranty, joint
venture agreement, or other agreement, instrument or obligation, oral or
written, to which UVSG or any of its subsidiaries is a party (whether as an
original party or as an assignee or successor) or by which UVSG or any of its
subsidiaries or any of their respective properties is bound, except for such
breaches or defaults as are not reasonably likely to have a UVSG Material
Adverse Effect.
(c) Except as set forth in the UVSG Disclosure Schedule and except for
approval of the NASD, no Permits and no Filings with any Governmental
Authority are required in connection with the execution, delivery and
performance of this Agreement by UVSG and the consummation of the transactions
contemplated hereby by UVSG, except the requirements under the HSR Act, and
except where the failure to obtain such Permits or to make such Filings is not
reasonably likely to have a UVSG Material Adverse Effect.
(d) There are no consents, authorizations or other approvals from any Person
(including, without limitation, any Person that has entered into any contract,
agreement, arrangement or understanding with UVSG or any of its subsidiaries)
required to permit the consummation of the transactions contemplated by this
Agreement, except where the failure to obtain such consents, authorizations or
approvals are not reasonably likely to have a UVSG Material Adverse Effect.
6.4 Subsidiaries. Except as set forth in the UVSG Disclosure Schedule or in
the UVSG Commission Filings, UVSG does not, directly or indirectly, have any
ownership or other interest in, or control of, any Person.
6.5 Charter and Organizational Documents. UVSG has previously furnished NAI
with true and complete copies of the Certificate of Incorporation and By-Laws
of UVSG.
6.6 Absence of Default. Except as set forth in the UVSG Disclosure Schedule
or in the UVSG Commission Filings, each of UVSG and its subsidiaries has
complied with and performed all of its obligations required to be performed
under all contracts, agreements and leases to which it is a party (whether as
an original party or as an assignee or successor), and it is not in default in
any respect under any contract, agreement, lease, undertaking, commitment or
other obligation, except for such breaches or defaults that are not reasonably
likely to have a UVSG Material Adverse Effect. UVSG has no knowledge that any
party has failed to comply in any material respect with or perform all of its
obligations required to be performed under any contract, agreement or lease to
which UVSG or any of its subsidiaries is a party or by which any of them is
bound or any of their respective assets is subject (whether as an original
party or an assignee or successor).
6.7 Absence of Certain Developments. Since the date of the latest balance
sheet (the "UVSG Latest Balance Sheet") included in the UVSG Commission
Filings, the business of UVSG and its subsidiaries has been conducted in the
ordinary course of business consistent with past practice, and, except to the
extent reflected or otherwise disclosed in the UVSG Disclosure Schedule, there
has not been:
(a) any material adverse change in the business, assets, results of
operation or condition (financial or otherwise) of UVSG and its
subsidiaries (without regard to changes resulting from macroeconomic or
general industry conditions) (a "UVSG Material Adverse Change"), and there
has not occurred any event which is reasonably likely to result in a UVSG
Material Adverse Change;
(b) any sale, lease or other transfer or disposition of any material
asset of UVSG or its subsidiaries;
(c) any declaration, setting aside, or payment of any stock dividend or
distribution (other than of cash) to TCI or any of its Affiliates, or any
direct or indirect redemption, retirement, purchase or other acquisition
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by UVSG of any of its capital stock or other securities or options,
warrants or other rights to acquire capital stock;
(d) any change in accounting methods, practices or policies (including
any change in depreciation or amortization policies or rates) by any of
UVSG and its subsidiaries or any revaluation by UVSG or any of its
subsidiaries of any of their respective assets;
(e) any material modification or change to any material contract by UVSG
or any of its subsidiaries, other than in the ordinary course of business;
(f) any written waiver or written release of any right or claim of
substantial value by UVSG or any of its subsidiaries;
(g) any payment, discharge or satisfaction of any material claim,
liability or obligation by UVSG or any of its subsidiaries, other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against
in the UVSG Latest Balance Sheet or incurred since the date of such balance
sheet in the ordinary course of business and consistent with past practice
and other than scheduled repayments of indebtedness reflected on the UVSG
Latest Balance Sheet;
(h) any issuance or sale of capital stock or other securities or
membership or other ownership interests, exchangeable or convertible
securities, options, warrants, puts, calls or other rights to acquire
capital stock or other securities or other ownership interests of UVSG;
(i) any delay in the payment of any trade or other payables other than in
the ordinary course of business and consistent with past practice; or
(j) any agreement by UVSG or any of its Affiliates to do any of the
foregoing.
6.8 Liabilities. Except as reflected in the UVSG Commission Filings or the
UVSG Disclosure Schedule and except for liabilities or obligations that fall
within any of the exceptions contained in any of the other representations or
warranties contained in this Section 6 (e.g., knowledge, materiality and
disclosed liabilities) or that arose in the ordinary course of business after
March 31, 1998 (and which have not resulted in a UVSG Material Adverse
Change), neither UVSG nor any of its subsidiaries has actual or potential
liability or obligation of any kind or nature, whether due or to become due,
whether absolute, accrued, fixed or contingent or otherwise.
6.9 Litigation.
(a) Except as set forth in the UVSG Commission Filings or the UVSG
Disclosure Schedule: (i) there are no private or governmental Legal
Proceedings pending or, to UVSG's knowledge, threatened against UVSG or any of
its subsidiaries; and (ii) none of UVSG or any of its subsidiaries or any of
their respective assets, properties or business, is subject to any judgment,
writ, injunction or decree of any Governmental Authority or arbitration
tribunal; except in either case for such Legal Proceedings as are not
reasonably likely to have a UVSG Material Adverse Effect.
(b) Neither UVSG nor any of its subsidiaries is a party to any Legal
Proceedings pending or, to its knowledge, threatened which, if adversely
determined, would adversely affect or restrict the ability of UVSG to
consummate the transactions contemplated by this Agreement or to perform its
obligations hereunder.
(c) There is no judgment, order, injunction or decree of any governmental
authority or regulatory agency to which UVSG or any of its Affiliates is
subject which might adversely affect or restrict the ability of UVSG or any of
its Affiliates to consummate the transactions contemplated by this Agreement
or to perform its obligations hereunder.
6.10 Restrictions on Business Activities. Except as set forth in the UVSG
Commission Filings or the UVSG Disclosure Schedule, there is no material
agreement, nor is there any judgment, injunction, order or decree, binding
upon UVSG or any of its Affiliates which has or could have the effect of
prohibiting or materially
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impairing any current business practice of UVSG as currently conducted
(including following the consummation of the transactions contemplated by this
Agreement).
6.11 Compliance with Law. Except as set forth in the UVSG Commission Filings
or the UVSG Disclosure Schedule, UVSG and its Affiliates (i) are in compliance
with all federal, state, local or foreign laws (including common law),
statutes, codes, ordinances, rules, regulations or other requirements
applicable to UVSG or to the conduct of its business or operations or the use
of its properties (including any leased properties) and assets and (ii) have
all governmental permits and approvals from Governmental Authorities which are
required by UVSG to operate its business, except in such cases where the
failure to comply or obtain is not reasonably likely to have a UVSG Material
Adverse Effect.
6.12 Taxes. Except as otherwise set forth in the UVSG Disclosure Schedule:
(a) Each of UVSG and its subsidiaries has filed all material Tax Returns
that it was required to file. All such Tax Returns are correct and complete
in all material respects. All material Taxes owed by UVSG and its
subsidiaries (whether or not shown on any Tax Return) have been paid. There
are no liens for material Taxes (other than for current Taxes not yet due
and payable or for items being contested in good faith and for which there
are adequate reserves in accordance with GAAP on the books of the
applicable entity) on any of the assets of UVSG and its subsidiaries.
(b) Each of UVSG and its subsidiaries has withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor or other third party.
(c) No material deficiencies for any Taxes have been proposed, asserted
or assessed against UVSG or any of its subsidiaries that are not adequately
reserved for in accordance with GAAP in all cases applied on a consistent
basis with the UVSG Latest Balance Sheet. The UVSG Disclosure Schedule
indicates the Tax Returns of UVSG or its subsidiaries that currently are
the subject of an audit.
(d) None of UVSG and its subsidiaries has any current non-contingent
liability for the Taxes of any Person (other than UVSG and its
subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(e) If the income of UVSG or any of its subsidiaries was required under
federal, state, local, or foreign tax rules, to be included on a
consolidated, unitary, combined or other such Tax Return filed by an entity
other than any of UVSG or its subsidiaries, each such group has filed all
Tax Returns that it was required to file with respect to UVSG or any of its
subsidiaries for each period during which UVSG or any of its subsidiaries
was a member of such group. All such Tax Returns were correct and complete
in all material respects in so far as they relate to any of UVSG and its
subsidiaries. All material Taxes owed by such group with respect to any of
UVSG and its subsidiaries (whether or not shown on a Tax Return) have been
paid for each taxable period during which any of UVSG and its subsidiaries
was a member of its respective group.
(f) The normal period within which to examine and/or assess Taxes on the
income of UVSG or any of its subsidiaries has not been extended with
respect to any such entity by waiver of, or agreement to extend, the
applicable statute of limitations or otherwise with the exception of the
extensions of the statute of limitations agreed to with the State of New
York for UVSG's 1993 and 1994 income Tax Returns through December 31, 1998.
(g) None of UVSG and its subsidiaries has made or is required to make any
payments, or is a party to any agreement that under certain circumstances
could obligate it to make any payment that will not be deductible under
Code Section 280G.
(h) Neither of UVSG nor any of its subsidiaries is a party to any tax
sharing or allocation agreement with any third party.
6.13 Contracts and Commitments. The UVSG Commission Filings and the UVSG
Disclosure Schedule list all contracts to which UVSG or any of its
subsidiaries is a party or by which any of them or their respective
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businesses or assets are bound that are to be performed in whole or in part
after the effective date hereof and that would be required to be filed with
the Commission as "material contracts" pursuant to Item 601 of Regulation S-K
of the Securities Act if UVSG was a registrant registered under Section 12(g)
of the Exchange Act. The UVSG Commission Filings and/or the UVSG Disclosure
Schedule also list agreements that limit the right of UVSG or any of its
subsidiaries to compete in any line of business. True and complete copies of
all agreements listed in the UVSG Commission Filings and the UVSG Disclosure
Schedule have been made available to NAI. Each of UVSG and its subsidiaries
has fulfilled in all material respects, or taken all actions necessary to
enable it to fulfill in all material respects when due, its obligations under
each of such agreements to which it is a party. To the knowledge of UVSG,
except as set forth in the UVSG Disclosure Schedule, all parties thereto other
than UVSG or its subsidiaries have complied in all material respects with the
provisions thereof and no party is in breach or violation of, or in default
(with or without notice or lapse of time, or both) under such agreements which
breach, violation or default is reasonably likely to have a UVSG Material
Adverse Effect. None of UVSG and its subsidiaries has received any notice of
termination, cancellation or acceleration of any such agreement.
6.14 Intangible Property. Except as set forth in the UVSG Commission Filings
or the UVSG Disclosure Schedule, and except for the TV Guide On-Screen
Intellectual Property, one or more of UVSG and its subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
Intellectual Property that is used in the business of UVSG and its
subsidiaries as currently conducted, except to the extent that the failure to
have such rights has not had and is not reasonably likely to have a UVSG
Material Adverse Effect. Except as set forth in the UVSG Commission Filings or
the UVSG Disclosure Schedule, (i) neither UVSG nor any of its Controlled
Affiliates has received notice of any claim of infringement of the rights of
others with respect to any patents, trademarks, service marks, trade names or
copyrights used or owned by UVSG; (ii) neither UVSG nor any of its Controlled
Affiliates has any knowledge that UVSG or any of its Controlled Affiliates is
infringing upon or otherwise violating, or has infringed upon or otherwise
violated, the rights of any third party with respect to any patent, trademark,
trade name, service mark or copyright; (iii) no current or former employee of
UVSG or any of its Controlled Affiliates is or was a party to any
confidentiality agreement and/or agreement not to compete which restricts or
forbids such employee's performance of any activity that such employee was
hired to perform; and (iv) none of UVSG and its Controlled Affiliates is
currently using or has in the past used without appropriate authorization, any
confidential information or trade secrets of any third party; except to the
extent that any of the foregoing is not reasonably likely to have a UVSG
Material Adverse Effect. Since January 1, 1995, neither UVSG nor any of its
Controlled Affiliates has received any notice alleging such conduct.
