Form 6-K/A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K/A

 

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the month of September 2004 (September 15, 2004)

 

 

Commission File Number: 1-9141

 

 

 

THE NEWS CORPORATION LIMITED
(Name of Registrant)

 

2 Holt Street, Sydney, New South Wales, 2010, Australia
(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:

 

Form 20-F  x                   Form 40-F  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  ¨                   No  x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  ¨                   No  x

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

 

Yes  ¨                   No  x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not Applicable

 


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This Form 6-K/A amends the Form 6-K filed on September 15, 2004. Due to a printer error, the original Form 6-K inadvertently omitted portions of the text of Exhibit B—Information Memorandum. The Registrant is hereby refiling its Form 6-K in its entirety. All other text of the original Form 6-K remains the same.

 

Annexed hereto are the following documents: (i) a release by News Corporation announcing that it has received approval from the Australian Federal Court to convene meetings of shareholders to vote on its proposal to reincorporate from Australia to the United States (the “Reorganization”); (ii) the Information Memorandum that is being mailed to shareholders and optionholders of The News Corporation Limited (“News Corporation”) relating to the proposed Reorganization; (iii) the Memorandum to Holders and Beneficial Owners of News Corporation American Depositary Shares (“ADSs”) regarding the proposed Reorganization; (iv) the Depositary’s Notice of Shareholders’ Meetings which the Depositary, Citibank, N.A., is sending to the holders of ADSs representing Ordinary Shares; (v) the Depositary’s Notice of Shareholders’ Meetings which the Depositary is sending to the holders of ADSs representing Preferred Shares; (vi) the ADS Voting Instructions card for holders of ADSs representing Ordinary Shares; and (vii) the ADS Voting Instructions card for holders of ADSs representing Preferred Shares.


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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

     THE NEWS CORPORATION LIMITED

Date: September 16, 2004

   By:   /S/     ARTHUR M. SISKIND
         Arthur M. Siskind
         Director


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EXHIBIT INDEX

 

Exhibit

 

A.

   Press Release.

B.

   Information Memorandum.

C.

   Memorandum to Holders and Beneficial Owners of News Corporation ADSs.

D.

   Depositary’s Notice of Shareholders’ Meeting for holders of ADSs representing Ordinary Shares.

E.

   Depositary’s Notice of Shareholders’ Meeting for holders of ADSs representing Preferred Shares.

F.

   ADS Voting Instructions card for holders of ADSs representing Ordinary Shares.

G.

   ADS Voting Instructions card for holders of ADSs representing Preferred Shares.


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Exhibit A

 

 


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LOGO


N E W S     R E L E A S E


For Immediate Release

 

Australian Federal Court Approves Shareholder

Meetings to Vote on Proposed Reincorporation

 

Shareholders to Receive Information Memorandum This Month;

Meetings to be Held October 26


 

NEW YORK, NY, September 15, 2004 – News Corporation today announced that it has received approval from the Australian Federal Court to convene meetings of shareholders to vote on its proposed reincorporation from Australia to the United States.

 

The company today filed an Information Memorandum and an Independent Expert’s Report related to the proposal with the Australian Stock Exchange (ASX). The Information Memorandum and Independent Expert’s Report will be mailed to shareholders within the next two weeks.

 

The scheme meetings will be held immediately after the company’s Annual General Meeting in Adelaide, Australia on Tuesday, October 26, 2004.

 

The Information Memorandum states that:

 

  · The Special Committee of Non-Executive Directors established to evaluate the proposal has unanimously recommended the transaction to the Company Board;

 

  · The Board concludes that the proposed transaction is in the best interests of shareholders and option holders and states that the directors of News Corporation unanimously recommend its approval by shareholders and option holders;

 

  · The independent expert, Grant Samuel & Associates, concludes that the proposal is in the best interests of News Corporation’s shareholders as a whole as well as each class of shareholders and option holders.

 

News Corporation Chairman and Chief Executive Rupert Murdoch said: “I and my fellow directors urge shareholders to carefully consider the detailed materials being sent to them and to vote in favour of this proposal.”

 

Mr. Murdoch said the proposal was designed to make News Corporation a more attractive investment to shareholders and that he believes the proposal has potential benefits for shareholders.

 

 

 


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LOGO    The News Corporation
  

N E W S     R E L E A S E


 

These benefits include:

 

· Enhanced US-based demand for the company’s shares, over time, resulting from an expanded active US shareholder base and the expected inclusion in major US indices;

 

· Potential narrowing of the trading discount of the non-voting shares relative to the voting shares, further enhancing the relative value of the non-voting shares;

 

· Improved access to a larger pool of capital available in the US, which should provide greater financial flexibility and improved pricing for capital raisings and acquisition purposes;

 

· Full consolidation and control of the QPL Publishing Business, a newspaper business with strong growth and profitability characteristics;

 

· Reduced corporate complexity; and

 

· External reporting in a manner consistent with News Corporation’s peer group in the US.

 

The reincorporation proposal requires, among other things, the approval of News Corporation’s ordinary shareholders, preferred shareholders and option holders under schemes of arrangement and the approval of News Corporation’s shareholders of a capital reduction under Australian law.

 

Through the schemes of arrangement and the capital reduction, holders effectively exchange their shares in News Corporation for shares in News Corp US, a Delaware company.

 

Holders will be able to vote on the proposal either by proxy or in person at the scheme meetings.

 

If the proposal is approved, News Corporation will be reincorporated in the US and its primary listing will move from the ASX to the New York Stock Exchange (NYSE). The company will retain secondary listings on the ASX and on the London Stock Exchange (LSE).

 

The directors believe that the proposed transaction creates an opportunity for News’s shares to be included in the S&P500 and other major US stock indices in the future.

 

If the schemes of arrangement are approved by shareholders and option holders, News Corporation will apply to the Australian Federal Court for final approval. It is expected that, if all required approvals are obtained, the transaction will be completed in November 2004.

 

 

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LOGO    The News Corporation
  

N E W S     R E L E A S E


 

 

Further information

 

For Media and Analysts

 

In Australia    Greg Baxter, Director, Corporate Affairs
     (612) 9288 3242 Mobile 0419 461 368
In the U.S.    Media: Andrew Butcher, Vice President, Corporate Communications
     (212) 852 7070
     Analysts: Reed Nolte, Senior Vice President, Investor Relations
     (212) 852 7092
     Craig Felenstein, Director, Investor Relations
     (212) 852 7084

 

 

For Shareholders

 

In Australia    call 1300 733 343 toll free
In the USA    call 1 800 506 7142 toll free

 

 

The complete Information Memorandum and Independent Expert’s Report is available on the company’s website at www.newscorp.com

 

The News Corporation Limited (NYSE: NWS, NWS.A; ASX: NCP, NCPDP) had total assets as of June 30, 2004 of approximately US$52 billion and total annual revenues of approximately US$20 billion. News Corporation is a diversified international media and entertainment company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers; book publishing; and other. The activities of News Corporation are conducted principally in the United States, Continental Europe, the United Kingdom, Australia, Asia and the Pacific Basin.

 

 

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Exhibit B

 

 


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LOGO


 

THE NEWS CORPORATION LIMITED

 

ABN 40 007 910 330 (News Corporation)

 

Information Memorandum in relation to a proposal to “re-incorporate” in the United States and to acquire from Murdoch family interests their shareholding in Queensland Press Pty Limited.

 

The Directors of News Corporation unanimously recommend that you vote in favour of the schemes of arrangement and related resolutions necessary to implement the proposed transaction. The Independent Expert has concluded that the proposed transaction is in the best interests of News Corporation’s Shareholders and Optionholders.

 

This is an important document and requires your immediate attention. It should be read in its entirety. If you are in doubt as to what you should do, you should consult your investment or other professional adviser.


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Timetable

 

Sunday, 24 October 2004

Eligibility to vote at the AGM, Scheme Meetings and Capital Reduction Meeting determined at 8:00 pm (Adelaide time)

 

Monday, 25 October 2004

Proxy forms for the AGM, Scheme Meetings and Capital Reduction Meeting must be received no later than 9:00 am (Adelaide time)

 

Tuesday, 26 October 2004

Meetings to be held at the Adelaide Hilton International Hotel, 233 Victoria Square, Adelaide, South Australia beginning at 10:00 am (Adelaide time):

 

10:00 am

   AGM

not before 10:30 am*

   Share Scheme Meeting of Ordinary Shareholders

not before 10:45 am*

   Share Scheme Meeting of Preferred Shareholders

not before 11:00 am*

   Capital Reduction Meeting

not before 11:15 am*

   Option Scheme Meeting

 

 

*Each of the meetings following the AGM will commence at the later of the time indicated above or the end of the preceding meeting. The indicated times are times before which the meetings will not commence, and are not intended to limit debate at any prior meeting. The Murdoch Family and their associates will not vote with other Shareholders and Optionholders at the Scheme Meetings. They will vote on the Schemes at separate meetings to be held immediately prior to the AGM.

 

Wednesday, 3 November 2004

Court hearing for approval of the Schemes

 

 

Effective Date of the Schemes

 

 

Last day of trading in Ordinary and Preferred Shares

 

  ADSs representing Ordinary and Preferred Shares will cease trading on the NYSE on Tuesday, 2 November 2004 US Eastern Standard Time

 

Thursday, 4 November 2004

News Corp US CDIs commence trading on the ASX on a deferred settlement basis

 

  News Corp US shares commence trading on the NYSE on a when-issued basis on Wednesday, 3 November 2004 US Eastern Standard Time

 

Wednesday, 10 November 2004

Record Date

 

Friday, 12 November 2004

Implementation Date

 

  News Corp US shares commence trading on the NYSE on a regular-way basis on Friday, 12 November 2004 US Eastern Standard Time

 

Thursday, 18 November 2004

Despatch of holding statements and transmittal letters

 

 

Last day of deferred settlement trading on the ASX

 

Friday, 19 November 2004

News Corp US CDIs commence trading on the ASX on a T+3 basis

 

Wednesday, 24 November 2004

First settlement of deferred settlement trades on the ASX

 

All dates following the date of the Scheme Meetings and Capital Reduction Meeting are indicative only and, amongst other things, are subject to the Court approval process and ASX approval.

 

Date: This Information Memorandum is dated 15 September 2004


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Letter from the Chairman and Chief Executive

 

Dear fellow Shareholders and Optionholders,

 

It is with great pleasure that I write to you today regarding a proposal by News Corporation that, if approved by shareholders, optionholders and the Australian Federal Court, will result in News Corporation “re-incorporating” in the United States, with its primary listing on the New York Stock Exchange and secondary listings on the Australian Stock Exchange and London Stock Exchange. As part of this proposal, the company will also acquire from Murdoch family interests certain companies holding the 58.34% of Queensland Press Pty Ltd not already owned by News Corporation.

 

The “re-incorporation” is designed to make the company a more attractive investment to our shareholders and we believe the proposed transaction has the following key potential benefits for shareholders:

 

Enhanced US-based demand for the company’s shares, over time, resulting from an expanded active US shareholder base and the expected inclusion in major US indices;

 

Potential narrowing of the trading discount of the non-voting shares relative to the voting shares, further enhancing the relative value of the non-voting shares;

 

Improved access to a larger pool of capital available in the United States which should provide greater financial flexibility and improved pricing for capital raisings and acquisition purposes;

 

Full consolidation and control of the QPL Publishing Business, a newspaper business with strong growth and profitability characteristics;

 

Reduced corporate complexity; and

 

External reporting in a manner consistent with News Corporation’s peer group in the United States.

 

There is a more complete explanation of the potential benefits, disadvantages and risks to shareholders and optionholders of the proposed transaction in Section 1 of this Information Memorandum.

 

The News Corporation Board has established a Special Committee of non-executive directors to evaluate the proposed transaction. I am pleased to say that the Special Committee has unanimously recommended the proposed transaction to the Board. The Board has concluded that the proposed transaction is in the best interests of shareholders and optionholders and has unanimously recommended approval of the proposed transaction. As required under Australian law, News Corporation has engaged an independent expert to consider the proposed transaction and to issue a report that is attached to this Information Memorandum as Attachment 5. The independent expert has concluded that the proposed transaction is in the best interests of shareholders and optionholders and that the QPL transaction is on terms that the independent expert considers to be fair and reasonable for the acquisition of a controlling interest in QPL.

 

The Board believes strongly that this proposal should be approved by the shareholders and optionholders of News Corporation.

 

The meetings of shareholders and optionholders to vote on the proposed transaction will be held in Adelaide on Tuesday, 26 October 2004 (starting after the AGM which is also being held on that day). My family strongly supports, and intends to vote in favour of, the proposed transaction. However, due to our economic interests in the transaction, we will vote as a separate class and not with other shareholders and optionholders at the scheme of arrangement meetings.

 

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For more than 50 years I have been devoted to building News Corporation into one of the world’s strongest and most highly respected media companies. I strongly believe that to continue to maximise returns for all shareholders, the company should “re-incorporate” in the United States. I ask that you carefully consider the Board’s proposal, as described in detail in this Information Memorandum, and vote to support the next phase of News Corporation’s development.

 

Yours sincerely,

 

K. Rupert Murdoch

 

Chairman and Chief Executive

 

The News Corporation Limited

 

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Table of Contents –

 

Timetable    Inside cover

Letter from the Chairman and Chief Executive

   1

Your vote

   4

Summary of Proposed Transaction

   7

Selected Q&A

   13

Important Notices

   17

Explanatory Statement

   20

1.      Important Considerations for Shareholders and Optionholders

   21

2.      Recommendation of Special Committee and Board and Independent Expert’s Opinion

   36

3.      The Proposed Transaction

   40

4.      Financial impact of the Proposed Transaction

   58

5.      Tax implications for Shareholders and Optionholders

   65

6.      Implementation of the Share Scheme and Capital Reduction

   77

7.      Implementation of the Option Scheme

   84

8.      Additional information

   87

9.      Implementation Agreement

   97

10.    Share Scheme

   139

11.    Option Scheme

   150 

12.    Deeds Poll

   157 

13.    Glossary of terms

   166 
Attachment A – Comparison of class rights and of US/Delaware and Australian corporate laws    A-1  

Attachment B – Summary of rights attaching to CDIs

   B-1  

Attachment C – Summary of News Corp US Option Plan

   C-1  
Attachment D – UBS AG, Australia Branch Opinion and Financial Services Guide    D-1  

Attachment E – Independent Expert’s Report

   E-1  

Attachment F – ASIC Relief

   F-1  

Attachment G – Post-Transaction Internal Restructuring diagram

   G-1 

 

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Your vote

 

The Reorganisation proposal requires, among other things, the approval of News Corporation Ordinary Shareholders, Preferred Shareholders and Optionholders. The resolutions which you are being asked to approve are set out in full in the Notices of Meetings accompanying this Information Memorandum, but in summary, for Shareholders, they are as follows:

 

Resolution 1:

     To approve a scheme of arrangement between News Corporation and its Shareholders to effect the Reorganisation.

Resolution 2:

     To approve a capital reduction involving the cancellation of News Corporation shares to effect the Reorganisation.

 

Resolution 1 must be approved at separate class meetings of Ordinary and Preferred Shareholders by (i) a majority in number of the Shareholders who vote at the relevant meeting in person or by proxy, attorney or corporate representative and (ii) by Shareholders holding at least 75% of the votes cast at the relevant meeting in person or by proxy. So no matter what number of shares you hold, your vote can make a difference.

 

Resolution 2 must be approved at a meeting of Ordinary and Preferred Shareholders (voting together) by Shareholders holding at least 75% of the votes cast at that meeting in person or by proxy, attorney or corporate representative.

 

Optionholders will vote on a resolution similar to Resolution 1 (but relating to the Option Scheme), but will not vote on Resolution 2.

 

Your Directors’ recommendation

 

All of your Directors unanimously recommend that you vote “YES” to the Schemes and Capital Reduction.

 

What should you do?

 

Read the Notices of Meetings and this Information Memorandum carefully.

 

If you have any questions, please call the enquiry line on:

 

1300 733 343 (toll free) – Australia only

 

1 800 506 7142 (toll free) – the US only

 

+61 2 9240 7450 or +1 212 805 7269 – outside Australia and the US.

 

Have your say on this important step in the company’s history. Your Directors believe that the Reorganisation proposal is a matter of importance to all Shareholders and therefore urge you to vote on the proposal.

 

Who can vote?

 

If you are registered as a Shareholder or Optionholder at 8:00 pm (Adelaide time) on Sunday 24 October 2004, you will be entitled to vote at the relevant Shareholder meeting, or Optionholder meeting, as the case may be.

 

How to vote

 

On Tuesday, 26 October, 2004 there will be a series of meetings in Adelaide, Australia, to approve the Reorganisation.

 

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You can vote in person by attending the meetings. They will be held immediately following News Corporation’s AGM, which begins at 10:00 am (Adelaide time) at the Adelaide Hilton International Hotel, 233 Victoria Square, Adelaide, South Australia (except for the meetings of the Murdoch Family and their associates which will be held immediately prior to the AGM).

 

If you are not able to attend the meeting personally:

 

  you can appoint an attorney to attend and vote for you; or

 

  you can vote by proxy by completing and signing the proxy form enclosed with this Information Memorandum and returning it in the enclosed reply paid envelope or by facsimile as soon as possible but so that it is received NO LATER THAN 9:00 am (Adelaide time) on Monday, 25 October 2004.

 

Voting by proxy – what you need to do

 

If you wish to vote at the meetings by proxy, you must complete and return the personalised proxy form(s) accompanying this Information Memorandum (together with any power of attorney or other authority under which the proxy form(s) is signed or a certified copy of that power or authority, and a declaration or statement by the proxy that he or she has not received any notice of revocation of appointment) so that it is received by the company’s share registry by no later than 9:00 am (Adelaide time) on Monday, 25 October 2004.

 

Please read the instructions on the proxy form(s) carefully when completing the form.

 

You may return your proxy form(s) (and any supporting documents) by posting them in the reply paid envelope provided or by delivering, posting or faxing them to the company’s share registry at:

 

Computershare Investor Services

 

Delivery address:

     Level 5, 115 Grenfell Street, Adelaide, South Australia, 5000 Australia

Postal address:

     GPO Box, 242, Melbourne, Victoria, 3001 Australia

Facsimile number:

     08 8236 2305 (Australia only); + 61 8 8236 2305 (outside Australia)

 

Computershare Investor Services (US Optionholders only)

c/- Computershare Trust Company of New York

 

Delivery address:

     Wall Street Plaza, 88 Pine Street, 19th Floor, New York, NY, 10005

Postal address:

     PO Box 1010, Wall Street Station, New York, NY, 10268 USA

Facsimile number:

     212 701 7664

 

If you are an ADS holder, you will not receive a proxy form. Rather, ADS holders should refer to the materials from the ADS Depositary (Citibank, N.A.) and/or your custodian, bank, broker, agent or nominee that accompany this Information Memorandum and that set out separate ADS voting instructions.

 

Voting by attorney – what you need to do

 

If you wish your attorney to attend and vote at the meetings on your behalf, the original or a certified copy of the power of attorney authorising your attorney to attend and vote at the meetings, and a declaration or statement by the attorney that he or she has not received any notice of revocation of appointment, must be lodged with the company’s share registry by the cut-off time for receipt of proxies for the meetings (ie by 9:00 am (Adelaide time) on Monday, 25 October 2004).

 

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You may lodge the power of attorney (and any supporting documents) by posting them in the reply paid envelope provided or by delivering, posting or faxing them to the company’s share registry at:

 

Computershare Investor Services

 

Delivery address:

   Level 5, 115 Grenfell Street, Adelaide, South Australia, 5000 Australia

Postal address:

   GPO Box, 242, Melbourne, Victoria, 3001 Australia

Facsimile number:

   08 8236 2305 (Australia only); + 61 8 8236 2305 (outside Australia)

 

Computershare Investor Services (US Optionholders only)

c/- Computershare Trust Company of New York

 

Delivery address:

   Wall Street Plaza, 88 Pine Street, 19th Floor, New York, NY, 10005

Postal address:

   PO Box 1010, Wall Street Station, New York, NY, 10268 USA

Facsimile number:

   212 701 7664

 

Voting by corporate representative – what you need to do

 

A company may attend and vote at the meetings by corporate representative. The appointment of the corporate representative must comply with the requirements of section 250D of the Corporations Act and the representative must bring to the meetings evidence of his or her appointment, including any authority under which the appointment is signed. A form of the certificate used to appoint a corporate representative can be obtained from the company’s share registry.

 

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Summary of Proposed Transaction

 

This summary highlights selected information that is described in greater detail elsewhere in this Information Memorandum. This summary does not contain all of the important information contained in this document. Shareholders and Optionholders should read carefully this entire document and the other documents referred to herein or accompanying this document for a more complete understanding of the proposed transaction.

 

The Proposed Transaction

 

A new company incorporated in the United States (News Corp US) will acquire, through a subsidiary, all of the shares in News Corporation. Shares and options in News Corporation will be cancelled and, in exchange, existing News Corporation Shareholders and Optionholders will receive shares and options in News Corp US (the Reorganisation). News Corp US will have a primary listing on the New York Stock Exchange and secondary listings on the Australian Stock Exchange and the London Stock Exchange. The Reorganisation will take place under Australian law through schemes of arrangement (the Schemes) which must be approved at meetings of holders of News Corporation Ordinary Shares (Ordinary Shares), Preferred Limited Voting Ordinary Shares (Preferred Shares) and News Corporation Options, and by the Federal Court of Australia. As the Reorganisation involves the cancellation of News Corporation shares, the Reorganisation also requires approval by Shareholders as a capital reduction under Australian law (the Capital Reduction). Following the Reorganisation, News Corp US will be called “News Corporation”.

 

Immediately prior to the Reorganisation, News Corp US will acquire from certain trusts the beneficiaries of which include Mr. K.R. Murdoch, members of his family and certain charities (the Murdoch Trusts) the 58.34% shareholding in Queensland Press Pty Limited (QPL) not already owned by News Corporation through the acquisition of the Cruden Group of companies (the Cruden/QPL Transaction). The principal assets of the Cruden Group are shares of News Corporation and a 58.34% interest in QPL. QPL owns a publishing business which includes two metropolitan and eight regional newspapers in Queensland, Australia, as well as shares in News Corporation.

 

Although the Cruden/QPL Transaction is technically separate from the Reorganisation, one will not occur without the other. Therefore, when voting on the Reorganisation, Shareholders and Optionholders are effectively voting on the Cruden/QPL Transaction as well. In this Information Memorandum, the Reorganisation and the Cruden/QPL Transaction are referred to collectively as the Proposed Transaction.

 

What Shareholders and Optionholders will receive in the Reorganisation

 

As a result of the Reorganisation, Shareholders and Optionholders will receive shares and options in News Corp US, subject to a one for two exchange ratio (which is designed to have shares of News Corp US trade at prices regarded as appropriate for both the US and Australian markets):

 

Holders of Ordinary Shares will receive one share of News Corp US Voting Common Stock for every two Ordinary Shares held.

 

Holders of Preferred Shares will receive one share of News Corp US Non-Voting Common Stock for every two Preferred Shares held.

 

Holders of American Depositary Shares (each of which represents four Ordinary Shares or Preferred Shares) will receive two shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock (as the case may be) for each ADS held.

 

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Holders of options over Preferred Shares granted under either the News Corporation Share Option Plan or Australian Executive Option Plan will receive half as many options over shares of News Corp US Non-Voting Common Stock and the Exercise Price of these options will be equal to twice the Exercise Price of the options they replace.

 

Unless they elect otherwise, Shareholders with addresses in Australia will receive the News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock to which they are entitled in the form of CHESS Depositary Instruments (CDIs), each representing one share of News Corp US Voting Common Stock or Non-Voting Common Stock (as applicable). The CDIs will trade on the ASX.

 

It is expected that the exchange of shares and/or options in News Corporation for shares and/or options in News Corp US will not cause any tax to be paid by most Shareholders and Optionholders on any such exchange. Shareholders and Optionholders are, however, advised to carefully review the Section of this Information Memorandum entitled “Tax Implications for Shareholders and Optionholders”.

 

The Cruden/QPL Transaction

 

The terms of the Cruden/QPL Transaction were agreed between the Murdoch Trusts and News Corporation, acting through the Special Committee and its independent legal and financial advisors. A copy of UBS AG, Australia Branch’s fairness opinion addressed to the Special Committee on the Cruden/QPL Transaction is attached as Attachment 4 to this Information Memorandum. In general terms, the Murdoch Trusts will receive shares in News Corp US in the Cruden/QPL Transaction as follows:

 

In respect of the News Corporation shares owned directly by the Cruden Group, the Murdoch Trusts will receive shares of News Corp US Voting Common Stock and Non-Voting Common Stock in the same exchange ratio as all other holders of News Corporation shares in the Reorganisation; provided that the number of shares of News Corp US Non-Voting Common Stock that the Murdoch Trusts receive will be reduced by the number of shares equal in value to the sum of:

 

  the estimated aggregate net debt of Cruden Investments that News Corp US will assume as a result of the Cruden/QPL Transaction, estimated to be A$326.49 million at closing of this transaction; and

 

  stamp duty that may be payable by News Corp US on the Cruden/QPL Transaction that is in excess of A$18 million, which excess the Murdoch Trusts have agreed to pay, and is assumed for the purposes of calculating the number of shares of News Corp US Non-Voting Common Stock to be issued to the Murdoch Trusts to be A$33 million.

 

   To the extent actual net debt or stamp duty differ from the estimates, there will be a cash adjustment.

 

In respect of the Cruden Group’s 58.34% interest in the News Corporation shares held by QPL, the Murdoch Trusts, on a pro rata basis, will receive shares of News Corp US Voting Common Stock and Non-Voting Common Stock in the same exchange ratio as all other holders of News Corporation shares in the Reorganisation.

 

In respect of the Cruden Group’s 58.34% interest in the QPL Publishing Business, the Murdoch Trusts, on a pro rata basis, will receive shares of News Corp US Voting Common Stock. This

 

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number of shares has been calculated on the basis of an enterprise value of A$2.95 billion for the QPL Publishing Business, less the net debt of the QPL Group, which is estimated to be approximately A$487.93 million at closing and adding A$21.52 million which is the agreed value of the QPL Group’s non-publishing assets.

 

In respect of the remaining assets of the Cruden Group, the Murdoch Trusts will receive shares of News Corp US Voting Common Stock. The number of shares has been calculated on the basis of an estimated value of A$25.50 million for these assets.

 

   To the extent that the actual amount of cash and receivables in the Cruden Group differs from the estimated amount of those assets, there will be a cash adjustment.

 

The prices used to determine the number of shares in News Corp US to be issued to the Murdoch Trusts in the Cruden/QPL Transaction are A$24.26 per share of News Corp US Voting Common Stock (being twice the agreed amount of A$12.13 per News Corporation Ordinary Share, to reflect the one for two exchange ratio) and A$22.70 per share of News Corp US Non-Voting Common Stock (being twice the agreed amount of A$11.35 per News Corporation Preferred Share, to reflect the one for two exchange ratio). These agreed amounts for News Corporation Ordinary and Preferred Shares are based on the average of the closing prices on the ASX for the five trading days ended 15 July 2004, the date this aspect of the Cruden/QPL Transaction was agreed.

 

As a result of the Proposed Transaction, the Murdoch Trusts will, subject to minor adjustments for any shares received under the News Corporation dividend reinvestment plan after the date of this Information Memorandum, own approximately 29.47% of the voting shares of News Corp US, which is slightly less than the 29.86% of the voting shares of News Corporation that the Murdoch Trusts currently control.

 

Approval of the Reorganisation

 

The following approvals, among others, must be obtained in order to complete the Proposed Transaction:

 

The Share Scheme must be approved at each of the following meetings by a majority in number of those Shareholders who vote at the meeting in person or by proxy, and by Shareholders holding at least 75% of the votes cast at the meeting in person or by proxy:

 

  a meeting of the holders of Ordinary Shares (other than the Murdoch Family and their associates);

 

  a meeting of those holders of Ordinary Shares who are members of the Murdoch Family or associates of the Murdoch Family;

 

  a meeting of the holders of Preferred Shares (other than the Murdoch Family and their associates); and

 

  a meeting of the holders of Preferred Shares who are members of the Murdoch Family or associates of the Murdoch Family.

 

The Option Scheme must be approved at each of the following meetings by a majority in number of the Optionholders who vote at the meeting in person or by proxy, and by Optionholders representing at least 75% in value of the Options present and voting at the meeting:

 

  a meeting of the holders of Options (other than the Murdoch Family and their associates); and

 

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  a meeting of those holders of Options who are members of the Murdoch Family or associates of the Murdoch Family.

 

The Capital Reduction must be approved by a special resolution passed at a meeting of all Ordinary and Preferred Shareholders (including members of the Murdoch Family and their associates).

 

In addition, the Schemes must be approved by the Federal Court of Australia, which is scheduled to consider the Schemes at a hearing on 3 November 2004.

 

The Proposed Transaction will not occur unless all of the approvals listed above are obtained. The Proposed Transaction is also subject to a number of regulatory approvals and other conditions (in relation to this see Section 6.5 of this Information Memorandum). News Corp US obtained Australian Foreign Investment Review Board (FIRB) approval for the Proposed Transaction on 29 June 2004. FIRB approval for the Murdoch Trusts’ acquisition of News Corp US shares under the Cruden/QPL Transaction remains outstanding.

 

Recommendation of the Special Committee and Board and Independent Expert’s opinion

 

On 30 March 2004, the Board of News Corporation established a Special Committee comprising non-executive directors to evaluate the Proposed Transaction and participate in the negotiation of the Cruden/QPL Transaction. The Special Committee has unanimously recommended the Proposed Transaction to the Board. The Board has concluded that the Proposed Transaction is in the best interests of all Shareholders as a whole, as well as Ordinary Shareholders, Preferred Shareholders and Optionholders and unanimously recommends that Shareholders and Optionholders vote in favour of the Schemes and Capital Reduction at the meetings required to effect the Reorganisation. The recommendations of the Special Committee and the Board and the factors considered are set out in Section 2.

 

As required under Australian law, the Board also appointed an independent expert, Grant Samuel & Associates Pty Limited of Sydney, Australia to evaluate the Proposed Transaction. The Independent Expert has concluded that the Schemes and Capital Reduction are in the best interests of all Shareholders as a whole, as well as Ordinary Shareholders, Preferred Shareholders and Optionholders. The Independent Expert has stated that the benefits of the Proposed Transaction primarily relate to the market for News Corporation shares and involve judgements rather than propositions that can be empirically verified. The Independent Expert has stated that the directly measurable benefits are limited but it is the Independent Expert’s judgement that Shareholders as a whole are likely to be better off if the Proposed Transaction is implemented than if it is not, despite the possibility of some short term adverse impacts.

 

In reaching the above conclusion, the Independent Expert determined that the Cruden/QPL Transaction is on terms that the Independent Expert considers to be fair and reasonable for the acquisition of a controlling interest in QPL. The Independent Expert’s report is set out in full in Attachment 5.

 

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Current Structure

 

The following chart shows (in simplified form) the current structure of News Corporation and the Cruden Group of companies. (1)

 

LOGO

 

(1) All percentages shown in this chart are based on issued capital of News Corporation as at 30 June 2004.
(2) News Corp US and Carlholt are newly formed entities for the purposes of the Proposed Transaction that have no significant assets or liabilities.
(3) These are references to the percentage of total ordinary shares held.
(4) These are references to the percentage of total issued shares held.

 

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Structure Immediately After Proposed Transaction

 

The following chart shows (in simplified form) the structure of the News Group immediately after implementation of the Proposed Transaction. An internal restructuring of the News Group will be undertaken following implementation of the Proposed Transaction. This internal restructuring is discussed in Section 1.5(a) of the Information Memorandum. Attachment 7 contains a chart which shows (in simplified form) the structure of the News Group after both the Proposed Transaction and the Post-Transaction Internal Restructuring. (1)

 

LOGO

 

(1) All percentage figures shown in this chart are based on issued capital expected to be in place on the date of completion, but without regard to any shares issued by News Corporation under its dividend reinvestment plan or on exercise of any options in the period from 30 June 2004 to the date of completion of the Proposed Transaction.
(2) These are references to the percentage of total voting shares held.
(3) These are references to the percentage of total issued shares held.

 

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Selected Q&A

 

Below are questions that Shareholders and Optionholders may have in relation to the Proposed Transaction. The answers to these questions should be read in conjunction with the entire Information Memorandum.

 

1. How do I vote?

There are several meetings that will be held in connection with the Reorganisation. Your vote is very important. Please see the Section entitled “Your vote” on page 4.

 

2. Will I pay any tax on the exchange of my shares or options?

It is expected that the exchange of shares and/or options in News Corporation for shares and/or options in News Corp US will not cause any tax to be paid by most Shareholders and Optionholders on any such exchange, although Shareholders and Optionholders are advised to carefully review Section 5 of this Information Memorandum on that issue. Each individual’s tax position is different and News Corporation Shareholders and Optionholders are strongly urged to consult their tax advisers as to the specific tax consequences to them of the Share Scheme and the Option Scheme, respectively, including the applicability and effect of local and foreign income and other tax laws in their particular circumstances.

 

3. Will I have to pay brokerage fees or stamp duty on my News Corp US shares?

 

 

 

You will not have to pay brokerage or stamp duty in connection with the exchange of your News Corporation shares for News Corp US shares.

 

4. I am a Shareholder with an address in Australia. What are CDIs?

Each News Corp US CDI will represent an interest in one underlying News Corp US share and CDI holders will receive all of the economic benefits of actual ownership of the underlying shares. CDIs are issued to enable the electronic transfer and settlement on the ASX of shares issued by foreign companies, such as News Corp US. A more detailed description of CDIs is contained in Attachment 2 to this Information Memorandum.

