<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
(AMENDMENT NO. 22)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
SPELLING ENTERTAINMENT GROUP INC.
(Name of Subject Company)
------------------------
VSEG ACQUISITION INC.
VIACOM INTERNATIONAL INC.
VIACOM INC.
(Bidders)
------------------------
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Class of Securities)
------------------------
847807
(CUSIP Number of Class of Securities)
------------------------
MICHAEL D. FRICKLAS, ESQ.
VSEG ACQUISITION INC.
VIACOM INTERNATIONAL INC.
VIACOM INC.
1515 BROADWAY
NEW YORK, NY 10036
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of Bidders)
------------------------
WITH COPIES TO:
CREIGHTON O'M. CONDON, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NY 10022
(212) 848-4000
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION AMOUNT OF FILING FEE
<S> <C>
$250,662,468 $50,133.00
</TABLE>
* Calculated by multiplying $9.75, the per share tender offer price, by
25,708,971, the sum of the 18,081,798 currently outstanding shares of Common
Stock sought in the Offer and the 7,627,173 shares of Common Stock subject
to options that will be vested as of the Effective Time of the Merger, each
as defined herein.
** Calculated as 1/50 of 1% of the transaction value.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
<TABLE>
<S> <C> <C> <C>
Amount Previously Paid: Not applicable Filing Party: Not applicable
Form or Registration No.: Not applicable Date Filed: Not applicable
</TABLE>
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<PAGE>
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1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Person Above
Viacom Inc.
- --------------------------------------------------------------------------------
(2) Check the appropriate Box if a member of a Group
(a) / /
(b) / /
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds
WC
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Incorporation:
Delaware
- --------------------------------------------------------------------------------
(7) Aggregate Amount Beneficially Owned by Each Reporting Person:
75,216,103 shares that may be deemed beneficially owned are described herein
in "SPECIAL FACTORS--Beneficial Ownership of Common Stock" of the Offer to
Purchase.
- --------------------------------------------------------------------------------
(8) Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
(9) Percent of Class Represented by Amount in Row (7):
80.6%
- --------------------------------------------------------------------------------
(10) Type of Reporting Person
CO
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Person Above
Viacom International Inc.
- --------------------------------------------------------------------------------
(2) Check the appropriate Box if a member of a Group
(a) / /
(b) / /
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds
WC
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Incorporation:
Delaware
- --------------------------------------------------------------------------------
(7) Aggregate Amount Beneficially Owned by Each Reporting Person:
75,216,103 shares that may be deemed beneficially owned are described herein
in "SPECIAL FACTORS--Beneficial Ownership of Common Stock" of the Offer to
Purchase.
- --------------------------------------------------------------------------------
(8) Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
(9) Percent of Class Represented by Amount in Row (7):
80.6%
- --------------------------------------------------------------------------------
(10) Type of Reporting Person
CO
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Person Above
VSEG Acquisition Inc.
- --------------------------------------------------------------------------------
(2) Check the appropriate Box if a member of a Group
(a) / /
(b) / /
- --------------------------------------------------------------------------------
(3) SEC Use Only
- --------------------------------------------------------------------------------
(4) Source of Funds
WC
- --------------------------------------------------------------------------------
(5) Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f)
/ /
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Incorporation:
Delaware
- --------------------------------------------------------------------------------
(7) Aggregate Amount Beneficially Owned by Each Reporting Person:
75,216,103 shares that may be deemed beneficially owned are described herein
in "SPECIAL FACTORS--Beneficial Ownership of Common Stock" of the Offer to
Purchase.
- --------------------------------------------------------------------------------
(8) Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
(9) Percent of Class Represented by Amount in Row (7):
80.6%
- --------------------------------------------------------------------------------
(10) Type of Reporting Person
CO
- --------------------------------------------------------------------------------
4
<PAGE>
This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to
the offer by VSEG Acquisition Inc., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Viacom International Inc., a Delaware corporation
("Parent"), to purchase all issued and outstanding shares (the "Shares") of
common stock, par value $0.001 per share, of Spelling Entertainment Group Inc.,
a Delaware corporation (the "Company"), at a price of $9.75 per Share, net to
the seller in cash, upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase dated May 21, 1999 (the "Offer to Purchase") and
in the related Letter of Transmittal (which together constitute the "Offer"),
copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively.
This Statement also constitutes a Statement on Schedule 13D with respect to the
acquisition by Viacom Inc. ("Viacom"), Viacom International Inc., VSEG
Acquisition Inc. and Sumner M. Redstone of beneficial ownership of the shares of
Common Stock referred to on the cover hereof. Parent is a wholly owned
subsidiary of Viacom.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Spelling Entertainment Group Inc.,
which has its principal executive offices at 5700 Wilshire Boulevard, Suite 575,
Los Angeles, CA 90036-3659.
(b) The exact title of the class of equity securities being sought is shares
of Common Stock, par value $0.001 per share, of the Company. The information set
forth under "INTRODUCTION" and "THE TENDER OFFER--Section 1. Terms of the Offer;
Expiration Date" of the Offer to Purchase is incorporated herein by reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market set forth under "THE TENDER OFFER-- Section 6. Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser, Parent and Viacom. The
information concerning the name, state or other place of organization, principal
business and address of the principal office of each of Purchaser, Parent and
Viacom, and the information concerning the name, business address, present
principal occupation or employment and the name, principal business and address
of any corporation or other organization in which such employment or occupation
is conducted, material occupations, positions, offices or employments during the
last five years and citizenship of each of the executive officers and directors
of Purchaser, Parent and Viacom are set forth under "INTRODUCTION" and "THE
TENDER OFFER--Section 8. Certain Information Concerning Purchaser, Parent and
Viacom"and in Schedule I of the Offer to Purchase and are incorporated herein by
reference.
(e) and (f) During the last five years, none of Purchaser, Parent or Viacom,
and, to the best knowledge of Purchaser, Parent and Viacom, none of the persons
listed in Schedule I of the Offer to Purchase, has been (i) convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth under "SPECIAL FACTORS--Background of the
Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement," "SPECIAL
FACTORS--Related Party Transactions" and "THE TENDER OFFER--Section 8. Certain
Information Concerning Purchaser, Parent and Viacom" in the Offer to Purchase is
incorporated herein by reference.
5
<PAGE>
(b) The information set forth under "INTRODUCTION," "SPECIAL
FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer and the Merger," "SPECIAL
FACTORS--The Merger Agreement," "THE TENDER OFFER--Section 7. Certain
Information Concerning the Company" and "THE TENDER OFFER--Section 8. Certain
Information Concerning Purchaser, Parent and Viacom" of the Offer to Purchase is
incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth under "THE TENDER OFFER--Section 9.
Financing of the Offer and the Merger" of the Offer to Purchase is incorporated
herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "INTRODUCTION", "SPECIAL
FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer and the Merger" and "SPECIAL
FACTORS--The Merger Agreement" of the Offer to Purchase is incorporated herein
by reference.
(f) and (g) The information set forth under "SPECIAL FACTORS--Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer and the
Merger" and "THE TENDER OFFER-- Section 11. Effect of the Offer on the Market
for the Shares, the NYSE, the PE and Exchange Act Registration" of the Offer to
Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth under "SPECIAL FACTORS--Beneficial
Ownership of Common Stock" and "THE TENDER OFFER--Section 8. Certain Information
Concerning Purchaser, Parent and Viacom" of the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT
COMPANY'S SECURITIES.
The information set forth under "INTRODUCTION," "SPECIAL FACTORS--Background
of the Offer and the Merger," "SPECIAL FACTORS--Purpose and Structure of the
Offer and the Merger; Reasons of Parent and Purchaser for the Offer and the
Merger," "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer and the Merger," "SPECIAL FACTORS--The Merger
Agreement" and "THE TENDER OFFER--Section 8. Certain Information Concerning
Purchaser, Parent and Viacom" of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "INTRODUCTION," "SPECIAL FACTORS--Opinion of
Lazard Freres," "SPECIAL FACTORS--Fees and Expenses" and "THE TENDER
OFFER--Section 14. Solicitation Fees and Expenses" of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "THE TENDER OFFER--Section 8. Certain
Information Concerning Purchaser, Parent and Viacom" of the Offer to Purchase
and Parent's Consolidated Financial
6
<PAGE>
Statements and related Notes thereto included in Parent's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 are incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) and (e) The information set forth under "THE TENDER OFFER--Section
13. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth under "THE TENDER OFFER--Section 11. Effect of
the Offer on the Market for the Shares, the NYSE, the PE and Exchange Act
Registration" of the Offer to Purchase is incorporated herein by reference.
(f) The information set forth in the Offer to Purchase and Letter of
Transmittal and the Agreement and Plan of Merger, dated as of May 17, 1999,
among Parent, Purchaser and the Company, copies of which are attached hereto as
Exhibits (a)(1), (a)(2) and (c)(1), is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Form of Offer to Purchase dated May 21, 1999.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from VSEG Acquisition Inc. to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees
to Clients.
(a)(6) Form of Letter to Participants in the Spelling Entertainment Group Inc. 401(k)
Savings Plan.
(a)(7) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(8) Summary Advertisement as published in The Wall Street Journal on May 21, 1999.
(a)(9) Press Release issued by Viacom Inc. on May 17, 1999.
(b) None.
(c)(1) Agreement and Plan of Merger, dated as of May 17, 1999, among Parent, Purchaser and
the Company.
(c)(2) Form of Optionholders Agreement dated May 16, 1999 between Parent and various
holders of Options.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
7
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
May 21, 1999 VSEG ACQUISITION INC.
By: /s/ MICHAEL D. FRICKLAS
--------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and General Counsel
</TABLE>
8
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
May 21, 1999 VIACOM INTERNATIONAL INC.
By: /s/ MICHAEL D. FRICKLAS
--------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and General Counsel
</TABLE>
9
<PAGE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
May 21, 1999 VIACOM INC.
By: /s/ MICHAEL D. FRICKLAS
--------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and General Counsel
</TABLE>
10
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
<TABLE>
<S> <C> <C>
May 21, 1999 By: *
-----------------------------------------
Sumner M. Redstone,
Individually
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ PHILIPPE P. DAUMAN
-------------------------
Philippe P. Dauman
Attorney-in-fact under
the Limited
Power of Attorney filed
as Exhibit 99.2
to the Statement on
Schedule 13D,
Amendment No. 11
</TABLE>
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<S> <C>
(a)(1) Form of Offer to Purchase dated May 21, 1999.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from VSEG Acquisition Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to Clients.
(a)(6) Form of Letter to Participants in the Spelling Entertainment Group Inc. 401(k) Savings Plan.
(a)(7) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(8) Summary Advertisement as published in The Wall Street Journal on May 21, 1999.
(a)(9) Press Release issued by Viacom Inc. on May 17, 1999.
(b) None.
(c)(1) Agreement and Plan of Merger, dated as of May 17, 1999, among Parent, Purchaser and the Company.
(c)(2) Form of Optionholders Agreement dated May 16, 1999 between Parent and various holders of Options.
(d) None.
(e) Not applicable.
(f) None.
99.1 Agreement among Viacom International Inc., Viacom Inc. and Sumner M. Redstone pursuant to Rule
13d-1(k)(1)(iii).
</TABLE>
12
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
AT
$9.75 NET PER SHARE
BY
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE NOT BEING ANY
STATUTE, RULE OR REGULATION OR ANY DECREE, ORDER OR INJUNCTION PROMULGATED,
ENACTED, ENTERED OR ENFORCED BY ANY UNITED STATES FEDERAL OR STATE GOVERNMENT,
OR OTHER GOVERNMENTAL ENTITY WHICH WOULD (I) MAKE THE ACQUISITION BY PURCHASER
OF A MATERIAL PORTION OF THE SHARES ILLEGAL OR (II) OTHERWISE PROHIBIT OR
RESTRICT CONSUMMATION OF THE OFFER OR THE MERGER.
------------------------
THE BOARD OF DIRECTORS OF SPELLING ENTERTAINMENT GROUP INC. (THE "COMPANY"),
BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT AND VOTING, BASED UPON, AMONG OTHER
THINGS, THE UNANIMOUS RECOMMENDATION AND APPROVAL OF A COMMITTEE OF THE BOARD OF
DIRECTORS COMPRISED OF INDEPENDENT DIRECTORS (THE "SPECIAL COMMITTEE"), HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY, APPROVED THE MERGER AGREEMENT, THE OFFER AND THE
MERGER, DECLARED THE MERGER AGREEMENT TO BE ADVISABLE AND RESOLVED TO RECOMMEND
THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
------------------------
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL AND MAIL OR DELIVER IT TOGETHER WITH THE CERTIFICATE(S) EVIDENCING
TENDERED SHARES, AND ANY OTHER REQUIRED DOCUMENTS, TO FIRST CHICAGO TRUST
COMPANY OF NEW YORK (THE "DEPOSITARY") (AT THE DEPOSITARY'S ADDRESS SET FORTH ON
THE BACK COVER OF THIS OFFER TO PURCHASE) OR TENDER SUCH SHARES PURSUANT TO THE
PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN "THE TENDER OFFER--SECTION 3.
PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES" OR (2) REQUEST SUCH
STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO
EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. ANY STOCKHOLDER WHOSE SHARES ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE MUST CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY
OR OTHER NOMINEE IF SUCH STOCKHOLDER DESIRES TO TENDER SUCH SHARES.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES EVIDENCING
SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH THE
PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES BY
FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY SET FORTH IN "THE TENDER
OFFER--SECTION 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES."
QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO GEORGESON & COMPANY
INC.(THE "INFORMATION AGENT") AT ITS ADDRESS AND TELEPHONE NUMBERS SET FORTH ON
THE BACK COVER OF THIS OFFER TO PURCHASE. ADDITIONAL COPIES OF THIS OFFER TO
PURCHASE, THE LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY
ALSO BE OBTAINED FROM THE INFORMATION AGENT OR FROM BROKERS, DEALERS, COMMERCIAL
BANKS OR TRUST COMPANIES.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
MAY 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................................................... 1
SPECIAL FACTORS............................................................................................ 3
Background of the Offer and the Merger................................................................. 3
Recommendation of the Company's Board; Fairness of the Offer and the Merger............................ 6
Opinion of Lazard Freres............................................................................... 7
Company Budget Information and Financial Projections................................................... 11
Cautionary Statement Concerning Forward-Looking Statements............................................. 12
Position of Viacom Regarding Fairness of the Offer and the Merger...................................... 13
Purpose and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and
the Merger............................................................................................ 13
Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger...... 14
Rights of Stockholders in the Offer and the Merger..................................................... 15
The Merger Agreement................................................................................... 16
Interests of Certain Persons in the Offer and the Merger............................................... 22
Beneficial Ownership of Common Stock................................................................... 26
Related Party Transactions............................................................................. 29
Fees and Expenses...................................................................................... 31
THE TENDER OFFER........................................................................................... 32
1. Terms of the Offer; Expiration Date................................................................. 32
2. Acceptance for Payment and Payment for Shares....................................................... 33
3. Procedures for Accepting the Offer and Tendering Shares............................................. 34
4. Withdrawal Rights................................................................................... 36
5. Certain U.S. Federal Income Tax Consequences........................................................ 37
6. Price Range of Shares; Dividends.................................................................... 37
7. Certain Information Concerning the Company.......................................................... 38
8. Certain Information Concerning Purchaser, Parent and Viacom......................................... 41
9. Financing of the Offer and the Merger............................................................... 42
10. Dividends and Distributions........................................................................ 42
11. Effect of the Offer on the Market for the Shares, the NYSE, the PE and Exchange Act Registration... 42
12. Certain Conditions of the Offer.................................................................... 44
13. Certain Legal Matters and Regulatory Approvals..................................................... 45
14. Solicitation Fees and Expenses..................................................................... 45
15. Miscellaneous...................................................................................... 45
Schedule I Directors and Executive Officers of Parent, Purchaser, the Company and Viacom
Schedule II Opinion of Lazard Freres & Co. LLC
Schedule III Section 262 of the Delaware General Corporation Law
Schedule IV Audited Financial Statements (and Related Notes) for the Company for the Years Ended
December 31, 1997 and December 31, 1998
Schedule V Unaudited Financial Statements (and Related Notes) for the Company for the Three-Month
Periods Ended March 31, 1998 and March 31, 1999
</TABLE>
<PAGE>
To the Holders of Common Stock of
Spelling Entertainment Group Inc.:
INTRODUCTION
VSEG Acquisition Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Viacom International Inc., a Delaware corporation
("Parent"), hereby offers to purchase all issued and outstanding shares (the
"Shares") of common stock, par value $0.001 per share (the "Common Stock"), of
Spelling Entertainment Group Inc., a Delaware corporation (the "Company"), at a
price of $9.75 per Share, net to the seller in cash (the "Per Share Amount"),
upon the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which together constitute the
"Offer"). Parent is a wholly owned subsidiary of Viacom Inc., a Delaware
corporation ("Viacom").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes, if any, with respect to the purchase of
Shares by Purchaser pursuant to the Offer. Purchaser will pay all charges and
expenses of First Chicago Trust Company of New York (the "Depositary") and
Georgeson & Company Inc. (the "Information Agent") incurred in connection with
the Offer. See "SPECIAL FACTORS--Fees and Expenses"; "THE TENDER OFFER--Section
14. Solicitation Fees and Expenses."
Parent currently owns 75,216,103 Shares (the "Purchaser Shares"),
constituting more than 80% of the issued and outstanding Shares. After the
purchase of Shares pursuant to the Offer, Parent will contribute the Purchaser
Shares to Purchaser (the "Contribution") the Company will thereby become a
subsidiary of Purchaser and Purchaser will be merged with and into the Company
(the "Merger"). The Company will thereby be a direct wholly owned subsidiary of
Parent. AS THE HOLDER OF MORE THAN 80% OF THE COMMON STOCK OF THE COMPANY,
PARENT CURRENTLY POSSESSES SUFFICIENT VOTING POWER TO CAUSE THE COMPANY TO
CONSUMMATE THE MERGER WITHOUT THE VOTE OF ANY OTHER STOCKHOLDER OF THE COMPANY.
Subject to dissenters rights, Shares not tendered in the Offer shall be canceled
in the Merger and converted into a right to receive an amount equal to the Per
Share Amount. The purpose of the Offer and the Merger is to facilitate the
acquisition of all of the remaining Shares for cash and thereby enable Parent to
own 100% of the Common Stock.
The board of directors of the Company (the "Board"), by unanimous vote of
all directors present and voting, based upon, among other things, the unanimous
recommendation and approval of a committee of the Board comprised of independent
directors (the "Special Committee"), has determined that the Merger Agreement
and the transactions contemplated thereby, including each of the Offer and the
Merger (collectively, the "Transactions"), are fair to, and in the best
interests of, the Company, approved the Merger Agreement, the Offer and the
Merger, declared the Merger Agreement to be advisable and resolved to recommend
that stockholders accept the Offer and tender their Shares pursuant to the
Offer.
The Company has advised Parent that Lazard Freres & Co. LLC ("Lazard
Freres") has delivered to the Special Committee its written opinion, dated May
14, 1999, to the effect that, as of such date, the consideration to be received
by the holders of the Common Stock, other than Parent, and its affiliates (the
"Public Stockholders"), pursuant to the Offer and the Merger is fair to the
Public Stockholders from a financial point of view. The Company has filed with
the Securities and Exchange Commission (the "Commission") a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to stockholders herewith.
THE OFFER IS SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. SEE "THE
TENDER OFFER--SECTION 12. CERTAIN CONDITIONS OF THE OFFER," WHICH SETS FORTH IN
FULL THE CONDITIONS TO THE OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 17, 1999 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement, in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware, as amended (the "DGCL"),
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Purchaser will be merged with and into the Company. Following consummation of
the Merger, the Company will continue as the surviving corporation (the
"Surviving Corporation") and will be a direct wholly owned subsidiary of Parent.
At the effective time of the Merger (the "Effective Time"), each Share issued
and outstanding immediately prior to the Effective Time held by the Public
Stockholders will be canceled and, subject to appraisal rights under the DGCL,
converted automatically into the right to receive $9.75 in cash, or, in the
event any higher price is paid in the Offer, such higher price (the "Merger
Consideration"), without interest. The Merger Agreement is more fully described
in "SPECIAL FACTORS--The Merger Agreement." Stockholders who hold their Shares
at the time of the Merger and who fully comply with the statutory dissenters
procedures set forth in the DGCL, the relevant portions of which are attached to
this Offer to Purchase as Schedule III, will be entitled to dissent from the
Merger and have the fair value of their Shares (which may be more than, equal
to, or less than the Merger Consideration) judicially determined and paid to
them in cash pursuant to the procedures prescribed by the DGCL. NO DISSENTERS
RIGHTS ARE AVAILABLE IN CONNECTION WITH THE OFFER. SEE "SPECIAL FACTORS--RIGHTS
OF STOCKHOLDERS IN THE MERGER."
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
by the affirmative vote of a majority of the votes cast by all stockholders
entitled to vote thereon. See "SPECIAL FACTORS--The Merger Agreement." If
Purchaser acquires, pursuant to the Offer and the Contribution, at least 90% of
the then issued and outstanding Shares, under the DGCL, Purchaser's board of
directors will be able to adopt a plan of merger to effect the Merger without a
vote of the Company's stockholders pursuant to Section 253 of the DGCL (a
"Short-Form Merger"). If Purchaser does not acquire at least 90% of the then
issued and outstanding Shares pursuant to the Offer and the Contribution, a vote
of the Company's stockholders will be required under the DGCL to effect the
Merger, and a significantly longer period of time will be required to effect the
Merger. Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as promptly as
practicable after such acquisition. See "SPECIAL FACTORS--Purpose and Structure
of the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and
the Merger." PARENT CURRENTLY HAS SUFFICIENT VOTING POWER TO APPROVE AND ADOPT
THE MERGER AGREEMENT AND THE MERGER WITHOUT THE VOTE OF ANY OTHER STOCKHOLDER.
Pursuant to the Merger Agreement, Purchaser may extend the Offer (i) upon
the occurrence of any of the events set forth below under the caption "THE
TENDER OFFER--Section 12. Certain Conditions of the Offer," (ii) to the extent
necessary to respond to any comments of the Commission on the Offer Documents
(as defined below) and (iii) on one additional occasion for a period not to
exceed ten business days.
As of April 30, 1999, (i) 93,297,901 Shares were issued and outstanding and
(ii) no Shares were held in the treasury of the Company. As of April 30, 1999,
there were approximately 8,425 holders of record of the issued and outstanding
Shares. Parent owned 75,216,103 Shares as of April 30, 1999. Based on the issued
and outstanding Shares as of April 30, 1999, Purchaser would be able to effect a
Short-Form Merger if 8,752,008 Shares were validly tendered in the Offer and not
withdrawn prior to the close of the Offer.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER
Viacom acquired Paramount Communications Inc. ("Paramount") in July 1994 and
Blockbuster Entertainment Corporation ("Blockbuster") in September 1994. Viacom
acquired an indirect controlling interest in the Company through its acquisition
of Blockbuster, which at that time owned approximately 75% of the Shares.
Viacom incurred significant indebtedness in connection with its acquisition
of Paramount. As a consequence, following the acquisition of Blockbuster, Viacom
undertook an asset disposition program, which included the non-interactive
entertainment assets of the Company, in order to reduce its level of
indebtedness. As part of this process, Viacom retained Bear Stearns & Co. Inc.
("Bear Stearns") in the summer of 1995 to determine the level of interest among
possible buyers for the Company's non-interactive entertainment assets. Bear
Stearns contacted approximately 100 parties, of which approximately 25 parties
requested and were provided with an offering memorandum containing detailed
information concerning the Company. The sale process yielded no firm proposals
for the acquisition of the Company.
Accordingly, in May of 1996, Viacom announced that it was terminating its
efforts to sell the Company. Viacom based its decision to do so on the lack of
interest among potential buyers, and the disruption to the Company caused by the
sale process.
In April of 1997, Viacom announced its intention to acquire additional
Shares to increase its ownership interest in the Company to over 80%, and
thereby enable Viacom to include the Company in Viacom's consolidated tax group.
This was achieved in November of 1997, and Viacom has owned more than 80% of the
Shares since that time.
In 1997 and 1998, the Company began to reposition itself through the sale
and discontinuation of certain of its businesses. In August of 1997, the Company
licensed the distribution rights to its 1997 home video rental titles to
Paramount Home Video, which allowed the Company to eliminate certain costs
associated with the distribution of home video titles to the rental market. In
February 1998, the Company announced its decision to exit the theatrical feature
film business and closed Spelling Films. In April 1998, the Company sold
TeleUNO, its Latin American entertainment channel. The Company disposed of its
Virgin Interactive Entertainment Limited ("VIEL") business which produced and
distributed interactive games for the Company through two transactions. In
September 1998, the Company entered into a seven-year licensing agreement with
Artisan Home Entertainment Inc. covering the domestic and Canadian home video
and digital video disc ("DVD") distribution rights to approximately 3,000 titles
remaining in the Company's library, and in connection therewith, the Company
closed its domestic home video distribution business. On September 4, 1998, the
Company sold the stock of Westwood Studios, Inc., a subsidiary of VIEL, and
certain development assets of VIEL to Electronic Arts Inc. On November 10, 1998,
the Company completed the sale of all non-US operations of VIEL, effectively
completing the disposal of its interactive game business.
At various times after termination of the sale process in 1996 through 1998,
Viacom held exploratory discussions with two parties in the entertainment
business concerning their potential interest in acquiring the Company. Neither
of these companies made any specific proposals to acquire the Company.
In late 1998, Viacom had preliminary discussions with an additional
entertainment company with significant television production assets. Such
company outlined a proposal to acquire part of Viacom's interest in the Company
for cash and to exchange such Company's television production assets for newly
issued shares of Common Stock that, together with the shares of Common Stock to
be acquired from Viacom, would constitute a controlling interest in the Company.
Viacom rejected the proposal because the proposed transaction did not include
the acquisition of Shares from the Company's public stockholders and included an
acquisition of only a portion of Viacom's shares, and because the parties did
not agree on the valuation of the assets to be transferred.
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In early 1999, Viacom reviewed its strategy relative to its investment in
the Company. Viacom concluded that if it purchased the remaining stock of the
Company which it did not currently own, it could significantly reduce overhead
expense, by combining administrative functions and television sales force with
that of Paramount Television's, thereby reducing the Company's employment and
other costs of the Company. In addition, Viacom expects to be able to generate
increased revenues from the Company's current television production and its
television and film libraries. Viacom believed that unless it were to acquire
the remaining Shares and obtain the benefit of cost reductions, it was unlikely
to recover its investment in the Company and the Company would continue to
require financial support from Viacom. Based on this analysis, on March 18,
1999, the Board of Directors of Viacom approved the making of a proposal to the
Board of Directors of the Company to acquire the remaining publicly held Shares.
At a meeting of the Board held on March 19, 1999, Viacom presented its
proposal to acquire the remaining publicly held Shares in a merger transaction
for $9.00 per Share in cash (the "Proposal"). In response to the Proposal, the
Board formed the Special Committee, comprised of Messrs. John Muething and
William Haber. The Board authorized the Special Committee to review, evaluate
and negotiate the terms of the Proposal on behalf of the Company with a view
toward making a recommendation to the Board with respect to the Proposal. In
addition, the Board authorized the Special Committee, among other things, to
retain independent legal counsel and financial advisors. The Board authorized
the Company to pay $25,000 to Mr. Muething to serve as Chairman of the Special
Committee and $20,000 to Mr. Haber to serve as a member thereof and to indemnify
each member of the Special Committee to the fullest extent permitted by law from
all losses incurred by him in connection with his services as a member of the
Special Committee.
On March 19, 1999, the Special Committee retained Skadden, Arps, Slate,
Meagher & Flom LLP ("Skadden Arps") as special counsel to represent the Special
Committee. Later that day members of the Special Committee met with
representatives of Skadden Arps, who briefed the Special Committee on the
process and the scope of the Special Committee's duties and discussed the
fiduciary duties of the members of the Special Committee under applicable state
law. At that meeting, the Special Committee also discussed retaining independent
financial advisors and determined to interview investment banking firms in order
to select a financial advisor to the Special Committee.
On March 26 and 31, 1999, the Special Committee and representatives of
Skadden Arps met with four investment banking firms to discuss their credentials
and suitability to act as financial advisor to the Special Committee. Following
those meetings, the Special Committee determined to retain Lazard Freres as
financial advisor to the Special Committee based on its reputation, expertise in
the industry, advisory experience in similar transactions and the conclusion
that Lazard Freres would not have a conflict with the Company, Viacom or any of
their respective affiliates in relation to this assignment. On April 5, 1999,
the Special Committee finalized an engagement letter with Lazard Freres. See
"SPECIAL FACTORS-- Opinion of Lazard Freres."
During the next three weeks, Lazard Freres commenced its due diligence
investigation of the Company and held ongoing discussions with the Company. On
April 9th, 10th, 21st and 22nd, representatives of Lazard Freres met with
members of the Company's management for due diligence sessions and to discuss
the Company's long range plans and objectives. During this period,
representatives of Lazard Freres also reviewed with Viacom the previous efforts
undertaken to sell the Company.
On April 23, 1999, the Special Committee met with representatives of Lazard
Freres and Skadden Arps. At that meeting, representatives of Lazard Freres
advised the Special Committee of the progress of its due diligence investigation
of the Company and presented the Special Committee with its preliminary views on
the Proposal. Representatives of Skadden Arps also discussed the possibility of
requesting that Viacom revise the structure of the Proposal to provide for a
first step cash tender offer for all Shares followed by a second step merger in
an effort to obtain payment to stockholders on a more accelerated basis than
contemplated by the Proposal. On April 27, 1999, the Special Committee held a
conference call
4
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with representatives of Lazard Freres and Skadden Arps to discuss the Proposal.
Following such discussions, the Special Committee authorized representatives of
Lazard Freres to meet with representatives of Viacom to advise them that the
Special Committee was not willing to recommend the Proposal.
On April 28, 1999, representatives of Lazard Freres met with representatives
of Viacom and informed them that the Special Committee was not willing to
recommend the Proposal. Representatives of Viacom expressed their view that the
$9.00 per Share to be paid pursuant to the Proposal represented full and fair
value for the Shares. Representatives of Viacom informed Lazard Freres that
Viacom would consider the Special Committee's views and respond accordingly.
On May 10, 1999, representatives of Skadden Arps and Lazard Freres met with
counsel representing certain plaintiffs in litigation brought against the
Company, its directors and Viacom in connection with the Proposal and the
financial advisor to such plaintiffs. See "THE TENDER OFFER--Section 13. Certain
Legal Matters and Regulatory Approvals." At that meeting, such counsel expressed
their view that the consideration to be paid pursuant to the Proposal was
inadequate. Following that meeting, representatives of Lazard Freres informed
the Special Committee members and representatives of Viacom of the results of
the meeting.
On May 11, 1999, representatives of Viacom informed representatives of
Lazard Freres that Viacom had considered the views of the Special Committee and
the plaintiffs, but continued to believe that the $9.00 per Share to be paid
pursuant to the Proposal was at the high end of the range of fairness and
represented a significant premium to any price that the Shares had traded in
recent times. Nevertheless, Viacom was willing to offer $9.25 per Share in an
effort to satisfy the members of the Special Committee.
During a conference call later that morning, representatives of Lazard
Freres advised Mr. Muething and representatives of Skadden Arps of Viacom's
offer. After lengthy discussion, Mr. Muething authorized representatives of
Lazard Freres to inform Viacom that he did not believe that $9.25 per Share was
adequate and that he was prepared to recommend to Mr. Haber that the Special
Committee recommend a transaction with Viacom where stockholders were paid
$10.75 per Share in cash.
By telephone call later that day, representatives of Lazard Freres informed
representatives of Viacom of Mr. Muething's position. Representatives of Viacom
said that Viacom was not willing to pay $10.75 per Share to acquire the minority
interest in the Company and that they believed that $9.25 per Share exceeded
fair value for the Shares. Nevertheless, representatives of Viacom said they
were willing to recommend that Viacom offer $9.75 per Share (the "Revised
Proposal") only if the members of the Special Committee would be willing to
recommend a transaction at that price.
Subsequent to that call, representatives of Lazard Freres informed Mr.
Muething and representatives of Skadden Arps of Viacom's position. After a
discussion of the appropriate response thereto, Mr. Muething authorized
representatives of Skadden Arps to send their proposed changes on the draft
merger agreement to Shearman & Sterling, Viacom's counsel.
Later that evening, Mr. Muething advised Mr. Haber of Viacom's position.
After discussions on the various aspects of the revised proposal, Messrs.
Muething and Haber determined that they would be willing to recommend the
Revised Proposal, so long as Viacom was willing to accept their proposed changes
on the draft merger agreement. On May 12, 1999, representatives of Lazard Freres
advised representatives of Viacom of the Special Committee's response.
During the period between May 11 and May 16, 1999, representatives of
Skadden Arps and the Special Committee negotiated the terms of the Merger
Agreement with representatives of Shearman & Sterling and Viacom. Viacom was
willing to accept the Special Committee's proposed changes, including revising
the structure of the transaction to provide for the Offer. During that same
period, representatives of Shearman & Sterling and counsel representing certain
plaintiffs in litigation brought against the Company, its directors and Viacom
conducted negotiations regarding the possible settlement of such litigation. See
"THE TENDER OFFER--Section 13. Certain Legal Matters and Regulatory Approvals."
5
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On May 14, 1999, the Special Committee met with representatives of Lazard
Freres and Skadden Arps by telephone conference. At that meeting,
representatives of Lazard Freres orally advised the Special Committee that the
Per Share Amount and the Merger Consideration proposed to be received by the
Public Stockholders in the Offer and Merger was fair to such stockholders from a
financial point of view, which opinion was subsequently confirmed in writing.
The Special Committee then unanimously recommended that the Board approve and
recommend to the Company's stockholders the revised $9.75 per Share proposal,
subject to negotiation and execution of a mutually acceptable merger agreement.
After the Special Committee completed its meeting, the Board convened a
telephonic meeting. The Special Committee presented to the Board its
determination that the Merger Agreement was fair to the Public Stockholders, and
Lazard Freres confirmed that it had delivered its opinion to the Special
Committee that the Merger Consideration of $9.75 was fair to the Public
Stockholders, from a financial point of view. After the directors were given an
opportunity to discuss their questions and concerns relating to the Merger
Agreement, the Board, by unanimous vote of all Directors present and voting,
approved and declared to be advisable the Merger Agreement and the Merger, and
voted to recommend to the stockholders of the Company that they tender their
Shares pursuant to the Offer. On May 16, 1999, the Special Committee and
representatives of Skadden Arps completed their negotiations of the terms of the
Merger Agreement with Viacom and its advisors and the Merger Agreement was
executed the next day.
RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER AND THE MERGER
ON MAY 14, 1999, THE SPECIAL COMMITTEE UNANIMOUSLY DETERMINED THAT THE
MERGER WAS FAIR TO, AND IN THE BEST INTERESTS OF, THE PUBLIC STOCKHOLDERS AND
UNANIMOUSLY VOTED TO RECOMMEND AND APPROVE THE MERGER AGREEMENT.
FAIRNESS OF THE MERGER. In reaching its determination, the Special
Committee considered:
- the historical market prices of the Shares, including the fact that the
$9.75 per Share represented a premium of approximately 44.4% over the
$6.75 per Share closing price on March 18, 1999, the last full trading day
prior to the March 19, 1999 announcement of the Proposal, and represented
a premium of approximately 52.9% over the closing price for the Shares on
the NYSE on the date 30 days prior to the announcement of the Proposal;
- the fact that the $9.75 per Share to be paid to the Public Stockholders in
the Offer and the Merger exceeded the highest price at which the Shares
have traded on the NYSE since May 3, 1996;
- the fact that the $9.75 per Share to be paid to Public Stockholders in the
Offer and the Merger represented a 228% premium over the net book value
per Share of $2.97 as of March 30, 1999;
- the opinion of Lazard Freres that, based upon and subject to the
assumptions and qualifications stated in its opinion, the $9.75 per Share
to be paid to the Public Stockholders in the Offer and the Merger is fair
to the Public Stockholders from a financial point of view, and the report
and analysis presented to the Special Committee in connection with the
Lazard Freres opinion (see "SPECIAL FACTORS--Opinion of Lazard");
- that the terms of the Merger Agreement were determined through
arm's-length negotiations between the Special Committee and its legal and
financial advisors, on one hand, and representatives of Viacom, on the
other, and provide for the Offer in order to allow Public Stockholders to
receive payment for their Shares on an accelerated basis;
- that Viacom has sufficient stock ownership to control a disposition of the
Company and informed the Special Committee that it would not be interested
in a third-party sale of the Company; the Special Committee and Lazard
were not authorized to, and did not, solicit third-party indications of
interest for the acquisition of the Company, nor were any offers from
third parties received;
6
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- the ability of Public Stockholders who object to the Merger to obtain
"fair value" for their Shares if they exercise and perfect their appraisal
rights under the DGCL;
- the results of the prior efforts by Viacom to sell the Company; and
- the fact that the Offer provides the Public Stockholders with liquidity to
dispose of their Shares which may not be available in the public market
due to the low level of trading volume of the Shares on the New York Stock
Exchange ("NYSE") prior to the announcement of the Proposal (an average
daily trading volume of 22,834 shares since December 31, 1998).
In order to determine the fairness of the terms of the Offer and the Merger
and to approve the Merger Agreement and the Transactions, including the Offer
and the Merger, the Board concurred with and adopted the analysis of the Special
Committee with respect to the financial evaluation of the Company and of the
Offer and the Merger Consideration.
On May 14, 1999, the Board of Directors, by unanimous vote of all directors
present and voting, based upon, among other things, the unanimous recommendation
and approval of the Special Committee, determined that the Merger Agreement and
the Transactions are fair to, and in the best interests of, the Company,
approved the Merger Agreement, the Offer and the Merger, declared the Merger
Agreement to be advisable and recommended that stockholders accept the Offer and
tender their Shares pursuant to the Offer.
Neither the Board of Directors nor the Special Committee considered a
liquidation analysis because liquidation of the Company was not an alternative
presented in the Proposal.
In evaluating the Offer and the Merger, the members of the Board of
Directors, including the members of the Special Committee, considered their
knowledge of the business, financial condition and prospects of the Company, and
the advice of financial and legal advisors. In light of the number and variety
of factors that the Company's Board and the Special Committee considered in
connection with their evaluation of the Offer and the Merger, neither the
Company's Board nor the Special Committee found it practicable to assign
relative weights to the foregoing factors, and, accordingly, neither the
Company's Board nor the Special Committee did so.
OPINION OF LAZARD FRERES
On May 14, 1999, Lazard Freres rendered its oral opinion, subsequently
confirmed in writing as of such date, that based upon and subject to the various
considerations set forth in the opinion, the Per Share Amount and the Merger
Consideration to be received by the Public Stockholders was fair to such
stockholders from a financial point of view.
A copy of the full text of the Lazard Freres opinion, which sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken in connection
with its analyses for the written opinion, is attached hereto as Schedule II and
incorporated herein by reference. The summary discussion of the Lazard Freres
opinion set forth in this Offer to Purchase is qualified in its entirety by
reference to the full text of such opinion. The engagement of Lazard Freres and
its opinion are for the benefit of the Special Committee, and its opinion was
rendered to the Special Committee in connection with its consideration of the
Transactions. The opinion of Lazard Freres is directed only to the fairness of
the Per Share Amount and the Merger Consideration from a financial point of view
to the Public Stockholders and does not address any other aspects of the
Transactions. The opinion is not intended to, and does not constitute, a
recommendation to any stockholder as to whether such holder should tender its
shares in the Offer or how such holder should vote with respect to the Merger.
Stockholders are urged to read the Lazard Freres opinion in its entirety. Lazard
Freres has consented to the use and description of its opinion for the purpose
of filing and distributing this Offer to Purchase.
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In connection with its written opinion dated May 14, 1999 to the Special
Committee, Lazard Freres:
(i) reviewed the financial terms and conditions of a May 14, 1999 draft of
the Merger Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company;
(iii) reviewed various financial forecasts and other data provided to
Lazard Freres by the Company relating to its business;
(iv) held discussions with members of the senior management of the Company
with respect to the business, prospects, and strategic objectives of the
Company;
(v) reviewed public information with respect to certain other companies in
lines of business Lazard Freres believes to be generally comparable to
the business of the Company;
(vi) reviewed the financial terms of certain business combinations
involving companies in lines of business Lazard Freres believes to be
generally comparable to those of the Company;
(vii) reviewed the historical stock prices and trading volumes of the
Common Stock; and
(viii) conducted such other financial studies, analyses and investigations
as Lazard Freres deemed appropriate.
Lazard Freres, with the Special Committee's consent, relied upon the
accuracy and completeness of the foregoing information and did not assume any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the Company's assets or liabilities
or concerning the solvency of or issues relating to solvency concerning the
Company.