6.15 Licenses; Compliance with Regulatory Requirements.
(a) Except as set forth in the UVSG Commission Filings or the UVSG
Disclosure Schedule, UVSG and its subsidiaries hold all Licenses which are
material to the ownership of the assets that are material to UVSG and its
subsidiaries (collectively, the "UVSG Licenses"). Except as set forth in the
UVSG Commission Filings or the UVSG Disclosure Schedule, each of UVSG and its
subsidiaries is in compliance with, and has conducted its respective business
so as to comply with, the terms of the UVSG Licenses and with all applicable
laws, rules, regulations, ordinances and codes, domestic or foreign, except
where the failure so to comply has not had and, is not reasonably likely to
have, either individually or in the aggregate, a UVSG Material Adverse Effect.
Without limiting the generality of the foregoing, UVSG and its subsidiaries
(i) have all Licenses of Governmental Authorities required for the operation
of the facilities being operated by UVSG and its subsidiaries in the conduct
of its business, and all such Licenses are identified on the UVSG Commission
Filings or the UVSG Disclosure Schedule, (ii) have duly and currently filed
all reports and other information required to be filed by any Governmental
Authority in connection with such Licenses, and (iii) are not in violation of
any of such Licenses, other than the lack of Licenses, delays in filing
reports or possible violations which, in the aggregate, have not had and are
not reasonably likely to have a UVSG Material Adverse Effect.
(b) Except as set forth in the UVSG Commission Filings or the UVSG
Disclosure Schedule, each of UVSG and its subsidiaries has duly complied with,
and the operation of its business, equipment and other assets and the
facilities owned or leased by it are in compliance with, the provisions of all
applicable Environmental and Health Laws, except for non-compliance which is
not reasonably likely to have a UVSG Material Adverse Effect.
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Except as set forth in the UVSG Commission Filings or the UVSG Disclosure
Schedule, there are no investigations, administrative proceedings, judicial
actions, orders, claims or notices that are pending, anticipated or threatened
against UVSG or its subsidiaries relating to any Environmental and Health
Laws. Except as set forth in the UVSG Commission Filings or the UVSG
Disclosure Schedule, neither UVSG nor any of its subsidiaries has received a
notice of or knows any facts which constitute a violation by UVSG of or gives
rise to liability of UVSG under any Environmental and Health Laws that in
either case would or would be reasonably likely to have a UVSG Material
Adverse Effect.
6.16 Interested Party Transactions. Except to the extent reflected in the
UVSG Commission Filings, the UVSG Disclosure Schedule lists or describes all
transactions between UVSG or any of its subsidiaries, on the one hand, and TCI
or any of its subsidiaries or any director or executive officer of any of the
foregoing, on the other hand, in which the amount involved exceeds $60,000
that is required to be disclosed pursuant to Item 404 of Regulation S-K under
the Securities Act or the Exchange Act. Neither UVSG nor any of its
subsidiaries is indebted to TCI, any of its subsidiaries, or any director,
officer, employee or agent of any of the foregoing for borrowed money.
6.17 Minute Books. Except as set forth in the UVSG Disclosure Schedule, UVSG
has made available to NAI true and complete copies of the minute books of UVSG
and its subsidiaries. Except as set forth in the UVSG Disclosure Schedule,
such minute books contain summaries of all meetings of directors and
shareholders or actions by written consent since the later of (i) January 1,
1995 and (ii) the time of the applicable entity's date of incorporation, and
such summaries are true and complete in all material respects and reflect all
transactions referred to in such minutes accurately in all material respects.
6.18 Brokers' and Finders' Fees. Other than with respect to Merrill Lynch &
Co. (the fees of which shall be paid by UVSG), neither UVSG nor any of its
Controlled Affiliates has incurred, or will incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or the
transactions contemplated hereby.
6.19 SEC Filings; Financial Statements.
(a) UVSG has filed all forms, reports and documents required to be filed by
it with the Commission since January 1, 1994, and has heretofore made
available to NAI, in the form filed with the Commission (i) its Annual Reports
on Form 10-K for the fiscal years ended December 31, 1995, 1996 and 1997 (the
last such report being the "1997 Form 10-K"), respectively, and the Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (the "March
31, 1998 Form 10-Q"), (ii) all proxy and information statements relating to
meetings of UVSG's stockholders since January 1, 1995, (iii) all other reports
and registration statements filed with the Commission since January 1, 1997
(together with the 1997 Form 10-K, the March 31, 1998 Form 10-Q and all proxy
and information statements relating to meetings of UVSG's stockholders since
January 1, 1997, the "UVSG Commission Filings"). The UVSG Commission Filings
and all other forms, reports and other documents filed by UVSG with the
Commission after the effective date hereof but prior to the Closing Date (x)
were prepared, or will be prepared, in accordance with the Securities Act, or
the Exchange Act, as the case may be, and (y) did not at the time they were
filed, and will not at the time they are filed, with the Commission contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances in which they were made, not misleading.
(b) Each of the consolidated financial statements (including the notes
thereto) contained in the UVSG Commission Filings was prepared in accordance
with GAAP and Regulation S-X and fairly presents the consolidated financial
position, results of operations and cash flows of UVSG and its consolidated
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein subject in the case of unaudited interim financial
statements to normal recurring year-end audit adjustments.
7. Certain Covenants of the Parties. NAI and Holdings, jointly and
severally, and UVSG hereby covenant and agree as follows:
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7.1 Conduct of Business in Ordinary Course Pending Closing.
(a) Except as set forth in Schedule 1 hereto, Holdings and NAI covenant and
agree to cause the NAI Contributed Entities (including TVSM following the date
of the acquisition thereof by NAI), from the effective date hereof until the
Closing or the earlier termination of this Agreement, to: (i) carry on the
respective NAI Contributed Businesses (including TVGEN) in the ordinary course
and in accordance with past custom and practice, (ii) not enter into any
contract, agreement or transaction other than in the ordinary course of
business and in accordance with past custom and practice, (iii) not remove any
of their assets by way of dividend, distribution, withdrawal or any other
means without the prior written consent of UVSG, (iv) use commercially
reasonable efforts in the ordinary and usual course of business and consistent
with past practice to preserve intact their respective present business
organizations, keep available the services of their respective present
officers and key employees and preserve their respective relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with them, to the end that their respective goodwill and
ongoing businesses shall not be impaired in any material respect at the
Closing, and (v) not take or omit to take any action which would or could
reasonably be expected to result in the failure of the conditions precedent
set forth in Section 8.1 or Section 8.3(b) to UVSG's obligation to consummate
the Transaction to be satisfied. Nothing contained in the foregoing shall
preclude the NAI Contributed Entities from disposing of immaterial assets in
the ordinary course of business consistent with past practice in transactions
with Persons that are not Affiliates. NAI and Holdings shall each promptly
advise UVSG of any change which to its knowledge has had or is reasonably
likely to have a Publications Material Adverse Effect. Holdings and NAI
further covenant and agree to cause Publications and TVSM to conduct their
subscriber acquisition and renewal promotional activities in the ordinary
course of business (according, in the case of Publications, to the fiscal year
1999 budget) and not to accelerate or increase subscriber promotional
activities for the purpose of maximizing the cash balances of the NAI
Contributed Entities in contemplation of the Closing.
(b) Except as set forth in Schedule 2 hereto, UVSG covenants and agrees
that, from the effective date hereof until the Closing or earlier termination
of this Agreement, it will: (i) carry on its businesses in the ordinary course
and in accordance with past custom and practice, (ii) not enter into any
contract, agreement or transaction other than in the ordinary course of
business and in accordance with past custom and practice, (iii) not remove any
of its assets by way of dividend, distribution, withdrawal or any other means
without the prior written consent of NAI, (iv) use commercially reasonable
efforts in the ordinary and usual course of business and consistent with past
practice to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it, to the end that its goodwill and
ongoing business shall not be impaired in any material respect at the Closing,
and (v) not take or omit to take any action which would or could reasonably be
expected to result in the failure of the condition precedent set forth in
Section 9.1 to NAI's and Holding's obligations to consummate the Transaction
to be satisfied. Nothing contained in the foregoing shall preclude UVSG from
disposing of immaterial assets in the ordinary course of business consistent
with past practice in transactions with Persons that are not Affiliates. UVSG
shall promptly advise NAI of any change which to its knowledge has had or is
reasonably likely to have a UVSG Material Adverse Effect.
(c) Except as provided in Schedule 2 hereto, prior to the Closing or the
earlier termination of the Agreement, UVSG shall not, without the prior
written consent of NAI which consent shall not be unreasonably withheld,
effect or authorize any stock split, stock dividend, combination,
recapitalization, reclassification or similar transaction involving UVSG.
(d) Without the prior written consent of NAI, UVSG shall not issue any
equity securities (including any options, warrants, rights, or other
securities or interests exercisable for or convertible into equity
securities), prior to the Closing that would cause its equity capitalization
after the Closing (on a fully-diluted basis) to differ in any material respect
from that set forth on Schedule 3 hereto (as adjusted in accordance with the
last sentence of Section 2(b)), except as contemplated by Item 7 of Schedule 2
hereto or pursuant to this Agreement.
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7.2 Stockholders Meeting. UVSG shall call a meeting of its stockholders (the
"Stockholders Meeting") to be held as promptly as practicable for the purpose
of considering and voting upon the issuance of the UVSG Consideration Shares
in connection with the Transaction. Except as otherwise required by the
fiduciary duties of UVSG's Board of Directors, UVSG will, through its Board of
Directors, recommend to its stockholders the approval of the issuance of the
UVSG Consideration Shares.
7.3 Proxy Statement.
(a) As promptly as practicable after the effective date of this Agreement,
UVSG shall prepare and file with the Commission a preliminary proxy statement
relating to the Stockholders Meeting to be held in connection with the
Transaction (together with any amendments thereof or supplements thereto, the
"Proxy Statement"). UVSG shall respond promptly to any comments of the
Commission and following clearance thereof by the Commission shall cause the
definitive Proxy Statement to be filed with the Commission and promptly mailed
to its stockholders. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement, UVSG shall
promptly inform NAI of such occurrence and shall file such amendment or
supplement with the Commission or its staff and promptly following clearance
thereof by the Commission shall mail such amendment or supplement to the
stockholders of UVSG. Subject to NAI's and Holdings' complying with their
covenants in this Section 7.3, UVSG shall cause the Proxy Statement to comply
as to form in all material respects with the applicable provisions of the
Exchange Act.
(b) To the extent information regarding NAI, Holdings or any of their
respective Affiliates is required for the preparation of the Proxy Statement,
NAI and Holdings agree to promptly supply such information to UVSG upon
request. Without limiting the foregoing, as promptly as practicable after the
execution of this Agreement, NAI shall deliver to UVSG audited consolidated
financial statements of each of Publications and, if required, TVSM as of the
end of the most recently completed fiscal year of each such entity and the end
of the preceding fiscal year and for each of the years in the three-year
period ended as of the end of the most recently completed fiscal year of each
such entity in the form required by the federal securities laws and
regulations to be included by UVSG in the Proxy Statement.
(c) The information supplied to UVSG by Holdings and NAI for inclusion in
the Proxy Statement shall not, at (i) the time the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders
of UVSG, or (ii) the time of the Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. NAI and
Holdings further agree promptly to supply such additional information to UVSG
as may be necessary to correct any statement or omission regarding them or the
NAI Contributed Entities included in the Proxy Statement that becomes false or
misleading with respect to any material fact prior to the Stockholders
Meeting.
7.4 No Solicitation. Except pursuant to this Agreement, NAI and Holdings
will not, and will cause their respective Affiliates not to, directly or
indirectly through any officer, director, employee, representative, agent,
financial advisor or otherwise, negotiate to sell, sell, or solicit or
entertain proposals or offers from any Person relating to the acquisition of,
any of the NAI Contributed Entities or any equity interest therein or any of
their respective assets or businesses (other than immaterial assets in the
ordinary course of business), whether by merger, purchase, tender offer or
otherwise.
7.5 Investigation; Confidentiality.
(a) Upon reasonable notice, the parties hereto will, and will cause their
respective Affiliates to, (i) permit each other and their respective financial
advisors and accounting and legal representatives to conduct an investigation
and evaluation of (x) in the case of UVSG, the NAI Contributed Entities and
NAI Contributed Businesses and (y) in the case of NAI and Holdings, UVSG and
its subsidiaries and their respective businesses, (ii) provide such assistance
as is reasonably requested and (iii) give access at reasonable times to the
properties, books, contracts, commitments, records and other information of,
related to or concerning the businesses, assets, operations and personnel of
such Persons. No information or knowledge obtained in any investigation
pursuant
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to this Section 7.5 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
hereto to consummate the transactions contemplated hereby.
(b) UVSG agrees that pending the Closing it shall, and shall use its
diligent efforts to cause its officers, employees and authorized
representatives to, (i) hold in strict confidence all data and information
obtained by any of them pursuant hereto or in connection herewith from NAI,
Holdings, any of their respective Affiliates or their authorized
representatives (unless such information is or otherwise becomes (through no
breach of this covenant) public or readily ascertainable from public or
published information) and (ii) use all such data and information solely for
the purpose of consummating the transactions contemplated hereby and, except
as required by applicable law or legal process, shall not, and shall use its
diligent efforts to ensure that such officers, employees and authorized
representatives do not, disclose such information to others without the prior
written consent of NAI.