 

5. What happens if I do not vote, or vote against the proposal, and the approvals are obtained?

If the necessary approvals are obtained, all News Corporation Ordinary Shares, Preferred Shares and Options will be cancelled and Shareholders and Optionholders will be issued shares and options in News Corp US. This will occur regardless of whether you voted for or against the Schemes and Capital Reduction or did not vote.

 

6. How will the votes of ADS holders be counted?

The registered holder of all the Ordinary Shares and Preferred Shares underlying ADSs is the custodian for the ADS Depositary. The Share Scheme must be approved by a majority in number of the Shareholders who vote at each Share Scheme Meeting and by Shareholders holding at least 75% of the votes cast at each such meeting. Because all of the Ordinary Shares and Preferred Shares underlying ADSs are held by the ADS Depositary through its custodian, in the absence of a special procedure, the votes of ADS holders at the Share Scheme Meetings would count as one vote per underlying share but would only count as one Shareholder in determining whether the Share Scheme had been approved by a majority in number of the Shareholders who vote at each class meeting.

 

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The ADS Depositary has established a procedure to enable ADS holders to have their vote count as Shareholders for the purposes of the “majority by number” requirement by making them direct holders of the News Corporation shares underlying their ADSs. This procedure allows ADS holders who provide timely voting instructions to the ADS Depositary and continue to hold their ADSs as of the Record Date, to be temporarily designated as the custodian and registered holder of the Ordinary Shares or Preferred Shares underlying the ADSs they beneficially own for the purposes of voting at the Share Scheme Meetings and other meetings to be held that same day (unless the ADS holder elects otherwise).

 

7. Will future dividends be franked for Australian tax?

Any dividends paid by News Corp US will not be franked for Australian tax purposes. Therefore, imputation credits will not be available to offset any Australian income tax payable on such dividends.

 

8. Will there be withholding on future dividends paid to Australian shareholders?

Yes. Dividends of News Corp US will be paid to non-US resident shareholders net of US withholding tax. Generally speaking, the rate of withholding tax is 15% for shareholders entitled to the benefit of the US-Australia income tax treaty. Australian shareholders wanting to claim the benefit of that treaty must complete the relevant Internal Revenue Service Form. If the Proposed Transaction proceeds, this form will be sent to Australian shareholders with the holding statement for their News Corp US shares.

 

9. Will there be any changes to dividend policy?

News Corp US dividends will be declared in US dollars, and dividends will continue to be declared from time to time at the discretion of the Board of News Corp US.

 

 

The dividend rights of News Corp US Non-Voting Common Stock will be different from the dividend rights of the existing News Corporation Preferred Shares. Beginning fiscal year 2008, a holder of a share of News Corp US Non-Voting Common Stock will cease to be entitled to a dividend that is greater than that declared on the News Corp US Voting Common Stock, but will be entitled to receive dividends each year equal to the dividends declared on a share of News Corp US Voting Common Stock in that year. For details of the dividend rights of News Corp US shares, you should read Attachment 1 to this Information Memorandum.

 

10. Are there differences between my News Corporation shares and the shares to be issued to me in News Corp US?

Yes. While the rights of News Corp US shares are based on the rights of the existing News Corporation shares, there are certain important differences. In addition, there are a number of significant differences between US/Delaware law and Australian law. A summary description of these differences is contained in Attachment 1 to this Information Memorandum.

 

11. Will my News Corp US Options be granted under the same plans and on the same terms and conditions?

News Corp US Options will be issued under the News Corp US Option Plan or the News Corp US Former Employee Plan (depending on whether the recipient is a current or former employee of the News Group). The News Corp US Options issued to Optionholders will have largely the same terms and conditions as the Options currently held,

 

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except that, because of the one for two exchange ratio of News Corp US stock for News Corporation shares, you will receive one News Corp US Option for every two Options you currently hold and the Exercise Price of these Options will be equal to twice the Exercise Price of the Options they replace. Information about the terms of the News Corp US Options is contained in Section 3 .7 and Attachment 3 to this Information Memorandum.

 

12. Will News Corp US be included in the S&P 500 and/or the S&P/ASX 200?

On 23 June 2004, S&P announced that a company may not simultaneously be a member of the S&P/ASX suite of indices and the US S&P 500 index. S&P stated that if the Schemes are approved and implemented, News Corp US would likely be eligible for possible inclusion in the S&P 500 index. On 6 August 2004, S&P confirmed that if News Corp US were to be added to the S&P 500 index, the company would be progressively removed from the S&P/ASX indices over a nine month period in four equal (25%) phases. The start date of the transition would be announced with a minimum of three weeks’ notice.

 

 

If News Corp US were to be added to the S&P 500 index, the Directors believe that S&P would include the News Corp US Non-Voting Common Stock as generally the S&P has selected the most liquid security with the largest free-float for inclusion in the S&P 500.

 

13. Will there be changes to the operations or strategy of the News Group as a result of the Proposed Transaction?

News Corporation expects very few changes to its operations as a result of the Proposed Transaction. The News Group will have the same assets and liabilities following the transaction, with the exception of the acquisition of the Cruden Group assets and liabilities, and its financial statements will reflect the acquisition of 58.34% of QPL and the consolidation of that business. Please refer to Section 4 of this Information Memorandum for pro-forma financial statements reflecting News Corp US immediately after implementation of the Proposed Transaction. News Corporation also does not expect any change in strategy as a result of the Proposed Transaction.

 

14. Why is News Corp US incorporated in Delaware?

Over 50% of all United States publicly listed companies and 56% of companies in the S&P 500 are incorporated in the State of Delaware. Delaware is usually chosen because of its well developed corporations laws.

 

15. Where will News Corp US headquarters be located?

The company’s global headquarters will be in New York.     

 

 

 

16. Where will News Corp US AGMs be held in the future?

News Corp US will hold its annual meetings in the US but News Corp US also intends to hold informational meetings in Australia regularly which senior management will attend.

 

17. Is the Proposed Transaction subject to any conditions?

The Proposed Transaction is subject to Shareholder, Optionholder and Court approvals, as well as a number of regulatory and other approvals, including NYSE and ASX listing. News Corp US obtained FIRB approval for the Proposed Transaction on 29 June 2004. FIRB approval for the Murdoch Trusts’ acquisition of News Corp US shares under the Cruden/QPL Transaction remains outstanding.

 

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The Implementation Agreement entered into in relation to the Reorganisation is subject to termination in the circumstances described in Section 6.6 of the Information Memorandum.

 

18. What happens at the Court Hearings?

At the First Court Hearing, the Court ordered that the Scheme Meetings be convened for the purposes of considering the Reorganisation and approved the Explanatory Statement which forms part of this Information Memorandum. If the Schemes and the Capital Reduction are approved by Shareholders and Optionholders, at the Second Court Hearing the Court will be asked to approve the Schemes. If Shareholders or Optionholders wish to appear at the Second Court Hearing, they may do so by filing with the Court and serving on News Corporation a notice of appearance in the prescribed form together with any affidavit on which they wish to rely at the hearing. The notice of appearance and affidavit must be served on News Corporation at least one day before the date fixed for the Second Court Hearing (that date is currently scheduled for 3 November 2004). Any change to this date will be announced through the ASX and notified on News Corporation’s website.

 

19. When will I receive my News Corp US shares or options?

If the Proposed Transaction is approved by Shareholders, Optionholders and the Court, it is expected that implementation of the Proposed Transaction will take place within 15 Business Days after the Shareholder and Optionholder meetings to approve the Schemes. The News Corp US shares and options will be issued on the Implementation Date and holding statements and transmittal letters will be mailed shortly thereafter.

 

20. How will fractional shares be treated?

If, pursuant to the Share Scheme, you would otherwise become entitled to receive half a News Corp US share, you will receive cash in lieu of that half share. If, pursuant to the Option Scheme, you would otherwise become entitled to receive an option to acquire half a News Corp US share, the number of shares to which your News Corp US Options will relate will be rounded up to the nearest whole number.

 

21. Who can help answer my questions about the Proposed Transaction?

If you have any questions about the Proposed Transaction please consult with your legal, financial or other professional adviser. You may also contact Georgeson Shareholder Communications, News Corporation’s shareholder information agent, on:

 

 

1300 733 343 – Australia only;

 

1 800 506 7142 – North America only;

 

+61 2 9240 7450 or 212 805 7269 – outside Australia and North America.

 

For additional copies of this Information Memorandum, please visit News Corporation’s website at www.newscorp.com.

 

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Important Notices

 

Investment decision

 

This Information Memorandum does not take into account the individual investment objectives, financial situation and particular needs of each News Corporation Shareholder and Optionholder. You may wish to seek independent legal, financial and taxation advice, and you should read this Information Memorandum in its entirety, before making a decision as to whether or not to vote in favour of the Schemes and the Capital Reduction (as applicable to you).

 

This Information Memorandum does not constitute an offer to sell, nor a solicitation of an offer to buy, the securities described in the Information Memorandum in any jurisdiction, including any jurisdiction where such offers and sales are not permitted under the laws of such jurisdiction. In addition, this Information Memorandum does not constitute a solicitation of a consent or vote to approve the Proposed Transaction or any other matter in any jurisdiction where such a solicitation is not permitted under the laws of such jurisdiction.

 

Forward looking statements

 

This Information Memorandum contains certain forward-looking statements. One can identify these forward-looking statements by use of words such as “strategy”, “expects”, “plans”, “anticipates”, “believes”, “will”, “would”, “continues”, “estimates”, “intends”, “projects”, “goals”, “targets” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. Such statements include, but are not limited to, statements about the prospects for obtaining S&P inclusion, expectations regarding increased demand for News Corp US shares and/or the necessary approvals and consents associated with the Reorganisation and Cruden/QPL Transaction, the effect of the Proposed Transaction on Shareholders of News Corporation and others, the effect of the Proposed Transaction on News Corporation’s access to capital markets, and News Corporation’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based on the current beliefs and expectations of News Corporation, and are subject to known and unknown risks and uncertainties, including those risks and uncertainties described in Section 1 of this Information Memorandum.

 

None of News Corporation, News Corp US nor any other person gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking statements in this Information Memorandum will actually occur and you are cautioned not to place undue reliance on such forward looking statements. All forward-looking statements attributable to News Corporation or News Corp US, or persons acting on their behalf are expressly qualified in their entirety by these cautionary statements. Neither News Corporation nor News Corp US undertakes any obligation to revise these forward-looking statements to reflect events or circumstances after the date of this Information Memorandum or to reflect the occurrence of unanticipated events, except as may be required by law.

 

Court approval of the Schemes

 

If the Schemes and Capital Reduction are approved at the required meetings, the Court will be asked to approve the Schemes. The Corporations Act and the Federal Court Rules provide a procedure for News Corporation Shareholders and Optionholders to oppose the approval by the Court of the Share Scheme and Option Scheme, respectively. If you wish to appear at the Second Court Hearing you may do so by filing with the Court and serving on News Corporation a notice of appearance in the prescribed form together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on News Corporation at least one day before the date fixed

 

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for the Second Court Hearing. The Second Court Hearing is currently scheduled to occur on 3 November 2004. Any change to this date will be announced through the ASX and notified on News Corporation’s website.

 

Role of ASIC and the ASX

 

A copy of this Information Memorandum has been examined by ASIC. A copy of the Explanatory Statement contained in this Information Memorandum has been registered by ASIC for the purposes of section 412(6) of the Corporations Act. ASIC has been requested to provide a statement, in accordance with section 411(17)(b) of the Corporations Act, that ASIC has no objection to the Schemes. If ASIC provides that statement, then it will be produced to the Court at the time of the Court hearing to approve the Schemes. Neither ASIC nor any of its officers takes any responsibility for the contents of this Information Memorandum.

 

A copy of this Information Memorandum has been lodged with the ASX. Neither the ASX nor any of its officers takes any responsibility for the contents of this Information Memorandum.

 

Responsibility for information

 

The information contained in this Information Memorandum has been prepared by News Corporation and is the responsibility of News Corporation other than:

 

the fairness opinion in relation to the Cruden/QPL Transaction (contained in Attachment 4 to this Information Memorandum), which has been prepared by UBS AG, Australia Branch, who takes responsibility for that Attachment;

 

the Independent Expert’s Report in relation to the Proposed Transaction (contained in Attachment 5 to this Information Memorandum), which has been prepared by Grant Samuel & Associates Pty Limited, who take responsibility for that Attachment;

 

the information in Sections 5.2 to 5.8 of this Information Memorandum in relation to the Australian tax consequences of the Proposed Transaction, which has been prepared by Ernst & Young, who take responsibility for those Sections;

 

the information in Sections 5.9 to Section 5.14 of this Information Memorandum in relation to the US federal tax consequences of the Proposed Transaction, which has been prepared by Hogan & Hartson L.L.P., who take responsibility for those Sections; and

 

the information in Section 5.15 of this Information Memorandum in relation to the UK tax consequences for the Proposed Transaction, which has been prepared by Deloitte & Touche LLP, who take responsibility for that Section.

 

Neither News Corporation nor any of its directors, officers or advisers (other than as referred to above) assumes any responsibility for the accuracy or completeness of any of the information in the Attachments and Sections referred to above.

 

Notice to Shareholders resident outside of certain countries

 

As an investigation of, and compliance with, the potential securities law restrictions in every country in which News Corporation has Shareholders would be prohibitively costly, Shareholders whose addresses are recorded in the Share Register of News Corporation as outside the following countries will not receive shares in News Corp US under the Share Scheme unless before the Second Court

 

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Date (and without being obliged to conduct any investigations into the matter), News Corporation is satisfied that they can lawfully be issued News Corp US shares pursuant to the Scheme: Australia, Brazil, Canada, China, Germany, Hong Kong, India, Ireland, Italy, Japan, Jersey, Mexico, New Zealand, Papua New Guinea, Singapore, Switzerland, Taiwan, the United Arab Emirates, the United States and the United Kingdom.

 

Instead, CDIs in respect of the News Corp US shares which would otherwise be required to be issued to such Shareholders will be issued to a nominee appointed by News Corp US, who will sell those CDIs at such price and on such terms as the nominee shall determine and remit the proceeds of sale to News Corp US. News Corp US will then distribute to those Shareholders the proceeds received (calculated on an averaged basis so that all Shareholders receive the same price per CDI, subject to rounding to the nearest whole cent) after deduction of any brokerage, taxes or other costs of sale (such amounts to be paid in A$).

 

Notice to Shareholders resident in the US

 

The News Corp US shares and options to be issued pursuant to the Schemes have not been, and will not be, registered under the Securities Act of 1933 (US)(US Securities Act) or the securities laws of any other jurisdiction. The News Corp US shares and options to be issued pursuant to the Schemes will be issued in reliance on the exemption from the registration requirements of the US Securities Act provided in Section 3(a)(10) of the US Securities Act based on the approval of the Schemes by the Court, and will not be “restricted securities” within the meaning of the US Securities Act except for shares held by affiliates of News Corporation.

 

The securities to be issued pursuant to the Schemes have not been approved or disapproved by the United States Securities and Exchange Commission (SEC), or securities regulatory authorities of any state of the United States or any international jurisdiction, nor has the SEC or any securities regulatory authority passed on the adequacy or accuracy of this Information Memorandum. Any representation to the contrary is a criminal offence.

 

The Proposed Transaction is subject to the disclosure requirements of Australia. This document has been prepared in accordance with Australian requirements, which differ from the requirements in the United States for disclosure documents prepared for business combination transactions and registered with the SEC.

 

Notice to Shareholders resident in Italy

 

The Proposed Transaction has not been approved by CONSOB (the Italian securities regulator). This Information Memorandum is being distributed in reliance on applicable exemptions from the prospectus requirements under Legislative Decree No. 58 of February 24, 1998. Distribution in Italy is limited to registered holders of News Corporation shares and Options (as at the date of this Information Memorandum amounting to less than 200 investors resident in Italy) that must be invited to participate in the Reorganisation pursuant to applicable Australian laws and regulations. This Information Memorandum and the information contained herein are intended for the use of the intended addressee only and are not to be distributed or communicated to any third party resident or located in Italy for any reason. Each intended addressee of this Information Memorandum has sole responsibility for ensuring that its use of the Information Memorandum and the information contained herein complies with the above restrictions and with applicable Italian laws and regulations. No person resident or located in Italy other than the intended addressees of this Information Memorandum may rely on it or its content.

 

Defined terms

 

Capitalised terms used in this Information Memorandum are defined in the Glossary of terms in Section 13.

 

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Percentage shareholdings

 

References in this Information Memorandum to a particular Shareholder’s percentage shareholding in News Corporation or News Corp US are based on the issued share capital of News Corporation as at 30 June 2004. The issued share capital of News Corporation may vary before implementation of the Proposed Transaction if the company declares a dividend and shares are issued pursuant to the dividend reinvestment plan and/or if any options to acquire shares in the company are exercised.

 

Explanatory Statement

 

This Explanatory Statement (Explanatory Statement) has been prepared pursuant to section 412(1) of the Corporations Act to explain the effect of the Schemes and pursuant to section 256B(4) of the Corporations Act to explain the Capital Reduction. The Share Scheme is set out in Section 10 of this Information Memorandum. The Option Scheme is set out in Section 11 of this Information Memorandum.

 

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1. Important Considerations for Shareholders and Optionholders

 


 

1.1 Introduction

 

   This Section sets out potential benefits, disadvantages and risks of the Proposed Transaction (as described in Section 3.1 on page 40 of this Information Memorandum) which Shareholders and Optionholders should consider when deciding whether or not to approve the proposed Schemes and Capital Reduction.

 

   Shareholders and Optionholders should also have regard to the other Sections of this Information Memorandum, including the Independent Expert’s Report (Attachment 5), when deciding whether or not to approve the Schemes and the Capital Reduction.

 

1.2 Potential benefits of the Proposed Transaction

 

   The Board of News Corporation believes that the Proposed Transaction has the following key potential benefits for Shareholders:

 

  Enhanced US-based demand for the company’s shares, over time, resulting from an expanded active US shareholder base and the expected inclusion in major US indices;

 

  Potential narrowing of the trading discount of the non-voting shares relative to the voting shares, further enhancing the relative value of the non-voting shares;

 

  Improved access to a larger pool of capital available in the US, which should provide greater financial flexibility and improved pricing for capital raisings and acquisition purposes;

 

  Full consolidation and control of the QPL Publishing Business, a newspaper business with strong growth and profitability characteristics;

 

  Reduced corporate complexity; and

 

  External reporting in a manner consistent with News Corporation’s peer group in the United States.

 

These expected potential benefits are dealt with in turn below.

 

  (a) Enhanced US-based demand for shares, over time, resulting from an expanded active US shareholder base and expected inclusion in major US indices

 

   The US capital markets are the largest and most liquid capital markets in the world. By way of example, the total market capitalisation of the S&P 500 is in excess of US$10 trillion, compared to the market capitalisation of the S&P/ASX 200 of approximately US$520 billion, or approximately 20 times the size.

 

  

The Directors believe that the Proposed Transaction creates an opportunity for News Corp US’s shares to be included in the S&P 500 and other major US stock indices in the future. The S&P 500 is widely considered to be one of the most prominent stock indices in the world and the one most accurately representing the US market as a whole. Several of News Corporation’s peers are currently included in this index including Viacom, Disney and Time Warner. The guidelines for S&P 500 inclusion are based on market capitalisation, liquidity and free-float, and the Directors believe that News Corp US would be eligible for S&P 500 inclusion based upon these criteria. If News Corp US’s shares were to be included in the S&P 500, the Directors believe that S&P

 

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would choose only one class of News Corp US’s shares for inclusion and that the class most likely to be included is the Non-Voting Common Stock (typically, where a company has more than one security on issue, S&P has selected the most liquid security with the largest free float for inclusion in the S&P 500).

 

   When compared to News Corporation’s US-based peer group, US institutions are, in total, currently under-invested in News Corporation shares. News Corporation estimates that approximately 52% of its shares that are held by institutional investors are owned by institutions domiciled in the US, compared to estimates of US-domiciled institutional investor holdings as a percentage of overall investor holdings (based on SEC filings) for its peer group of 72%, 78% and 87% for Disney, Time Warner and Viacom, respectively. In addition, many US investors that focus on investing in the media sector have a relatively smaller position in News Corporation when compared to some of their positions in the company’s peer group. While there may be many reasons for this relative “under-investment”, the Directors believe that it is substantially due to the fact that News Corporation is not included in the S&P 500, as well as the restrictions that many US investors have on investing in non-US domiciled corporations. In addition, some US investors are restricted from investing in classes of preferred stock. The Directors believe that inclusion in the S&P 500 and the removal of these other restrictions would increase US institutional investor demand for both Voting Common Stock and Non-Voting Common Stock in News Corp US over time.

 

   On 6 August 2004, after consultation with Australian market participants, S&P issued a public statement outlining its plan for a transition of the company’s shares from ASX indices into US indices, if News Corp US is included in the S&P 500. The shares would be added to the S&P 500 in one phase at 100% weight and removed from the local indices in the ASX in a four phase, incremental process. Under the S&P plan, Shareholders will be given advance notice of at least 21 days, after which News Corp US would be added to the S&P 500 in the US and 25% de-weighted from the ASX 200 (phase one). Over a subsequent period of nine months, three incremental phases would further de-weight the shares from the ASX 200 by 25% per phase. S&P has stated that it would also calculate a parallel index throughout the nine month transition period, providing an alternative for market participants that would prefer a shorter transition period. This parallel index would be calculated with News Corp US being 100% excluded from the S&P/ASX indices on the day that it is included in the S&P 500 index.

 

   If News Corp US shares are included in the S&P 500, the Directors believe that the S&P plan of transition will facilitate a more orderly transition of funds between the Australian and US capital markets when compared to a shorter or one-time transition scheme. While during the transition period it is expected that volatility in the company’s shares is likely to increase, the Directors believe that following the Proposed Transaction and after the transition between the Australian and US markets has been completed, demand for the company’s voting and non-voting shares from US institutional investors will increase, reflecting the underlying attractive fundamentals of the News Group’s business and the benefits to the News Group of a primary listing in the US capital markets.

 

   See sections 6.4.2 and 6.4.4 of the Independent Expert’s Report on this issue.

 

  (b) Potential narrowing of the trading discount of the non-voting shares relative to the voting shares, further enhancing the relative value of the non-voting shares

 

   From 3 August 2001 to 5 April 2004, News Corporation’s Preferred Shares traded at an average discount of 15% to its Ordinary Shares. This historical discount is substantially wider than the discount that is typically observed in similar situations for US-based companies and for other major US media companies (eg Viacom and Comcast).

 

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   If News Corp US’s Non-Voting Common Stock is included in the S&P 500 index, the US based demand for the Non-Voting Common Stock should be enhanced and provide further support to the narrowing of the valuation gap between the share classes compared to historical levels.

 

   From the announcement of the Proposed Transaction on 5 April 2004 through to 5 August 2004, the discount between News Corporation’s Ordinary and Preferred Shares has narrowed to an average of approximately 7%. The Directors believe that this has been primarily the result of an expectation by investors that the Proposed Transaction will take place and it is possible a further narrowing of the trading discount will occur following consummation of the transaction.

 

   The Directors consider that a narrowing of the valuation gap is advantageous to all Shareholders as it will:

 

  provide a lower effective cost of capital for News Corp US, as that large part of News Corp US’s equity capital which is comprised of non-voting shares will trade closer to parity with voting shares than has been the case for News Corporation’s non-voting shares; and

 

  given the higher relative valuation of the Non-Voting Common Stock, enhance the acquisition economics for the company which will benefit all Shareholders, when the Non-Voting Common Stock is used as acquisition consideration.

 

   See section 6.4.3 of the Independent Expert’s Report on this issue.

 

  (c) Improved access to a larger pool of capital available in the US should provide greater financial flexibility and improved pricing for capital raising and acquisition purposes

 

   The ability to raise capital or make new acquisitions on efficient and more attractive terms will be enhanced as a result of the Proposed Transaction.

 

   The US capital markets are substantially larger than the Australian capital markets and generally provide significantly greater liquidity. As a result, companies primarily listed in the US have typically improved access to large amounts of capital and are better able to raise capital in short order and at attractive costs. For example, the 10 largest block trades and placements in the US averaged US$2.9 billion (A$4.1 billion) in proceeds, compared to average proceeds of only A$1.2 billion (US$0.8 billion) for the 10 largest block trades and placements occurring in Australia.

 

   See section 6.5 of the Independent Expert’s Report on this issue.

 

  (d) Full consolidation and control of the QPL Publishing Business, a newspaper business with strong growth and profitability characteristics

 

   As part of the Proposed Transaction, News Corp US will acquire the 58.34% of the QPL Publishing Business that News Corporation does not currently own. The ownership of 100% of this business will permit the consolidation of the QPL Group for financial and tax purposes. News Corp US will benefit from access to all of the cash flow generated by this profitable business. The Directors believe that the acquisition of the QPL Publishing Business is an attractive acquisition for the following reasons:

 

  The QPL Group is the owner of a number of Australian newspaper and publishing assets in several fast-growing markets in Queensland, Australia. QPL publishes the sole daily newspaper in each of its key markets of Brisbane (Australia’s third largest city), the Gold Coast (Australia’s sixth largest and fastest growing major city) and Cairns (one of the major cities in North Queensland).

 

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  QPL’s major titles’ readership and revenue are all growing strongly. QPL has experienced substantially improved operating performance in recent years which the Directors expect to continue for the current financial year.

 

  QPL has invested in new and upgraded plants, doubling QPL’s colour printing capacity in recent years. Accordingly, only limited capital expenditure is likely to be required in the foreseeable future, resulting in expected strong cash flow from operations relative to profitability.

 

  QPL enjoys strong positions in the major markets in which it operates. The company’s operating margins have consistently been among the highest achieved by major Australian newspaper publishers.

 

  The acquisition of the 58.34% interest in the QPL Publishing Business is expected to be non-dilutive in the first year after the acquisition.

 

   See sections 6.9 and 6.10 of the Independent Expert’s Report on this issue.

 

  (e) Reduced corporate complexity.

 

   News Corporation currently owns approximately 41.66% of QPL, which in turn (through subsidiaries) owns approximately 15.20% of the Ordinary Shares of News Corporation. As part of the Proposed Transaction, News Corp US will acquire, by acquiring the Cruden Group, the 58.34% of QPL that News Corporation does not currently own. This means that the company will not hold an equity investment in an entity that, in turn, owns shares of the company, thereby simplifying the News Group’s corporate structure. While the Proposed Transaction will result in the creation of the “Hook Stock” described in Section 1.5(b) below, such shares will be owned by wholly owned subsidiaries of News Corp US and while owned by majority owned subsidiaries will not be entitled to vote or participate in cash or property dividends.

 

   After the Proposed Transaction, the News Group will consolidate QPL in its results as a 100% owned entity instead of reporting an interest in QPL on the equity basis of accounting.

 

   The removal of the QPL Group’s cross shareholding and consolidation of the QPL Group will reduce corporate complexity and facilitate independent analysis of the Company.

 

  (f) External reporting in a manner consistent with News Corporation’s US peer group.

 

   After the Reorganisation, News Corp US will, like its peers, be required to file annual, quarterly and current reports with the SEC on Forms 10-K, 10-Q and 8-K and will be required to present its primary financial statements in US dollars and in accordance with US GAAP. Additionally, News Corp US will be required to comply with SEC disclosure requirements for solicitation of proxies at its annual meeting.

 

   By reporting financial information in a manner consistent with its peers, News Corp US will further assist analysis and understanding of the News Group by equity research analysts and institutional investors.

 

1.3 Potential disadvantages of the Proposed Transaction

 

  (a) Expected loss of demand for News Corp US’s shares in the Australian market

 

Although the timing is uncertain, the Directors believe that News Corp US Non-Voting Common Stock will be admitted to the S&P 500 Index and, as a result, News Corp US will be removed from

 

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the S&P/ASX suite of indices. On 6 August 2004, S&P, after consultation with Australian market participants, issued a public statement outlining its nine month transition plan for the company’s shares out of the local indices in the ASX if News Corp US is included in the S&P 500.

 

   As a result of the potential removal from local indices in the ASX, the Directors expect that some of the company’s current investors in Australia may choose to sell the shares in News Corp US which they receive under the Reorganisation. While all Australian investors will have the opportunity to continue to invest in the News Group via CDIs representing News Corp US shares (as described separately in Section 3.6), it is expected that at such time as News Corp US shares are admitted into the S&P 500 and subsequently removed from the ASX indices, Australian investors that follow the ASX indices will choose not to continue investing in the company’s shares and will sell their holdings in the company. The Directors believe that new demand in the US market for the company’s shares will potentially mitigate the expected selling out of the Australian market. While it is impossible to predict with certainty the magnitude and timing of these events, the Directors expect that over time the funds flow out of the Australian market will subside and that US demand for the shares of News Corp US, driven by fundamental interest in the company, may become a prominent factor in establishing the trading values for News Corp US’s shares.

 

   See section 6.4 of the Independent Expert’s Report on this issue.

 

  (b) Differences between share rights and applicable corporations and securities laws

 

   News Corp US is incorporated in the United States under the laws of the State of Delaware. News Corporation is incorporated in Australia. If the Share Scheme is implemented, News Corporation Shareholders, whose rights are currently governed by the laws of Australia and the constitution of News Corporation will become holders of News Corp US shares (or CDIs in respect of such shares) and their rights as such will be governed by Delaware law, US federal securities laws, the listing rules of the NYSE and the ASX and News Corp US’s restated certificate of incorporation and by-laws.

 

   A comparison of the two regimes is contained in Attachment 1 to this Information Memorandum and Shareholders and Optionholders are strongly encouraged to read that Attachment thoroughly. Although some of the differences could be viewed as advantageous to Shareholders, others (arising either as a result of differences in applicable laws or in the rights conferred on shares in News Corp US) could be viewed as disadvantageous to Shareholders. These include the following:

 

  in respect of the News Corp US Non-Voting Common Stock to be issued in exchange for Preferred Shares, the cessation beginning in fiscal year 2008 of the existing dividend preference and the immediate loss of the liquidation preference attaching to the Preferred Shares;

 

  certain restrictions under Delaware law and News Corp US’s certificate of incorporation on the ability of Shareholders to appoint and remove directors, which do not apply under Australian law;

 

 

the plurality voting for the election of directors at annual meetings of News Corp US. Under the plurality voting system, the directors to be elected at an annual meeting are those candidates receiving the highest number of votes at the election of directors at that meeting, irrespective of whether any such candidate has received a majority of the votes cast by stockholders at the meeting. This differs from the system applicable to News

 

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Corporation in Australia under which a director can only be appointed at a general meeting if the resolution to appoint that director is approved by a majority of the votes cast on the resolution;

 

  the News Corp US Board’s ability, without stockholder approval, to issue preferred stock or series common stock with superior voting rights, with preferential rights to payment of dividends and/or preferential rights to payments upon a liquidation, dissolution or winding up, which may adversely impact the voting power of the News Corp US Voting Common Stock and Non-Voting Common Stock and the rights of the News Corp US Voting Common Stock and Non-Voting Common Stock to receive dividends and distributions upon liquidation, dissolution or winding up. At present under Australian law, News Corporation Shareholders may have class voting rights in such circumstances;

 

  restrictions on the ability of stockholders in News Corp US to convene meetings of stockholders and to propose resolutions at stockholder meetings, in comparison to the position in relation to News Corporation under Australian law. Under News Corp US’s certificate of incorporation and by-laws, stockholders do not have the right to call special meetings of stockholders of News Corp US.; and

 

  the differences between the laws which will apply in relation to takeovers and acquisitions of substantial shareholdings in News Corp US and those that currently apply in relation to News Corporation. These are discussed in more detail in Section 1.5(d). The takeover laws currently applying to News Corporation contain detailed restrictions, which are designed to protect minority shareholders, on a change of control without all Shareholders participating in a premium for control, and on the ability of the board to take steps which could impact on competition for control of the company. The laws which will apply to News Corp US following the Reorganisation do not impose the same restrictions. In addition, as a Delaware company, the Board of News Corp US will have the ability to implement a broader range of takeover defence mechanisms than what is currently permitted under Australian law (see Section 1.5(d) below).

 

   See section 6.6 of the Independent Expert’s Report on this issue.

 

  (c) Holding interests through CDIs rather than shares

 

   Under the Share Scheme, News Corporation Ordinary Shareholders and Preferred Shareholders at the Record Date with addresses in the Share Register within Australia will, unless they have otherwise elected, instead of receiving shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock, receive CDIs in respect of such shares. While CDI holders receive all of the economic benefits of actual ownership of the underlying shares, there are a number of differences between holding a CDI and holding the underlying share which Australian resident Shareholders may regard as disadvantageous. See Attachment 2 for a summary of those differences. For example, holders of CDIs will need to act through the CHESS nominee, CDN, for purposes of voting the underlying shares and exercising their shareholder rights. See section 6.6.1 of the Independent Expert’s Report on this issue.

 

   Australian shareholders who wish to elect to receive shares instead of CDIs should see Section 3.6 of this Information Memorandum.