With respect to financial forecasts and any financial or operating
information furnished by the Company or during discussions with the Company's
management, Lazard Freres assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the Company's
management as to the future financial performance of the Company. Lazard Freres
assumed no responsibility for and expressed no view as to such forecasts or the
assumptions on which they were based.
The written opinion of Lazard Freres was necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to it as of, May 14, 1999. In rendering its opinion, Lazard Freres did
not address the relative merits of the Transactions, any alternative potential
transaction or the Company's underlying decision to effect the Transactions.
Lazard Freres was not requested to solicit third party indications of interest
in acquiring the Company nor did Lazard Freres actively seek any other offers.
In rendering its opinion, Lazard Freres assumed that (i) the Merger
Agreement would not differ in any material respect from the May 14, 1999 draft
referred to above and (ii) the Transactions would be consummated on the terms
described in the May 14, 1999 draft of the Merger Agreement, without any waiver
of any material terms or conditions by the Company.
The following is a summary of the material financial and comparative
analyses performed by Lazard Freres in connection with providing its written
opinion to the Special Committee.
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. Lazard Freres reviewed and
compared certain actual and estimated financial, operating and stock market
information of two sets of companies in lines of business believed to be
generally comparable to those of the Company. The first set of such companies
were companies principally engaged in the production and distribution of
television programming (collectively, the "Selected Comparable Television
Production Companies") and included:
- Alliance Atlantis Communications, Inc.,
- CINAR Corporation,
- dick clark productions, inc.,
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- Endemol Entertainment Holding NV,
- King World Productions, Inc.,
- Kushner-Locke Company,
- Nelvana Ltd., and
- Trimark Holdings, Inc.
The analysis indicated that the Selected Comparable Television Production
Companies were valued at a median enterprise value multiple of 1998 estimated
revenues of 2.66x, at a median multiple of 1999 estimated revenues of 2.17x, at
a median multiple of 2000 estimated revenues of 2.31x, at a median multiple of
1998 estimated earnings before interest, taxes, depreciation and amortization
("EBITDA") of 14.9x, at a median multiple of 1999 estimated EBITDA of 9.6x, at a
median multiple of 2000 estimated EBITDA of 14.0x, at a median multiple of 1998
estimated earnings before interest and taxes ("EBIT") of 14.0x, at a median
multiple of 1999 estimated EBIT of 11.1x and at a median multiple of 2000
estimated EBIT of 16.0x.
Lazard Freres also reviewed and compared certain actual and estimated
financial, operating and stock market information of companies in the
diversified media industry (collectively, the "Selected Comparable Diversified
Media Companies"). Such companies included:
- Fox Entertainment Group, Inc.,
- Metro-Goldwyn-Mayer Inc.,
- Seagram Company Ltd.,
- Time Warner Inc.,
- Viacom Inc. and
- Walt Disney Company
The analysis indicated that the Selected Comparable Diversified Media
Companies were valued at a median enterprise value multiple of 1998 estimated
revenues of 2.48x, at a median multiple of 1999 estimated revenues of 2.31x, at
a median multiple of 2000 estimated revenues of 2.13x, at a median multiple of
1998 estimated EBITDA of 18.3x, at a median multiple of 1999 estimated EBITDA of
15.3x, at a median multiple of 2000 estimated EBITDA of 13.7x, at a median
multiple of 1998 estimated EBIT of 25.3x, at a median multiple of 1999 estimated
EBIT of 21.8x and at a median multiple of 2000 estimated EBIT of 19.2x.
Based upon projections provided by the Company, the Per Share Amount implied
an enterprise value multiple of 1998 revenues of 1.99x, a multiple of 1999
estimated revenues of 2.32x, a multiple of 1998 EBITDA of 27.7x, a multiple of
1999 estimated EBITDA of 30.2x, a multiple of 1998 EBIT of 35.9x and a multiple
of 1999 estimated EBIT of 42.8x. Lazard Freres also calculated the implied
enterprise value as a multiple of the 2000 estimated unlevered pre-tax and
after-tax cash flow to be 21.5x and 29.1x, respectively. Lazard Freres noted,
however, that there were several factors that limited the relevance of this
analysis: (i) there were relatively few direct comparable companies to the
Company due to the Company's focus on television production and its extensive
film and television libraries; (ii) the cyclicality and accounting methods of
the entertainment industry made interpreting the multiples difficult; and (iii)
the Company's recent restructuring efforts complicated comparison of historical
results.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Lazard Freres reviewed and
analyzed publicly available financial, operating and stock market information of
36 acquisition transactions that it selected. Twenty-three acquisition
transactions involved the television industry (the "Selected Television
Transactions"), including 6 acquisition transactions where the Company or its
predecessors was the target (the "Company Transactions"), and thirteen
acquisition transactions involved movie studios as the target (the "Selected
Movie Studio Transactions"). Based upon such information for the Selected
Television Transactions, the
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median transaction value multiple of last twelve months ("LTM") revenues was
1.8x and the median multiple of LTM EBITDA was 11.7x. Based upon such
information for the Selected Movie Studio Transactions, the median transaction
value multiple of LTM revenues was 2.1x and the median multiple of LTM EBITDA
was 18.5x. Based upon such information for the Company Transactions, the median
transaction value multiple of LTM revenues was 1.59x and the median multiple of
LTM EBITDA was 11.6x. The Per Share Amount implied multiples of 1998 revenues of
1.99x and 1998 EBITDA of 27.7x. For reasons similar to those in the Comparable
Publicly Traded Companies Analysis, Lazard Freres noted that the results of this
analysis were of limited relevance.
DISCOUNTED CASH FLOW ANALYSIS. Based upon information, including
projections, provided by the Company's management, Lazard Freres estimated the
net present value of the future cash flows of four principal components of the
Company's business: current production, future production, TV and film library
and corporate overhead. The information, including projections, provided by the
Company further segregated the cash flows on a show-by-show basis for the
current production and by "slates" of programs for the future production. Lazard
Freres utilized discount rates ranging from 9% to 12% and perpetuity growth
rates ranging from 0% to 3% for current production, discount rates ranging from
12% to 15% and perpetuity growth rates ranging from 6% to 9% for future
production, discount rates of 7% to 10% and perpetuity growth rates ranging from
(2%) to 1% for TV and film library, and discount rates of 10% to 13% and
perpetuity growth rates ranging from (2%) to 1% for corporate overhead. These
factors were applied to three different operating scenarios provided by
management of the Company: a "status quo" scenario; a "stand-alone" scenario;
and a "fully integrated" scenario. The status quo scenario represented the
current state of the Company as it was operated under the control of Parent. The
stand-alone and fully integrated scenarios were prepared for comparative
purposes for the Special Committee to reflect the values hypothetically
obtainable if the Company were free to operate as a stand-alone enterprise or
fully integrated with the infrastructure of Parent or another major integrated
studio. Adjusting appropriately for estimated net debt as of June 30, 1999, of
$245.0 million and other assets valued at approximately $11.5 million, these
analyses indicated net equity value reference ranges per share of Common Stock
as of June 30, 1999, of approximately $7.60 to $10.50 for the status quo
scenario, $8.60 to $11.55 for the stand-alone scenario and $12.45 to $16.20 for
the fully integrated scenario. However, as Viacom informed Lazard Freres and the
Special Committee that it was not prepared to entertain either the stand-alone
scenario or fully integrated scenario to the extent it involved third parties,
Lazard Freres noted that the results of the analyses under the stand-alone and
fully integrated scenarios were of limited relevance.
PREMIUMS PAID ANALYSIS. Lazard Freres reviewed the publicly available
information concerning premiums paid in 29 selected minority take-out
transactions since 1990, of which 8 were in the media industry (the "Media
Transactions"). The purchase prices paid in all such transactions represented
median premiums of approximately 25.1%, 32.6% and 37.8%, respectively, over the
closing prices of the target company's stock on the day prior, one week prior
and four weeks prior to announcement. Lazard Freres also noted that the final
deal price represented a median increase of 10.7% over the initial offer made by
the acquiring company. The purchase prices paid in all Media Transactions
represented median premiums of approximately 23.4%, 33.5% and 36.3%,
respectively, over the closing prices of the target company's stock on the day
prior, one week prior and four weeks prior to announcement. Lazard Freres noted
that in the Media Transactions the final deal price represented a median
increase of 9.2% over the initial offer made by the acquiring company. Lazard
Freres noted that the Per Share Amount represented a premium of approximately
44.4%, 40.5% and 54.5%, respectively, over the closing price of the Common Stock
on one day prior, one week prior and four weeks prior to The Proposal on March
19, 1999, respectively. Moreover, Lazard Freres noted that the offer price of
$9.75 per Share represented a 8.3% increase over the $9.00 per Share amount
offered in the Proposal.
SPECIAL CONSIDERATIONS. In connection with the review of the Transactions
by the Special Committee, Lazard Freres performed a variety of financial and
comparative analyses for the purposes of its opinion. The foregoing summary does
not purport to be a complete description of the analyses performed by
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<PAGE>
Lazard Freres, although it is a summary of the material financial and
comparative analyses performed by Lazard Freres in arriving at its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analyses or the summary set forth above without considering the analyses as
a whole, could create an incomplete or misleading view of the process underlying
the opinion of Lazard Freres. No company or transaction used in the above
analyses as a comparison is identical to the Company or to the Transactions. In
arriving at its opinion, Lazard Freres considered the results of all such
analyses and did not assign relative weights to any of the analyses. The
analyses were prepared solely for the purpose of Lazard Freres providing its
opinion to the Special Committee in connection with its consideration of the
Transactions and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold, which may be
significantly more or less favorable than as set forth in these analyses. Lazard
Freres was provided estimates and information by the Company's management based
upon, numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of the Company and Lazard Freres. Similarly, any estimate of values or
forecasts of future results contained in the analyses is not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses.
The opinion and presentation of Lazard Freres to the Special Committee was
only one of many factors taken into consideration by the Special Committee in
making its determination to recommend the Transactions. Because such analyses
are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of the parties or their respective advisors, none of
the Company, Lazard Freres, or any other person assumes responsibility if future
results or actual values are materially different from those forecasts or
estimates contained in the analyses See "SPECIAL FACTORS-- Cautionary Statement
Concerning Forward Looking Statements." In addition, the terms of the
Transactions were determined through arm's-length negotiations between the
Special Committee and Viacom and were approved by the Board.
The Special Committee retained Lazard Freres to act as its investment banker
in connection with the Transactions. Lazard Freres is an internationally
recognized investment banking firm and is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, leveraged buyouts, and valuations for estate,
corporate and other purposes. Lazard Freres was selected to act as investment
banker to the Special Committee because of its expertise and its reputation in
investment banking and mergers and acquisitions.
Pursuant to a letter agreement dated April 5, 1999, the Special Committee
retained Lazard Freres services as investment banker in connection with the
Transactions, including its delivery of the opinion summarized above. Pursuant
to the letter agreement, the Company has paid Lazard Freres fees totaling
$875,000. The Company also has agreed to reimburse Lazard Freres for its
reasonable out-of-pocket expenses (including reasonable fees and expenses of its
legal counsel). In the ordinary course of its business, Lazard Freres and its
affiliates may actively trade in the securities of the Company for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position.
COMPANY BUDGET INFORMATION AND FINANCIAL PROJECTIONS
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in
connection with Parent's position as a controlling stockholder of the Company,
Parent has received and examined certain analyses prepared by the Company which
include projections of future financial results. Such information has been set
forth below for the limited purpose of giving the Company's stockholders access
to financial projections by the Company's management that were available for
review by Parent and Purchaser in connection with the Offer.
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<PAGE>
Prior to the Proposal, as part of Parent's ongoing 1999 financial planning
process, the Company provided Parent an estimate for the quarter ended March 31,
1999 and the year ended December 31, 1999 (together, the "1999 Estimate").
Selected information for the 1999 Estimate is set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDING YEAR ENDING
MARCH 31, 1999 DECEMBER 31, 1999
(ESTIMATE) (ESTIMATE)
-------------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Revenue.................................................................. $ 171,821 $ 497,049
EBITDA................................................................... 11,964 29,873
Operating Income......................................................... 9,340 18,658
Net Income (Loss)........................................................ 3,812 (6,311)
</TABLE>
The Company prepared the 1999 Estimate based on then current assumptions
including, but not limited to, those related to the production and exploitation
of its existing and potential future network and first run television programs,
continued exploitation of its library properties and selling, general and
administrative costs. In particular, estimates for the Company's network and
first run shows required assumptions as to network orders and station
clearances; license fees and advertising revenue; domestic and international
syndication sales; and, production and exploitation costs. Assumptions relating
to the Company's library product were derived based on expected sales of
available product. The Company also provided estimates for overhead and other
costs.
After the Proposal but prior to the announcement of Purchaser's intention to
commence the Offer, the Company indicated to Parent that certain changes had
occurred to the assumptions for some of its key programs that had been
incorporated in the 1999 Estimate shown above. The Company indicated that
revenue and EBITDA for the year ended December 31, 1999 (the "Revised 1999
Estimate") would likely be higher than the 1999 Estimate provided above.
However, the Company did not provide Parent with any formal revisions to
revenue, EBITDA, operating income or net income based on these revised
assumptions. Therefore the 1999 Estimate shown above does not take into account
such revisions. Parent did not rely to any material degree upon the Revised 1999
Estimate in performing its analysis of the Company.
Also prior to the announcement of Purchaser's intention to commence the
Offer, the Company provided to Parent, in the ordinary course of business,
unaudited actual financial information for the three months ended March 31, 1999
and unaudited actual financial information for April 1999. This information is
set forth below:
<TABLE>
<CAPTION>
ONE MONTH ENDED
THREE MONTHS ENDED APRIL 30, 1999
MARCH 31, 1999 (ACTUAL
(ACTUAL UNAUDITED) UNAUDITED)
------------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Revenue.................................................................. $ 184,955 $ 59,454
EBITDA................................................................... 19,325 7,427
Operating Income......................................................... 16,783 6,532
Net Income (Loss)........................................................ 3,224 1,310
</TABLE>
The foregoing projected financial information was also provided to Lazard
Freres.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. Forward-looking statements include the information set
forth above concerning the Company's 1999 budget and the financial projections
disclosed above (together, the "Projections"). Such information has been
included in this Offer to Purchase for the limited purpose of giving the
Company's stockholders access to financial projections by the Company's
management that were made available to Parent and Purchaser. Such information
was prepared by the Company's management for internal use and not with a
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<PAGE>
view to publication. The foregoing Projections were based on assumptions
concerning the Company's products and business prospects in 1999 through 2000,
including the assumption that the Company would continue to operate under the
same ownership structure as then existed. The Projections were also based on
other revenue and operating assumptions. Projected information of this type is
based on estimates and assumptions that are inherently subject to significant
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the Company's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower than
those set forth above. In addition, the Projections were not prepared with a
view to public disclosure or compliance with the published guidelines of the
Commission or the guidelines established by the American Institute of Certified
Public Accountants regarding projections and forecasts and are included in this
Offer to Purchase only because such information was made available to Parent and
Purchaser by the Company. Neither Parent's nor the Company's independent
accountants have examined, compiled or applied any agreed upon procedures to
this information and, accordingly, assume no responsibility for this
information. None of Parent, Purchaser, the Company or any other party assumes
any responsibility for the accuracy or validity of the foregoing projections.
POSITION OF VIACOM REGARDING FAIRNESS OF THE OFFER AND THE MERGER
Viacom believes that the consideration to be received by the Public
Stockholders, pursuant to the Offer and the Merger, is fair to the Public
Stockholders. Viacom based its belief solely on (i) the fact that the Board and
the Special Committee concluded that the Offer and the Merger are fair to, and
in the best interests of, the Company, (ii) the historical and projected
financial performance of the Company and its financial results, (iii) the fact
that the consideration to be paid in the Offer and the Merger represents a
premium of approximately 42.4% over the average closing price for the one-month
period prior to the March 19, 1999 public announcement of Parent's original
offer to acquire the outstanding Shares held by the Public Stockholders, and a
premium of approximately 44.4% over the reported closing price for the Shares on
the last trading day prior to March 19, 1999, (iv) the fact that the terms of
the Offer and the Merger and the Merger Agreement were negotiated on an
arm's-length basis, (v) the fact that the Offer and the Merger will each provide
consideration to the stockholders entirely in cash, and (vi) notwithstanding the
fact that Lazard Freres' opinion was provided solely for the information and
assistance of the Special Committee and that Viacom is not entitled to rely on
such opinion, the fact that the Special Committee received an opinion from
Lazard Freres that the $9.75 per Share in cash to be received by the Public
Stockholders in the Offer and the Merger is fair to such holders from a
financial point of view. Viacom has reviewed the factors considered by the Board
in support of its decision, as described in the Schedule 14D-9 and above, and
had no basis to question their consideration of or reliance on those factors.
Viacom found it impracticable to assign, nor did it assign, relative weights to
the individual factors considered in reaching its conclusion as to fairness. The
consummation of the Offer and the Merger did not require the approval of a
majority of the Public Stockholders.
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
PURCHASER FOR THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is to allow Viacom to significantly
reduce overhead expenses, by combining the Company's administrative functions
and television sales force with that of Paramount Television's thereby reducing
employment and other costs of the Company. In addition, Viacom expects to be
able to generate increased revenues from the Company's current television
production and its television and film libraries. This will be accomplished by
Parent, through Purchaser, acquiring the Shares it does not already own in the
Company. Through the Merger, Parent will acquire all Shares not purchased
pursuant to the Offer. Upon consummation of the Merger, the Company will be a
direct wholly owned subsidiary of Parent. The acquisition of the Shares not
owned by Parent has been structured as a cash tender offer followed by a cash
merger in order to effect a prompt and orderly transfer
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<PAGE>
of ownership of the Company from the Public Stockholders to Parent and to
provide the Public Stockholders with cash for all of their Shares.
Under the DGCL, the approval of the Board and the affirmative vote of a
majority of the votes cast by all stockholders entitled to vote thereon are
required to approve and adopt the Merger Agreement and the Transactions. The
Board has approved, adopted and declared to be advisable the Merger Agreement
and the Transactions. If a Short-Form Merger is effected pursuant to the
provisions of the DGCL described below, the Merger can be approved through
action of the Board without a shareholder vote. If a Short-Form Merger cannot be
effected, the only remaining required corporate action of the Company, Parent or
Purchaser is the approval and adoption of the Merger Agreement and the
Transactions by the affirmative vote of a majority of the votes cast by all
stockholders of the Company entitled to vote thereon. Parent already has
sufficient voting power to cause the approval and adoption of the Merger
Agreement and the Transactions without the affirmative vote of any other
stockholder of the Company and, if such action is required, the Company has
agreed to take all action necessary to cause all Shares owned by it to be voted
in favor of the approval and adoption of the Merger Agreement and the
Transactions.
Under the DGCL, if Purchaser acquires, pursuant to the Offer and the
Contribution, at least 90% of the then outstanding Shares, Purchaser's Board of
Directors will be able to effect a Short-Form Merger. Additionally, the DGCL
requires that the merging entities be a parent and subsidiary. Thus, immediately
prior to the Effective Time, Parent will contribute the Purchaser Shares to
Purchaser, thereby causing Purchaser to be the parent of the Company. If
Purchaser does not acquire at least 90% of the then issued and outstanding
Shares pursuant to the Offer and the Contribution, the DGCL requires a vote of
the Company's stockholders to effect the Merger, and a significantly longer
period of time will be required to effect the Merger and distribution of Merger
Consideration.
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER AND THE MERGER
Pursuant to the Merger Agreement, upon completion of the Offer, Parent and
Purchaser intend to effect the Merger in accordance with the Merger Agreement.
See "SPECIAL FACTORS--The Merger Agreement."
Other than by virtue of the Merger and the Transactions and except as
otherwise described below or elsewhere in this Offer to Purchase, Viacom and
Parent have no current plans or proposals which relate to or would result in:
(i) an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries; (ii) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; (iii) any material change in the Company's capitalization or
dividend policy or indebtedness; (iv) any change in the management of the
Company, the composition of the Board or any change in any material term of the
employment contract of any executive officer; or (v) any other material change
in the Company's corporate structure or business.
As a result of the Offer, the interest of Parent in the Company's net book
value and net earnings will increase from 80% to a greater percentage, to the
extent of the number of Shares acquired under the Offer. If the Merger is
consummated, Parent's interest in such items will increase to 100%, and Parent
and its subsidiaries will be entitled to all benefits resulting from that
interest, including all income generated by the Company's operations and 100% of
future increase in the Company's value. Similarly, Parent will also bear all of
the risk of any decrease in the value of the Company after the Merger, including
the risk of 100% of losses generated by the Company's operations. Upon
consummation of the Merger, the Public Stockholders will not have the
opportunity to participate in the earnings and growth of the Company after the
Merger and will not have any right to vote on corporate matters. Similarly, the
Public Stockholders will not face the risk of decline in the value of the
Company after the Merger.
Upon consummation of the Merger, Parent will directly own 100% of the
Shares. As a result of the Merger, Parent will be the sole stockholder of the
Company and there will be no public market for the Shares. Upon consummation of
the Merger, the Shares will cease to be listed or quoted on the NYSE and the
Pacific Exchange (the "PE"), the registration of the Shares under the Exchange
Act will be terminated
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<PAGE>
and such stock will no longer constitute "margin securities" under the rules of
the Board of Governors of the Federal Reserve System. Moreover, the Company will
be relieved of the obligation to (i) comply with the proxy rules of Regulation
14A under Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) file periodic reports with the Commission under the
Exchange Act. In addition, the Company's officers, directors and 10%
stockholders will be relieved of the reporting requirements and restrictions on
"short-swing" trading contained in Section 16 of the Exchange Act with respect
to the Shares. See "THE TENDER OFFER--Section 11. Effect of the Offer on the
Market for the Shares, the NYSE, the PE and Exchange Act Registration."
The Merger Agreement provides for the directors of Purchaser immediately
prior to the Effective Time (including Mr. Spelling) and for the officers of the
Company immediately prior to the Effective Time, to be the directors and the
officers, respectively, of the Surviving Corporation after the Merger, until
their respective successors are elected or appointed and qualified in accordance
with applicable law. The Merger Agreement also provides that Mr. Spelling shall
be the Chairman of the Surviving Corporation.
After consummation of the Merger, Viacom plans to cause the Company to
fulfill its existing contractual commitments and to exploit the business
opportunities that are available to the Company in order to maximize the
Company's opportunities for revenues and profit. Viacom intends to operate the
Company and Spelling Television Inc. ("Spelling
Television-Registered Trademark-") and Big Ticket
Television-Registered Trademark- Inc. under the umbrella of Viacom's
Entertainment Group and to consolidate certain sales and back-office functions
of the Company with those of Viacom's Paramount Television Group. Viacom
believes that a full integration of the Company into Viacom will enable the
combined entity to realize efficiencies and economies of scale. See "SPECIAL
FACTORS--Background of the Offer and the Merger."
RIGHTS OF STOCKHOLDERS IN THE OFFER AND THE MERGER
No dissenters rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders who do not sell their Shares pursuant to
the Offer and who fully comply with the statutory dissenters procedures set
forth in the DGCL, the relevant portions of which are attached to this Offer to
Purchase as Schedule III, will be entitled to receive in connection with the
Merger, instead of the Merger Consideration, cash for the fair value of their
Shares (which may be more than, equal to, or less than the Merger Consideration)
as determined pursuant to the procedures prescribed by the DGCL. Stockholders
who perfect such rights by complying with the procedures set forth in Section
262 of the DGCL ("Section 262") will have the fair value of their Shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) determined by the Delaware Court of Chancery and will
be entitled to receive a cash payment equal to such fair value from the
Surviving Corporation. In addition, such dissenting stockholders (the
"Dissenting Stockholders") would be entitled to receive payment of a fair rate
of interest from the date of consummation of the Merger on the amount determined
to be the fair value of their Shares (the "Dissenting Shares"). In determining
the fair value of the Dissenting Shares, the court is required to take into
account all relevant factors. Accordingly, such determination could be based
upon considerations other than, or in addition to, the market value of the
Shares, including, among other things, asset values and earning capacity. In
WEINBERGER v. UOP, INC., the Delaware Supreme Court stated that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. The WEINBERGER court also noted that, under Section
262, fair value is to be determined "exclusive of any element of value arising
from the accomplishment or expectation of the merger." As a consequence, the
fair value determined in any appraisal proceeding could be more or less than the
consideration to be paid in the Offer and the Merger. THE PRESERVATION AND
EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE
PROVISIONS OF THE DGCL. The foregoing summary of Section 262 is qualified in its
entirety by reference to Section 262, a copy of which is attached as Schedule
III to this Offer to Purchase.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") filed by Purchaser and Parent with the Commission in connection with the
Offer. Such summary is qualified in its entirety by reference to the Merger
Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Purchaser's intention to commence
the Offer. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the satisfaction of certain
conditions that are described below under the caption "THE TENDER OFFER--Section
12. Certain Conditions of the Offer." Purchaser and Parent have agreed that,
without the prior written consent of the Special Committee, no change in the
Offer may be made which decreases the price per Share payable in the Offer,
which reduces the maximum number of Shares to be purchased in the Offer, which
changes the form of consideration payable in the Offer, which adds to, modifies
or supplements the conditions to the Offer set forth below under the caption
"THE TENDER OFFER--Section 12. Certain Conditions of the Offer," or which
extends the expiration date of the Offer beyond the twentieth business day
following commencement thereof; PROVIDED, HOWEVER, Purchaser may extend the
expiration date of the Offer, (i) upon the occurrence of any of the events set
forth below under the caption "THE TENDER OFFER--Section 12. Certain Conditions
of the Offer," (ii) to the extent necessary to respond to comments on the Offer
Documents from the Commission and (iii) on one additional occasion, for a period
not to exceed ten business days. Purchaser and Parent may also make such other
changes in the terms or conditions of the Offer as are not materially adverse to
the holders of Shares without the prior written consent of the Special
Committee. The term "Offer Documents" means the Schedule 14D-1, the Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"), this Offer to
Purchase and the other documents, in each case filed by Purchaser and Parent
with the Commission in connection with the Offer, together with all supplements
and amendments thereto.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
shall continue as the Surviving Corporation. Upon consummation of the Merger,
each Share issued and outstanding immediately prior to the Effective Time held
by a Public Stockholder (other than any Dissenting Shares) shall be canceled and
shall be converted automatically into the right to receive from Surviving
Corporation the Merger Consideration payable, without interest. Each Share not
held by a Public Stockholder immediately prior to the Effective Time shall be
canceled without any conversion thereof and no payment or distribution shall be
made with respect thereto.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.
DIRECTORS AND OFFICERS, CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Merger Agreement provides that the directors of Purchaser immediately prior to
the Effective Time (including Mr. Spelling) and the officers of the Company
immediately prior to the Effective Time will be the initial directors and
officers of the Surviving Corporation. The Merger Agreement also provides that
Mr. Spelling, the current Vice Chairman of the Board, will be the Chairman of
the Surviving Corporation. The Merger Agreement provides that the Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, will be amended as set forth in the Merger Agreement, and the Certificate
of Incorporation as so amended at the Effective Time, will be the Certificate of
Incorporation of the Surviving Corporation. The Merger
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<PAGE>
Agreement also provides that the By-laws of Purchaser, as in effect immediately
prior to the Effective Time, will be the By-laws of the Surviving Corporation.
TREATMENT OF STOCK OPTIONS; OPTIONHOLDER AGREEMENTS. Pursuant to the Merger
Agreement, the Company shall take all actions necessary (including obtaining any
and all required consents from employees) such that immediately after the Tender
Offer Acceptance Date (as defined below), each outstanding option to purchase
Shares (in each case, an "Option") granted under the Company's stock option
plans, including, The Spelling Entertainment Group Inc. 1987 Stock Option Plan
and The Spelling Entertainment Group Inc. 1994 Stock Option Plan (the "Option
Plans"), whether or not then exercisable, shall be canceled by the Company. The
Merger Agreement provides that immediately after the Tender Offer Acceptance
Date, each holder of a canceled Option shall be entitled to receive from
Purchaser in consideration for the cancellation of such Option, an amount in
cash equal to the product of (i) the number of Shares previously subject to such
Option and (ii) the excess, if any, of the Per Share Amount over the exercise
price per Share previously subject to such Option. The Merger Agreement provides
that all applicable withholding taxes attributable to the payments made
thereunder or to distributions contemplated thereby shall be deducted from the
amounts payable thereunder and all such taxes attributable to the exercise or
deemed exercise of Options on or after the Effective Time shall be withheld from
the Merger Consideration. The term "Tender Offer Acceptance Date" means the date
on which Purchaser shall have accepted for payment all Shares validly tendered
and not withdrawn prior to the expiration date of the Offer. Except as otherwise
agreed to by the parties to the Merger Agreement and to the extent permitted
under the Option Plans, (i) the Option Plans shall terminate as of the Effective
Time and (ii) the Company shall use all reasonable efforts to ensure that
following the Effective Time no holder of Options shall have any right
thereunder to acquire any equity securities of the Company.
In order to prevent the dilution of its greater than 80% interest in the
Common Stock of the Company that could result from the exercise of Options
during the period between the commencement of the Offer and the earlier of (i)
the Tender Offer Acceptance Date and (ii) the expiration of the Offer prior to
the purchase of any Shares thereunder, Parent, prior to the commencement of the
Offer, entered into agreements (each an "Optionholder Agreement") with various
directors, officers and employees who are holders of Options covering
approximately 2,583,055 Shares, pursuant to which such holders of Options have
agreed not to exercise their Options during such period of time, and Parent has
agreed to cause such holders' Options (consistent with the treatment of all
options under the terms of the Merger Agreement) to be canceled immediately
after the Tender Offer Acceptance Date and to make the payments described in the
paragraph above to the holders of Options.
WITHHOLDING TAXES. The Surviving Corporation or the designated paying agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to the Merger Agreement to any holder of Shares any amounts
that the Surviving Corporation or such paying agent is required to deduct and
withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended, the rules and regulations promulgated
thereunder or any provision of state, local or foreign tax law.
AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY; STOCKHOLDERS' MEETING.
Pursuant to the Merger Agreement, the Company shall, if required by applicable
law in order to consummate the Merger, take all necessary action to duly call,
give notice of, convene and hold a special meeting of its stockholders as soon
as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the Transactions (the
"Stockholders' Meeting"). At the Stockholders' Meeting, Parent and Purchaser
shall cause all Shares then owned by them to be voted in favor of the approval
and adoption of the Merger Agreement and the Transactions. In the event a
Stockholders' Meeting is called, the Company shall use its reasonable best
efforts to solicit from stockholders of the Company proxies in favor of the
approval and adoption of the Merger Agreement and to secure the vote or consent
of stockholders required by the DGCL to approve and adopt the Merger Agreement,
unless otherwise required by the applicable fiduciary duties of the directors of
the Company or of the Company's directors
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constituting the Special Committee, as determined by such directors in good
faith, and after consultation with independent legal counsel (which may include
the Company's regularly engaged legal counsel).
PROXY STATEMENT. The Merger Agreement provides that Parent, Purchaser and
the Company shall, if required by applicable law, as soon as practicable
following consummation of the Offer, file a proxy statement (the "Proxy
Statement") with respect to the Stockholders' Meeting with the Commission under
the Exchange Act, and use its best efforts to have the Proxy Statement cleared
by the Commission. Parent, Purchaser and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the Commission with respect to the
Proxy Statement and of any requests by the Commission for any amendment thereof
or supplement thereto or for additional information and shall provide to Parent
promptly copies of all correspondence between the Company or any representative
of the Company and the Commission. The Company shall give Parent and its counsel
the opportunity to review the Proxy Statement prior to its being filed with the
Commission and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statements and all responses to requests
for additional information from the Commission and replies to comments from the
Commission prior to their being filed with, or sent to, the Commission. Each of
the Company, Parent and Purchaser shall use its reasonable efforts after
consultation with the other parties to the Merger Agreement, to respond promptly
to all such comments of and requests by the Commission and to cause the Proxy
Statement and all required amendments thereof and supplements thereto to be
mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at
the earliest practicable time.
CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, prior to the
Effective Time, unless otherwise expressly contemplated by the Merger Agreement
or consented to in writing by Parent, the Company shall and shall cause its
subsidiaries (the "Subsidiaries" and, individually, a "Subsidiary") to (i)
operate its business in the usual and ordinary course consistent with past
practices, (ii) use its reasonable best efforts to preserve substantially intact
its business organization, maintain its rights and franchises, retain the
services of its respective principal officers and key employees and maintain its
relationships with its respective principal customers, suppliers and other
persons with which it or any of its subsidiaries has significant business
relations and (iii) use its reasonable best efforts to maintain and keep its
properties and assets in as good repair and condition as at present, ordinary
wear and tear excepted.
ACCESS TO INFORMATION. Pursuant to the Merger Agreement, from the date of
the Merger Agreement to the Effective Time, the Company shall, and shall cause
the officers, directors, employees, auditors and agents of the Company, to
afford the officers, employees and agents of Parent and Purchaser complete
access at all reasonable times to the officers, employees, agents, properties,
offices, plants and other facilities, books and records of the Company, and
shall furnish Parent and Purchaser with all financial, operating and other data
and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request.
DIRECTORS AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger Agreement
further provides that the By-laws of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification of the officers and
directors of the Company than those set forth in Article XII of the By-laws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were directors or officers, employees, fiduciaries or agents of the Company
in respect of actions or omissions occurring at or prior to the Effective Time,
unless such modification shall be required by law.
The Merger Agreement also provides that from and after the Effective Time,
Parent and the Surviving Corporation shall, to the fullest extent permitted
under the DGCL, indemnify and hold harmless, each present and former director
and officer of the Company (collectively, the "Indemnified Parties") against all
costs and expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and
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settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), based on
the fact that such person is or was a director or officer of the Company and
arising out of or pertaining to any action or omission occurring at or before
the Effective Time (and shall promptly pay any expenses in advance of the final
disposition of such action or proceeding to each Indemnified Party to the
fullest extent permitted under the DGCL, upon receipt from the Indemnified Party
to whom expenses are to be advanced of any undertaking to repay such advances as
required under the DGCL). In the event of any such actual or threatened claim,
action, suit, proceeding or investigation, the Merger Agreement provides that
(i) the Surviving Corporation shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Surviving Corporation, promptly after statements therefor
are received and shall pay all other reasonable expenses in advance of the final
disposition of such action, (ii) the Surviving Corporation shall cooperate and
use all reasonable efforts to assist in the vigorous defense of any such matter
and (iii) to the extent any determination is required to be made with respect to
whether any Indemnified Party's conduct complies with the standards set forth
under the DGCL, such determination shall be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to the Surviving
Corporation; PROVIDED, HOWEVER, that the Surviving Corporation shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld or delayed); and PROVIDED FURTHER that the
Surviving Corporation shall not be obligated to pay the fees and expenses of
more than one counsel (plus appropriate local counsel) for all Indemnified
Parties in any single action except to the extent, as determined by counsel to
the Indemnified Parties, that two or more of such Indemnified Parties have
conflicting interests in the outcome of such action, in which case such
additional counsel (including local counsel) as may be required to avoid any
such conflict or likely conflict may be retained by the Indemnified Parties at
the expense of the Surviving Corporation.
The Merger Agreement provides that the Surviving Corporation shall use its
reasonable best efforts to maintain in effect for three years from the Effective
Time, if available, the current directors' and officers' liability insurance
policies maintained by the Company (PROVIDED that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; PROVIDED, HOWEVER, that in no event shall
the Surviving Corporation be required to expend more than an amount per year
equal to 150% of the current annual premiums paid by the Company for such
insurance.
The Merger Agreement provides that in the event the Surviving Corporation or
any of its respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation, or, at Parent's option, Parent, shall assume the
foregoing indemnity obligations.
The Merger Agreement provides that Parent shall pay all reasonable expenses
incurred by any Indemnified Party in connection with the enforcement of the
provisions of the Merger Agreement relating to directors' and officers'
indemnification and insurance.
NOTIFICATION OF CERTAIN MATTERS. The Merger Agreement provides that the
Company shall give prompt notice to Parent, and Parent shall give prompt notice
to the Company, of (i) the occurrence, or nonoccurrence, of any event the
occurrence, or nonoccurrence, of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and (ii) any failure of the Company, Parent or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it thereunder; PROVIDED, HOWEVER, that the
delivery of any notice pursuant to the provisions of the Merger Agreement
relating to notification of certain matters shall not limit or otherwise affect
the remedies available under the Merger Agreement to the party receiving such
notice.
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The Merger Agreement provides that the Company shall give prompt written
notice to Parent of any proposal, offer or other communication from any person
(i) relating to any acquisition or purchase of all or any portion of the capital
stock of the Company or any Subsidiary or assets of the Company or any
Subsidiary, (ii) to enter into any business combination with the Company or any
Subsidiary or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to the Company or any subsidiary. The Merger
Agreement also provides that the Company shall notify Parent promptly if any
such proposal or offer, or any inquiry or other contact with any person with
respect thereto, is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or other contact.
PUBLIC ANNOUNCEMENTS. Pursuant to the Merger Agreement, Parent and the
Company shall each obtain the prior consent of each other before issuing any
press release or otherwise making any public statements with respect to the
Merger Agreement or any transaction contemplated thereby and shall not issue any
such press release or make any such public statement without such prior consent,
except as may be required by law or any listing agreement with a national
securities exchange to which Parent or the Company is a party.
FURTHER ACTION. The Merger Agreement provides that, subject to its terms
and conditions, each of the parties thereto covenants and agrees to use all
reasonable best efforts to deliver or cause to be delivered such documents and
other papers and to take or cause to be taken such further actions as may be
necessary, proper or advisable under applicable laws to consummate and make
effective the transactions contemplated by the Merger Agreement, including the
Merger.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company, Parent and Purchaser as to the enforceability of
the Merger Agreement. The Company also has provided, subject to appropriate
materiality standards, representations and warranties as to absence of certain
changes or events concerning the Company's business, compliance with law,
absence of litigation, corporate status, capitalization, the accuracy of
financial statements and filings with the Commission and intellectual property
rights.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
law: (i) the Merger Agreement and the transactions contemplated thereby shall
have been approved and adopted by the affirmative vote of the stockholders of
the Company to the extent required by the DGCL and the Certificate of
Incorporation and the By-laws of the Company; (ii) no foreign, United States or
state governmental authority or other agency or commission or foreign, United
States or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of Shares
by Purchaser illegal or otherwise restricting, preventing or prohibiting
consummation of the Offer or the Merger; and (iii) Purchaser or its permitted
assignee shall have purchased all Shares validly tendered and not withdrawn
pursuant to the Offer; PROVIDED, HOWEVER, that this condition shall not be
applicable to the obligations of Parent or Purchaser if, in breach of the Merger
Agreement or the terms of the Offer, Purchaser fails to purchase any Shares
validly tendered and not withdrawn pursuant to the Offer.
TERMINATION; FEES AND EXPENSES. The Merger Agreement may be terminated and
the Merger and the other transactions contemplated thereby may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the stockholders of the Company: (i) by mutual written consent duly authorized
by the Board of Directors of Parent, Purchaser and the Company, if such
termination is also approved by the Special Committee; (ii) by either Parent,
Purchaser or the Company if (a) the Effective Time shall not have occurred on or
before December 31, 1999; PROVIDED, HOWEVER, that such right to terminate shall
not be
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available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date or (b) any court of competent jurisdiction
or other governmental authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; (iii) by Parent, if (a) due to an occurrence or circumstance
that would result in a failure to satisfy any condition set forth under the
caption "THE TENDER OFFER--Section 12. Certain Conditions of the Offer" below,
Purchaser shall have (1) failed to commence the Offer within 60 days following
the date of the Merger Agreement, (2) terminated the Offer without having
accepted any Shares for payment thereunder, or (3) failed to pay for the Shares
validly tendered pursuant to the Offer within 90 days following the commencement
of the Offer, unless such termination or failure to pay for Shares shall have
been caused by or resulted from the failure of Parent or Purchaser to perform in
any material respect any covenant or agreement of either of them contained in
the Merger Agreement or the material breach by Parent or Purchaser of any
representation or warranty of either of them contained in the Merger Agreement
or (b) prior to the purchase of any Shares validly tendered pursuant to the
Offer, the Special Committee shall have withdrawn or modified in a manner that
is, in the reasonable judgment of Parent, materially adverse to Parent or
Purchaser, its approval or recommendation of the Merger Agreement, the Offer,
the Merger or any other transaction contemplated by the Merger Agreement or
shall have recommended another merger, consolidation or business combination
involving, or acquisition of, the Company or its assets or another tender offer
for Shares, or shall have resolved to do any of the foregoing; (iv) by the
Company, upon approval of the Special Committee, if due to an occurrence or
circumstance that would result in a failure to satisfy any condition set forth
under the caption "THE TENDER OFFER--Section 12. Certain Conditions of the
Offer" below, Purchaser shall have (a) failed to commence the Offer within 60
days following the date of the Merger Agreement, (b) terminated the Offer
without having accepted any Shares for payment thereunder, or (c) failed to pay
for the Shares validly tendered pursuant to the Offer within 90 days following
the commencement of the Offer, unless such termination or failure to pay for
Shares shall have been caused by or resulted from the failure of the Company to
perform in any material respect any covenant or agreement of it contained in the
Merger Agreement or the material breach by the Company of any representation or
warranty of it contained in the Merger Agreement or (v) by the Company, upon
approval of the Special Committee, if any representation or warranty of Parent
and Purchaser in the Merger Agreement which is qualified as to materiality shall
not be true and correct in all respects or any such representation or warranty
that is not so qualified shall not be true and correct in any material respect,
in each case as if such representation or warranty was made as of such time on
or after the date of the Merger Agreement, or Parent or Purchaser shall have
failed to perform in any material respect any obligation or to comply in any
material respect with any agreement or covenant of Parent or Purchaser to be
performed or complied with by it under the Merger Agreement; PROVIDED that if
such material breach or failure to perform is curable by Parent or Purchaser
through the exercise of its reasonable efforts and for so long as Parent or
Purchaser continues to exercise such reasonable efforts, the Company may not
terminate the Merger Agreement under Section 8.01(e) thereof.