(c) Each of NAI and Holdings agrees that it shall, and shall use its
diligent efforts to cause its officers, employees and authorized
representatives to, (i) hold in strict confidence all data and information
obtained by any of them pursuant hereto or in connection herewith from UVSG,
its Affiliates or its authorized representatives (unless such information is
or otherwise becomes (through no breach of this covenant) public or readily
ascertainable from public or published information) and (ii) use all such data
and information solely for the purpose of consummating the transactions
contemplated hereby and, except as required by applicable law or legal
process, shall not, and shall use its diligent efforts to ensure that such
officers, employees and authorized representatives do not, disclose such
information to others without the prior written consent of UVSG.
(d) In the event this Agreement is terminated, each of NAI and Holdings, on
the one hand, and UVSG, on the other, agree to (i) return or destroy promptly,
as and if so requested by the other party, each and every document furnished
to it by the other party or any associate or affiliate of such other party, in
connection with the transactions contemplated hereby and any copies thereof
which may have been made and to cause its representatives and any
representatives of others to whom such documents were furnished promptly to
return or destroy, as applicable, such documents and any copies thereof any of
them may have made, other than documents that are publicly available, and (ii)
refrain, and to use its diligent efforts to cause its officers, employees and
representatives to refrain, from using any of the data or information referred
to in subsection (b) or (c), as the case may be, for any purpose.
7.6 Consents and Approvals. UVSG, Holdings and NAI, as applicable, shall use
all reasonable efforts to obtain all consents, approvals and waivers, give all
notices, make all filings and otherwise to satisfy all conditions required to
be obtained, given, make or satisfied by it in order to close the Transaction;
provided, however, that a party shall not be obligated to take any action
pursuant to the foregoing if the taking of such action is reasonably likely to
be materially burdensome to such party and its subsidiaries taken as a whole
or to impact in a materially adverse manner the economic or business benefit
of the transactions contemplated by this Agreement and the other Transaction
Documents.
7.7 No 338(h)(10) Election. No election under Section 338(h)(10) of the Code
shall be made with respect to the Transaction.
7.8 Section 351 Tax-Free Exchange. Unless UVSG and Liberty in their
discretion have abandoned the Netlink Transaction, and subject to the proviso
clauses of Section 3(a), each of the parties agrees that (except as otherwise
required by law) (i) it shall use all reasonable efforts to cause the
Transaction and the Netlink Transaction to constitute a tax-free exchange
under Section 351 of the Code and to cause all transfers and exchanges
pursuant to such transactions to occur on the same date, (ii) it will not take
any action, and will not permit any of its subsidiaries or Affiliates to take
any action, that such party knows would cause the Transaction or the Netlink
Transaction not to qualify as a tax-free exchange pursuant to Section 351 of
the Code, and (iii) it will report the Transaction on all tax returns and
other tax filings as a tax-free exchange under Section 351 of the Code.
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7.9 Benefit Plans--Pre-Closing Covenants. On or prior to the Closing, NAI
and Holdings shall take or cause to be taken the following actions with
respect to the Employee Plans:
(a) News America Publishing Incorporated Employees' Pension and
Retirement Fund. Prior to the Closing Date, NAI will amend the News America
Publishing Incorporated Employees' Pension and Retirement Plan (the "NAPI
Pension Plan") and the News America Supplemental Executive Retirement Plan
(the "SERP"), to remove Publications and any other NAI Contributed Entity
that is a Participating Employer under the NAPI Pension Plan and the SERP
as Participating Employers thereunder, effective as of the Closing Date (or
such later date as is legally required under ERISA Section 204(h), in which
event NAI shall be solely responsible for (and shall pay or reimburse the
NAI Contributed Entities for, as applicable) any costs arising by reason of
the amendment not being effective until such later date). Additionally, all
employees of the NAI Contributed Entities as of the Closing Date who are
participants in the NAPI Pension Plan and the SERP will become fully vested
in their benefits under the NAPI Pension Plan and the SERP.
(b) News America Savings Plan. Prior to the Closing Date, NAI and
Publications will amend the News America Savings Plan ("Savings Plan") to
provide that the plan sponsor will be NAI. Additionally, NAI and
Publications will prepare a new 401(k) plan containing terms and conditions
substantially similar to the Savings Plan (the "Cloned Plan") and
Publications will be the plan sponsor of the Cloned Plan, which shall take
effect as soon as is practicable after the Closing Date, will benefit
solely employees and former employees of Publications and TVSM (exclusive
of former employees of Publications whose most recent employment by NAI or
an Affiliate of NAI (including the NAI Contributed Entities) prior to the
Closing is or was with a Person other than any NAI Contributed Entity
(collectively, "Transferred Employees")).
(c) Welfare Plans. With respect to welfare plans (as such term is defined
in Section 3(1) of ERISA) benefitting employees of the NAI Contributed
Entities, NAI and Publications shall undertake the following steps: With
respect to plans which are sponsored by the NAI Contributed Entities, NAI
will create separate welfare plans with respect to non-NAI Contributed
Entity employees, so that such welfare plans sponsored by the NAI
Contributed Entities will, as of the Closing Date, only provide benefits to
employees of the NAI Contributed Entities. With respect to welfare plans
where NAI is the plan sponsor, NAI will cause Publications to create new
welfare plans containing substantially similar terms to provide benefits as
of the Closing Date exclusively to employees of the NAI Contributed
Entities. NAI will, and will cause Publications to, cooperate with UVSG in
providing information and assigning insurance and administrative contracts,
where possible, in order to effectuate the foregoing.
(d) News Corporation Share Option Plan. The News Corporation Share Option
Plan (and any other plan or arrangement pursuant to which employees of
Publications or TVSM (following the acquisition thereof by NAI) have been
or will be granted stock options prior to the Closing) will, as a result of
action of the committee created by such plan, provide that continued
employment with the NAI Contributed Entities will effectively be credited
for vesting purposes under the News Corporation Share Option Plan (or the
vesting provisions of any such other plan or arrangement), and that
employment by UVSG or a UVSG-controlled entity shall also be considered as
employment by the NAI Contributed Entities for purposes of such plan, with
the effect that, among other things, at no cost to the NAI Contributed
Entities, all stock options held by employees of the NAI Contributed
Entities immediately prior to the Closing will remain outstanding for their
full original term, if not theretofore exercised, subject to compliance
with the conditions thereof, including but not limited to continued
employment by UVSG or a UVSG-controlled entity.
7.10 Benefit Plans--Post-Closing Covenants of NAI and Holdings. Following
the Closing, NAI and Holdings shall take or cause to be taken the following
actions with respect to the Employee Plans:
(a) NAPI Pension Plan. No assets of the NAPI Pension Plan are to be
transferred in connection with the Transaction. Benefits payable under the
NAPI Pension Plan and the SERP shall be paid after the Closing to employees
and former employees of the NAI Contributed Entities according to the terms
of such plans.
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NAI and Holdings, jointly and severally, shall be solely responsible for
the payment of NAPI Pension Plan and SERP benefits with respect to service
by employees and former employees of the NAI Contributed Entities prior to
the Closing Date.
(b) News America Savings Plan and Cloned Plan. As soon as possible after
the Closing Date and the adoption of the Cloned Plan by Publications, NAI
will cause the Trustee of the Savings Plan to transfer the then account
balances of the employees and former employees of Publications and TVSM
(exclusive of Transferred Employees) to be transferred to the Cloned Plan.
On the Closing Date or as soon as practicable thereafter, NAI shall cause
the Trustee of the Savings Plan to segregate, in accordance with the spin-
off provisions set forth under Section 414(1) of the Code, the assets
allocable to accrued benefits of present and former employees of
Publications and TVSM (exclusive of Transferred Employees) and shall make
any and all filings and submissions to the appropriate governmental
agencies arising in connection with such segregation of assets and all
necessary amendments to the Savings Plan and related trust agreement to
provide for the segregation of the assets and transfer of such assets to
the Cloned Plan.
(c) Welfare Plans. NAI and Holdings, jointly and severally, will pay all
claims attributable to periods prior to the Closing by employees and former
employees of the NAI Contributed Entities, including but not limited to
those claims which are submitted for payment after the Closing Date,
pursuant to the terms of the welfare plans sponsored by any of the NAI
Contributed Entities, NAI or any of NAI's Affiliates. UVSG, NAI and
Publications will cooperate with each other in notifying employees of the
changes in the plan sponsors of and provisions of benefits under the
welfare plans and the cessation of benefit coverage under the Publications
and NAI sponsored welfare plans, if applicable.
7.11 Benefit Plans--Post-Closing Covenant of UVSG. Following the Closing and
until the effective date of the Cloned Plan and the transfer of account
balances from the Savings Plan to the Cloned Plan in accordance with Section
7.10(b), UVSG shall cause Publications and TVSM to match the employee
contributions to the Savings Plan for post-Closing periods up to the first
four percent of compensation for employees of Publications and TVSM. UVSG
shall cause Publications and TVSM to make the foregoing contributions to the
Savings Plan in accordance with the terms of the Savings Plan.
7.12 Restructuring. Holdings and NAI covenant and agree to take or cause to
be taken prior to the Closing all actions necessary to accomplish the
following:
(a) All of the assets of the entertainment web site known as TV Guide
Entertainment Network (which includes an electronic program guide) and all
rights to such intellectual property owned by Holdings, NAI or any of their
respective Controlled Affiliates as is used in the conduct of the business
of TV Guide Entertainment Network (such assets and rights, collectively
"TVGEN") shall be transferred, conveyed, assigned and delivered to
Publications as a contribution to capital, so that, as of the Closing,
TVGEN shall be owned by Publications.
(b) All, and not less than all, of the Shares shall be transferred, sold,
conveyed, assigned and delivered by NAI to Holdings, so that, as of the
Closing, Holdings shall be the sole record and beneficial owner of the
Shares.
(c) As of the Closing, the NAI Contributed Entities shall have no
indebtedness for borrowed money, no outstanding debt securities or
obligation to issue debt securities and no liability or obligation (as
guarantor or otherwise) with respect to the indebtedness of others (other
than any other NAI Contributed Entity and other than the Limited Recourse
Guaranty from Publications to Provident Bank referred to on Schedule 5.15
of the NAI Disclosure Schedule) and shall have aggregate positive working
capital, calculated as set forth below (before deduction of net deferred
subscription income but after giving effect to the cash distributions
referred to below) of not less than $48,000,000. For purposes hereof,
working capital shall be calculated as current assets minus current
liabilities (exclusive of liabilities to be retained or assumed hereunder
by NAI or an Affiliate thereof other than the NAI Contributed Entities and
for which the NAI Contributed Entities have no continuing liability)
determined on a basis consistent with the March 29, 1998 balance sheet
provided to UVSG by NAI in connection with the execution of the Letter
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Agreement. Subject to compliance with the provisions of this Section 7.12,
Publications may from time to time prior to the Closing distribute (by
dividend or otherwise) all cash (other than cash necessary to cover
outstanding checks at the Closing Date) of the NAI Contributed Entities.
(d) Any intercompany amount owed by Publications or any other NAI
Contributed Entity (other than to another NAI Contributed Entity) (net of
amounts due to any NAI Contributed Entity by NAI or any Affiliate of NAI
which is not an NAI Contributed Entity) shall be contributed to the capital
of the applicable NAI Contributed Entity and/or canceled, so that, as of
the Closing, there are no intercompany obligations of any NAI Contributed
Entity to Holdings, NAI or any of their respective Affiliates (other than
another NAI Contributed Entity).
(e) Any funds deposited in escrow pursuant to the TVSM Merger Agreement
that are released to NAI, Holdings or any of their respective Affiliates
prior to the Closing shall be contributed to TVSM as of the Closing and,
immediately prior to the Closing, NAI and Holdings shall assign or cause to
be assigned to TVSM all of their and their respective Affiliates' rights to
any balance of such escrowed funds.
7.13 Stockholders Agreement. At the Closing, UVSG and Holdings, together
with News Corp., TCI UVSG, Inc., Liberty and TCI, shall enter into a
Stockholders Agreement substantially in the form attached hereto as Exhibit B
(the "Stockholders Agreement").