 

  (d) Loss of pre-capital gains tax status for Australian resident Shareholders

 

  

Australian resident Shareholders who hold News Corporation shares acquired prior to 20 September 1985 (pre-CGT News Corporation shares) are currently exempt from Australian

 

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capital gains tax on any gain arising from the sale of those shares. Shares in News Corp US (or CDIs in respect of such shares) issued under the Share Scheme in consideration for the cancellation of pre-CGT News Corporation shares will be deemed to have been acquired at the time they are issued and will have an Australian CGT cost base equal to the market value of News Corp US shares (or CDIs in respect of such shares) as at the Implementation Date. As a result, such Shareholders will be subject to Australian capital gains tax on any capital gain that arises upon any subsequent disposal of those shares (or CDIs in respect of such shares) calculated by reference to that CGT cost base.

 

   See section 6.6.6 of the Independent Expert’s Report on this issue.

 

  (e) Certain negative tax implications for Shareholders resident outside the US

 

   Share Scheme Participants that are not US residents will become subject to United States withholding tax on dividends with respect to shares of News Corp US at a 30% rate or such lower rate as may be specified under an applicable income tax treaty. For shareholders holding less than 10% of the voting power in News Corp US and entitled to the benefit of the US-Australia income tax treaty, the rate of withholding tax will be 15%. See section 6.6.5 of the Independent Expert’s Report on this issue.

 

   Common stock of News Corp US may also be included in the estate of a non-US person for United States estate tax purposes. Shareholders and Optionholders are referred to the summary of tax consequences in Section 5.11 of this Information Memorandum, but are strongly urged to consult their tax advisers as to the specific tax consequences to them of the Reorganisation including the applicability and effect of local and foreign income and other tax laws in their particular circumstances. See section 6.6.9 of the Independent Expert’s Report on this issue.

 

  (f) Enforcement by Australian resident Shareholders of the provisions of News Corp US’s certificate of incorporation and by-laws or of applicable corporate laws

 

   At present, Australian resident Shareholders wishing to take action to enforce provisions of News Corporation’s constitution or corporations or securities laws as they relate to News Corporation may take action in Australian courts applying Australian laws. After implementation of the Schemes and Capital Reduction, such actions in relation to News Corp US’s certificate of incorporation and by-laws as they relate to News Corp US will be determined in accordance with Delaware law. Further, while News Corp US will submit to the jurisdiction of the Australian courts as a result of having become a registered foreign company under the Australian Corporations Act, there is no guarantee that an Australian court will be willing, or regard itself as properly placed, to hear such an action. Accordingly, any such action may need to be brought in the Delaware or US federal courts.

 

  (g) Structure of the Cruden/QPL Transaction

 

   News Corp US proposes to acquire the interest in QPL not owned by News Corporation by acquiring the group of companies that owns those shares. When News Corp US acquires the Cruden Group it will acquire all the liabilities, as well as all the assets, of the Cruden Group. News Corp US has obtained warranties and indemnities from the Murdoch Trusts in relation to the liabilities of the Cruden Group. These warranties and indemnities and the limitations and restrictions on them are summarised in Section 3.14 of the Information Memorandum. The reasons why the acquisition of the shareholding in QPL has been structured as an acquisition of the Cruden Group are described in Section 1.6.

 

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   See section 6.9 of the Independent Expert’s Report on this issue.

 

1.4 Risks of the Proposed Transaction

 

  (a) Failure by US investors to increase ownership levels

 

   Some of the benefits described above in Section 1.2 may not materialise if US investors do not choose to increase their current positions in the News Group in spite of shares in News Corp US being more available for investment by such investors than shares of News Corporation. While there can be no guarantee that the investors in the US will choose to do so, the Directors expect that with the broader US institutional investor base available as a result of a domestic listing of News Corp US, any temporary imbalance in the company’s shares trading will ultimately result in value-oriented US investors increasing their stake in the News Group.

 

  (b) Delay or failure to be included in US indices

 

   Some of the benefits described above in Section 1.2 may not materialise or may be delayed if the inclusion of the shares of News Corp US in the major US based indices does not occur or is delayed. While there can be no guarantee as to the timing of inclusion of the company’s shares in these indices, the Directors note that on 23 June 2004, S&P indicated that the company will be eligible for inclusion in the S&P 500 after the Proposed Transaction takes place. Furthermore, the benefits of a primary US listing associated with availability of the company’s shares to other media and US investors should still provide substantial benefits relating to the liquidity of the company’s shares and, over time a narrowing of the gap in trading price between the Voting Common Stock and Non-Voting Common Stock.

 

1.5 Other considerations

 

  (a) Post-Transaction Internal Restructuring

 

   Immediately following implementation of the Proposed Transaction, an internal restructuring of the News Group (the Post-Transaction Internal Restructuring) will occur under which News Corporation, by way of dividend and capital reduction under Australian law, will distribute its ownership of the News Group’s non-Australian businesses to Carlholt. At that time, News Corporation will be a wholly owned subsidiary of Carlholt, the News Corp US subsidiary which will hold all of the shares in News Corporation. The effect of this distribution is that those non-Australian businesses will sit at the same level as the Australian operations in the structure of the News Group. Attachment 7 shows (in simplified form) the structure of the News Group after the Post-Transaction Internal Restructuring.

 

   The purpose of the Post-Transaction Internal Restructuring is to achieve certain tax efficiencies, to avoid certain significant tax inefficiencies applicable to News Corp US which would otherwise arise under the corporate structure post implementation of the Proposed Transaction and to provide for a more logical organisational structure for the News Group. A US Internal Revenue Service ruling has been obtained in connection with the Post-Transaction Internal Restructuring which confirms that it can be effected on a tax-free basis under US tax laws.

 

  

Based on the audited financial statements of the Group as at 30 June 2004, the book value of the non-Australian businesses being distributed to Carlholt under the Post-Transaction Internal Restructuring is approximately A$54.56 billion, thereby resulting in a reduction of the book value of the net assets of News Corporation to approximately A$1.21 billion. News Corp US will assume, as a result of the Reorganisation, and News Corporation will be released from, as a

 

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result of the Post Transaction Internal Restructuring, approximately A$15.8 billion of guarantees of obligations of subsidiaries of the News Group under or in relation to public indentures, bank facilities and other securities.

 

   As part of the implementation of the Post-Transaction Internal Restructuring, News Corporation, Carlholt and News Corp US have entered into an agreement which provides for the assignment by News Corporation to News Corp US of all liabilities which the parties are able to transfer without obtaining third party consent or other action that relate to the businesses that News Corporation will be transferring in the Post-Transaction Internal Restructuring (the Master Indemnity Agreement).

 

   Under the Master Indemnity Agreement, any person to whom News Corporation owes an obligation as of the date on which the Post-Transaction Internal Restructuring is consummated will have the right to assert any unsatisfied claim in respect of that obligation against News Corp US to the same extent as such claim could have been asserted against News Corporation. In addition, News Corp US has agreed to indemnify News Corporation in respect of any of its primary obligations existing as of the Post-Transaction Internal Restructuring, as well as obligations it has guaranteed on the Post-Transaction Internal Restructuring date where the underlying primary obligation existed as at the Post-Transaction Restructuring date, in the event that News Corporation is unable to discharge them. The indemnity also covers the repayment of any debt existing as of the Post-Transaction Internal Restructuring Date owed to News Corporation by any subsidiary of News Corp US, including those that will no longer be a subsidiary of News Corporation following the Post-Transaction Internal Restructuring.

 

   The parties to the Master Indemnity Agreement have entered into a deed poll in favour of certain of News Corporation’s creditors in which the parties undertake not to modify, amend or terminate the Master Indemnity Agreement after the Post-Transaction Restructuring Date in any respect detrimental to any one of those creditors unless agreed to in writing by that creditor.

 

   At a future date, News Corp US intends that Carlholt will distribute the ownership of the News Group’s non-Australian businesses from Carlholt to News Corp US. The effect of that transfer will be that those non-Australian businesses will then sit at the same level as Carlholt in the structure of the News Group.

 

  (b) Cross-shareholding

 

   Under the Proposed Transaction, the companies within the Cruden Group and QPL Group which before the transaction hold shares in News Corporation will become subsidiaries of News Corp US and will, because they participate in the Share Scheme in the same manner as all other Shareholders, own shares of News Corp US (Hook Stock). For US GAAP purposes, the Hook Stock will be treated as treasury shares. Further, the certificate of incorporation of News Corp US contains a provision stating that, except as required by law, (i) no dividend shall be payable on Hook Stock (unless the dividend is payable in shares of common stock or securities convertible into common stock of News Corp US), (ii) no shares of Hook Stock shall be entitled to vote or be counted for quorum purposes, (iii) no shares of Hook Stock shall be treated as or deemed outstanding for purposes of determining voting requirements, for the purposes of any applicable laws, rules or regulations, or for any other purpose (including the restriction on transfers pursuant to offers for more than 15% of the outstanding shares of a class referred to in Section 1.5(d) below); and (iv) shares of Hook Stock shall not be permitted to participate in such offers to acquire 15% or more of the shares of either class of News Corp US common stock. Despite the above, Hook Stock shall be deemed outstanding for the purpose of participating in distributions upon any dissolution, liquidation or winding up and in any merger, consolidation, recapitalisation or reclassification of News Corp US.

 

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   Notwithstanding the inclusion of the foregoing provision in the certificate of incorporation, if there are provisions in applicable laws limiting the percentage ownership of shares in News Corp US, it is possible that a regulatory body will regard the Hook Stook as outstanding for the purposes of determining such ownership levels, which could, for example, have the effect of increasing the number of shares of News Corp US that a shareholder could acquire under the applicable laws without obtaining regulatory approval. Shareholders to whom these laws (if any) may apply, must obtain their own advice as to the implications of the Hook Stock on their ownership of shares in News Corp US, particularly in light of the restrictions on stock transfer and ownership contained in News Corp US’s certificate of incorporation (these provisions are summarised in Attachment 1 to this Information Memorandum).

 

   Upon any of the Hook Stock ceasing to be owned by a majority owned subsidiary of News Corp US, all of the restrictions described above will immediately terminate in relation to that Hook Stock and such Hook Stock will be shares ranking equally with other News Corp US Non-Voting Common Stock or Voting Common Stock, as the case may be. If the Hook Stock were to be counted as issued and outstanding, it would represent approximately 12.58% of the total shares of News Corp US Common Stock on issue and outstanding immediately after completion of the Proposed Transaction (and approximately 23.09% of the total shares of Voting Common Stock on issue and outstanding at that date). The company has no intention to transfer or otherwise dispose of the Hook Stock, or any wholly owned subsidiary which will hold the Hook Stock, in the foreseeable future.

 

  (c) Differences between the tax position of News Corporation and News Corp US

 

   The Proposed Transaction and the Post-Transaction Internal Restructuring should not have any immediate material tax consequences for the News Group. It is not anticipated that the Reorganisation will have a material impact on the News Group’s US GAAP reported effective tax rate for the foreseeable future.

 

   From a tax perspective, before the Proposed Transaction, News Corporation’s ownership reflects an Australian parent company (News Corporation) consolidated with the Australian operations, and which owns holding companies primarily in the US and the UK. These holding companies in turn, own the operating subsidiaries in those countries. After the Proposed Transaction and the Post-Transaction Internal Restructuring, News Corporation’s ownership will reflect a US parent company (News Corp US) consolidated with the US operations, and which owns holding companies primarily in the UK and Australia, which each owns the operating subsidiaries in those countries. After the Proposed Transaction and the Post-Transaction Internal Restructuring, News Corporation will continue to be subject to the same level of local tax in its three major country markets on its operating profits in those jurisdictions as it was before the Proposed Transaction.

 

   In addition, because News Corp US will have non-US subsidiaries meeting the definition of “controlled foreign corporations” under the US Internal Revenue Code of 1986, as amended (the Code), certain earnings of the non-US subsidiaries of News Corp US may be taxable to News Corp US even if not distributed to News Corp US. The US and UK operations of News Corp US will also initially be subject to the existing Australian controlled foreign companies rules. However, as is currently the case with respect to the Australian rules, the company expects that the US controlled foreign corporation rules will not have a material effect on its tax position. Repatriation of earnings, if any, from non-US subsidiaries will be taxable in the US with potential relief from double tax under the US foreign tax credit rules.

 

  (d) Applicable takeover laws

 

  

News Corporation, as an Australian listed company, is subject to the takeover provisions of the Australian Corporations Act. Those provisions restrict the acquisition by any person of a “relevant

 

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interest” in a “voting share” of the company where, because of the transaction, that person or someone else’s percentage “voting power” in the company increases above 20% (or, where the person’s voting power was already above 20% and below 90%, increases in any way at all).

 

   There is an exception from these restrictions where the shares are acquired under takeover offers made under the Corporations Act to all shareholders (which must be on the same terms for all shareholders (subject to minor exceptions) and which must comply with the timetable and disclosure requirements of the Corporations Act). The purpose of these provisions is to attempt to ensure that shareholders in the target company have a reasonable and equal opportunity to share in any premium for control and that they are given reasonable time and enough information to assess the merits of the proposal. These provisions will cease to apply to News Corporation upon implementation of the proposed Reorganisation. No similar statutory provisions will apply to News Corp US under Delaware law.

 

   The certificate of incorporation of News Corp US provides that an owner of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock must not sell, exchange or otherwise transfer its shares to a person who has made an offer or a series of related offers to acquire 15% or more of either the News Corp US Voting Common Stock or the News Corp US Non-Voting Common Stock, unless the offer or offers relate to both classes of stock or other offers are contemporaneously made which between them relate to both classes of stock, and the terms and conditions of such offer or offers as they relate to each class of stock are “comparable”, as defined in the certificate of incorporation.

 

   There are, however, certain transactions and offers which are expressly excluded from this restriction, including:

 

  any purchase or offer to purchase shares on or through a securities exchange or regulated securities association if such purchase or offer to purchase: (i) would not constitute a “tender offer” under Section 14(d) of the US Securities Exchange Act of 1934; and (ii) does not result from the solicitation or arrangement for the solicitation of orders to sell News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock in anticipation of or in connection with the transaction,

 

  any merger or consolidation in which News Corp US is a constituent corporation, any sale of all or substantially all of the assets of News Corp US, or any similar transaction pursuant, in any such case, to an agreement approved by the Board of News Corp US (or any tender or exchange offer or similar offer conducted pursuant to any such agreement); and

 

  any transaction privately negotiated with any stockholder or group of stockholders that would not constitute a “tender offer” under Section 14(d) of the US Securities Exchange Act of 1934, as amended.

 

   A “tender offer” is not defined under the US securities laws, but it is generally interpreted by courts to mean a transaction that involves some or all of the following attributes: active and widespread solicitation of public shareholders for shares of an issuer; a solicitation made for a substantial percentage of an issuer’s stock; an offer to purchase made at a premium over the prevailing market price; terms of the offer which are firm rather than negotiated; an offer that is contingent on the tender of a fixed number of shares and possibly specifying a maximum number of shares; an offer that is only open for a limited time period; an offeree that is subject to pressure to sell stock; and public announcements of a purchasing program that precedes or is coincident with a rapid accumulation of shares.

 

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   As a Delaware company, the Board of News Corp US will have the ability to implement a broader range of takeover defence mechanisms than what is currently permitted under Australian takeovers legislation and policy. While News Corp US has not adopted enhanced takeover defence mechanisms, the availability of these mechanisms may be regarded as a potential disadvantage of the Reorganisation to the extent that they enable management to discourage or defeat a takeover bid which stockholders would otherwise like to consider. However, such actions may also advantage stockholders by providing protections against a takeover that is not in the short or long term interests of the company. Defensive mechanisms could include, amongst other things: (i) adoption of a stockholder rights plan (or so-called “poison pill”); and (ii) issuance of stock (including preferred stock having disproportionate or blocking voting rights) to friendly hands. While the News Corp US Board will have substantial discretion to implement such provisions, if anti-takeover actions implemented in response to an unsolicited offer are challenged by a News Corp US stockholder, including actions of the kind described here, under well-established Delaware law the Board will have the burden of demonstrating that it had reasonable grounds for believing that a threat to corporate policy and effectiveness existed and that the action taken was reasonable in relation to the threat posed.

 

  (e) Continued application of Australian foreign investment restrictions to News Corp US

 

   If the Proposed Transaction is implemented, the Australian Foreign Acquisition and Takeovers Act of 1975 (FATA) and the Australian Government’s foreign investment policy will continue to have relevance to the acquisition of shares in News Corp US. News Corp US will, because of its extensive Australian operations, be regarded as a “corporation” for the purposes of section 18 of the FATA. Under that section, the Australian Treasurer may, in certain circumstances, make orders prohibiting the acquisition by a foreign person of shares in such a corporation if the acquisition will result in the corporation becoming controlled by foreign persons or, to the extent that it is already regarded as being controlled by foreign persons, the corporation will be controlled by different foreign persons. The section also empowers the Treasurer in certain circumstances to make an order directing a person who acquired shares to dispose of those shares within a specified time.

 

   News Corporation is currently regarded as foreign controlled under the FATA, and, based on existing shareholdings of News Corporation, this will also be the case for News Corp US after the Proposed Transaction. This will mean that an acquisition by a foreign person of shares in News Corp US will potentially attract the operation of section 18 of the FATA. However, an order can only be made under that section if the Treasurer has formed the view that the acquisition is against Australia’s national interest. The concept of “national interest” is a very broad one.

 

   The Australian Government has adopted a foreign investment policy relating to metropolitan newspapers, which provides assistance in determining what acquisitions may be regarded as contrary to the national interest. Under that policy, no one foreign investor can acquire more than 25%, and no two or more foreign investors, together (whether they are associates or not) can acquire more than 30%, of the total issued capital of the relevant company as a “non-portfolio” investment (ownership by other foreign investors through “portfolio investments” is not counted towards this limit). Note, however, that the Government has previously modified this general policy in its application to News Corporation so that the limit is 39% of total issued capital for both any one foreign investor or any two or more foreign investors together (whether they are associates or not).

 

  

The Australian Government defines a “portfolio shareholding” as one that does not enable the owner of the shares to exercise control or potential control over the operations of the company. A shareholding of less than 15% will normally, but not necessarily, be regarded as “portfolio”, but a

 

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holding of 15% or more of the total issued capital of News Corp US, even if those shares are entirely non-voting shares and are not accompanied by a board position, could constitute a “non-portfolio” shareholding.

 

   The Australian Government has advised News Corporation that, if the Proposed Transaction is implemented, the 39% of total issued capital limit described above will continue to apply in relation to News Corp US. The investment by the Murdoch Family and their associates in News Corporation, which is approximately 14.15% of total issued capital, is “non-portfolio” and counts towards this limit. News Corporation understands that the Australian Government also regards the investment by Liberty Media Corporation in News Corporation, which is understood to be approximately 17.00% of total issued capital, to be “non-portfolio”. On this basis, the current aggregate “non-portfolio” investment in News Corporation as at the date of this Information Memorandum, as a percentage of total issued capital, is approximately 31.15%.

 

   The Australian Government has stated that any transaction which falls within the scope of the order-making powers of the FATA should be notified to the Treasury, unless the transaction is a “portfolio” investment, and is of less than 5% of the issued shares of News Corp US.

 

   There are also certain compulsory notification requirements under FATA where a person acquires a substantial interest in an Australian company, which may through the tracing provisions in the Act be triggered upon an acquisition of 15% or more of News Corp US.

 

   As discussed above, failure to comply with the Australian legislation or policy may entitle the Australian Treasurer to make a number of orders, including divestment of shares or to seek additional orders from an Australian court. An Australian court is specifically empowered under the legislation to make an order requiring News Corp US to divest itself of its Australian businesses if such an order is considered the most appropriate means of protecting Australia’s national interest from excessive foreign control of Australian businesses. To assist News Corp US in managing the risk of such an order, News Corp US’s certificate of incorporation gives the Board of News Corp US power to refuse to permit or honour transfers of shares, or to redeem shares, where to do otherwise could result in any regulatory violation or certain other adverse consequences to News Corp US.

 

   The Australian Treasury Department’s current foreign investment policy is available from the Australian Treasury Department’s website located at http://www.treasury.gov.au.

 

  (f) Corporate governance

 

   The composition of News Corporation’s Board and its various committees of Directors, the charters of the committees, as well as the company’s corporate policies as a whole, comply with the combined requirements of the US Sarbanes-Oxley Act and related SEC rules, NYSE listing rules and ASX listing rules, in relation to corporate governance. News Corp US will be subject to the same requirements and will adopt the same structures and policies upon or immediately before implementation of the Reorganisation. Those structures and policies are described in the corporate governance section of the News Corporation website at www.newscorp.com. They are also described, and the extent to which they depart from the ASX’s “Corporate Governance Council Principles of Good Corporation Governance and Best Practice Recommendations” is disclosed, in the annual report sent to Shareholders in the same package as this Information Memorandum.

 

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1.6 Why the Cruden/QPL Transaction is being undertaken in conjunction with the Reorganisation

 

   The Murdoch Trusts have required that the Reorganisation be structured in such a way that (i) the Murdoch Trusts can receive direct shareholdings in the new US holding company, and (ii) those direct shareholdings be held by US resident taxpayers (rather than the Cruden Group companies which are Australian resident taxpayers) thereby creating the potential for future tax efficiencies for the Murdoch Trusts by eliminating multiple layers of taxation.

 

   The Murdoch Trusts have also required that, in meeting the above objectives, there not be any material reduction in the voting control of the Murdoch Trusts as a result of the transaction. At present, the Murdoch Trusts have voting control in respect of the QPL Group’s 15.20% shareholding in News Corporation as a result of their controlling shareholding in QPL, even though they only have an economic interest in 58.34% of that 15.20% shareholding.

 

   To meet these requirements, the Proposed Transaction has been structured so that immediately prior to the implementation of the Reorganisation, the entire Cruden Group holding the QPL interest will be transferred to News Corp US for shares in News Corp US. This, and the fact that the Murdoch Trusts will (i) receive Voting Common Stock in News Corp US for their pro rata share of the QPL Publishing Business and (ii) offset the estimated amount of the Cruden Investments external net debt against Non-Voting Common Stock they otherwise would have received, has the result that the shares in the new holding company will be held directly by US interests (assuming the AE Harris Trust moves to the US, as is expected to occur shortly after implementation of the Proposed Transaction), that there is no material dilution of the Murdoch Trusts’ voting control and, that the exchange of shares under the Cruden/QPL Transaction will not cause any tax to be paid by the Murdoch Trusts on the exchange (as the exchange of shares under the Reorganisation will not cause any tax to be paid by most Shareholders on the exchange).

 

   The Special Committee and the Board have considered this proposed structuring of the transaction as one of the issues in their consideration of the overall transaction. The Directors note that:

 

  (a) it is in the interests of News Corporation shareholders for the new holding company to acquire the 58.34% of the QPL Publishing Business that News Corporation does not already own, on the terms proposed. The ownership of 100% of this business will permit consolidation of QPL for financial and tax purposes. News Corp US will benefit from access to all of the cash flow generated by this profitable business. As described in this Information Memorandum, the Board believes that the acquisition of the QPL Publishing Business is an attractive acquisition;

 

  (b) while the acquisition of the Cruden Group means that News Corporation Shareholders will, through their News Corp US shares, have an exposure to any liabilities within the Cruden Group, News Corp believes it has addressed this risk by obtaining warranties and substantial indemnities from the Murdoch Trusts in relation to those liabilities; and

 

  (c) this transaction structure enables News Corporation to achieve its objectives of undertaking the Reorganisation and acquiring the interest in QPL, while at the same time satisfying the requirements of the Murdoch Trusts, and does not result in any material incremental costs to the company.

 

   The terms of the Cruden/QPL Transaction are discussed in more detail in Section 3.14 of this Information Memorandum.

 

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   A simplified structure diagram illustrating the corporate structure of the News Group following completion of the Cruden/QPL Transaction and implementation of the Share Scheme (but before the Post-Transaction Internal Restructuring) is set out in the Summary of the Proposed Transaction appearing at the front of this Information Memorandum.

 

1.7 Other alternatives considered

 

   The Directors considered several alternative transactions to accomplish the same goal of moving the company’s domicile to the US, while maintaining the same relative position of all Shareholders, including the Murdoch Family. One such alternative was to create a new US holding company and a new Australian holding company, with News Corporation becoming wholly owned by these two public companies. Another alternative considered by the Directors was to create a new US company which would make an offer to exchange its shares for outstanding shares of News Corporation. These approaches were abandoned primarily because they would result in two public parent companies, a structure which was considered sub optimal. Other structures were also considered but were abandoned when the current structure was finalised and determined to be acceptable to all constituencies, and seen to accomplish all goals of the change in domicile.

 

   If the Reorganisation is not approved by Shareholders and Optionholders, the operations of News Corporation and News Group will continue as before; however, the company is likely to revisit the concept of creating a new holding company in the US, which will be eligible for inclusion in the S&P 500, through one or more of these alternative structures.

 

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2. Recommendation of the Special Committee and the Board and the Independent Expert’s Opinion

 


 

2.1 Role of the Special Committee

 

   On 30 March 2004, the News Corporation Board established the Special Committee, consisting of all the non-executive directors of News Corporation at that time, to consider the Cruden/QPL Transaction and the Reorganisation. Following its establishment, the Special Committee appointed Arnold Bloch Leibler as external legal counsel in Australia, Wachtell, Lipton, Rosen & Katz as external legal counsel in the US and UBS as financial adviser.

 

   Throughout its consideration of the Proposed Transaction, the Special Committee met periodically and received updates, presentations and advice from its advisers, as well as information from senior management of News Corporation relating to the Cruden/QPL Transaction and the Reorganisation.

 

   Between April and August 2004, advisers to the Special Committee held various meetings and discussions with News Corporation, its advisers and representatives of the Murdoch Trusts, regarding the terms, status and developments relating to the Proposed Transaction. The Special Committee’s external legal counsel participated in the negotiation of the Exchange Agreements and certain other transaction documents relating to the Cruden/QPL Transaction and the Reorganisation. The Special Committee’s financial adviser assisted the Special Committee in negotiating the financial terms and conditions of the Cruden/QPL Transaction.

 

   The Special Committee’s external legal counsel participated in the due diligence process undertaken in connection with the Proposed Transaction, including commenting on the due diligence planning memorandum, attending a QPL Group management presentation, reviewing the legal due diligence reports prepared by News Corporation’s external legal advisers and making follow-up requests as they considered appropriate.

 

   The Special Committee’s financial adviser, UBS, attended a QPL Group management presentation and, although not party to any formal due diligence process, received copies of certain due diligence reports prepared by News Corporation’s external advisers (and received these reports solely for review and reliance in connection with the preparation of its fairness opinion, contained in Attachment 4) and considered such other information as it considered necessary or appropriate.

 

2.2 Special Committee’s recommendation to the Board

 

   On 9 August 2004, the Special Committee unanimously recommended the Proposed Transaction to the News Corporation Board. The factors considered by the Special Committee prior to making its recommendation to the Board are set out in this Section 2.2.

 

  (a) The Cruden/QPL Transaction

 

   The Special Committee considered the following factors in relation to the Cruden/QPL Transaction:

 

  The financial condition, assets, results of operations and business of the QPL Group, as disclosed to the Special Committee and its advisers by News Corporation’s and QPL’s senior management and by advisers to News Corporation and the Murdoch Trusts.

 

  The historical business performance of the QPL Group, and the view of News Corporation’s and QPL’s senior management regarding QPL’s prospects as a leading participant in the Queensland newspaper market, and the risks inherent in achieving those prospects.

 

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  The familiarity of News Corporation with the business and prospects of the QPL Group, based on News Corporation’s current ownership interest and knowledge of the markets and operations of the QPL business.

 

  The financial advice of UBS, including the 9 August 2004 written opinion of UBS AG, Australia Branch addressed to the Special Committee, to the effect that, based on and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken and described in its written opinion, the consideration to be paid in the Cruden/QPL Transaction was fair, from a financial point of view, to News Corporation as of 9 August 2004, and the financial analyses presented to the Special Committee by UBS in connection with the delivery by UBS AG, Australia Branch of its fairness opinion (such opinion, which did not take into account any effect or impact of the Reorganisation, is attached as Attachment 4 to this Information Memorandum). Shareholders and Optionholders should note that the UBS opinion is not an independent experts’ report and expressly states that it has been prepared solely for the purpose of consideration by the Special Committee and the Board of Directors of the Company and without considering the objectives, financial situation or needs of any shareholder or other person.

 

  Strategic benefits from acquiring the 58.34% controlling interest in QPL, including realising the full benefits of integrating the QPL Group into the News Group.

 

  Benefits to News Corporation from being able to fully consolidate the results of operations of QPL for tax and accounting purposes, as well as News Corporation’s access to 100% of the cash flow of QPL, including the fact that the acquisition of the 58.34% interest in the QPL Publishing Business is expected to be non-dilutive in the first year after the acquisition.

 

  The terms and conditions of the Exchange Agreements, including the amount and form of consideration paid to the Murdoch Trusts, and the nature of the parties’ representations, warranties, covenants, agreements and indemnification provisions.

 

  The proposed structure of the Cruden/QPL Transaction, including:

 

  the potential benefits to News Corporation, as referred to above, and to the Murdoch Trusts of News Corp US acquiring the Cruden Group;

 

  the additional implementation costs of implementing the acquisition in the manner required by the Murdoch Trusts, which were agreed to be borne by the Murdoch Trusts rather than News Corporation; and

 

  the substantial indemnification provisions for the benefit of News Corporation in respect of pre-closing liabilities of the Cruden Group of companies.

 

  (b) The Reorganisation

 

   The Special Committee also considered the following factors in relation to the Reorganisation:

 

  The capital markets implications of News Corporation migrating to the US and having a secondary listing in Australia, including the potential likelihood of (i) expanding the company’s US investor base, (ii) increasing access to capital and (iii) narrowing of the trading discount of non-voting shares relative to voting shares.

 

  The company’s view that the Reorganisation and the Cruden/QPL Transaction will increase financial flexibility, reduce corporate complexity and improve access to large US institutional shareholders.

 

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  Differences between the current rights of Shareholders of News Corporation and the rights of holders of News Corp US securities, including differences in Australian and US corporations and securities laws.

 

  The tax-free nature of the share exchange for nearly all News Corporation Shareholders.

 

  Potential disadvantages of the Reorganisation to certain News Corporation Shareholders, including loss of pre-CGT status for certain Australian Shareholders and the fact that dividends will no longer be franked for Australian resident Shareholders and the fact that non-US resident Shareholders will become subject to US withholding tax on dividends.

 

  The advice of UBS to the Special Committee relating to (i) certain capital market implications of the Reorganisation, including potential favourable and unfavourable effects on the trading of and market for News Corp US common stock resulting from changes in whether and to what extent certain stock market indices in the US and Australia include or exclude News Corp US common stock; and (ii) the trading characteristics of certain US companies with multiple classes of publicly traded common equities.

 

  That an independent expert was retained to determine whether the Reorganisation is in the best interests of the News Corporation Shareholders and Optionholders.

 

  The fact that the Schemes will require the separate approvals of each class of Shareholders and Optionholders of News Corporation, and that the Murdoch Family and their associates will not vote as part of such class votes.

 

  The fact that there are no material tax or other costs required to be incurred by the company in order to implement the Reorganisation and that, based on the company’s advice, the acquisition of the 58.34% interest in the QPL Publishing Business is expected to be non-dilutive in the first year after the acquisition.

 

  The terms of the replacement of current News Corporation Options for options over shares of News Corp US.

 

  (c) Unanimous recommendation of the Special Committee to the Board

 

   The Special Committee did not attribute specific weight to any one or more of the factors described above and each Special Committee member may have regarded one factor as more or less important than another. On balance, the Special Committee believed, in its judgment, that the positive factors relating to the Proposed Transaction, including the Cruden/QPL Transaction, strongly outweighed the potentially negative or neutral factors. Accordingly, the Special Committee resolved to unanimously recommend the Proposed Transaction to the Board.

 

2.3 Directors’ recommendation to Shareholders and Optionholders

 

   The following Directors of News Corporation declare the following interests in connection with the Proposed Transaction:

 

  (a) K.R. Murdoch is a beneficiary and the trustee of certain trusts comprising the Murdoch Trusts. The Murdoch Trusts are the transferors of the Cruden Group under the Exchange Agreements.

 

  (b) L.K. Murdoch is a potential beneficiary of one of the trusts comprising the Murdoch Trusts.

 

  (c) A.M. Siskind and D.F. DeVoe are directors of companies in the Cruden Group and companies which act as trustees of one of the trusts comprising the Murdoch Trusts.

 

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   Although it does not give them any pecuniary interest in the Proposed Transaction, it should be noted that:

 

  (d) A.M. Siskind, D.F. DeVoe, P. Chernin and C. Carey are senior executives of the News Group; and

 

  (e) S. Shuman, a non-executive director of News Corporation and member of the Special Committee, is the Managing Director of Allen & Company LLC. During the fiscal year ended 30 June 2004, News Corporation paid Allen & Company LLC advisory fees of US$3,869,355 in connection with an asset sale.

 

   Notwithstanding the above, each of the Directors wishes to make, and considers himself justified in making, the following recommendation.

 

   The Directors of News Corporation believe that the potential benefits of the Proposed Transaction (including those described in Section 1.2 of this Information Memorandum) outweigh the potential disadvantages and risks (including those described in Sections 1.3 and 1.4 of this Information Memorandum) and have concluded that the Proposed Transaction is in the best interests of all Shareholders as a whole, Ordinary Shareholders, Preferred Shareholders and Optionholders. The News Corporation Directors therefore unanimously recommend that Shareholders and Optionholders vote in favour of the Schemes and Capital Reduction at the various Shareholder and Optionholder meetings required to consider and approve the Schemes and Capital Reduction.

 

   Goldman Sachs and its affiliate, Goldman Sachs JB Were Pty Ltd, advised the Board of News Corporation in connection with the Proposed Transaction.