The right of any party hereto to terminate the Merger Agreement pursuant to
the provisions of the Merger Agreement relating to termination will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any party thereto, any person controlling any such party or any
of their respective officers or directors, whether prior to or after the
execution of the Merger Agreement.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void, except for certain provisions of the
Merger Agreement (including those related to fees and expenses described below)
which survive termination. The Merger Agreement also provides that no party
shall be relieved from liability for any wilful breach thereof.
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by Parent.
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INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
GENERAL. In considering the recommendation of the Special Committee and of
the Board with respect to the Offer and the Merger and the fairness of the
consideration to be received in the Offer and the Merger, Public Stockholders
should be aware that members of the Company's management and the Board have the
interests and relationships summarized below that may present them with
potential conflicts of interest in connection with the Offer and the Merger. The
Special Committee and the Board recognized such interests and determined that
such interests neither supported nor detracted from the fairness of the Offer
and the Merger to the Public Stockholders.
COMPENSATION OF MEMBERS OF THE SPECIAL COMMITTEE. Mr. William M. Haber has
been compensated in the amount of $20,000 for serving as a member of the Special
Committee. Mr. John L. Muething has been compensated in the amount of $25,000
for serving as the chairman of the Special Committee. This compensation was
authorized by the Board in order to compensate the members thereof for the
significant additional time commitment that was required of them in connection
with fulfilling their duties and responsibilities as members of the Special
Committee and was paid without regard to whether the Special Committee approved
the Offer and the Merger or whether the Merger was consummated.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The officers of the
Company immediately prior to the Effective Time will be the officers of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified. Mr. Spelling, the Vice Chairman of the Board of the
Company, will be the Chairman as well as a director of the Surviving
Corporation.
OWNERSHIP OF COMMON STOCK. As of April 30, 1999, the directors and
executive officers of the Company, as a group, beneficially owned an aggregate
of 50,500 Shares (representing approximately .05% of the then outstanding
Shares), excluding shares subject to options to purchase Shares granted by the
Company pursuant to its stock option plans ("Options"). As of April 30, 1999,
the members of the Special Committee, as a group, beneficially owned an
aggregate of 2,000 Shares. All such Shares held by such directors and executive
officers and by the members of the Special Committee will be treated in the
Merger in the same manner as Shares held by the other stockholders. See "The
Merger--Treatment of Securities in the Merger." In the aggregate, the directors
and executive officers of the Company will be entitled to receive approximately
$492,375 for their Shares upon consummation of the Offer and the Merger (based
upon the number of Shares owned as of April 30, 1999 and the members of the
Special Committee will be entitled to receive approximately $19,500 for their
Shares upon consummation of the Offer and the Merger (based upon the number of
Shares owned as of April 30, 1999).
OPTIONS. As of April 30, 1999, the directors and executive officers of the
Company had Options to acquire an aggregate of 2,172,500 Shares. Immediately
after the Tender Offer Acceptance Date, pursuant to the Merger Agreement, each
outstanding Option, including those held by such directors and executive
officers, whether or not then vested and exercisable will, in accordance with
procedures that apply to all holders of Options, be canceled and each holder of
an Option shall be entitled to receive from Purchaser in consideration for the
cancellation of such Option, an amount in cash, net of applicable withholding
taxes, equal to the product of (i) the number of Shares previously subject to
such Option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such Option. The directors and
executive officers of the Company, as a group, will receive total consideration
of $5,342,500 (before applicable taxes) in exchange for the cancellation of
their Options based on the number of Options as of April 30, 1999. See "SPECIAL
FACTORS--The Merger Agreement--Treatment of Options; Optionholder Agreements."
INDEMNIFICATION AND INSURANCE. For a discussion of certain agreements by
Parent with respect to indemnification of, and insurance for, directors and
officers of the Company, see "The Merger-- Indemnification and Insurance."
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RELATIONSHIPS OF DIRECTORS WITH VIACOM. Mr. Sumner Redstone, the Chairman
of the Board of the Company, is the Chairman of the Board and Chief Executive
Officer of Viacom. Mr. Redstone is also President, Chief Executive Officer and
Chairman of the Board of National Amusements, Inc. ("NAI"). As of April 8, 1999,
NAI owned approximately 67% of the Class A Common Stock and approximately 28% of
the Class A Common Stock and the Class B Common Stock of Viacom on a combined
basis. Mr. Philippe P. Dauman, a director of the Company, is Deputy Chairman of
the Board and Executive Vice President and Secretary of Viacom. Mr. Dauman is
also a director of NAI. Mr. Thomas E. Dooley, a director of the Company, is
Deputy Chairman and Executive Vice President Finance.
EMPLOYMENT CONTRACTS AND ARRANGEMENTS. Pursuant to an Employment Agreement
dated as of March 1, 1998 (the "Employment Agreement"), Mr. Spelling is employed
as Vice Chairman of the Board of the Company and as Chairman of the Board and
Chief Executive Officer of Spelling Television Inc. and is entitled to serve as
Executive Producer or Producer of substantially all television programs and
films (as he may elect) produced by the Company or its production subsidiaries.
Mr. Spelling's Employment Agreement extends through April 30, 2000. As
compensation for the performance of his obligations under the agreement, Mr.
Spelling received a salary of $129,167 per month for the first two months of the
agreement, and an annual base salary of $1,700,000 for the period May 1, 1998 to
April 30, 1999 ("first term year") and will receive an annual base salary of
$1,850,000 for the period May 1, 1999 to April 30, 2000 ("second term year").
Mr. Spelling is also entitled to receive a year-end bonus of $175,000 for the
first term year and $200,000 for the second term year. As compensation for
serving as an Executive Producer or Producer, Mr. Spelling receives certain
producer fees and other compensation.
Mr. Spelling has the right to terminate the Employment Agreement effective
upon seven (7) days' written notice in the event that the Company materially
breaches its obligations under the Employment Agreement or upon certain
circumstances involving a change of control of the Company. If the agreement is
terminated for any reason, Mr. Spelling may elect to continue to provide
Executive Producer services on the Company's product as set forth in the
agreement and the Company will pay him producer fees and other compensation as
set forth therein. If Mr. Spelling terminates the Employment Agreement based on
a material breach by the Company, Mr. Spelling has the right to cease providing
services and receive a lump sum payment equal to the present value of his base
salary for the remainder of the term, as well as Executive Producer fees and
other compensation payable in accordance with a formula provided in his
Employment Agreement, and the year-end bonuses. In addition, Mr. Spelling was
also granted 75,000 Options pursuant to his employment agreement. In connection
with the Merger Agreement, all outstanding vested and unvested Options Mr.
Spelling holds as of the date on which Purchaser shall have accepted for payment
all Shares validly tendered and not withdrawn prior to the expiration date with
respect to the Offer, will be canceled and Mr. Spelling will become entitled to
receive, in consideration of the cancellation of each such Option, an amount of
cash equal to the product of (a) the number of shares of Common Stock covered by
such Option as of such date and (b) the excess, if any, of the Merger
Consideration over the exercise price per share previously subject to such
Option. Mr. Spelling will receive an aggregate of $3,190,625 (before applicable
taxes) in connection with the cancellation of his 1,075,000 Options pursuant to
the Merger Agreement.
The Company has a three-year employment agreement with Peter H. Bachmann,
dated as of January 1, 1997, wherein he is employed as President of the Company
and received an annual salary of $675,000 during the first year of the term.
Pursuant thereto, his salary increased to $725,000 on January 1, 1998 and
increased to $795,000 on January 1, 1999. Further, he is entitled to receive
target incentive compensation of 50% of his salary based on the Company's
performance and his individual performance. Mr. Bachmann is also entitled to
receive an annual grant of not less than 125,000 Options. Under certain
circumstances, including a change of control, sale, liquidation or other
disposition of the Company or if the Company engages in a "going private"
transaction (as defined in his agreement), Mr. Bachmann's outstanding Options
will become vested and fully exercisable. In the event Mr. Bachmann is
terminated without cause or he terminates the agreement for good reason, he is
entitled to receive his base salary,
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bonus and certain other compensation for the balance of the employment term,
subject to mitigation after the first 18 months, and all outstanding vested and
unvested Options as of the end of the employment term shall remain exercisable
for six months following the date of termination (but not beyond the expiration
date of such Options). In connection with the Merger Agreement, all outstanding
vested and unvested Options Mr. Bachmann holds as of the date on which Purchaser
shall have accepted for payment all Shares validly tendered and not withdrawn
prior to the expiration date with respect to the Offer, will be canceled and Mr.
Bachmann will become entitled to receive, in consideration of the cancellation
of each such Option, an amount of cash equal to the product of (a) the number of
shares of Common Stock covered by such Option immediately prior to such date and
(b) the excess, if any, of the Merger Consideration over the exercise price per
share previously subject to such Option. Mr. Bachmann will receive an aggregate
of $1,466,875 (before applicable taxes) in connection with the cancellation of
his 780,000 Options pursuant to the Merger Agreement.
The Company has a two-year employment agreement with Ross G. Landsbaum,
dated as of July 20, 1998. Pursuant to such agreement, Mr. Landsbaum is employed
as Senior Vice President--Chief Financial Officer of the Company at an annual
salary of $265,000 during the first year of the agreement and $285,000 during
the second year of the agreement. Further, he is entitled to receive target
incentive compensation of 40% of his base salary. In connection with the Merger
Agreement, all outstanding vested and unvested Options Mr. Landsbaum holds as of
the date on which Purchaser shall have accepted for payment all Shares validly
tendered and not withdrawn prior to the expiration date with respect to the
Offer, will be canceled and Mr. Landsbaum will become entitled to receive, in
consideration of the cancellation of each such Option, an amount of cash equal
to the product of (a) the number of shares of Common Stock covered by such
Option immediately prior to such date and (b) the excess, if any, of the Merger
Consideration over the exercise price per share previously subject to such
Option. Mr. Landsbaum will receive an aggregate of $312,500 (before applicable
taxes) in connection with the cancellation of his 137,500 Options pursuant to
the Merger Agreement.
The Company has an agreement with James Miller, dated as of January 6, 1997,
as amended as of June 30, 1998, which terminates on September 30, 2000. Pursuant
to such agreement, Mr. Miller is employed as Vice President and Controller of
the Company at an annual salary of $200,000 from October 1, 1998 to September
30, 1999 and $215,000 from October 1, 1999 to September 30, 2000. Mr. Miller is
also entitled to receive a bonus at the Company's discretion. Pursuant to Mr.
Miller's employment agreement, he was granted 20,000 Options vesting 25% each
year. In connection with the Merger Agreement, all outstanding vested and
unvested Options Mr. Miller holds as of the date on which Purchaser shall have
accepted for payment all Shares validly tendered and not withdrawn prior to the
expiration date with respect to the Offer, will be canceled and Mr. Miller will
become entitled to receive, in consideration of the cancellation of each such
Option, an amount of cash equal to the product of (a) the number of shares of
Common Stock covered by such Option immediately prior to such date and (b) the
excess, if any, of the Merger Consideration over the exercise price per share
previously subject to such Option. Mr. Miller will receive an aggregate of
$125,625 (before applicable taxes) in connection with the cancellation of his
50,000 Options pursuant to the Merger Agreement.
The Company has an agreement with Sally Suchil which terminates on January
4, 2000. Pursuant to such agreement, Ms. Suchil is employed as Senior Vice
President--General Counsel, Secretary and Administration of the Company at an
annual salary of $305,000 during the first year of the agreement, which
increased to $325,000 on January 1, 1999. Ms. Suchil is also entitled to receive
target incentive compensation of 30% of her base annual salary. In connection
with the Merger Agreement, all outstanding vested and unvested Options Ms.
Suchil holds as of the date on which Purchaser shall have accepted for payment
all Shares validly tendered and not withdrawn prior to the expiration date with
respect to the Offer, will be canceled and Ms. Suchil will become entitled to
receive, in consideration of the cancellation of each such Option, an amount of
cash equal to the product of (a) the number of shares of Common Stock covered by
such Option immediately prior to such date and (b) the excess, if any, of the
Merger
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Consideration over the exercise price per share previously subject to such
Option. Ms. Suchil will receive an aggregate of $246,875 (before applicable
taxes) in connection with the cancellation of her 130,000 Options pursuant to
the Merger Agreement.
OTHER AGREEMENTS. Spelling Television has an agreement with Tori Spelling,
Mr. Spelling's daughter, wherein Spelling Television is granted the exclusive
right and property in and to Ms. Spelling's television series services as an
actress in regard to the production of "Beverly Hills, 90210" for a period
dating from September 26, 1990. Spelling Television has recently extended the
term of the agreement for Ms. Spelling's services for a tenth season of the
series. Ms. Spelling is compensated: per program; for television re-runs,
theatrical re-runs, foreign telecasting and supplemental markets; for a portion
of the net profits derived from certain merchandising activities; and if Ms.
Spelling renders services for commercial announcements. Spelling Television
guarantees to employ and compensate or compensate Ms. Spelling for all episodes
produced in a season, but in no event for less than 26 episodes for the
1998/1999 season and no less than 26 episodes for the 1999/2000 season. Ms.
Spelling received $896,279 for the quarter ended March 31, 1999, $3,111,000 for
the years ended December 31, 1998 and 1997, respectively.
Spelling Television has an agreement dated as of September 24, 1996 with
Randy Spelling, Mr. Spelling's son, wherein Spelling Television is granted the
exclusive right to Randy Spelling's services as an actor in regard to the
production of "Sunset Beach," with options to extend the agreement. Pursuant to
such agreement, Randy Spelling is compensated: per episode (with a minimum
number of episodes per week); for a portion of the net profits derived from
certain merchandising activities; as well as for certain other required
payments. Spelling Television guarantees to employ and compensate or compensate
Randy Spelling for any episode for which Spelling Television has guaranteed him
compensation. Randy Spelling received $54,084 for the quarter ended March 31,
1999, $260,000 and $401,902 for the years ended December 31, 1998 and 1997,
respectively.
Spelling Television has an agreement with Mr. Spelling whereby he is
entitled to receive producer fees and other compensation on a per episode or per
hour basis on the product produced by Spelling Television, including series,
mini-series and movies for television, and for certain theatrical films.
Pursuant to such agreement, in fiscal year 1998, Mr. Spelling was paid
$7,207,000 in producers fees and other compensation by Spelling Television. The
Company believes that the amount of fees paid to Mr. Spelling are equal to or
less than fees paid to unaffiliated producers of comparable stature.
DIRECTOR COMPENSATION. Each member of the Board (excluding Messrs. Dauman,
Dooley and Redstone) are entitled to receive an annual fee of $15,000 plus $750
for each Board and Committee meeting attended. In addition, the directors
serving on the Special Committee have received additional compensation in
connection with such service. See "SPECIAL FACTORS--Interests of Certain Persons
in the Offer and the Merger--Compensation of Members of the Special Committee."
Stockholders also should be aware that Parent and Purchaser have certain
interests that present actual or potential conflicts of interest in connection
with the Offer and the Merger. As a result of Parent's current ownership of more
than 80% of the Shares and its affiliates' officers, constituting three of the
Company's six directors, Parent may be deemed to control the Company.
The Special Committee and the Board were aware of these actual and potential
conflicts of interest and considered them along with the other matters described
under "SPECIAL FACTORS--Recommendation of the Company Board; Fairness of the
Offer and the Merger."
To the best knowledge of, Parent and Purchaser, all of the executive
officers and directors of the Company currently intend to tender Shares owned by
them pursuant to the Offer. Several of the officers of the Company have entered
into Optionholder Agreements with Parent pursuant to which they have agreed not
to exercise their Options prior to the earlier of the Tender Offer Acceptance
Date and the date upon which the Offer shall have expired without any Shares
being purchased thereunder. See SPECIAL FACTORS--"The Merger
Agreement--Treatment of Options; Optionholder Agreements."
25
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of April 30, 1999,
regarding the ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of the issued and outstanding Common
Stock, and any director or executive officer of the Company, Parent or Purchaser
who is the beneficial owner of Shares or Options issued by the Company:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
SUBJECT TO COMMON STOCK
NUMBER OF SHARES OPTIONS ISSUED BY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED DIRECTLY(1) THE COMPANY OWNED(2)(3)
- ---------------------------------------------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C>
Viacom Inc.......................................... 75,216,103(4) -- 80.6%
1515 Broadway
New York, NY 10036
</TABLE>
- ------------------------------
(1) As of April 30, 1999.
(2) Unless otherwise indicated, each holder named has sole voting and investment
power with respect to the shares of Common Stock owned by such holder.
(3) Based upon 93,297,901 shares of Common Stock outstanding as of April 30,
1999.
(4) Consists of shares of Common Stock indirectly owned by Viacom and attributed
to Mr. Sumner Redstone. NAI owns approximately 66.8% of Viacom's Class A
Common Stock and approximately 18.8% of Viacom's Class B Common Stock. Mr.
Redstone is the controlling shareholder of NAI and is its Chairman of the
Board, President and Chief Executive Officer.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The
following table sets forth, as of April 30, 1999, the aggregate amount and
percentage of Common Stock beneficially owned by each current executive officer
and director of the Company. Any such person whose name does not appear does not
beneficially own any Common Stock as of April 30, 1999. The table also sets
forth, as of April 30, 1999, the aggregate amount and percentage of Common Stock
beneficially owned by all current directors and executive officers, as a group,
of the Company. No pension, profit-sharing or similar plan of Spelling owns any
Common Stock. Except as indicated above under "Security Ownership of Certain
Beneficial Owners," the directors and officers of Viacom, Parent and Purchaser
do not own any Common Stock.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENT
NAME SHARES(3) OPTION SHARES OF CLASS
- --------------------------------------------------------------- ----------------- ------------- -----------
<S> <C> <C> <C>
Peter H. Bachmann.............................................. 467,500(4) 312,500 *
Ross G. Landsbaum.............................................. 57,500(4) 80,000 *
James Miller................................................... 13,750(4) 36,250 *
John L. Muething............................................... 2,000(4) 0 *
Aaron Spelling................................................. 971,250(1 (2) 152,250 1%
Sally Suchil................................................... 71,250(4) 58,750 *
All directors and executive officers of the Company as a
group........................................................ 1,583,250(4) 639,750 2%
</TABLE>
- ------------------------------
* Less than one percent of the class of securities.
(1) Of this amount, 48,500 shares are held jointly with his wife.
(2) Includes 868,750 shares of Common Stock which may be acquired within 60 days
of April 30, 1999 by Mr. Spelling upon exercise of stock options.
(3) As of March 31, 1999, each of the following executive officers and directors
of the Company held, as beneficiaries under the Spelling Entertainment Group
Inc. 401(k) Savings Plan, the number of Shares indicated below: Peter
Bachmann--4,882 Shares; Ross Landsbaum--3,904 Shares; James Miller--1,545
Shares; Aaron Spelling--653 Shares; Sally Suchil--3,645 Shares, which are
not reflected in the above table.
(4) Consists of shares of Common Stock which may be acquired within 60 days of
December 31, 1998 upon exercise of stock options.
26
<PAGE>
TRANSACTIONS BY CERTAIN PERSONS IN COMMON STOCK. Since March 22, 1999, 60
days prior to the initial filing of the Schedule 13E-3, through May 20, 1999,
none of the Company, Viacom, Parent, Purchaser, any majority-owned subsidiary
thereof, any director or executive officer thereof and no pension,
profit-sharing or similar plan of the Company, Viacom, Parent or Purchaser has
effected any purchases or sales of Common Stock, except that Parent has
purchased Shares in private sales in the following amounts on the following
dates:
<TABLE>
<CAPTION>
DATE NO. OF SHARES PRICE PER SHARE HOW AND WHERE EXECUTED
- ------------------------------------- ------------- ----------------- -------------------------------------------
<S> <C> <C> <C>
3/22/99.............................. 27,000 $ 9.00 Private Purchase, New York, New York
3/23/99.............................. 8,125 $ 9.00 Private Purchase, New York, New York
4/13/99.............................. 44,847 $ 9.00 Private Purchase, New York, New York
4/23/99.............................. 87,500 $ 9.00 Private Purchase, New York, New York
</TABLE>
Since January 1, 1997, Viacom and Parent also have made certain purchases of
Shares, all of which are described in the table below:
<TABLE>
<CAPTION>
AMOUNT OF
QUARTER SECURITIES RANGE OF PRICES AVERAGE
ENDING PURCHASED PRICE PAID
- ---------------------------------------------------------- ------------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
June 30, 1997............................................. 190,700 $ 5 1/4 - $ 7 1/8 $ 6.65
September 30, 1997........................................ 934,600 $ 6 3/8 - $ 9 3/16 $ 8.53
December 31, 1997......................................... 4,182,900 $ 6 5/8 - $ 9 1/8 $ 8.93
March 31, 1998............................................ 1,537,020 $ 7 - $ 9 $ 7.13
June 30, 1998............................................. 13,125 $ 8 7/16 - $ 9 1/2 $ 9.36
September 30, 1998........................................ 99,387 $ 6 - $ 9 7/16 $ 9.07
December 31, 1998......................................... 410,447 $ 6 3/16 - $ 8 $ 6.99
March 31, 1999............................................ 41,875 $ 6 1/16 - $ 9 9/16 $ 9.00
April 1-May 20, 1999...................................... 132,347 $ 8 5/8 - $ 9 11/16 $ 9.00
</TABLE>
27
<PAGE>
OWNERSHIP OF VIACOM SHARES BY DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY The following table sets forth, as of April 8, 1999, the aggregate
amount and percentage of shares of Common Stock of Viacom beneficially owned by
each current executive officer and director of the Company. The table also sets
forth, as of April 8, 1999, the aggregate amount and percentage of shares of
Common Stock of Viacom beneficially owned by all current directors and executive
officers, as a group, of the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
--------------------------------------------------------------------
TITLE OF EQUITY PERCENT OF
NAME SECURITY NUMBER OF SHARES OPTION SHARES CLASS
- ---------------------------------------- --------------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Peter H. Bachmann....................... Class A Common -- -- *
Class B Common -- -- *
Philippe P. Dauman...................... Class A Common 2,380(2) -- *
Class B Common 29,778(2) 973,332 *
Thomas E. Dooley........................ Class A Common 4,866(2) -- *
Class B Common 17,286(2) 947,332 *
William M. Haber........................ Class A Common 12,000 -- *
Class B Common -- -- *
Ross G. Landsbaum....................... Class A Common Class -- -- *
B Common -- -- *
James Miller............................ Class A Common Class -- -- *
B Common -- -- *
John L. Muething........................ Class A Common Class -- -- *
B Common -- -- *
Sumner M. Redstone...................... Class A Common Class 93,658,988(3) -- 66.8%
B Common 104,334,988(3) 1,499,998 18.8%
Aaron Spelling.......................... Class A Common Class -- -- *
B Common -- -- *
Sally Suchil............................ Class A Common Class 400 -- *
B Common -- -- *
All directors and executive officers of
the Company as a group................ Class A Common 93,678,634
Class B Common 104,382,052 --
3,420,662 66.8%
19.1%
</TABLE>
- ------------------------------
* Less than one percent of the class of securities
(1) Beneficial ownership as reported in the above table has been determined in
accordance with Rule 13d-3 under the Exchange Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole
investment power.
(2) Includes shares and rights equal in value to shares held through Viacom's
401(k) and Excess 401(k) Plans as of December 31, 1998.
(3) Except for 160 shares of each class of Common Stock owned directly by Mr.
Redstone, all shares are owned of record by NAI. Mr. Redstone is the
Chairman and the beneficial owner of the controlling interest in NAI and,
accordingly, beneficially owns all such shares.
28
<PAGE>
RELATED PARTY TRANSACTIONS
Parent owns more than 80% of the outstanding Common Stock. Viacom owns 100%
of the outstanding common stock of Parent. The Company is an indirect, more than
80%-owned subsidiary of Viacom.
The Company and Viacom entered into a number of agreements to define the
ongoing relationship between the two companies. Because of Viacom's control over
the Company's operations, these agreements were not the result of negotiations
between independent parties, however, the Company and Viacom believe that terms
of such agreements are as favorable to the Company as could be obtained from an
unaffiliated party. In this section, references to Blockbuster are to
Blockbuster Entertainment Corporation ("BEC") and its subsidiaries for the
period ending September 29, 1994 and to Blockbuster Entertainment Inc. ("BEI")
and its subsidiaries thereafter. The following is a summary of certain
agreements between the Company and Viacom (or their respective subsidiaries):
EXCHANGE AGREEMENT. On July 30, 1994, the Company and Blockbuster entered
into an exchange agreement (the "Exchange Agreement") and consummated the
transactions contemplated thereby (the "Acquisition"). Pursuant to the Exchange
Agreement, Blockbuster delivered to the Company equity interests of Virgin
Interactive Entertainment Limited ("VIEL"). in exchange for shares of the
Company's Common Stock. As a result of the Acquisition, the Company acquired
approximately 91% of VIEL's Ordinary Shares.
On September 4, 1998, the Company sold the stock of Westwood Studios, Inc,
an indirect subsidiary of VIEL and certain development assets of VIEL.
In November 1998, the Company completed the sale of all non-U.S. operations
of VIEL to an investor group, which included the former Managing Director of
VIE-UK.
LINE OF CREDIT. On September 30, 1996, the Company and Viacom executed a
credit agreement (the "Viacom Credit Agreement"), which provides for (i) a term
loan of $200,000,000 and (ii) a revolving credit facility of $155,000,000 to
fund the Company's working capital and other requirements. All outstanding
borrowings under the Viacom Credit Agreement, as amended, mature on December 31,
2000. As of March 31, 1999 there were borrowings in the amount $231,000,000
outstanding under the Viacom Credit Agreement. Under the Viacom Credit
Agreement, the Company pays an annual fee (currently 0.2375%) based on the
unused portion of the facility, as well as certain facility and administration
fees. Effective January 1, 1999, interest on all outstanding borrowings is
payable, at the Company's option, at LIBOR plus a spread (currently 2.50%) or at
Citibank N.A.'s base rate. The spread is based on a sliding scale with regard to
the Company's leverage ratio, as defined. Borrowings under the Viacom Credit
Agreement are secured by all of the assets of the Company and its domestic
subsidiaries, and the entire amount outstanding under the Viacom Credit
Agreement may be accelerated if Viacom's borrowings under its separate credit
facilities were to be accelerated. Borrowings under the Viacom Credit Agreement
may be accelerated in the event of a change in control of the Company, as
defined in the Viacom Credit Agreement. Parent intends to terminate and
capitalize the Viacom Credit Agreement after the Effective Time.
TV LICENSING AGREEMENTS. The Company licensed certain entertainment product
to certain television stations owned by Viacom or by its indirect subsidiaries.
License agreements with the television stations consist of a cash or barter
component or both. Revenue from cash contracts was $1,453,000 and $8,000 for the
years ended December 31, 1998 and 1997, respectively. The Company had a
receivable due from Viacom of $2,445,000 at March 31, 1999, $2,816,000 at
December 31, 1998 and $1,017,000 at December 31, 1997 with respect to such
agreements. The Company realized revenue from third-party advertisers with
respect to the sale of advertising time received under the barter contracts of
approximately $194,000 and $577,000 for the years ended December 31, 1998 and
1997, respectively. The Company also licensed certain entertainment product to
United Paramount Network, Comedy Central and Nickelodeon U.K., in which Viacom
has equity interests. Revenue from such sales were $13,661,000 for the quarter
ended March
29
<PAGE>
31, 1999, $27,767,000 and $13,895,000 for the years ended December 31, 1998 and
1997, respectively. The Company had receivables with respect to such sales of
$5,837,000 at March 31, 1999, $6,545,000 at December 31, 1998 and $86,000 at
December 31, 1997.
CONSUMER PRODUCT LICENSING AGREEMENT. The Company has entered into an
agreement with Comedy Partners, in which Viacom has an equity interest, to
perform certain licensing and merchandising activities on its behalf for "South
Park" in exchange for a fee. Revenue resulting from this agreement were
approximately $4,413,000 during the quarter ended March 31, 1999, $10,383,000
and $1,847,000 for the years ended December 31, 1998 and 1997, respectively.
Pursuant to such arrangement, the Company had a net payable to Comedy Partners
of $1,209,000 at March 31, 1999, $1,175,000 at December 31, 1998 and $1,254,000
at December 31, 1997.
MUSIC LICENSE AGREEMENT. In November 1997, the Company entered into an
agreement with Famous Music Corporation and Ensign Music Corporation
(collectively referred to as "Famous Music"), subsidiaries of Paramount Pictures
Corporation ("Paramount Pictures"), with respect to administration on behalf of
the Company of all musical compositions, musical cues, musical scores and other
musical works owned in whole or in part by the Company or acquired by the
Company between January 1, 1998 and December 31, 2001 (the "License Term"). This
agreement provides for the Company to receive a non-returnable, recoupable
advance. If Famous Music does not recoup its advance prior to the expiration of
the License Term, the term of the agreement can be automatically extended for up
to two one-year terms. Pursuant to such agreement, the Company recognized
revenue in the amount of $9,054,000 for the year ended December 31, 1998. The
Company had receivables of $2,833,000 at March 31, 1999 and $2,833,000 at
December 31, 1998. The Company had received an initial advance of $5,000,000 in
1997.
THEATRICAL AND HOME VIDEO DISTRIBUTION AGREEMENTS. The Company entered into
agreements with Paramount Pictures with respect to the domestic distribution of
two of the Company's feature film releases "Night Falls on Manhattan" and
"Stephen King's Thinner," in the theatrical, non-theatrical and pay television
markets. Pursuant to such arrangement, the Company recognized revenue relating
to "Stephen King's Thinner" of $11,000 during the quarter ended March 31, 1999,
and $127,000 and $6,187,000 for the years ended December 31, 1998 and 1997,
respectively. The Company recognized revenue relating to "Night Falls on
Manhattan" of $9,000 during the quarter ended March 31, 1999, and $4,234,000 and
$3,877,000 for the years ended December 31, 1998 and 1997, respectively. The
Company had a receivable from Paramount Pictures for "Stephen King's Thinner" in
the amount of $274,000 at March 31, 1999, $82,000 at December 31, 1998 and
$3,992,000 at December 31, 1997. The Company also had a receivable from
Paramount Pictures for "Night Falls on Manhattan" in the amount of $350,000 at
March 31, 1999 and $350,000 at December 31, 1998 and a payable at December 31,
1997 of $186,000 due to Paramount Pictures related to prints and advertising
expenses for its release which were advanced by Paramount Pictures.
Additionally, the Company engaged Paramount Pictures to perform the theatrical
distribution in selected international territories for two additional feature
films, "Breakdown" and "In & Out," in which the Company owns the international
distribution rights. Pursuant to this arrangement, the Company recognized
revenue from "In & Out" in the amount of $6,000 during the quarter ended March
31, 1999 and $5,486,000 in the year ended December 31, 1998. The Company
incurred distribution fees to Paramount Pictures for the release of "In & Out"
in the amount of $1,000 during the quarter ended March 31, 1999 and $823,000
during the year ended December 31, 1998. The Company had a receivable due from
Paramount Pictures for "In & Out" in the amount of $5,000 at March 31, 1999 and
$66,000 at December 31, 1998. The Company recognized revenue from "Breakdown" in
the amount of $1,457,000 in the year ended December 31, 1998. The Company
incurred distribution fees to Paramount Pictures for the release of "Breakdown"
in the amount of $245,000 during the year ended December 31, 1998. The Company
had a receivable due from Paramount Pictures for "Breakdown" in the amount of
$2,000 at December 31, 1998.
In August 1997, the Company licensed the distribution rights to its 1997
home video rental titles to Paramount Home Video. Under the terms of the
agreement, Paramount Home Video acquired the
30
<PAGE>
distribution rights to seven video rental titles from the Company including
"Night Falls on Manhattan." In January 1998, the Company exercised an option
within the agreement for Paramount Home Video to acquire the distribution rights
to three remaining rental titles. With respect to this agreement, the Company
recognized revenue of $700,000 in 1998 and $7,100,000 in 1997 and had
receivables of $900,000 at March 31, 1999, $900,000 at December 31, 1998 and
$2,100,000 at December 31, 1997. In addition, during 1997, the Company engaged
Paramount Home Video to distribute "In & Out" and "Breakdown" in certain foreign
territories. Pursuant to such arrangement, the Company recognized revenue in the
amount of $865,000 during the quarter ended March 31, 1999 and $3,665,000 in
1998 and incurred distribution fees to Paramount in the amount of $130,000 in
the quarter ended March 31, 1999 and $393,000 in 1998. At December 31, 1998, the
Company had a receivable of $1,200,000 due from Paramount related to this
agreement.
In addition, the Company has an agreement with Blockbuster for the
acquisition and distribution of the film "Open Season." As of March 31, 1999, a
net payable of approximately $550,000 is due to Blockbuster in connection with
this agreement.
TAX AGREEMENT. Parent owns more than 80% of the outstanding shares of the
Company and, therefore, the Company is required to be included in the
consolidated federal income tax return of Viacom. The Directors of the Company
approved an agreement dated November 12, 1997 between the Company and Viacom
that provides for the administration of federal, state and foreign tax matters
(the "Tax Agreement"). Under the Tax Agreement, the Company will remain in
approximately the same tax position as it would have if it were continuing to
file its tax returns separate and apart from Viacom; as a result, the Company
does not anticipate any material impact to its financial condition or results of
operations.
After the consummation of the Merger, the Company will become a wholly owned
subsidiary of Parent and its operations will be fully integrated with those of
Viacom and its subsidiaries, some or all of the above arrangements will be
terminated or otherwise modified during the course of such integration.
FEES AND EXPENSES
The following is an estimate of expenses to be incurred in connection with
the Offer and Merger, other than the fees and expenses of Lazard Freres (see
"SPECIAL FACTORS--Opinion of Lazard Freres"). The Merger Agreement provides that
all costs and expenses incurred in connection with the Offer and the Merger will
be paid by Parent.
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
Legal Fees and Expenses........................................... $ 500,000
Printing and Mailing.............................................. 70,000
Advertising....................................................... 75,000
Filing Fees....................................................... 50,000
Depositary Fees................................................... 20,000
Information Agent Fees............................................ 10,000
Miscellaneous..................................................... 5,000
---------
Total........................................................... $ 730,000
---------
---------
</TABLE>
31
<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, and will pay for, all Shares validly tendered prior to the Expiration
Date (as hereinafter defined) and not withdrawn as permitted by "THE TENDER
OFFER-- Section 4. Withdrawal Rights." The term "Expiration Date" means 12:00
midnight, New York City time, on Friday, June 18, 1999, unless and until
Purchaser, in its sole discretion (but subject to the terms and conditions of
the Merger Agreement), shall have extended the period during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire.
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms and conditions of the Merger Agreement), at any time and from time
to time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any of the conditions specified in "THE TENDER
OFFER--Section 12. Certain Conditions of the Offer", by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw his Shares. See
"THE TENDER OFFER--Section 4. Withdrawal Rights."
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time, (i)
to delay acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares, pending receipt of
any regulatory approval specified in "THE TENDER OFFER--Section 15. Certain
Legal Matters and Regulatory Approval," (ii) to terminate the Offer and not
accept for payment any Shares upon the occurrence of any of the conditions
specified in "THE TENDER OFFER--Section 12. Certain Conditions of the Offer" and
(iii) to waive any condition or otherwise amend the Offer in any respect, by
giving oral or written notice of such delay, termination, waiver or amendment to
the Depositary and by making a public announcement thereof. The Merger Agreement
provides that, without the prior written consent of the Special Committee,
Purchaser will not (i) decrease the price per Share payable pursuant to the
Offer, (ii) reduce the maximum number of Shares to be purchased in the Offer,
(iii) change the form of the consideration payable in the Offer, (iv) add to,
modify or supplement the conditions to the Offer set forth in "THE TENDER
OFFER--Section 12. Certain Conditions of the Offer," (v) extend the expiration
date of the Offer beyond the twentieth business day following commencement
thereof; PROVIDED, HOWEVER, Purchaser only may extend the expiration date of the
Offer, (A) if the conditions to the Offer set forth in Annex A have not been
satisfied, (B) to the extent necessary to respond to comments on the Offer
Documents from the Commission and (C) on one additional occasion, for a period
not to exceed ten business days or (vi) make any other change in the terms or
conditions of the Offer which is materially adverse to the holders of Shares.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires
Purchaser to pay the consideration offered or return the Shares tendered
promptly after the termination or withdrawal of the Offer and (ii) Purchaser may
not delay acceptance for payment of, or payment for (except as provided in
clause (i) of the first sentence of this paragraph), any Shares upon the
occurrence of any of the conditions specified in "THE TENDER OFFER--Section 12.
Certain Conditions of the Offer" without extending the period of time during
which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement in
the case of an extension to be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Subject
to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act, which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes) and
without limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser shall have no obligation to publish, advertise or
32
<PAGE>
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should increase the consideration being offered in the Offer,
such increase in the consideration being offered will be applicable to all
stockholders whose Shares are accepted for payment pursuant to the Offer and, if
at the time notice of any such increase in the consideration being offered is
first published, sent or given to holders of such Shares, the Offer is scheduled
to expire at any time earlier than the period ending on the tenth business day
from and including the date that such notice is first so published, sent or
given, the Offer will be extended at least until the expiration of such ten
business day period. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or federal holiday and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), Purchaser
will accept for payment, and will pay for, all Shares validly tendered prior to
the Expiration Date and not properly withdrawn, promptly after the later to
occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions to the Offer set forth in "THE TENDER OFFER-- Section 14. Certain
Conditions of the Offer." Subject to applicable rules of the Commission,
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares in order to comply in whole or in part with any other
applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares," (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined below) in lieu of
the Letter of Transmittal and (iii) any other documents required under the
Letter of Transmittal. The term "Agent's Message" means a message transmitted by
the Book-Entry Transfer Facility to, and received by, the Depositary and forming
a part of the Book-Entry Confirmation which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares which are the subject of such
Book-Entry Confirmation, that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and that Purchaser may enforce
such agreement against such participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for
33
<PAGE>
payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payments from Purchaser and transmitting such
payments to tendering stockholders whose Shares have been accepted for payment.
Under no circumstances will interest on the purchase price for Shares be paid,
regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedure set forth in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares," such Shares will be credited to an account
maintained at the Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser shall increase the consideration
offered to any holders of Shares pursuant to the Offer, such increased
consideration shall be paid to all holders of Shares that are purchased pursuant
to the Offer, whether or not such Shares were tendered prior to such increase in
consideration.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for a
holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other
documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) the Share Certificates evidencing tendered Shares must
be received by the Depositary at such address or such Shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary (including an Agent's
Message if the tendering stockholder has not delivered a Letter of Transmittal),
in each case prior to the Expiration Date, or (ii) the tendering stockholder
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facility for purposes of the Offer within
two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees,
34
<PAGE>
or an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents, must, in any case, be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the tendering stockholder must comply with the guaranteed
delivery procedure described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member in good standing of the Security Transfer
Agent Medallion Signature Program, or by any other "eligible guarantor
institution", as such term is defined in Rule 17Ad-15 under the Exchange Act
(each of the foregoing being referred to as an "Eligible Institution"), except
in cases where Shares are tendered (i) by a registered holder of Shares who has
not completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
for the account of an Eligible Institution. If a Share Certificate is registered
in the name of a person other than the signer of the Letter of Transmittal, or
if payment is to be made, or a Share Certificate not accepted for payment or not
tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appears on the Share Certificate, with the signature(s) on such Share
Certificate or stock powers guaranteed by an Eligible Institution. See
Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates evidencing such Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is received
prior to the Expiration Date by the Depositary as provided below; and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message), and any other documents required
by the Letter of Transmittal are received by the Depositary within three
NYSE trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject
35
<PAGE>
any and all tenders determined by it not to be in proper form or the acceptance
for payment of which may, in the opinion of its counsel, be unlawful. Purchaser
also reserves the absolute right to waive any condition of the Offer or any
defect or irregularity in the tender of any Shares of any particular
stockholder, whether or not similar defects or irregularities are waived in the
case of other stockholders. No tender of Shares will be deemed to have been
validly made until all defects and irregularities have been cured or waived.