7.14 Continuing Services. Following the Closing and for so long as News
Corp. and its Affiliates beneficially own in the aggregate at least 12.5% of
the Class B common stock of UVSG, NAI shall, and shall cause its Affiliates
to, continue to make available to the NAI Contributed Entities and their
respective businesses, at UVSG's request from time to time, services,
including, without limitation, those listed on Schedule 4 hereto but subject
to the last paragraph thereof, consistent with past practice unless UVSG shall
otherwise agree, and in any event on terms no less favorable to UVSG than
"most favored nation" terms unless UVSG shall otherwise agree; provided that
UVSG's right to use services of NAI, Holdings and their respective Affiliates
(other than bulk paper procurement) that require the involvement of executives
of News Corp. will be subject to agreement upon an appropriate payment
structure based upon allocation of costs (including services of senior
management); provided, further, that it is understood that certain of such
services (as indicated on Schedule 4) are performed by unaffiliated third
parties, and that neither NAI nor any Affiliate of NAI shall have any
obligations to perform or supervise the performance of the services to be
performed by an unaffiliated third party but shall at UVSG's request and
expense be obligated to take reasonable actions to enforce its rights against
such third parties in order to ensure such performance; provided, further,
that when NAI and its Affiliates are no longer making available any such
service to NAI or any of its Affiliates, NAI or its applicable Affiliate, as
the case may be, shall not be obligated to continue to make available such
service to the NAI Contributed Entities. As soon as practicable after the
effective date hereof, UVSG's and NAI's respective legal counsel will prepare
and negotiate a definitive agreement with respect to the provision of such
services, containing the foregoing terms and such other terms and conditions
as may be customary or appropriate under the circumstances (the "Definitive
Services Agreement"). Although the parties intend to diligently negotiate and
enter into a Definitive Services Agreement, they acknowledge and agree that
this Section 7.14 is a binding agreement among them, subject to the terms and
conditions hereof.
7.15 Listing Application. UVSG shall apply to list for trading on the
National Market tier of The Nasdaq Stock Market the shares of Class A Common
Stock included in the UVSG Consideration Shares, and the shares of Class A
Common Stock issuable upon conversion of the shares of Class B Common Stock
included in the UVSG Consideration Shares, and will use commercially
reasonable efforts to cause such listing to be approved, subject to
notification of issuance, as of the Closing.
7.16 TV Guide Trademark Licenses.
(a) On the Closing Date or as soon thereafter as may be practicable, NAI
shall cause all license agreements granting News Corp. or its Controlled
Affiliates the right to use the "TV Guide" trade name or trademark (other than
those agreements set forth in Items 2, 3, 7, 8 and 12 of Schedule 5.19 of the
NAI Disclosure Schedule) to be terminated without liability to UVSG or its
Controlled Affiliates.
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(b) The use of the "TV Guide" marks pursuant to Items 2, 3, 7 and 8 of
Schedule 5.19 of the NAI Disclosure Schedule shall be on arms' length terms to
be negotiated by NAI and UVSG.
7.17 Post-Closing Cooperation.
(a) Upon reasonable notice, at any time and from time to time after the
Closing, UVSG shall give NAI and Holdings access during normal business hours
to such records of the NAI Contributed Entities as NAI may reasonably request
for the purpose of ascertaining information with respect to any taxes or other
amounts which may be payable by NAI or Holdings pursuant hereto by reason of
the ownership or operation of the business of the NAI Contributed Entities
prior to the Closing.
(b) Each of NAI and Holdings agrees not to take or omit to take or permit
their respective Affiliates to take or omit to take any action with respect to
any insurance policies which would adversely affect the coverage by such
policies of any claim outstanding against or affecting any NAI Contributed
Entity or any NAI Contributed Business which is covered by such policies as of
the Closing Date. On and after the Closing, NAI and Holdings shall, and shall
cause their respective Affiliates to, use their reasonable efforts to
cooperate with UVSG and the NAI Contributed Entities to enable them to defend
and process all claims under insurance policies applicable to any of the NAI
Contributed Entities or NAI Contributed Businesses as of the Closing.
(c) If, in order properly to prepare documents required to be filed with
Governmental Authorities or its financial statements, it is necessary that any
party hereto or any successors thereof be furnished with additional
information relating to the NAI Contributed Entities or their respective
businesses, and such information is in the possession of any other party
hereto, such other party agrees to use reasonable efforts to furnish such
information to the requesting party, at the cost and expense of the requesting
party.
7.18 UVSG By-laws. Prior to the Closing, UVSG shall take all necessary
corporate action to amend its by-laws effective as of the Closing to (i) fix
the number of directors at ten, (ii) require that two of the ten members of
the UVSG Board of Directors be independent directors within the meaning of the
rules of The Nasdaq Stock Market applicable to companies whose securities are
traded on the National Market tier, (iii) require that the approval of any
action by the Board of Directors will require the affirmative vote of at least
seven of the ten directors, except for the removal of the Chief Executive
Officer, President and any Executive Vice President of UVSG, which will
require approval of six of the ten directors and (iv) establish an Executive
Committee, to be comprised of four directors designated by the holders of
Class B Common Stock as provided in the Stockholders Agreement, which
committee shall have such duties and powers as shall be delegated to it from
time to time by the vote of the entire Board of Directors of UVSG and shall
act by unanimous vote or written consent of all members of such committee.
8. Conditions Precedent to the Obligation of UVSG to Close. The obligation
of UVSG to consummate the Transaction is subject to the fulfillment on or
prior to the Closing Date of the following conditions, any one or more of
which may be waived by it:
8.1 Representations and Warranties True as of the Closing Date. The
representations and warranties of Holdings and NAI contained in this Agreement
shall have been true when made or deemed made and shall be true on and as of
the Closing Date with the same force and effect as though made on and as of
the Closing Date, except for changes permitted or contemplated by this
Agreement.
8.2 Compliance with this Agreement. Holdings and NAI shall have performed
and complied with their respective agreements and covenants in Section 7.12
and shall have performed and complied in all material respects with all of
their other respective agreements and covenants contained in this Agreement
that are required to be performed or complied with by Holdings or NAI, as the
case may be, on or prior to the Closing Date.
8.3 Officer's Certificate; TVSM Representations Certificate.
(a) Each of Holdings and NAI shall have delivered to UVSG a certificate,
dated the Closing Date and signed by its Chairman, President or a Vice
President, certifying that the conditions specified in Sections 8.1 and 8.2
have been fulfilled.
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(b) Each of Holdings and NAI shall also have delivered to UVSG a
certificate, dated the Closing Date, certifying that each of the
representations and warranties relating to TVSM that are set forth in Section
5 (including as a result of the inclusion of TVSM in the definition of the
terms "NAI Contributed Entities" and "NAI Contributed Businesses") are true on
and as of the Closing Date with the same force and effect as though such
representations and warranties were made on and as of the Closing Date without
the limitations set forth in the first paragraph of Section 5 but solely with
respect to facts and circumstances arising subsequent to the consummation of
NAI's acquisition of TVSM, except for changes permitted or contemplated by
this Agreement.
8.4 Secretary's Certificate. UVSG shall have been furnished with
certificates dated the Closing Date and signed by the Secretary or an
Assistant Secretary of Holdings and NAI setting forth (i) the names,
signatures and positions of the officers of Holdings or NAI, as the case may
be, who have executed this Agreement or any other document executed by such
party in connection with the Transaction, and (ii) a copy of the resolutions
adopted by the Board of Directors and, to the extent applicable, the
stockholders of Holdings or NAI, as the case may be, authorizing the
execution, delivery and performance of this Agreement and the other applicable
NAI Transaction Documents.
8.5 Opinion of Counsel to Holdings and NAI. UVSG shall have received the
opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel to Holdings
and NAI, dated the Closing Date, in form and substance reasonably satisfactory
to UVSG, with respect to the Transaction.
8.6 Deliveries. At the Closing, Holdings and NAI shall make the delivery of
the Shares and the Assignment Agreement, which shall have been duly executed
and delivered by the respective parties thereto, to UVSG as contemplated by
Section 3(b), simultaneously with UVSG's delivery of the Cash Consideration
and the UVSG Consideration Shares as contemplated by Section 3(c).
8.7 Stockholders Agreement. The Stockholders Agreement shall have been duly
executed and delivered by the respective parties thereto.
8.8 Parent Agreement. News Corp. and its Controlled Affiliates shall have
complied with all covenants and agreements contained in the agreement being
executed concurrently herewith among UVSG, TCI and News Corp. (the "Parent
Agreement") required to be complied with by each of them on or prior to the
Closing.
8.9 Hart-Scott-Rodino. All applicable waiting periods under the HSR Act
shall have expired or been terminated, without any action having been taken by
the DOJ or the FTC that remains unresolved.
8.10 Other Consents and Approvals. The stockholders of UVSG shall have
approved the issuance of the UVSG Consideration Shares at the Stockholders
Meeting by the requisite vote. The parties hereto shall have obtained all
Permits and made all Filings with each Governmental Authority, and obtained
all consents, authorizations and other approvals from and given all notices to
each Person other than a Governmental Authority, in each case identified on
the NAI Disclosure Schedule or the UVSG Disclosure Schedule or otherwise
required in connection with the consummation of the Transaction, and all such
Permits, consents, authorizations and approvals shall be in full force and
effect, other than those which if not obtained, in force or effect, made or
given (as the case may be) would not, either individually or in the aggregate,
have a Publications Material Adverse Effect or UVSG Material Adverse Effect.
8.11 No Prohibition, Etc. There shall be no provision of any applicable law
or regulation and no judgment, injunction, order or decree prohibiting the
consummation of the Transaction or imposing on UVSG or TCI or their respective
subsidiaries (including the NAI Contributed Entities following the Closing) as
a result of the Transaction any obligation which is reasonably likely (i) to
be materially burdensome to UVSG or TCI and (in each case) its subsidiaries
(including, in the case of UVSG following the Closing, the NAI Contributed
Entities) taken as a whole, or (ii) to impact in a materially adverse manner
the economic or business benefit of the transactions contemplated by this
Agreement.
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8.12 Material Adverse Change. Neither the NAI Contributed Entities taken as
a whole nor Publications shall have had any material adverse change to their
businesses, assets, properties, operations or condition (financial or
otherwise) since March 31, 1998.
8.13 Resignations. UVSG shall have received letters of resignation,
effective as of the Closing Date, executed and tendered by each of the then
incumbent directors of each NAI Contributed Entity.
8.14 Netlink Transaction. Except as otherwise provided in Section 3(a), the
closing of the Netlink Transaction shall occur simultaneously with the
Closing.
9. Conditions Precedent to the Obligation of Holdings and NAI to Close. The
obligation of each of Holdings and NAI to consummate the Transaction is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by NAI:
9.1 Representations and Warranties True as of the Closing Date. The
representations and warranties of UVSG contained in this Agreement shall have
been true when made or deemed made and shall be true on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and
except that the representations and warranties that are made in Section 6.2(a)
as of a specified date shall be true as of such specified date.
9.2 Compliance with this Agreement. UVSG shall have performed and complied
in all material respects with all agreements and covenants contained in this
Agreement that are required to be performed or complied with by it on or prior
to the Closing Date.
9.3 Officer's Certificate. UVSG shall have delivered to Holdings and NAI a
certificate, dated the Closing Date and signed by the Chairman, President or a
Vice President of UVSG, certifying that the conditions specified in Sections
9.1 and 9.2 have been fulfilled.
9.4 Secretary's Certificate. Holdings and NAI shall have been furnished with
certificates dated the Closing Date and signed by the Secretary or an
Assistant Secretary of UVSG setting forth (i) the names, signatures and
positions of the officers of UVSG who have executed this Agreement or any
other document executed by UVSG in connection with the Transaction, and (ii) a
copy of the resolutions adopted by the Board of Directors and, to the extent
applicable, the stockholders of UVSG, authorizing the execution, delivery and
performance of this Agreement and the other UVSG Transaction Documents.
9.5 Opinion of Counsel to UVSG. Holdings and NAI shall have received the
opinion of counsel to UVSG, dated the Closing Date, in form and substance
reasonably satisfactory to NAI, with respect to the Transaction.
9.6 Deliveries. At the Closing, UVSG shall make or cause to be made the
delivery of the Cash Consideration and the UVSG Consideration Shares to
Holdings as contemplated by Section 3(c), simultaneously with Holdings' and
NAI's delivery of the Shares and the Assignment Agreement as contemplated by
Section 3(b).
9.7 Stockholders Agreement. The Stockholders Agreement shall have been duly
executed and delivered by the respective parties thereto. Four designees of
Holdings shall have been appointed to the Board of Directors of UVSG,
effective immediately following the Closing, and no more than four designees
of TCI shall remain on the Board of Directors of UVSG. A sufficient number of
members of the UVSG Board of Directors shall have resigned effective
immediately following the Closing (and UVSG shall have provided evidence of
such resignations to Holdings and NAI) such that, after giving effect to such
resignations, Holdings' four designees will represent 40% of the members of
the Board of Directors of UVSG immediately following the Closing. Any existing
stockholders agreement among TCI or any of its Controlled Affiliates, on the
one hand, and any other stockholder of UVSG, on the other hand, with respect
to their UVSG Common Stock shall have been terminated, and UVSG shall have
provided evidence of such termination to Holdings and NAI.