 

   All Directors who hold or control the right to vote News Corporation shares or Options intend to vote in favour of the Schemes and Capital Reduction in respect of those Shares or Options. Details of the News Corporation shares and Options held by or on behalf of the Directors are contained in Section 8.2 of this Information Memorandum.

 

   K.R. Murdoch and L.K. Murdoch are members of the Murdoch Family and will therefore vote on the Schemes at the separate class meetings convened for the Murdoch Family and their associates. A.M. Siskind and D.F. DeVoe will, because of their directorships of the companies which act as trustees of one of the trusts comprising the Murdoch Trusts, vote with the Murdoch Family rather than with other Shareholders and Optionholders on the Schemes. Mr K.R. Murdoch has informed the company that his family intends to vote in favour of the Schemes and Capital Reduction.

 

2.4 Independent expert’s opinion

 

   Under Australian law, News Corporation is required to include with this Information Memorandum a report from an independent expert stating whether or not, in the expert’s opinion, the Proposed Transaction is in the best interests of Shareholders and Optionholders. News Corporation has appointed Grant Samuel & Associates Pty Limited, to review the Proposed Transaction and to issue the required independent expert’s report. Grant Samuel & Associates Pty Limited has concluded that the Proposed Transaction is in the best interests of all Shareholders as a whole, as well as Ordinary Shareholders, Preferred Shareholders and Optionholders. In the course of reaching that view, the Independent Expert has also concluded that the Cruden/QPL Transaction is on terms that the Independent Expert considers to be fair and reasonable for the acquisition of a controlling interest in QPL. The Independent Expert’s report is set out in full in Attachment 5 to this Information Memorandum.

 

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3. The Proposed Transaction

 


 

3.1 The Proposed Transaction

 

   The Proposed Transaction involves:

 

  (a) the establishment of a new corporate structure for News Corporation, under which News Corp US (a new company incorporated in the United States) will become the holder, either directly or through its wholly owned subsidiary, Carlholt, of all the shares in News Corporation. Shares and options in News Corporation will be cancelled and, in exchange, existing News Corporation Shareholders and Optionholders will receive shares and options in News Corp US; and

 

  (b) immediately prior to, and in conjunction with, the implementation of that Reorganisation, News Corp US will acquire the Cruden Group of companies from the Murdoch Trusts in exchange for shares of Voting Common Stock and Non-Voting Common Stock in News Corp US.

 

   While the Cruden/QPL Transaction will not be voted upon by News Corporation’s Shareholders or Optionholders, it will not occur if the Reorganisation does not occur. Therefore, when voting on the Reorganisation, Shareholders and Optionholders are effectively voting on the Cruden/QPL Transaction as well.

 

3.2 The Reorganisation

 

   Through the Reorganisation, News Corp US will become the new parent company of the News Group. Subject to obtaining necessary approvals, News Corp US will then be listed on the New York Stock Exchange (with secondary listings on the Australian Stock Exchange and London Stock Exchange). News Corporation will become a wholly owned subsidiary of News Corp US. The Board of News Corp US immediately after the Reorganisation will be the same as the Board of News Corporation elected at the AGM immediately prior to the Reorganisation (more information about the current Board of News Corporation and the proposed Board of News Corp US can be found in Section 8.1 of this Information Memorandum).

 

   The Reorganisation will be effected by way of Court approved schemes of arrangement under Australian law. As the Reorganisation involves a cancellation of shares, it also requires approval as a capital reduction under Australian law. The detailed steps involved in implementing the Share Scheme and Capital Reduction are described in Section 6 of this Information Memorandum. The detailed steps involved in implementing the Option Scheme are described in Section 7.

 

   The Proposed Transaction will not occur unless all the approvals listed in Section 3.3 below are obtained.

 

3.3 The approvals required

 

   In order for the Share Scheme to proceed, it must be approved at each of the following class meetings:

 

  (a) a meeting of the holders of Ordinary Shares in News Corporation (other than the Murdoch Family and their associates);

 

  (b) a meeting of those holders of Ordinary Shares in News Corporation who are members of the Murdoch Family or associates of the Murdoch Family;

 

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  (c) a meeting of the holders of Preferred Shares in News Corporation (other than the Murdoch Family and their associates); and

 

  (d) a meeting of the holders of Preferred Shares in News Corporation who are members of the Murdoch Family or associates of the Murdoch Family.

 

   In order for the Option Scheme to proceed, it must be approved at the following class meetings:

 

  (a) a meeting of the holders of Options in News Corporation (other than the Murdoch Family and their associates); and

 

  (b) a meeting of those holders of Options in News Corporation who are members of the Murdoch Family or their associates.

 

   The voting majority required at each Share Scheme Meeting is a majority in number of the Shareholders who vote at the particular meeting in person or by proxy and at least 75% of the votes cast at the meeting in person or by proxy. The majority required at each Option Scheme Meeting is a majority in number present and voting representing at least 75% in value of the options present and voting.

 

   The Capital Reduction must be approved by a special resolution passed at a meeting of all Ordinary and Preferred Shareholders.

 

   If the Schemes and Capital Reduction are approved at the various meetings, the Court will be asked to approve the Schemes.

 

3.4 What Shareholders and Optionholders will receive

 

   Subject to Section 3.5, what each Shareholder and Optionholder will receive under the Share Scheme and Option Scheme is as follows:

 

  (a) Share Scheme Participants (other than Australian Share Scheme Participants) will receive one share of News Corp US Voting Common Stock for every two Ordinary Shares held and one share of News Corp US Non-Voting Common Stock for every two Preferred Shares held;

 

  (b) Australian Share Scheme Participants will receive one Voting CDI for every two Ordinary Shares held and one Non-Voting CDI for every two Preferred Shares held.

 

  (c) In accordance with the above provisions, holders of American Depositary Shares (each of which represents four Ordinary Shares or Preferred Shares) will receive two shares of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock (as the case may be) for each ADS held.

 

  (d) If, pursuant to the share exchange, Share Scheme Participants would otherwise become entitled to receive half a News Corp US share or CDI, they will receive cash in lieu of that half share or CDI. For further details see clause 5.2(d) of the Share Scheme in Section 10 of this Information Memorandum.

 

  (e) News Corporation Optionholders who are registered as the holders of Options in the Option Register at the Record Date will receive options granted by News Corp US (see Section 3.7).

 

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3.5 News Corporation Shareholders resident outside of certain countries

 

   Certain foreign Shareholders (see Notice to Shareholders resident outside of certain countries, page 18) will not receive shares in News Corp US under the Share Scheme unless, before the Second Court Date, and without being obliged to conduct any investigations into the matter), News Corporation is satisfied that they can lawfully be issued News Corp US shares pursuant to the Scheme.

 

   Instead, CDIs representing the shares in News Corp US which would otherwise be required to be issued to such Shareholders will be issued to a nominee appointed by News Corp US.

 

   News Corp US will cause the nominee to sell those CDIs at such price and on such terms as the nominee shall determine and remit the proceeds of sale to News Corp US. News Corp US will then distribute the proceeds to those Shareholders (calculated on an averaged basis so that all Shareholders receive the same price per CDI, subject to rounding to the nearest whole cent) after deduction of any brokerage, taxes or other costs of sale (such amounts to be paid in A$).

 

   Pursuant to the Share Scheme, the relevant foreign Shareholders appoint News Corp US as their agent to receive any notice (including a Financial Services Guide and any update of that document) that the nominee or any other financial services provider is required to provide under the Corporations Act in connection with the service described above. Any notice received by News Corp US as agent for such Shareholders will be made available on the company’s website at www.newscorp.com. The notice will also posted to any of those Shareholders who request this in writing.

 

3.6 CHESS Depositary Instruments

 

   CDIs are beneficial interests in securities traded on the ASX under the electronic transfer and settlement system operated by the ASX. CDIs are issued to enable the electronic transfer and settlement on the ASX of shares issued by foreign companies, such as News Corp US. CDI holders receive all of the economic benefits of actual ownership of the underlying shares. Attachment 2 to this Information Memorandum provides a more detailed description of CDIs and a summary of the rights and entitlements of CDIs.

 

   Each News Corp US Voting CDI will represent one underlying share of News Corp US Voting Common Stock. Each News Corp US Non-Voting CDI will represent one underlying share of News Corp US Non-Voting Common Stock.

 

   A Shareholder with an address in Australia may elect to receive shares in News Corp US rather than CDIs in respect of such shares under the Share Scheme. The election must be made by notice in writing to News Corporation in a form satisfactory to News Corporation and received before 31 October 2004. Shareholders who provide the necessary notice will be issued shares of News Corp US Voting or Non-Voting Common Stock as applicable, instead of CDIs in respect of those shares, on the Implementation Date. News Corp US shares cannot be traded on the ASX, but can be converted into CDIs for trading on the ASX in accordance with the procedure described in Attachment 2.

 

3.7 Terms of News Corp US Options

 

   The Option Scheme relates only to options over News Corporation shares granted under the News Corporation Share Option Plan and/or the News Corporation Australian Executive Option Plan.

 

  

News Corp US Options will be granted in accordance with the Option Scheme under the News Corp US Option Plan (other than for a small number of Optionholders who are former News

 

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Corporation employees and who will receive their News Corp US Options in accordance with the Option Scheme under the News Corp US Former Employee Plan). Options granted under the News Corp US Option Plan and the News Corp US Former Employee Plan in accordance with the Option Scheme will:

 

  (a) be issued on a one for two basis, meaning that an Optionholder will receive one News Corp US Option for every two Options currently held, rounded up to the nearest whole number;

 

  (b) have an Exercise Price equal to twice the Exercise Price of the Options they replace;

 

  (c) have an exercise period equal to the unexpired exercise period of the Options they replace; and

 

  (d) be vested to the same extent and have the same terms including the vesting schedules as the options they replace.

 

   The terms of the News Corp US Option Plan and the News Corp US Former Employee Plan are summarised in Attachment 3.

 

   Options granted under the Chris-Craft, New World, Heritage and News Digital Media plans are not direct obligations of News Corporation and such options will therefore not participate in the Option Scheme or be cancelled in the Reorganisation. Under the terms of those options, upon exercise, holders will be entitled to receive News Corp US shares. The number of shares issued upon exercise and the exercise price will be adjusted in the same manner as described above.

 

3.8 The Cruden/QPL Transaction

 

   The Cruden/QPL Transaction involves the acquisition by News Corp US (and its subsidiary Carlholt) of the Cruden Group and the 58.34% of QPL that is not already owned by News Corporation.

 

   Sections 3.9 to 3.11 of this Information Memorandum contain a description of the Cruden Group and QPL Group and their respective assets and liabilities. The businesses conducted by the Cruden Group and QPL Group are described in Sections 3.12 and 3.13 of this Information Memorandum.

 

   The agreements pursuant to which News Corp US (and its subsidiary Carlholt) will acquire the Cruden Group, and indirectly, the QPL Group, are summarised in Section 3.14 of this Information Memorandum.

 

3.9 The Cruden Group and the QPL Group

 

   The Cruden Group comprises Kayarem and its subsidiaries but does not include QPL and its subsidiaries. The principal assets of the Cruden Group are News Corporation shares and the 58.34% shareholding in QPL not already owned by News Corporation.

 

   The QPL Group comprises QPL and its subsidiaries. The QPL Group is the owner of a publishing business which includes two metropolitan and eight regional newspapers in Australia (the QPL Publishing Business). The QPL Group also owns shares in News Corporation.

 

   The assets and liabilities of the Cruden Group are more fully described in Section 3.10 below. The assets and liabilities of the QPL Group are more fully described in Section 3.11 below.

 

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   At the date of this Information Memorandum, the Cruden Group (and therefore the 58.34% interest in the QPL Publishing Business) is owned and controlled by the Murdoch Trusts, which are entities associated with the Murdoch Family. A simplified corporate structure diagram illustrating the current relationship between the Cruden Group and the News Group is set out in the Summary of Proposed Transaction at the front of this Information Memorandum.

 

3.10 Assets and liabilities of the Cruden Group

 

   The principal assets of the Cruden Group are:

 

  (a) approximately 307.83 million News Corporation Ordinary Shares, representing approximately 14.66% of all the News Corporation Ordinary Shares;

 

  (b) approximately 69.18 million News Corporation Preferred Shares, representing approximately 1.79% of all the News Corporation Preferred Shares;

 

  (c) approximately 26.57 million ordinary shares in QPL, representing approximately 58.34% of the issued shares in QPL. All of the remaining shares in QPL are already owned by the News Group;

 

  (d) receivables from the Murdoch Trusts in an amount of approximately A$23.49 million which relate to certain pre-completion transactions, undertaken or agreed to be undertaken by the Cruden Group to exclude by way of sale for their appraised value, private family assets, being an artwork collection and a farm in New South Wales, Australia (see Section 3.13(b) for more information about these transactions and receivables).

 

   The material liabilities of the Cruden Group are loans which the parties have estimated will total approximately A$326.49 million in aggregate on completion of the Cruden/QPL Transaction.

 

   This estimate has been taken into account in calculating the consideration payable to the Murdoch Trusts under the Exchange Agreements (see Section 3.14) with the difference, if any, between actual indebtedness and that estimate being paid by cash adjustment shortly after completion (see Section 3.14(e) for a description of the cash adjustment procedure).

 

   There are also a number of intra-group loans outstanding between members of the Cruden Group. As at 30 June 2004 Cruden Investments had made loans to other members of the Cruden Group of A$1.82 billion. These amounts will remain outstanding on completion of the Cruden/QPL Transaction but are purely intra-group arrangements and will not appear in the consolidated accounts of the Cruden Group. Under the Kayarem Share Exchange Agreement, News Corp US has agreed to cause the borrowers, who are shareholders of Cruden Investments and will also be members of the News Group, to repay the relevant borrowings in due course.

 

3.11 Assets and liabilities of the QPL Group

 

   The principal assets of the QPL Group are:

 

  (a) 319.14 million News Corporation Ordinary Shares, representing approximately 15.20% of all the News Corporation Ordinary Shares;

 

  (b) 148.01 million News Corporation Preferred Shares, representing approximately 3.82% of all the News Corporation Preferred Shares;

 

  (c) the QPL Publishing Business described in Section 3.12 below; and

 

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  (d) certain other assets and investments which do not form part of the QPL Publishing Business, including a receivable in the amount of A$18.55 million, which relates to the pre-completion sale of a residential property in Sydney (see Section 3.12(c) for more information about this receivable).

 

   The material liabilities of the QPL Group are loans from a syndicate of banks in Australia which, as at 30 June 2004, were A$570 million in total. An estimate of QPL’s net indebtedness as at the completion of the Cruden/QPL Transaction has been taken into account in calculating the consideration payable to the Murdoch Trusts under the Exchange Agreements (see Section 3.14) with the difference, if any, between actual net indebtedness and that estimate being paid by cash adjustment shortly after completion (see Section 3.14(e) for a description of the cash adjustment procedure).

 

3.12 QPL Group – business description

 

  (a) The publishing business

 

   The QPL Group publishes and distributes newspapers and magazines in Queensland. The QPL Group publishes the sole daily newspaper in each of its key markets of Brisbane (Australia’s third largest city), the Gold Coast (Australia’s sixth largest and fastest growing major city) and Cairns (one of the major cities in North Queensland).

 

   Key mastheads in the portfolio are:

 

  The Courier Mail, Australia’s second largest circulation broadsheet, which for the six months ended 30 June 2004, had an average daily circulation of 214,814 and an average Saturday circulation of 342,253;

 

  The Sunday Mail, Australia’s second largest circulation newspaper, which for the six months ended 30 June 2004, had an average Sunday circulation of 615,328;

 

  The Gold Coast Bulletin, which for the six months ended 30 June 2004, had an average daily circulation of 41,344;

 

  The Weekend Bulletin, which for the six months ended 30 June 2004, had an average Saturday circulation of 79,635;

 

  The Cairns Post, which for the six months ended 30 June 2004, had an average daily circulation of 27,150; and

 

  The Weekend Cairns Post, which for the six months ended 30 June 2004, had an average weekend circulation of 44,688.

 

   The QPL Group also publishes free weekly newspapers and magazines in its territory.

 

   The fast-growing Queensland economy and QPL’s strong market position and high market share is reflected in QPL’s financial performance. QPL has a strong track record of revenue and earnings growth. In the three fiscal years ended 30 June 2004, newspaper revenue has grown by 27% to A$528 million, and earnings before interest and taxes (EBIT) by 60% to A$194 million. Revenue and EBIT is derived approximately 75% from the Brisbane operations, 18% from the Gold Coast and 6% from Cairns. Approximately 77% of revenues are derived from advertising and the remainder predominantly from circulation.

 

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   The corporate head office is in Bowen Hills, Brisbane. The three main operating divisions are located in Brisbane, the Gold Coast and Cairns. Printing facilities are located at Murarrie (Brisbane), Molendinar (the Gold Coast) and Cairns. The facilities at Murarrie and Molendinar are being significantly upgraded with approximately A$80 million in capital expenditure budgeted for 2004 and 2005. This will provide greater colour printing capacity which QPL management expects will increase future revenue and profitability.

 

   As at 30 June 2004, the QPL Group had 1,355 permanent employees, comprising 482 editorial staff, 450 production and distribution employees, 215 direct advertising staff, 65 employees involved in circulation and marketing, as well as 143 staff in general administration, management, finance and information technology roles.

 

   QPL and News Corporation currently share content, resources and staff. QPL also directs its classified advertising to internet sites associated with News Corporation.

 

  (b) The non-publishing assets

 

   The QPL Group has a relatively small number of investments in addition to its publishing business. The QPL Group has interests in two US based investment funds which invest in start up companies and shares in Comindico Holdings Pty Ltd, an Australian telecommunications service provider with assets comprising voice over internet protocol. The QPL Group holds shares in Australian Associated Press Pty Ltd, a national news agency delivering overseas news to the national media from national and international bureaus and providing telephony and information technology support services to third parties.

 

   The QPL Group also owns a property in Bowen Hills, opposite its head office, which is currently surplus to QPL’s requirements.

 

   These non-publishing assets have been valued at approximately A$21.52 million in aggregate as part of the Cruden/QPL Transaction.

 

  (c) Sale of certain non-publishing assets of the QPL Group

 

   The QPL Group has sold, or entered into agreements to sell, certain non-publishing assets prior to completion of the Cruden/QPL Transaction. These include:

 

  the sale of a residential property in Sydney, New South Wales to a subsidiary of the Murdoch Trusts (or another person nominated by the Murdoch Trusts) for A$18.55 million based on an independent appraisal. This sale is the subject of an option deed which will require the subsidiary or nominee of the Murdoch Trusts to agree to acquire the property at the same time as they enter into the Exchange Agreements. The resulting contract will be completed prior to the completion of the Cruden/QPL Transaction. The consideration payable by the Murdoch Trusts will be paid by way of promissory note, with that note being settled in cash on the day the Schemes are implemented. On that day the Murdoch Trusts will discharge the receivable in cash and that cash will be used by QPL to pay down its external debt;

 

  the sale or buy-back of shares in certain subsidiaries holding investments and non-publishing assets, including the sale of a share in QP Capital Pty Ltd, a subsidiary of QPL which holds investments in certain non-publishing assets including a US investment fund and an Irish company, the sale of shares in Touchcorp Limited and the buy-back of QPL’s shareholding in Joe Cross Pty Limited. Each of these transactions was settled in cash at the time they were completed; and

 

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  the sale of shares in Dialect Solutions Holdings Pty Limited, which provides both bank payment systems and interactive services, to Joe Cross Holdings Pty Limited, and the on-market sale of securities in Open Telecommunications Limited and Baycorp Advantage Limited. In connection with the sale of Dialect Solutions, QPL has agreed to make an unsecured interest free, limited recourse loan of A$7 million to the purchaser, Joe Cross Holdings Pty Limited (see Section 3.14(e) for more information in relation to this loan).

 

3.13 Cruden Group – business description

 

  (a) Historical financial information in relation to the Cruden Group

 

   Set out below is the unaudited balance sheet as at 30 June 2003 and 30 June 2004 and the unaudited profit and loss statement for the years ended 30 June 2003 and 30 June 2004 for the Cruden Group.

 

   Included in the consolidation are the balance sheet and profit and loss statement of Kayarem, Cruden Holdings Pty Limited, Cruden Investments, Cruden (ACT) Pty Limited and Cruden Nominees Pty Limited. Intercompany loans, dividends and interest have been eliminated in the consolidation, as has an investment in Cruden Investments by Cruden Holdings Pty Limited which as at 30 June 2004 was held through a trust but which is now held directly.

 

   The Murdoch Trusts hold 96.39% of Cruden Investments indirectly, through Kayarem and Cruden Holdings Pty Limited, and the remaining 3.61% of Cruden Investments directly. News Corp US will acquire both of these equity interests immediately prior to implementation of the Reorganisation pursuant to the Exchange Agreements (see Section 3.14 below). The following consolidation has been prepared as if Cruden Investments was a wholly owned subsidiary of Kayarem at the relevant times.

 

Cruden Group – Consolidated balance sheet (vi)

 

     2003
A$million
   2004
A$million
     

Assets

               

Cash

   3    6      

Investment – QPL

   797    797   (i )

Investment – News Corporation

   1,143    1,144   (ii )

Other assets

   25    29   (iii )
    
  
     

Total assets

   1,968    1,976      
    
  
     

Liabilities

               

Bank loan

   296    326      

Other liabilities

   14    13   (iv )
    
  
     

Total liabilities

   310    339   (v )
    
  
     

Net assets

   1,658    1,637      
    
  
     

 

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   Cruden Group – Consolidated profit and loss statement (vi)

 

     2003
A$million
    2004
A$million
 

Operating Income

   (2 )   (5 )

QPL dividends

         29  

News Corporation dividends

   14     14  

Interest, minority and tax expense

   (24 )   (23 )
    

 

Income before other items

   (12 )   15  

Other items

   0     6  
    

 

Net income / (loss)

   (12 )   21  
    

 

  (i) Represents a holding of approximately 26.57 million ordinary shares in QPL.

 

  (ii) Represents a holding of approximately 307.83 million News Corporation Ordinary Shares and approximately 69.18 million News Corporation Preferred Shares.

 

  (iii) Primarily represents a 100% interest in farm assets (A$14 million) and a receivable from the Murdoch Trusts following the sale of artwork (A$12 million). See Section 3.13(b) below for more information about these assets.

 

  (iv) Primarily represents a loan from the Murdoch Trusts that will be settled prior to implementation of the Schemes by way of set off against the receivables owing to the Cruden Group following the sale of the farm assets and artwork.

 

  (v) Following the reorganisation of the Cruden Group (see Section 3.13(b) below), the assets and liabilities of the Cruden Group will only consist of Ordinary and Preferred Shares in News Corporation, shares in QPL and net debt calculated as outlined in Section 3.10 above.

 

  (vi) The above consolidated balance sheet and profit and loss statement shows the Cruden Group’s investment in QPL, a controlled entity of the Cruden Group, as an investment rather than consolidating QPL’s assets and liabilities. This treatment has been used to assist readers in understanding the assets and liabilities of the Cruden Group other than its holding in QPL.

 

  (b) The Cruden Group reorganisation

 

   Prior to execution of the KSEA Call Option Deed and the CISEA Call Option Deed, the Murdoch Trusts acquired for market value a number of private family assets, including an art collection, from the Cruden Group. The art collection was sold for approximately A$12.16 million based on a valuation by an independent appraiser. Most of that art has been lent by the Cruden Group to the News Group and is hung in the offices of the News Group around the world. That loan arrangement is intended to continue.

 

   A subsidiary of the Murdoch Trusts has entered into the Farm and Land Sale Call Option Deed under which Kayarem is granted a right to require the subsidiary to buy a working farm currently owned by the Cruden Group. News Corporation has the right, and intends, to require Kayarem to exercise this call option if the relevant subsidiary of the Murdoch Trusts does not do so prior to the Second Court Date. The sale under the farm business and land agreements will be completed prior to implementation of the Schemes and Capital Reduction.

 

  

The working farm, including all real property, plant equipment, livestock and liabilities, has been valued at approximately A$21.33 million by an independent appraiser. In addition, Kayarem has agreed to loan approximately A$0.47 million to the subsidiary of the Murdoch Trusts to fund

 

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working capital for the farm. Part of the consideration for the art and farm sales is satisfaction of obligations owed by the Cruden Group to the Murdoch Trusts. The balance has been, or will be, paid by way of loan or promissory note, which therefore represents a receivable owing to the Cruden Group by the Murdoch Trusts. These promissory notes will be settled in cash on the day the Schemes are implemented). On that day, the Murdoch Trusts will discharge the receivables in cash and that cash will be used by the Cruden Group to pay down its external debts. All liabilities relating to the farm business and land remain for the account of the Murdoch Trusts. The agreements transferring these assets to the Murdoch Trusts also contain indemnities in favour of the Cruden Group against any liability that may arise relating to the period of ownership of those assets by the Cruden Group. Other entities within the Murdoch Trusts guarantee the obligations of the purchaser under the farm business and land agreements.

 

3.14 Agreements to acquire the Cruden and QPL Groups

 

  (a) Call Option Deeds

 

   News Corporation, News Corp US and the Murdoch Trusts have entered into the KSEA Call Option Deed. News Corporation, News Corp US, Carlholt and the Murdoch Trusts have entered into the CISEA Call Option Deed.

 

   Under the Call Option Deeds, the Murdoch Trusts have granted to News Corp US and Carlholt an option to acquire 100% of the Cruden Group from the Murdoch Trusts on the terms and subject to conditions set out in Exchange Agreements which are attached to those call option deeds. The Murdoch Trusts have made certain representations and given certain warranties in connection with the Call Options Deeds. These representations and warranties mirror those to be given under the Exchange Agreements and are discussed in (g) below. The Call Option Deeds are both governed by the laws of New South Wales.

 

   News Corp US and Carlholt intend to exercise the call options if Shareholders and Optionholders approve the Schemes and Capital Reduction. News Corporation has the right, and intends, to require News Corp US and Carlholt to exercise the call options if News Corp US or Carlholt does not do so itself before the Second Court Date.

 

   The effect of exercising the options is that the Exchange Agreements become binding upon the parties. The Exchange Agreements are conditional, amongst other things, upon the Schemes becoming Effective. Completion of the arrangements under the Exchange Agreements will take place on the same day as, but immediately prior to, the implementation of the Schemes and Capital Reduction.

 

  (b) Exchange Agreements

 

   The Murdoch Trusts currently own the Cruden Group through a 100% shareholding in Kayarem and certain minority holdings in Cruden Investments, a member of the Cruden Group.

 

   By acquiring the Cruden Group, News Corp US indirectly acquires the shares in QPL it does not already own. The effect of the Exchange Agreements is to transfer to News Corp US the assets and liabilities described in Sections 3.10 and 3.11 above.

 

   The Kayarem Share Exchange Agreement is the agreement by which News Corp US acquires 100% of Kayarem. The CI Share Exchange Agreement is the agreement by which Carlholt acquires the minority interests in Cruden Investments not owned by Kayarem. In combination, the Exchange Agreements enable News Corp US (and its subsidiary, Carlholt) to acquire 100% of the Cruden Group.

 

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   News Corp US’s 100% interest in the Cruden Group will ultimately be held through Carlholt, a wholly owned Australian subsidiary of News Corp US. Following completion of the transactions contemplated by the Kayarem Share Exchange Agreement, the Kayarem shares transferred to News Corp US will be contributed to Carlholt (see description of the Carlholt Contribution Agreement in Section 3.14(f) below). Under the CI Share Exchange Agreement the shares of the minority interests in Cruden Investments are transferred directly to Carlholt. Immediately following completion of that agreement, the Cruden Investment shares will be contributed by Carlholt to Kayarem (see description of the Kayarem Contribution Agreement in Section 3.14(f) below).

 

   The Kayarem Share Exchange Agreement and the CI Share Exchange Agreement contain fundamentally similar terms. The key terms and effect of both Exchange Agreements are described in this Section.

 

   On completion of the Exchange Agreements, each of the companies in the Cruden Group will change its name to a name which does not include “Kayarem” or “Cruden”.

 

  (c) What the Murdoch Trusts receive pursuant to the Exchange Agreements

 

   The Murdoch Trusts are exchanging their shares in the Cruden Group for approximately 307.78 million shares of News Corp US Voting Common Stock and 61.93 million shares of News Corp US Non-Voting Common Stock. This number of shares was calculated as follows.

 

  In respect of News Corporation shares held directly by the Cruden Group, the Murdoch Trusts will receive shares of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock in the same exchange ratio as all other holders of News Corporation shares in the Reorganisation; that is, one share of Voting Common Stock for every two Ordinary Shares in News Corporation and one share of Non-Voting Common Stock for every two Preferred Shares in News Corporation.

 

     The number of shares of News Corp US Non-Voting Common Stock received by the Murdoch Trusts will be reduced by approximately 15.83 million shares being that number of shares of Non-Voting Common Stock equal in value to (i) A$326.49 million, the estimated net debt of Cruden Investments on closing of the Cruden/QPL Transaction that News Corp US will effectively assume, plus (ii) A$33 million, being, for the purposes of calculating the number of shares of News Corp US Non-Voting Common Stock to be issued to the Murdoch Trusts, the assumed amount of stamp duty in excess of A$18 million that may be payable by News Corp US on the Kayarem Share Exchange Agreement and which excess the Murdoch Trusts have agreed to pay.

 

     For the purposes of determining the number of shares to be deducted, an agreed amount of A$22.70 per share of News Corp US Non-Voting Common Stock has been used (being twice the agreed amount of A$11.35 per News Corporation Preferred Share, to reflect the one for two exchange ratio). This agreed amount was calculated by reference to the closing price of News Corporation Preferred Shares during a 5 day period of trading (being 9 July 2004 to 15 July 2004) on the ASX.

 

     To the extent actual net debt or actual stamp duty differ from the estimated amounts, the Exchange Agreements provide for a cash adjustment.

 

  In respect of the Cruden Group’s 58.34% interest in News Corporation shares held by QPL, the Murdoch Trusts, on a pro rata basis, will receive shares of News Corp US Voting Common Stock and Non-Voting Common Stock in the same exchange ratio as all other holders of News Corporation shares in the Reorganisation.

 

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  In respect of the Cruden Group’s 58.34% interest in the QPL Publishing Business the Murdoch Trusts will receive approximately 59.72 million shares of Voting Common Stock. This number of shares has been calculated on the basis of a value of A$2.95 billion for the entire QPL Publishing Business less estimated net debt of the QPL Group on closing of the Cruden/QPL Transaction of A$487.93 million and adding A$21.52 million which is the agreed value of the non-publishing assets of the QPL Group that are to remain in the QPL Group.

 

     To the extent actual QPL Group net debt differs from the estimated amount, the Exchange Agreements provide for a cash adjustment.

 

     The shares will be issued by News Corp US at an agreed issue price of A$24.26 per share of Voting Common Stock (being twice the agreed amount A$12.13 per News Corporation Ordinary Share, to reflect the one for two exchange ratio). This agreed amount was calculated by reference to the closing price of News Corporation Ordinary Shares during a five day period of trading (being 9 July 2004 to 15 July 2004) on the ASX.

 

  In respect of the remaining assets of the Cruden Group, the Murdoch Trusts will receive approximately 1.05 million shares of News Corp US Voting Common Stock. The number of shares has been calculated on the basis of an estimated value of A$25.50 million for these assets, and using a price of A$24.26 per share of News Corp US Voting Common Stock. To the extent that the amount of cash or receivables in the Cruden Group differs from the estimate, there will be a cash adjustment on completion.

 

     The Cruden Group partially participates in News Corporation’s dividend reinvestment plan, so the number of shares described above will increase between the date of this Information Memorandum and the implementation of the Schemes and Capital Reduction if a dividend is paid by News Corporation during that period. This is because the number of News Corporation shares being exchanged will increase following payment of the dividend.

 

     The News Corp US shares will be issued to the Murdoch Trusts on completion of the Exchange Agreements, which will occur on the same day as, but immediately prior to, the implementation of the Schemes.

 

  (d) Voting power and total equity interest of the Murdoch Trusts in News Corp US after the Proposed Transaction

 

   After implementation of the Proposed Transaction, the Murdoch Trusts will own approximately 29.47% of the Voting Common Stock and 3.28% of the Non-Voting Common Stock. In total, this will represent approximately 12.61% of the total issued capital of News Corp US.

 

   This percentage gives the Murdoch Trusts the same stake in News Corp US as the economic interest they held in News Corporation, adjusted for the sale by them to News Corp US of the assets and liabilities under the Cruden/QPL Transaction, on terms set out in the Exchange Agreements.

 

  

In terms of voting rights, because the Murdoch Trusts will no longer have control over the voting power attaching to the 15.20% of News Corporation shares held within the QPL Group, their voting power in News Corporation is reduced to that extent. However, the sale of the QPL Publishing Business in return for Voting Common Stock and the offset of the amount of the estimated Cruden Group external bank debt against the Non-Voting Common Stock means that there will be a small reduction in the voting control of the Murdoch Trusts as a consequence of the Proposed Transaction. At present, the Murdoch Trusts control through the Cruden Group

 

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and QPL approximately 29.86% of the votes attached to News Corporation Ordinary Shares. Following completion of the Reorganisation and the Cruden/QPL Transaction, the Murdoch Trusts will own directly approximately 29.47% of the News Corp US Voting Common Stock.