None of Purchaser, Parent, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by Purchaser (and with respect to all other Shares or other securities
issued or issuable in respect of such Shares on or after May 17, 1999), if any.
All such proxies shall be considered coupled with an interest in the tendered
Shares. Such appointment will be effective when, and only to the extent that,
Purchaser accepts such Shares for payment. Upon such acceptance for payment, all
prior proxies given by such stockholder with respect to such Shares (and such
other Shares and securities) will be revoked without further action, and no
subsequent proxies may be given nor any subsequent written consent executed by
such stockholder (and, if given or executed, will not be deemed to be effective)
with respect thereto. The designees of Purchaser will, with respect to the
Shares for which the appointment is effective, be empowered to exercise all
voting and other rights of such stockholder as they in their sole discretion may
deem proper at any annual or special meeting of the Company's stockholders or
any adjournment or postponement thereof, by written consent in lieu of any such
meeting or otherwise. Purchaser reserves the right to require that, in order for
Shares to be deemed validly tendered, immediately upon Purchaser's payment for
such Shares, Purchaser must be able to exercise full voting rights with respect
to such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the conditions
of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after July 19, 1999. If
Purchaser extends the Offer, is delayed in its acceptance for payment of Shares
or is unable to accept Shares for payment pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of
36
<PAGE>
such Shares, if different from that of the person who tendered such Shares. If
Share Certificates evidencing Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such Share Certificates, the serial numbers shown on such Share Certificates
must be submitted to the Depositary and the signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution, unless such Shares
have been tendered for the account of an Eligible Institution. If Shares have
been tendered pursuant to the procedure for book-entry transfer as set forth in
"THE TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares," any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares."
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for
Shares pursuant to the Offer or in the Merger will be a taxable transaction for
U.S. federal income tax purposes and may also be a taxable transaction under
applicable state, local or foreign tax laws. In general, a stockholder will
recognize gain or loss for U.S. federal income tax purposes equal to the
difference between the amount of cash received in exchange for the Shares sold
and such U.S. holder's adjusted tax basis in such Shares. Assuming the Shares
constitute capital assets in the hands of the U.S. holder, such gain or loss
will be capital gain or loss and, in the case of an individual stockholder, will
be taxable at 20% when the Shares tendered pursuant to the Offer or converted
pursuant to the Merger were held in excess of 12 months. Gain or loss will be
calculated separately for each block of Shares tendered pursuant to the Offer or
converted pursuant to the Merger. The deduction of capital losses is subject to
certain limitations. Prospective investors should consult their own tax advisors
in this regard.
In general, in order to prevent backup federal income tax withholding at a
rate of 31% on the cash consideration to be received in the Offer or pursuant to
the Merger, each stockholder who is not otherwise exempt from such requirements
must provide such stockholder's correct taxpayer identification number (and
certain other information) by completing the Substitute Form W-9 in the Letter
of Transmittal.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING BROKER-DEALERS, STOCKHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN
CORPORATIONS.
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO
CHANGE POSSIBLY WITH RETROACTIVE EFFECT. STOCKHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally
traded on the NYSE and the PE under the symbol "SP." The Company has not paid
any dividends to holders of Shares since
37
<PAGE>
September 29, 1994. The following table sets forth, for the quarters indicated,
the high and low sales prices for the Shares as reported on the Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
1997
First Quarter.............................................................. $ 83/8 $ 51/2
Second Quarter............................................................. 71/8 51/4
Third Quarter.............................................................. 93/16 63/8
Fourth Quarter............................................................. 91/8 65/8
1998
First Quarter.............................................................. 9 7
Second Quarter............................................................. 91/2 87/16
Third Quarter.............................................................. 97/16 6
Fourth Quarter............................................................. 8 63/16
1999
First Quarter.............................................................. 99/16 61/16
Second Quarter (through May 20, 1999)...................................... 911/16 85/8
</TABLE>
On March 18, 1999, the last full trading day prior to the public
announcement of Parent's original offer to acquire the Company, the closing
price per Share as reported on the NYSE was $6 3/4. On May 14, 1999, the last
full trading day prior to the public announcement of the execution of the Merger
Agreement and of Purchaser's intention to commence the Offer, the closing price
per Share as reported on the NYSE was $8 7/8. On May 20, 1999 the last full
trading day prior to the commencement of the Offer, the closing price per Share
as reported on the NYSE was $9 9/16.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the Commission and other public sources. Neither Purchaser nor Parent
assumes any responsibility for the accuracy or completeness of the information
concerning the Company furnished by the Company or contained in such documents
and records or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information but
which are unknown to Purchaser or Parent.
GENERAL. The Company is a Delaware corporation with its principal executive
offices located at 5700 Wilshire Boulevard, Los Angeles, California 90036. The
Company is a producer and distributor of television series, mini-series and
movies-for-television (collectively referred to hereinafter as "television
product"). The Company has an extensive library of television product and
feature-length films, which it distributes worldwide. The Company also licenses
and otherwise exploits ancillary rights of this product, such as music and
merchandising rights.
Except as described in this Offer to Purchase, (i) to the best knowledge of
the Company, none of the persons listed in Section 3 of Schedule I to this Offer
to Purchase or any associate or majority-owned subsidiary of the Company or any
of the persons so listed, beneficially owns or has any right to acquire,
directly or indirectly, any Shares and (ii) to the best knowledge of the
Company, none of the persons or entities referred to above nor any director,
executive officer or subsidiary of any of the foregoing, has effected any
transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase, to the best knowledge of the Company, none of the
persons listed in Section 3 of Schedule I to this Offer to Purchase, has any
contract, arrangement, understanding or relationship with any other person with
respect
38
<PAGE>
to any securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations. Except as set forth in this Offer to
Purchase, since January 1, 1996, to the best knowledge of the Company, none of
the persons listed in Section 3 of Schedule I hereto, has had any business
relationship or transaction with the Company or any of its executive officers,
directors or affiliates that is required to be reported under the rules and
regulations of the Commission applicable to the Offer. Except as set forth in
this Offer to Purchase, since January 1, 1996, there have been no contacts,
negotiations or transactions between any of the Company's subsidiaries or, to
the best knowledge of the Company, any of the persons listed in Section 3 of
Schedule I to this Offer to Purchase, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
FINANCIAL INFORMATION. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(the "Form 10-K") and the unaudited financial statements contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(the "Form 10-Q"). More comprehensive financial information is included in the
Form 10-K, the Form 10-Q and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, including the financial
statements and related notes contained therein. Such reports and other documents
may be examined and copies may be obtained from the offices of the Commission in
the manner set forth below. In addition, Schedules IV and V hereto set forth the
Company's audited financial statements for the fiscal year ended December 31,
1998 and the Company's unaudited financial statements for the period ended March
31, 1999, respectively.
39
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................... $ 184,955 $ 167,425 $ 586,125 $ 564,239 $ 497,601 $ 452,150 $ 416,445
Operating income...................... $ 16,783 $ 10,169 $ 15,667 $ 1,056 $ 23,790 $ 66,252 $ 40,394
Net income (loss) from continuing
operations.......................... $ 3,224 $ 1,614 $ 8,942 $ (12,322) $ 4,075 $ 34,131 $ 19,430
Net income (loss) per common share
from continuing operations:
Basic........................... $ 0.03 $ 0.02 $ 0.10 $ (0.14) $ 0.04 $ 0.39 $ 0.26
Diluted......................... $ 0.03 $ 0.02 $ 0.10 $ (0.14) $ 0.04 $ 0.38 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital....................... $ 217,755 $ 221,143 $ 224,844 $ 242,623 $ 232,360 $ 289,080 $ 232,380
Total assets.......................... $ 759,163 $ 788,427 $ 772,949 $ 773,580 $ 840,346 $ 956,836 $ 871,245
Long-term debt(2)..................... $ 231,000 $ 262,000 $ 239,930 $ 289,000 $ 315,000 $ 210,000 $ 181,805
Stockholders' equity.................. $ 276,370 $ 284,596 $ 271,207 $ 271,018 $ 319,743 $ 558,520 $ 528,447
Book value per share.................. $ 2.97 $ 3.08 $ 2.92 $ 2.98 $ 3.53 $ 6.23 $ 6.01
Ratio of earnings to fixed
charges(1).......................... 3.76 1.94 2.25 0.36 1.78 5.77 5.30
</TABLE>
- ------------------------
(1) The ratio of earnings to fixed charges was computed by dividing (i) income
from continuing operations before taxes and fixed charges by (ii) fixed
charges. Fixed charges consist of interest expenses and the interest element
of rental payments.
(2) Represents amounts owing to Viacom under the Viacom Credit Agreement.
40
<PAGE>
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Information regarding
the public reference facilities may be obtained from the Commission by
telephoning 1-800-SEC-0330. The Company's filings are also available to the
public on the SEC Internet site (http://www.sec.gov). Copies of such materials
may also be obtained by mail from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Certain
reports and other information concerning the Company may also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition,
Schedules IV and V hereto set forth the Company's audited financial statements
for the fiscal year ended December 31, 1998 and the Company's unaudited
financial statements for the period ended March 31, 1999, respectively.
8. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND VIACOM. Purchaser
is a newly incorporated Delaware corporation organized in connection with the
Offer and the Merger and has not carried on any activities other than in
connection with the Offer and the Merger. The principal offices of Purchaser are
located at 1515 Broadway, New York, New York 10036. Purchaser is a wholly owned
subsidiary of Parent.
Until immediately prior to the time that Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant assets or liabilities or engage in activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger. Because Purchaser is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding
Purchaser is available.
PARENT AND VIACOM. Parent is a Delaware corporation and a wholly owned
subsidiary of Viacom and holds more than 80% of the issued and outstanding
Shares. Parent's principal executive offices are located at 1515 Broadway, New
York, NY 10036, and its telephone number is (212) 258-6000. Viacom is a
diversified entertainment and publishing company with operations in six
segments: (i) Networks, (ii) Entertainment, (iii) Video, (iv) Parks, (v)
Publishing and (vi) Online.
As of March 22, 1999, National Amusements, Inc. ("NAI"), a closely held
corporation that owns and operates more than 1,300 movie screens in the U.S.,
the U.K. and South America, owned approximately 67% of Viacom's voting Class A
Common Stock ("Class A Common Stock"), and approximately 28% of Viacom's
outstanding Class A Common Stock and non-voting Class B Common Stock ("Class B
Common Stock") on a combined basis. NAI is not subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended. Sumner M.
Redstone, the controlling shareholder of NAI, is the Chairman of the Board and
Chief Executive Officer of Viacom and the Chairman of the Company. Viacom's
principal executive offices are located at 1515 Broadway, New York, NY 10036,
and its telephone number is (212) 258-6000.
The name, citizenship, business address, principal occupation or employment,
and five-year employment history for each of the directors and executive
officers of Purchaser, Parent and Viacom and certain other information are set
forth in Schedule I hereto.
AVAILABLE INFORMATION. Viacom is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is required to
file periodic reports, proxy statements and other
41
<PAGE>
information with the Commission relating to its business, financial condition
and other matters. Information as of particular dates concerning Viacom's
directors and officers, their remuneration, stock options granted to them, the
principal holders of Viacom's securities and any material interest of such
persons in transactions with Viacom is required to be disclosed in proxy
statements distributed to Viacom's stockholders and filed with the Commission.
Such reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Information regarding the public reference facilities
may be obtained from the Commission by telephoning 1-800-SEC-0330. Viacom's
filings are also available to the public on the SEC Internet site
(http://www.sec.gov). Copies of such materials may also be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain reports and other
information concerning Viacom may also be inspected at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
Except as described in this Offer to Purchase, (i) none of Viacom,
Purchaser, Parent nor, to the best knowledge of Viacom, Purchaser and Parent,
any of the persons listed in Schedule I to this Offer to Purchase or any
associate or majority-owned subsidiary of Viacom, Purchaser, Parent or any of
the persons so listed, beneficially owns or has any right to acquire, directly
or indirectly, any Shares and (ii) none of Viacom, Purchaser, Parent nor, to the
best knowledge of Viacom, Purchaser and Parent, any of the persons or entities
referred to above nor any director, executive officer or subsidiary of any of
the foregoing, has effected any transaction in the Shares during the past 60
days.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase, none of Viacom, Purchaser, Parent nor, to the best
knowledge of Viacom, Purchaser and Parent, any of the persons listed in Schedule
I to this Offer to Purchase, has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or voting of such securities, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies, consents or
authorizations. Except as set forth in this Offer to Purchase, since January 1,
1996, none of Viacom, Purchaser or Parent nor, to the best knowledge of Viacom,
Purchaser and Parent, any of the persons listed on Schedule I hereto, has had
any business relationship or transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the Commission applicable to the Offer.
Except as set forth in this Offer to Purchase, since January 1, 1996, there have
been no contacts, negotiations or transactions between any of Viacom, Purchaser,
Parent, or any of their respective subsidiaries or, to the best knowledge of
Viacom, Purchaser and Parent, any of the persons listed in Schedule I to this
Offer to Purchase, on the one hand, and the Company or its affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets.
9. FINANCING OF THE OFFER AND THE MERGER. The total amount of funds
required by Purchaser to consummate the Offer and the Merger and to pay related
fees and expenses is estimated to be approximately $193,000,000. Parent will
ensure that Purchaser has sufficient funds to acquire all the outstanding Shares
pursuant to the Offer and the Merger. Parent will provide such funds from its
cashflow and readily available funds.
10. DIVIDENDS AND DISTRIBUTIONS. The Company has not paid any dividends on
the Shares at any time after September 29, 1994. The Company does not intend to
pay any dividends on the Shares at any time in the foreseeable future.
11. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, THE NYSE, THE PE AND
EXCHANGE ACT REGISTRATION. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that
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<PAGE>
might otherwise trade publicly and will reduce the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
Shares held by the Public Stockholders.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing and
may be delisted from the NYSE.
According to the NYSE's published guidelines, the NYSE would consider
delisting the Shares if, among other things, the number of record holders of at
least 100 Shares should fall below 1,200, the number of publicly held Shares
(exclusive of holdings of officers, directors and their families and other
concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall
below 600,000 or the aggregate market value of publicly held Shares (exclusive
of NYSE Excluded Holdings) should fall below $5,000,000. The Company has advised
Purchaser that, as of April 30, 1999, there were 93,297,901 Shares outstanding,
held by approximately 8,425 holders of record. If, as a result of the purchase
of Shares pursuant to the Offer or otherwise, the Shares no longer meet the
requirements of the NYSE for continued listing and the listing of the Shares is
discontinued, the market for the Shares could be adversely affected.
According to the PE's published guidelines, the Shares would not be eligible
to be included for listing if, among other things, (i) the number of Shares
publicly held falls below 200,000, (ii) the number of holders of Shares falls
below 400 or (iii) the aggregate market value of such publicly held Shares does
not exceed $1,000,000. If these standards are not met, the PE rules provide that
the securities would no longer qualify for listing and inclusion in the PE, and
the PE would cease to provide any quotations.
If the NYSE or the PE were to delist the Shares, it is possible that the
Shares would continue to trade on another securities exchange or in the
over-the-counter market and that price or other quotations would be reported by
such exchange or through the National Association of Securities Dealers
Automated Quotation System or other sources. The extent of the public market
therefor and the availability of such quotations would depend, however, upon
such factors as the number of stockholders and/or the aggregate market value of
such securities remaining at such time, the interest in maintaining a market in
the Shares on the part of securities firms, the possible termination of
registration under the Exchange Act as described below, and other factors.
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for or marketability of the Shares or whether it would cause future
market prices to be greater or less than the Merger Consideration.
The Shares are currently "margin securities", as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the Shares might no longer constitute
"margin securities" for purposes of the margin regulations of the Federal
Reserve Board, in which event such Shares could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders. The termination of the registration of the Shares
under the Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Shares and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement in connection with stockholders' meetings and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of
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<PAGE>
1933, as amended. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be "margin securities" or be eligible for
NYSE reporting.
12. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision
of the Offer, Purchaser shall not be required to accept for payment or, subject
to the applicable rules and regulations of the Commission, including Rule
14e-1(c) under the Exchange Act, pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer in a manner consistent with the
terms of the Merger Agreement and may postpone the acceptance for payment of or
the payment for any Shares tendered in a manner consistent with the terms of the
Merger Agreement, if at any time on or after May 17, 1999, and prior to the
acceptance for payment of any Shares, any of the following conditions shall
exist:
(a) there shall be any statute, rule or regulation, or any decree, order
or injunction, promulgated, enacted, entered or enforced by any United
States federal or state government, or other governmental entity which would
(i) make the acquisition by the Purchaser of a material portion of the
Shares illegal, or (ii) otherwise prohibit or restrict consummation of the
Offer or the Merger (each a "Governmental Restriction"); PROVIDED, HOWEVER,
that in order to invoke this condition, Parent and the Purchaser shall have
used their reasonable best efforts to prevent such Governmental Restriction
or ameliorate the effects thereof; and PROVIDED FURTHER, that if the
Governmental Restriction is not a final and non-appealable decree, order or
injunction of a court of competent jurisdiction, Purchaser may not by virtue
of this condition alone amend or terminate the Offer, but may only extend
the Offer and thereby postpone acceptance for payment or purchase of Shares;
(b) (i) the Special Committee shall have withdrawn or modified in a
manner that is, in the reasonable judgment of Parent, materially adverse to
Parent or Purchaser (including by way of any amendment to the Schedule
14D-9) its recommendation of the Offer, the Merger or the Merger Agreement
or (ii) the Special Committee shall have resolved to do any of the
foregoing;
(c) any representation or warranty of the Company in the Merger
Agreement (i) which is qualified as to Company Material Adverse Effect shall
not be true and correct, subject to such Company Material Adverse Effect
qualification, in all respects or (ii) any such representation or warranty
that is not so qualified shall not be true and correct except to the extent
that the failure of such representations and warranties to be true and
correct could not reasonably be expected to have a Company Material Adverse
Effect, in each case as if such representation and warranty was made as of
such time on or after the date of the Merger Agreement and except that those
representations and warranties that address matters only as of a particular
date shall not be true and correct, subject to the qualifications described
above, as of such date;
(d) the Company shall have breached or failed to perform in any material
respect any obligation or to comply in any material respect with any
agreement or covenant of the Company to be performed or complied with by it
under the Merger Agreement;
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) Parent, Purchaser and the Company (with the approval of the Special
Committee) shall have agreed that Purchaser shall terminate the Offer or
postpone the acceptance for payment of or the payment for Shares thereunder;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (excluding, for purposes of paragraphs (c) and (d) above,
any action or inaction by Parent or any of its affiliates) giving rise to any
such condition, makes it inadvisable to proceed with such acceptance for payment
or payment.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to any such condition or may be waived by Parent or Purchaser in
whole or in part at any time and from time to time in their sole discretion. The
44
<PAGE>
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and circumstances shall not be deemed a
waiver with respect to any other facts and circumstances; and each such right
shall be deemed an ongoing right that may be asserted at any time and from time
to time.
13. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
GENERAL. There are no regulations of any governmental authority, anti-trust
laws or state anti-takeover laws that are material to a decision by any Public
Stockholder whether to sell, tender or hold the Shares in respect of the Offer.
LITIGATION. In March 1999, following the announcement of the Proposal, a
number of lawsuits were filed in Delaware by various individual shareholders of
the Company against the Company and certain of its officers and directors with
respect to the Proposal and the Merger Agreement. The Delaware lawsuits were
consolidated by court order under the caption In re Spelling Entertainment Group
Inc. Shareholders Litigation, Consolidated C.A. No. 17024 NC (the "Delaware
Action"). Additionally, a similar lawsuit was filed in the Superior Court of the
State of California.
The lawsuits purport to be class actions on behalf of all persons who hold
securities of the Company (except the defendants and their affiliates). The
lawsuits make allegations as to various violations of fiduciary duty by the
Company, its directors and Viacom including, among other things, that the
consideration to be offered to the Public Stockholders pursuant to the Offer and
Merger is inadequate and that the Company failed to take adequate steps to
determine and disclose the fair value of the publicly held Shares. Plaintiffs
seek injunctive relief, recission, damages, costs (including attorneys' and
experts' fees) and other equitable relief. As a result of settlement
negotiations between counsel for plaintiffs in the Consolidated Action and
counsel for defendants, the parties have reached an agreement in principle to
settle the Consolidated Action based upon the increase in the consideration from
$9.00 to $9.75 in cash per Share which Viacom has agreed, pursuant to the Merger
Agreement, to pay to acquire the publicly owned Shares. The settlement in
principle is subject to the execution of an appropriate Stipulation of
Settlement and such other documentation as may be required in order to obtain
final Court approval of the settlement and the dismissal of the Delaware Action
and the California action.
14. SOLICITATION FEES AND EXPENSES. Except as set forth below, Purchaser
will not pay any fees or commissions to any broker, dealer or other person for
soliciting tenders of Shares pursuant to the Offer.
Purchaser and Parent have retained Georgeson & Company Inc., as the
Information Agent and First Chicago Trust Company of New York as the Depositary
in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telecopy, telegraph and personal interview and may
request banks, brokers, dealers and other nominee stockholders to forward
materials relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Georgeson & Company Inc., will be paid a fee of approximately $50,000 and
will also be reimbursed for certain out-of-pocket expenses and may be
indemnified against certain liabilities and expenses in connection with the
Offer, including certain liabilities under the federal securities laws.
Purchaser will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, plus reimbursement for out-of-pocket
expenses, and will indemnify the Depositary against certain liabilities and
expenses in connection therewith, including certain liabilities under federal
securities laws. Brokers, dealers, commercial banks and trust companies will be
reimbursed by Purchaser for customary handling and mailing expenses incurred by
them in forwarding material to their customers.
15. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good
45
<PAGE>
faith effort, Purchaser cannot comply with any such state statute, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
holders of Shares in such state. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER, PARENT OR THE COMPANY NOT CONTAINED IN
THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Parent and Purchaser have filed with the Commission the Schedule
14D-1, together with exhibits, furnishing certain additional information with
respect to the Offer. Pursuant to Rule 14d-9 promulgated under the Exchange Act,
the Company has filed with the Commission the Schedule 14D-9 with respect to the
Offer, and may file amendments thereto. Parent, Purchaser and the Company have
filed a statement on Schedule 13E-3 with respect to the Offer, and may file
amendments thereto. Such statements, including exhibits and any amendments
thereto, which furnish certain additional information with respect to the Offer,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in "THE TENDER OFFER--Section 7. Certain Information
Concerning the Company" (except that they will not be available at the regional
offices of the Commission).
VSEG ACQUISITION INC.
May 21, 1999
46
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT, PURCHASER, THE COMPANY AND VIACOM
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Parent. Unless otherwise indicated, the
current business address of each person is Viacom International Inc., 1515
Broadway, New York, NY 10036. Unless otherwise indicated, each such person is a
citizen of the United States.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Philippe P. Dauman.................. Executive Vice President of Parent since March 1994; Executive Vice
President of Purchaser since May 1999; Deputy Chairman of Viacom since
January 1996 and Executive Vice President since March 1994; General Counsel
and Secretary of Viacom from February 1993 to October 1998; Also serves as a
Director of the Company, Viacom, National Amusements, Inc. ("NAI"), and
Lafarge Corporation.
Michael D. Fricklas................. Senior Vice President, General Counsel and Secretary of Parent since October
1998; Senior Vice President, Deputy General Counsel and Assistant Secretary
of Parent from July 1993 to October 1998; Senior Vice President, General
Counsel and Secretary of Purchaser since May 1999; Senior Vice President,
General Counsel and Secretary of Viacom since October 1998; Senior Vice
President, Deputy General Counsel and Assistant Secretary of Viacom from
July 1993 to October 1998; Also serves as a Director of Purchaser.
George S. Smith, Jr................. Senior Vice President and Chief Financial Officer of Parent since November
1987; Senior Vice President and Chief Financial Officer of Purchaser since
May 1999; Senior Vice President and Chief Financial Officer of Viacom since
November 1987; Also serves as a Director of Purchaser.
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Sumner M. Redstone.................. Chairman of the Board and Chief Executive Officer of Parent since January
1996; President of the Purchaser since May 1999; Chairman of the Board of
the Company since January 1996 and a Director of the Company since November
1994; Chairman of the Board of Viacom since 1987 and Chief Executive Officer
of Viacom since January 1996; President and Chief Executive Officer of NAI
since 1967 and Chairman of the Board of NAI since 1986.
Philippe P. Dauman.................. See description above.
Thomas E. Dooley.................... Executive Vice President of Parent since March 1994; Executive Vice
President of Purchaser since May 1999; Deputy Chairman of Viacom since
January 1996 and Executive Vice President since March 1994; Also serves as a
Director of the Purchaser, the Company and Viacom.
Michael D. Fricklas................. See description above.
George S. Smith, Jr................. See description above.
</TABLE>
I-1
<PAGE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is VSEG Acquisition Inc., 1515 Broadway,
New York, NY 10036. Unless otherwise indicated, each such person is a citizen of
the United States.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Thomas E. Dooley.................... Executive Vice President of Purchaser since May 1999; Executive Vice
President of Parent since March 1994; Deputy Chairman of Viacom since
January 1996 and Executive Vice President since March 1994; Also serves as a
Director of the Company and Viacom.
Michael D. Fricklas................. Senior Vice President, General Counsel and Secretary of Purchaser since May
1999; Senior Vice President, General Counsel and Secretary of Parent since
October 1998; Senior Vice President, Deputy General Counsel and Assistant
Secretary of Parent from July 1993 to October 1998; Senior Vice President,
General Counsel and Secretary of Viacom since October 1998; Senior Vice
President, Deputy General Counsel and Assistant Secretary of Viacom from
July 1993 to October 1998; Also serves as a Director of Parent.
George S. Smith, Jr................. Senior Vice President and Chief Financial Officer of Purchaser since May
1999; Senior Vice President and Chief Financial Officer of Parent since
November 1987; Senior Vice President and Chief Financial Officer of Viacom
since November 1987; Also serves as a Director of Parent.
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Sumner M. Redstone.................. President of the Purchaser since May 1999; Chairman of the Board and Chief
Executive Officer of Parent since January 1996; Chairman of the Board of the
Company since January 1996 and a Director of the Company since November
1994; Chairman of the Board of Viacom since 1987 and Chief Executive Officer
of Viacom since January 1996; President and Chief Executive Officer of NAI
since 1967 and Chairman of the Board of NAI since 1986.
Philippe P. Dauman.................. Executive Vice President of Purchaser since May 1999; Executive Vice
President of Parent since March 1994; Deputy Chairman of Viacom since
January 1996 and Executive Vice President since March 1994; General Counsel
and Secretary of Viacom from February 1993 to October 1998; Also serves as a
Director of the Parent, the Company, Viacom, NAI and Lafarge Corporation.
Thomas E. Dooley.................... See description above.
Michael D. Fricklas................. See description above.
George S. Smith, Jr................. See description above.
</TABLE>
I-2
<PAGE>
3. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table
sets forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of the Company. Unless otherwise indicated, the
current business address of each person is, and has been for the last five
years, that of Spelling Entertainment Group Inc. at 5700 Wilshire Boulevard, Los
Angeles, California 90036. Unless otherwise indicated, such person listed below
is a citizen of the United States.
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Sumner M. Redstone.................. Chairman of the Board of the Company since January 1996 and a Director of
Viacom Inc. the Company since November 1994; Chairman of the Board and Chief Executive
1515 Broadway Officer of Parent since January 1996; President of the Purchaser since May
New York, NY 10036 1999; Chairman of the Board of Viacom since 1987 and Chief Executive Officer
of Viacom since January 1996; President and Chief Executive Officer of NAI
since 1967 and Chairman of the Board of NAI since 1986.
Aaron Spelling...................... Vice Chairman of the Board of the Company since April 1993 and a Director of
the Company since October 1992; Chairman of the Board and Chief Executive
Officer of Spelling Television Inc.
Philippe P. Dauman.................. Director of the Company since November 1994; Executive Vice President of
Viacom Inc. Parent since March 1994; Executive Vice President of Purchaser since May
1515 Broadway 1999; Deputy Chairman of Viacom since January 1996 and Executive Vice
New York, NY 10036 President since March 1994; General Counsel and Secretary of Viacom from
February 1993 to October 1998; Also serves as a Director of the Parent,
Viacom, NAI and Lafarge Corporation.
Thomas E. Dooley.................... Director of the Company since April 1996; Executive Vice President of Parent
Viacom Inc. since March 1994; Executive Vice President of Purchaser since May 1999;
1515 Broadway Deputy Chairman of Viacom since January 1996 and Executive Vice President
New York, NY 10036 since March 1994; Also serves as a Director of the Purchaser and Viacom.
William M. Haber.................... Director of the Company since August 1997; Advisor to the President of Save
54 Wilton Road the Children Federation, Inc. since November 1995; Co- founder of the
Westport, CT 06880 Creative Artists Agency ("CAA") in 1975; From January 1975 to November 1995
he was responsible for managing and executing CAA's corporate advisory
services.
John L. Muething.................... Director of the Company since October 1992; Of Counsel to the Cincinnati,
Keating, Muething & Klekamp Ohio law firm of Keating, Muething & Klekamp for more than five years.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
</TABLE>
I-3
<PAGE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Sumner M. Redstone.................. See description above.
Aaron Spelling...................... Vice Chairman of the Board of the Company since April 1993 and a Director of
the Company since October 1992; Chairman of the Board and Chief Executive
Officer of Spelling Television Inc.
Peter H. Bachmann................... President of the Company since May 1997; Executive Vice President, Office of
the President of the Company from September 1994 to May 1997; Senior Vice
President--Business and Legal Affairs of the Company and of Spelling
Television Inc.
Ross G. Landsbaum................... Senior Vice President--Chief Financial Officer of the Company since July
1998; Vice President--Finance and Business Development and Treasurer of the
Company from August 1997 to July 1998; Vice President, Finance and Tax of
the Company from July 1994 to August 1997; Prior to joining the Company,
held various positions with Arthur Andersen LLP from January 1986 to June
1994, most recently as Manager.
Sally Suchil........................ Senior Vice President--General Counsel, Secretary and Administration of the
Company since January 1998; Senior Vice President, General Counsel and
Secretary of the Company from January 1995 to January 1998; Senior Vice
President and Assistant General Counsel of Metro-Goldwyn-Mayer Inc. from
June 1992 to December 1994.
James Miller........................ Vice President and Controller of the Company since January 1997; Vice
President and Controller/Acting Chief Financial Officer of Silver King
Communications, Inc. from July 1996 to December 1996; Vice President,
Controller of Savoy Pictures, Inc. from November 1993 to July 1996.
</TABLE>
4. DIRECTORS AND EXECUTIVE OFFICERS OF VIACOM. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Viacom. Unless otherwise indicated, the
current business address of each person is Viacom Inc., 1515 Broadway, New York,
NY 10036. Unless otherwise indicated, each such person is a citizen of the
United States.
I-4
<PAGE>
A. DIRECTORS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
George S. Abrams.................... Attorney associated with the law firm of Winer & Abrams in Boston,
Winer & Abrams Massachusetts since 1969; Director of NAI
60 State Street
Boston, MA 02109
Philippe P. Dauman.................. Deputy Chairman of Viacom since January 1996 and Executive Vice President
since March 1994; General Counsel and Secretary of Viacom from February 1993
to October 1998; Executive Vice President of Parent since March 1994;
Executive Vice President of Purchaser since May 1999; Also serves as a
Director of the Parent, the Company, NAI and Lafarge Corporation.
Thomas E. Dooley.................... Deputy Chairman of Viacom since January 1996 and Executive Vice President
since March 1994; Executive Vice President of Parent since March 1994;
Executive Vice President of Purchaser since May 1999; Also serves as a
Director of the Purchaser and the Company.
Ken Miller.......................... Vice Chairman of Credit Suisse First Boston Corporation since June 1994;
Credit Suisse First President, Chief Executive Officer of The Lodestar Group, an investment
Boston Corporation firm, from 1988 to June 1994.
11 Madison Avenue
22nd Floor
New York, NY 10010
Brent D. Redstone................... Special Counsel to the law firm of Davis, Graham and Stubbs, L.L.P. in
Davis, Graham and Stubbs, L.L.P. Denver, Colorado since July 1998; previously served as a member of the Board
370 Seventeenth Street of Directors of the American Prosecutors Research Institute, located in
Suite 4700 Alexandria, Virginia. Director of NAI.
Denver, CO 80202
Shari Redstone...................... Executive Vice President of NAI since 1994; Director of NAI.
National Amusements, Inc.
200 Elm Street
Dedham, MA 02026
Sumner M. Redstone.................. Chairman of the Board of Viacom since 1987 and Chief Executive Officer of
Viacom since January 1996; Chairman of the Board and Chief Executive Officer
of Parent since January 1996; President of the Purchaser since May 1999;
Chairman of the Board of the Company since January 1996 and a Director of
the Company since November 1994; President and Chief Executive Officer of
NAI since 1967 and Chairman of the Board of NAI since 1986.
Frederic V. Salerno................. Senior Executive Vice President and Chief Financial Officer/Strategy and
Bell Atlantic Business Development of Bell Atlantic Corporation ("Bell Atlantic") since
1095 Avenue of the Americas August 1997; Prior to the merger of Bell Atlantic and NYNEX, served as Vice
New York, NY 10036 Chairman and Chief Financial Officer of NYNEX from 1994 to 1997; Vice
Chairman of the Board of NYNEX and President of the Worldwide Services Group
from 1991 to 1994; Director of Avnet, Inc., The Bear Stearns Companies Inc.,
Bell Atlantic, KeySpan Energy Corporation and The Hartford Financial
Services Group, Inc.
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
William Schwartz.................... Counsel to Cadwalader, Wickersham & Taft since 1988; Served as Vice
Yeshiva University President for Academic Affairs of Yeshiva University from 1993 to July 1998
2495 Amsterdam Avenue and has been Professor of Law at Yeshiva University and the Cardozo School
& 184th Street of Law since 1991; Chairman of the Board of UST Corporation and a member of
Belfer Hall 12th Floor the Advisory Board of WCI Steel, Inc.
New York, NY 10033
Ivan Seidenberg..................... Chairman of the Board of Bell Atlantic since January 1999 and Chief
Bell Atlantic Executive Officer since June 1998; Served as Vice Chairman and President of
1095 Avenue of the Americas Bell Atlantic from August 1997 to December 1998 and Chief Operating Officer
New York, NY 10036 from August 1997 to June 1998; Prior to the merger of Bell Atlantic and
NYNEX, served as Chairman and Chief Executive Officer of NYNEX since April
1995 and before that as President and Chief Executive Officer of NYNEX since
January 1995; President and Chief Operating Officer of NYNEX from March 1994
to December 1994 and as Vice Chairman of NYNEX from April 1991 to January
1995; Became a director of NYNEX in 1991; Director of Allied Signal Inc.,
American Home Products Corporation, Boston Properties, Inc. and CVS
Corporation.
</TABLE>
B. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST
CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- ------------------------------------ ----------------------------------------------------------------------------
<S> <C>
Sumner M. Redstone.................. See description above.
Philippe P. Dauman.................. See description above.
Thomas E. Dooley.................... See description above.
Michael D. Fricklas................. Senior Vice President, General Counsel and Secretary of Viacom since October
1998; Senior Vice President, Deputy General Counsel and Assistant Secretary
of Viacom from July 1993 to October 1998; Senior Vice President, General
Counsel and Secretary of Parent since October 1998; Senior Vice President,
Deputy General Counsel and Assistant Secretary of Parent from July 1993 to
October 1998; Senior Vice President, General Counsel and Secretary of
Purchaser since May 1999; Also serves as a Director of Parent and Purchaser.
George S. Smith, Jr................. Senior Vice President and Chief Financial Officer of Viacom since November
1987; Senior Vice President and Chief Financial Officer of Parent since
November 1987; Senior Vice President and Chief Financial Officer of
Purchaser since May 1999; Also serves as a Director of Parent and Purchaser.
</TABLE>
I-6
<PAGE>
May 14, 1999
Special Committee of the Board of Directors
Spelling Entertainment Group Inc.
5700 Wilshire Boulevard
Los Angeles, California 90036
Dear Members of the Special Committee:
We understand that Spelling Entertainment Group Inc. (the "Company"),
Viacom International, Inc. ("Parent") and VSEG Acquisition Inc., a wholly owned
subsidiary of Parent ("Purchaser"), propose to enter into an Agreement and Plan
of Merger (the "Agreement"), pursuant to which Purchaser will commence a tender
offer (the "Offer") to purchase all the issued and outstanding shares of the
Company's common stock, par value $0.001 per share (the "Common Stock"), for
$9.75 in cash, all as more fully provided in the Agreement. Pursuant to the
Agreement, following consummation of the Offer, Purchaser will merge with and
into the Company (the "Merger"), and each remaining outstanding share of Common
Stock (other than shares of Common Stock held by Purchaser, shares of Common
Stock held in the treasury of the Company and shares of Common Stock held by
stockholders who demand appraisal for such shares in accordance with the
Delaware General Corporation Law (the "DGCL")) will be converted into the right
to receive $9.75 in cash, all as more fully provided in the Agreement. We
understand that immediately prior to the consummation of the Merger, Parent will
contribute all of the shares of Common Stock beneficially owned by it to
Purchaser. References herein to the "Consideration" are to the consideration to
be received by the holders of the Common Stock in the Offer and the Merger and
references herein to the "Transaction" are to the Offer and the Merger as
contemplated by the Agreement.
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of Common Stock (other than Parent and
its affiliates) of the Consideration. In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the draft
Agreement dated May 14, 1999;
<PAGE>
(ii) Analyzed certain historical business and financial information
relating to the Company;
(iii) Reviewed various financial forecasts and other data provided
to us by the Company relating to its business;
(iv) Held discussions with members of the senior management of the
Company with respect to the business, prospects, and strategic
objectives of the Company;
(v) Reviewed public information with respect to certain other
companies in lines of business we believe to be generally
comparable to the business of the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of business we believe to be
generally comparable to those of the Company;
(vii) Reviewed the historical stock prices and trading volumes of
the Common Stock; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company, or concerning the solvency of
or issues relating to solvency concerning the Company. With respect to financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
the Company as to the future financial performance of the Company. We assume no
responsibility for and express no view as to such forecasts or the assumptions
upon which they are based.
Further, our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof. In rendering our opinion, we did not address the
relative merits of the Transaction, any alternative potential transaction or the
Company's underlying decision to effect the Transaction.
2
<PAGE>
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining the necessary
regulatory approvals, if any, for the Transaction will not have an adverse
effect on the Company. We have also assumed that the definitive Agreement will
not differ in any material respect from the draft thereof furnished to us. We
were not requested to solicit third party indications of interest in acquiring
the Company nor have we actively sought any other offers.
Lazard Freres & Co. LLC is acting as investment banker to the Special
Committee of the Company's Board of Directors in connection with the Transaction
and a fee will be payable upon delivery of this opinion.
Our engagement and the opinion expressed herein are for the benefit of
the Special Committee of the Company's Board of Directors and our opinion is
rendered to the Special Committee of the Company's Board of Directors in
connection with its consideration of the Transaction. This opinion is not
intended to and does not constitute a recommendation to any holder of Common
Stock as to whether such stockholder should tender its shares in the Offer or
vote for the Merger. It is understood that this letter may not be disclosed or
otherwise referred to without our prior consent, except as may otherwise be
required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
Consideration is fair to the holders of shares of Common Stock (other than
Parent and its affiliates) from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ ROBERT E. HOUGIE
--------------------------------
Robert E. Hougie
Managing Director
3
<PAGE>
SCHEDULE III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of such stockholder's shares of stock under
the circumstance described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "shall" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to SectionSection1251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
III-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section228 or
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all of the
shares of such constituent corporation, and shall include in such notice a copy
of this section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the surviving
or resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder's shares.
Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or with 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such
III-2
<PAGE>
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
III-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
III-4
<PAGE>
SCHEDULE IV
AUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1998
IV-1
<PAGE>
AUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF SPELLING ENTERTAINMENT GROUP INC.