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9.8 Parent Agreement. TCI and its Controlled Affiliates shall have complied
with all covenants and agreements contained in the Parent Agreement required
to be complied with by each of them on or prior to the Closing.
9.9 Hart-Scott-Rodino. All applicable waiting periods under the HSR Act
shall have expired or been terminated, without any action having been taken by
the DOJ or the FTC that remains unresolved.
9.10 Other Consents and Approvals. The stockholders of UVSG shall have
approved the issuance of the UVSG Consideration Shares at the Stockholders
Meeting by the requisite vote. The parties hereto shall have obtained all
Permits and made all Filings with each Governmental Authority, and obtained
all consents, authorizations and other approvals from and given all notices to
each Person other than a Governmental Authority, in each case identified on
the NAI Disclosure Schedule or the UVSG Disclosure Schedule or otherwise
required in connection with the consummation of the Transaction, and all such
Permits, consents, authorizations and approvals shall be in full force and
effect, other than those which if not obtained, in force or effect, made or
given (as the case may be) would not, either individually or in the aggregate,
have a Publications Material Adverse Effect or UVSG Material Adverse Effect.
9.11 Listing of Shares. The shares of Class A Common Stock included in the
UVSG Consideration Shares, and the shares of Class A Common Stock issuable
upon conversion of the shares of Class B Common Stock included in the UVSG
Consideration Shares, shall have been duly accepted for listing on the
National Market tier of The Nasdaq Stock Market, subject to official notice of
issuance.
9.12 No Prohibition, Etc. There shall be no provision of any applicable law
or regulation and no judgment, injunction, order or decree prohibiting the
consummation of the Transaction or imposing on Holdings, NAI, News Corp. or
their respective subsidiaries as a result of the Transaction any obligation
which is reasonably likely (i) to be materially burdensome to Holdings, NAI or
News Corp. and (in each case) its subsidiaries taken as a whole, or (ii) to
impact in a materially adverse manner the economic or business benefit of the
transactions contemplated by this Agreement.
9.13 Material Adverse Change. UVSG and its subsidiaries taken as a whole
shall not have had any material adverse change to its businesses, assets,
properties, operations or condition (financial or otherwise) since March 31,
1998.
9.14 Affiliation Agreement. Satellite Services, Inc., a subsidiary of TCI,
and UVSG, or the applicable subsidiary or subsidiaries of UVSG, shall have
entered into a mutually satisfactory affiliation agreement for the carriage of
Prevue Interactive by the cable systems of certain Controlled Affiliates of
TCI, the terms of which are reasonably satisfactory to NAI.
10. Tax Matters. For purposes of this Section 10, the term "NAI Contributed
Entities" shall not include TVSM with respect to periods prior to NAI's
acquisition of TVSM. NAI and Holdings, jointly and severally, and UVSG hereby
covenant and agree as follows:
10.1 Tax Returns. To the extent requested by UVSG, NAI and Holdings have
made available (or, in the case of Tax Returns filed after the effective date
hereof, will make available) to UVSG all portions of Tax Returns, and any
amendments thereto, filed by or on behalf of the NAI Contributed Entities (or
with respect to their assets or businesses) for all taxable years or
applicable periods ending on or prior to the Closing Date, in each case, to
the extent such Tax Returns are reasonably relevant in the preparation by or
on behalf of the NAI Contributed Entities of Tax Returns subsequent to the
Closing Date.
10.2 Termination of Prior Tax Settlement Agreements. Except as otherwise
provided in this Agreement, all tax settlement and tax-sharing agreements,
arrangements, policies and guidelines, formal or informal, express or implied,
that may exist between the NAI Contributed Entities and any Affiliate
("Settlement Agreements") and all obligations thereunder shall terminate prior
to the Closing, and after the Closing Date, none of the NAI Contributed
Entities shall be bound by such Settlement Agreements or have any liability
thereunder.
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10.3 Pre-Closing Taxes.
(a) Each of the NAI Contributed Entities shall continue to be included for
all taxable periods (or portions thereof) ending on or before the Closing Date
in the consolidated Federal income Tax Return and any required state or local
consolidated or combined income or franchise Tax Returns of any affiliated
group of which any of them is a member (each of which is herein referred to as
a "Selling Affiliated Group") which Tax Returns include any of the NAI
Contributed Entities (all such Tax Returns including taxable periods (or
portions thereof) of the NAI Contributed Entities ending on or before the
Closing Date are hereinafter referred to, collectively, as "Pre-Closing
Consolidated Returns"). Each of Holdings and NAI shall cause its Selling
Affiliated Groups to timely prepare and file (or cause to be prepared and
filed) all Pre-Closing Consolidated Returns and shall timely pay all Taxes
shown as due and payable on such Pre-Closing Consolidated Returns (including
any Taxes with respect to any deferred income triggered into income by
Treasury Regulations (S) 1.1502-13 and Treasury Regulations (S) 1.1502-14 and
any excess loss accounts taken into income under Treasury Regulations
(S) 1.1502-19).
(b) Holdings and NAI shall timely prepare (or cause to be so prepared) all
other Tax Returns of the NAI Contributed Entities that are required by law for
all taxable periods ending on or before the Closing Date ("Pre-Closing Non-
Consolidated Returns"). All Pre-Closing Non-Consolidated Returns shall be
prepared in a manner consistent with prior practice and shall properly include
and reflect the income, activities, operations and transactions of the NAI
Contributed Entities, as applicable. Holdings and NAI shall timely file (or
cause to be so filed) all Pre-Closing Non-Consolidated Returns which are due
on or before the Closing Date and shall pay (or cause the NAI Contributed
Entities to pay as each may be liable) all Taxes due thereon. Holdings and NAI
shall also pay (or cause the NAI Contributed Entities to pay as each may be
liable) the full amount of any Tax which is payable by the NAI Contributed
Entities without the filing of a Tax Return ("Non-Return Taxes"), payment of
which is due on or before the Closing Date. With respect to each Pre-Closing
Non-Consolidated Return due after the Closing Date, Holdings and NAI shall
deliver (or cause to be so delivered) each such Pre-Closing Non-Consolidated
Return to UVSG at least 15 days prior to the due date of such Tax Return,
together with a payment in an amount equal to the amount of Tax shown as due
and payable on such Pre-Closing Non-Consolidated Return (after giving effect
to any credits for the amount of Tax, if any, paid on or prior to the Closing
Date as shown on such Tax Return). Subject to the foregoing, UVSG shall cause
the NAI Contributed Entities to file all such Pre-Closing Non-Consolidated
Returns that are due after the Closing Date and to pay the amount of Tax shown
as due and payable thereon (after giving effect to any credits for the amount
of Tax, if any, previously paid as shown on such Tax Return).
10.4 Transfer Taxes. All sales, use, transfer, stamp, value added, duty,
excise, stock transfer, real property transfer, real property recording, real
property gains and other similar taxes and fees arising out of or in
connection with the transactions contemplated by this Agreement shall be paid
50% by UVSG and 50% by Holdings.
10.5 Post-Closing Taxes. UVSG shall timely prepare and file (or cause to be
so prepared and filed) all Tax Returns required by law for all Taxes, covering
solely the NAI Contributed Entities, for taxable periods ending after the
Closing Date ("Post-Closing Returns"). UVSG shall timely pay or cause to be
paid all Taxes relating to Post-Closing Returns ("Post-Closing Taxes").
Holdings and NAI, jointly and severally, shall reimburse UVSG for (i) the
amount of Post-Closing Taxes reported as payable on each Post-Closing Return
that is attributable to the portion of the period covered by such Tax Return
ending on the close of business on the Closing Date (the "Pre-Closing Tax
Period"), determined by treating the close of business on the Closing Date as
the last date of the taxable period, and (ii) the amount of any Non-Return Tax
payable after the Closing Date that is attributable to the portion of the
period covered by such payment which ends on or before the close of business
on the Closing Date (pro rata based upon the number of days covered by such
payment or if relevant as determined under clause (i)), in each case after
giving effect to any credits for the amount of such Post-Closing Tax or such
Non-Return Tax, if any, paid on or prior to the Closing Date by Holdings, NAI,
the NAI Contributed Entities or any of their predecessors or Affiliates. Such
reimbursements shall be made on or before the later of the date on which such
return is filed or 15 days after receipt of a copy of such return or evidence
of such
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payment and UVSG shall provide NAI (for itself and as Holdings'
representative) with copies of workpapers which will permit NAI (for itself
and Holdings) to review and substantiate the accuracy of such return or such
payment.
10.6 Tax Cooperation. After the Closing Date, Holdings and NAI shall submit
(or cause to be submitted) to UVSG blank Tax Return workpaper packages. UVSG
shall cause the NAI Contributed Entities to prepare completely and accurately
all information that NAI (for itself and as Holdings' representative) shall
reasonably request in such workpaper packages and shall submit to NAI (for
itself and Holdings) such packages within the later of 90 calendar days after
UVSG's receipt thereof or 90 calendar days after the close of the taxable
period to which a workpaper package relates. The parties shall cooperate with
each other in connection with any Tax investigation, audit or other
proceeding. UVSG shall preserve all information, returns, books, records and
documents relating to any liabilities for Taxes with respect to a taxable
period ending prior to or including the Closing Date until the later of the
expiration of all applicable statutes of limitation and extensions thereof, or
a final determination with respect to Taxes for such period.
10.7 Notification of Proceedings, Control; Refunds.
(a) In the event that UVSG or any of the NAI Contributed Entities receive
notice, whether orally or in writing, of any pending or threatened United
States Federal, state, local, municipal or foreign tax examinations, claims,
settlements, proposed adjustments, assessments or reassessments or related
matters with respect to Taxes that could affect Holdings, NAI or any of their
respective subsidiaries (or the NAI Contributed Entities with respect to
taxable periods or portions thereof ending on or before the Closing Date), or
if Holdings, NAI or any of their respective subsidiaries receive notice of any
such tax matter that could affect UVSG (or any of the NAI Contributed
Entities), the party receiving notice shall notify in writing the potentially
affected party within 10 calendar days thereof. The failure of any party to
give the notice required by this Section 10.7(a) shall not impair that party's
rights under this Agreement except to the extent that the other party
demonstrates that it has been damaged thereby.
(b) Each of NAI (for itself and as Holdings' representative), on the one
hand, and UVSG, on the other hand, shall have the right to control any audit
or examination by any taxing authority, initiate any claim for refund, file
any amended return, contest, resolve and defend against any assessment, notice
of deficiency or other adjustment or proposed adjustment relating or with
respect to any Taxes, the ultimate liability for which is the responsibility
of that party or its Affiliates under this Agreement, and each of NAI (for
itself and Holdings), on the one hand, and UVSG, on the other hand, shall be
entitled to, and to the extent received by the other shall be promptly paid by
the other, all refunds with respect to any such Taxes. NAI (for itself and as
Holdings' representative), on the one hand, and UVSG, on the other hand, shall
jointly control, defend and resolve any tax matter as to which Holdings and/or
NAI, on the one hand, and UVSG, on the other hand, are both liable (in whole
or in part).
10.8 Indemnification.
(a) After the Closing Date, Holdings and NAI, jointly and severally, shall
indemnify and hold harmless UVSG, the NAI Contributed Entities and each of
their respective Affiliates, successors and assigns from and against any Tax
liability of the NAI Contributed Entities with respect to the period ending on
or before the Closing Date on any Pre-Closing Non-Consolidated Return or on a
Post-Closing Return (determined by treating the Closing Date as the last date
of the taxable period) and with respect to any Non-Return Taxes attributable
to the portion of the period covered by any payment of such Taxes which ends
on or before the Closing Date, in each case, to the extent such amount exceeds
(i) any amount previously paid to UVSG with respect to such Tax pursuant to
Section 10.3 or 10.5, as applicable, and (ii) the $3,500,000 of reserves for
such taxes on the Latest Balance Sheet. Holdings and NAI shall pay such
amounts as they are obligated to pay to UVSG within 10 calendar days after
payment of any applicable Tax liability by UVSG and to the extent not paid by
Holdings or NAI within such 10-day period, the amount due shall thereafter
include interest thereon at a rate per annum equal to the prime rate as
publicly announced from time to time by The Bank of New York (the "Overpayment
Rate"), adjusted as and when changes to such Overpayment Rate shall occur,
compounded semi-annually. Holdings and NAI, jointly and severally, shall
indemnify and hold harmless UVSG, the NAI Contributed Entities and each of
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their respective Affiliates, successors and assigns, from and against (i) any
Tax liability for periods prior to and including the Closing Date resulting
from the NAI Contributed Entities being severally liable for any Taxes of any
consolidated group of which the NAI Contributed Entities are or were a member
pursuant to Treasury Regulations (S) 1.1502-6 or any analogous state or local
tax provision (including, without limitation, any Tax liability with respect
to any Pre-Closing Consolidated Return), and (ii) any Tax liability resulting
from the NAI Contributed Entities ceasing to be a member of any Selling
Affiliated Group filing consolidated or combined Tax Returns.