 

  (e) Cash adjustments

 

   The consideration payable under the Exchange Agreements has been calculated using agreed estimates of the amount of Cruden Group net debt and QPL Group net debt outstanding on completion of the transactions, the amount of stamp duty payable in connection with the Kayarem Share Exchange Agreement and the value of the cash and receivables in the Cruden Group on completion. To the extent that those estimates turn out to be incorrect, the Exchange Agreements provide for a cash payment equal to the difference between the estimated and actual amounts to be paid shortly after completion as an adjustment to the consideration payable.

 

   The Murdoch Trusts have agreed to pay the amount of stamp duty that may be payable on the Kayarem Share Exchange Agreement which is in excess of A$18 million. In calculating the number of shares of Non-Voting Common Stock to be received by the Murdoch Trusts, it has been assumed that stamp duty payable in respect of the Kayarem Share Exchange Agreement will be in the amount of A$51 million. Any adjustments to reflect actual stamp duty will be settled in cash by the Murdoch Trusts or News Corp US, as the case may be.

 

   In addition, the parties agreed for purposes of the Exchange Agreements to assign no value to the loan made by QPL to the purchaser of Dialect Solutions (see Section 3.12(c) for a description of that loan). If and to the extent QPL receives repayments of amounts under that loan, News Corp US has agreed to pay the Murdoch Trusts 58.34% of those payments, by way of an increase in the consideration payable under the Exchange Agreements.

 

  (f) Conditionality of the Exchange Agreements

 

   The Exchange Agreements are conditional, amongst other things, upon all approvals being obtained under the Share Scheme and the Option Scheme and upon the Murdoch Trusts obtaining FIRB approval to acquire the News Corp US shares under the Exchange Agreements. Completion of the Exchange Agreements will occur on the same day as, but immediately prior to, the implementation of the Schemes.

 

  (g) Other material terms of the Exchange Agreements

 

   In summary, the other material terms of the Exchange Agreements are as follows:

 

   Shares issued to the Murdoch Trusts

 

   The Exchange Agreements transfer to News Corp US the entire legal and beneficial interest in all of the shares in Kayarem and certain minority interests held in Cruden Investments, so that, on completion of the transactions contemplated by those agreements, News Corp US (together with its subsidiary, Carlholt) will own the whole of the Cruden Group, free from any security interest.

 

   The shares to be issued to the Murdoch Trusts by News Corp US will be issued at a time when it is a private company but shortly thereafter News Corp US will complete the Schemes and become a listed company trading on the NYSE, ASX and LSE. The shares to be issued to the Murdoch Trusts will be the same as the shares to be issued by News Corp US pursuant to the Share Scheme.

 

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   Indemnity of Cruden Group liabilities

 

   Any known liability or obligation in the Cruden Group referable to the period prior to completion has been deducted from the consideration paid to the Murdoch Trusts in the Exchange Agreements. Any other liability of the Cruden Group in respect of this period is the subject of an ongoing indemnity from the Murdoch Trusts. The Murdoch Trusts have indemnified News Corp US for all liabilities of the Cruden Group arising prior to completion or relating to actions or inactions taken or not taken prior to completion, whether actual or contingent, direct or indirect, except those liabilities which have been expressly included in the calculation of the exchange consideration (and then to the extent of that inclusion). This indemnity remains available to News Corp US for six years from the date of implementation of the Schemes.

 

   Tax indemnity

 

   The Murdoch Trusts have also indemnified News Corp US for all taxes payable by the Cruden Group (i) in respect of the period up to and including the day of completion, (ii) incurred as a result of the execution of any document related to the Proposed Transaction, or (iii) as a result of any fact, circumstances, act or omission occurring during the period up to and including the day of completion unless such amounts have already been expressly included in the calculation of the exchange consideration. The indemnity also covers all Tax Costs (defined to include costs of disputing and litigating tax claims relating to a Cruden Group member). This tax indemnity remains available to News Corp US for seven years from the date of implementation of the Schemes.

 

   Information indemnity

 

   Certain information about the Cruden Group and the QPL Group included in this Information Memorandum was provided by the Murdoch Trusts. The Murdoch Trusts have approved the inclusion of that information in the Information Memorandum. The Murdoch Trusts have indemnified News Corporation, subject to certain limitations, against any liability incurred by News Corporation due to, or arising out of, the information being incorrect, incomplete, misleading or deceptive.

 

   Warranties

 

   In addition to the indemnities described above, the Exchange Agreements contain a number of warranties about the Cruden Group and the QPL Group. These warranties are given with effect from 10 August 2004 (the date the call option deeds were executed) and again on the date of implementation of the Schemes.

 

   The transferors under the Exchange Agreements are trustees of Australian trusts. The Exchange Agreements contain warranties as to the existence of the transferors, their capacity to enter into the agreements, their authority to transfer the shares in the Cruden Group to News Corp US (and to Carlholt) and the absence of any conflict in doing so.

 

   The Murdoch Trusts provide a number of warranties relating to the shares being sold and the assets and liabilities of the Cruden Group. These warranties extend to title to the shares, the structure and solvency of the Cruden Group, the absence of any guarantees from or in favour of the Murdoch Trusts in relation to the Cruden Group, the taxation affairs of the Cruden Group, the absence of environmental liabilities, the accounts for the Cruden Group, the absence of any contingent or indirect liability other than as disclosed in the Cruden Group accounts, the conduct of the Cruden Group’s business, title to the material assets of the Cruden Group and the absence of litigation or unsatisfied judgments.

 

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   The Cruden Group warranties also include confirmations that there is no restrictive covenant or agreement binding on any Cruden Group member, that the Cruden Group does not licence or use any intellectual property, that it has no employees other than those disclosed and that it has not undertaken any activity or owned or operated or conducted any business other than owning shares in News Corporation, QPL and other Cruden Group members since 1991 (except the ownership of the assets which were the subject of the pre-sale transactions described in Section 3.13(b)).

 

   The Murdoch Trusts provide a number of warranties relating to the QPL Group. These warranties extend to the structure of the QPL Group, the absence of any guarantees from or in favour of the Murdoch Trusts in relation to the QPL Group, the accounts for the QPL Group, the absence of any contingent or indirect liability other than as disclosed in the QPL Group accounts, the conduct of the QPL Group’s business, title to all of the assets of the QPL Group, compliance by the QPL Group with their obligations at law and the absence of material litigation or unsatisfied judgments.

 

   Because the News Group has had a very extensive relationship with the QPL Group, the warranties given with respect to the QPL business are not as comprehensive as those given with respect to the Cruden business. News Corporation has been a 41.66% shareholder in QPL since 1987 and has had a number of representatives on the board of QPL since that time. In addition, News Corporation interacts with QPL management on behalf of both shareholders and has, therefore, had day to day oversight of QPL and close involvement with its affairs. In those circumstances, it was agreed that News Corp US should not seek warranties as to operational matters of QPL – matters in which it has day to day involvement.

 

   The Murdoch Trusts indemnify News Corp US, News Corporation and a number of other persons for any loss or liability incurred as a result of any breach or inaccuracy of any warranty it gives or representation it makes.

 

   Ability to make claims under the warranties

 

   The Exchange Agreements provide that News Corp US is able to claim for breach of warranty at any time in the period ending on 30 November 2006 for the general warranties. In the case of warranties relating to title, authority, environment and tax that period is extended to six years after completion or the relevant statute of limitations period, whichever is the earlier.

 

   An individual claim may not be brought in respect of certain warranties relating to the Cruden Group for an amount less than A$150,000 and until total claims exceed A$1.5 million. These amounts are A$300,000 and A$3 million respectively in relation to claims relating to the QPL Group.

 

   If a claim relates to QPL: (i) in respect of general warranties, the Murdoch Trusts are not liable for an amount in excess of 58.34% of the agreed value of the QPL Publishing Business only; (ii) in respect of the warranties that relate to structural liabilities of QPL (e.g., title to shares), the Murdoch Trusts are not liable for an amount in excess of 58.34% of the total QPL value (including News Corporation shares).

 

   Maximum liability

 

   The maximum amount recoverable from the Murdoch Trusts in relation to a breach of warranty or a claim under an indemnity is limited to the value of the consideration payable under the Exchange Agreements, which is approximately A$8.87 billion, given that it includes the value attributed to the News Corporation shares held within the Cruden and QPL Groups.

 

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   Where a claim is made arising out of, or relating to, the QPL Group or the business of the QPL Group, the Murdoch Trusts will not be liable for more than 58.34% of the loss that may be suffered.

 

   Termination

 

   The Exchange Agreements may be terminated if a condition precedent is not fulfilled or waived by 31 December 2004 or, at the election of News Corp US (or Carlholt in the case of the CI Share Exchange Agreement), if any warranty given by the Murdoch Trusts or other material provision of the agreements is breached which either cannot be remedied or is not remedied by the Murdoch Trusts within a reasonable time. Termination is News Corp US’s (or Carlholt’s in the case of the CI Share Exchange Agreement) sole remedy prior to completion.

 

   Exercise of rights

 

   Because at the time of execution of the Call Option Deeds and the Exchange Agreements, News Corp US is controlled by the Murdoch Trusts, the parties have agreed that between the date of the Call Option Deeds and Completion they cannot amend, waive or enforce the terms of the Exchange Agreements without the consent of News Corporation, acting through the Special Committee. News Corporation is a third party beneficiary of the Call Option Deeds and the Exchange Agreements and, therefore, has the ability to enforce them.

 

   Governing law

 

   The Exchange Agreements are governed by the laws of the State of New South Wales, Australia, and each of the parties to them submits to the non-exclusive jurisdiction of the courts in that State. News Corp US has irrevocably appointed Carlholt as its agent to receive service of process in any action or proceeding in relation to those agreements.

 

   Special provisions in relation to trustees

 

   Because the transferors under the Kayarem Share Exchange Agreement are entering into the agreement in their capacity as trustees of certain trusts, the Kayarem Share Exchange Agreement contains provisions acknowledging the terms of the relevant trust deeds and restrictions on the ability of the transferors to deal with trust assets. The trustees have agreed that, until the seventh anniversary of completion, they will:

 

  not amend or waive any right of indemnity they have under a relevant trust or any right of access they have to the assets that constitute the trust fund of those trusts without the prior consent of News Corp US;

 

  diligently exercise any right of indemnity they have under the trust deeds in respect of their obligations and liabilities under the transaction documents;

 

  not amend, or permit the amendment of, the relevant trust deeds in a manner which limits their rights to perform and satisfy their obligations under the Kayarem Share Exchange Agreement; and

 

  not distribute or otherwise dispose of the trust fund assets, with some permitted exceptions. Significant exceptions permit the relevant trusts to:

 

  (a) distribute or dispose of income of the trust fund;

 

  (b) distribute up to 10% of the value of the trust fund (as at the date of the agreement) during the first three years after completion;

 

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  (c) distribute a total of 20% of the value of the trust fund (as at the date of the agreement) in the period ending on the seventh anniversary of completion, (including any distributions made in reliance on the preceding exception);

 

  (d) dispose of some or all of the trust fund if those assets comprise one class of News Corp US shares and the disposal results in the simultaneous acquisition by that trust of an equivalent dollar amount of another class of News Corp US shares (less reasonable transaction costs and taxes associated with such sales and purchases);

 

  (e) dispose of assets in order to satisfy payment obligations owing to benefited parties under the Exchange Agreements or any other transaction document.

 

   The Kayarem Share Exchange Agreement contains provisions which give to the trusts a limited right of reorganisation. Any such reorganisation is required to be accompanied by a deed of accession or novation so that News Corp US and the other benefited parties under the Kayarem Share Exchange Agreement have contractual privity with any party introduced as a result of the reorganisation. News Corp US is not entitled to withhold its consent if the reorganisation does not materially adversely effect any of the rights and benefits of News Corp US or any other benefited party under the Kayarem Share Exchange Agreement or the ability of News Corp US to be satisfied out of the assets that constitute the relevant trust fund, such that the reorganisation does not put News Corp US in a materially worse position than it enjoyed under the Kayarem Share Exchange Agreement as at completion and the transferors deliver to News Corp US such evidence as News Corp US reasonably requires to satisfy itself of these requirements.

 

   It is expected that the current trustees of the trusts will be replaced with US trustee companies on or shortly after implementation of the Schemes and Capital Reduction. If that occurs, News Corp US will receive, as a precondition to the change of trustees, executed deeds of novation and opinions from US counsel as to the validity and effectiveness of the substitution of trustees.

 

   Trustee limitations

 

   Subject to certain exceptions, the liability of the transferors under the Exchange Agreements is limited to the extent to which it can be satisfied out of the assets of the relevant Murdoch Trusts.

 

   In addition, no natural person will have any personal liability in respect of the Exchange Agreements and other transaction documents other than in very limited circumstances, for example, acts of fraud.

 

   Personal guarantee

 

   The transferors under the CI Share Exchange Agreement also enter into the agreement in their capacity as trustees of certain trusts. It is expected that the assets of those trusts will be distributed to the beneficiaries shortly after completion of the Cruden/QPL Transaction. Mr K.R. Murdoch has provided a personal guarantee of the obligations of the transferors under the CI Share Exchange Agreement.

 

   Interaction between agreements

 

   The substantially identical terms of the Exchange Agreements gives rise to potential overlap between the agreements.

 

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   The parties have agreed that in the case of such an overlap News Corp US (and Carlholt) will act on the instructions of the transferors under the Kayarem Share Exchange Agreement in the first instance and only if no instructions are given, on the instructions of the transferors under the CI Share Exchange Agreement.

 

   If there is a breach of warranty, News Corp US might have claims under both Exchange Agreements. The parties have acknowledged News Corp US will not be entitled to recover, in aggregate, more than the total amount of its loss (or in the case of claims relating to QPL, 58.34% of its loss).

 

  (f) The Carlholt agreements

 

   News Corp US is acquiring the shares of News Corporation through its subsidiary Carlholt, a check the box entity for US tax purposes. The Reorganisation is structured in this way in order to facilitate the Post-Transaction Internal Restructuring.

 

   Under the Carlholt Contribution Agreement, News Corp US will transfer to Carlholt the Kayarem shares it acquires under the Kayarem Share Exchange Agreement in return for the issue of a promissory note in an amount equal to the Exchange Consideration under the Kayarem Share Exchange Agreement.

 

   Under the Kayarem Contribution Agreement, Carlholt will transfer to Kayarem the minority shares in Cruden Investments that it acquires under the CI Share Exchange Agreement in return for the issue of shares in Kayarem At the time the agreement is completed, Kayarem will be a wholly owned subsidiary of Carlholt.

 

3.15 Copies of Call Option Deeds and Exchange Agreements

 

   A News Corporation Shareholder or Optionholder can obtain a copy of the Call Option Deeds and the Exchange Agreements free of charge by writing to:

 

   Company Secretary
   The News Corporation Limited
   GPO Box 4245 Sydney NSW 2001
   Australia
   Facsimile: +61 2 9288 3275
   Email: brodiek@newsltd.com.au

 

   Copies of the Call Option Deeds and the Exchange Agreements can also be viewed on News Corporation’s website at www.newscorp.com.

 

3.16 Repayment of existing debt

 

   News Corp US has agreed with the Cruden Group and QPL Group external lenders to either re-finance or repay amounts outstanding under the Cruden Group and QPL Group bank facilities shortly after completion of the Reorganisation. News Corp US intends to undertake that repayment using group resources in a manner permitted by applicable law. As stated in Section 3.14 above, the estimated amount outstanding on the Cruden Group and QPL Group bank facilities has been deducted from the price payable to the Murdoch Trusts in the Cruden/QPL Transaction and if that estimate is not accurate, a cash adjustment will be made soon after completion.

 

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4. Financial impact of the Proposed Transaction

 


 

4.1 Introduction

 

   This Section highlights the pro forma financial impact of the Proposed Transaction. The analysis has been undertaken on a historical pro forma basis only to show the impact of the Reorganisation and the Cruden/QPL Transaction.

 

4.2 Basis of preparation

 

   As an Australian company, News Corporation reports in A GAAP and in A dollars (although approximate US dollar financial information and US GAAP reconciliations are made available to Shareholders). As a US company, News Corp US will report in US GAAP and in US dollars.

 

   For comparison purposes, the pro forma financial information for News Corp US presented in Section 4.3 below has been prepared in accordance with both A GAAP and US GAAP. The pro forma financial information also appears in both Australian and US dollars. Profit and loss information has been translated, for convenience purposes only, into US dollars using the average exchange rate of A$1.00:US$0.7122 for the year ended 30 June 2004. The balance sheet information has been translated, for convenience purposes only, as at 30 June 2004, using the spot exchange rate applicable at that date of A$1.00:US$0.6978.

 

   To arrive at the News Corp US, US GAAP, US dollar pro forma financial information (in column 8) of Section 4.3 below:

 

  (a) historic News Corporation A GAAP A dollar financial information for the year ended 30 June 2004 and as at 30 June 2004 (column 1 below) has been combined with historic QPL Group and Cruden Group A GAAP A dollar financial information for the same periods (columns 2 and 3 below). The Cruden Group balance sheet and profit and loss information presented in column 3 below shows the Cruden Group’s investment in QPL, a controlled entity of the Cruden Group, rather than consolidating QPL’s assets and liabilities. This treatment has been used to assist readers in understanding the assets and liabilities of the Cruden Group other than its holding in QPL;

 

  (b) the combined News Corporation, QPL Group and Cruden Group profit and loss and balance sheet financial information has then been adjusted for the expected financial effects of the Proposed Transaction as if the Proposed Transaction was implemented on 1 July 2003 and as at 30 June 2004, respectively (column 4 below) for the purposes of preparing the News Corp US, A GAAP, A dollar pro forma financial information (column 5 below) and News Corp US, A GAAP, US dollar pro form financial information (column 6 below); and

 

  (c) lastly, the News Corp US, A GAAP, US dollar pro forma financial information has been converted from A GAAP to US GAAP (columns 7 and 8 below).

 

   Total one-off costs of US$49 million (excluding stamp duty that may be applicable to elements of the acquisition of the Cruden Group of up to A$18 million that News Corp US has agreed to pay) involved in implementing the Reorganisation and the Cruden/QPL Transaction have not been reflected in the pro forma financial statements below.

 

   Notes to the financial information appearing below, including an explanation of the significant adjustments required in order to convert the pro forma financial information from A GAAP to US GAAP, are set out in Sections 4.4 and 4.5 of this Information Memorandum.

 

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   The financial information of News Corporation is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained in News Corporation’s 2004 Full Financial Report, which is available on News Corporation’s website at www.newscorp.com. The pro forma financial information for News Corp US provided below is not necessarily indicative of actual results that would have been achieved by News Corp US had the Proposed Transaction been consummated on the date specified.

 

4.3 Pro forma financial information

 

                Pro Forma

    (1)   (2)   (3)   (4)         (5)   (6)   (7)         (8)
                     

NC = News Corporation

QPL = Queensland
Press Pty Limited

 

NC

AGAAP

A$m


 

QPL

AGAAP

A$m


 

Cruden

AGAAP

A$m


 

Eliminations/

Adjustments

AGAAP

A$m


       

News
Corp US

AGAAP

A$m(f)


 

News
Corp US

AGAAP

US$m


 

GAAP
Adjustments

USGAAP

US$m


       

News
Corp US

USGAAP

US$m


Balance Sheet Information As at 30 June 2004

                                           
                     

Current Assets

                                           

Cash

  5,805   -     6   -           5,811   4,055   -           4,055

Other current assets

  9,207   97   17   -           9,321   6,504   3         6,507
   
 
 
 

     
 
 

     

Total Current Assets

  15,012   97   23   -           15,132   10,559   3         10,562
   
 
 
 

     
 
 

     

Non-Current Assets

                                           

Investments

  15,782   1,646   1,941   (3,565 )   (a)   15,804   11,028   (99 )   (g)   10,929

Publishing rights, titles and TV licences

  31,185   411   -     1,280     (b)   32,876   22,941   (10,781 )   (h)   12,160

Goodwill

  318   -     -     -           318   222   6,873     (h)   7,095

Other

  11,441   274   12   -           11,727   8,183   296     (i)   8,479
   
 
 
 

     
 
 

     

Total Non-current Assets

  58,726   2,331   1,953   (2,285 )       60,725   42,374   (3,711 )       38,663
   
 
 
 

     
 
 

     

Total Assets

  73,738   2,428   1,976   (2,285 )       75,857   52,933   (3,708 )       49,225
   
 
 
 

     
 
 

     

Total Current Liabilities

  10,437   79   13   -           10,529   7,347   (207 )   (k)   7,140
   
 
 
 

     
 
 

     

Non-current Liabilities

                                           

Interest bearing liabilties

  10,917   543   326   -           11,786   8,224   1,462     (j)   9,686

Payables and other

  6,857   43   -     -           6,900   4,815   6,126     (k)   10,941
   
 
 
 

     
 
 

     

Total Non-current Liabilities

  17,774   586   326   -           18,686   13,039   7,588         20,627
   
 
 
 

     
 
 

     

Total Liabilities

  28,211   665   339   -           29,215   20,386   7,381         27,767
   
 
 
 

     
 
 

     

Net Assets

  45,527   1,763   1,637   (2,285 )       46,642   32,547   (11,089 )       21,458
   
 
 
 

     
 
 

     

 

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    (1)     (2)     (3)     (4)           (5)     (6)     (7)         (8)  
                     

NC = News Corporation

QPL = Queensland

Press Pty Limited

  NC
AGAAP
A$m


    QPL
AGAAP
A$m


    Cruden
AGAAP
A$m


   

Eliminations/

Adjustments

AGAAP

A$m


          News
Corp US
AGAAP
A$m(f)


    News
Corp US
AGAAP
US$m


    GAAP
Adjustments
USGAAP
US$m


       

News
Corp US

USGAAP

US$m


 

Profit and Loss Information For the year ended 30 June 2004

                                                                 
                     

Revenues

    29,428     528     -       (22 )   (c )     29,934       21,319     (157 )   (l)     21,162  

Operating Income

    4,302     194     (5 )   (1 )   (c )     4,490       3,198     (133 )   (m,o)     3,065  

Associate entities before Other Items

    367     -       -       (42 )   (d )     325       231     (91 )   (n)     140  

TNCL & QPL Dividends

    -       21     43     (64 )   (e )     -         -       -                

Interest, minority and tax expense

    (2,303 )   (92 )   (23 )   -               (2,418 )     (1,722 )   (114 )   (p)     (1,836 )
   


 

 

 

       


 


 

     


Income before Other Items

    2,366     123     15     (107 )           2,397       1,707     (338 )         1,369  

Other items (incl. QPL non recurring items)

    (54 )   (15 )   6     22     (d )     (41 )     (29 )   224     (o)     195  
   


 

 

 

       


 


 

     


Net Profit

    2,312     108     21     (85 )           2,356       1,678     (114 )         1,564  
   


 

 

 

       


 


 

     


EPS (q)

                                                                 

Diluted A$

  $ 0.411                             $ 0.412                            

Diluted US$

  $ 0.29                                     $ 0.29               $ 0.27  

After Reorganisation:

                                                                 

Diluted A$

  $ 0.822                             $ 0.825                            

Diluted US$

  $ 0.59                                     $ 0.59               $ 0.55  

 

The notes to the pro forma financial information are set out in Sections 4.4 and 4.5 below.

 

4.4 Discussion of the pro forma impact of the Proposed Transaction

 

   To reflect the expected full year financial effects of the Proposed Transaction a number of pro forma adjustments and eliminations have been made:

 

  (a) Elimination of both the QPL Group’s and the Cruden Group’s investment in News Corp US, combined with the elimination of News Corporation’s and the Cruden Group’s Investment in QPL, as neither of these assets are recognised on consolidation.

 

  (b) Recognition of fair value uplift on the acquisition of the Cruden Group’s 58.34% interest in QPL. For the purpose of this pro forma financial information, the uplift has been recognised within indefinite-lived mastheads. This amount represents the difference between consideration paid for the acquisition of the QPL Publishing Business (being 58.34% of A$2.95 billion less debt assumed) less the carrying value of the publishing net assets acquired plus the carrying value of the 41.66% current investment in the QPL Publishing Business (A$5 million). Although under A GAAP the pro forma adjustment may have reflected a larger uplift in intangible assets, any additional uplift has not been reflected in this pro forma because US GAAP does not permit such additional uplift.

 

  (c) Elimination of the QPL Group’s revenues and income arising on trading with News Corporation.

 

  (d) Reversal of News Corporation’s 2004 (earnings)/losses from QPL. This is required as the QPL Group will be consolidated as a result of the Proposed Transaction.

 

  (e) Reversal of the QPL Group’s dividend income from News Corporation and the Cruden Group’s dividend income from QPL and News Corporation.

 

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  (f) Under A GAAP, upon the acquisition by News Corp US of the assets and liabilities of the existing News Group, the assets would be uplifted to market value on the date of acquisition. This uplift has not been reflected in this pro forma as its effect would be eliminated under US GAAP, because US GAAP does not permit this restatement of assets.

 

4.5 Summary of significant adjustments required for US GAAP

 

   To reflect the full year financial impact of the conversion of the pro forma financial information from A GAAP to US GAAP, the following adjustments have been made:

 

  (g) Investments

 

   The net impact of the following US GAAP adjustments on the A GAAP carrying amount of investments, as at 30 June 2004 was a reduction of US$99 million.

 

  Under US GAAP, in accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”, News Corporation currently classifies equity securities, held on investments over which there is no significant influence, as available-for-sale securities, reported at fair market value, with unrealised gains and losses excluded from earnings and reported as a component of other comprehensive income (loss) within shareholders’ equity. A GAAP has no comparable policy.

 

  Through fiscal 2002, under A GAAP, when News Corporation’s investments exceed its equity in the underlying net assets of certain investees this amount was not amortised as the excess in each case is considered by News Corporation to be an intangible asset with indefinite useful life. Under US GAAP, the difference between the cost of these investments and the underlying equity in their net assets was previously amortised over a period not to exceed 40 years.

 

  Under A GAAP, when an investment in an equity associate is acquired, the identifiable assets and liabilities assumed must be measured at their fair value at the date of the closing of the acquisition. The purchase consideration is the fair value, as of the closing date of the acquisition, of assets given, equity instruments issued or liabilities undertaken by the acquiring entity. Under US GAAP, when equity instruments are issued to acquire an investment in an associate, they are valued on the date the terms of the purchase agreement are agreed to and announced.

 

  Prior to fiscal 2002, under A GAAP, costs incurred by associate companies in the development of major new activities were capitalised until the operations had commenced on a commercial basis. At that point any readily identifiable intangibles, such as publishing rights, titles and television licences but not goodwill, are included in the investment basis, recorded at cost, and accounted for in accordance with the relevant accounting policy. Under A GAAP, there were no material costs of this nature capitalised during fiscal 2004. Under US GAAP, these business development costs are charged to equity in earnings of associated companies in the period incurred, in accordance with the American Institute of Certified Public Accountants’ SOP 98-5, “Reporting on the Costs of Start-up Activities”.

 

  (h) Publishing rights, titles and television licenses and goodwill

 

   Publishing rights, titles and television licences

 

   The net impact of US GAAP adjustments on the A GAAP carrying amount of publishing rights, titles and television licences as at 30 June 2004 was a reduction of US$10,781 million. These adjustments primarily relate to the following.

 

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  Prior to fiscal 1991, publishing rights, titles and television licences, investments and property, plant and equipment were revalued at an amount in excess of cost. US GAAP does not permit the revaluation of assets in excess of cost.

 

  Under A GAAP, amounts paid for the acquisition of publishing rights, titles and television licences in connection with purchase business combinations and initial cable distribution investments are not amortised by the News Group, as they are considered to have indefinite useful lives. Under A GAAP goodwill acquired in purchase business combinations is amortised over a period not exceeding 20 years using the straight-line method. Under US GAAP, prior to fiscal 2003, acquired intangible assets, including goodwill, were being amortised on a straight-line method not exceeding 40 years (see note (m)).

 

  Prior to fiscal year 2002, costs incurred in the development of major new activities were capitalised until the operations had commenced on a commercial basis. At that point, any readily identifiable intangibles, such as publishing rights, titles and television licences, are recorded at cost and accounted for in accordance with the relevant accounting policy. Under A GAAP, there were no material costs of this nature capitalised during fiscal 2002, 2003 and 2004. Under US GAAP, these business development costs are charged to operating income in the period incurred, in accordance with SOP 98-5.

 

  Under A GAAP, costs associated with cable distribution investments are reflected as intangible assets and are not amortised under A GAAP as they are considered to have an indefinite life. Under US GAAP, unamortised cable distribution investments are shown as other non-current assets. As required, under US GAAP, News Corporation has reclassified the amortisation of cable distribution investments against revenues (see note (l)).

 

  Under A GAAP, when an entity or operation is acquired, the identifiable assets and liabilities assumed must be measured at their fair value at the date of the closing of the acquisition. The purchase consideration is the fair value, as of the closing date of the acquisition, of assets given, equity instruments issued or liabilities undertaken by the acquiring entity. Under US GAAP, equity instruments that are issued in a purchase of business combination are valued on the date the terms of the purchase agreement are agreed to and announced.

 

  Also, in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets”, for US GAAP certain intangible assets have been reclassified from publishing rights, titles and television licences to goodwill.

 

   Goodwill

 

   The net impact of the following US GAAP adjustments on the A GAAP carrying amount of the goodwill as at 30 June 2004 was an increase of US$6,873 million.

 

  Under A GAAP, deferred taxes for basis differences resulting from business combinations are not provided. Under US GAAP, equity instruments that are issued in a purchase business combination are valued on the date the terms of the purchase agreement are agreed to and announced and deferred taxes are generally recorded as goodwill (see note (k)).

 

  As noted above, in accordance with SFAS No. 142 certain intangible assets have been reclassified from Publishing rights, titles and television licences to goodwill.

 

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  (i) Other Non-Current Assets

 

   As outlined in (h) above, under US GAAP, unamortised cable distribution investments are shown as other non-current assets.

 

  (j) Interest bearing liabilities

 

   Under A GAAP, exchangeable securities are classified as a separate line item. Under US GAAP, the exchangeable securities are included in interest bearing liabilities and accordingly have been reclassified from payables and other.

 

  (k) Total current liabilities, payables and other

 

   The net impact of the following US GAAP adjustments on the A GAAP carrying amount of total current liabilities as at 30 June 2004 was a decrease of US$207 million, and on the carrying value of payables and other as at 30 June 2004 was an increase of US$6,126 million.

 

  Under US GAAP, when an entity or operation is acquired, deferred taxes are recognised for the future tax consequences of temporary differences between the values assigned to identifiable assets and the tax basis of the identifiable assets. A GAAP has no comparable policy. The impact of this is to increase deferred tax liabilities by US$2.3 billion. A further additional US$1.0 billion deferred tax liabilities is recognised under US GAAP reflecting the cumulative tax impact of US GAAP differences.

 

  In addition, under A GAAP, minority interest of US$3.8 billion in subsidiaries is included in net assets while under US GAAP minority interest in subsidiaries is classified outside of net assets and accordingly has been reclassified.

 

  Under A GAAP, for the News Group’s defined benefit superannuation plans, the News Group recognises pension costs at the required levels of contributions made or as actuarially determined. Under US GAAP, pension costs for defined benefit plans, whether overfunded or underfunded, are recorded on an accrual basis in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” rather than based on contributions payable to the retirement plan for the year. In addition, no minimum liability adjustment is recognised against equity whereas under US GAAP a minimum pension liability is recognised against other comprehensive income when the accumulated benefit obligation exceeds the fair value of plan assets. The impact of this is to increase liabilities under US GAAP by US$0.3 billion.

 

  As outlined in (j) above, exchangeable securities included in payables and other under A GAAP have been reclassified to interest bearing liabilities under US GAAP.

 

  (l) Revenues

 

   US GAAP requires the amortisation of cable distribution investments over the original term of the cable distribution agreement and that such amortisation should be presented as a reduction in revenue. Under A GAAP, costs associated with cable distribution investments are reflected as intangible assets.

 

  (m) Operating income

 

  

In addition to the impact of (l) above, US GAAP operating income has been adjusted to remove the amortisation of goodwill. Under A GAAP, goodwill acquired in purchase business

 

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combinations is amortised over a period not exceeding 20 years using the straight-line method. After fiscal 2002, under US GAAP, goodwill and indefinite-lived intangible assets are not amortised but are annually assessed for impairment or earlier if required (see note (h)).

 

  (n) Associated entities before other items

 

   Net profit from associated entities has been adjusted to reflect the effect of applying US GAAP to the associated companies’ A GAAP consolidated financial statements.

 

  (o) Other items

 

   Under A GAAP, items that are considered significant by reason of their size, nature or effect on the Group’s financial performance for the year are classified as other revenues and other expenses before tax. The classification of these items in the financial information under US GAAP differs from their classification under A GAAP. Accordingly, under US GAAP, some of these items have been reclassified to the appropriate line items in the financial information or have been adjusted to their US GAAP basis.

 

   Gains or losses on the sale of News Group assets are calculated in the same manner under both A GAAP and US GAAP except that a US GAAP carrying value is utilised under US GAAP. A difference usually exists between US GAAP and A GAAP carrying values because the initial investments had been valued using different methodologies, (see note (h)) and amortisation expense under US GAAP would have reduced the assets carrying value (see note (m)).

 

   Under US GAAP the News Group records warrants, conversion features and other derivatives at their fair value on each balance sheet date and any related changes to their fair value are recorded as a component of the statement of operations. A GAAP has no comparable policy.

 

  (p) Interest, minority and tax expense

 

   This adjustment primarily reflects additional income tax expense based on the impact of US GAAP adjustments and the application under US GAAP of SFAS No. 109 “Accounting for Income Taxes”.