In our opinion, the consolidated balance sheets (page IV-3) and related
consolidated statements of operations (page IV-4), statements of changes in
shareholders' equity (page IV-5) and statements of cash flows (page IV-6)
present fairly, in all material respects, the financial position of Spelling
Entertainment Group Inc. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 19, 1999
IV-2
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................................................. $ 7,086 $ 860
Accounts receivable, net.................................................................. 127,473 104,150
Entertainment product, net................................................................ 252,600 246,955
Other current assets...................................................................... 4,256 4,372
---------- ----------
Total current assets.................................................................. 391,415 356,337
Accounts receivable, net.................................................................. 43,248 90,593
Entertainment product, net................................................................ 145,556 127,901
Property and equipment, net............................................................... 10,875 11,409
Intangible assets, net.................................................................... 181,835 187,320
Other noncurrent assets................................................................... 20 20
---------- ----------
$ 772,949 $ 773,580
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other liabilities.................................. $ 52,389 $ 34,691
Accrued participation expense............................................................. 78,252 59,490
Deferred revenue.......................................................................... 29,990 15,430
Income and other taxes.................................................................... 5,940 4,103
---------- ----------
Total current liabilities............................................................. 166,571 113,714
Accrued participation expense............................................................. 41,572 48,159
Long-term debt payable to Viacom.......................................................... 239,930 289,000
Deferred income and other taxes........................................................... 24,546 25,245
Net liabilities related to discontinued operations........................................ 29,123 26,444
---------- ----------
501,742 502,562
---------- ----------
Commitments and contingent liabilities
Shareholders' Equity
Preferred Stock........................................................................... -- --
Common Stock, $.001 par value
--300,000,000 shares authorized
--92,995,756 and 90,987,329 shares issued and outstanding............................... 93 91
Capital in excess of par value............................................................ 592,298 578,704
Accumulated deficit....................................................................... (320,663) (313,355)
Other equity adjustments.................................................................. (521) 5,578
---------- ----------
Total shareholders' equity............................................................ 271,207 271,018
---------- ----------
$ 772,949 $ 773,580
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
IV-3
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- -----------
Revenue..................................................................... $ 586,125 $ 564,239 $ 497,601
Gain on sale of TeleUNO..................................................... 7,030 -- --
Costs and expenses:
Entertainment product costs............................................... 495,225 504,526 413,845
Selling, general and administrative....................................... 58,268 58,657 59,966
Provision for closure of film and video divisions......................... 23,995 -- --
---------- ---------- -----------
577,488 563,183 473,811
---------- ---------- -----------
Operating income............................................................ 15,667 1,056 23,790
Interest income............................................................. 1,726 1,976 1,585
Interest expense, net....................................................... (19,188) (20,928) (14,431)
Other, net.................................................................. 25,737 4,593 384
---------- ---------- -----------
Income (loss) from continuing operations before income taxes................ 23,942 (13,303) 11,328
Benefit (provision) for income taxes........................................ (15,000) 981 (7,253)
---------- ---------- -----------
Income (loss) from continuing operations.................................... 8,942 (12,322) 4,075
Loss from discontinued operations of VIE, net............................... -- -- (103,820)
Estimated loss on disposal of VIE, net...................................... (16,250) (40,000) (151,380)
---------- ---------- -----------
Net loss.................................................................... $ (7,308) $ (52,322) $ (251,125)
---------- ---------- -----------
---------- ---------- -----------
Weighted average number of common shares:
Basic..................................................................... 92,385 90,777 90,369
Diluted................................................................... 93,158 90,777 91,298
Basic income (loss) per common share:
Continuing operations..................................................... $ 0.10 $ (0.14) $ 0.04
Discontinued operations................................................... (0.18) (0.44) (2.82)
---------- ---------- -----------
Basic loss per common share............................................... $ (0.08) $ (0.58) $ (2.78)
---------- ---------- -----------
---------- ---------- -----------
Diluted income (loss) per common share:
Continuing operations..................................................... $ 0.10 $ (0.14) $ 0.04
Discontinued operations................................................... (0.18) (0.44) (2.79)
---------- ---------- -----------
Diluted loss per common share............................................. $ (0.08) $ (0.58) $ (2.75)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
IV-4
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER TOTAL
--------------------------- EXCESS OF ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
NUMBER PAR VALUE PAR VALUE DEFICIT INCOME (LOSS) EQUITY
------------ ------------- ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995............... 89,683,378 $ 90 $ 571,244 $ (9,908) $ (2,906) $ 558,520
Exercise of options and warrants........ 941,943 1 4,878 -- -- 4,879
Pension liability adjustment, net....... -- -- -- -- 1,453 1,453
Income tax benefit related to stock
options............................... -- -- 138 -- -- 138
Unrealized holding gain, net............ -- -- -- -- 2,915 2,915
Cumulative translation adjustment....... -- -- -- -- 2,963 2,963
Net loss................................ -- -- -- (251,125) -- (251,125)
------------ --- ---------- ------------ -------------- -------------
Balance December 31, 1996............... 90,625,321 91 576,260 (261,033) 4,425 319,743
Exercise of options and warrants........ 362,008 -- 2,274 -- -- 2,274
Pension liability adjustment, net....... -- -- -- -- 2,555 2,555
Income tax benefit related to stock
options............................... -- -- 170 -- -- 170
Realized gain included in net loss...... -- -- -- -- (3,484) (3,484)
Unrealized holding gain, net............ -- -- -- -- 4,124 4,124
Cumulative translation adjustment....... -- -- -- -- (2,042) (2,042)
Net loss................................ -- -- -- (52,322) -- (52,322)
------------ --- ---------- ------------ -------------- -------------
Balance December 31, 1997............... 90,987,329 91 578,704 (313,355) 5,578 271,018
Exercise of options and warrants........ 2,008,427 2 13,268 -- -- 13,270
Income tax benefit related to stock
options............................... -- -- 326 -- -- 326
Realized gain included in net loss...... -- -- -- -- (25,875) (25,875)
Unrealized holding gain, net............ -- -- -- -- 20,244 20,244
Cumulative translation adjustment....... -- -- -- -- (468) (468)
Net loss................................ -- -- -- (7,308) -- (7,308)
------------ --- ---------- ------------ -------------- -------------
Balance December 31, 1998............... 92,995,756 $ 93 $ 592,298 $ (320,663) $ (521) $ 271,207
------------ --- ---------- ------------ -------------- -------------
------------ --- ---------- ------------ -------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
IV-5
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Cash Flows From Operating Activities:
Net loss................................................................. $ (7,308) $ (52,322) $ (251,125)
Adjustments to reconcile net loss to cash flows from continuing
operations:
Net loss from discontinued operations................................ 16,250 40,000 255,200
Depreciation and amortization........................................ 9,579 9,151 8,596
Provision for closure of film and video divisions.................... 23,995 -- --
Amortization of entertainment product costs.......................... 400,828 428,381 362,255
Additions to entertainment product costs............................. (456,960) (385,020) (416,841)
Gain from marketable securities...................................... (25,875) (5,648) --
Gain on sale of TeleUNO.............................................. (7,030) -- --
Decrease (increase) in accounts receivable........................... 24,243 1,700 (42,829)
Increase (decrease) in accounts payable, accrued expenses, other
liabilities and income taxes....................................... 18,493 (11,503) 12,919
Increase in accrued participation expense............................ 29,997 10,490 9,708
Increase (decrease) in deferred revenue.............................. 14,560 (5,959) 2,042
Other, net........................................................... 1,531 (2,487) 1,393
----------- ----------- -----------
Net cash provided (used) by continuing operations.................... 42,303 26,783 (58,682)
Net cash used by discontinued operations............................. (41,071) (9,698) (47,726)
----------- ----------- -----------
1,232 17,085 (106,408)
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment, net................................. (3,660) (1,766) (3,902)
Funding of discontinued operations of VIE................................ (40,619) (960) (44,773)
Proceeds from sale of investments........................................ 35,586 -- --
Proceeds from sale of TeleUNO............................................ 12,500 -- --
Changes in net liabilities related to discontinued operations of
Charter................................................................ (4,084) (2,086) (2,552)
----------- ----------- -----------
Net cash used by continuing operations................................... (277) (4,812) (51,227)
Net cash provided (used) by discontinued operations...................... 118,857 (2,114) (7,752)
----------- ----------- -----------
118,580 (6,926) (58,979)
----------- ----------- -----------
Cash Flows From Financing Activities:
Borrowings under credit facilities....................................... 164,927 54,000 120,000
Repayments of credit facilities.......................................... (213,997) (80,000) (15,000)
Issuances of Common Stock................................................ 13,270 1,564 1,590
----------- ----------- -----------
Net cash (used) provided by continuing operations........................ (35,800) (24,436) 106,590
Net cash (used) provided by discontinued operations...................... (87,039) 8,215 54,294
----------- ----------- -----------
(122,839) (16,221) 160,884
----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents.................................. (3,027) (6,062) (4,503)
Cash and Cash Equivalents at Beginning of Year............................. 10,113 16,175 20,678
----------- ----------- -----------
Cash and Cash Equivalents at End of Year................................... $ 7,086 $ 10,113 $ 16,175
----------- ----------- -----------
----------- ----------- -----------
Cash and Cash Equivalents at End of Year:
Continuing operations.................................................... $ 7,086 $ 860 $ 3,325
Discontinued operations.................................................. -- 9,253 12,850
----------- ----------- -----------
$ 7,086 $ 10,113 $ 16,175
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
IV-6
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
DESCRIPTION OF THE BUSINESS. Spelling Entertainment Group Inc. (the
"Company") is a producer and distributor of television series, mini-series,
movies-for-television and feature films (collectively referred to hereinafter as
"entertainment product"). The Company has an extensive library of entertainment
product, which it distributes worldwide. The Company also licenses and otherwise
exploits ancillary rights of this product, such as music and merchandising
rights. Unless the context indicates otherwise, "Spelling" or the "Company"
refers to Spelling Entertainment Group Inc. and its subsidiaries.
BASIS OF PRESENTATION. The consolidated financial statements present the
consolidated financial position and results of operations of Spelling. All
material intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to prior periods to conform to the current
year's presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could subsequently differ from those estimates.
Assets and liabilities of international operations are translated at
year-end rates of exchange while results of operations are translated at average
rates of exchange in effect for the applicable period. Translation gains or
losses are included in other equity adjustments as a separate component of
shareholders' equity. (See Note 5.)
Viacom Inc. ("Viacom") currently owns approximately 80% of the Company's
common stock ("Common Stock"). On March 19, 1999, Viacom submitted a proposal to
the Company's Board of Directors (the "Board") to acquire all outstanding shares
of the Company not already held by Viacom. The Board formed a Special Committee
of independent directors to review Viacom's proposal. The Special Committee has
retained legal advisors and will be retaining financial advisors shortly to
assist the Special Committee in its review of the proposal.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of interest-bearing
securities with original maturities of less than 90 days.
ACCOUNTS RECEIVABLE, NET. Current and noncurrent accounts receivable are net
of allowances for doubtful accounts and returns of $25,473,000 and $20,697,000
at December 31, 1998 and 1997, respectively.
ENTERTAINMENT PRODUCT, NET. Current and noncurrent entertainment product,
net, includes development, production or acquisition costs (including advance
payments to producers), capitalized overhead and interest, home video
manufacturing costs, and prints, advertising and other related distribution
costs expected to benefit future periods. These costs are amortized, and
third-party participations and residuals are accrued, generally on an individual
product basis in the ratio that current-year gross revenue bears to estimated
future gross revenue. Revenue estimates are not included in estimated future
gross revenue of television programming until such sales are probable.
Entertainment product, net, is stated at the lower of cost less amortization
or estimated net realizable value. Estimates of total gross revenue, costs and
participations are reviewed quarterly and revised as necessary. When estimates
of total revenue and costs indicate that an individual product will realize an
IV-7
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
ultimate loss, additional amortization is provided to fully recognize such loss
in that period or, for new television product, generally as the episodes are
delivered.
PROPERTY AND EQUIPMENT, NET. The carrying values of property and equipment
are based on cost, and provision for depreciation is made principally on the
straight-line method over estimated useful lives, ranging from 3 to 10 years.
Property and equipment are net of accumulated depreciation of $19,076,000 and
$14,882,000 at December 31, 1998 and 1997, respectively.
INTANGIBLE ASSETS, NET. Intangible assets represent the acquisition costs of
various entities in excess of the value of their identified net assets. These
costs are being amortized on a straight-line basis over 40 years from the
various dates these costs were incurred. Amortization expense relating to such
intangible assets was $5,486,000 for each of the three years ended December 31,
1998.
Intangible assets are net of accumulated amortization of $37,500,000 and
$32,015,000 at December 31, 1998 and 1997, respectively. It is the Company's
policy to evaluate the carrying value of such costs on a regular basis, using
the methodology prescribed in SFAS No. 121, and to recognize impairment if it
becomes probable that such costs would not be recoverable. (See Note 9 regarding
goodwill of VIE.)
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES. Included in the
caption "Accounts payable, accrued expenses and other liabilities" at December
31, 1998 and 1997 are accounts payable of $12,794,000 and $10,446,000; accrued
compensation of $14,390,000 and $10,755,000; interest and other payables to
Viacom of $4,377,000 and $1,391,000 (see Note 7); and other current liabilities
of $15,909,000 and $11,051,000, respectively. Additionally, accrued distribution
costs of $4,919,000 and $1,048,000 related to domestic theatrical distribution
are included at December 31, 1998 and 1997, respectively.
DEFERRED REVENUE. A substantial portion of the network license fees related
to television programming are received prior to the time the programming is
completed or delivered to the network. Such fees, and other monies received
prior to the time that the related entertainment product is available to the
licensee, are recorded on the balance sheet as deferred revenue. Such amounts
are normally repayable by the Company only if it fails to deliver the related
product to the licensee.
REVENUE RECOGNITION. Revenue from licensing agreements covering
entertainment product owned or distributed by the Company is recognized when the
entertainment product is available to the licensee for telecast, exhibition or
distribution, and other conditions of the licensing agreements have been met.
Long-term non-interest-bearing receivables arising from such agreements are
discounted to present value.
Revenue from direct distribution of home video product is recognized, net of
an allowance for estimated returns and discounts, together with related costs,
in the period in which the product is shipped to the Company's customers.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. In May
1997, the Company realized a non-cash gain with respect to a common stock
investment upon the merger of the investee with an unrelated acquiring company.
The Company received common shares of the acquiring company in exchange for the
common shares of the investee, and recorded the fair market value of the shares
received as the cost basis for such shares. During the fourth quarter of 1998,
the Company liquidated this common stock investment and recognized a gain of
$25,875,000.
IV-8
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company has accounted for both common stock investments (prior and
subsequent to the merger) as "available for sale" securities under the
applicable provisions of SFAS No. 115, adjusting the carrying value to fair
market value, with a corresponding adjustment, net of tax, to shareholders'
equity. (See Note 5.)
ACCOUNTING FOR ENVIRONMENTAL MATTERS. The allowances for estimated expenses
and disputed claims reported in Note 9 include accruals for environmental
liabilities, including anticipated remediation costs of properties held for
sale. Such accruals are determined independently of the estimated net realizable
value of any related asset, and are recorded without discount or offset for
either (i) time value of money prior to the anticipated date of payment, or (ii)
expected recoveries from insurance or contribution claims against unaffiliated
entities. The allowances are reviewed quarterly and revised as necessary.
NET INCOME (LOSS) PER COMMON SHARE. Basic income (loss) per common share
amounts are based on the weighted average common shares outstanding during the
respective period. Diluted income (loss) per common share amounts are based on
the weighted average common shares outstanding during the period and shares
assumed issued upon conversion of stock options and warrants only in periods
when the effect of such conversions would have been dilutive to income (loss)
from continuing operations. There was no assumed conversion of stock options and
warrants for the year ended December 31, 1997, as the effect would be
anti-dilutive.
The table below presents a reconciliation of weighted average shares used in
the calculation of basic and diluted income (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Basic shares--weighted average of common shares outstanding.......................... 92,385 90,777 90,369
Additional shares assuming conversion of stock options and warrants.................. 773 -- 929
--------- --------- ---------
Diluted shares....................................................................... 93,158 90,777 91,298
--------- --------- ---------
--------- --------- ---------
</TABLE>
STATEMENTS OF CASH FLOWS. Included in net cash provided by discontinued
operations from financing activities are fundings by the Company of $40,619,000,
$960,000, and $44,773,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
2. BUSINESS COMBINATIONS, ACQUISITIONS AND DISPOSITIONS
In February 1998, the Company announced its decision to exit the theatrical
feature film business and close Spelling Films. The Company recorded a charge of
$20,000,000, including the write-down to estimated net realizable value of
capitalized development projects to be sold or abandoned, reserves for
commitments to various talent, as well as severance costs related to Spelling
Films' employees. As of December 31, 1998, the remaining accrual balances for
this provision was $2,862,000 and is included in accounts payable, accrued
expenses and other liabilities in the accompanying balance sheet.
In April 1998, the Company sold TeleUNO, its Latin American entertainment
channel. The Company recognized a gain of $7,030,000 from this transaction in
the second quarter of 1998, which is reflected in the accompanying financial
statements.
IV-9
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS, ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In September 1998, the Company entered into a seven-year licensing agreement
with Artisan covering the domestic and Canadian home video and digital video
disc ("DVD") distribution rights to approximately 3,000 titles in the Company's
library. In connection with this transaction, the Company recorded a charge of
$3,995,000 in 1998, including severance costs related to employees of Republic
Entertainment Inc. ("Republic"), the reduction of carrying values of physical
inventory sold to Artisan and the write-down of certain titles to their
estimated net realizable value. As of December 31, 1998, the remaining accrual
balance of this reserve was $2,431,000 and is included in account payable,
accrued expenses and other liabilities in the accompanying balance sheet.
See Note 9 regarding the disposition of Virgin Interactive Entertainment
Limited ("VIEL," together with its subsidiaries, "VIE").
3. ENTERTAINMENT PRODUCT, NET
Entertainment product, net, is comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Entertainment product:
Television
Released...................................................... $ 231,366 $ 189,624
In process and other.......................................... 43,560 25,324
----------- -----------
274,926 214,948
----------- -----------
Theatrical
Released...................................................... 121,595 147,301
In process and other.......................................... 1,635 12,607
----------- -----------
123,230 159,908
----------- -----------
Total............................................................... 398,156 374,856
Less: non-current portion........................................... (145,556) (127,901)
----------- -----------
Current portion..................................................... $ 252,600 $ 246,955
----------- -----------
----------- -----------
</TABLE>
Included in entertainment product, net, are entertainment product rights
representing primarily advances to producers for distribution rights and other
entertainment product not produced by the Company.
Based on the Company's estimates of future gross revenue as of December 31,
1998, approximately 65% of unamortized released entertainment product will be
amortized during the three years ending December 31, 2001.
4. DEBT
On September 30, 1996, the Company and Viacom executed a credit agreement
(the "Viacom Credit Agreement"). The Viacom Credit Agreement provides for (i) a
term loan of $200,000,000 and (ii) a revolving credit facility of $155,000,000
to fund the Company's working capital and other requirements. All outstanding
borrowings under the Viacom Credit Agreement, as amended, were due to mature on
IV-10
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT (CONTINUED)
December 31, 1998. In March 1999, the Company and Viacom executed an amendment,
effective December 31, 1998, to extend the maturity date to December 31, 2000.
Under the Viacom Credit Agreement, the Company pays an annual fee (currently
0.2375%) based on the unused portion of the facility, as well as certain
facility and administration fees. Effective October 1, 1998, interest on all
outstanding borrowings is payable, at the Company's option, at LIBOR plus a
spread--based on the Company's leverage ratio, as defined--(currently 0.75%) or
at Citibank N.A.'s base rate. The average interest rate at December 31, 1998 and
1997, on borrowings under the Viacom Credit Agreement was 5.9% and 8.5%,
respectively.
Additional terms of the Viacom Credit Agreement require, among other items,
a minimum amount, as defined, of net worth. The minimum net worth covenant has
been amended as of December 31, 1996. Borrowings under the Viacom Credit
Agreement are secured by all of the assets of the Company and its domestic
subsidiaries and the entire amount outstanding under the Viacom Credit Agreement
may be accelerated if Viacom's borrowings under its separate credit facilities
were to be accelerated.
The Company made cash interest payments of $19,876,000 in 1998, $25,942,000
in 1997 and $19,418,000 in 1996.
At December 31, 1998, the carrying value of all of the Company's debt
approximated fair value.
See Note 9 regarding debt related to discontinued operations.
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. At December 31, 1998 and 1997, there were 20,000,000 shares
of Preferred Stock authorized but none outstanding.
COMMON STOCK. The par value of the Company's common stock is $0.001 per
share.
ISSUANCE OF COMMON STOCK. As a result of Viacom's merger with BEC, Viacom
acquired certain warrants to purchase 1,337,148 shares of Common Stock. These
warrants were exercised in February 1998 for a total exercise price of
approximately $9,316,000.
CAPITAL IN EXCESS OF PAR VALUE. An adjustment of $326,000, $170,000, and
$138,000 was recorded to Capital in Excess of Par Value in 1998, 1997 and 1996,
respectively, to reflect the tax benefit obtained by the Company with respect to
stock options exercised by its employees. (See Note 8.)
COMPREHENSIVE INCOME (LOSS). The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," effective January 1, 1998. After tax, total comprehensive
income (loss) was $(9,583,000), $(51,250,000) and $(240,486,000) for the years
ended December 31, 1998, 1997 and 1996, respectively. Total comprehensive income
(loss) is comprised of net income (loss) and other comprehensive income items,
including foreign currency translation adjustments and unrealized holding gains
on securities.
STOCK OPTIONS. The Company currently has stock option plans under which both
incentive and nonqualified stock options have been granted to certain key
employees, consultants and directors. Options have generally been granted with
an exercise price equal to the fair market value of the underlying Common Stock
on the date of grant, although nonqualified options may be granted with an
exercise price not less than 50% of such fair market value. Each option is
granted subject to various terms and conditions established on the date of
grant, including vesting periods and expiration dates. The options typically
IV-11
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
become exercisable at the rate of 20% or 25% annually, beginning one year after
the date of grant. Options expire no later than 10 years from their date of
grant. Stock option data follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ---------- ----------- ---------- -----------
Outstanding at January 1........................ 8,198,791 $ 7.66 7,978,318 $ 7.80 5,759,218 $ 7.72
Granted....................................... 1,287,500 $ 6.76 1,171,000 $ 6.90 3,750,010 $ 7.13
Exercised..................................... (671,279) $ 6.15 (362,008) $ 6.29 (841,943) $ 4.91
Terminated.................................... (1,187,839) $ 8.06 (588,519) $ 8.90 (688,967) $ 7.02
----------- ---------- ----------
Outstanding at December 31...................... 7,627,173 8,198,791 7,978,318
----------- ---------- ----------
----------- ---------- ----------
Exercisable at December 31...................... 3,914,923 $ 8.12 3,813,349 $ 7.85 3,079,436 $ 7.70
----------- ---------- ----------
----------- ---------- ----------
Available for grant at December 31.............. 2,867,963 3,030,838 5,094,251(a)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
- ------------------------
(a) Includes 1,360,866 shares available for grant under a plan which expired on
April 13, 1997.
The following table summarizes information concerning currently outstanding
and exercisable stock options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES IN YEARS PRICE OF SHARES PRICE
- ---------------------------------------- ---------- ------------------- ------------- ---------- -------------
$ 5.25-$ 5.75........................... 25,834 7.27 $ 5.69 8,959 $ 5.56
$ 6.00-$ 7.75........................... 5,942,717 7.48 6.83 2,309,842 6.61
$ 7.88-$ 9.88........................... 469,622 5.66 9.11 417,122 9.14
$10.00-$11.78........................... 1,189,000 5.86 10.75 1,179,000 10.75
---------- --- ------ ---------- ------
$ 5.25-$11.78........................... 7,627,173 7.12 $ 7.58 3,914,923 $ 8.12
---------- --- ------ ---------- ------
---------- --- ------ ---------- ------
</TABLE>
Options related to employees of VIE and reflected in the tables above
include 875,010 shares granted for the year ended December 31, 1996. Also
included are 120,276, 133,582, and 775,220 shares exercised, and 615,060,
184,269 and 149,921 shares terminated for the years ended December 31, 1998,
1997 and 1996, respectively.
In accordance with SFAS No. 123, the Company applies the intrinsic value
based method of accounting defined under Accounting Principles Board Opinion No.
25 and accordingly, does not recognize compensation expense for its plans. Had
compensation expense for the plans been determined based upon the fair value at
the grant date for awards consistent with the provisions of SFAS No. 123, the
Company's pretax income would decrease by $2,598,582 ($1,598,128 after tax or
$0.02 per share), $3,389,000 ($2,084,000 after tax or $0.02 per share) and
$2,007,000 ($1,240,000 after tax, or $0.01 per share) in 1998, 1997 and 1996,
respectively. These pro forma amounts may not be representative of future
IV-12
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.
The weighted average fair value of each option as of the grant date was
$2.91, $2.65 and $2.66 for 1998, 1997 and 1996, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield (a).................................................................. -- -- --
Expected stock price volatility..................................................... 34.30% 30.91% 28.45%
Risk-free interest rate............................................................. 4.91% 5.75% 6.60%
Expected life of options (years).................................................... 6.2 5.2 4.8
</TABLE>
- ------------------------
(a) During 1998, 1997 and 1996, the Company did not declare any cash dividends
on its Common Stock.
6. BENEFIT PLANS
The Company maintains a 401(k) Contribution Plan (the "Plan") for the
benefit of all U.S. non-union employees meeting certain eligibility
requirements. Expenses under the various employee retirement plans were
$966,000, $1,306,000 and $1,951,000 for the three years ended December 31, 1998,
1997 and 1996, respectively. The Company's matching contribution to the Plan and
its discretionary profit-sharing contributions to the Plan are made in cash and
are restricted to investment in the Company's Common Stock, which is purchased
by the Plan's trustee in the open market.
A significant number of the Company's production employees are covered by
union sponsored, collectively bargained, multi-employer pension plans. The
Company contributed approximately $16,028,000, $11,512,000 and $9,229,000 to
such plans for the three years ended December 31, 1998, 1997 and 1996,
respectively.
The Company does not provide any postemployment benefits other than to
former employees of Charter and to certain union employees employed by the
Company's television production operations.
7. RELATED PARTY TRANSACTIONS
See Notes 4 and 9 regarding the Company's credit facility with Viacom and
Viacom's guarantees of the Company's credit agreements with banks. The Company
was charged interest and fees by Viacom of $20,350,000, $25,633,000 and
$19,808,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Included in accounts payable, accrued expenses and other liabilities is accrued
interest payable to Viacom of $882,000 and $568,000 as of December 31, 1998 and
1997, respectively. VIE was allocated interest charges of $325,000, $2,676,000
and $1,633,000 in 1998, 1997 and 1996, respectively, related to its pro rata
share of borrowings under the Viacom Credit Agreement and the Viacom Credit
Facility. (See Note 9.)
The Company participates in certain Viacom health and welfare benefit plans
for its employees. In addition, the Company participates in Viacom insurance
programs with respect to general business and workers' compensation coverage. As
of December 31, 1998 and 1997, the Company had a net payable to Viacom of
$3,495,000 and $823,000, respectively, with respect to these and other expenses.
IV-13
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1998, 1997 and 1996, the Company sold home video product to several
operating subsidiaries of Viacom International Inc., a subsidiary of Viacom.
Additionally, the Company licensed certain entertainment product to the
following parties in which Viacom has or had an ownership interest (i) United
Paramount Network, Nickelodeon U.K. and Comedy Central, in which Viacom has
equity interests; (ii) Showtime Networks Inc. ("Showtime"), a subsidiary of
Viacom; (iii) MTV Networks, a division of a subsidiary of Viacom; (iv) certain
television stations owned by Viacom; and (v) USA Network and Sci-Fi Channel in
which Viacom had equity interests until October 1997. For the three years ended
December 31, 1998, these transactions were not material.
Republic has entered into agreements with, and in certain cases has advanced
funds to Viacom, a partnership in which a subsidiary of Viacom is the managing
partner, and Showtime to distribute certain of their productions in the home
video market.
The Company has entered into agreements with Paramount Pictures Corporation
("Paramount") with respect to the domestic distribution of two of the Company's
feature film releases, "Night Falls on Manhattan" and "Stephen King's Thinner,"
in the theatrical, non-theatrical and pay television markets. Additionally, the
Company has partnered with Paramount in the production or funding of two
additional feature films, "In & Out" and "Breakdown," to which the Company owns
the international distribution rights. In August 1997, Republic entered into an
agreement with Paramount and licensed its domestic home video rights to seven
1997 rental titles, including "Night Falls on Manhattan."
The Company has entered into an agreement with Comedy Partners, in which
Viacom has an equity interest, to perform certain licensing and merchandising
activities on their behalf in exchange for a fee.
In November 1997, the Company entered into an agreement with Famous Music
Corporation and Ensign Music Corporation, subsidiaries of Paramount, with
respect to administration of the Company's music rights.
The Company engaged Showtime to explore business development opportunities
for the Company's various cable/programming channels, through December 31, 1997,
at which time the Company terminated this arrangement.
In the ordinary course of business, the Company has and expects to continue
to do business with Viacom and its affiliates.
IV-14
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision (benefit) for income taxes for continuing operations and
discontinued operations for each of the three years ended December 31 include
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Continuing operations:
Current tax expense
Federal........................................................................ $ 817 $ 141 $ --
Foreign........................................................................ 3,178 8,818 5,047
State and local................................................................ 2,557 516 80
--------- --------- ---------
Total current................................................................ 6,552 9,475 5,127
--------- --------- ---------
Deferred tax expense
Federal........................................................................ 8,872 3,168 1,099
Foreign........................................................................ -- -- 234
State and local................................................................ (424) (117) 793
--------- --------- ---------
Total deferred............................................................... 8,448 3,051 2,126
--------- --------- ---------
Change in the beginning-of-the-year valuation allowance........................ -- (13,507) --
--------- --------- ---------
Total provision (benefit) for continuing operations.............................. $ 15,000 $ (981) $ 7,253
--------- --------- ---------
--------- --------- ---------
Discontinued operations:
Federal........................................................................ $ (8,750) $ -- $ 7,863
Foreign........................................................................ -- 1,106 3,678
State and local................................................................ -- -- 338
--------- --------- ---------
Total provision for discontinued operations...................................... $ (8,750) $ 1,106 $ 11,879
--------- --------- ---------
--------- --------- ---------
</TABLE>
The temporary differences and tax attribute carryforwards which gave rise to
deferred tax assets and liabilities at December 31, 1998 and 1997 were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Loss on disposal of VIE........................................... $ 105,526 $ 105,863
Tax attribute carryforwards....................................... 14,723 37,159
Discontinued operations allowances--Charter....................... 3,556 3,344
Other, net........................................................ 10,683 2,658
----------- -----------
134,488 149,024
Valuation allowance............................................... (108,325) (115,558)
----------- -----------
Total deferred tax assets........................................... $ 26,163 $ 33,466
----------- -----------
----------- -----------
Deferred Tax Liabilities:
Revenue recognition............................................... $ 21,964 $ 27,368
Entertainment product, net........................................ 11,152 16,095
Other, net........................................................ 7,401 5,056
----------- -----------
Total deferred tax liabilities...................................... $ 40,517 $ 48,519
----------- -----------
----------- -----------
</TABLE>
IV-15
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The decrease in the valuation allowance during 1998 is due to the Company's
determination that certain tax benefits related to discontinued operations are
currently realizable under a more likely than not standard, as well as a
reduction of previously recorded valuation allowances attributable to the
expiration of certain limited investment tax credit carryforwards.
The components of income (loss) from continuing operations before the
provision for income taxes in 1998, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Domestic.................................................. $ 16,088 $ (17,190) $ (8,540)
Foreign................................................... 7,854 3,887 19,868
---------- ---------- ----------
$ 23,942 $ (13,303) $ 11,328
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The primary reasons for the effective tax rates on the income (loss) from
continuing operations differing from the statutory U.S. federal income tax rates
for each of the three years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory income tax rate................................. 35% 35% 35%
Increase (decrease) in rate:
Amortization of intangible assets.................................... 8 (15) 17
Adjustment of valuation allowance and other reserves................. (2) 43 (3)
State and local taxes, net of available federal income tax
benefits........................................................... 9 (3) 8
Foreign taxes, net of available federal income tax benefits.......... 9 (44) --
Other non-deductible expenses........................................ 4 (9) 7
--- --- ---
Effective tax rates.................................................... 63% 7% 64%
--- --- ---
--- --- ---
</TABLE>
Viacom owns approximately 80% of the outstanding shares of the Company and,
therefore, the Company is required to be included in the consolidated federal
income tax return of Viacom. The Directors of the Company approved an agreement
between the Company and Viacom that provides for the administration of federal,
state and foreign tax matters (the "Tax Agreement"). Under the Tax Agreement,
the Company will remain in the same tax position as it would have if it were
continuing to file its tax returns separate and apart from Viacom; as a result,
the Company does not anticipate any material impact to its financial condition
or results of operations. Furthermore, the majority of the amounts reported as
current and deferred taxes represent amounts that are ultimately payable to, or
receivable from, Viacom pursuant to the Tax Agreement.
As of December 31, 1998, the Company has available net operating loss
carryforwards of approximately $20,273,000 as adjusted to reflect provisions and
elections in the Tax Agreement, AMT tax credit carryforwards of $4,394,000 and
investment tax credit carryforwards of $2,194,000. The use of these attributes,
which, except for the AMT credit, will expire beginning in 1999 through 2009, is
subject to certain limitations as a result of BEC's acquisition of a majority
interest in the Company during 1993. These tax attribute carryforwards represent
amounts determined on a separate company basis, the ultimate realization of
which is subject to the terms of the Tax Agreement with Viacom.
IV-16
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Total cash income tax payments were $4,796,000, $6,534,000 and $5,349,000
for 1998, 1997 and 1996, respectively. In addition, the Company received
$32,000, $724,000 and $1,431,000 of income tax refunds during 1998, 1997 and
1996, respectively, the receipt of which had previously been accrued. However,
the Company did recognize benefits of $366,000, $5,661,000 and $300,000 during
1998, 1997 and 1996, respectively, as a result of the favorable resolution of
certain tax controversies and other issues. Additionally, the Company is subject
to audit by taxing authorities for varying periods in various tax jurisdictions.
Management believes that any required adjustments to the Company's tax
liabilities resulting from such audits will not have a material adverse impact
on its financial condition or results of operations.
9. DISCONTINUED OPERATIONS
INTERACTIVE BUSINESS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE. The Company has disposed of substantially all of
its investment in VIE and expects to shut-down the remaining VIE operations in
1999. Accordingly, the operations of VIE are reflected as discontinued.
During the year ended December 31, 1996, the Company provided for an
estimated loss on disposal of VIE of approximately $139,501,000, which included
a provision for future operating losses of approximately $56,000,000 and an
impairment loss of approximately $74,000,000 with respect to the carrying value
of goodwill associated with that business. Additionally, in 1996 the Company
revised its estimate of the remaining useful life asociated with VIE goodwill to
seven years and recorded an adjustment to goodwill amortization of approximately
$3,000,000. For the year ended December 31, 1997, the net operating loss of VIE
(before the additional provision discussed below) was $55,808,000 and was
provided for in the estimated loss on disposal as of December 31, 1996. In the
fourth quarter of 1997, the Company recorded an additional provision of
$40,000,000, net of income taxes, for future operating losses and cash funding
requirements projected for the remaining holding period through completion of
the disposition. In 1998, the Company recorded an additional provision of
$16,250,000, net of a $8,750,000 currently realizable income tax benefit, to
provide for the costs of shut-down.
Included in costs and expenses in the 1996 results of operations is a
cumulative pretax adjustment of approximately $7,500,000 related to the change
in accounting principles from SFAS No. 53 to SFAS No. 86 with respect to
accounting for software development costs, as required by EITF 96-6. The income
tax provision in the 1997 and 1996 results of operations is due to the Company's
determination that the tax benefit arising from the estimated loss on disposal,
as well as from VIE's past losses, is not currently realizable under a more
likely than not standard.
IV-17
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISCONTINUED OPERATIONS (CONTINUED)
VIE's net assets (liabilities) as of December 31, 1998 and 1997, and results
of operations for the three years then ended are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Current assets...................................................... $ -- $ 115,043
Current liabilities................................................. -- (194,505)
----------- -----------
Net current assets (liabilities)................................ -- (79,462)
----------- -----------
Property and equipment, net......................................... -- 14,081
Intangibles, net.................................................... -- 91,707
Other non-current assets............................................ -- 5,066
Non-current liabilities............................................. (28,673) (53,301)
----------- -----------
Net non-current assets (liabilities)............................ (28,673) 57,553
----------- -----------
Net assets (liabilities)........................................ $ (28,673) $ (21,909)
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Revenue................................................ $ 102,949 $ 243,265 $ 254,046
Loss before provision for income taxes................. $ (25,000) $ (38,894) $ (243,730)
Net loss from discontinued operations.................. $ (16,250) $ (40,000) $ (255,200)
</TABLE>
On September 4, 1998, the Company completed the sale of the stock of
Westwood Studios, Inc., a subsidiary of VIE, and certain development assets of
VIE for $122,500,000 in cash. The proceeds of this transaction were used to pay
down bank debt and other costs associated with the transaction. On November 10,
1998, the Company completed the sale of all non-U.S. operations of VIE,
effectively completing the disposal of its interactive game business.
A wholly owned subsidiary of VIE had a multi-currency credit agreement with
a bank in the U.S. (the "Credit Agreement") which was due to expire on September
30, 1998. On September 8, 1998, total borrowings under the Credit Agreement in
the amount of $97,000,000 were repaid and the Credit Agreement was terminated.
Borrowings under the Credit Agreement as of December 31, 1997 were $97,472,000.
As of December 31, 1997, the Company had no letters of credit outstanding under
the Credit Agreement.
Another wholly owned subsidiary of VIE had a 10,000,000 pounds sterling
credit facility (the "UK Facility") with a bank in the United Kingdom which was
due to expire on December 31, 1998 and was guaranteed by Viacom and the Company.
Advances under the renegotiated UK Facility bore interest at the bank's prime
rate plus 1.0% or alternatively at selected Eurocurrency rates. On November 10,
1998, total borrowings under the UK Facility were repaid and the UK Facility was
terminated. Borrowings under the UK Facility as of December 31, 1997 were
$11,090,000. As of December 31, 1997, the Company had approximately $938,000, in
letters of credit outstanding under the UK Facility to guarantee its interactive
game purchases. The Company and Viacom provide a rent guarantee for this
subsidiary which expires in 2005.
IV-18
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISCONTINUED OPERATIONS (CONTINUED)
Pursuant to the separate credit facilities under which Viacom is a borrower,
certain subsidiaries of Viacom, including the Company, are restricted from
incurring indebtedness (other than indebtedness owing to Viacom) without the
prior consent of Viacom's lenders. Such consent has been given with respect to
the Credit Agreement.
VIE made cash interest payments of $4,947,000, $7,119,000 and $7,484,000 in
1998, 1997 and 1996, respectively, with respect to the credit arrangements
discussed above.
PETROLEUM BUSINESS
Net assets (liabilities) of discontinued petroleum operations which are held
for disposition consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Receivables, net......................................................... $ 574 $ 574
Property and equipment, net.............................................. 3,189 3,186
Pension asset............................................................ 2,793 2,691
Accounts payable and other............................................... (1,658) (1,655)
Allowances for estimated expenses and disputed claims.................... (5,349) (9,331)
--------- ---------
$ (451) $ (4,535)
--------- ---------
--------- ---------
</TABLE>
CONTINGENCIES. Contingent liabilities relating to discontinued operations
include matters such as contract disputes, remaining disputed claims under the
joint plan of reorganization of the Company and certain of its subsidiaries (the
"Joint Plan") and environmental cleanup assessments or damages. Some of the
parties seek damages from the Company in very large amounts, however, as
discussed below, management does not believe the ultimate resolution of these
matters should have a material adverse effect on its financial condition and its
results of operations.
(A) The Company and its insurers paid approximately $15,500,000 and
$33,000,000, respectively, over a 10-year period to resolve government
and private-party actions arising from the alleged improper disposal by a
subsidiary in 1971 of waste material, which later was determined to
contain dioxin, at a number of sites in Missouri. The Company has written
off its investment in the subsidiary. The Company filed an action against
its insurers to secure coverage for the dioxin claims. In 1995 there was
a final determination of that action, holding that the insurers had no
further coverage obligation. The only remaining claim against the Company
is by a co-defendant (Syntex Agribusiness Inc.), which also has spent
substantial amounts in respect of the dioxin claims and in 1986 filed a
$200,000 proof of claim in the Company's Chapter 11 proceedings (In re
The Charter Company, et. al., debtors, filed April 20, 1984 in the U.S.