(b) After the Closing Date, UVSG and each of the NAI Contributed Entities,
jointly and severally, shall indemnify and hold harmless Holdings, NAI and
their respective Affiliates, successors and assigns from and against any Tax
liability with respect to the taxable period or portion thereof beginning
after the Closing Date. UVSG shall hold such Persons harmless and be liable
and pay for any and all Taxes attributable to the NAI Contributed Entities not
incurred in the ordinary course of business arising from the acts or omissions
of UVSG, its Affiliates or the NAI Contributed Entities occurring after the
Closing but on the Closing Date (other than acts specifically contemplated by
this Agreement or any of the other Transaction Documents). UVSG shall cause
the appropriate NAI Contributed Entity or subsidiary of an NAI Contributed
Entity to pay such amounts within 10 calendar days after payment of any such
Tax liability by Holdings or NAI, as the case may be, and, to the extent not
paid by such NAI Contributed Entity or subsidiary within such 10-day period,
the amount due shall thereafter include interest thereon at the Overpayment
Rate, compounded semi-annually.
(c) To the extent permitted by law, the parties agree to treat indemnity
payments under this Agreement as adjustments to the consideration paid for the
NAI Contributed Entities.
10.9 Publications Losses. UVSG shall take any reasonable actions and cause
Publications to take any reasonable actions requested by NAI to permit NAI or
its Affiliates to elect to reattribute losses of Publications pursuant to
Treasury Regulations (S) 1.1502-20(g).
10.10 Survival. The covenants and agreements set forth in this Section 10
shall survive until the expiration of the applicable statutes of limitations.
11. Survival of Representations, Warranties and Covenants; Indemnification.
11.1 Survival of Representations, Warranties and Covenants. All
representations and warranties contained in this Agreement shall survive the
execution and delivery hereof and the Closing hereunder, and, except as
otherwise specifically provided in this Agreement, shall thereafter terminate
and expire on the second anniversary of the Closing Date; provided, however,
that (i) the representations and warranties set forth in Sections 5.2 and 6.2
(b) shall survive indefinitely, (ii) the representations and warranties set
forth in Sections 5.13(h) and 6.12 (other than Section 6.12(g)) shall survive
until the expiration of the applicable statutes of limitation, and (iii) the
remaining representations and warranties contained in Section 5.13 (other than
Section 5.13(g)) shall not survive the Closing. The covenants and agreements
made by each party in this Agreement and the Transaction Documents will
survive the Closing without limitation (except pursuant to their terms). Any
representation, warranty or covenant which is the subject of a claim or
dispute asserted in writing prior to the expiration of the applicable of the
above-stated periods shall survive with respect to such claim or dispute until
the final resolution thereof. Nothing contained in this Section 11 shall limit
in any way the rights and obligations of the parties pursuant to Section 10.
11.2 Indemnification by Holdings and NAI. Subject to written notice of such
claim for indemnification being given to NAI (for itself and as Holdings'
representative) within the appropriate survival period referred to in Section
11.1, Holdings and NAI hereby agree, jointly and severally, to indemnify and
hold UVSG and its directors, officers, employees, Affiliates (including the
NAI Contributed Entities following the Closing), agents, successors and
assigns (collectively, the "UVSG Indemnified Parties") harmless from and
against any and all losses, liabilities, damages, deficiencies, and
obligations ("Losses") resulting from, based upon, arising out of or otherwise
in respect of, and all claims, actions, suits, proceedings, demands,
judgments, assessments, fines,
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interest, penalties, costs and expenses (including settlement costs and
reasonable legal, accounting, experts and other fees, costs and expenses)
("Claims") incident or relating to or resulting from, any of the following:
(i) subject to Section 11.4, any inaccuracy in or any breach of any
representation or warranty of Holdings or NAI contained in this Agreement
or in any certificate delivered by or on behalf of Holdings or NAI pursuant
to this Agreement;
(ii) any nonperformance or breach of any covenant or agreement of
Holdings or NAI contained in this Agreement or any Transaction Document;
(iii) any liabilities of Holdings, NAI or any of their respective
Affiliates to former stockholders or employees of TVSM arising solely out
of the obligations to make payments under Section 2.1 of the TVSM Merger
Agreement ("Merger Consideration Amount"), Section 9.9 of the TVSM Merger
Agreement ("Payment") or Section 10.3 of the TVSM Merger Agreement
("Payment of Employee Bonuses"); provided that (A) NAI shall have no
liability as a result of the exercise of statutory appraisal rights by TVSM
stockholders to the extent that the amount required to be paid pursuant to
the exercise of statutory appraisal rights exceeds the Merger Consideration
Amount that would have been paid to the dissenting TVSM stockholders
pursuant to the TVSM Merger Agreement, and (B) provided the payments in
Section 10.3 of the TVSM Merger Agreement are made, NAI shall be entitled
to the indemnification set forth in Section 11.2(c) of the TVSM Merger
Agreement to the extent it incurs any liability indemnified against
pursuant thereto;
(iv) any liabilities of Holdings, NAI or any of their respective
Affiliates or predecessors under any Environmental and Health Laws,
including, without limitation, all matters referred to in Clause (b) of
Schedule 5.17 of the NAI Disclosure Schedule and liabilities arising out of
the ownership, operation (including, without limitation, storage,
treatment, transportation or disposal of hazardous materials whether onsite
or offsite), leasing or occupancy of any printing facilities or storage of
any materials used in the printing process;
(v) all severance obligations relating to the termination of the persons
identified on Schedule 5 hereof in respect of certain fulfillment
operations;
(vi) any liability to employees or former employees or independent
contractors of NAI, Holdings or any of their respective Affiliates other
than any NAI Contributed Entity;
(vii) any liability to any employee or former employee or independent
contractor of any NAI Contributed Entity whose employment or services have
been terminated at any time prior to or effective as of the Closing; and
(viii) any liability to any employee or former employee or independent
contractor of any NAI Contributed Entity or NAI, Holdings or any of their
respective other Affiliates with respect to any welfare or pension plan
benefit provided by welfare and pension plans sponsored by any of the NAI
Contributed Entities, NAI, Holdings or any of their respective other
Affiliates attributable to periods prior to the Closing.
11.3 Indemnification by UVSG. Subject to written notice of such claim for
indemnification being given to UVSG within the appropriate survival period
referred to in Section 11.1, UVSG hereby agrees to indemnify and hold Holdings
and NAI and their respective directors, officers, employees, Affiliates (but
excluding the NAI Contributed Entities following the Closing), agents,
successors and assigns (collectively, the "NAI Indemnified Parties") harmless
from and against any and all Losses resulting from, based upon, arising out of
or otherwise in respect of, and all Claims incident or relating to or
resulting from, any of the following:
(i) subject to Section 11.4, any inaccuracy in or any breach of any
representation or warranty of UVSG contained in this Agreement or in any
certificate delivered by or on behalf of UVSG pursuant to this Agreement;
(ii) any nonperformance or breach of any covenant or agreement of UVSG
contained in this Agreement or any Transaction Document; and
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(iii) any Claim brought by a third party against an NAI Indemnified Party
in respect of any untrue statement of a material fact relating to the
Netlink Transaction in the Proxy Statement, or omission to state any
material fact relating to the Netlink Transaction required to be stated
therein, or necessary in order to make the statement therein, in light of
the circumstances under which they were made, not misleading.
11.4 Limitations on Indemnification for Breach of Representations and
Warranties. No indemnification under Section 11.2(i) or 11.3(i) hereof in
respect of an inaccuracy in or breach of any representation or warranty in
this Agreement or in or any certificate delivered pursuant hereto (other than,
in each case, the Basket Exceptions, as defined below), shall be due and
payable (a) in respect of any individual claim unless such claim equals or
exceeds $100,000, and (b) unless the aggregate amount of such claims equal to
or in excess of $100,000 exceeds $20,000,000 (the "Basket Amount"), whereupon
Holdings and NAI, or UVSG, as the case may be, shall be obligated to pay only
the excess of the aggregate amount of such claims for indemnification over the
Basket Amount; provided, however, that in determining whether the Basket
Amount has been reached (and only for such purpose), the representations and
warranties alleged to have been breached shall be deemed to have been made
without any qualification with regard to materiality. The indemnification
obligations under Sections 11.2(i) and 11.3(i) in respect of an inaccuracy in
or breach of any of the following representations or warranties (collectively,
the "Basket Exceptions") will not be subject to the limitations of the
preceding sentence: Section 5.23 and Section 6.18 ("Brokers' and Finders'
Fees"); Section 5.27 ("Transfer of Shares to Holdings"); the representation
and warranty in Section 5.2 that upon consummation of the Transaction, UVSG
will hold, directly or indirectly, of record and beneficially all of the
outstanding shares of capital stock of each of the NAI Contributed Entities
free and clear of any Liens and Restrictions; the representation and warranty
in Section 6.2(b) that the UVSG Consideration Shares issued to Holdings at the
Closing will have been duly and validly authorized and issued and will be
fully paid and nonassessable; and the representations and warranties set forth
in 5.13(g) and 5.13(h). Notwithstanding any other provision of this Agreement,
the indemnity of losses resulting from breaches of UVSG's tax representations
and warranties in Section 6.12 shall be limited to the diminution, if any, in
the value of Holdings' investment in the UVSG Consideration Shares resulting
therefrom, based upon the trading price of the UVSG Common Stock.
11.5 Defense of Action.
(a) Any party seeking indemnification under Section 11.2 or 11.3 (the
"Indemnified Party") will give the party from whom such indemnification is
sought (the "Indemnifying Party") prompt notice of any third party claim,
investigation, action, suit or proceeding with respect to which such
indemnification is sought (collectively, an "Action"). The Indemnified Party's
failure to so notify the Indemnifying Party of any such matter shall not
release the Indemnifying Party, in whole or in part, from its obligations to
indemnify under this Section, except to the extent the Indemnified Party's
failure to so notify actually prejudices the Indemnifying Party's ability to
defend against such Action. The Indemnified Party shall be entitled, at the
sole expense and liability of the Indemnifying Party, to exercise full control
of the defense, compromise or settlement of any such Action unless the
Indemnifying Party, within a reasonable time after the giving of such notice
by the Indemnified Party, shall (i) deliver a written confirmation to such
Indemnified Party that the indemnification provisions of Section 11.2 or 11.3
(as the case may be) are applicable to such Action and that the Indemnifying
Party will indemnify such Indemnified Party in respect of such Action pursuant
to the terms of Section 11.2 or 11.3 (as the case may be), (ii) notify such
Indemnified Party in writing of the Indemnifying Party's intention to assume
the defense thereof, and (iii) retain legal counsel reasonably satisfactory to
such Indemnified Party to conduct the defense of such Action.
(b) The Indemnified Party and the Indemnifying Party shall cooperate with
the party assuming the defense, compromise or settlement of any such Action in
accordance herewith in any manner that such party reasonably may request. If
the Indemnifying Party so assumes the defense of any such Action, the
Indemnified Party shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement
thereof, but the fees and expenses of such counsel shall be the expense of
such Indemnified Party unless (i) the Indemnifying Party has specifically
agreed to pay such fees and expenses, (ii) any relief other than the payment
of money damages is sought against the Indemnified Party or (iii) the
Indemnified Party shall have
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been advised by its counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the Indemnifying Party or that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in the conduct of the defense of
such Action (in either of which cases the Indemnifying Party shall not have
the right to direct the defense, compromise or settlement of such Action on
behalf of the Indemnified Party), and in any such case the reasonable fees and
expenses of such separate counsel shall be borne by the Indemnifying Party, it
being understood and agreed, however, that the Indemnifying Party shall not be
liable for the fees and expenses of more than one separate firm of attorneys
at any time for the Indemnified Party together with its Affiliates (which, in
the case of NAI, shall include Holdings and vice versa whether or not NAI and
Holdings continue to be Affiliates), unless there shall be a conflict of
interest between the Indemnified Party and an Affiliate thereof, in which case
the Indemnifying Party shall not be liable for the fees and expenses of more
than an aggregate of two separate firms of attorneys at any time for the
Indemnified Party and its Affiliates. No Indemnified Party shall settle or
compromise or consent to entry of any judgment with respect to any such Action
for which it is entitled to indemnification hereunder without the prior
written consent of the Indemnifying Party, unless the Indemnifying Party shall
have failed, after reasonable notice thereof, to undertake control of such
Action in the manner provided above in this Section 11.5. The Indemnifying
Party shall not, without the written consent of the Indemnified Party, settle
or compromise or consent to entry of any judgment with respect to any such
Action (x) in which any relief other than the payment of money damages is or
may be sought against any Indemnified Party, or (y) which does not include as
an unconditional term thereof the giving by the claimant, party conducting
such investigation, plaintiff or petitioner to such Indemnified Party of a
release from all liability with respect to such Action.