 

  (q) Earnings per share

 

   In column (1), diluted earnings per share has been presented in both A dollars and US dollars on a historical basis. For convenience, in all columns, earnings per share following completion of the Proposed Transaction has been adjusted for the Reorganisation and reflects the one for two exchange ratio impact on both Shareholders and Optionholders. In column (5), diluted pro forma earnings per share has been presented in A dollars and reflects the Cruden/QPL Transaction. Column (6) converts the earnings per share information in column (5) into US dollars. In column (8), pro forma diluted earnings per share has been presented in US dollars to reflect the Proposed Transaction and the application of US GAAP.

 

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5. Tax implications for Shareholders and Optionholders

 


 

5.1 Personal tax advice

 

   A discussion of some of the tax implications of the Reorganisation are discussed in this Section of the Information Memorandum. However, all Shareholders and Optionholders should consider the tax consequences of the Reorganisation, if implemented, in light of their particular circumstances in the jurisdictions in which they are subject to taxation.

 

   If you are in any doubt about your taxation position, you should seek independent professional advice about the tax considerations of participating in the Schemes and Capital Reduction in your particular circumstances.

 

5.2 Australian tax considerations

 

   The summary below of the Australian tax considerations in relation to the Schemes and the Capital Reduction is intended as a general guide only and is based on the Australian tax laws in effect at the date of this Information Memorandum.

 

   The summary below of Australian tax considerations does not purport to be a complete analysis or listing of all the potential tax consequences of the Schemes and Capital Reduction. It is not intended as advice and should not be relied on as advice.

 

 

If you are:

   Go to Section:

an Australian resident individual

   5.3

an Australian resident company

   5.4

an Australian resident complying superannuation fund

   5.5

an Australian resident trust

   5.6

a non-resident Shareholder

   5.7

an Optionholder

   5.8

 

   Shareholders and Optionholders who are Australian residents should also see Section 5.11 for US tax consequences for non-US residents.

 

   Each Section listed above contains, where relevant, information relating to the tax implications of:

 

  the cancellation of News Corporation shares or options for News Corp US shares or options under the Schemes;

 

  the receipt of future dividends from News Corp US; and

 

  the future disposal of the News Corp US shares or options that you receive under the Schemes.

 

   As noted previously in this Information Memorandum, unless they elect otherwise, News Corporation Shareholders whose addresses are in Australia will be issued CDIs in respect of News Corp US shares in exchange for the News Corporation shares currently held. Any reference in Sections 5.3 to 5.8 below to News Corp US shares also includes CDIs in respect of such News Corp US shares.

 

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5.3 Australian tax consequences of the Share Scheme and Capital Reduction for Australian resident individuals

 

  (a) Cancellation of News Corporation shares held on capital account

 

   When you hold your shares on capital account, the Australian tax implications of the implementation of the Share Scheme and Capital Reduction will vary depending on whether you acquired your News Corporation shares before 20 September 1985 (pre-CGT) or on or after 20 September 1985 (post-CGT).

 

   Post-CGT News Corporation shares: Under the Share Scheme and Capital Reduction, you will receive one News Corp US share for every two News Corporation shares you currently hold. This will be considered a CGT event in respect of your News Corporation shares for CGT purposes, subject to the availability of scrip-for-scrip rollover relief (see below).

 

   A capital gain will arise if the capital proceeds (ie the market value of the News Corp US shares received on the Implementation Date of the Share Scheme) exceed the cost base of the News Corporation shares. The calculation of cost base of the News Corporation shares depends on your individual circumstances. A capital loss will arise where the capital proceeds are less than the reduced cost base of the News Corporation shares. Your capital gains and capital losses in a year of income are aggregated to determine whether you have a net capital gain. Any net capital gain (subject to any discount concession – refer below) is included in your assessable income and is subject to income tax at your ordinary tax rate. Net capital losses may not be deducted against other income for income tax purposes, but may be carried forward to offset against capital gains derived in future income years.

 

   If you would otherwise realise a capital gain from the disposal of your News Corporation shares, you can choose to claim scrip-for-scrip rollover relief and no tax liability will arise as a result of the cancellation. If you make a capital loss from the disposal of your News Corporation shares, you cannot claim rollover relief but no tax liability will arise in respect of the cancellation.

 

   CGT rollover relief chosen: A class ruling application has been lodged with the Australian Taxation Office seeking confirmation that the conditions for scrip-for-scrip rollover relief are satisfied and that rollover relief is available in relation to the cancellation of News Corporation shares for News Corp US shares under the Share Scheme and Capital Reduction. Shareholders will be advised of the outcome of the ruling process once the final ruling has issued.

 

   Whilst the capital gain is disregarded if rollover relief is chosen, the taxation of the capital gain is effectively only deferred until any disposal of the News Corp US shares received as consideration under the Share Scheme for the cancellation of the News Corporation shares. This is discussed further at Section 5.3(c) below.

 

   A choice to obtain CGT rollover relief must generally be made before the lodgement of your income tax return for the year ending 30 June 2005. However, you do not have to lodge a notice with the Australian Taxation Office to claim scrip-for-scrip rollover relief. You simply choose to exclude any capital gain upon the disposal of your News Corporation shares from your assessable income in your tax return.

 

   CGT rollover relief not applicable or not chosen: Where scrip-for-scrip rollover does not apply (or where you do not choose for the scrip-for-scrip rollover provisions to apply), any capital gain arising from the cancellation of News Corporation shares may be reduced via either a discount or indexation adjustment.

 

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   To be eligible for the discount, you must have held the News Corporation shares for at least twelve months prior to disposal. The amount of this discount is 50% in the case of individuals. This means only half of any net capital gain arising from the exchange of the News Corporation shares is included as an assessable capital gain.

 

   Indexation may be chosen where you purchased your News Corporation shares before 21 September 1999 and where the discount option discussed above is not chosen. Under the indexation option, the cost base of the News Corporation shares is indexed for movements in inflation between the date of acquisition and 30 September 1999. These indexation adjustments are ignored when calculating the amount of any capital loss.

 

   The relative benefit of choosing to include indexation in the cost base of News Corporation shares, as compared to applying the CGT discount will be dependent on your individual circumstances.

 

   Pre-CGT News Corporation shares: Whilst the cancellation of your News Corporation shares for News Corp US shares under the Share Scheme will be considered a disposal for CGT purposes, you will not pay tax on any gain arising from this disposal or be able to claim any capital loss where you acquired your News Corporation shares before 20 September 1985. However, the News Corp US shares issued to you will, if subsequently disposed of, be subject to capital gains tax (see Sections 5.3(d) below).

 

  (b) Cancellation of News Corporation shares held on revenue account

 

   Where you hold your News Corporation shares on revenue account, any gain that arises on the disposal of your News Corporation shares will be assessed as ordinary income. The CGT rollover concessions, the 50% discount and the indexation adjustment outlined above will not be available where you hold your News Corporation shares on revenue account.

 

   The taxable gain (or deductible loss) will be calculated as the difference between the value of the News Corp US shares received at the date of the exchange and the purchase price of your News Corporation shares (or the opening tax value where you hold the News Corporation shares as trading stock).

 

  (c) Tax on future dividends from News Corp US

 

   Dividend income received from News Corp US will be included in your assessable income for Australian tax purposes as foreign source dividend income.

 

   Upon payment of a dividend to you, News Corp US will withhold and remit a percentage of the gross dividend to the taxation authorities in the United States, as described in Section 5.11(b) of this Information Memorandum. You will, therefore, receive the dividend net of this withholding tax.

 

   You will need to include the gross dividend in your assessable income (ie the dividend before withholding tax has been deducted), however the US withholding tax can generally be offset against the Australian tax payable by you on the dividend. This offset is called a “foreign tax credit”.

 

   Broadly, the foreign tax credit that you can claim is calculated as the lesser of:

 

  the actual withholding tax remitted; or

 

  the Australian tax payable upon your net dividend income. Your net dividend income is equal to your gross dividend income less your deductions (other than debt deductions) that relate exclusively to the dividend.

 

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   If the withholding tax on your dividend exceeds the foreign tax credit that you can claim in any year, you can offset this excess against certain types of other foreign income derived by you in either the year in which the excess arises or any of the following five years.

 

  (d) Tax on a future disposal of News Corp US shares held on capital account

 

   The Australian tax implications of any capital gain or loss that you make upon the future disposal of News Corp US shares are generally the same as that described above in Section 5.3(a) for the News Corporation shares where scrip-for-scrip rollover relief is not elected.

 

   There are however, some differences depending on whether you have claimed scrip-for-scrip rollover relief in relation to the cancellation of your News Corporation shares for News Corp US shares you received under the Share Scheme.

 

   CGT rollover relief chosen: For the purposes of applying the CGT discount provisions to a disposal of the News Corp US shares, you will be deemed to have acquired your News Corp US shares at the time you originally acquired your News Corporation shares. The cost base of each News Corp US share will be equal to the cost base of the two shares in News Corporation cancelled.

 

   CGT rollover relief not chosen: For the purposes of applying the CGT discount provisions to a disposal of the News Corp US shares, the acquisition date is the Implementation Date for the Share Scheme. The CGT cost base of the News Corp US shares you received under the Share Scheme as consideration for the cancellation of the News Corporation shares is equal to the market value of those News Corporation shares on the Implementation Date for the Share Scheme.

 

  (e) Tax on a future disposal of News Corp US shares held on revenue account

 

   If you hold your shares on revenue account, the Australian tax implications of any gain or loss that you make upon the future disposal of News Corp US shares are the same as that described above in Section 5.3(b) for the News Corporation shares.

 

   The US tax implications of the disposal of News Corp US shares are outlined at Section 5.11 below.

 

5.4 Australian tax consequences of the Share Scheme and Capital Reduction for Australian resident companies

 

  (a) Cancellation of News Corporation shares

 

   The Australian tax implications of the share cancellation are the same as for an Australian resident individual (outlined in Sections 5.3(a) and (b) above), except that the discount is not available where the shares are held on capital account.

 

  (b) Tax on future dividends from News Corp US

 

   Australian company that holds less than 10% of News Corp US after the implementation of the Share Scheme: The Australian tax implications of receiving dividends from News Corp US will be the same as for an Australian resident individual, as outlined in Section 5.3(c) above.

 

   Australian company that holds 10% or more of News Corp US after the implementation of the Share Scheme: If you hold 10% or more of the voting interests in News Corp US, the dividend will be exempt income to you for Australian tax purposes and no tax will be payable. No foreign tax credit for the 5% US dividend withholding tax will be available.

 

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  (c) Tax on future disposal of News Corp US shares

 

   The Australian tax implications of future disposal of your News Corp US shares are the same as described in Section 5.3(d) above, with the exception that the discount is not available where the shares are held on capital account.

 

5.5 Australian tax consequences of the Share Scheme and Capital Reduction for Australian resident complying superannuation funds

 

  (a) Cancellation of News Corporation shares

 

   The Australian tax consequences of the Scheme should broadly be as outlined above in Sections 5.3(a) and (b) for Australian resident individuals, except that the CGT discount applicable to shares held for greater than twelve months is 33 1/3%, as opposed to 50% for individuals.

 

  (b) Tax on future dividends from News Corp US

 

   The Australian tax implications for you of receiving dividends from News Corp US will be the same as for an Australian resident individual as outlined in Section 5.3(c) above.

 

  (c) Tax on future disposal of News Corp US shares

 

   The Australian tax implications of any gain or loss that you make upon the disposal of your News Corp US shares are the same as described in Section 5.3(d) above, with the exception that the discount is 33 1/3% as outlined above.

 

5.6 Australian tax consequences of the Share Scheme and Capital Reduction for Australian resident trusts

 

   Broadly, where News Corporation shares are held by a trust and gains are distributed to individual beneficiaries, the CGT consequences described for Australian resident individuals above in Sections 5.3(a) and (b) will also be applicable. This includes the CGT discount of 50% and the indexation adjustment.

 

   However, the tax consequences which arise where trusts hold shares in News Corporation will vary depending upon the nature of the trust. These tax consequences have not been considered and Shareholders in these circumstances should seek their own advice.

 

5.7 Australian tax consequences of the Share Scheme and Capital Reduction for non-resident Shareholders

 

   Whilst this Section provides a brief overview of the Australian income tax implications under the Share Scheme and Capital Reduction for News Corporation Shareholders who are not resident of Australia for tax purposes, you should seek separate advice in relation to the taxation implications under the laws of your country of residence. If you are a US resident Shareholder in News Corporation, a summary of the US tax implications for you is contained below in Section 5.10.

 

  (a) Cancellation of News Corporation shares held on capital account

 

   If you are not resident in Australia for tax purposes and hold News Corporation shares on capital account, you will generally not be liable for Australian income tax on any capital gain arising upon the disposal of your News Corporation shares, unless the shares have the necessary connection with Australia.

 

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   News Corporation shares will generally only have the necessary connection with Australia if:

 

  you, together with any associates, hold (or held in the previous five years) 10% or more by value of the issued capital of News Corporation; or

 

  you hold the share in connection with the conduct of a business through a permanent establishment in Australia.

 

   If you hold News Corporation shares that have the necessary connection with Australia, you will be subject to CGT on the disposal of your post-CGT News Corporation shares. If a capital gain arises upon the cancellation, scrip-for-scrip rollover relief will not be available to you. However, the discount or indexation adjustment as outlined above in Sections 5.3(a) and (b) for Australian resident individuals may be obtained.

 

   Further, a Double Tax Agreement between Australia and your country of residence may provide taxation relief, subject to your individual circumstances and the terms of the relevant Double Tax Agreement. You should seek independent professional advice in relation to this matter.

 

   If you hold News Corporation shares that do not have the necessary connection with Australia, you should not be subject to tax in Australia on disposal under the Share Scheme.

 

   Where you acquired your shares before 20 September 1985 (pre-CGT) and hold your shares on capital account, you will not be subject to tax as a result of the Share Scheme.

 

   If a capital loss would arise to you upon the exchange, you will not be able to claim this loss in Australia unless your News Corporation shares have the necessary connection with Australia.

 

  (b) Cancellation of News Corporation shares held on revenue account

 

   If you hold your News Corporation shares on revenue account, you may be liable to Australian income tax in respect of the profit arising upon the disposal of the News Corporation shares.

 

   The position will however be dependent upon whether you hold the shares as part of carrying on a business through a permanent establishment in Australia, the source of the profit on the disposal, and whether you are a resident of a country with which Australia has entered into a double tax agreement.

 

   You should seek your own independent advice as to the consequences of the Share Scheme in these circumstances.

 

  (c) Tax on future dividends from News Corp US

 

   If you are not an Australian resident for tax purposes, you will not be subject to Australian tax on any dividends paid by News Corp US.

 

   Upon payment of a dividend to you, News Corp US will generally withhold dividend withholding tax at the rate described in Section 5.11(b) of this Information Memorandum.

 

  (d) Tax on future disposal of News Corp US shares held on capital account

 

   If you are not an Australian resident for tax purposes, you will not be subject to Australian tax upon any gain arising from the disposal of your News Corp US shares, where they are held on capital account.

 

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  (e) Tax on future disposal of News Corp US shares held on revenue account

 

   Where you hold your shares on revenue account, you will not be subject to Australian tax upon any gain arising from the disposal of your News Corp US shares.

 

5.8 Australian tax consequences of the Option Scheme for Optionholders

 

   Under the Option Scheme, each Option granted under the News Corporation Share Option Plan and the Australian Executive Share Option Plan will be cancelled and in consideration of the cancellation, Optionholders will receive options exercisable for half the number of shares of News Corp US Non-Voting Common Stock.

 

  (a) Cancellation of News Corporation Options

 

   The Australian income tax implications for Australian resident Optionholders are the same as for Australian resident Shareholders (see discussion regarding shares in Section 5.3(a) above). Further, the Australian income tax implications for non-resident Optionholders are the same as for non-resident Shareholders (see discussion regarding shares in Section 5.7(b) above).

 

  (b) Tax on future dividends from News Corp US

 

   No Australian tax liability will arise, as Optionholders will not be entitled to receive dividends from News Corp US.

 

  (c) Tax on future exercise of News Corp US Options

 

   Any future exercise of News Corp US Options acquired under the Option Scheme will not be subject to Australian tax.

 

5.9 US tax considerations

 

   Sections 5.10 to 5.14 of this Information Memorandum summarise the material US federal tax consequences of the Share Scheme and the Option Scheme generally applicable to US Persons and Non-US Persons, as well as the US federal income tax consequences of the Share Scheme to News Corporation and News Corp US. For purposes hereof, a US Person is:

 

  a United States citizen or resident as determined under the Code;

 

  a corporation created or organized under the laws of the United States, any state or the District of Columbia;

 

  an estate, the income of which is subject to United States federal income taxation regardless of its source; or

 

  a trust, if (i) a court within the United States is able to exercise primary supervision over its administration and at least one United States person is authorised to control all substantial decisions of the trust or (ii) it has validly elected to be treated as a United States person.

 

   In the case of a partnership that holds News Corporation shares or ADSs, the tax treatment of a partner in the partnership is determined by reference to the status of such partner and the activities of the partnership. A Non-US Person is any person that is not a US Person.

 

  

The discussion in Sections 5.10 to 5.14 is based on the Code, US Treasury Regulations promulgated thereunder, and judicial and administrative decisions and rulings, all as in effect as

 

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of the Effective Date and all of which are subject to change, possibly with retroactive effect. No ruling from the US Internal Revenue Service with respect to the tax consequences of the Share Scheme or the Option Scheme has been or will be sought.

 

   Sections 5.10 to 5.14 do not purport to deal with all aspects of federal income taxation that may affect particular persons in light of their individual circumstances or that may affect Share Scheme Participants or Option Scheme Participants subject to special treatment under federal income tax law, including:

 

  Share Scheme Participants that do not hold their News Corporation shares or ADSs as capital assets;

 

  insurance companies;

 

  tax-exempt organizations;

 

  financial institutions;

 

  mutual funds;

 

  dealers in securities or foreign currency;

 

  traders in securities that elect to use a mark to market method of accounting;

 

  persons subject to the alternative minimum tax provisions of the Code;

 

  Share Scheme Participants who hold their shares as part of a hedge, wash sale, appreciated financial position, straddle, conversion transaction, “constructive sale” or other risk reduction transaction; and

 

  Share Scheme Participants who have acquired their shares upon exercise of employee options or otherwise as compensation.

 

   In addition, Sections 5.10 to 5.14 do not consider the effect of any applicable state, local or foreign tax laws, nor do they consider the tax consequences of other transactions effectuated before, after or concurrently with the Share Scheme or the Option Scheme (whether or not any such transaction is undertaken in connection with the Share Scheme or the Option Scheme). The discussion in Sections 5.10 to 5.14 also do not apply to any person who receives News Corp US stock other than in exchange for News Corporation shares or ADSs pursuant to the Share Scheme (for example, in exchange for services or upon the exercise of options). Finally, except as set forth under “Option Scheme” below, the discussion below does not consider the tax consequences of the Share Scheme or the Option Scheme to holders of debt instruments or of options, warrants or other similar rights to acquire News Corporation shares or ADSs. You are urged to consult with your tax adviser as to the tax consequences of the Share Scheme or the Option Scheme to you in light of your particular circumstances, including the applicability and effect of any state, local or foreign tax laws.

 

  

The completion of the Share Scheme is conditioned upon the delivery by News Corporation’s counsel, Hogan & Hartson L.L.P., of an opinion to the effect that, for US federal income tax purposes, the exchange of News Corporation shares or ADSs for shares of News Corp US stock pursuant to the Share Scheme constitutes a transfer of property to News Corp US in exchange for shares of News Corp US stock with respect to which, except in respect of cash received in lieu of fractional shares, no gain or loss will be recognized by any holder of News Corporation

 

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shares or ADSs pursuant to Section 351(a) of the Code. Such opinion will be based on certificates executed by officers of News Corporation and others containing representations regarding past, current and future matters that are customary for transactions of this nature. If any of the representations are inaccurate or incorrect, the conclusions stated in the tax opinions could be affected. The opinion will be based on the Code, US Treasury Regulations promulgated thereunder, and judicial and administrative decisions and rulings, all as in effect as of the Effective Date and all of which are subject to change, possibly with retroactive effect. The tax opinions will not be binding on the US Internal Revenue Service or the courts, and there can be no assurance that the US Internal Revenue Service or the courts will not take a contrary view.

 

5.10 US tax consequences of the Share Scheme for US Participants

 

   For the purposes hereof, a US Participant is a Share Scheme Participant that is a US Person. The material US federal income tax consequences to a US Participant that will generally result from treatment of the Share Scheme as a transaction described in Section 351(a) of the Code are as follows:

 

  (a) Nonrecognition of gain; cash in lieu of fractional shares

 

   A US Participant will not recognise a gain or loss as a result of the Share Scheme except in respect of cash received in lieu of fractional shares. Any recognised gain or loss will be a capital gain or loss, and will be a long-term capital gain or loss if the US Participant has held its News Corporation shares or ADSs for more than one year as of the effective time of the Share Scheme. Cash payments in lieu of a fractional share will be treated as if such fractional share of News Corp US stock had been issued in the Share Scheme and then redeemed by News Corp US. A US Participant receiving cash in lieu of a fractional share will generally recognise a gain or loss equal to the difference between such US Participant’s basis in the fractional share and the amount of cash received.

 

  (b) Tax basis and holding period of News Corp US shares

 

   The aggregate tax basis of the News Corp US stock received by US Participants pursuant to the Share Scheme (including any fractional shares not actually received) will be equal to the aggregate tax basis of the News Corporation shares or ADSs surrendered in exchange therefor, decreased by the amount of cash received in lieu of fractional shares, and increased by the amount of gain recognised on the exchange. The holding period of the News Corp US stock received by each US Participant pursuant to the Share Scheme should include the period for which such US Participant held the News Corporation shares or ADSs surrendered in exchange therefor.

 

   As discussed previously, no ruling will be requested from the US Internal Revenue Service in connection with the Share Scheme, and the tax opinion will not be binding upon the Internal Revenue Service. The Internal Revenue Service is therefore not precluded from successfully asserting a contrary position.

 

  (c) Holding News Corp US stock

 

  

After the time the Share Scheme is Effective, a US Participant will own shares of News Corp US stock in lieu of News Corporation shares. The amount of any distribution by News Corp US in respect of its stock will be equal to the amount of cash and the fair market value, on the date of distribution, of any property distributed. Generally, a distribution will be treated as a dividend to the extent of the current and accumulated earnings and profits of News Corp US, then as a tax-free return of capital to the extent of the recipient’s tax basis in the stock and thereafter as gain

 

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from the sale or exchange of such stock. For foreign tax credit purposes, the portion treated as a dividend will constitute US source income and any gain will generally be sourced to the residence of the stockholder.

 

   In general, a dividend distribution to a corporate US stockholder will qualify for the 70% dividends received deduction, subject to various limitations, including certain holding period, taxable income, debt financing and so-called “extraordinary dividend” provisions in the US Internal Revenue Code.

 

   In the case of a US Participant other than a corporation, preferential tax rates may apply to dividend income if the US Participant holds the stock for more than 60 days during a specified period of time and certain other requirements are met. Dividends received by an individual taxpayer for taxable years after 2008 will be subject to tax at ordinary income rates unless the current law is extended.

 

   Upon the sale or other taxable disposition of News Corp US stock, the US Participant will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and such US Participant’s adjusted tax basis in the News Corp US stock. Such gain or loss will be long-term capital gain or loss if such US Participant’s holding period in the News Corp US stock (which, as described above, will include such US Participant’s holding period in the News Corporation shares exchanged therefor in the Share Scheme) is more than one year. Long-term capital gain is subject to preferential rates for individuals and certain other non-corporate taxpayers. Any gain or loss will generally be treated as arising from US sources.

 

5.11 US tax consequences of the Share Scheme for Non-US Participants

 

  (a) Share Scheme

 

   The Share Scheme will generally not have any US federal income tax consequences to a Non-US Participant. For purposes hereof, a Non-US Participant is a Share Scheme Participant that is not a US Participant.

 

  (b) Holding News Corp US stock

 

   As a result of exchanging News Corporation shares for News Corp US stock, a Non-US Participant will become subject to US withholding tax on any dividends paid with respect to such Non-US Participant’s Shares of News Corp US stock. The determination of whether a distribution is a “dividend” is discussed in Section 5.10(c) above. Such tax will be at a rate of 30% of the gross amount of the dividend, or such lower rate as may be specified under an applicable income tax treaty. A non-US Participant eligible for the benefits of the Australia-US income tax treaty and holding less than 10% of the voting power of News Corp US should be subject to US withholding at a reduced rate of 15%. A Non-US Participant who wishes to claim the benefit of an applicable income tax treaty is required to provide a withholding certificate to the withholding agent (generally the broker where the shares are held) on the appropriate Internal Revenue Service Form W-8, but should not be required to obtain or provide a United States taxpayer identification number as long as News Corp US shares are traded on an established financial market.

 

  

Upon the sale or other taxable disposition of News Corp US stock, a Non-US Participant generally will not be subject to United States federal income tax or withholding tax unless (1) the gain is effectively connected with a United States trade or business of the Non-US Participant (or, if a treaty applies, attributable to a permanent establishment in the United States of such Non-US Participant); (2) in the case of a Non-US Participant who is an individual, such Non-US Participant is present in the United States for a period or periods aggregating 183 days or more

 

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during the taxable year of the disposition, and either (a) such Non-US Participant has a “tax home” (as such term is defined in Section 911 of the Code) in the United States or (b) the disposition is attributable to an office or other fixed place of business maintained by such Non-US Participant in the United States; or (3) News Corp US is characterised as a United States real property holding corporation for United States federal income tax purposes. News Corp US is not currently, and does not anticipate becoming, a United States real property holding corporation.

 

   A Non-US Participant will be taxed in the same manner as a US Participant on dividends or gains on the sale or exchange of News Corp US stock, to the extent that such dividends or gains are effectively connected with the conduct of a United States trade or business by the Non-US Participant (or, if a treaty applies, attributable to a permanent establishment in the United States of such Non-US Participant). If such Non-US Participant is a foreign corporation, it may also be subject to a United States branch profits tax on such income at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. Even though such effectively connected dividends are subject to income tax and may be subject to the branch profits tax, they will not be subject to United States federal withholding tax if the holder delivers a properly executed Internal Revenue Service Form W-8ECI (or successor form) to the payor or the payor’s agent.

 

   For US estate tax purposes, an individual Non-US Participant will be subject to tax on the value of his US assets including stock of News Corp US, although an applicable treaty may operate to exempt such assets or reduce the tax that would otherwise have been imposed. The rate of tax is a sliding scale beginning at 18% for a taxable amount of US$10,000 or less, and ranging up to 48% for a taxable amount of over US$2 million. A credit against the US estate tax (US$555,800) shields an estate of a US resident with assets of up to US$1.5 million; if the value of the estate is greater than US$1.5 million, US estate tax will be payable with respect to the excess over that amount. A Non-US Participant eligible for the benefits of the Australia-US estate tax treaty will also be able to claim the benefit of this tax credit. The amount of the credit that the Non-US Participant may claim is the maximum amount that would be available as a credit to a US Participant (US$555,800), multiplied by the ratio of the value of the US assets includible in the Non-US Participant’s estate to the value of all assets includible in the estate. In any circumstance where the worldwide estate is less than US$1.5 million there will be no US estate tax payable.

 

   In no event, however, will estate tax be imposed on any estate having US assets subject to the tax with a value of less than US$60,000.

 

   The following example illustrates the calculation of the US estate tax payable under the Australia-US treaty for a worldwide estate of US$2.5 million which includes US$150,000 (6%) of US assets:

 

Tax on US$150,000

   US$ 38,800

Allowable credit (6% X US$555,800)

   US$ 33,348

Net tax payable

   US$ 5,452.

 

5.12 US tax consequences of the Share Scheme for News Corporation and News Corp US

 

   The Share Scheme will not have any immediate United States tax consequences to News Corporation or News Corp US (see also Section 1.5(c)).

 

  

News Corporation and its non-United States subsidiaries generally are not subject to United States federal income tax on their income from sources derived outside the United States. However, as a United States person, News Corp US will be subject to United States federal income tax on its worldwide income as such income is properly taken into account for United

 

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States federal income tax purposes. In addition, because News Corp US will have non-United States subsidiaries meeting the definition of “controlled foreign corporations” in the Code, certain earnings of the non-United States subsidiaries of News Corp US may be taxable to News Corp US even if not distributed to News Corp US.

 

5.13 US tax consequences of the Option Scheme

 

   The receipt of the Option Scheme Consideration by an Option Scheme Participant that is a US Person will not have any United States federal income tax consequences to such Option Scheme Participant, News Corporation or News Corp US.

 

5.14 Backup withholding

 

   Dividends from News Corp US will, and proceeds from the sale, exchange, redemption or other disposition of News Corp US shares may, be reported to the United States Internal Revenue Service unless the holder (i) is a corporation, (ii) provides a taxpayer identification number on a properly executed Internal Revenue Service Form W-9, (iii) establishes that such holder is a non-US person on the appropriate Form W-8, or (iv) otherwise establishes a basis for exemption. Backup withholding tax may apply to amounts subject to reporting if the holder fails to provide an accurate taxpayer identification number or otherwise establish an exemption. Backup withholding is not an additional tax. The holder can claim a credit against its United States federal income tax liability for the amount of any backup withholding tax and a refund of any excess amount, provided that certain information is furnished to the Internal Revenue Service.

 

5.15 UK tax considerations

 

  (a) Shareholders

 

   For the purposes of UK taxation of chargeable gains, reorganisation relief should be available to News Corporation Shareholders on the cancellation of their existing News Corporation shares and the issue to them of News Corp US shares. Accordingly, News Corporation Shareholders should not be treated as making a disposal of their News Corporation shares for the purposes of UK taxation of capital gains, and the News Corp US shares issued should be treated as the same asset and as having been acquired at the same time as the News Corporation shares. Clearance has been granted by the Inland Revenue under the provisions of section 138 of the UK Taxation of Chargeable Gains Act 1992 in respect of the Share Scheme and Capital Reduction.

 

   A News Corporation Shareholder who receives cash under the Share Scheme in respect of a fractional entitlement will be treated as making a part disposal of his News Corporation shares for the purposes of UK taxation on chargeable gains and, accordingly, may be liable to such taxation on any chargeable gain arising.

 

  (b) Optionholders

 

   UK holders of options granted under the News Corporation Share Option Plan will not have a taxable event on the exchange of such options for new options over News Corp US Non-Voting Common Stock. UK Optionholders will be liable to tax on exercise of their new options by reference to the difference between market value at the time of exercise and the option exercise price.

 

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6. Implementation of the Share Scheme and Capital Reduction

 


 

6.1 Steps on implementation of the Share Scheme and Capital Reduction

 

   The steps involved in implementing the Share Scheme and Capital Reduction are as follows:

 

  (a) if the Schemes and Capital Reduction are approved at the relevant meetings, then, as a preliminary step, prior the Second Court Date, News Corporation will issue to News Corp US 100 redeemable ordinary shares, having the rights set out in the Constitution of News Corporation, at a subscription price of A$10 per share;

 

  (b) on the Implementation Date, News Corp US will issue News Corp US Voting Common Stock and Non-Voting Common Stock (or, for Australian Share Scheme Participants, CDIs) in the ratios set out in Section 3.2;

 

  (c) all of the Ordinary Shares and Preferred Shares in News Corporation will then be cancelled;

 

  (d) News Corporation will then issue to Carlholt, a wholly owned subsidiary of News Corp US, the same number of Ordinary Shares and Preferred Shares as are cancelled under (c).

 

   Following these steps, News Corporation will be an indirect wholly owned subsidiary of News Corp US.

 

6.2 Who is affected by the Share Scheme and Capital Reduction

 

   News Corporation has two classes of shares on issue, being Ordinary Shares and Preferred Shares. News Corp US will be issued 100 redeemable ordinary shares prior to the Second Court Date, which will not be cancelled as part of the Capital Reduction. Accordingly, the persons who will be affected by the Share Scheme and Capital Reduction are the holders of Ordinary Shares in News Corporation and Preferred Shares in News Corporation on the Record Date.

 

6.3 Steps in implementing the Share Scheme and Capital Reduction

 

  (a) On 8 September 2004, News Corporation, Carlholt and News Corp US entered into an implementation agreement (the Implementation Agreement) under which they have agreed to implement the Schemes and Capital Reduction. A copy of the Implementation Agreement is included in Section 9.

 

  (b) On 15 September 2004, News Corp US and Carlholt executed a deed poll in favour of News Corporation Shareholders (the Deed Poll), covenanting to provide the Share Scheme Consideration. A copy of the Deed Poll is included in Section 12.

 

  (c) On 15 September 2004, the Court ordered that News Corporation convene the class meetings referred to in Section 3.3 for the purposes of approving the Share Scheme. The Capital Reduction requires the additional meeting referred to in Section 3.3.

 

     Such meetings are to be held at the Adelaide Hilton International Hotel, 233 Victoria Square, Adelaide, South Australia on 26 October 2004 from 10:30 am, or, if later, following conclusion of the AGM (which commences at 10:00 am on that day). The notices convening the meetings are enclosed with the Information Memorandum of which this Explanatory Statement forms part. The order of the Court to convene the Share Scheme Meetings is not, and should not be treated as, an endorsement by the Court of, or any other expression of opinion by the Court on, the Share Scheme.

 

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  (d) If:

 

  (i) the Share Scheme and Capital Reduction are approved by the requisite majorities at the various meetings; and

 

  (ii) all other Conditions Precedent (apart from completion of the agreements to implement the Cruden/QPL Transaction) have been satisfied or waived,

 

     then News Corporation will apply to the Court for orders approving the Share Scheme.