Bankruptcy Court for the Middle District of Florida, Jacksonville
Division). The Company believes it has defenses to such claim, and that
future claims are unlikely.
(B) The Company has had contact with various governmental agencies regarding
possible contamination of soil and groundwater at six properties that are
or have been owned or leased by the Company's subsidiaries. Two private
actions have also been brought with respect to such possible
contamination at an additional location. Notification of possible cleanup
or damages responsibility has also been received regarding eight other
sites where waste materials allegedly were delivered. The foregoing
summary excludes certain matters which, due to the passage of time, the
IV-19
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISCONTINUED OPERATIONS (CONTINUED)
Company believes the claimant no longer intends to pursue their
allegations. The Company may be assessed for cleanup costs or damages
under relevant environmental laws, and future claims could be asserted
with respect to other properties. The Company's liability insurers have
been placed on notice of many of these claims and have taken the position
that there is no coverage under their policies. While the Company does
not agree that coverage is not available under its past policies, there
is no assurance that pending or future claims will be covered by such
insurance. Although comprehensive evaluations of liability and of the
extent of contamination have not been performed in all cases, the
following are updates of previous disclosures or represent claims
believed by the Company at this time to be potentially the most
significant.
A subsidiary is engaged in the cleanup of a petroleum terminal property
owned by the subsidiary in Tiverton, Rhode Island. Environmental cleanup
activity at the Tiverton, Rhode Island site was substantially completed in
September 1998, although final site grading and negotiation of final
administrative approvals will continue into 1999.
Ten parties unaffiliated with the Company, plus certain affiliates of those
parties, (together, the "Group") entered into agreements in 1996 with the United
States tolling the statute of limitations with respect to potential
reimbursement claims by the government in connection with its cleanup of the
Sikes Superfund Site in Crosby, Texas, at an alleged cost exceeding
$140,000,000. An effort to mediate such claims has failed, and the United States
and the State of Texas have filed a cost recovery lawsuit against the Group.
Although the EPA previously had advised a subsidiary of the Company, Charter
International Oil Company ("CIOC"), that it was a potentially responsible party,
any action by the government against CIOC appears now to be precluded by the
statute of limitations. The Group is filing third-party claims in such lawsuit,
seeking contribution from other parties they believe should be responsible for
an equitable share of any judgment or settlement amounts the Group ultimately
may pay. To the best of the Company's knowledge, the Group presently does not
intend to file such a claim against CIOC because of its defenses, including
those relating to CIOC's Chapter 11 proceedings.
While the results of such actions cannot be predicted with certainty, based
upon its current knowledge of the facts and circumstances and its understanding
of the applicable laws, the Company believes the ultimate resolution of these
matters should not have a material adverse effect on its financial condition and
its results of operations. This belief is also based upon (i) allowances that
have been established for estimated expenses related to environmental matters
and remaining Chapter 11 disputed claims (see table above), and (ii) an
insurance-type indemnity agreement with American Financial Corporation ("AFC").
Although there are significant uncertainties inherent in estimating
environmental-related liabilities, based upon the Company's experience it is
considered unlikely that the amount of possible environmental liabilities and
Joint Plan disputed claims would exceed the amount of the allowances by more
than $50,000,000, a substantial portion of which would be covered by the AFC
indemnity.
The AFC indemnity, which was agreed to in exchange for a one-time payment of
$5,000,000 expensed by the Company as part of discontinued operations in the
first quarter of 1993, provides for the reimbursement to the Company of
liabilities it may have to pay in resolving environmental and bankruptcy related
claims through March 31, 2005. The indemnity covers up to $35,000,000 of such
liabilities in excess of a threshold amount of $25,000,000, subject to certain
adjustments.
PENSION PLAN. The Company has a non-contributory, defined benefit pension
plan that covers employees of the discontinued petroleum operations, a
significant number of which have vested benefits.
IV-20
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISCONTINUED OPERATIONS (CONTINUED)
Contributions are made on an actuarial basis in amounts primarily based on
employees' years of service and average salary when employed.
The additional minimum pension liability was reduced by $1,453,000 (net of a
tax benefit adjustment of $909,000) in 1996 and by $2,555,000 (net of a tax
benefit adjustment of $1,658,000) in 1997 with corresponding credits to
shareholders' equity. (See Note 5.)
The following table sets forth the plan's funded status and amounts
recognized as of December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Total projected benefit obligation.................................... $ (47,552) $ (46,749)
Market value of assets................................................ 51,973 49,661
---------- ----------
Funded status......................................................... 4,421 2,912
Transition asset...................................................... (1,185) (1,580)
Unrecognized loss..................................................... 967 1,334
---------- ----------
Prepaid (accrued) pension cost........................................ $ 4,203 $ 2,666
---------- ----------
---------- ----------
</TABLE>
Net pension costs for the years ended December 31, which were charged
against net liabilities related to discontinued operations of Charter in the
balance sheet, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest Cost................................................. $ 3,167 $ 3,215 $ 3,273
Expected return on assets..................................... (5,993) (8,316) (5,857)
Net amortization and deferrals................................ 1,290 4,492 2,432
--------- --------- ---------
Pension expense............................................... $ (1,536) $ (609) $ (152)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 6.75%, 7% and 7.25% for
the years ended December 31, 1998, 1997 and 1996, respectively. The expected
long-term rate of return on assets was 9% for the year ended December 31, 1998
and 8% for each of the years ended December 31, 1997 and 1996. The plan assets
are invested primarily in fixed income securities.
10. COMMITMENTS AND CONTINGENCIES
The Company continues to be involved in a number of legal and other actions
including threatened claims and pending litigation. While the results of such
actions cannot be predicted with certainty, based upon its current knowledge of
the facts and circumstances and its understanding of the applicable laws, the
Company believes that the ultimate resolution of all disputed claims, pending
litigation and threatened claims will not have a material adverse effect on its
financial condition or its results of operations. See Note 9 for contingencies
relating to discontinued operations.
As of December 31, 1998, the Company had operating leases for offices and
equipment. The rental expense for continuing operations, net of amounts
capitalized, for the three years ended December 31,
IV-21
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1998 was $6,132,000, $5,962,000, and $5,527,000, respectively. The future
minimum annual rental commitments under non-cancelable operating leases,
excluding renewal options, for the subsequent five years and thereafter for
continuing operations are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................... $ 10,403
2000............................................... 5,756
2001............................................... 4,659
2002............................................... 4,726
2003............................................... 3,831
Thereafter......................................... 7,668
---------
Total........................................ $ 37,043
---------
---------
</TABLE>
The Company guarantees a lease for VIE for office space in London, England.
The future minimum annual rental commitments, excluding renewal options, for the
subsequent five years and thereafter for this lease is $1,035,000 for 1999,
$1,035,000 for 2000, $1,035,000 for 2001, $1,035,000 for 2002, $1,035,000 for
2003, and $16,562,000 thereafter.
11. INDUSTRY SEGMENT INFORMATION
The Company's continuing business activities consist of one industry
segment, entertainment. The Company's operations primarily consist of producing,
distributing and exploiting various entertainment product, including television
series and feature films, throughout the world. The Company had revenue from one
customer in 1998, 1997 and 1996 representing 19%, 21%, and 20% of revenue,
respectively. The Company does not believe it has any significant concentration
of credit risk with respect to its operations.
Revenue, operating profit and identifiable assets of the Company's
continuing international operations were not material related to consolidated
amounts as of and for the years ended December 31, 1998 and 1997.
The following table presents revenue by geographic region for the years
ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Domestic revenue......................................... $ 400,616 $ 340,665 $ 314,610
---------- ---------- ----------
Export revenue, Europe................................... 146,427 144,915 120,925
Export revenue, other.................................... 39,082 78,659 62,066
---------- ---------- ----------
Total export revenue..................................... 185,509 223,574 182,991
Total revenue............................................ $ 586,125 $ 564,239 $ 497,601
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
IV-22
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents quarterly results of operations for the years
ended December 31, 1998 and 1997 (in thousands, except per share data).
<TABLE>
<CAPTION>
1998
--------------------------------------------------
<S> <C> <C> <C> <C>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Revenue..................................................... $ 167,425 $ 108,785 $ 157,065 $ 152,850
Income (loss) from continuing operations, net............... 1,614 51 (4,459) 11,736
Discontinued operations, net................................ -- -- (25,000) 8,750
----------- ----------- ----------- -----------
Net income (loss)........................................... $ 1,614 $ 51 $ (29,459) $ 20,486
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic income (loss) per common share:
Continuing operations..................................... $ 0.02 $ 0.00 $ (0.05) $ 0.13
Discontinued operations................................... -- -- (0.27) 0.09
----------- ----------- ----------- -----------
Basic income (loss) per common share........................ $ 0.02 $ 0.00 $ (0.32) $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted income (loss) per common share:
Continuing operations..................................... $ 0.02 $ 0.00 $ (0.05) $ 0.13
Discontinued operations................................... -- -- (0.27) 0.09
----------- ----------- ----------- -----------
Diluted income (loss) per common share...................... $ 0.02 $ 0.00 $ (0.32) $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------
<S> <C> <C> <C> <C>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Revenue..................................................... $ 166,503 $ 148,425 $ 108,480 $ 140,831
Income (loss) from continuing operations, net............... 728 3,037 (18,087) 2,000
Discontinued operations, net................................ -- -- -- (40,000)
----------- ----------- ----------- -----------
Net income (loss)........................................... $ 728 $ 3,037 $ (18,087) $ (38,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic income (loss) per common share:
Continuing operations..................................... $ 0.01 $ 0.03 $ (0.20) $ 0.02
Discontinued operations................................... -- -- -- (0.44)
----------- ----------- ----------- -----------
Basic income (loss) per common share........................ $ 0.01 $ 0.03 $ (0.20) $ (0.42)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted income (loss) per common share:
Continuing operations..................................... $ 0.01 $ 0.03 $ (0.20) $ 0.02
Discontinued operations................................... -- -- -- (0.44)
----------- ----------- ----------- -----------
Diluted income (loss) per common share...................... $ 0.01 $ 0.03 $ (0.20) $ (0.42)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
13. SUBSEQUENT EVENTS
On March 19, 1999, Viacom submitted a proposal to the Company's Board of
Directors (the "Board") to acquire all outstanding shares of the Company not
already held by Viacom. The Board formed a Special Committee of independent
directors to review Viacom's proposal. The Special Committee has retained legal
advisors and will be retaining financial advisors shortly to assist the Special
Committee in its review of the proposal.
IV-23
<PAGE>
SPELLING ENTERTAINMENT GROUP INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE OTHER
AT ADDITIONS DEDUCTIONS ADJUSTMENTS BALANCE AT
BEGINNING CHARGED FROM DURING END OF
DESCRIPTION OF YEAR TO INCOME RESERVES YEAR YEAR
- --------------------------------------------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1998
- ----------------------------------------------------------------------------------------------------------------------
Deducted from accounts receivable for doubtful
accounts and returns............................. $ 20,697 $ 8,283 $ (4,179) $ 672 $ 25,473
Estimated expenses and disputed claims............. $ 9,331 -- $ (4,431) $ 449 $ 5,349
</TABLE>
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for doubtful
accounts and returns............................. $ 18,935 $ 9,568 $ (8,690) $ 884 $ 20,697
Estimated expenses and disputed claims............. $ 10,986 $ -- $ (1,655) $ -- $ 9,331
</TABLE>
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deducted from accounts receivable for doubtful
accounts and returns............................. $ 26,070 $ 4,331 $ (11,448) $ (18) $ 18,935
Estimated expenses and disputed claims............. $ 12,194 $ -- $ (1,208) $ -- $ 10,986
</TABLE>
IV-24
<PAGE>
SCHEDULE V
UNAUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1998 AND MARCH 31, 1999
V-1
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) FOR THE COMPANY
FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1998 AND MARCH 31, 1999
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................................. $ 4,199 $ 7,086
Accounts receivable, net............................................................... 127,596 127,473
Entertainment product, net............................................................. 228,588 252,600
Other current assets................................................................... 3,607 4,256
---------- ------------
TOTAL CURRENT ASSETS............................................................... 363,990 391,415
Accounts receivable, net............................................................... 56,531 43,248
Entertainment product, net............................................................. 145,533 145,556
Property and equipment, net............................................................ 12,626 10,875
Intangible assets, net................................................................. 180,463 181,835
Other non-current assets............................................................... 20 20
---------- ------------
$ 759,163 $ 772,949
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other liabilities............................... $ 40,532 $ 52,389
Accrued participation expense.......................................................... 80,934 78,252
Deferred revenue....................................................................... 18,888 29,990
Income and other taxes................................................................. 5,881 5,940
---------- ------------
TOTAL CURRENT LIABILITIES.......................................................... 146,235 166,571
Accrued participation expense.......................................................... 44,649 41,572
Long-term debt payable to Viacom....................................................... 231,000 239,930
Deferred income and other taxes........................................................ 32,649 24,546
Net liabilities related to discontinued operations..................................... 28,260 29,123
---------- ------------
482,793 501,742
---------- ------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred Stock........................................................................ -- --
Common Stock, $.001 par value,
--300,000,000 shares authorized
--93,165,554 and 92,995,756 shares issued and outstanding.......................... 93 93
Capital in excess of par value......................................................... 594,197 592,298
Accumulated deficit.................................................................... (317,439) (320,663)
Accumulated other comprehensive income................................................. (481) (521)
---------- ------------
TOTAL SHAREHOLDERS' EQUITY........................................................... 276,370 271,207
---------- ------------
$ 759,163 $ 772,949
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
V-2
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
Revenue................................................................................... $ 184,955 $ 167,425
Gain on sale of TeleUNO................................................................... 543 --
Costs and expenses:
Entertainment product costs............................................................. 155,763 123,970
Selling, general and administrative..................................................... 12,952 13,286
Provision for closure of film division.................................................. -- 20,000
---------- ----------
Operating income.......................................................................... 16,783 10,169
Interest income........................................................................... 232 443
Interest expense, net..................................................................... (4,512) (5,444)
Other, net................................................................................ (28) (49)
---------- ----------
Income from continuing operations before income taxes..................................... 12,475 5,119
Provision for income taxes................................................................ 9,251 3,505
---------- ----------
Net income................................................................................ $ 3,224 $ 1,614
---------- ----------
---------- ----------
Weighted average number of common shares:
Basic................................................................................... 93,028 91,740
Diluted................................................................................. 93,217 92,723
Net income per common share:
Basic................................................................................... $ 0.03 $ 0.02
Diluted................................................................................. $ 0.03 $ 0.02
</TABLE>
The accompanying notes are an integral part of these statements.
V-3
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 3,224 $ 1,614
Adjustments to reconcile net income to cash flows
from continuing operations:
Depreciation and amortization..................................................... 2,545 2,349
Provision for closure of film division............................................ -- 20,000
Amortization of entertainment product costs....................................... 130,891 103,683
Additions to entertainment product costs.......................................... (110,704) (102,783)
Gain on Sale of TeleUNO........................................................... (543) --
Increase in accounts receivable................................................... (13,406) (24,210)
(Decrease) increase in accounts payable, accrued expense,
other liabilities and income taxes.............................................. (492) 2,842
Increase in accrued participation expense......................................... 6,181 8,369
(Decrease) increase in deferred revenue........................................... (11,102) 6,793
Other, net........................................................................ 1,490 (538)
---------- ----------
Net cash provided by continuing operations........................................ 8,084 18,119
Net cash provided by discontinued operations...................................... -- 7,331
---------- ----------
8,084 25,450
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net............................................ (2,948) (323)
Repayments by discontinued operations of VIE........................................ -- 6,892
Changes in net liabilities related to discontinued operations....................... (863) (940)
---------- ----------
Net cash (used) provided by continuing operations................................... (3,811) 5,629
Net cash (used) provided by discontinued operations................................. -- (221)
---------- ----------
(3,811) 5,408
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities.................................................. 19,000 16,000
Repayments of credit facilities..................................................... (27,930) (43,000)
Issuances of Common Stock........................................................... 1,770 9,838
---------- ----------
Net cash used by continuing operations.............................................. (7,160) (17,162)
Net cash used by discontinued operations............................................ -- (8,316)
---------- ----------
(7,160) (25,478)
---------- ----------
Net (decrease) increase in cash and cash equivalents................................ (2,887) 5,380
Cash and cash equivalents at beginning of period.................................... 7,086 10,113
---------- ----------
Cash and cash equivalents at end of period.......................................... $ 4,199 $ 15,493
---------- ----------
---------- ----------
Cash and cash equivalents at end of period:
Continuing operations............................................................. $ 4,199 $ 7,446
Discontinued operations........................................................... -- 8,047
---------- ----------
$ 4,199 $ 15,493
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
V-4
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Spelling Entertainment Group Inc. and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading; however, these
unaudited condensed consolidated financial statements should be read in
conjunction with the more detailed financial statements and notes thereto
included in the Company's most recent Annual Report on Form 10-K.
The financial statements reflect, in the opinion of management, all normal
recurring adjustments necessary to present fairly the Company's financial
position and results of operations. In order to maintain consistency and
comparability between periods presented, certain amounts have been reclassified
from the previously reported financial statements in order to conform with the
financial statement presentation in the current period.
2. BUSINESS COMBINATIONS, ACQUISITIONS AND DISPOSITIONS
As of March 31, 1999, Viacom Inc. ("Viacom") owned approximately 80% of the
Company's common stock ("Common Stock"). On March 19, 1999, Viacom submitted a
proposal to the Company's Board of Directors (the "Board") to acquire all
outstanding shares of the Company not already held by Viacom. The Board formed a
Special Committee of independent directors to review Viacom's proposal. The
Special Committee has retained legal and financial advisors to assist in its
review of the proposal. See Note 11 regarding a definitive merger agreement and
the forthcoming commencement of a tender offer.
In February 1998, the Company announced its intention to exit the theatrical
feature film business and close Spelling Films Inc. ("Spelling Films"), and in
September 1998, the Company entered into a seven-year licensing agreement with
Artisan Home Entertainment, Inc. ("Artisan") covering the domestic and Canadian
home video and digital video disc ("DVD") distribution rights to approximately
3,000 titles in the Company's library resulting in the closure of its domestic
home video distribution business. Accordingly, in 1998 the Company recorded
charges of $20,000,000 and $3,995,000, respectively, to exit the theatrical
feature film business and the domestic home video distribution business. As of
March 31, 1999, the Company had a reserve relating to the shut-down of these
business units of $2,071,000 which is included in accounts payable, accrued
expenses and other liabilities in the accompanying balance sheet.
In April 1998, the Company sold TeleUNO, its Latin American entertainment
channel. The Company recognized a gain of $7,030,000 from this transaction in
the quarter ended June 30, 1998. In the first quarter of 1999, the Company
recognized an additional gain of $543,000 relating to a contractual contingent
payment received in connection with the sale of TeleUNO.
See Note 10 regarding the disposition of Virgin Interactive Entertainment
Limited ("VIEL," together with its subsidiaries, "VIE").
V-5
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
3. ENTERTAINMENT PRODUCT, NET
Current and noncurrent entertainment product, net, includes development,
production or acquisition costs (including advance payments to producers),
capitalized overhead and interest, home video manufacturing costs, and prints,
advertising and other related distribution costs expected to benefit future
periods. These costs are amortized, and third-party participations and residuals
are accrued, generally on an individual product basis in the ratio that current
year gross revenue bears to estimated future gross revenue. Revenue estimates
are not included in estimated future gross revenue of television programming
until such sales are probable.
Entertainment product, net, is stated at the lower of cost less amortization
or estimated net realizable value. Estimates of total gross revenue, costs and
participations are reviewed quarterly and revised as necessary. When estimates
of total revenue and costs indicate that an individual product will realize an
ultimate loss, additional amortization is provided to fully recognize such loss
in that period or, for new television product, generally as the episodes are
delivered.
Entertainment product, net, is comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Entertainment product:
Television
Released....................................................... $ 228,439 $ 231,366
In process and other........................................... 34,832 43,560
---------- ------------
263,271 274,926
---------- ------------
Theatrical
Released....................................................... 109,109 121,595
In process and other........................................... 1,741 1,635
---------- ------------
110,850 123,230
---------- ------------
Total.............................................................. 374,121 398,156
Less: non-current portion.......................................... (145,533) (145,556)
---------- ------------
Current portion.................................................... $ 228,588 $ 252,600
---------- ------------
---------- ------------
</TABLE>
4. DEBT
On September 30, 1996, the Company and Viacom executed a credit agreement
(the "Viacom Credit Agreement"), which provides for (i) a term loan of
$200,000,000 and (ii) a revolving credit facility of $155,000,000 to fund the
Company's working capital and other requirements. All outstanding borrowings
under the Viacom Credit Agreement mature on December 31, 2000.
Under the Viacom Credit Agreement, the Company pays an annual fee (currently
0.2375%) based on the unused portion of the facility, as well as certain
facility and administration fees. Effective October 1, 1998, interest on all
outstanding borrowings is payable, at the Company's option, at LIBOR plus a
spread based on the Company's leverage ratio, as defined (currently 2.5%), or at
Citibank N.A.'s base rate. The
V-6
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
4. DEBT (CONTINUED)
average interest rate at March 31, 1999 and December 31, 1998, on borrowings
under the Viacom Credit Agreement, was 7.5% and 5.9%, respectively. Additional
terms of the Viacom Credit Agreement require, among other items, a minimum
amount of net worth, as defined. Borrowings under the Viacom Credit Agreement
are secured by all of the assets of the Company and its domestic subsidiaries
and the entire amount outstanding under the Viacom Credit Agreement may be
accelerated if Viacom's borrowings under its separate credit facilities were to
be accelerated. At March 31, 1999, the carrying value of all of the Company's
debt approximated fair value.
5. SHAREHOLDERS' EQUITY
The following is a summary of the changes in the components of shareholders'
equity:
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF ACCUMULATED COMPREHENSIVE
STOCK PAR VALUE DEFICIT INCOME TOTAL
------------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998.................... $ 93 $ 592,298 $ (320,663) $ (521) $ 271,207
Exercise of options and warrants................ -- 1,770 -- -- 1,770
Income tax benefit related to stock options..... -- 129 -- -- 129
Net income for the period....................... -- -- 3,224 -- 3,224
Unrealized holding gain, net.................... -- -- -- 11 11
Cumulative translation adjustment............... -- -- -- 29 29
--- ---------- ------------ ----- ----------
Balance at March 31, 1999....................... $ 93 $ 594,197 $ (317,439) $ (481) $ 276,370
--- ---------- ------------ ----- ----------
--- ---------- ------------ ----- ----------
</TABLE>
In February 1998, Viacom exercised warrants to acquire 1,337,148 shares of
Common Stock for a total exercise price of approximately $9,316,000.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. Total comprehensive income for the quarters ended
March 31, 1999 and 1998 was $3,264,000 and $3,696,000, respectively. Total
comprehensive income is comprised of net income and other comprehensive income
items, including foreign currency translation adjustments and unrealized holding
gains on securities.
6. INCOME TAXES
Income taxes have been provided in each period based on the Company's
expected effective income tax rate.
As of March 31, 1999, Viacom owned approximately 80% of the outstanding
shares of the Company and, therefore, the Company is required to be included in
the consolidated federal income tax return of Viacom. The Company and Viacom are
party to an agreement that provides for the administration of federal, state and
foreign tax matters (the "Tax Agreement"). Under the Tax Agreement, the Company
remains in the same tax position as if it continued to file its tax returns
separate and apart from Viacom. As a result, the Company does not anticipate any
material impact to its consolidated financial condition or results of
operations. Furthermore, the majority of the amount reported as income taxes
represents
V-7
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
6. INCOME TAXES (CONTINUED)
amounts that are ultimately payable to or receivable from Viacom pursuant to the
Tax Agreement. (See Note 11.)
7. NET INCOME PER COMMON SHARE
Basic income per common share amounts are based on the weighted average
number of common shares outstanding during the respective periods. Diluted
income per common share amounts are based on the weighted average common shares
outstanding during the period and shares assumed issued upon conversion of stock
options and warrants only in periods when the effect of such conversions would
have been dilutive to income from continuing operations.
The table below presents a reconciliation of weighted average shares used in
the calculation of basic and diluted income per common share:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Basic shares--weighted average
of common shares outstanding............................................. 93,028 91,740
Additional shares assuming conversions
of stock options and warrants............................................ 189 983
--------- ---------
Diluted shares............................................................. 93,217 92,723
--------- ---------
--------- ---------
</TABLE>
8. LEGAL MATTERS
The Company is subject to various lawsuits, claims and other legal matters
in the course of conducting its entertainment business operations. The Company
believes such lawsuits, claims and other legal matters should not have a
material adverse effect on the Company's consolidated results of operations or
financial condition.
The Company also is involved in a number of legal actions including
threatened claims, pending lawsuits and contract disputes in connection with
certain bankruptcy and environmental matters relating to the Company's
discontinued operations of Charter, as well as other matters. Some of the
parties involved in such actions seek significant damages. While the outcome of
these suits and claims cannot be predicted with certainty, based upon (i) its
current knowledge of the facts and circumstances and its understanding of the
applicable law; (ii) allowances for estimated losses on disposal of the
discontinued operations; and (iii) an indemnity agreement, the Company believes
that the ultimate resolution of such suits and claims will not have a material
adverse effect on the Company's consolidated results of operations or financial
condition.
In March 1999, individual shareholders of the Company, including Crandon
Capital Partners, Jim Giannone, Emil Gold, The Great Neck Capital Appreciation
Investment Partnership, L.P., Richard D. Greenfield, Fred T. Isquith, Patty
Lisa, Harold A. Meyerson and Suzanne P. Goodman, Gaile Pisnoy, and Muriel
Winicki, in Delaware; and Howard Gunty Profit Sharing Plan and Deidra Graulich,
in California, filed lawsuits in the Court of Chancery for the State of Delaware
and in the Superior Court of the State of
V-8
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
8. LEGAL MATTERS (CONTINUED)
California against the Company and certain officers and directors of the Company
with respect to Viacom's proposal to acquire all outstanding shares of the
Company that it does not already own (the "Merger").
The lawsuits purport to be class actions on behalf of all persons who hold
securities of the Company (expect the defendants and their affiliates). The
lawsuits make allegations as to various violations of fiduciary duty by the
Company, its directors and Viacom including, among other things, that the per
share price to be offered to the Company's public stockholders pursuant to the
Merger is inadequate and that the Company failed to take adequate steps to
determine and disclose the fair value of the Company's publicly held shares.
Plaintiffs seek injunctive relief, recission, damages, costs (including
attorneys' and experts' fees) and other equitable relief. Settlement
negotiations are currently being held. Regardless of the outcome of these
negotiations, the Company believes such lawsuits will not have a material
adverse effect on the Company's results of operations or financial condition.
9. RELATED PARTY TRANSACTIONS
The Company was charged interest and fees by Viacom of $4,469,000 and
$5,873,000 during the three months ended March 31, 1999 and 1998, respectively,
in connection with the Viacom Credit Agreement. Included in accounts payable,
accrued expenses and other liabilities is accrued interest payable to Viacom of
$3,603,000 and $882,000 as of March 31, 1999 and December 31, 1998,
respectively. (See Note 4 regarding the Company's credit facilities with Viacom
and Note 10 regarding Viacom's guarantees of the Company's credit agreements
with banks.)
The Company participates in certain Viacom health and welfare benefit plans
for its employees. In addition, the Company participates in Viacom insurance
programs with respect to general business and workers' compensation coverage.
Included in accounts payable, accrued expenses and other liabilities is a net
payable to Viacom of $4,251,000 and $3,495,000 as of March 31, 1999 and December
31, 1998, respectively.
During the three months ended March 31, 1999 and 1998, the Company sold home
video product to several operating subsidiaries of Viacom International Inc., a
subsidiary of Viacom. Additionally, the Company licensed certain entertainment
product to the following parties in which Viacom has or had an ownership
interest (i) United Paramount Network, Nickelodeon U.K. and Comedy Central, in
which Viacom has equity interests and (ii) Showtime Networks Inc. ("Showtime"),
a subsidiary of Viacom; (iii) MTV Networks, a division of a subsidiary of
Viacom; and (iv) certain television stations owned by Viacom. For the three
months ended March 31, 1999 and 1998, the net impact of these transactions was
not material.
The Company has entered into agreements with Paramount Pictures Corporation
("Paramount"), a Viacom subsidiary, with respect to the distribution of two of
the Company's feature film releases, "Night Falls on Manhattan" and "Stephen
King's Thinner," in the theatrical, non-theatrical and pay television markets.
Additionally, the Company has entered into agreements with Paramount for the
production and funding of two additional feature films, "In & Out" and
"Breakdown," to which the Company owns the
V-9
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
international distribution rights. In August 1997, Republic entered into an
agreement with Paramount and licensed its domestic home video rights to seven
1997 rental titles, including "Night Falls on Manhattan."
The Company has entered into an agreement with Comedy Partners, in which
Viacom has an equity interest, to perform certain licensing and merchandising
activities on its behalf in exchange for a fee.
In November 1997, the Company entered into an agreement with Famous Music
Corporation and Ensign Music Corporation, subsidiaries of Paramount, with
respect to administration of the Company's music rights.
In the ordinary course of business, the Company has and expects to continue
to do business with Viacom and its affiliates.
10. DISCONTINUED OPERATIONS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE. On September 4, 1998, the Company completed the
sale of the stock of Westwood Studios, Inc., a subsidiary of VIE, and certain
development assets of VIE for $122,500,000 in cash. The proceeds of this
transaction were used to pay down bank debt and other costs associated with the
transaction. On November 10, 1998, the Company completed the sale of all
non-U.S. operations of VIE, effectively completing the disposal of its
interactive game business. The Company expects to shut-down the remaining VIE
operations in 1999. Accordingly, the operations of VIE are reflected as
discontinued.
During the year ended December 31, 1996, the Company provided for an
estimated loss on disposal of VIE of approximately $139,501,000, which included
a provision for future operating losses of approximately $56,000,000 and an
impairment loss of $74,000,000 with respect to the carrying value of goodwill
associated with that business. In the fourth quarter of 1997, the Company
recorded an additional provision of $40,000,000, net of income taxes, for future
operating losses and cash funding requirements projected for the remaining
holding period through completion of the disposition. In 1998, the Company
recorded an additional provision of $16,250,000, net of a $8,750,000 currently
realizable income tax benefit, to provide for the remaining costs of shut-down.
For the three months ended March 31, 1998, revenue of VIE was $33,319,000. The
net operating loss of VIE was $19,306,000 for the same period. The net operating
loss was provided for in the estimated loss on disposal as of December 31, 1997
and 1996 discussed above.
Included in net liabilities related to discontinued operations is a reserve
related to discontinued operations of VIE of $28,773,000 and $28,673,000 as of
March 31, 1999 and December 31, 1998, respectively.
A wholly owned subsidiary of VIE had a multi-currency credit agreement with
a bank in the U.S. (the "Credit agreement") which was due to expire on September
30, 1998. On September 8, 1998, total borrowings under the Credit Agreement in
the amount of $97,000,000 were repaid and the Credit agreement was terminated.
Another wholly owned subsidiary of VIE had a 10,000,000 pounds sterling
credit facility (the "UK Facility") with a bank in the United Kingdom which was
due to expire on December 31, 1998 and was guaranteed by Viacom and the Company.
On November 10, 1998, total borrowings under the UK Facility
V-10
<PAGE>
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(000'S OMITTED IN ALL TABLES)
10. DISCONTINUED OPERATIONS (CONTINUED)
were repaid and the UK Facility was terminated. The Company and Viacom provide a
rent guarantee for this subsidiary which expires in 2005.
Pursuant to the separate credit facilities under which Viacom is a borrower,
certain subsidiaries of Viacom, including the Company, are restricted from
incurring indebtedness (other than indebtedness owing to Viacom) without the
prior consent of Viacom's lenders. Such consent had been given with respect to
the Credit Agreement and the UK Facility.
11. SUBSEQUENT EVENT
On May 17, 1999 Viacom and the Company announced that they have entered into
a definitive merger agreement for the purchase by Viacom of the shares of
Spelling Common Stock that it does not already own, approximately 20%, for $9.75
per share in cash. The Company's Board of Directors approved the merger
agreement after approval by a Special Committee of independent directors, which
was advised by separate legal and financial advisors. The merger agreement
provides for the commencement of a tender offer by Viacom by May 21, 1999. Under
the terms of the merger agreement, each Spelling share that is not purchased in
the offer will be acquired by merger as soon as practical thereafter in a
second-step merger, also for $9.75 per share.
V-11
<PAGE>
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal and certificates evidencing Shares
and any other required documents should be sent or delivered by each stockholder
or his broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(201) 222-4720 or (201) 222-4721
Confirm by Telephone: (201) 222-4707
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER: BY MAIL: BY HAND:
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Tenders & Exchanges Tenders & Exchanges c/o Securities Transfer
Suite 4680 Suite 4660 and Reporting Services Inc.
14 Wall Street, 8(th) Floor P.O. Box 2569 Attn: Corporate Actions
New York, NY 10005 Jersey City, NJ 07303-2569 100 William Street, Galleria
New York, NY 10038
</TABLE>
------------------------
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
or
All Others Call Toll Free:
(800) 223-2064
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED MAY 21, 1999 OF
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE DEPOSITARY FOR THE OFFER IS:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(201) 222-4720 OR (201) 222-4721
Confirm by Telephone: (201) 222-4707
<TABLE>
<CAPTION>
BY OVERNIGHT COURIER: BY MAIL: BY HAND:
<S> <C> <C>
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporate Actions Department Corporate Actions Department c/o Securities Transfer
Suite 4680 Suite 4660 and Reporting Services Inc.
14 Wall Street, 8(th) Floor P.O. Box 2569 Corporate Actions Department
New York, NY 10005 Jersey City, NJ 07303-2569 100 William Street, Galleria
New York, NY 10038
</TABLE>
<PAGE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC" or the "Book-Entry
Transfer Facility"), pursuant to the book-entry transfer procedure described in
"THE TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares" of the Offer to Purchase (as defined below). DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
A stockholder who desires to tender shares and whose certificates evidencing
such Shares ("Share Certificates") are not immediately available, or who cannot
deliver his Share Certificates and all other documents required hereby to the
Depositary prior to the Expiration Date (as defined in "THE TENDER
OFFER--Section 1. Terms of the Offer; Expiration Date" of the Offer to Purchase)
or who cannot comply with the procedure for delivery by book-entry transfer on a
timely basis, may tender such shares by following the procedure for guaranteed
delivery set forth in "THE TENDER OFFER--Section 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase. See Instruction 2.
/ / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket No. (if any) _________________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If delivery is by book-entry transfer, give the following:
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK SHARES TENDERED
- ---------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) (ATTACH ADDITIONAL LIST, IF NECESSARY)
APPEAR(S) ON SHARE CERTIFICATE(S))
- ---------------------------------------------------------------------------------------------------------------------
SHARE TOTAL NUMBER OF NUMBER OF
CERTIFICATE SHARES SHARES
NUMBER(S)* EVIDENCED TENDERED**
BY SHARE
CERTIFICATE(S)*
---------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL SHARES
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to
the Depositary are being tendered hereby. See Instruction 4.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to VSEG Acquisition Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Viacom International
Inc., a Delaware corporation, the above-described shares of Common Stock, par
value $0.001 per share (the "Shares"), of Spelling Entertainment Group Inc., a
Delaware corporation (the "Company"), pursuant to Purchaser's offer to purchase
all Shares, at $9.75 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated May 21, 1999
(the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Offer"). The undersigned
understands that Purchaser reserves the right to transfer or assign, in whole or
from time to time in part, to one or more of its affiliates, the right to
purchase all or any portion of the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed in
respect of such Shares on or after May 17, 1999 (collectively, "Distributions")
and irrevocably appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
share certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by the Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares and all Distributions for transfer on the
books of the Company and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints George Smith and Michael
Fricklas and each of them, as the attorneys and proxies of the undersigned, each
with full power of substitution, to vote in such manner as each such attorney
and proxy or his substitute shall, in his sole discretion, deem proper and
otherwise act (by written consent or otherwise) with respect to all the Shares
tendered hereby which have been accepted for payment by Purchaser prior to the
time of such vote or other action and all Shares and other securities issued in
Distributions in respect of such Shares, which the undersigned is entitled to
vote at any meeting of stockholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) or consent in lieu of any
such meeting or otherwise. This proxy and power of attorney is coupled with an
interest in the Shares tendered hereby, is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Shares by Purchaser in accordance with other terms of the Offer. Such acceptance
for payment shall revoke all other proxies and powers of attorney granted by the
undersigned at any time with respect to such Shares (and all Shares and other
securities issued in Distributions in respect of such Shares), and no subsequent
proxy or power of attorney shall be given or written consent executed (and if
given or executed, shall not be effective) by the undersigned with respect
thereto. The undersigned understands that, in order for Shares to be deemed
validly tendered, immediately upon Purchaser's acceptance of such Shares for
payment, Purchaser must be able to exercise full voting and other rights with
respect to such Shares, including, without limitation, voting at any meeting of
the Company's stockholders then scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that when such Shares are accepted for payment by
Purchaser, Purchaser will acquire good, marketable and unencumbered title
thereto and to all Distributions, free and clear of all liens, restrictions,
charges and encumbrances, and that none of such Shares and Distributions will be
subject to any adverse claim. The undersigned, upon request, shall execute and
deliver all additional documents deemed by the assignment and transfer of the
Shares tendered hereby and all Distributions. In addition, the undersigned shall
remit and transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance and transfer
or appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares tendered hereby, or deduct from such purchaser
price, the amount or value of such Distribution as determined by Purchaser in
its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
<PAGE>
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer. Purchaser's acceptance of such Shares for payment
will constitute a binding agreement between the undersigned and Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. Unless otherwise indicated herein in the box entitled
"Special Payment Instructions," please credit any Shares tendered hereby and
delivered by book-entry transfer, but which are not purchased by crediting the
account at the Book-Entry Transfer Facility designated above. The undersigned
recognizes that Purchaser has no obligation, pursuant to the Special Payment
Instructions, to transfer any Shares from the name of the registered holder(s)
thereof if Purchaser does not purchase any of the Shares tendered hereby.
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
ALL STOCKHOLDERS MUST SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE)
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE(S) OF HOLDER(S)
Dated: _____________, 199
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share Certificates or on a security position listing by a person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a fiduciary or representative capacity, please provide the following
information and see Instruction 5).
Name(s): ___________________________________________________________________
PLEASE PRINT
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
Daytime Area Code and Telephone No.: _______________________________________
Taxpayer Identification or Social Security No.: ____________________________
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION
GUARANTEE IN SPACE BELOW
- --------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares and
Share Certificates evidencing Shares not tendered or not purchased are to be
issued in the name of someone other than the undersigned.
Issue Check and Share Certificate(s) to:
Name _______________________________________________________________________
(PLEASE PRINT)
__________________________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
------------------------------------------------------------------
------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased and Share Certificates evidencing Shares not tendered or not
purchased are to be mailed to someone other than the undersigned, or the
undersigned at an address other than that shown under "Description of Shares
Tendered."
Mail Check and Share Certificate(s) to:
Name _______________________________________________________________________
(PLEASE PRINT)
__________________________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
- -----------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of the Security Transfer Agent
Medallion Signature Program (an "Eligible Institution") unless (i) this Letter
of Transmittal is signed by the registered holder(s) of the Shares (which term,
for purposes of this document, shall include any participant in the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of Shares) tendered hereby and such holder(s) has (have) completed the box
entitled "Special Payment Instructions" on the reverse hereof or (ii) such
Shares are tendered for the account of an Eligible Institution. See Instruction
5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares" of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or a confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered by book-entry transfer as well as a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the reverse hereof prior to the
Expiration Date (as defined in "THE TENDER OFFER--Section 1. Terms of the Offer;
Expiration Date" of the Offer to Purchase). If Share Certificates are forwarded
to the Depositary in multiple deliveries, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery. Stockholders whose
Share Certificates are not immediately available, who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis may tender their Shares pursuant to the guaranteed
delivery procedure described in "THE TENDER OFFER-- Section 3. Procedures for
Accepting the Offer and Tendering Shares" of the Offer to Purchase. Pursuant to
such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, must be
received by the Depositary prior to the Expiration Date; and (iii) the Share
Certificates evidencing all physically delivered Shares in proper form for
transfer by delivery, or a confirmation of a book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility of all Shares delivered
by book-entry transfer, in each case together with a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or in the case of a book-entry transfer, an Agent's
Message (as defined in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering Shares" of the Offer to Purchase)) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange, Inc. ("NYSE") trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
described in "THE TENDER OFFER--Section 3. Procedure for Accepting the Offer and
Tendering Shares" of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), all tendering stockholders waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered." In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" on the reverse hereof, as soon as practicable after the expiration
or termination of the Offer. All Shares evidenced by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as
<PAGE>
written on the face of the Share Certificates evidencing such Shares without
alteration, enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" on the reverse hereof, the appropriate
boxes on the reverse of this Letter of Transmittal must be completed.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Information Agent at its address
or telephone numbers set forth below. Additional copies of the Offer to
Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be obtained from the Information Agent.