(c) If the limitations of Section 11.4 apply to the claims at issue in an
Action and, after giving effect to the payment of the amount of money damages
contemplated to be paid in connection with such Action (whether by settlement,
compromise or judgment), the Basket Amount would not be met, then the
foregoing provisions of this Section 11.5 shall not apply to such Action and
the party that is subject to such Action shall have the sole right to control
the defense, compromise or settlement thereof at its sole expense.
(d) In the event that the indemnification provisions contained in this
Section 11 and the indemnification provisions contained in Section 10 are both
applicable with respect to any particular matter, then the indemnification
provisions contained in Section 10 shall be controlling and shall apply for
all purposes as to such matter.
11.6 Insurance Proceeds. The amount which each of NAI and Holdings, on the
one hand, and UVSG, on the other hand, may be required to pay to the other
party pursuant to this Section 11 shall be reduced (retroactively, if
necessary) by any insurance proceeds or refunds actually recovered by or on
behalf of the applicable Indemnified Party in reduction of the related Losses
and Claims. If an Indemnified Party shall have received the payment required
by this Section 11 from the Indemnifying Party in respect of Losses and Claims
and shall subsequently receive insurance proceeds in respect of such Losses
and Claims, then the Indemnified Party shall promptly repay to the
Indemnifying Party a sum equal to the amount of such insurance proceeds or
refunds actually received, net of costs and expenses, but not exceeding the
amount paid by the Indemnifying Party in respect of such Losses and Claims.
11.7 Exclusive Monetary Remedy; No Consequential Damages. The parties hereto
hereby acknowledge and agree that their sole and exclusive remedy for monetary
damages with respect to any and all claims relating to the subject matter of
this Agreement (except damages resulting from the commission of fraud with
respect to the subject matter of this Agreement) shall be pursuant to the
indemnification provisions set forth in Section 10 or this Section 11;
provided, however, that nothing in this Section 11.7 shall limit in any way
the availability of specific performance, injunctive relief or other equitable
remedies to which a party may otherwise be entitled. In no event shall any
party hereto be liable for lost profits, lost revenues or other indirect or
consequential damages.
12. Termination of Agreement.
12.1 Termination. This Agreement may be terminated and the Transaction
abandoned at any time prior to the Closing Date (i) by mutual consent of
Holdings, NAI and UVSG; or (ii) by NAI or UVSG by giving
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written notice to the other if the Closing shall not have occurred on or
before March 31, 1999; provided, however, that the right to terminate this
Agreement under this clause (ii) shall not be available to NAI, on the one
hand, or UVSG, on the other hand, if the failure of the Closing to occur prior
to such date was a result of, in the case of NAI, any breach by NAI, Holdings
or their respective Affiliates or, in the case of UVSG, any breach by UVSG or
its Affiliates, of any of the representations, warranties, covenants or
agreements of such Person contained herein or in the Parent Agreement.
12.2 No Liabilities in the Event of Termination. In the event of any
termination of this Agreement pursuant to Section 12.1, this Agreement and the
Parent Agreement shall forthwith become wholly void and of no further force
and effect and there shall be no liability on the part of any of the parties
hereto or their respective Affiliates, officers or directors by reason hereof
except (i) as set forth in Section 5.23, Section 6.18, Section 7.5(b), (c) and
(d), Section 12 and Section 13 of this Agreement, which Sections shall survive
the termination of this Agreement, and (ii) nothing herein shall relieve any
party hereto from liability for any breach by it or any of its Affiliates of
any of its or their representations, warranties, covenants or agreements made
herein or in the Parent Agreement.
13. Miscellaneous.
13.1 Expenses. Each party hereto shall pay its own expenses (including fees
and expenses of legal counsel, investment bankers, brokers or other
representatives or consultants) in connection with the Transaction (whether or
not consummated).
13.2 Further Assurances. Each party hereto shall negotiate, execute and
deliver all reasonably required documents and do all other acts which may be
reasonably requested by the other parties hereto to implement and carry out
the terms and conditions of the Transaction. Each party shall use its
commercially reasonable efforts not to take any action or fail to take any
action which would reasonably be expected to frustrate the intent and purposes
of this Agreement.
13.3 Entire Agreement. This Agreement (together with the Schedules and
Exhibits annexed hereto), the Parent Agreement, and that certain letter
agreement between TCI and News Corp. being entered into together herewith,
effective as of June 10, 1998, relating to "TVGOS Intellectual Property,"
contain, and are intended as, a complete statement of all of the terms of the
arrangements among the parties and their respective Affiliates with respect to
the matters provided for herein and therein, and supersede any previous
agreements and understandings between the parties with respect to those
matters, including, without limitation, the Letter Agreement.
13.4 Governing Law. This Agreement shall be governed by the laws of the
State of New York applied to contracts made and wholly performed in such
State, without regard to principles governing conflicts of law. Any action to
enforce any provision of this Agreement may be brought only in a court of the
State of New York or in the United States District Court for the Southern
District of New York. Each party agrees to submit to the jurisdiction of such
courts and to accept service of process at its address for notices pursuant to
this Agreement in any such action or proceeding brought in any such court and
hereby waives any claim that such action or proceeding brought in any such
court has been brought in an inconvenient forum.
13.5 Headings. The section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
13.6 Notices. All notices and other communications hereunder shall be in
writing and shall be delivered personally, telecopied (if receipt of which is
confirmed by the person to whom sent), sent by nationally recognized overnight
delivery service or mailed by registered or certified mail (if return receipt
is requested) to the parties at the following addresses (or to such other
person or address for a party as shall be specified by such party by like
notice) (notice shall be deemed given upon receipt, if delivered personally,
by overnight delivery service or by telecopy, or on the third business day
following mailing, if mailed, except that notice of a change of address shall
not be deemed given until actually received):
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(a) If to UVSG, to:
United Video Satellite Group, Inc.
7140 S. Lewis Avenue
Tulsa, Oklahoma 74136-5422
Attention: President
(with a copy similarly addressed to the Legal Department)
Telephone: (918) 488-4993
Telecopier: (918) 488-4928
with copies to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Elizabeth M. Markowski
Telephone: (212) 705-5000
Telecopier: (212) 705-5125
and to:
TCI Ventures Group, LLC
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
Telephone: (303) 267-5360
Telecopier: (303) 488-3268
(b) If to Holdings and NAI, to:
TVG Holdings, Inc.
News America Incorporated
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind
Senior Executive Vice President
and Group General Counsel of
The News Corporation Limited
Telephone: (212) 852-7007
Telecopier: (212) 768-2029
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Jeffrey W. Rubin
Telephone: (212) 476-8224
Telecopier: (212) 697-6686
13.7 Separability. If at any time any of the covenants or the provisions
contained herein shall be deemed invalid or unenforceable by the laws of the
jurisdiction wherein it is to be enforced, such covenants or provisions shall
be considered divisible as to such portion and such covenants or provisions
shall become and be immediately amended and reformed to include only such
covenants or provisions as are enforceable by the court or other body having
jurisdiction of this Agreement; and the parties agree that such covenants or
provisions, as so amended and reformed, shall be valid and binding as though
the invalid or unenforceable portion had not been included herein.
13.8 Amendment; Waiver. No provision of this Agreement may be amended or
modified except by an instrument or instruments in writing signed by the
parties hereto. Any party may waive compliance by another
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with any of the provisions of this Agreement. No waiver of any provision
hereof shall be construed as a waiver of any other provision. Any waiver must
be in writing.
13.9 Publicity. Except as required by law or regulation or the requirements
of the NASD or the New York Stock Exchange, no public disclosure or publicity
concerning the subject matter hereof or the Transaction will be made without
the approval of each of the parties hereto.
13.10 Assignment and Binding Effect. None of the parties hereto may assign
any of its rights or delegate any of its duties under this Agreement without
the prior written consent of the others. All of the terms and provisions of
this Agreement shall be binding on, and shall inure to the benefit of, the
respective successors and permitted assigns of the parties.
13.11 No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, their respective Affiliates, and the respective successors and assigns
of the parties hereto and their respective Affiliates, and they shall not be
construed as conferring and are not intended to confer any rights on any other
Persons.
13.12 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument.
13.13 Interpretation. As used herein, except as the context may otherwise
require, "include," "includes" and "including" are deemed to be followed by
"without limitation" whether or not they are in fact followed by such words or
words of like import; "hereof," "herein," "hereunder" and comparable terms
refer to the entirety hereof and not to any particular article, section or
other subdivision hereof or attachment hereto; references to any gender
include the other; the singular includes the plural and vice versa; references
to any agreement or other document are to such agreement or document as
amended and supplemented from time to time; and references to "Article,"
"Section" or another subdivision or to an "Exhibit" or "Schedule" are to an
article, section or subdivision hereof or an "Exhibit" or "Schedule" hereof;
and all references to "the date hereof," "the date of this Agreement" or
similar terms (but excluding references to the date of execution hereof) refer
to June 10, 1998, the effective date of this Agreement, notwithstanding the
fact that the parties executed this Agreement on a later date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of January
20, 1998, effective as of the date first above written.
NEWS AMERICA INCORPORATED
By: /s/ Lawrence A. Jacobs
------------------------------
Name: Lawrence A. Jacobs
----------------------------
Title: Senior Vice President
---------------------------
TVG HOLDINGS, INC.
By: /s/ Lawrence A. Jacobs
------------------------------
Name: Lawrence A. Jacobs
----------------------------
Title: Senior Vice President
---------------------------
UNITED VIDEO SATELLITE GROUP, INC.
By: /s/ Peter C. Boylan
------------------------------
Name: Peter C. Boylan
----------------------------
Title: President
---------------------------
II-50
<PAGE>
APPENDIX III
[LETTERHEAD OF PAINEWEBBER APPEARS HERE]
May 14, 1998
The Special Committee of the Board of Directors
United Video Satellite Group, Inc.
7140 South Lewis Avenue
Tulsa, OK 74136
Gentlemen:
In February 1998, United Video Satellite Group, Inc. (the "Company") and
Liberty Media Corporation ("Liberty") proposed entering into a Stock Purchase
Agreement (the "Agreement") pursuant to which the Company was to acquire all of
the capital stock and other ownership interests in LMC Netlink Corporation
("LMC"), Westlink, Inc. ("Westlink") and Telluride Cablevision, Inc.
("Telluride") (collectively, the "Netlink Corporations"), which are wholly-
owned subsidiaries of Liberty and collectively own 100% of the partnership
interests in Netlink USA (which owns an approximate 40% membership interest in
Superstar/Netlink Group LLC ("SNG")), and owned 100% of the capital stock of
Netlink International, Inc., in exchange for 6.375 million shares of the
Company's Class A Common Stock, par value $.01 per share (the "Original
Purchase Transaction"). We note that SNG owns and operates certain other assets
and businesses, including the business of providing certain programming
services to certain satellite master antenna television operations (the "SMATV
Business") and the business of distributing on a wholesale basis, the signals
of broadcast stations known as the "Denver 6" (the "Denver 6 Business") (The
SMATV Business and the Denver 6 Business are collectively referred to herein as
the "Netlink Businesses", and SNG and the Netlink Businesses are referred to
herein as the "Subject Companies").
On April 24, 1998, the Company, Liberty and Turner Vision, Inc. ("Turner")
entered into a memorandum of understanding ("MOU") with PRIMESTAR, Inc.
("Primestar"), whereby a new holding company to be formed by Primestar
("Newco") would acquire 100% of the membership interests of SNG from the
holders thereof for aggregate consideration of approximately $430 million of
shares of Series A Convertible Preferred Stock of Newco (the "Primestar
Shares") and the assumption by Newco of approximately $50 million in
programming liabilities of SNG (the "Primestar Acquisition").