 

     Each News Corporation Shareholder has the right to appear at the application by News Corporation for orders approving the Share Scheme. The Court may refuse to grant those orders even if the Share Scheme is approved by the requisite majorities at the various Scheme Meetings.

 

  (e) If the Court orders referred to above are obtained, then News Corporation will lodge with ASIC an office copy of the Court orders approving the Share Scheme under section 411 of the Corporations Act.

 

  (f) If the Share Scheme becomes Effective, then on the Implementation Date all of the Shares held by a Share Scheme Participant will be cancelled without the need for any further act by the Scheme Shareholder and the Share Scheme Consideration will be provided in accordance with the Share Scheme.

 

6.4 Ancillary documents

 

   The Share Scheme (set out in Section 10 of this Information Memorandum) contains the legal rights and obligations of News Corporation and Share Scheme Participants under the Share Scheme. In addition, News Corporation, Carlholt and News Corp US have undertaken certain obligations pursuant to the Implementation Agreement and the Deed Poll.

 

6.5 Conditions Precedent

 

   In addition to the approval of the Share Scheme, the Option Scheme and Capital Reduction, the obligations of News Corporation, Carlholt and News Corp US to implement the Share Scheme and Capital Reduction are subject to the following conditions being satisfied or, where applicable, waived in accordance with the terms of the Implementation Agreement:

 

  (a) ASX listing: before 8:00 am on the Second Court Date, the ASX approves:

 

  (i) News Corp US for admission to the ASX official list;

 

  (ii) the Voting CDIs for official quotation by the ASX; and

 

  (iii) the Non-Voting CDIs for official quotation by the ASX,

 

     in each case conditional only upon the News Corporation Schemes becoming Effective and News Corp US providing to the ASX the information required by the ASX approval or the Listing Rules and satisfying any other conditions of ASX approval related to deferred trading of CDIs;

 

  (b) NYSE listing: before 8:00 am on the Second Court Date, the NYSE approves subject to official notice of listing:

 

  (i) the News Corp US Voting Common Stock for listing on the NYSE;

 

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  (ii) the News Corp US Non-Voting Common Stock for listing on the NYSE

 

     in each case conditional only upon the Schemes becoming Effective and the delivery of a legal opinion given by Hogan & Hartson L.L.P. in substantially the form accompanying the listing application filed with the NYSE;

 

  (c) ASIC Relief: before 8:00 am on the Second Court Date, ASIC grants to News Corporation the ASIC Relief on terms that are unconditional or subject to conditions that are acceptable to News Corporation;

 

  (d) ASX Waivers: before 8:00 am on the Second Court Date, ASX grants to News Corporation the ASX Waivers on terms that are unconditional or subject to conditions that are acceptable to News Corporation;

 

  (e) Australian Taxation Office Ruling: before 8:00 am on the Second Court Date, News Corporation receives from the Australian Taxation Office a ruling that Australian resident Share Scheme Participants and Option Scheme Participants will receive capital gains tax rollover relief in relation to the cancellation of their shares and options in News Corporation under the Schemes and the Capital Reduction;

 

  (f) Required consents: before 8:00 am on the Second Court Date, all Required Consents which News Corporation and News Corp US agree are necessary to implement the Proposed Transaction are obtained or received, without the imposition of any term or condition unsatisfactory to the parties acting reasonably;

 

  (g) No restraints: before 8:00 am on the Second Court Date, no temporary restraining order, preliminary or permanent injunction or other order is issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the Proposed Transaction being implemented;

 

  (h) Ability to issue CDIs: before 8:00 am on the Second Court Date, News Corp US has done everything necessary under the ASTC Settlement Rules to enable it to issue Voting CDIs and Non-Voting CDIs other than the allotment to a Depositary Nominee of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock under the Share Scheme;

 

  (i) US tax opinion: before 8:00 am on the Second Court Date, News Corporation receives from Hogan & Hartson L.L.P., in form and substance satisfactory to News Corporation, on the basis of the facts, representations and assumptions stated therein as of the time the News Corporation Schemes and Capital Reduction become Effective, to the effect that the cancellation of News Corporation shares in exchange for the issue of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock pursuant to the Share Scheme and Capital Reduction constitutes a transfer of property to News Corp US in exchange for stock of News Corp US with respect to which, except in respect of cash received in lieu of fractional shares, no gain or loss will be recognised by any holder of News Corporation shares pursuant to Section 351(a) of the Code, it being understood that in rendering the tax opinion, Hogan & Hartson L.L.P. will be entitled to rely upon, inter alia, representations from an officer of News Corp US and News Corporation, and the trustees of the AE Harris Trust, the Second Trust, the Settlement Trusts and the Remaining Trust, substantially in the form of Schedule 7 of the Kayarem Share Exchange Agreement and Schedule 8 of the CI Share Exchange Agreement and any other representations deemed necessary by Hogan & Hartson L.L.P.;

 

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  (j) Readiness of agreements: before 8:00 am on the Second Court Date, the agreements to implement the Cruden/QPL Transaction are executed following exercise of the call options in the Call Option Deeds and each party to them provides a certificate to News Corporation (for provision to the Court) that confirms the following with respect to the agreements:

 

  (i) all conditions precedent to completion of the agreements to which it is a party have been satisfied or waived, except conditions precedent which, by their terms can only be satisfied upon the making of the Implementation Orders, without any term or condition which is unsatisfactory to any of the parties in their discretion (acting reasonably);

 

  (ii) it is not aware of any then existing or crystallised rights to terminate any of the agreements, except for rights of termination which, by their terms, can only arise if the Implementation Orders are not made or the Implementation Orders are made with a term or condition which is unsatisfactory to any of the parties in their discretion (acting reasonably); and

 

  (iii) it is ready, willing and able to complete the agreements once the Implementation Orders are made.

 

  (k) Completion of agreements: before implementation of the Share Scheme and the Option Scheme on the Implementation Date, the agreements to implement the Cruden/QPL Transaction are completed in accordance with their terms.

 

6.6 Termination

 

   Subject to certain limitations, the Implementation Agreement and the obligations of News Corporation, Carlholt and News Corp US to proceed with the Share Scheme and the Capital Reduction may be terminated at any time prior to the Second Court Date:

 

  (a) Carlholt or News Corp US breach: By News Corporation, if Carlholt or News Corp US is in material breach of the Implementation Agreement, taken in the context of the Reorganisation as a whole, before the Second Court Date, provided that News Corporation has given notice to Carlholt and News Corp US setting out the relevant circumstances and stating an intention to terminate and the relevant circumstances have continued to exist for 5 Business Days (or any shorter period ending prior to the commencement of the hearing of the application to the Court to approve the Schemes on the Second Court Date) from the time such notice is given;

 

  (b) News Corporation breach: By Carlholt or News Corp US, if News Corporation is in material breach of the Implementation Agreement, taken in the context of the Reorganisation as a whole, before the Second Court Date, provided that Carlholt and/or News Corp US (as the case may be) has given notice to News Corporation setting out the relevant circumstances and stating an intention to terminate and the relevant circumstances have continued to exist for 5 Business Days (or any shorter period ending prior to the commencement of the hearing of the application to the Court to approve the Schemes on the Second Court Date) from the time such notice is given;

 

  (c) Directors’ recommendation: By any party if the Board of News Corporation withdraws its recommendation in favour of the Reorganisation;

 

  (d) Failure of Condition Precedent: By any party if the Conditions Precedent are not satisfied or waived (in accordance with the terms in the Implementation Agreement);

 

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  (e) Order: By any party if a Court or other Governmental Agency has issued a final and non-appealable order, decree or ruling or taken other action which permanently restrains or prohibits the Reorganisation;

 

  (f) Court decision: By any party if the Court refuses to make any order convening the Scheme Meetings and that party obtains an opinion from Queen’s Counsel or Senior Counsel that an appeal against that decision would have no reasonable prospect of success.

 

   Additionally, the Implementation Agreement may be terminated at any time by any party if:

 

  (g) End Date passes: the End Date has passed without the Schemes becoming Effective; or

 

  (h) Court refusal: the Court refuses to make the Implementation Orders and that party obtains an opinion from Queen’s Counsel or Senior Counsel that an appeal against that decision would have no reasonable prospect of success.

 

   Finally, the Implementation Agreement will terminate automatically, without the action of any party, in the event that:

 

  (i) Share Scheme resolutions: the resolutions put to the Scheme Meetings to approve the Share Scheme are not approved by the requisite majorities of Ordinary Shareholders and Preferred Shareholders under the Corporations Act;

 

  (j) Option Scheme resolutions: the resolutions put to the Scheme Meetings to approve the Option Scheme are not approved by the requisite majorities of Optionholders under the Corporations Act; or

 

  (k) Capital Reduction resolutions: the resolutions put to the Capital Reduction Meeting to approve the Capital Reduction are not approved by the requisite majorities of shareholders under the Corporations Act.

 

6.7 Entitlement to vote at the Share Scheme Meetings and Capital Reduction Meeting

 

   If you are registered as a Shareholder in the Share Register as at 8:00 pm (Adelaide time) on Sunday 24 October 2004, you will be entitled to vote on the Share Scheme and the Capital Reduction.

 

6.8 Voting majority required

 

   The voting majority required at each Share Scheme Meeting is a majority in number of the Shareholders who vote at the particular meeting in person or by proxy and at least 75% of the votes cast at the meeting in person or by proxy. Voting at the Share Scheme Meetings will be by poll.

 

   The voting majority required at the Capital Reduction Meeting is at least 75% of the votes cast at the meeting in person or by proxy.

 

   Instructions on how to attend and vote at the Share Scheme Meetings and Capital Reduction Meeting, or to appoint a proxy, attorney or representative to attend and vote on your behalf, are set in Section of this Information Memorandum entitled “Your vote”.

 

6.9 Opposing the Share Scheme

 

  

The Corporations Act and the Federal Court Rules provide a procedure for News Corporation Shareholders to oppose the approval by the Court of the Share Scheme. If you wish to oppose

 

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the approval of the Share Scheme at the Second Court Hearing you may do so by filing with the Court and serving on News Corporation a notice of appearance in the prescribed form together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on News Corporation at least one day before the date fixed for the Second Court Hearing. The Second Court Hearing is currently scheduled to occur on 3 November 2004. Any change to this date will be announced through the ASX and notified on News Corporation’s website.

 

6.10 Effective Date

 

  (a) The Share Scheme will become effective at the time and date on which the office copy of the order of the Court made under section 411(4)(b) in relation to the Share Scheme is lodged with ASIC pursuant to section 411(10) of the Corporations Act or, if an earlier date is specified in that order for the coming into effect of the Share Scheme, that earlier date.

 

  (b) If the Share Scheme becomes effective, News Corporation will give notice of that event to the ASX.

 

  (c) On the Effective Date, News Corporation and Carlholt will become bound to take the steps described in paragraphs (b) to (d) of Section 6.1 above, subject only to completion of the Cruden/QPL Transaction.

 

6.11 Determination of persons entitled to Share Scheme Consideration

 

  (a) For the purpose of establishing who are Share Scheme Participants, dealings in News Corporation Ordinary Shares and Preferred Shares will only be recognised if:

 

  (i) in the case of dealings of the type to be effected using CHESS, the transferee is registered in the Share Register as the holder of the relevant shares by the Record Date; and

 

  (ii) in all other cases, if registrable transmission applications or transfers in respect of those dealings are received on or before the Record Date at the place where the Share Register is kept.

 

  (b) News Corporation must register registrable transmission applications or transfers in respect of those dealings that are received on or before the Record Date at the place where the Share Register is kept, provided that nothing in this Section 6.11 requires News Corporation to register a transfer that would result in a News Corporation Ordinary Shareholder or Preferred Shareholder holding a parcel of News Corporation shares that is less than a Marketable Parcel.

 

  (c) News Corporation will not accept for registration or recognise for any purpose any transmission application or transfer in respect of News Corporation Ordinary Shares or Preferred Shares received after the Record Date.

 

  (d) For the purpose of determining entitlements to the Share Scheme Consideration, News Corporation will, until the Share Scheme Consideration has been paid, maintain the Share Register in accordance with the provisions of this Section 6.11 and the Share Register in this form will solely determine entitlements to the Share Scheme Consideration.

 

  (e) As from the Record Date, all share certificates and holding statements for the News Corporation Ordinary Shares and Preferred Shares will cease to have effect as documents of title, and each entry on the Share Register at that date will cease to have any effect other than as evidence of entitlement to the Scheme Consideration.

 

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6.12 Provision of Share Scheme Consideration

 

   Shortly after the Implementation Date, holding statements or transmittal letters will be sent by prepaid post to each Share Scheme Participant at the person’s address as shown in the Share Register.

 

6.13 Shareholder instructions

 

   Except for a Share Scheme Participant’s Tax File Number, any instruction or notification between a Share Scheme Participant and News Corporation relating to Ordinary Shares or Preferred Shares at the Record Date (including, without limitation, any instruction relating to payment of dividends or to communications from News Corporation) will from the Record Date be deemed to be a similar instruction or notification to News Corp US (except where the performance of such instruction or notification by News Corp US would not be permitted under applicable law) in respect of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock (or, in the case of Australian Share Scheme Participants, Voting CDIs or Non-Voting CDIs) issued to the Share Scheme Participant until that instruction or notification is revoked or amended in writing and addressed to News Corp US.

 

6.14 Suspension of trading of News Corporation shares; deferred settlement and “when-issued” trading of News Corp US shares

 

   If the Court approves the Share Scheme, News Corporation will notify the ASX, the NYSE, the LSE and the NZSE of the Court approval on the date of that approval. Suspension of trading on the ASX in News Corporation Ordinary Shares and Preferred Shares, and on the NYSE of ADSs representing such shares, will occur from the close of trading on the date on which News Corporation lodges the Implementation Orders with ASIC.

 

   Deferred settlement trading of CDIs representing shares of News Corp US will commence on the ASX and “when-issued” trading of shares of News Corp US will commence on the NYSE after trading of News Corporation Ordinary and Preferred Shares and ADSs is suspended.

 

   On the first Business Day after the Implementation Date, News Corporation will apply for termination of the official quotation of News Corporation Ordinary Shares and Preferred Shares on the ASX, LSE and NZSE.

 

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7. Implementation of the Option Scheme

 


 

7.1 Steps on implementation of the Option Scheme

 

   The steps involved in implementing the Option Scheme are as follows:

 

  (a) on the Implementation Date, all Options will be cancelled; and

 

  (b) News Corp US will then grant to Optionholders replacement options under the News Corp US Option Plan or the News Corp US Former Employee Plan, on the terms set out in Section 3.7.

 

7.2 Who is affected by the Option Scheme

 

   The only class of News Corporation creditors who will be affected by the Option Scheme are the Optionholders.

 

7.3 Steps in implementing the Option Scheme

 

  (a) On 8 September 2004, News Corporation, Carlholt and News Corp US entered into an implementation agreement (the Implementation Agreement) under which they have agreed to implement the Schemes and Capital Reduction. A copy of the Implementation Agreement is included in Section 9.

 

  (b) On 15 September 2004, News Corp US executed a deed poll in favour of News Corporation Optionholders (the Deed Poll), covenanting to provide the Option Scheme Consideration. A copy of the Deed Poll is included in Section 12.

 

  (c) On 15 September 2004, the Court ordered that News Corporation convene the class meetings referred to in Section 3.3 for the purposes of approving the Option Scheme.

 

     Each such meeting is to be held at the Adelaide Hilton International Hotel, 233 Victoria Square, Adelaide, South Australia on 26 October 2004, with the meeting of the holders of Options in News Corporation (other than those holders who are members of the Murdoch Family or associates of the Murdoch Family) commencing at 11:15 am (or as soon thereafter as the Share Scheme Meetings are concluded). The notices convening the Option Scheme Meetings are enclosed with the Information Memorandum of which this Explanatory Statement forms a part. The order of the Court to convene the Option Scheme Meeting is not, and should not be treated as, an endorsement by the Court of, or any other expression of opinion by the Court on, the Option Scheme.

 

  (d) If:

 

  (i) the Option Scheme is approved by the requisite majorities at the Option Scheme Meetings; and

 

  (ii) all other Conditions Precedent (apart from completion of the agreements to implement the Cruden/QPL Transaction) have been satisfied or waived,

 

     then News Corporation will apply to the Court for orders approving the Option Scheme.

 

     Each News Corporation Optionholder has the right to appear at the application by News Corporation for orders approving the Option Scheme. The Court may refuse to grant those orders even if the Option Scheme is approved by the requisite majorities at the Option Scheme Meeting.

 

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  (e) If the Court orders referred to above are obtained, then News Corporation will lodge with ASIC an office copy of the Court orders approving the Option Scheme under section 411 of the Corporations Act.

 

  (f) If the Option Scheme becomes Effective, then on the Implementation Date all of the Options will be cancelled without the need for any further act by any Optionholder and the Option Scheme Consideration will be provided in accordance with the Option Scheme.

 

7.4 Ancillary documents

 

   The Option Scheme (set out in Section 11 of this Information Memorandum) contains the legal rights and obligations of News Corporation and Option Scheme Participants under the Option Scheme. The News Corp US options being issued pursuant to the Option Scheme are issued in accordance with the terms contained in the News Corp US Option Plan (other than for a small number of Optionholders who are former News Corporation employees and who will receive their News Corp US Options under the News Corp US Former Employee Plan). These two plans are summarised in Attachment 3. In addition, News Corporation and News Corp US have undertaken certain obligations pursuant to the Implementation Agreement and the Deed Poll.

 

7.5 Conditions Precedent

 

   The Option Scheme is subject to the same conditions precedent as the Share Scheme and is conditional on the Share Scheme being implemented. These conditions precedent and the rights of News Corporation, Carlholt or News Corp US to rely on the various conditions and the provisions relating to satisfaction or waiver of these conditions precedent are set out in Section 6.5 of this Information Memorandum and in clause 3 of the Implementation Agreement which is set out in Section 9 of this Information Memorandum.

 

7.6 Termination

 

   The termination rights of News Corporation, Carlholt and News Corp US under the Implementation Agreement in respect of the Option Scheme are the same, subject only to necessary modifications, as those applying under the Implementation Agreement in relation to the Share Scheme (which are described in Section 6.6 of this Information Memorandum and set out in full in clause 7 of the Implementation Agreement, a copy of which is set out in Section 9 of this Information Memorandum).

 

7.7 Entitlement to vote at the Option Scheme Meeting

 

   If you are registered as a Optionholder in the Option Register as at 8:00 pm (Adelaide time) on Sunday 24 October 2004, you will be entitled to vote at the Option Scheme Meeting.

 

7.8 Voting majority required

 

   The Option Scheme must be approved at meetings of each class of News Corporation Optionholders and then by the Federal Court of Australia. The Murdoch Family and their associates are regarded as a separate class from other Optionholders of News Corporation and will therefore vote on the Option Scheme at a separate meeting. The voting majority required at each Option Scheme Meeting is a majority in number of Optionholders present and voting at the meeting (in person or by proxy or attorney), being a majority whose “debts or claims” against News Corporation (represented by their Options) amount in aggregate to at least 75% of the total amount of debts or claims of the Optionholders present and voting at the meeting (in person or by proxy or attorney). The value of each Option for such voting purposes will be determined by reference to a Black-Scholes valuation methodology. A list setting out the votes attaching to each Option will be available on News Corporation’s website at www.newscorp.com and will be sent separately to Optionholders within two Business Days after despatch of this Information Memorandum.

 

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   Any Optionholder who disagrees with the proposed method of determining voting rights for Optionholders may raise that issue at the relevant meeting of Optionholders and/or at the Court hearing to approve the Option Scheme (if the Option Scheme is approved by Optionholders).

 

   Instructions on how to attend and vote at the Option Scheme Meeting, or to appoint a proxy, attorney or representative to attend and vote on your behalf, are set out in the Section entitled of this Information Memorandum entitled “Your vote”.

 

7.9 Opposing the Option Scheme

 

   The Corporations Act and the Federal Court Rules provide a procedure for News Corporation Optionholders to oppose the approval by the Court of the Option Scheme. If you wish to oppose the approval of the Option Scheme at the Second Court Hearing you may do so by filing with the Court and serving on News Corporation a notice of appearance in the prescribed form together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on News Corporation at least one day before the date fixed for the Second Court Hearing. The Second Court Hearing is currently scheduled to occur on 3 November 2004. Any change to this date will be announced through the ASX and notified on News Corporation’s website.

 

7.10 Effective Date

 

  (a) The Option Scheme will become effective at the time and date on which the office copy of the order of the Court made under section 411(4)(b) in relation to the Option Scheme is lodged with ASIC pursuant to section 411(10) of the Corporations Act or, if an earlier date is specified in that order for the coming into effect of the Option Scheme, that earlier date.

 

  (b) If the Option Scheme becomes effective, News Corporation will give notice of that event to the ASX.

 

  (c) On the Effective Date, News Corporation and News Corp US will become bound to take the steps described in Section 7.1 above, subject only to completion of the Cruden/QPL Transaction.

 

7.11 Copy of Option Register

 

   Under the Corporations Act, any Optionholder has a right to inspect and to ask for a copy of News Corporation’s Option Register, which contains details of the name and address of each Optionholder and other details regarding the terms of the Options. A copy of the Option Register will be made available to any Optionholder on payment of the prescribed fee under the Corporations Act.

 

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8. Additional information

 


 

8.1 News Corp US shareholders and directors

 

   At the date of this Information Memorandum, News Corp US is a wholly owned subsidiary of the AE Harris Trust, an entity associated with the Murdoch Family, and News Corp US has 100 shares of Voting Common Stock and 100 shares of Non-Voting Common Stock on issue.

 

   News Corp US has not previously traded or conducted any business. As at the date of this Information Memorandum, the directors of News Corp US are M. Ball, J. Mannix, D.F. DeVoe and A.M. Siskind.

 

   On the Implementation Date, the existing News Corp US directors will resign and the News Corporation directors serving as of that date will become all of the directors of the News Corp US. Like News Corporation, News Corp US will have a staggered board. This means that the News Corp US Board will be divided in three classes, Class I, Class II and Class III. If all News Corporation directors standing for election or re-election at the AGM are elected or re-elected, and assuming no other change, on the Implementation Date the News Corp US Board will consist of fourteen directors divided into the following three classes: Class I directors will consist of Messrs. K.R. Murdoch, Barnes, Cowley, DeVoe and Dinh; Class II directors will consist of Messrs. L. Murdoch, Perkins, Shuman, Siskind and Thornton; and Class III directors will consist of Messrs. Carey, Chernin, Eddington and Knight. This is generally consistent with the order of rotation which would otherwise apply under News Corporation’s constitution. One additional independent director will be appointed as a Class III director. The terms of office of directors in Class I, Class II, and Class III end upon the later of the annual meetings in 2007, 2006 and 2005, respectively, or the election and qualification of such directors’ respective successors. Each director elected at annual meetings of stockholders after the Implementation Date will generally serve for a term ending at the third annual meeting following the annual meeting at which such director was last elected, or until such director’s successor is elected and qualified.

 

8.2 Holdings and dealings in News Corporation shares and Options by News Corporation Directors

 

  (a) Holdings of Directors in News Corporation shares and Options

 

   The number of News Corporation shares and Options held by or on behalf of each Director as at 7 September 2004 are as follows:

 

Director    Ordinary
Shares
   Preferred
Shares
   Ordinary Share
Options
   Preferred Share
Options

K.R. Murdoch AC*

   31,994    8,653    0    24,000,000

P.L. Barnes

   0    15,919    0    0

G.C. Bible

   0    0    0    60,000

C. Carey

   0    0    0    994,000

P. Chernin

   0    0    0    18,275,000

K.E. Cowley AO

   0    51,246    0    146,000

D.F. DeVoe

   0    0    0    3,670,000

V. Dinh

   880    0    0    0

R. Eddington

   0    0    0    897,000

A.S.B. Knight**

   339,348    400,000    0    72,000

L.K. Murdoch

   14,111    2,109    0    3,640,000

T.J. Perkins

   31,872    0    0    72,000

S.S. Shuman

   121,993    641,031    0    96,000

A.M. Siskind

   27,871    50,143    0    3,680,000

J.L. Thornton

   0    0    0    0

 

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   * K.R. Murdoch AC additionally is deemed to have a relevant interest in shares by reason of his beneficial and trustee interests in Cruden Investments, a substantial Shareholder, and may also be entitled (as defined in the Corporations Act), to shares by reason of his connection with Kayarem, which has a relevant interest in an additional 17,421,634 Ordinary Shares and 8,942,967 Preferred Shares.

 

   ** A.S.B. Knight is deemed to have an interest by reason of his beneficial interest in a settlement, the trustees of which are Royal Bank of Canada Trustees Limited and Blomfield Trustees (Jersey) Limited.

 

  (b) Dealings by Directors in News Corporation shares and Options

 

   Except as set out in the KSEA Call Option Deed, the CISEA Call Option Deed or below, in the four months ending on the day immediately before the day on which this Information Memorandum was lodged for registration by ASIC, no Director has provided, or agreed to provide, or has received or agreed to receive consideration for a News Corporation share under a sale, purchase, or agreement for sale or purchase of News Corporation shares.

 

   T.J. Perkins:

 

Date    Description of dealing    Number of
securities*
   Price per
security

12 August 2004

   Purchase of ADSs over Preferred Shares    315    US$ 31.30

 

   S.S. Shuman:

 

Date    Description of dealing    Number of
securities*
   Price per
security

25 June 2004

   Exercise of Options resulting in acquisition of Preferred Shares    8000    A$ 4.19

25 June 2004

   Sale of ADSs over Preferred Shares    2000    US$ 35.19

25 June 2004

   Exercise of options resulting in acquisition of Ordinary Shares    4000    A$ 3.70

25 June 2004

   Sale of ADSs over Ordinary Shares    1000    US$ 32.65

 

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   C.G. Carey:

 

Date    Description of dealing    Number of
securities*
   Price per
security

10 May 2004

   Exercise of Options resulting in acquisition of Preferred Shares    710,400    A$ 11.00

10 May 2004

   Sale of ADSs over Preferred Shares    177,600    US$ 34.01

13 May 2004

   Exercise of Options resulting in acquisition of Preferred Shares    400,000    A$ 5.17

13 May 2004

   Sale of ADSs over Preferred Shares    100,000    US$ 32.92

18 May 2004

   Exercise of Options resulting in acquisition of Preferred Shares    100,000    A$ 4.79

18 May 2004

   Exercise of Options resulting in acquisition of Preferred Shares    100,000    A$ 5.17

18 May 2004

   Sale of ADSs over Preferred Shares    50,000    US$ 32.82

16 August 2004

   Exercise of Options resulting in acquisition of Preferred Shares    460,000    A$ 5.83

16 August 2004

   Sale of ADSs over Preferred Shares    115,000    US$ 30.32

18 August 2004

   Exercise of Options resulting in acquisition of Preferred Shares    300,000    A$ 5.83

18 August 2004

   Sale of ADSs over Preferred Shares    75,000    US$ 30.20

19 August 2004

   Exercise of Options resulting in acquisition of Preferred Shares    240,000    A$ 5.83

19 August 2004

   Sale of ADSs over Preferred Shares    60,000    US$ 30.00

23 August 2004

   Exercise of Options resulting in acquisition of Preferred Shares    80,000    A$ 4.79

23 August 2004

   Sale of ADSs over Preferred Shares    20,000    US$ 30.63

25 August 2004

   Exercise of Options resulting in acquisition of Preferred Shares    160,000    A$ 4.79

25 August 2004

   Sale of ADSs over Preferred Shares    40,000    US$ 30.30

 

   *Note that each ADS is over four shares in News Corporation

 

8.3 Holdings and dealings in News Corp US shares and options by News Corporation Directors

 

  (a) Holdings of Directors in News Corp US shares and options

 

   As noted in Section 8.1 above, at the date of this Information Memorandum, News Corp US is a wholly owned subsidiary of the AE Harris Trust. L.R. Murdoch is a potential beneficiary of that discretionary trust and A.M. Siskind and D.F. DeVoe are directors of the companies which act as the trustees of that trust. No securities of News Corp US are held by or on behalf of any other directors of the company.

 

  (b) Dealings by Directors in News Corp US shares and options

 

  

Except as set out in the KSEA Call Option Deed and the CISEA Call Option Deed, in the four months ending on the day immediately before the day on which this Information Memorandum

 

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was lodged for registration by ASIC, no Director has provided, or agreed to provide, or has received or agreed to receive consideration for a News Corp US share under a sale, purchase, or agreement for sale or purchase of News Corp US shares.

 

8.4 Payments or other benefits to News Corporation Directors, secretaries or executive officers

 

   It is not proposed in connection with the Share Scheme or Option Scheme that any payment or other benefit will be made or given to any director, secretary or executive officer of News Corporation or of any corporation related to News Corporation as compensation for loss of, or as consideration for or in connection with, his retirement from office as director, secretary or executive officer of News Corporation or any corporation related to News Corporation.

 

8.5 Agreements or arrangements with News Corporation Directors

 

   Other than as set out in this Information Memorandum, there are no other agreements or arrangements made between any Director and any other person in connection with or conditional upon the outcome of the Share Scheme or the Option Scheme.

 

8.6 Interests held by News Corporation Directors in contracts of News Corp US

 

   Other than as set out in this Information Memorandum, no Director has an interest in any contract entered into by News Corp US.

 

8.7 Capital structure of News Corporation

 

   As at 7 September 2004, News Corporation has 2,099,924,431 Ordinary Shares on issue and 3,871,971,718 Preferred Shares on issue.

 

8.8 Guarantee obligations of News Corporation

 

   On implementation of the Reorganisation, News Corp US, as successor to News Corporation, will assume approximately A$15.8 billion of News Corporation’s guarantees of the obligations of subsidiaries of the News Group under or in relation to public indentures, bank facilities, and other securities, and News Corporation will be released from those guarantee obligations upon implementation of the Post-Transaction Internal Restructuring.

 

8.9 Material changes in the financial position of News Corporation

 

   The latest published financial statements of News Corporation are the audited financial statements for the year ended 30 June 2004 that were released to the ASX on 12 August 2004.

 

   To the knowledge of the Directors, there has not been a material change in the financial position of News Corporation since 30 June 2004, except as disclosed in announcements to the ASX. Copies of these announcements are available to any News Corporation Shareholder or Optionholder free of charge by writing to:

 

   Company Secretary
   The News Corporation Limited
   GPO Box 4245 Sydney NSW 2001
   Australia
   Facsimile: +61 2 9288 3275
   Email: brodiek@newsltd.com.au

 

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8.10 Working capital of News Corp US

 

   Following the Reorganisation, News Corp US will have sufficient working capital to meet its capital needs for the foreseeable future.

 

8.11 Regulatory relief

 

  (a) ASIC Relief

 

   ASIC has granted News Corporation and News Corp US exemptions, modifications and consents from the following provisions of the Corporations Act:

 

  a declaration under subsection 741(1)(b) modifying subsections 707(3) and (4) so that the modified form of those subsections as set out in Class Order 04/671 applies to News Corp US Shares issued:

 

  to the Murdoch Trusts in connection with the Cruden/QPL Transaction (provided that the Cruden/QPL Transaction is disclosed in this Information Memorandum, the News Corp US Shares issued under the Cruden/QPL Transaction are identical to securities issued under the Share Scheme and the issue of those shares under the Cruden/QPL Transaction is conditional on approval of the Schemes); and

 

  following the exercise of News Corp US Options granted under the Option Scheme (provided the circumstances and a detailed summary of the terms of issue of the News Corp US Options issued under the Option Scheme are disclosed in this Information Memorandum);

 

  an exemption under subsection 741(1)(a) to provide relief from Chapters 6D and 7 on a similar basis to Class Order 03/184 in respect of offers of News Corp US Options under the News Corp US Option Plan in the 12 months following the listing of News Corp US on ASX or an approved foreign market, but without requiring News Corp US Shares to have been quoted on a relevant financial market throughout the 12 month period prior to the offer of News Corp US Options under the News Corp US Option Plan;

 

  consent to non-compliance with section 411(3)(b) and 412(1)(a)(ii), Regulation 5.1.01(1) and Part 2 of Schedule 8 of the Corporations Regulations, which require this Information Memorandum to include certain information in relation to creditors’ schemes of arrangement;

 

  approval under clause 8302(h) of Part 3 of Schedule 8 of the Corporations Regulations (which requires this Information Memorandum to contain a statement whether, within the knowledge of the Directors, the financial position of the company has materially changed since the date of the last balance sheet laid before the company in general meeting or sent to Shareholders in accordance with section 314 or 317, and if so, full particulars of any change) to permit this Information Memorandum to only contain information regarding material changes to the financial position of News Corporation since 30 June 2004, on the condition that information required to be given to members of the company under the Corporations Act for the financial year ended 30 June 2004 be sent to Shareholders to be received by them no later than the time they receive this Information Memorandum.

 

   The Instruments granting the relief described above are set out in full in Attachment 6 to this Information Memorandum.

 

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   News Corporation and News Corp USA have received advice from ASIC that ASIC has made an in principle decision to grant the following additional exemptions, modification and consents (but at the date of this Information Memorandum no instruments granting such relief have been issued by ASIC):

 

  a declaration under subsection 741(1)(b) modifying subsection 708A(5) so that section 708A applies to an offer for sale of News Corp US securities in the 12 months following the listing of News Corp US on the ASX and NYSE, but without requiring those securities to have been quoted on a prescribed financial market throughout the 12 month period prior to the date of issue of the securities the subject of the sale offer;

 

  a declaration under subsection 741(1)(b) modifying subsection 713(1) so that section 713 applies to an offer for issue or sale of News Corp US securities in the 12 months following the listing of News Corp US on the ASX and NYSE, but without requiring those securities to have been quoted on a prescribed financial market throughout the 12 month period prior to the date of the prospectus under which the offer is made.