9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalty of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding, such stockholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
stockholder has since been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in
<PAGE>
Part I and the Depositary is not provided with a TIN within 60 days, the
Depositary will withhold 31% on all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES
(OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE) AND SHARE
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. In addition,
if a stockholder makes a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for making such statement, a $500
penalty may also be imposed by the Internal Revenue Service.
<PAGE>
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement (Internal Revenue Service
Form W-8), signed under penalties of perjury, attesting to such individual's
exempt status. Forms of such statements can be obtained from the Depositary. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions. A stockholder should consult
his or her tax advisor as to such stockholder's qualification for exemption from
backup withholding and the procedure for obtaining such exemption.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN), and (b) such
stockholder has not been notified by the Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified such stockholder
that such stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and dated the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
<PAGE>
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--Taxpayer Identification ------------------------
FORM W-9 Number-- For all accounts, Social Security Number
Payer's Request for Taxpayer enter your taxpayer OR ------------------------
Identification Number (TIN) identification number in the Employer Identification
box at right. (For most Number
individuals, this is your (If awaiting TIN write
social security number. If you "Applied For")
do not have a number, see
Obtaining a Number in the
enclosed Guidelines.) Certify
by signing and dating below.
Note: If the account is in more
than one name, see the chart in
the enclosed Guidelines to
determine which number to give
the payer.
- ---------------------------------------------------------------------------------------------------
PART II--For Payees Exempt from Backup Withholding, see the
enclosed GUIDELINES and complete as instructed therein.
-----------------------------------------------------------------
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result of failure to
report all interest or dividends, or the IRS has notified me that 1 am no longer subject to backup
withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or dividends on your
tax return. However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the enclosed GUIDELINES.)
- ---------------------------------------------------------------------------------------------------
SIGNATURE DATE ,
199
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal and certificates evidencing Shares
and any other required documents should be sent or delivered by each stockholder
or such stockholder's broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses or to the facsimile number set
forth below.
THE DEPOSITARY FOR THE OFFER IS:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(201) 222-4720 or (201) 222-4721
Confirm by Telephone: (201) 222-4707
<TABLE>
<CAPTION>
BY OVERNIGHT COURIER: BY MAIL: BY HAND:
<S> <C> <C>
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporate Actions Department Corporate Actions Department c/o Securities Transfer
Suite 4680 Suite 4660 and Reporting Services Inc.
14 Wall Street, 8(th) Floor P.O. Box 2569 Corporate Actions Department
New York, NY 10005 Jersey City, NJ 07303-2569 100 William Street, Galleria
New York, NY 10038
</TABLE>
------------------------
Questions or requests for assistance may be directed to the Information
Agent at its respective address and telephone numbers listed below. Additional
copies of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be obtained from the Information Agent. A stockholder
may also contact brokers, dealers, commercial banks or trust companies for
assistance concerning the Offer.
The Information Agent for the Offer is:
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
or
All Others Call Toll Free:
(800) 223-2064
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
(Not to be used for Signature Guarantees)
This Notice of Guaranteed Delivery, or one substantially in the form hereof,
must be used to accept the Offer (as defined below) (i) if certificates ("Share
Certificates") evidencing shares of Common Stock, par value $0.001 per share
(the "Shares"), of Spelling Entertainment Group Inc., a Delaware corporation
(the "Company"), are not immediately available, (ii) if Share Certificates and
all other required documents cannot be delivered to First Chicago Trust Company
of New York, as Depositary (the "Depositary"), prior to the Expiration Date (as
defined in "THE TENDER OFFER--Section 1. Terms of the Offer; Expiration Date" of
the Offer to Purchase (as defined below)) or (iii) if the procedure for delivery
by book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram,
telex or facsimile transmission to the Depositary. See "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(201) 222-4720 or (201) 222-4721
Confirm by Telephone: (201) 222-4707
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER: BY MAIL: BY HAND:
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporate Actions Department Corporate Actions Department c/o Securities Transfer
Suite 4680 Suite 4660 and Reporting Services Inc.
14 Wall Street, 8(th) Floor P.O. Box 2569 Corporate Actions Department
New York, NY 10005 Jersey City, NJ 07303-2569 100 William Street, Galleria
New York, NY 10038
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OR
TELEX OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to VSEG Acquisition Inc., a Delaware
corporation and a wholly owned subsidiary of Viacom International Inc., a
Delaware corporation, upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated May 21, 1999 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer"), receipt
of each of which is hereby acknowledged, the number of Shares specified below
pursuant to the guaranteed delivery procedure described in "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------
Number of Shares:
Certificate Nos. (If Available):
SIGNATURE(S) OF HOLDER(S)
Check one box if Shares will be delivered by Dated: , 199
book-entry transfer: Name(s) of Holders:
/ / The Depositary Trust Company
Account No.
PLEASE TYPE OR PRINT
ADDRESS
ZIP CODE
AREA CODE AND TELEPHONE NO.
- ------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member in good standing of the Security
Transfer Agent Medallion Signature Guarantee Program or is an "eligible
guarantor institution," as such term is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, guarantees to deliver to the
Depositary, Share Certificates evidencing the Shares tendered hereby, in proper
form for transfer, or confirmation of book-entry transfer of such Shares into
the Depositary's account at the The Depository Trust Company, with delivery of a
Letter of Transmittal (or facsimile thereof) properly completed and duly
executed, and any other required documents, all within three New York Stock
Exchange, Inc. trading days of the date hereof.
<TABLE>
<S> <C>
NAME OF FIRM TITLE
AUTHORIZED SIGNATURE ADDRESS ZIP CODE
NAME:
PLEASE TYPE OR PRINT AREA CODE AND TELEPHONE NO.
</TABLE>
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
Dated: ___________, 199_
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
AT
$9.75 NET PER SHARE
BY
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
May 21, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
VSEG Acquisition Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Viacom International Inc., a Delaware corporation
("Parent"), has offered to purchase all outstanding shares of Common Stock,
par value $0.001 per share (the "Shares"), of Spelling Entertainment Group
Inc., a Delaware corporation (the "Company"), at a price of $9.75 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in Purchaser's Offer to Purchase, dated May 21, 1999 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute
the "Offer") enclosed herewith. Please furnish copies of the enclosed
materials to those of your clients for whose accounts you hold Shares
registered in your name or in the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE NOT BEING ANY
STATUTE, RULE OR REGULATION OR ANY DECREE, ORDER OR INJUNCTION PROMULGATED,
ENACTED, ENTERED OR ENFORCED BY ANY UNITED STATES FEDERAL OR STATE GOVERNMENT,
OR OTHER GOVERNMENTAL ENTITY WHICH WOULD (I) MAKE THE ACQUISITION BY PURCHASER
OF A MATERIAL PORTION OF THE SHARES ILLEGAL OR (II) OTHERWISE PROHIBIT OR
RESTRICT CONSUMMATION OF THE OFFER OR THE MERGER.
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated May 21, 1999;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if
the Shares and all other required documents are not immediately available
or cannot be delivered to First Chicago Trust Company of New York (the
"Depositary") by the Expiration Date (as defined in the Offer to Purchase)
or if the procedure for book-entry transfer cannot be completed by the
Expiration Date;
4. A letter to stockholders of the Company from Sumner Redstone,
Chairman of the Board of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company;
<PAGE>
5. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the
Offer will be made only after the expiration of the Offer and after timely
receipt by the Depositary of (i) certificates evidencing such Shares (or
confirmation of a book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility (as defined in the Offer to
Purchase)), (ii) a Letter of Transmittal (or facsimile thereof) properly
completed and duly executed with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's message and (iii) any other required
documents.
A stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available or who cannot deliver
those certificates and all other required documents or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such
Shares by following the procedure for guaranteed delivery set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares" of the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Information Agent as described in the Offer) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
However, Purchaser will reimburse you for customary mailing and handling
expenses incurred by you in forwarding any of the enclosed materials to your
clients. Purchaser will pay or cause to be paid any stock transfer taxes
payable with respect to the transfer of Shares to it, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed
to Georgeson & Company Inc. (the "Information Agent") at its address and
telephone numbers set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent, at the address and telephone numbers set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
VSEG ACQUISITION INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE DEALER
MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY
OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
AT
$9.75 NET PER SHARE
BY
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated May 21, 1999
(the "Offer to Purchase"), and a related Letter of Transmittal in connection
with the offer by VSEG Acquisition Inc., a Delaware corporation ("Purchaser")
and a wholly owned subsidiary of Viacom International Inc., a Delaware
corporation ("Parent"), to purchase all outstanding shares of Common Stock, par
value $0.001 per share (the "Shares"), of Spelling Entertainment Group Inc., a
Delaware corporation (the "Company"), at a price of $9.75 per Share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"). We are (or our nominee is) the holder of record of
Shares held by us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY
US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $9.75 per Share, net to the seller in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company, by unanimous vote of all
directors present and voting, based upon, among other things, the unanimous
recommendation and approval of the Special Committee (as defined in the
Offer to Purchase), has determined that the Merger Agreement and the
transactions contemplated thereby, including each of the Offer and the
Merger (as defined in the Offer to Purchase), are fair to, and in the best
interests of, the Company, approved the Merger Agreement, the Offer and the
Merger, declared the Merger Agreement to be advisable and resolved to
recommend that stockholders accept the Offer and tender their Shares
pursuant to the Offer.
4. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER IS EXTENDED.
5. The Offer is conditioned upon, among other things, there not being
any statute, rule or regulation or any decree, order or injunction
promulgated, enacted, entered or enforced by any United States federal or
state government, or other governmental entity which would (i) make the
<PAGE>
acquisition by Purchaser of a material portion of the Shares illegal or (ii)
otherwise prohibit or restrict consummation of the Offer or the Merger.
6. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes with respect to the purchase of
Shares by Purchaser pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR
BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any jurisdiction where the making of the Offer is prohibited by any
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good
faith effort to comply with any such state statute. If, after such good faith
effort, Purchaser cannot comply with any such state statute, the Offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF SPELLING ENTERTAINMENT GROUP INC.
BY VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated May 21, 1999, and the related Letter of Transmittal (which
together constitute the "Offer") in connection with the offer by VSEG
Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Viacom
International Inc., a Delaware corporation, to purchase all outstanding shares
of Common Stock, par value $0.001 per share (the "Shares"), of Spelling
Entertainment Group Inc., a Delaware corporation.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
<TABLE>
<S> <C>
Dated: , 199 SIGN HERE
SIGNATURE(S)
Number of Shares PLEASE TYPE OR PRINT NAME(S)
To Be Tendered:
Shares*
PLEASE TYPE OR PRINT ADDRESS
AREA CODE AND TELEPHONE NUMBER
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY
NUMBER
</TABLE>
THIS FORM MUST BE RETURNED TO THE BROKERAGE FIRM
MAINTAINING YOUR ACCOUNT.
- ------------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered
3
<PAGE>
(a)(6)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF
COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
BY
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF VIACOM INC.
AT
$9.75 NET PER SHARE
Dear Participant in the Spelling Entertainment Group Inc. 401(k) Savings Plan:
Enclosed for your consideration are the Offer to Purchase dated May 21,
1999 (the "Offer to Purchase") (which together with the enclosed Letter of
Transmittal constitute the "Offer") and other materials relating to the Offer by
VSEG Acquisition Inc., a Delaware corporation ("Purchaser") and a wholly owned
subsidiary of Viacom International Inc., a Delaware corporation ("Parent"), to
purchase all issued and outstanding shares of Common Stock, par value $0.001 per
share (the "Shares"), of Spelling Entertainment Group Inc., a Delaware
corporation (the "Company"), at $9.75 per Share net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase and
in the related Letter of Transmittal. Also enclosed is the letter to
stockholders of the Company from the Chairman of the Board of the Company
accompanied by the Company's Solicitation/Recommendation Statement on Schedule
14D-9.
As a participant in the Spelling Entertainment Group Inc. 401(k)
Savings Plan (the "401(k) Plan"), you may direct the trustee of the 401(k) Plan
to "tender" (offer to sell) some or all of the Shares (excluding fractional
Shares) allocated to you in the Spelling Entertainment Group Inc. Common Stock
Fund under your individual account in the 401(k) Plan ("Company Stock Fund
Account") by following the instructions set out in this letter.
Please note that the Shares in your Company Stock Fund Account are held
in trust for your benefit and that CG Trust Company, the trustee of the Profit
Sharing Plan (the "Trustee"), is the holder of record of those Shares.
Accordingly, the Trustee is the party who actually tenders Shares from your
Company Stock Fund account. The Trustee will tender some or all of the Shares in
your Company Stock Fund Account according to your submitted election.
THE PROCEEDS FROM ANY SALE OF SHARES FROM YOUR COMPANY STOCK FUND ACCOUNT WILL
NOT BE DISTRIBUTED TO YOU. INSTEAD, ANY PROCEEDS WILL CONTINUE TO BE HELD IN THE
401(k) PLAN AND WILL BE INVESTED IN THE CIGNA GUARANTEED INCOME FUND UNTIL YOU
TRANSFER ANY OR ALL OF SUCH
1
<PAGE>
CIGNA GUARANTEED INCOME FUND UNTIL YOU TRNASFER ANY OR ALL OF SUCH FUNDS TO
ANOTHER INVESTMENT FUND WITHIN THE 401(k) PLAN. (SEE "INVESTMENT OF SALE
PROCEEDS" BELOW).
Your attention is directed to the following:
1. The tender price is $9.75 per Share, net to the seller in cash, upon
the terms and subject to the conditions of the Offer.
2. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on Friday, June 18, 1999, unless the Offer is extended (the
"Expiration Date"). However, your Tender Election Form must be received by the
Depositary no later than 5:00 P.M. New York City time on June 16, 1999.
3. The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of May 17, 1999 (the "Merger Agreement"), among Parent, Purchaser and
the Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement, in
accordance with the relevant provisions of Delaware law, Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and will be a direct wholly owned subsidiary of Parent. At the
effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares that are
not owned by public stockholders and other than Shares held by stockholders who
shall have demanded and perfected appraisal rights, if any, under Delaware law)
will be cancelled and converted into the right to receive $9.75 in cash, or, in
the event any higher price is paid in the Offer, such higher price (the "Merger
Consideration"), without interest. Any Shares not tendered in the Offer will be
cancelled and converted into the right to receive the Merger Consideration at
the Effective Time.
4. The Board of Directors of the Company, by unanimous vote of all
directors present and voting, based upon, among other things, the unanimous
recommendation and approval of a committee of the Board of Directors
comprised of independent directors, has determined that the Merger Agreement
and the transactions contemplated thereby, including each of the Offer and
the Merger, are fair to, and in the best interests of, the Company, approved
the Merger Agreement, the Offer and the Merger, declared the Merger Agreement
to be advisable and resolved to recommend that stockholders accept the Offer
and tender their Shares in the Offer.
5. The Offer is conditioned upon, among other things, there not being
any statute, rule or regulation or any decree, order or injunction promulgated,
enacted, entered or enforced by any United States federal or state government,
or other governmental entity which would (i) make the acquisition by Purchaser
of a material portion of the Shares illegal or (ii) otherwise prohibit or
restrict consummation of the Offer or the Merger.
2
<PAGE>
The Offer is being made to all holders of Shares. The Offer is not
being made to, nor will tenders be accepted from or on behalf of, holders of
Shares in any jurisdiction where the making of the Offer or the acceptance of
Shares thereto would not be in compliance with the law of such jurisdiction. In
any jurisdiction where the securities, blue sky or other laws require the Offer
to be made by a licensed broker or dealer, the Offer shall be deemed to be made
on behalf of Purchaser by one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
If you wish to tender any Shares held in your Company Stock Fund
Account, you must submit the Tender Election Form For Shares in the Spelling
Entertainment Group Inc. 401(k) Savings Plan (the "Tender Election Form")
included with this letter. ANY ELECTION TO TENDER SHARES HELD IN YOUR COMPANY
STOCK FUND ACCOUNT MADE ON A FORM OTHER THAN THE TENDER ELECTION FORM
SPECIFICALLY DESIGNATED FOR THE 401(k) PLAN WILL BE VOID. If you do not submit
the Tender Election Form, no Shares in your Company Stock Fund Account will be
tendered by the Trustee. Nevertheless, as a result of the Merger, any Shares not
tendered in the Offer will be cancelled and converted into the right to receive
the Merger Consideration at the Effective Time.
Notwithstanding the foregoing, the Trustee is obligated under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), always to
carry out its fiduciary responsibilities to the 401(k) Plan and its
participants. THE TRUSTEE, THEREFORE, MAY NOT RECOGNIZE A TENDER ELECTION (OR
FAILURE TO ELECT) IF THE TRUSTEE BELIEVES SUCH RECOGNITION WILL BE INCONSISTENT
WITH THE PROPER EXERCISE OF ITS FIDUCIARY DUTY, OR CONTRARY TO THE PROVISIONS OF
ERISA. If such a situation occurs, the Trustee will act as it deemed appropriate
in accordance with its duty and the requirements of ERISA.
THE PLAN TRUSTEE DOES NOT MAKE ANY RECOMMENDATION TO ANY PARTICIPANT AS
TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. Before making a decision,
you should read carefully the materials in the enclosed Offer to Purchase and
the Tender Election Form.
YOUR DECISION WHETHER TO TENDER
If you elect to tender some or all of the Shares in your Company Stock
Fund Account, the Trustee will tender Shares from your Company Match
Contributions.
POTENTIAL TAX CONSEQUENCES OF COMPLETION OF THE OFFER
Generally, cash distributions from the 401(k) Plan that are not rolled
over into an IRA or another qualified plan are taxable as ordinary income.
However, Shares that you receive in certain types of distributions from the
401(k) Plan may be eligible for favorable tax treatment if the Shares increased
in value while they were held by the 401(k) Plan. In these distributions the
3
<PAGE>
increase in the value of the Shares, called "net unrealized appreciation," will
not be taxable to you upon distribution, but rather will be taxed to you when
you sell the Shares. When you sell the Shares, any gain realized on the sale
will be long-term or short-term capital gain.
To the extent that you elect to tender your 401(k) Plan Shares into the
Offer, and the Offer is completed, you will lose any opportunity for future
distributions of Shares from the 401(k) Plan and the ability to defer the
taxation of any net unrealized appreciation in distributed Shares and to have
such net unrealized appreciation taxed as capital gains. The special tax
treatment referred to above will not apply to any distribution from the 401(k)
Plan paid solely in cash.
HOW TO TENDER SHARES; COMPLETION OF TENDER ELECTION FORM
If you wish to direct the Trustee to tender some or all of the Shares
in your Company Stock Fund Account, you must complete and return the enclosed
Tender Election Form in accordance with the instructions specified thereon.
PLEASE NOTE THAT, ALTHOUGH THE DEADLINE FOR THE TRUSTEE TO
TENDER YOUR SHARES IS JUNE 18, 1999, YOU MUST SEND YOUR TENDER
ELECTION FORM BY MAIL, COURIER OR HAND DELIVERY FOR RECEIPT NO
LATER THAN 5:00 P.M. NEW YORK CITY TIME, ON JUNE 16, 1999. Tender Election
Forms that are received after this deadline, Tender Election Forms which are not
properly completed, and tender elections submitted on the wrong form, will not
be accepted. Examples of improperly completed Tender Election Forms include
forms which are not signed and forms which contain incorrect or incomplete
information. You also may withdraw any tender you have made under the Offer
provided you do so prior to the June 16, 1999 deadline or, if Purchaser has not
yet accepted Shares for payment, after 12:00 Midnight, New York City time, on
July 19, 1999. (See "Withdrawing Your Instruction to Tender.")
Tender Election Forms should be sent to First Chicago Trust Company of
New York, the Depositary for the Offer, in the enclosed envelope at the address
set forth below:
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT DELIVERY: BY HAND:
First Chicago Trust Company First Chicago Trust Company First Chicago Trust Company
of New York of New York of New York
Corporation Actions Suite 4660 Corporate Actions, Suite 4680 c/o Securities Transfer and
P.O. Box 2569 14 Wall Street, 8th Floor Reporting Services Inc.
Jersey City, NJ 07303-2569 New York, NY 10005 Attn: Corporate Actions
100 William Street, Galleria
New York, NY 10038
</TABLE>
IN ORDER TO HAVE ANY SHARES TENDERED, YOU MUST COMPLETE AND SIGN YOUR
TENDER ELECTION FORM. IF YOU DO NOT SIGN THE FORM, YOUR
4
<PAGE>
DIRECTIONS WILL NOT BE ACCEPTED AND THE INSTRUCTION FORM, AS WELL AS YOUR
DIRECTIONS, WILL BE VOID.
INVESTMENT OF SALE PROCEEDS
It is expected that the proceeds will be received by the Trustee
promptly following the Expiration Date of the Offer. The proceeds from any sale
of Shares from your Company Stock Fund Account will not be distributed to you.
Instead, any proceeds will continue to be held in the 401(k) Plan and will be
invested in the CIGNA Guaranteed Income Fund (the "Guaranteed Fund"). Within a
few days of your proceeds being deposited in the Guaranteed Fund, you will be
able to transfer all or any portion of your balance in the Guaranteed Fund to
one or more of the other investment funds within the 401(k) Plan using CIGNA's
AnswerLine(R). The 401(k) Plan provides you toll-free telephone access to
CIGNA's AnswerLine(R) at 1-800-253-2287. By using a touch tone telephone, you
may obtain information or execute or initiate transactions with respect to your
401(k) Plan account. In order to access CIGNA's AnswerLine(R), you will be
required to enter your Personal Identification Number ("PIN").
WITHDRAWING YOUR INSTRUCTION TO TENDER
As more fully described in "THE TENDER OFFER--Section 4. Withdrawal
Rights" of the Offer to Purchase, tenders will be deemed irrevocable unless
withdrawn by the dates specified therein. If you instruct the Trustee to tender
Shares, and you subsequently decide to withdraw your instructions, you may do so
by sending a notice of withdrawal to the Depositary. THE NOTICE OF WITHDRAWAL
WILL BE EFFECTIVE ONLY IF IT IS IN WRITING AND IS RECEIVED BY THE DEPOSITARY AT
OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON JUNE 16, 1999 OR, IF PURCHASER HAS
NOT YET ACCEPTED SHARES FOR PAYMENT, AFTER 12:00 MIDNIGHT, NEW YORK CITY TIME ON
JULY 19, 1999. A notice of withdrawal may be delivered to the Depositary by
mail, courier, facsimile or hand delivery at the address shown above under "How
to Tender Shares; Completion of Tender Election Form."
Any notice of withdrawal to the Depositary must specify: (i) your name,
(ii) your social security number, (iii) a telephone number where you can be
reached during the hours of 9:00 A.M. to 5:00 P.M., New York City time, on
business days, (iv) the number of Shares you initially elected to tender, and
(v) the number of Shares to be withdrawn from the tender. The notice must also
be signed by you. Upon the Depositary's receipt of a timely written notice of
withdrawal containing the required information, previous instructions to tender
with respect to such Shares will be deemed cancelled. If any required
information is omitted from your notice or withdrawal, or if such notice is
incorrect or otherwise not proper, and the Depositary is unable to reach you to
correct any such defect, your notice of withdrawal will be void. After giving a
notice of withdrawal, if you later wish to retender Shares, you may call Sally
Suchil, Senior Vice President--General Counsel, Secretary and Administration,
Spelling Entertainment Group Inc., 5700 Wilshire Boulevard, Los Angeles, CA
90036, (323) 634-5112 to obtain a new Tender Election Form for the 401(k) Plan.
Any new Tender
5
<PAGE>
Election Form for the 401(k) Plan must be received by the Depositary at or
before 5:00 P.M., New York City time, on June 16, 1999.
TENDER ELECTION FORM FOR SHARES IN THE
SPELLING ENTERTAINMENT GROUP INC. 401(K) SAVINGS PLAN
Spelling Entertainment Group Inc.
Spelling Entertainment Group Inc. 401(k) Savings Plan
(NOTE: Before completing this Tender Election Form, you should
refer to the Letter dated May 21, 1999 from Spelling Entertainment Group Inc.
included with this Tender Election Form (the "Letter").
TO THE TRUSTEE OF THE 401(k) PLAN:
I am a participant in the Spelling Entertainment Group Inc. 401(k)
Savings Plan ("401(k) Plan") who has shares in the Company Stock Fund and, as
such, I have received a copy of the Offer to Purchase dated May 21, 1999 (the
"Offer to Purchase"), relating to the Offer by VSEG Acquisition Inc., a Delaware
corporation ("Purchaser"), a wholly owned subsidiary of Viacom International
Inc., a Delaware corporation, to purchase all issued and outstanding shares of
Common Stock of Spelling Entertainment Group Inc. (the "Shares") at a price of
$9.75 per Share, net to the seller in cash.
Please tender to Purchaser, on my behalf, the number of Shares
indicated on the reverse side of this Tender Election Form, which are allocated
to my 401(k) Plan account as of June 18, 1999 and held by you under the Company
Stock Fund of the 401(k) Plan, at a price of $9.75 per Share and upon the terms
and subject to the conditions contained in the Offer to Purchase, the receipt of
which is hereby acknowledged. I understand that set forth on the reverse side of
this Tender Election Form is the number of Shares allocated to me as of May 21,
1999 in the Company Stock Fund under my individual account in the 401(k) Plan,
according to the records of the 401(k) Plan record keeper. I understand that
this number of Shares may increase or decrease between May 21, 1999 and June 18,
1999 based on transactions in the 401(k) Plan, and that I will only be
permitted to tender Shares which are owned by me as of June 18, 1999.
I have read and understand the Offer to Purchase and the Letter, and I
agree to be bound by the terms of the Offer. I hereby direct the Trustee to
tender these Shares on my behalf from my Company Match Contributions. I
understand that any proceeds will continue to be held in the 401(k) Plan and
will be invested in the CIGNA Guaranteed Income Fund (the "Guaranteed Fund")
until I elect to transfer all or any portion of my balance in the Guaranteed
Fund to one or more of the other investment funds within the 401(k) Plan. I
understand and declare that if the
1
<PAGE>
tender of my Shares is accepted, the payment therefor will be full and adequate
compensation for these Shares in my judgement, notwithstanding any potential
fluctuation in the price of the Shares between the last day I can withdraw my
tender and the date the tendered Shares are taken up and paid for by Purchaser.
[insert label here]
TENDER INSTRUCTIONS TO THE PARTICIPANT:
Please complete and initial 1 OR 2 below:
1. I hereby confirm that I would like to tender all Shares
allocated to my Company Stock Fund Account as of June 18, 1999.
Initial _____________
OR
2. I hereby confirm that I would like to tender ____________
Shares. Initial ____ (# of shares)
Please be advised that in the event the number of shares you elect to
tender under option 2 above exceeds the actual number of shares allocated to
your Company Stock Fund Account as of June 18, 1999, only those shares allocated
to your Company Stock Fund Account as of June 18, 1999 will be tendered by the
Trustee.
- ------------------------------- ----------------------------------
Date Signature of Participant
- ------------------------------- ----------------------------------
Social Security Number Print Name
- ------------------------------- ----------------------------------
Daytime Telephone Number Print Street Address
----------------------------------
Print City, State and Zip
<PAGE>
NOTE: THIS TENDER ELECTION FORM MUST BE COMPLETED AND SIGNED IF SHARES
HELD IN THE 401(k) PLAN ARE TO BE TENDERED. IF THE FORM IS NOT SIGNED, THE
DIRECTIONS INDICATED WILL NOT BE ACCEPTED. PLEASE RETURN THIS TENDER ELECTION
FORM TO THE DEPOSITARY FOR THE OFFER USING THE PREADDRESSSED REPLY ENVELOPE
PROVIDED WITH YOUR TENDER MATERIALS. THE METHOD OF DELIVERY OF THIS DOCUMENT IS
AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY. YOUR
INSTRUCTION FORM (OR A MANUALLY SIGNED FACSIMILE THEREOF) MUST BE RECEIVED BY
THE DEPOSITARY PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON JUNE 16, 1999.
YOUR DECISION WHETHER OR NOT TO HAVE YOUR 401(k) PLAN SHARES TENDERED
WILL BE KEPT CONFIDENTIAL.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: I.E.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: I.E., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- -----------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF-
- -----------------------------------------------------
<S> <C> <C>
1. An individual's The individual
account
2. Two or more The actual owner of
individuals (joint the account or, if
account) combined funds, the
first individual on
the account(1)
3. Husband and wife The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of The minor(2)
a minor (Uniform
Gift to Minors Act)
5. Adult and minor The adult or, if the
(joint account) minor is the only
contributor, the
minor(1)
6. Account in the name The ward, minor, or
of guardian or incompetent
committee for a person(3)
designated ward,
minor or incompetent
person
7. a. The usual The grantor-
revocable savings trustee(1)
trust (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust under
state law
- -----------------------------------------------------
<CAPTION>
GIVE THE
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF-
<S> <C> <C>
- -----------------------------------------------------
8. Sole proprietorship The owner(4)
9. A valid trust, The legal entity (Do
estate, or pension not furnish the
trust identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account
title.)(5)
10. Corporate account The corporation
11. Religious, The organization
charitable, or
educational
organization account
12. Partnership account The partnership
13. Association, club, The organization
or other tax-exempt
organization
14. A broker or The broker or
registered nominee nominee
15. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- ------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. If the owner does not have an employer
identification number, furnish the owner's social security number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") and apply for a
number.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisors Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except a corporation
(other than certain hospitals described in Regulations section 1.6041-3(c)) that
provides medical and health care services or bills and collects payments for
such services is not exempt from backup withholding or information reporting.
Only payees described in items (1) through (5) are exempt from backup
withholding for barter exchange transactions and patronage dividends.
(1) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7), if the account satisfies the
requirements of section 401(f)(2).
(2) The United States or any of its agencies or instrumentalities.
(3) A state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities.
(4) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(5) An international organization or any of its agencies or instrumentalities.
(6) A corporation.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries, Inc.,
Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident alien partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE SUBSTITUTE FORM W-9 TO AVOID POSSIBLE
ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049,
6050A and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
aIso apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
Exhibit (a)(8)
VIACOM AND SPELLING ENTER INTO A
DEFINITIVE MERGER AGREEMENT
New York, NY, May 17, 1999 - Viacom Inc. (NYSE: VIA, VIA.B) and Spelling
Entertainment Group Inc. (NYSE, PE: SP) announced today that they have entered
into a definitive merger agreement for the purchase by Viacom of the shares of
Spelling common stock that it does not already own for $9.75 per share in cash.
Viacom currently owns approximately 80% of Spelling's common stock.
The terms of the merger agreement represented an improvement from Viacom's prior
offer of $9.00 per share in cash. The Spelling Board of Directors approved the
merger agreement after approval by a special committee of independent directors,
which was advised by separate legal and financial advisors. The special
committee has received the opinion of its financial advisors that the cash
consideration to be received in the transaction is fair to the Spelling
shareholders other than Viacom from a financial point of view.
The merger agreement provides for the commencement of a tender offer by Viacom
by Friday, May 21, 1999. Under the terms of the merger agreement, each Spelling
share that is not purchased in the offer will be acquired by merger as soon as
practical thereafter in a second step merger, also for $9.75 per share.
Viacom intends to operate Spelling and Big Ticket Television under the umbrella
of the Viacom Entertainment Group, consolidating certain sales and back office
functions with those of its Paramount Television Group.
-more-
<PAGE>
-2-
Spelling Entertainment Group Inc. is a leading producer and distributor of
television and film entertainment and comprises Spelling Television, Big Ticket
Television, Worldvision Enterprises and Hamilton Projects. The Company is one of
the largest producers of television programming and, through its combined
libraries, controls approximately 10,000 hours of programming for worldwide
distribution.
Viacom Inc. is one of the world's largest entertainment companies and is a
leading force in nearly every segment of the international media marketplace.
The operations of Viacom include Blockbuster, MTV Networks, Paramount Pictures,
Paramount Television, Paramount Parks, Showtime Networks, Simon & Schuster, 19
television stations, and movie screens in 12 countries. Viacom also owns
half-interests in Comedy Central, UPN and UCI. National Amusements, Inc., a
closely held corporation which operates approximately 1,300 screens in the U.S.,
the U.K. and South America, is the parent company of Viacom. More information
about Viacom is available at the Company's Web site located at
http://www.viacom.com.
###
Contacts:
- ---------
Viacom/Susan Duffy
(212) 258-6347
Spelling/Nancy Bushkin
(323) 965-5766
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase (as defined below) dated May 21, 1999 and the related
Letter of Transmittal, and is being made to all holders of Shares. Purchaser (as
defined below) is not aware of any jurisdiction where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will
make a good faith effort to comply with such state statute. If, after such good
faith effort, Purchaser cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SPELLING ENTERTAINMENT GROUP INC.
AT
$9.75 NET PER SHARE
BY
VSEG ACQUISITION INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INTERNATIONAL INC.
A WHOLLY OWNED SUBSIDIARY OF
VIACOM INC.
VSEG Acquisition Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Viacom International Inc., a Delaware corporation
("Parent"), is offering to purchase all issued and outstanding shares of Common
Stock, par value $0.001 per share (the "Shares"), of Spelling Entertainment
Group Inc., a Delaware corporation (the "Company"), at a price of $9.75 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated May 21, 1999 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together constitute
the "Offer"). Following the Offer, Purchaser intends to effect the Merger
described below.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, JUNE 18, 1999, UNLESS THE OFFER EXTENDED.
- --------------------------------------------------------------------------------
The Offer is conditioned upon, among other things, there not being any
statute, rule or regulation or any decree, order or injunction promulgated,
enacted, entered or enforced by any United States federal or state government,
or other governmental entity which would (i) make the acquisition by Purchaser
of a material portion of the Shares illegal or (ii) otherwise prohibit or
restrict consummation of the Offer or the Merger.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 17, 1999 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement, in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware, as amended (the "DGCL"), Purchaser will be merged with and
into the Company (the "Merger"). Following consummation of the Merger, the
Company will continue as the surviving corporation (the "Surviving Corporation")
and will be a direct wholly owned subsidiary of Parent. At the effective time of
the Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares that are not owned by public
stockholders and other than Shares held by stockholders who shall have demanded
and perfected appraisal rights, if any, under the DGCL) will be canceled and
converted automatically into the right to receive $9.75 in cash, or, in the
event any higher price is paid in the Offer, such higher price (the "Merger
Consideration"), without interest. Stockholders who fully comply with the
statutory dissenters procedures set forth in the DGCL will be entitled to
receive, in connection with the Merger, instead of the Merger Consideration,
cash for the fair value of their Shares (which may be more than, equal to, or
less than the Merger Consideration) as determined pursuant to the procedures
prescribed by the DGCL. No dissenters rights are available in connection with
the Offer. Parent currently owns more than 80% of the Shares and therefore
possesses sufficient voting power to cause the Company to consummate the Merger,
without the vote of any other stockholder of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING, BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS RECOMMENDATION
AND APPROVAL OF A COMMITTEE OF THE BOARD OF DIRECTORS COMPRISED OF INDEPENDENT
DIRECTORS, HAS DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY, APPROVED THE MERGER AGREEMENT, THE
OFFER AND THE MERGER, DECLARED THE MERGER AGREEMENT TO BE ADVISABLE AND RESOLVED
TO RECOMMEND THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT
TO THE OFFER.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if and when Purchaser gives oral or written notice to First Chicago
Trust Company of New York (the "Depositary") of Purchaser's acceptance for
payment of such Shares pursuant to the Offer. Upon the terms and subject to the
conditions of the Offer, payment for Shares accepted for payment pursuant to the
Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the purpose
of receiving payments from Purchaser and transmitting such payments to tendering
stockholders whose Shares have been accepted for payment. Under no circumstances
will interest on the purchase price for Shares be paid, regardless of any delay
in making such payment. In all cases, payment for Shares tendered and accepted
for payment pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) the certificates evidencing such Shares (the "Share
Certificates") or timely confirmation of a book-entry transfer of such Shares
into the Depositary's account at the Book-Entry Transfer Facility (as defined in
"THE TENDER OFFER--Section 2. Acceptance for Payment and Payment for Shares" of
the Offer to Purchase) pursuant to the procedure set forth in "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering Shares" of
the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
in the case of a book-entry transfer, an Agent's Message (as defined in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering
Shares" of the Offer to Purchase) and (iii) any other documents required under
the Letter of Transmittal.
Subject to applicable regulations of the Securities and Exchange
Commission, Purchaser expressly reserves the right, in its sole discretion (but
subject to the terms and conditions of the Merger Agreement), at any time and
from time to time, to extend the Offer (i) upon the occurrence of any of the
events described in "THE TENDER OFFER--Section 12. Certain Conditions of the
Offer" of the Offer to Purchase, (ii) to the extent necessary to respond to
comments on the Offer Documents (as defined in "SPECIAL FACTORS--The Merger
Agreement" of the Offer to Purchase) from the Securities and Exchange Commission
and (iii) on one additional occasion, for a period not to exceed ten business
days, by giving oral or written notice of such extension to the Depositary. Any
such extension will be followed as promptly as practicable by public
announcement thereof, such announcement to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date of the Offer. During any such extension, all Shares previously
tendered and not withdrawn will remain subject to the Offer, subject to the
rights of a tendering stockholder to withdraw his Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to 12:00 Midnight, New York City
time, on Friday, June 18, 1999 (or the latest time and date at which the Offer,
if extended by Purchaser, shall expire) and, unless theretofore accepted for
payment by Purchaser pursuant to the Offer, may also be withdrawn at any time
after July 19, 1999. For the withdrawal to be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be timely received by
the Depositary at one of its addresses set forth on the back cover page of the
Offer to Purchase. Any such notice of withdrawal must specify the name of the
person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered holder of such Shares, if different
from that of the person who tendered such Shares. If Share Certificates
evidencing Shares to be withdrawn have been delivered or otherwise identified to
the Depositary, then, prior to the physical release of such Share Certificates,
the serial numbers shown on such Share Certificates must be submitted to the
Depositary and the signature(s) on the notice of withdrawal must be guaranteed
by an Eligible Institution (as defined in "THE TENDER OFFER--Section 3.
Procedures for Accepting the Offer and Tendering Shares" of the Offer to
Purchase), unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering Shares" of the Offer to Purchase, any notice
of withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares. All questions as to
the form and validity (including the time of receipt) of any notice of
withdrawal will be determined by Purchaser, in its sole discretion, whose
determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance or for additional copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent as set forth below, and
copies will be furnished promptly at Purchaser's expense. No fees or commissions
will be paid to brokers, dealers or other persons (other than the Information
Agent) for soliciting tenders of Shares pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[GEORGESON LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
or
All Others Call Toll-Free: (800) 223-2064
May 21, 1999
<PAGE>
Exhibit (c)(1)
----------------------------------------------------------
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
Among
VIACOM INTERNATIONAL INC.,
VSEG ACQUISITION INC.
and
SPELLING ENTERTAINMENT GROUP INC.