In connection with entering into the MOU, the Company and Liberty agreed to
restructure the Original Purchase Transaction and now propose that (i) Liberty
would cause Netlink USA to be restructured such that following the
restructuring, Telluride would own directly all of the businesses, assets and
liabilities of Netlink, USA, other than the Excluded Assets and Liabilities (as
hereinafter defined), and Westlink and LMC would own in the aggregate 100% of
the partnership interests in Netlink USA (which would own after the
restructuring only the Excluded Assets and Liabilities) (the "Netlink
Restructuring"), (ii) Liberty would sell to the Company 100% of the capital
stock of Telluride for 1.275 million newly issued and nonassessable shares of
the Company's Class B Common Stock, par value $.01 per share (the "Class B
Common Stock") and (iii) (A) if the Primestar Acquisition is consummated,
Liberty would sell to the Company the Primestar Shares of (B) if the Primestar
Acquisition is not consummated, Liberty would sell to the Company 100% of the
capital stock of each of LMC and Westlink, in each case in exchange for 5.1
million shares of the Class B Common Stock. We note that the Class B Common
Stock differs from the Company's Class A Common Stock in that the Class B
Common Stock
<PAGE>
entitles the holder thereof to ten (10) votes per share and the Class B Common
Stock is not publicly traded. We note that one share of the Class B Common
Stock is convertible into one share of the Company's Class A Common Stock at
the option of the holder thereof. The "Excluded Assets and Liabilities" means
Netlink USA's interest in SNG and any assets and liabilities of Netlink USA,
LMC Netlink and Westlink that relate solely to SNG or such interest in SNG.
The shares of Class B Common Stock issued pursuant to (ii) and (iii) above are
referred to as the "USVG Shares" (the Related Consideration"). Items (i), (ii)
and (iii)(B) are collectively referred to as the "Revised Purchase
Transaction".
We were not requested to, and have not, pursuant to your instructions,
reviewed any documents (other than the Agreement) in connection with, or
expressed any opinion as to the fairness from a financial point of view of,
the proposed Primestar Acquisition or item (A) of clause (iii) in the
preceding paragraph relating to the purchase of the Primestar Shares.
Notwithstanding the foregoing, pursuant to your instructions, we are
expressing an opinion only as to the fairness from a financial point of view
of the Revised Consideration which is to be paid by the Company in the Revised
Purchase Transaction assuming the Primestar Acquisition is not consummated,
and are not expressing any opinion as to any aspect of the Primestar
Acquisition or the Primestar Shares.
You have asked us whether or not, in our opinion, the proposed Revised
Consideration to be paid by the Company in the Revised Purchase Transaction is
fair to the unaffiliated shareholders of the Company from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed SNG's audited financial statements for the fiscal year ended
December 31, 1997; the related unaudited financial information for the
two fiscal years ended December 31, 1997 and 1996; and the related
unaudited financial information for the three months ended March 31,
1998;
(2) Reviewed the Netlink Businesses' audited financial statements for the
fiscal year ended December 31, 1997; the related unaudited financial
information for the fiscal years ended December 31, 1997 and 1996; and
the related unaudited financial information for the three months ended
March 31, 1998;
(3) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31,
1997; the Company's draft Form 10-Q for the three months ended March
31, 1998: and the related unaudited financial information for the
three months ended march 31, 1998 and 1997;
(4) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Subject Companies and the Company, furnished to us by the Company and
Liberty;
(5) Conducted discussions with members of senior management of each of the
Subject Companies and the Company concerning their respective
businesses and prospects;
(6) Reviewed the historical market prices and trading activity for the
Company's Class A Common Stock and compared them with those of certain
publicity traded companies which we deemed to be reasonably similar to
the Subject Companies and the Company, respectively;
(7) Compared the results of operations of the Subject Companies and the
Company with those of certain companies which we deemed to be
reasonably similar to the Subject Companies and the Company,
respectively;
(8) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(9) Reviewed a draft of the Agreement dated May 13, 1998; and
(10) Reviewed such other financial studies and analysis and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
2
<PAGE>
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise
communicated to us by or on behalf of the Subject Companies, Liberty and the
Company, and we have not assumed any responsibility to independently verify
such information. With respect to the financial forecasts examined by us, we
have assumed, with your consent, that they were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the management of the Company, Liberty and the Subject Companies,
respectively, as to the future performance of the Company and the Subject
Companies. We have also relied upon the assurances of the management of the
Company, Liberty and the Subject Companies that they are unaware of any facts
that would make the information or financial forecasts provided to us
incomplete or misleading. We have not undertaken, and have not been provided
with, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company or the Subject Companies and have
assumed that (i) the purchase method of accounting will be used for the
Revised Purchase Transaction; (ii) the Revised Purchase Transaction will
qualify as a tax-free exchange
under IRC Section 352; and (iii) all material assets and liabilities
(contingent or otherwise, known or unknown) of the Company and the Subject
Companies are as set forth in their respective consolidated financial
statements.
Our opinion is directed to the Special Committee of the Board of Directors
of the Company and does not constitute a recommendation to any shareholder of
the Company as to how any such shareholder should vote regarding the Revised
Purchase Transaction. This opinion does not address the relative merits of the
Revised Purchase Transaction and any other transactions of business strategies
that may have been discussed by the Special Committee of the Board of
Directors of the Company as alternatives to the Revised Purchase Transaction
or the decision of the Special Committee of the Board of Directors of the
Company to proceed with the Revised Purchase Transaction. Our opinion is based
on economic, monetary and market conditions on the date hereof. No opinion is
expressed herein as to the price at which the securities to be issued by the
Company in the Revised Purchase Transaction or the shares of the Company's
Class A Common Stock may trade at any time.
In ordinary course of its business, PaineWebber Incorporated may trade the
securities of the Company and its affiliates for its own account and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
PaineWebber Incorporated is currently acting as financial advisor to the
Special Committee of the Board of Directors of the Company in connection with
the Revised Purchase Transaction and will receive a fee in connection with the
rendering of this opinion.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Revised Consideration to be paid by the Company in the Revised
Purchase Transaction is fair to the unaffiliated shareholders of the Company
from a financial point of view.
This opinion has been prepared at the request of and for the information of
the Special Committee of the Board of Directors of the Company in connection
with the Revised Purchase Transaction and shall not be reproduced, summarized,
described or referred to, provided to any person or otherwise made public or
used for other purposes without the prior written consent of PaineWebber
Incorporated; provided, however, that this letter be reproduced in full in the
Proxy Statement relating to the Revised Purchase Transaction.
Very truly yours,
PaineWebber Incorporated
[LOGO OF PAINEWEBBER APPEARS HERE]
3
<PAGE>
[LETTERHEAD OF MERRILL LYNCH APPEARS HERE]
APPENDIX IV
June 8, 1998
Board of Directors
United Video Satellite Group, Inc.
7410 South Lewis Avenue
Tulsa, Oklahoma 74136-3422
Members of the Board of Directors:
United Video Satellite Group, Inc. (the "Acquiror"), News America
Incorporated (the "Seller"), The News Corporation Limited and Tele-
Communications Inc. propose to enter into a letter agreement (the "Letter
Agreement") providing for, among other things, the acquisition (the
"Acquisition") by the Acquiror of (i) all of the outstanding stock of News
America Publications, Inc. ("Publications") (which, prior to the closing of
the Acquisition, will acquire the assets of the Seller's entertainment web
site known as TVGEN) and (ii) all of the outstanding stock of TVSM, Inc.
("TVSM") (together with Publications, the "Acquired Businesses") for aggregate
consideration (the "Consideration") equal to (x) $800 million in cash and (y)
30 million shares of common stock of the Acquiror, par value $.01 per share
(the "Shares") (11,251,706 of which shares are expected to consist of Class A
Common Stock, and the remaining 18,748,294 of which are expected to consist of
Class B Common Stock). The transactions contemplated by the Letter Agreement,
including the Acquisition, are collectively referred to herein as the
Transaction. You have asked us whether, in our opinion, the Consideration to
be paid by the Acquiror in the Transaction is fair from a financial point of
view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
the Acquired Businesses and the Acquiror, as well as the amount and
timing of the cost savings and related expenses and synergies and other
benefits expected to result from the Transaction (the "Expected
Synergies"), furnished to us by the Seller and the Acquiror;
(3) Conducted discussions with members of senior management of the Seller and
the Acquiror concerning the matters described in clauses 1 and 2 above,
as well as the respective businesses and prospects of the Acquired
Businesses and the Acquiror before and after giving effect to the
Transaction and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Shares and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(5) Reviewed the results of operations of the Acquired Businesses and the
Acquiror and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Seller and the Acquiror and their financial and
legal advisors;
<PAGE>
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed the Letter Agreement; and
(10) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Acquired Businesses or the Acquiror or been furnished with
any such evaluation or appraisal. In addition, we have not assumed any
obligation to conduct any physical inspection of the properties or facilities
of the Acquired Businesses or the Acquiror. With respect to the financial
forecast information and the Expected Synergies furnished to or discussed with
us by the Seller or the Acquiror, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Seller's or the Acquiror's management as to the expected
future financial performance of the Acquired Businesses or the Acquiror, as
the case may be, and the Expected Synergies. We have also assumed that the
terms and conditions of any definitive agreements entered into pursuant to the
Letter Agreement will not differ from the terms and conditions specified in
the Letter Agreement in any respect material to our analysis.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Transaction.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Acquiror has agreed to indemnify us for certain
liabilities arising out of our engagement. We are currently acting as
financial advisor to PRIMESTAR, Inc. in connection with its acquisition of the
Superstar/Netlink Group LLC from the Acquiror and the other owners thereof and
are currently providing, and have in the past provided, financial advisory and
financing services to the Acquiror, the Seller and their affiliates and may
continue to do so and have received, and may receive, fees for the rendering
of such services. In addition, in the ordinary course of our business, we may
actively trade securities of affiliates of the Seller, as well as the Shares
and other securities of the Acquiror and its affiliates, for our own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision
by the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Acquiror as to how such shareholder
should vote on the proposed Transaction or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Shares will trade following the announcement or consummation of the
Transaction, nor as to the allocation of the Consideration or any components
thereof among any of the components of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be paid by the Acquiror in the
Transaction is fair from a financial point of view to the Acquiror.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated
J.T.
2
<PAGE>
UNITED VIDEO SATELLITE GROUP, INC.
Proxy for Special Meeting of Stockholders to be held on February 19, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter C. Boylan III and Charles Butler Ammann,
or either of them, with full power of substitution, as a proxy or proxies to
represent the undersigned at the Special Meeting (the "Special Meeting") of
Shareholders of UNITED VIDEO SATELLITE GROUP, INC., a Delaware corporation (the
"Company") to be held on February 19, 1999, and at any adjournments or
postponements thereof, and to vote thereat all the shares of Common Stock of the
Company held of record by the undersigned at the close of business on January 7,
1998 with all the power that the undersigned would possess if personally
present, as designated on the reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSALS 1, 2 AND 3.
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATION OF THE BOARD OF DIRECTORS.
This proxy revokes all proxies with respect to the Special Meeting and may be
revoked prior to exercise. Receipt of the Notice of Special Meeting of
Shareholders and the Proxy Statement relating to the Special Meeting is hereby
acknowledged.
(Continued on reverse side. Please sign and mail in the enclosed envelope.)
<PAGE>
[X] Please mark your votes as in this example using dark ink only
- --------------------------------------------------------------------------------
1. Issuance of Common Stock for the Netlink Acquisition: To consider and vote
upon a proposal to approve the issuance of 12,750,000 shares of the Company's
Class B Common Stock, par value $.01 per share, in connection with the Company's
acquisition from Liberty Media Corporation, a Delaware corporation, of the
capital stock of LMC Netlink Corporation, a Colorado corporation, Westlink,
Inc., a Colorado corporation, and Telluride Cablevision, Inc., a Delaware
corporation, each of which is a subsidiary of Liberty.
FOR [_]
AGAINST [_]
ABSTAIN [_]
2. Issuance of Common Stock for the TV Guide Acquisition: To consider and vote
upon a proposal to approve (i) the issuance of 22,503,412 shares of the
Company's Class A Common Stock, par value $.01 per share, and the issuance of
37,496,588 shares of Class B Common Stock, in each case subject to certain
adjustments, in connection with the Company's acquisition from TVG Holdings,
Inc., a Delaware corporation and an indirect subsidiary of The News Corporation
Limited, a South Australia, Australia corporation ("News Corp."), of the capital
stock of News America Publications Inc., a Delaware corporation, and TVSM, Inc.,
a Delaware corporation, and (ii) the issuance of such additional shares of Class
A Common Stock as the Company may be required to issue to Tele-Communications,
Inc., News Corp., or their respective subsidiaries, in order to equalize their
respective holdings of Class A Common Stock.
FOR [_]
AGAINST [_]
ABSTAIN [_]
3. Name Change: To consider and vote upon a proposal to amend the Company's
Restated Certificate of Incorporation to change the Company's name to "TV Guide,
Inc."
FOR [_]
AGAINST [_]
ABSTAIN [_]
In their discretion, the named proxies may vote on such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof.
TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATION, MERELY SIGN
BELOW; NO BOXES NEED TO BE CHECKED.
I PLAN TO ATTEND THE SPECIAL MEETING [_]
Your Board of Directors recommends a vote for Proposals 1, 2 and 3
______________________________Date_______________________________Date___________
SIGNATURE SIGNATURE IF HELD JOINTLY
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, trustee or guardian, please give full title as
such.