 

  (b) ASX Waivers and Confirmations

 

   News Corp US has applied to the ASX for confirmations in respect of, and waivers from, certain Listing Rules. News Corp US has received in principle advice from the ASX that the ASX is likely to provide the confirmations and waivers described below:

 

  for the purpose of Listing Rule 1.1 (Condition 3) in respect of the following paragraphs of Appendix 1A (being the ASX listing application of News Corp US):

 

  a waiver of paragraph 42 (which requires a brief history of News Corp US) and a waiver of paragraph 106 (to the extent it requires details of News Corp US’s existing and proposed activities and level of operations, plus a statement of its main business), on the basis that shareholders of TNCL may be presumed to be familiar with the company;

 

  a waiver of the requirements in paragraphs 87, 87A, 87B and 87C (which require the provision of accounts), a waiver of paragraph 107 (which requires the provision of details of issues of securities of News Corp US in the last 5 years) and confirmation that paragraph 123A (which requires the provision of documents required under Listing Rules 4.1, 4.2, 4.3, 4.5, 5.1, 5.2 and 5.3) does not apply, on the basis that News Corp US is a newly incorporated company and not a mining entity;

 

  confirmation that the Information Memorandum complies with paragraph 108 (which requires prospectus equivalent information to be included);

 

  a waiver from paragraph 110 (which requires the date the Information Memorandum is signed to be specified);

 

  a waiver from paragraph 116 so that it is not necessary to include a statement in the Information Memorandum that News Corp US will not need to raise capital in the three months after the date of issue of the Information Memorandum;

 

  confirmation that the issue of News Corp US Shares and CDIs over those shares under the Schemes will not prevent News Corp US making the statement required by paragraph 116, that the entity has not raised any capital for the three months before the date of issue of the Information Memorandum;

 

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  a waiver from paragraph 117 so that the Information Memorandum does not need to contain a statement that a supplementary information memorandum will be issued if News Corp US becomes aware of certain matters occurring between the issue of the Information Memorandum and the date News Corp US Shares are quoted on the ASX, on the basis that additional disclosure will be governed by the law applying to schemes of arrangement and the Court’s supervision of the Schemes;

 

  a waiver from Listing Rule 1.3 to permit information in respect of News Corporation to be substituted for the purpose of satisfying the assets test under that listing rule;

 

  confirmation that the terms of the News Corp US Non-Voting Common Stock are appropriate and equitable for the purposes of Listing Rule 6.1;

 

  approval of the News Corp US Non-Voting Common Stock as an additional class of ordinary securities in accordance with Listing Rule 6.2;

 

  a waiver from Listing Rules 6.8 and 6.9 to permit News Corp US to issue News Corp US Non-Voting Common Stock with restricted voting rights as set out in Article IV, Section 4(a)(i) of the News Corp US Certificate of Incorporation;

 

  confirmation that the provisions which deal with regulatory restrictions on transfer and redemption applicable to holders of News Corp US Non-Voting Common Stock and News Corp US Voting Common Stock set out in Article IV, Section 5 of the News Corp US Certificate of Incorporation are appropriate and equitable for the purposes of Listing Rules 6.10.5 and 6.12.3 for so long as the provisions are required to prevent a “violation” as defined in Article IV, Section 5(a)(xx) of the News Corp US Certificate of Incorporation;

 

  confirmation that the provisions of Article IV, Section 4(f) of the News Corp US Certificate of Incorporation which remove from any Subsidiary-Owned Share (as defined in Article IV, Section 4(f)(i)(A)) the right to vote or to receive dividends, are appropriate and equitable for the purposes of Listing Rules 6.10.5 and 6.12;

 

  waivers of Listing Rules 6.22, 6.23.2, 6.23.3 and 6.23.4 in respect of News Corp US Options, on the basis that an alternative mechanism equivalent to that contained in those rules will apply under the rules of the NYSE or an alternative regulatory regime;

 

  a waiver from Listing Rule 7.1 in respect of the issue of additional News Corp US Non-Voting Common Stock or securities convertible into News Corp US Non-Voting Common Stock on condition that the News Corp US Non-Voting Common Stock does not have any right of conversion to another equity security;

 

  a waiver from Listing Rule 8.10 to the extent necessary to permit NewsCorp US to apply a holding lock, or request ASTC to prevent a proper ASTC transfer or refuse to register a paper-based transfer in registrable form where the register of a transfer of a security from or into a holding by the company constitutes a “violation” as described in Article IV, Section 5(a)(xx) of the News Corp US Certificate of Incorporation and ASX has authorised the company in writing to refuse to register such transfers;

 

  confirmation for the purpose of Listing Rule 9.1.3 that none of the News Corp US Shares issued under the Cruden/QPL Transaction or pursuant to the Schemes will be restricted securities;

 

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  confirmation that Exception 5 to Listing Rule 10.11 applies to the News Corp US Shares and News Corp US Options issued pursuant to the Schemes;

 

  confirmation that Listing Rule 10.14 does not apply to the News Corp US Options issued to directors of News Corp US under the Options Scheme;

 

  a waiver from Listing Rule 14.3 to enable nominations of directors to occur in accordance with the timetable set out in the News Corp US by-laws.

 

  a waiver from Listing Rule 14.4 to permit a director of News Corp US appointed by the board to fill a casual vacancy or as an additional director to hold office beyond the next annual general meeting after that person’s appointment if the term of office of the class of director into which that person has been appointed expires at a later annual general meeting, in compliance with the provisions for the election of directors set out in Article V, Section 1 of the News Corp US Certificate of Incorporation;

 

  a waiver from Listing Rule 15.15 to the extent necessary to permit Article IV, Section 4(e) of the News Corp US Certificate of Incorporation to include provisions stating that the holders of both News Corp US Non-Voting Common Stock and News Corp US Voting Common Stock may not sell, exchange or otherwise transfer ownership of the shares to a person who has made an “offer” (as defined in the News Corp US Certificate of Incorporation) unless the offer relates to both classes of shares, and the terms and conditions of the offer for both classes of shares are comparable;

 

  a waiver from Listing Rule 15.15 to the extent necessary to permit Article IV, Section 4(f) of the News Corp US Certificate of Incorporation to include a provision which precludes a holder of a Subsidiary-Owned Share (as defined in Article IV, Section 4(f)(i)(A)) from selling, exchanging or otherwise transferring such shares pursuant to an “offer” (as defined in Article IV, Section 4(e)), provided that such restriction ceases to apply if the Subsidiary-Owned Share ceases to be held by a subsidiary of NewsCorp US; and

 

  confirmation that Listing Rule 15.15 does not apply to Article X of the News Corp US Certificate of Incorporation which consists of an election that News Corp US not be governed by Section 203 of the Delaware General Corporation Law.

 

   News Corporation has applied for and received confirmations in respect of, and in principle waivers from, the following ASX Listing Rules:

 

  approval of the redeemable ordinary shares of News Corporation, to be issued to News Corp US immediately after the Scheme Meetings, as an additional class of ordinary securities of TNCL in accordance with Listing Rule 6.2; and

 

  a waiver from Listing Rule 6.23 so that shareholder approval for the purpose of that rule is not required in respect of Options cancelled under the Option Scheme.

 

   The fact that ASX may admit News Corp US to its official list is not to be taken in any way as an indication of the merits of News Corp US.

 

8.12 Intentions

 

   Other than as stated in this Information Memorandum, if the Share Scheme and Option Scheme are implemented, the Directors of News Corporation do not intend to make (a) any material change to the continuation of the business of News Corporation; (b) any major changes to the business of News Corporation, including redeploying of fixed assets; or (c) any change to the future employment of the present employees of News Corporation.

 

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8.13 Consents of experts

 

   UBS AG, Australia Branch has consented, and not withdrawn its consent, to the inclusion of its fairness opinion in Attachment 4 to this Information Memorandum and to the references to its opinion in this Information Memorandum being made in the form and context in which each such reference is included.

 

   Grant Samuel & Associates Pty Limited has consented, and has not withdrawn its consent, to the inclusion of its report in Attachment 5 to this Information Memorandum and to the references to its report in this Information Memorandum being made in the form and context in which each such reference is included.

 

   Ernst & Young, Hogan & Hartson L.L.P. and Deloitte & Touche L.L.P. have each consented, and not withdrawn their consent, to the inclusion of their tax opinions in Section 5 of this Information Memorandum and to the references to their opinion in this Information Memorandum being made in the form and context in which each such reference is included.

 

8.14 Creditors of News Corporation

 

   The Proposed Transaction, if implemented, will not materially prejudice News Corporation’s ability to pay its creditors.

 

8.15 Regulatory restrictions on the issue of shares or options or payment of cash

 

   If, at the time of implementation of the Reorganisation, any authority or clearance of a regulatory authority is required for you to receive any consideration under the Share Scheme or Option Scheme or any law prohibits the issue to you of such consideration then, the Reorganisation will not create or transfer to you any right (contractual or contingent) to receive any shares, options or cash unless and until all requisite authorities or clearances are in place.

 

   This includes but is not limited to restrictions, authorities or clearances which may be imposed by:

 

  (a) the Reserve Bank of Australia;

 

  (b) the Australian Taxation Office;

 

  (c) the Banking (Foreign Exchange) Regulations 1959 (Cth);

 

  (d) any laws or regulations passed to give effect to a charter of the United Nations;

 

  (e) the US Department of the Treasury.

 

8.16 Future issue of options under the News Corp US Option Plan

 

   The News Corp US Option Plan governs the grant by News Corp US of options issued in accordance with the Option Scheme (other than for a small number of Optionholders who are former News Corporation employees and who will receive their News Corp US Options in accordance with the Option Scheme under the News Corp US Former Employee Plan). In addition, the News Corp US Option Plan allows for the future issue of options under that plan. The terms of the News Corp US Option Plan are summarised in Attachment 3.

 

  

If the Proposed Transaction proceeds, it is intended that News Corp US will review its employee incentive plans, including the News Corp US Option Plan, so that future grants of equity interests

 

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to executives worldwide remain as attractive as possible having regard to the varying tax consequences in each country of residence of those executives.

 

8.17 Voting and ADS holders

 

   The ADS Depositary has established a procedure to enable ADS holders to have their vote count as Shareholders for the purposes of the “majority by number” requirement by making them direct holders of the News Corporation shares underlying their ADSs. This procedure allows ADS holders who provide timely voting instructions to the ADS Depositary and continue to hold their ADSs as of the Record Date, to be temporarily designated as the custodian and registered holder of the Ordinary Shares or Preferred Shares underlying the ADSs they beneficially own for the purposes of voting at the Share Scheme Meetings and other meetings to be held that same day (unless the ADS holder elects otherwise).

 

8.18 Other material information

 

   Other than as contained in the Information Memorandum there is no information material to the making of a decision in relation to the Reorganisation (being information that is within the knowledge of any Director of News Corporation or a related company) that has not previously been disclosed to News Corporation Shareholders.

 

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9. Implementation Agreement

 


 

See over page

 

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Implementation Agreement

 

The News Corporation Limited

 

Carlholt Pty Ltd

 

News Corporation, Inc.

 

Allens Arthur Robinson

The Chifley Tower

2 Chifley Square

Sydney NSW 2000

Tel 61 2 9230 4000

Fax 61 2 9230 5333

www.aar.com.au

 

© Copyright Allens Arthur Robinson 2004

 

 

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Date

   8 September 2004
 

Parties

    
 
     The News Corporation Limited (ABN 40 007 910 330), of Level 5, 2 Holt Street, Surry Hills, NSW, Australia (TNCL);
 
     Carlholt Pty Ltd (ABN 32 105 197 028), of Level 5, 2 Holt Street, Surry Hills, NSW, Australia (Carlholt); and
 
     News Corporation, Inc. a company incorporated in Delaware, United States of America, of 1211 Avenue of the Americas, New York, New York, United States of America (News Corp US).
 

Recitals

    
 

  

The parties have agreed on the terms and conditions set out in this Agreement that TNCL shall propose to implement a reorganisation by means of:

 

(a)    a scheme of arrangement under Part 5.1 of the Corporations Act between TNCL and its members; and

 

(b)    a scheme of arrangement under Part 5.1 of the Corporations Act between TNCL and certain optionholders.

 

  

On 10 August 2004:

 

(a)    Secure and Safeguard (in their respective capacities as trustees of the AE Harris Trust and the Second Trust), News Corp US and TNCL entered into the KSEA Call Option Deed under which:

 

(i)     Secure and Safeguard grant News Corp US a call option entitling News Corp US to call for the transfer of the entire issued share capital of Kayarem Pty Limited on the terms and subject to the conditions of the Kayarem Share Exchange Agreement (the form of which is attached to the KSEA Call Option Deed), and News Corp US has agreed to exercise the call option if, and when, directed by TNCL; and

 

(ii)    News Corp US agrees that it will enter into the Carlholt Contribution Agreement with Carlholt at or around the time it exercises the call option, under which Carlholt agrees to accept a transfer from News Corp US of all of the issued share capital of Kayarem which News Corp US acquires from Safeguard and Secure under the Kayarem Share Exchange Agreement. News Corp US will receive a promissory note from Carlholt in consideration of that transfer;

 

(b)    News Corp US, Carlholt, TNCL, Actraint No. 119 Pty Limited (in its capacity as trustee of the Settlement Trusts and the Remaining Trust) and Mr KR Murdoch (in his capacity as trustee of the Settlement Trusts and the Remaining Trust and in his personal capacity) entered into the CISEA Call Option Deed under which:

 

(i)     Actraint No. 119 Pty Limited and Mr KR Murdoch grant Carlholt a call option entitling Carlholt to call for the transfer of certain shares in Cruden Investments on the terms and subject to the conditions of the CI Share Exchange Agreement (the form of which is attached to the CISEA Call Option

 

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Deed), and Carlholt has agreed to exercise the call option if, and when, directed by TNCL; and

 

(ii)    Carlholt agrees that it will enter into the Kayarem Contribution Agreement with Kayarem at or around the time it exercises the call option, under which Kayarem agrees to accept a transfer from Carlholt of the shares in Cruden Investments which Carlholt acquires from Actraint No. 119 Pty Limited and Mr KR Murdoch under the CI Share Exchange Agreement. Kayarem will issue shares in itself to Carlholt in consideration of that transfer.

 

   News Corp US has represented that it is its intention to exercise the call options under the KSEA Call Option Deed and the CISEA Call Option Deed by no later than the Second Court Date.
 

   Subject to satisfaction or waiver of all relevant conditions, the parties intend that completion of the Share Exchange Agreements will occur immediately prior to implementation of the TNCL Schemes and the Capital Reduction.
 

   Each of the parties agrees to do the things within their power to implement the TNCL Schemes and the Capital Reduction, in each case upon and subject to the terms and conditions of this Agreement.
 

   The parties intend the TNCL Schemes and Capital Reduction, together with the exchanges under the Share Exchange Agreements, to constitute a single plan described in Section 351(a) of the Code.

 

It is agreed as follows.

 

1. Definitions and interpretation

 


 

1.1 Definitions

 

   In this Agreement, unless the context otherwise requires, the following words and expressions have meanings as follows:

 

   AE Harris Trust means the trust established by Albert Edward Harris pursuant to the AE Harris Trust Deed;

 

   AE Harris Trust Deed means the deed of trust dated 27 August 1970;

 

   AEOP means the Australian Executive Option Plan adopted by TNCL dated 7 October 1997;

 

   Agreed Value means:

 

  (a) in respect of a share of News Corp US Voting Common Stock or News Corp US Non-Voting Common Stock, the $US volume weighted average closing price of the share on the NYSE over the 5 trading days on that exchange immediately following the Implementation Date; and

 

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  (b) in respect of a Voting CDI or Non-Voting CDI, the $A volume weighted average closing price of the CDI or the share underlying the CDI on the ASX over the 5 trading days on that exchange immediately following the Implementation Date;

 

   ASIC means the Australian Securities and Investments Commission;

 

   ASIC Relief means the modifications or exemptions sought in the letter from Allens Arthur Robinson to ASIC dated 30 July 2004, together with any other ASIC modifications or exemptions which TNCL and News Corp US may agree are necessary or desirable in connection with the Proposed Transaction;

 

   associate has the meaning given in section 12 of the Corporations Act;

 

   ASTC means the Australian Settlement and Transfer Corporation Limited;

 

   ASTC Settlement Rules means the Settlement Rules of ASTC;

 

   ASX means Australian Stock Exchange Limited (ACN 008 624 691);

 

   ASX Waivers means the waivers to or exemptions from the ASX Listing Rules sought in the letters from TNCL to ASX dated 10 June and 1 July 2004 and the letter from Allens Arthur Robinson to ASX dated 18 August 2004, together with any other ASX waivers or exemptions which TNCL and News Corp US may agree are necessary or desirable in connection with the Proposed Transaction;

 

   Australian Plan means The News Corporation Share Option Plan dated 13 October 1992;

 

   Australian Share Scheme Participant means a Share Scheme Participant who is registered in the Share Register as at the Record Date with an address within Australia, other than a Share Scheme Participant who has notified TNCL in writing in accordance with the Share Scheme prior to the Record Date that they wish to receive News Corp US shares under the Share Scheme rather than CHESS Depositary Interests representing an interest in such shares;

 

   Business Day means a day on which trading banks are open for business in Sydney, Australia, but does not include a Saturday, Sunday or any public holiday in Sydney;

 

   Capital Reduction means the capital reduction referred to in clause 4.2(b);

 

   Capital Reduction Meeting means the meeting required under section 256C of the Corporations Act to approve the Capital Reduction;

 

   Carlholt Contribution Agreement means the agreement so entitled, to be entered into on the same date as the Kayarem Share Exchange Agreement, between News Corp US and Carlholt by which the shares in Kayarem are to be transferred from News Corp US to Carlholt immediately following completion of the Kayarem Share Exchange Agreement;

 

   CDI Register has the meaning given that term in the ASTC Settlement Rules;

 

   CHESS Depositary Interest has the meaning given that term in the ASTC Settlement Rules.

 

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   CISEA Call Option Deed means the deed between News Corp US, Carlholt, TNCL, Actraint No. 119 Pty Limited (in its capacity as trustee of the Settlement Trusts and the Remaining Trust)and Mr KR Murdoch (in his capacity as trustee of the Settlement Trusts and the Remaining Trust and in his personal capacity) dated 10 August 2004 under which Actraint No. 119 Pty Ltd and Mr KR Murdoch grant to Carlholt an option to require Actraint No. 119 Pty Ltd and Mr KR Murdoch to transfer to Carlholt certain shares in Cruden Investments on the terms, and subject to the conditions, of the CI Share Exchange Agreement.

 

   CI Share Exchange Agreement means the share exchange agreement, a form of which is attached to the CISEA Call Option Deed, between Actraint No. 119 Pty Limited (in its capacity as trustee of the Settlement Trusts and the Remaining Trust)and Mr KR Murdoch (in his capacity as trustee of the Settlement Trusts and the Remaining Trust and in his personal capacity) as transferors, Carlholt, as transferee, and News Corp US, relating to the transfer of shares held by those transferors in the capital of Cruden Investments in return for shares in News Corp US.

 

   Code means the United States Internal Revenue Code of 1986, as amended.

 

   Conditions Precedent means the conditions precedent in clause 3.1;

 

   Corporations Act means the Corporations Act 2001 (Cth);

 

   Court means the Federal Court of Australia;

 

   Cruden Investments means Cruden Investments Pty Ltd (ACN 004 251 058);

 

   Current Employee Option Scheme Participants means Option Scheme Participants who are “Eligible Employees”, as that term is defined in the News Corp US 2004 Stock Option Plan, as at the Record Date;

 

   Deed Polls mean the deed polls in the form of Annexure 3 and 4 (or in such other forms as is agreed between the parties to this Agreement);

 

   Depositary Nominee has the meaning given that term in the ASTC Settlement Rules;

 

   Effective means, when used in relation to the TNCL Schemes, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the Implementation Orders;

 

   End Date means 31 December 2004, or such later date as the parties may agree in writing;

 

   Exercise Price means, in relation to an option, all amounts paid or payable with respect to that option, including any amount paid or payable on grant of the option and/or on exercise of the option.

 

   Former Employee Option Scheme Participants means Option Scheme Participants who are not “Eligible Employees”, as that term is defined in the News Corp US 2004 Stock Option Plan, as at the Record Date;

 

   Governmental Agency means any government or governmental, semi-governmental, administrative, fiscal, regulatory or judicial entity or authority. It also includes a self-regulatory organisation established under a statute or stock exchange;

 

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   Implementation Date means the Business Day immediately following the Record Date;

 

   Implementation Orders means the orders pursuant to Section 411(4)(b) of the Corporations Act in relation to the TNCL Schemes;

 

   Independent Expert’s Report means a report by an independent expert appointed in accordance with the guidelines established by ASIC in its Practice Notes 42 and 43 and Policy Statement 75, stating whether or not in his or her opinion, the Proposed Transaction is in the best interests of the Share Scheme Participants and Option Scheme Participants, and setting out his or her reasons for that opinion;

 

   Information Memorandum means the information memorandum prepared by TNCL in respect of the TNCL Schemes and the Capital Reduction to be approved by the Court and despatched to Ordinary Shareholders, Preferred Shareholders and Optionholders;

 

   Ineligible Foreign Shareholder means each Share Scheme Participant whose address as shown in the Share Register is a place outside Australia, Brazil, Canada, China, Germany, Hong Kong, India, Ireland, Italy, Japan, Jersey, Mexico, New Zealand, Papua New Guinea, Singapore, Switzerland, Taiwan, the United Arab Emirates, the United States and the United Kingdom, unless before the Second Court Date (and without being obliged to conduct any investigation into the matter) TNCL is satisfied that the laws of the place of such address permit the issue and allotment of News Corp US Voting Common Stock and News Corp US Non-Voting Common Stock to that Share Scheme Participant either unconditionally or after compliance with conditions which News Corp US in its sole discretion regards as acceptable and not unduly onerous;

 

   Kayarem means Kayarem Pty Limited (ACN 008 483 261).

 

   Kayarem Contribution Agreement means the agreement so entitled, to be entered into on the same date as the CI Share Exchange Agreement, between Carlholt and Kayarem by which the shares in Cruden Investments transferred to Carlholt under the CI Share Exchange Agreement are to be transferred from Carlholt to Kayarem immediately after completion of the CI Share Exchange Agreement;

 

   Kayarem Share Exchange Agreement means the share exchange agreement, a form of which is attached to the KSEA Call Option Deed, between Secure and Safeguard in their respective capacities as trustees of the AE Harris Trust and the Second Trust, as transferors, and News Corp US, as transferee, relating to the transfer of shares held by those transferors in the capital of Kayarem in return for shares in News Corp US;

 

   KSEA Call Option Deed means the deed between Secure and Safeguard (in their respective capacities as trustees of the AE Harris Trust and the Second Trust), News Corp US and TNCL dated 10 August 2004 under which Secure and Safeguard granted to News Corp US an option to require Secure and Safeguard to transfer to News Corp US the shares in the capital of Kayarem on the terms, and subject to the conditions, of the Kayarem Share Exchange Agreement;

 

   Listing Rules means the official listing rules of ASX, UK Listing Authority or NYSE, as the case may be;

 

   News Corp US 2004 Replacement Stock Option Plan means the 2004 Replacement Stock Option Plan in the form of Annexure 6 (or in such other forms as is agreed between the parties to this Agreement), to be adopted by News Corp US in accordance with clause 4.1;

 

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   News Corp US 2004 Stock Option Plan means the 2004 Stock Option Plan in the form of Annexure 5 (or in such other forms as is agreed between the parties to this Agreement),to be adopted by News Corp US in accordance with clause 4.1;

 

   News Corp US Option means an option to be issued by News Corp US to acquire one share of News Corp US Non-Voting Common Stock under either the News Corp US 2004 Stock Option Plan or the News Corp US 2004 Replacement Stock Option Plan;

 

   News Corp US Non-Voting Common Stock means shares of fully paid Class A Common Stock in the capital of News Corp US, to come into existence on adoption by News Corp US of its Restated Certificate of Incorporation pursuant to clause 4.1;

 

   News Corp US Voting Common Stock means shares of fully paid Class B Common Stock in the capital of News Corp US to come into existence on adoption by News Corp US of its Restated Certificate of Incorporation pursuant to clause 4.1;

 

   Nominee means the nominee selected by TNCL prior to the Implementation Date for the purposes of clause 4.6;

 

   Non-Australian Share Scheme Participant means a Share Scheme Participant other than an Australian Share Scheme Participant;

 

   Non-Voting CDI means the CHESS Depositary Interest to be issued in connection with the Share Scheme representing an interest in one corresponding share of News Corp US Non-Voting Common Stock;

 

   NYSE means the New York Stock Exchange;

 

   Option means an option issued by TNCL to acquire Preferred Shares under either of the Australian Plan or the AEOP;

 

   Optionholders means each person who is registered in the Options Register as the holder of Options;

 

   Options Register means the register of outstanding options granted by TNCL maintained in accordance with the Corporations Act;

 

   Option Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act between TNCL and the Optionholders in the form of Annexure 2 (or in such other form as is agreed between the parties);

 

   Option Scheme Participant means each person who is an Optionholder as at the Record Date;

 

   Ordinary Shareholder means each person who is registered in the Share Register as the holder of Ordinary Shares;

 

   Ordinary Shares means fully paid ordinary shares in the capital of TNCL;

 

   Permitted Transferee has the meaning given that term in the articles of association of TNCL adopted on 18 October 1994;

 

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   Preferred Shareholder means each person who is registered in the Share Register as the holder of Preferred Shares;

 

   Preferred Shares means fully paid preferred limited voting ordinary shares in the capital of TNCL;

 

   Proposed Transaction means the transaction which involves the Reorganisation and, immediately prior to the Reorganisation, the transactions contemplated by the Share Exchange Agreements;

 

   Record Date means the fifth Business Day following the date on which the TNCL Schemes becomes Effective, or such earlier date as the parties may agree in writing;

 

   Relevant Instrument means, with respect to any person:

 

  (a) the certificate of incorporation, the constitution, the by laws or charter documents of that person;

 

  (b) any agreement, note, bond, security interest, indenture, deed of trust, contract, undertaking, lease, or other instrument or obligation to which that person is a party or its assets are bound or affected;

 

  (c) any authorisation, licence, permit or authority, granted to or entered into by that person and that is material in the context that it is granted or entered into; or

 

  (d) any writ, order, decree, injunction, judgment, law, statute, rule or regulation applicable to that person or its assets or by which it or they are bound or affected;

 

   Remaining Trust has the meaning given to that term in the form of CI Share Exchange Agreement attached to the CISEA Call Option Deed;

 

   Reorganisation means the reorganisation under which News Corp US’s wholly owned subsidiary, Carlholt, will acquire all of the Ordinary Shares and Preferred Shares and, in exchange, existing TNCL shareholders will receive shares in News Corp US, which is to be effected by way of the TNCL Schemes and the Capital Reduction on the Implementation Date following the completion of the Share Exchange Agreements;

 

   Required Consents means the consent, approval, permission or waiver of any third party (including any Governmental Agency) which, whether pursuant to a Relevant Instrument or otherwise, is required in connection with, or as a result of, the proposal or implementation of the Reorganisation in order to avoid:

 

  (a) a material breach, material violation or material default occurring under a Relevant Instrument applicable to any party or any of its associates;

 

  (b) any other person becoming entitled to terminate, withdraw, accelerate or call for a material default under a Relevant Instrument applicable to any party or any of its associates;

 

  (c) any other person becoming entitled to amend the terms of a Relevant Instrument in a way which would materially adversely affect any party or any of its associates or which enables that other person to acquire any other right which would materially adversely affect any party or any of its associates; or

 

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  (d) the creation of any security interest upon any of the assets or properties of any party or any of its associates;

 

   Safeguard means Safeguard Nominees Pty Limited (ACN 002 873 163), of Level 6, Skygarden, 77 Castlereagh Street, Sydney, NSW 2000, Australia;

 

   Scheme Meetings means the meetings of shareholders and optionholders to be convened by the Court in relation to the TNCL Schemes pursuant to Section 411(1) of the Corporations Act;

 

   Second Court Date means the day on which the Court makes orders pursuant to section 411(4)(b) of the Corporations Act approving the Share Scheme;

 

   Second Trust means the trust:

 

  (a) constituted by the declaration of trust dated 25 June 1971 by Don James in favour of Secure and Travinto Nominees Pty Limited (as trustees of the AE Harris Trust) (Second Trust Beneficiaries); and

 

  (b) of which Secure was appointed trustee by deed of removal and appointment of trustee dated 25 June 1992 between the Second Trust Beneficiaries, Don James and Secure (Registered 13 August 1992 Book 3880 No 757);

 

   Secure means Secure Nominees Pty Limited (ACN 051 151 823), of Level 6, Skygarden, 77 Castlereagh Street, Sydney, NSW 2000, Australia;

 

   Settlement Trusts has the meaning given that term in the form of the CI Share Exchange Agreement attached to the CISEA Call Option Deed;

 

   Share Exchange Agreements means:

 

  (a) the Kayarem Share Exchange Agreement, the Carlholt Contribution Agreement, the CI Share Exchange Agreement and the Kayarem Contribution Agreement; and

 

  (b) the Subsidiary Share Transfer Agreements;

 

   Share Register means the register of members of TNCL maintained in accordance with the Corporations Act;

 

   Share Scheme Participant means each person who is an Ordinary Shareholder or Preferred Shareholder as at the Record Date;

 

   Share Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act between TNCL and the Ordinary Shareholders and Preferred Shareholders in the form of Annexure 1 (or in such other form as is agreed between the parties);

 

   Special Committee means the special committee of the board of directors of TNCL appointed in connection with the Proposed Transaction;

 

   Subsidiary Share Transfer Agreements means:

 

  (a) the agreements under which Kayarem Pty Limited:

 

  (i) transfers all shares held by it in TNCL to Kayarem Australia Pty Ltd, a wholly owned subsidiary of Kayarem Pty Limited incorporated in Australia; and

 

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  (ii) transfers all shares held by it in Kayarem Australia Pty Ltd to Kayarem US Sub, Inc, a wholly owned subsidiary of Kayarem Pty Ltd incorporated in the State of Delaware, United States of America;

 

  (b) the agreements under which Telegraph Investment Co. Pty Limited:

 

  (i) transfers all shares held by it in TNCL to Telegraph Investment Australia Pty Ltd, a wholly owned subsidiary of Telegraph Investment Co. Pty Limited incorporated in Australia; and

 

  (ii) transfers all shares held by it in Telegraph Investment Australia Pty Ltd to TI US Sub, Inc, a wholly owned subsidiary of Telegraph Investment Co. Pty Ltd incorporated in the State of Delaware, United States of America; and

 

  (c) the agreements under which Cruden Investments Pty Limited:

 

  (i) transfers all shares held by it in TNCL to Cruden Investments Australia Pty Ltd, a wholly owned subsidiary of Cruden Investments Pty Limited incorporated in Australia; and

 

  (ii) transfers all shares held by it in Cruden Investments Australia Pty Ltd to Cruden US Sub, Inc., a wholly owned subsidiary of Cruden Investments Pty Ltd incorporated in the State of Delaware, United States of America;

 

   Tax Opinion means the opinion of Hogan & Hartson L.L.P. to be rendered as described in clause 3.1 (i);

 

   TNCL Schemes means the Share Scheme and the Option Scheme;

 

   Transaction Document has the meaning given in the Kayarem Share Exchange Agreement;

 

   US Securities Act means the United States Securities Act of 1933, as amended; and

 

   Voting CDI means the CHESS Depositary Interest to be issued in connection with the Share Scheme representing an interest in one corresponding share of News Corp US Voting Common Stock.

 

1.2 Interpretation

 

   In this Agreement, headings and boldings are for convenience only and do not affect interpretation. The following rules apply unless the context otherwise requires:

 

  (a) The singular includes the plural, and the converse also applies.

 

  (b) A gender includes all genders.

 

  (c) If a word or phrase is defined, its other grammatical forms have a corresponding meaning.

 

  (d) A reference to a person includes a corporation, trust, partnership, unincorporated body or other entity, whether or not it comprises a separate legal entity.

 

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  (e) A reference to a clause, party or schedule is a reference to a clause of, party to or a schedule of this Agreement.

 

  (f) A reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, supplemented, novated or replaced, except to the extent prohibited by this Agreement or that other agreement or document.

 

  (g) A reference to writing includes any method of representing or reproducing words, figures, drawings, or symbols in a visible or tangible form.

 

  (h) A reference to a party to this Agreement or another agreement or document includes the party’s successors, permitted substitutes and permitted assigns (and, where applicable, the party’s legal personal representatives).

 

  (i) A reference to legislation or to a provision of legislation includes a modification or re-enactment of it, a legislative provision substituted for it and a regulation or statutory instrument issued under it.

 

  (j) A reference to this Agreement includes any recital, schedule, annexure or appendix to this Agreement.

 

  (k) A reference to this Agreement or any other instrument includes any variation, amendment or replacement of it.

 

  (l) Mentioning anything after includes, including, for example, or similar expressions, does not limit what else might be included.

 

  (m) Nothing in this Agreement is to be interpreted against a party solely on the ground that the party put forward this Agreement or any part of it.

 

  (n) A reference to any time is a reference to that time in Sydney, New South Wale