Dated as of May 17, 1999
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE OFFER
SECTION 1.01. The Offer 2
SECTION 1.02. Company Action 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger 4
SECTION 2.02. Closing 4
SECTION 2.03. Effective Time 4
SECTION 2.04. Effect of the Merger 4
SECTION 2.05. Certificate of Incorporation; By-laws 4
SECTION 2.06. Directors and Officers 5
SECTION 2.07. Conversion of Securities 5
SECTION 2.08. Stock Options 5
SECTION 2.09. Dissenting Shares 6
SECTION 2.10. Surrender of Shares; Stock Transfer Books 6
SECTION 2.11. Withholding Rights 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification 8
SECTION 3.02. Certificate of Incorporation and By-laws 8
SECTION 3.03. Capitalization 9
SECTION 3.04. Authority Relative to This Agreement 9
SECTION 3.05. No Conflict; Required Filings and Consents 10
SECTION 3.06. SEC Filings; Financial Statements 10
SECTION 3.07. Absence of Litigation 11
SECTION 3.08. Compliance 11
SECTION 3.09. Intellectual Property Rights 11
SECTION 3.10. Offer Documents; Schedule 14D-9; Proxy Statement 12
SECTION 3.11. Brokers 12
SECTION 3.12. Opinion of Financial Advisor 12
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization 13
SECTION 4.02. Authority Relative to This Agreement 13
SECTION 4.03. No Conflict; Required Filings and Consents 13
SECTION 4.04. Financing 14
SECTION 4.05. Offer Documents; Proxy Statement 14
SECTION 4.06. Brokers 14
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. Affirmative Covenants of the Company 14
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting 15
SECTION 6.02. Proxy Statement 15
SECTION 6.03. Access to Information 15
SECTION 6.04. Directors' and Officers' Indemnification and Insurance 16
SECTION 6.05. Notification of Certain Matters 17
SECTION 6.06. Public Announcements 17
SECTION 6.07. Further Action 18
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger 18
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination 18
SECTION 8.02. Effect of Termination 20
SECTION 8.03. Amendment 20
SECTION 8.04. Waiver 20
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements 21
SECTION 9.02. Notices 21
SECTION 9.03. Certain Definitions 22
SECTION 9.04. Severability 22
SECTION 9.05. Entire Agreement; Assignment 22
SECTION 9.06. Parties in Interest 23
SECTION 9.07. Specific Performance 23
SECTION 9.08. Governing Law 23
SECTION 9.09. Headings 23
SECTION 9.10. Counterparts 23
SECTION 9.11. Fees and Expenses 23
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
ANNEX A - CONDITIONS TO THE OFFER
EXHIBIT A - CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION
<PAGE>
Glossary of Defined Terms
(Not Part of This Agreement)
----------------------------
Location
of
Defined Term Definition
- ------------ ----------
affiliate ss.9.03
Agreement Preamble
Blue Sky Laws ss.3.05(b)
business day ss.9.03
Certificate of Merger ss.2.03
Certificates ss.2.10(b)
Code ss.2.11
Company Preamble
Company Material Adverse Effect 3.01(a)
Delaware Law Recitals
Disclosure Schedule Art. III
Dissenting Shares ss.2.09(a)
Effective Time ss.2.03
Encumbrance ss.9.03
Exchange Act Recitals
Exchange Fund ss.2.10
Indemnified Parties ss.6.04(b)
Intellectual Property ss. 3.09
Lazard Freres Recitals
Merger Recitals
Merger Consideration ss.2.07(a)
1999 Balance Sheet ss.3.06(c)
Offer Recitals
Offer Documents ss. 1.01(b)
Offer to Purchase ss. 1.01(b)
Option ss. 2.08
Option Plans ss.2.08
Parent Preamble
Paying Agent ss.2.10(a)
Per Share Amount Recitals
person ss.9.03
Preferred Stock ss.3.03
Proxy Statement ss. 3.10
Purchaser Preamble
Purchaser Shares Recitals
Schedule 13E-3 ss.1.01(b)
Schedule 14D-1 ss.1.01(b)
Schedule 14D-9 ss.1.02(a)
SEC ss.1.01(a)
SEC Reports ss.3.06(a)
Securities Act ss.3.06(a)
Shares Recitals
Special Committee Recitals
Stockholders' Meeting ss.6.01
Subsidiary ss.9.03
Surviving Corporation ss.2.01
Tender Offer Acceptance Date ss.2.08(a)
Transactions ss.1.01(b)
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1999 (this
"AGREEMENT"), among VIACOM INTERNATIONAL INC., a Delaware corporation
("PARENT"), VSEG ACQUISITION INC., a Delaware corporation and a wholly owned
subsidiary of Parent ("PURCHASER"), and SPELLING ENTERTAINMENT GROUP INC., a
Delaware corporation (the "COMPANY").
WHEREAS, Parent beneficially owns an aggregate of 75,216,103 shares (the
"PURCHASER SHARES") of common stock, par value $.001 per share ("SHARES"), of
the Company, constituting approximately 80% of the total outstanding Shares, and
has proposed to the special committee of the Board of Directors of the Company
(the "SPECIAL COMMITTEE"), that Purchaser acquire the remaining Shares;
WHEREAS, immediately prior to the Effective Time (as defined below)
Parent will contribute the Purchaser Shares to Purchaser;
WHEREAS, the Board of Directors of the Company (the "BOARD") and the
Special Committee have determined that it is in the best interests of the
Company to approve Purchaser's proposed acquisition and have voted (i) to
recommend that the stockholders of the Company accept the Offer (as defined
below) and tender their Shares pursuant to the Offer and (ii)to approve and deem
advisable the merger (the "MERGER") of Purchaser with and into the Company, with
the Company being the surviving corporation, in accordance with the General
Corporation Law of the State of Delaware "DELAWARE LAW") following consummation
of the Offer;
WHEREAS, it is proposed that Purchaser will make a cash tender offer
(the "OFFER") in compliance with Section 14(d)(1) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations
promulgated thereunder, to acquire all the issued and outstanding Shares (other
than the Purchaser Shares) for $9.75 per Share (such amount, or any greater
amount per Share paid pursuant to the Offer, being hereinafter referred to as
the "PER SHARE AMOUNT"), net to the seller in cash, upon the terms and subject
to the conditions of this Agreement; and that the Offer will be followed by the
Merger, pursuant to which each issued and outstanding Share not owned by
Purchaser will be converted into the right to receive the Per Share Amount, upon
the terms and subject to the conditions provided herein; and
WHEREAS, the Special Committee has received the opinion of Lazard Freres
& Co. LLC ("LAZARD FRERES") that the consideration to be received by the holders
of Shares (other than Parent and its subsidiaries) pursuant to the Offer and the
Merger is fair to such holders from a financial point of view;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.01 and none of the events set forth
in Annex A hereto shall have occurred or be existing, Purchaser shall commence,
and Parent shall cause Purchaser to commence, within the meaning of Rule 14d-2
under
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<PAGE>
the Exchange Act, the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the initial public
announcement of Purchaser's intention to commence the Offer. The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer shall be subject only to the satisfaction of the conditions set forth in
Annex A hereto. Purchaser expressly reserves the right to waive any such
condition, to increase the Per Share Amount and to make any other changes in the
terms and conditions of the Offer; PROVIDED, HOWEVER, that, without the prior
written consent of the Special Committee, Purchaser will not (i) decrease the
Per Share Amount, (ii)reduce the maximum number of Shares to be purchased in the
Offer, (iii) change the form of the consideration payable in the Offer, (iv)add
to, modify or supplement the conditions to the Offer set forth in Annex A
hereto, (v) extend the expiration date of the Offer beyond the twentieth
business day following commencement thereof; PROVIDED, HOWEVER, Purchaser may
extend the expiration date of the Offer, (A) if the conditions to the Offer set
forth in Annex A have not been satisfied, (B) to the extent necessary to respond
to comments on the Offer Documents (as defined below) from the Securities and
Exchange Commission (the "SEC") and (C) on one additional occasion, for a period
not to exceed ten business days or (vi)make any other change in the terms or
conditions of the Offer which is materially adverse to the holders of Shares.
The Per Share Amount shall, subject to any applicable withholding of taxes, be
net to each seller in cash, upon the terms and subject to the conditions of the
Offer. Subject to the terms and conditions of the Offer, Purchaser shall, and
Parent shall cause Purchaser to, accept for payment and pay, as promptly as
practicable after expiration of the Offer, for all Shares validly tendered and
not withdrawn.
(b) On the date of commencement of the Offer, Parent and
Purchaser shall file with the SEC (i) a Tender Offer Statement on Schedule
14D-1, including all exhibits thereto (together with all amendments and
supplements thereto, the "SCHEDULE 14D-1"), with respect to the Offer and (ii) a
Rule 13e-3 Transaction Statement on Schedule 13E-3, including all exhibits
thereto (together with all amendments and supplements thereto, the "SCHEDULE
13E-3"), with respect to the Offer and the other transactions contemplated
hereby (the "TRANSACTIONS"). The Schedule 14D-1 and the Schedule 13E-3 shall
contain or shall incorporate by reference an offer to purchase (the "OFFER TO
PURCHASE") and the related letter of transmittal and any related summary
advertisement (the Schedule 14D-1, the Schedule 13E-3, the Offer to Purchase and
such other documents, together with all supplements and amendments thereto,
being referred to herein collectively as the "OFFER DOCUMENTS"). Parent,
Purchaser and the Company shall correct promptly any information provided by any
of them for use in the Offer Documents which shall become false or misleading,
and Parent and Purchaser shall take all steps necessary to cause the Schedule
14D-1 and the Schedule 13E-3, as so corrected, to be filed with the SEC and the
other Offer Documents, as so corrected, to be disseminated to holders of Shares,
in each case as and to the extent required by applicable Law (as defined below).
The Company, the Special Committee and their respective counsel shall be given
the reasonable opportunity to review and comment on the Offer Documents prior to
the filing thereof with the SEC. Parent and Purchaser shall provide the Company,
the Special Committee and their respective counsel with a copy of any written
comments or telephonic notification of any oral comments Parent or Purchaser may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt thereof. Parent and its counsel shall provide the Company, the
Special Committee and their respective counsel with a reasonable opportunity to
participate in all communications with the SEC and its staff, including any
meetings and
2
<PAGE>
telephone conferences, relating to the Offer Documents, the Transactions or this
Agreement. In the event that the Parent or the Purchaser receives any comments
from the SEC or its staff with respect to the Offer Documents, each shall use
its reasonable best efforts to respond promptly to such comments and take all
other actions necessary to resolve the issues raised therein.
(c) Parent shall provide or cause to be provided to Purchaser
on a timely basis the funds necessary to accept for payment, and pay for, any
Shares that Purchaser becomes obligated to accept for payment, and pay for,
pursuant to the Offer.
SECTION 1.02. COMPANY ACTION. (a) As soon as reasonably
practicable on the date of commencement of the Offer, the Company shall file
with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9,
including all exhibits thereto (together with all amendments and supplements
thereto, the "SCHEDULE 14D-9"), containing the recommendations of the Special
Committee and the Board described in Section 3.04(b), and shall disseminate the
Schedule 14D-9 to the extent required by Rule 14d-9 under the Exchange Act, and
any other applicable Law. The Company, Parent and Purchaser shall correct
promptly any information provided by any of them for use in the Schedule 14D-9
which shall become false or misleading, and the Company shall take all steps
necessary to cause the Schedule 14D-9, as so corrected, to be filed with the SEC
and disseminated to holders of Shares, in each case as and to the extent
required by applicable Law. Parent and its counsel shall be given the
opportunity to review and comment on the Schedule 14D-9 prior to the filing
thereof with the SEC. The Company shall provide Parent and its counsel with a
copy of any written comments or telephonic notification of any oral comments the
Company may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt thereof. The Company and its counsel shall provide
Parent and its counsel with a reasonable opportunity to participate in all
communications with the SEC and its staff, including any meetings and telephone
conferences, relating to the Schedule14D-9, the Transactions or this Agreement.
(b) In connection with the Transactions, the Company shall
furnish, or cause to be furnished, Purchaser promptly with mailing labels
containing the names and addresses of the record holders of Shares as of a
recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of shareholders, security position
listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Shares, and shall
furnish to Purchaser such information and assistance (including updated lists of
shareholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the Company's shareholders.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Parent and Purchaser and their agents shall hold in
confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger and,
if this Agreement shall be terminated, will deliver, and will use their
reasonable efforts to cause their agents to deliver, to the Company all copies
and any extracts or summaries from such information then in their possession or
control.
ARTICLE II
THE MERGER
3
<PAGE>
SECTION 2.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined) Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 2.02. CLOSING. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.01 and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the consummation of the Merger will take
place as promptly as practicable (and in any event within two business days)
after the satisfaction or waiver of the conditions set forth in Article VII at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York,
unless another date, time or place is agreed to in writing by the parties
hereto.
SECTION 2.03. EFFECTIVE TIME. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
ArticleVII, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary
of State of the State of Delaware, in such form as is required by, and executed
in accordance with the relevant provisions of, Delaware Law (the date and time
of such filing being the "EFFECTIVE TIME").
SECTION 2.04. EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.05. CERTIFICATE OF INCORPORATION; BY-LAWS. (a) At
the Effective Time, the Certificate of Incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be amended as set forth in
Exhibit A. The Certificate of Incorporation of the Company, as so amended at the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation.
(b) The By-laws of Purchaser, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
SECTION 2.06. DIRECTORS AND OFFICERS. The directors of
Purchaser immediately prior to the Effective Time (which shall include Aaron
Spelling) shall be the initial directors of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation. Aaron Spelling shall be the Chairman of the Surviving
Corporation and the other officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving
4
<PAGE>
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 2.07. CONVERSION OF SECURITIES. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be cancelled pursuant to Section2.07(b) and any
Dissenting Shares (as hereinafter defined)) shall be cancelled and shall be
converted automatically into the right to receive an amount equal to the Per
Share Amount in cash (the "MERGER CONSIDERATION") payable, without interest, to
the holder of such Share, upon surrender, in the manner provided in Section
2.10, of the certificate that formerly evidenced such Share;
(b) Each Share owned by Purchaser immediately prior to the Effective
Time shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Each share of common stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
SECTION 2.08. STOCK OPTIONS. (a) The Company shall take all actions
necessary (including obtaining any and all consents from employees with respect
to matters contemplated by this Section 2.08) such that immediately after the
Tender Offer Acceptance Date, each outstanding option to purchase Shares (in
each case, an "OPTION") granted under the Company's stock option plans,
including, The Charter Company Stock Option Plan, The Spelling Entertainment
Group Inc. 1987 Stock Option Plan and The Spelling Entertainment Group Inc. 1994
Stock Option Plan (the "OPTION PLANS"), whether or not then exercisable, shall
be cancelled by the Company. Immediately after the Tender Offer Acceptance Date,
each holder of a cancelled Option shall be entitled to receive from Purchaser in
consideration for the cancellation of such Option, an amount in cash equal to
the product of (i)the number of Shares previously subject to such Option and
(ii) the excess, if any, of the Per Share Amount over the exercise price per
Share previously subject to such Option. All applicable withholding taxes
attributable to the payments made hereunder or to distributions contemplated
hereby shall be deducted from the amounts payable hereunder and all such taxes
attributable to the exercise of Options on or after the Effective Time shall be
withheld from the Merger Consideration with respect to the Shares issuable on
such exercise or deemed exercise. The term "TENDER OFFER ACCEPTANCE DATE" means
the date on which Purchaser shall have accepted for payment all Shares validly
tendered and not withdrawn prior to the expiration date with respect to the
Offer.
(b) Except as provided herein or as otherwise agreed to by the parties
hereto and to the extent permitted under the Option Plans, (i) the Option Plans
shall terminate as of the Effective Time and (ii) the Company shall use all
reasonable efforts to ensure that following the Effective Time no holder of
Options shall have any right thereunder to acquire any equity securities of the
Company.
SECTION 2.09. DISSENTING SHARES. (a) Notwithstanding any provision of
this Agreement to the contrary, Shares that are outstanding immediately prior to
the Effective Time and which are
5
<PAGE>
held by stockholders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such Shares in accordance with Section 262 of Delaware Law
(collectively, the "DISSENTING SHARES") shall not be converted into or represent
the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the appraised value of such Shares held by them
in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon surrender,
in the manner provided in Section 2.10, of the certificate or certificates that
formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to Delaware Law and received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Delaware Law. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any demands for appraisal or offer to settle or settle any such demands.
SECTION 2.10. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a)
Prior to the Effective Time, Parent shall designate a bank or trust company
reasonably satisfactory to the Company to act as agent (the "PAYING AGENT") for
the holders of Shares in connection with the Merger to receive the funds to
which holders of Shares shall become entitled pursuant to Section2.07(a). When
and as needed, Parent shall make available to the Paying Agent sufficient funds
to make the payments pursuant to Section 2.07 hereof to holders (other than
Parent or any of its affiliates) of Shares that are issued and outstanding
immediately prior to the Effective Time (such amounts being hereinafter referred
to as the "EXCHANGE FUND"), and to make the appropriate cash payments, if any,
to holders of Dissenting Shares. The Paying Agent shall, pursuant to irrevocable
instructions, make the payments provided for in the preceding sentence out of
the Exchange Fund. The Exchange Fund shall not be used for any other purpose,
except as provided in this Agreement.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2.07(a) a form of letter of transmittal in customary form
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates evidencing such Shares (the "CERTIFICATES"), shall pass,
only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates pursuant to
such letter of transmittal. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration for each Share
formerly evidenced by such Certificate, and such Certificate shall then be
canceled. No interest shall accrue or be paid on the Merger Consideration
payable upon the surrender of any Certificate for the benefit of the holder of
such Certificate. If payment of the Merger Consideration is to be made to a
person other than the person in whose name the surrendered Certificate is
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registered on the stock transfer books of the Company, it shall be a condition
of payment that the Certificate so surrendered shall be endorsed properly or
otherwise be in proper form for transfer and that the person requesting such
payment shall have paid all transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such taxes either have been paid or are not
applicable.
(c) At any time following the sixth month after the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) only as general creditors thereof with respect to any Merger Consideration
that may be payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective Time,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of Shares on the records of the
Company. From and after the Effective Time, the holders of Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares except as otherwise provided herein or by applicable law.
SECTION 2.11. WITHHOLDING RIGHTS. The Surviving Corporation or
the Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts that the Surviving Corporation or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Surviving Corporation or the Paying Agent, such amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made by the Surviving
Corporation or the Paying Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that, except as set forth in the Company SEC Reports (as defined
herein) or the disclosure schedule dated the date hereof and attached hereto
(the "DISCLOSURE SCHEDULE"), it being understood that disclosure on the
Disclosure Schedule shall be deemed disclosure respecting all sections of the
Agreement:
SECTION 3.01. ORGANIZATION AND QUALIFICATION. Each of the
Company and its Subsidiaries is a corporation duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each of the Company and its Subsidiaries has all necessary licenses,
permits, authorizations, and governmental approvals to own, lease and operate
its properties and to carry on its business as it is currently being conducted,
except where the failure to have such licenses, permits, authorizations and
governmental approvals would not, individually or in the aggregate, have a
Company Material Adverse Effect (as hereinafter defined). Each of the Company
and its Subsidiaries is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where the failure to be so duly qualified and in good standing would not
have a Company Material Adverse Effect. The term "COMPANY MATERIAL ADVERSE
EFFECT," as used in this Agreement, means any change or effect that,
individually or when taken together with all other such changes or effects, is
or is reasonably likely to be materially adverse to the financial condition,
business, or results of operations of the Company and its Subsidiaries, taken as
a whole.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-laws, each as amended to date, of the
Company. Such Certificate of Incorporation and By-laws are in full force and
effect. None of the Company and its Subsidiaries is in violation of any
provision of its Certificate of Incorporation or By-laws.
SECTION 3.03. CAPITALIZATION. The authorized capital stock of
the Company consists of 300,000,000 Shares and 20,000,000 shares of preferred
stock, par value $.001 per share ("PREFERRED STOCK"). As of December 31, 1998,
(i) 92,995,735 Shares were issued and outstanding, all of which were validly
issued, fully paid and nonassessable, (ii) no Shares were held in the treasury
of the Company, (iii)7,627,173 Shares were authorized for future issuance (with
respect to which options to acquire 7,627,173 Shares were issued and
outstanding) pursuant to employee stock options or stock incentive rights
granted pursuant to the Company's Option Plans and (iv) no shares of Preferred
Stock are issued and outstanding. Except as set forth in Section3.03 of the
Disclosure Schedule or as otherwise contemplated by this Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
any Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, the Company or any
Subsidiary. All shares of capital stock of the Company and any Subsidiary
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. There are no
outstanding contractual obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Subsidiary or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any person.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. (a)The
Company has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by the Company and
the consummation by the
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Company of the Transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the affirmative vote of a majority of the then outstanding
Shares, if and to the extent required by applicable law, and the filing and
recordation of appropriate merger documents as required by Delaware Law). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(b) The Company hereby represents that (i)the Special
Committee has been duly authorized and constituted, (ii)the Special Committee,
at a meeting thereof duly called and held on May 14, 1999, determined that this
Agreement and the Transactions are fair to and in the best interests of the
stockholders of the Company (other than the Parent and its affiliates), and
(iii)the Board of Directors of the Company, at a meeting thereof duly called and
held on May 14, 1999, (A) determined that this Agreement and the Transactions
are fair to and in the best interests of the stockholders of the Company, (B)
determined that it is advisable for the Company to enter into, and, if and to
the extent required by applicable law, for the stockholders of the Company to
approve and adopt, this Agreement and the Transactions, (C) approved and adopted
this Agreement and the Transactions, including the Offer and the Merger and (D)
recommended that the stockholders of the Company tender their shares Pursuant to
the Offer and, if and to the extent required by applicable law, approve and
adopt this Agreement and the Merger.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a)
The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i)conflict with or
violate the Certificate of Incorporation or By-laws of the Company or any
Subsidiary, (ii)assuming that all consents, approvals, authorizations, and other
actions described in subsection (b) have been obtained or made, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any Subsidiary or by which any property or asset of the Company or
any Subsidiary is bound or affected or (iii) except as set forth on Section 3.05
of the Disclosure Schedule, result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of any
Encumbrance on any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, or trigger any right of first refusal under, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties is bound, except for any thereof that would not have a
Company Material Adverse Effect. The restrictions on business combinations
contained in Section 203(a) of Delaware Law will not apply to Parent, Purchaser
or their respective affiliates as a result of this Agreement or the
Transactions.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except for applicable requirements,
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if any, of the Exchange Act, state securities or "blue sky" laws ("BLUE SKY
LAWS"), and filing and recordation of appropriate merger documents as required
by Delaware Law.
SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the SEC since December 31, 1996, and has heretofore made available to
Parent, in the form filed with the SEC, (i) its Annual Reports on Form 10-K for
the fiscal years ended December31, 1996, 1997 and 1998, respectively, (ii)
allproxy statements relating to the Company's meetings of stockholders (whether
annual or special) held since December 31, 1996, and (iii)all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q) filed by the Company with the SEC since December 31, 1996 (the forms,
reports and other documents referred to in clauses (i), (ii) and (iii) above
being referred to herein, collectively, as the "SEC REPORTS"). The SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and the Exchange Act, as the case may
be, and the rules and regulations thereunder,(ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, and (iii) were filed in a timely manner. No Subsidiary of
the Company was or is required to file any form, report or other document with
the SEC.
(b) Each of the financial statements (including, in each case,
any notes thereto) contained in the SEC Reports (i)was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented in all material respects the consolidated
financial position, results of operations and cash flows of the Company and the
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except that any unaudited interim
financial statements were or will be subject to normal and recurring year-end
adjustments that did not and are not expected, individually or in the aggregate,
to have a Company Material Adverse Effect.
(c) The Company has no liabilities or obligations of any
nature, except:(i) as and to the extent set forth on the balance sheet of the
Company as at March 31, 1999, including the notes thereto (the "1999 BALANCE
SHEET"), (ii) as would not, individually or in the aggregate, have a Company
Material Adverse Effect and (iii) liabilities and obligations incurred in the
ordinary course of business consistent with past practice since March 31, 1999
and which would not have a Company Material Adverse Effect.
(d) Since March 31, 1999, there has not been any Company
Material Adverse Effect, except for changes that affect the economy in general
or the industry in which the Company operates.
SECTION 3.07. ABSENCE OF LITIGATION. Except as disclosed in
the SEC Reports filed on or before the date hereof, there are no suits,
arbitrations, mediations, complaints, claims, actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that
(a)individually or in the aggregate, would have a Company Material Adverse
Effect or (b)seek to delay or prevent the consummation of the Merger. Neither
the Company nor any Subsidiary nor any of their properties is subject to any
order, writ, judgment, injunction,
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decree, determination or award having a Company Material Adverse Effect.
SECTION 3.08. COMPLIANCE. Neither the Company nor any
Subsidiary is in conflict with, or in default or violation of, (a)any law, rule,
regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or affected or (b)any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
SECTION 3.09. INTELLECTUAL PROPERTY RIGHTS. The Company and
its Subsidiaries own or hold adequate licenses or other rights to use all
material trade names, trademarks, brand names, trade secrets, service marks,
copyrights, publicity rights, franchises and other proprietary intellectual
property (collectively, the "INTELLECTUAL PROPERTY"), including all contracts,
agreements and licenses relating thereto, necessary for them to conduct their
respective businesses in all material respects as they are being conducted. No
proceedings have been instituted against or notices received by the Company or
any Subsidiary that are currently unresolved alleging that the Company or any
Subsidiary has infringed or is now infringing on any Intellectual Property
belonging to any other person, firm or corporation, except as would not have a
Company Material Adverse Effect. None of the Company nor any Subsidiary has
received any notice, nor does the Company know of, any conflict or claimed
conflict with respect to the rights of others to the use any of their
Intellectual Property, except as would not have a Company Material Adverse
Effect.
SECTION 3.10. OFFER DOCUMENTS; SCHEDULE 14D-9; PROXY
STATEMENT. The information supplied by the Company for inclusion in the Schedule
14D-9 and the Offer Documents shall, at the respective times the Schedule 14D-9
or the Offer Documents are filed with the SEC or are first published, sent or
given to shareholders of the Company, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading. The
information supplied by the Company for inclusion in the proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders'
Meeting (as defined in Section5.01) or the information statement to be sent to
such stockholders, as appropriate (such proxy statement or information
statement, as amended or supplemented, being referred to herein as the "PROXY
STATEMENT"), shall not, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting and at the Effective Time, be false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders' Meeting which shall have
become false or misleading. The Schedule 14D-9, Proxy Statement and the Offer
Documents shall comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations thereunder except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on
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information supplied by Parent or Purchaser for inclusion or incorporation by
reference therein.
SECTION 3.11. BROKERS. No broker, finder or investment banker (other
than Lazard Freres) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and Lazard
Freres pursuant to which such firm would be entitled to any payment relating to
the Transactions.
SECTION 3.12. OPINION OF FINANCIAL ADVISOR. The Special Committee has
received the opinion of Lazard Freres dated May 14, 1999 that, as of the date of
such opinion, the Per Share Amount to be received by the stockholders of the
Company pursuant to this Agreement is fair to such stockholders of the Company
(other than Parent and its affiliates) from a financial point of view and such
opinion has not been withdrawn. A copy of such opinion has been delivered to the
Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.01. CORPORATE ORGANIZATION. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization.
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or By-laws of either Parent or
Purchaser, or (ii)assuming that all consents, approvals, authorizations, and
other actions described in subsection (b) have been made, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Parent or Purchaser or by which any property or asset of either of them is bound
or affected.
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(b) The execution and delivery of this Agreement by Parent and Purchaser
do not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky
Laws, and filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Parent or
Purchaser from performing their respective obligations under this Agreement.
SECTION 4.04. FINANCING. Each of Parent and Purchaser has available to
it sufficient funds to acquire all the outstanding Shares in the Merger and the
related fees and expenses.
SECTION 4.05. OFFER DOCUMENTS; PROXY STATEMENT. The information supplied
by Parent and Purchaser for inclusion in the Offer Documents will not, at the
time the Offer Documents are filed with the SEC or are first published, sent or
given to shareholders of the Company, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not misleading. The
information supplied by Parent and Purchaser for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting (as defined below) or at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders' Meeting which shall have
become false or misleading. The Offer Documents shall comply in all material
respects as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
SECTION 4.06. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Parent or
Purchaser
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Parent,
the Company will and will cause its Subsidiaries to (a)operate its business in
the usual and ordinary course consistent with past practices; (b)use its
reasonable best efforts to preserve substantially intact its business
organization, maintain its rights and franchises, retain the services of its
respective principal officers and key employees and maintain its relationships
with its respective principal customers, suppliers and other persons with which
it or any Subsidiary has significant business relations; and (c)use its
reasonable best efforts to
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maintain and keep its properties and assets in as good repair and condition as
at present, ordinary wear and tear excepted.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. STOCKHOLDERS' MEETING. If required by applicable law in
order to consummate the Merger, the Company, acting through the Board, shall in
accordance with Delaware law and its Certificate of Incorporation and By-laws,
take all necessary action to duly call, give notice of, convene and hold an
annual or special meeting of its stockholders as soon as practicable for the
purpose of considering and taking action on this Agreement and the transactions
contemplated hereby (the "STOCKHOLDERS' MEETING"). At the Stockholders' Meeting,
Parent and Purchaser shall cause all Shares then owned by them and their
subsidiaries to be voted in favor of the approval and adoption of this Agreement
and the transactions contemplated hereby. In the event a Stockholders' Meeting
is called, the Company shall use its reasonable best efforts to solicit from
stockholders of the Company proxies in favor of the approval and adoption of the
Merger Agreement and to secure the vote or consent of stockholders required by
Delaware Law to approve and adopt the Merger Agreement, unless otherwise
required by the applicable fiduciary duties of the directors of the Company or
of the Company's directors constituting the Special Committee, as determined by
such directors in good faith, and after consultation with independent legal
counsel (which may include the Company's regularly engaged legal counsel).
SECTION 6.02. PROXY STATEMENT. If required by applicable law, as soon as
practicable following consummation of the Offer, Parent, Purchaser and the
Company shall file the Proxy Statement with the SEC under the Exchange Act, and
shall use its best efforts to have the Proxy Statement cleared by the SEC.
Parent, Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the opportunity to review the
Proxy Statement prior to its being filed with the SEC and shall give Parent and
its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company, Parent and Purchaser agrees to use its reasonable efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement and all
required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
SECTION 6.03. ACCESS TO INFORMATION. From the date hereof to the
Effective Time, the Company shall, and shall cause the officers, directors,
employees, auditors and agents of the Company to, afford the officers, employees
and agents of Parent and Purchaser complete access at all reasonable times to
the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company, and shall furnish Parent and
Purchaser with all financial, operating and other data and information as Parent
or
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Purchaser, through its officers, employees or agents, may reasonably request.
SECTION 6.04. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND
INSURANCE. (a)The By-laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification than are set forth in
ArticleXII of the By-laws of the Company, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect adversely the rights thereunder of individuals
who at the Effective Time were directors or officers, employees, fiduciaries or
agents of the Company in respect of actions or omissions occurring at or prior
to the Effective Time, unless such modification shall be required by law.
(b) From and after the Effective Time, Parent and the
Surviving Corporation shall, to the fullest extent permitted under Delaware Law,
indemnify and hold harmless, each present and former director and officer of the
Company (collectively, the "INDEMNIFIED PARTIES") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), based on the fact that such person is or was a director or officer of the
Company and arising out of or pertaining to any action or omission occurring at
or before the Effective Time (and shall promptly pay any expenses in advance of
the final disposition of such action or proceeding to each Indemnified Party to
the fullest extent permitted under Delaware Law, upon receipt from the
Indemnified Party to whom expenses are advanced of any undertaking to repay such
advances required under Delaware Law). In the event of any such actual or
threatened claim, action, suit, proceeding or investigation, (i) the Surviving
Corporation shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Surviving Corporation, promptly after statements therefor are received and shall
pay all other reasonable expenses in advance of the final disposition of such
action, (ii) the Surviving Corporation shall cooperate and use all reasonable
efforts to assist in the vigorous defense of any such matter and (iii) to the
extent any determination is required to be made with respect to whether any
Indemnified Party's conduct complies with the standards set forth under Delaware
Law, such determination shall be made by independent legal counsel selected by
the Indemnified Party and reasonably acceptable to the Surviving Corporation;
PROVIDED, HOWEVER, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed); and PROVIDED FURTHER that the Surviving
Corporation shall not be obligated pursuant to this Section 6.04(b) to pay the
fees and expenses of more than one counsel (plus appropriate local counsel) for
all Indemnified Parties in any single action except to the extent, as determined
by counsel to the Indemnified Parties, that two or more of such Indemnified
Parties shall have conflicting interests in the outcome of such action, in which
case such additional counsel (including local counsel) as may be required to
avoid any such conflict or likely conflict may be retained by the Indemnified
Parties at the expense of the Surviving Corporation.
(c) The Surviving Corporation shall use its reasonable efforts
to maintain in effect for three years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not
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materially less favorable) with respect to matters occurring prior to the
Effective Time; PROVIDED, HOWEVER, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 6.04(c) more than an
amount per year equal to 150% of current annual premiums paid by the Company for
such insurance.
(d) In the event the Company or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the Company
or the Surviving Corporation, as the case may be, or at Parent's option, Parent,
shall assume the obligations set forth in this Section 6.04.
(e) Parent shall pay all reasonable expenses incurred by any
Indemnified Party in connection with the enforcement of the provisions of this
Section6.04.
SECTION 6.05. NOTIFICATION OF CERTAIN MATTERS. (a) The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i)the occurrence, or nonoccurrence, of any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii)any failure of
the Company, Parent or Purchaser, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; PROVIDED, HOWEVER, that the delivery of any notice pursuant to this
Section6.05 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
(b) The Company shall give prompt written notice to Parent of
any proposal, offer or other communication from any person (i) relating to any
acquisition or purchase of all or any portion of the capital stock of the
Company or any Subsidiary or assets of the Company or any Subsidiary, (ii) to
enter into any business combination with the Company or any Subsidiary or (iii)
to enter into any other extraordinary business transaction involving or
otherwise relating to the Company or any subsidiary. The Company shall notify
Parent promptly if any such proposal or offer, or any inquiry or other contact
with any person with respect thereto, is made and shall, in any such notice to
Parent, indicate in reasonable detail the identity of the person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or other contact.
SECTION 6.06. PUBLIC ANNOUNCEMENTS. Parent and the Company
shall each obtain the prior consent of each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or any Transaction and shall not issue any such press release or make any such
public statement without such prior consent, except as may be required by law or
any listing agreement with a national securities exchange to which Parent or the
Company is a party.
SECTION 6.07. FURTHER ACTION. Subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use all reasonable efforts to deliver or cause to be delivered such documents
and other papers and to take or cause to be taken such further actions as may be
necessary, proper or advisable
16
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under applicable laws to consummate and make effective the Transactions,
including the Merger.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE MERGER. The respective obligations of
each party to effect the Merger shall be subject to the satisfaction at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) STOCKHOLDER APPROVAL. This Agreement and the Transactions shall have
been approved and adopted by the affirmative vote of the stockholders of the
Company to the extent required by Delaware Law and the Certificate of
Incorporation and By-laws of the Company; and
(b) NO ORDER. No foreign, United States or state governmental authority
or other agency or commission or foreign, United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of making the acquisition of Shares by Purchaser illegal or
otherwise restricting, preventing or prohibiting consummation of the Offer or
the Merger; and
(c) OFFER. Purchaser or its permitted assignee shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer; PROVIDED,
HOWEVER, that this condition shall not be applicable to the obligations of
Parent or Purchaser if, in breach of this Agreement or the terms of the Offer,
Purchaser fails to purchase any Shares validly tendered and not withdrawn
pursuant to the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated and the
Merger and the other transactions contemplated hereby may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated hereby by the
stockholders of the Company: (a) by mutual written consent duly authorized by
the Boards of Directors of Parent, Purchaser and the Company, if such
termination is also approved by the Special Committee;
(b) by either Parent, Purchaser or the Company if (i) the Effective Time
shall not have occurred on or before December 31, 1999; PROVIDED, HOWEVER, that
the right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date or (ii) any court of competent jurisdiction
or other governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise
17
<PAGE>
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(c) by Parent, if (i) due to an occurrence or circumstance
that would result in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (A) failed to commence the Offer within 60 days
following the date of this Agreement, (B) terminated the Offer without having
accepted any Shares for payment thereunder, or (C) failed to pay for the Shares
validly tendered pursuant to the Offer within 90 days following the commencement
of the Offer, unless such termination or failure to pay for Shares shall have
been caused by or resulted from the failure of Parent or Purchaser to perform in
any material respect any covenant or agreement of either of them contained in
this Agreement or the material breach by Parent or Purchaser of any
representation or warranty of either of them contained in this Agreement or (ii)
prior to the purchase of any Shares validly tendered pursuant to the Offer, the
Special Committee shall have withdrawn or modified in a manner that is, in the
reasonable judgment of Parent, materially adverse to Parent or Purchaser its
approval or recommendation of this Agreement, the Offer, the Merger or any other
Transaction or shall have recommended another merger, consolidation or business
combination involving, or acquisition of, the Company or its assets or another
tender offer for Shares, or shall have resolved to do any of the foregoing; or
(d) by the Company, upon approval of the Special Committee, if
due to an occurrence or circumstance that would result in a failure to satisfy
any condition set forth in Annex A hereto, Purchaser shall have (i) failed to
commence the Offer within 60 days following the date of this Agreement,
(ii)terminated the Offer without having accepted any Shares for payment
thereunder, or (iii)failed to pay for the Shares validly tendered pursuant to
the Offer within 90 days following the commencement of the Offer, unless such
termination or failure to pay for Shares shall have been caused by or resulted
from the failure of the Company to perform in any material respect any covenant
or agreement of it contained in this Agreement or the material breach by the
Company of any representation or warranty of it contained in this Agreement; or
(e) by the Company, upon approval of the Special Committee, if
any representation or warranty of Parent and Purchaser in this Agreement which
is qualified as to materiality shall not be true and correct in all respects or
any such representation or warranty that is not so qualified shall not be true
and correct in any material respect, in each case as if such representation or
warranty was made as of such time on or after the date of this Agreement, or
Parent or Purchaser shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or covenant
of Parent or Purchaser to be performed or complied with by it under this
Agreement; PROVIDED that if such material breach or failure to perform is
curable by Parent or Purchaser through the exercise of its reasonable efforts
and for so long as Parent or Purchaser continues to exercise such reasonable
efforts, the Company may not terminate this Agreement under this Section
8.01(e).
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.01 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party hereto,
any person controlling any such party or any of their respective officers or
directors, whether prior to or after the execution of this Agreement.
18
<PAGE>
SECTION 8.02. EFFECT OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void, and there shall be no liability on the part of any party
hereto, except as set forth in Sections9.01 and 9.11; PROVIDED, HOWEVER that
nothing contained herein shall relieve any party from liability for wilful
breach of this Agreement.
SECTION 8.03. AMENDMENT. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; PROVIDED, however, that,
after the approval and adoption of this Agreement and the Transactions
contemplated hereby by the stockholders of the Company, no amendment may be made
which would reduce the amount or change the type of consideration into which
each Share shall be converted upon consummation of the Merger, imposes
conditions to the Merger other than set forth in Article VII or would otherwise
amend or change the terms and conditions of the Merger in a manner materially
adverse to the holders of the Shares, other than Parent and its affiliates; and
PROVIDED FURTHER that such amendment is also approved by the Special Committee.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective Time,
any party hereto may (i) extend the time for the performance of any obligation
or other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein; PROVIDED, HOWEVER, that, if the Company seeks to make such
extension or waiver as provided in (i), (ii) or (iii) above, it must first
obtain the approval of the Special Committee. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 9.01, as the case may be, except that the agreements set
forth in ArticlesII and this Article IX and Section6.04 shall survive the
Effective Time indefinitely and those set forth in this Article IX shall survive
termination indefinitely.
SECTION 9.02. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by overnight courier service, by facsimile (followed by delivery of a
copy via overnight courier service) or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.02):
(a) if to the Parent or Purchaser:
Viacom International Inc.
19
<PAGE>
c/o Viacom Inc.
1515 Broadway
New York, NY 10036
Attention: General Counsel
Telecopier: (212) 258-6099
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Creighton O'M. Condon, Esq.
Telecopier: (212) 848-7179
(b) if to the Company:
Spelling Entertainment Group Inc.
5700 Wilshire Boulevard
Los Angeles, CA 90036
Attention: President
Telecopier: (323) 965-5870
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square, 7th Floor
Wilmington, Delaware 19801
Attention: Robert Pincus, Esq.
Telecopier: (302) 651-3001
SECTION 9.03. CERTAIN DEFINITIONS. For purposes of this
Agreement, the term:
(a) "AFFILIATE" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "BUSINESS DAY" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized by law or executive order to close in the City of New
York;
(c) "ENCUMBRANCE" means any security interest, pledge,
mortgage, lien, charge, adverse claim of ownership or use, or other encumbrance
of any kind.
(d) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(e) "SUBSIDIARY" or "SUBSIDIARIES" means any corporation,
partnership, joint venture or other legal entity of which the Company or any
Subsidiary of the Company, as the case may be (either alone or through or
together with any other Subsidiary), owns, directly or indirectly, 50% or more
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity; and
SECTION 9.04. SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full
20
<PAGE>
force and effect so long as the economic or legal substance of the Transactions
is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the Transactions be
consummated as originally contemplated to the fullest extent possible.
SECTION 9.05. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
This Agreement shall not be assigned by operation of law or otherwise, except
that Parent and Purchaser may assign all or any of their rights and obligations
hereunder to any affiliate of Parent provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
SECTION 9.06. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 6.04 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.07. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.08. GOVERNING LAW. Except to the extent that Delaware Law
applies to these Transactions, this Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State.
SECTION 9.09. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 9.11. FEES AND EXPENSES. All fees and expenses incurred in
connection with this Agreement and the Transactions contemplated hereby shall be
paid by Parent.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SPELLING ENTERTAINMENT GROUP INC.
By /s/ PETER H. BACHMANN
----------------------------------------
Name: Peter H. Bachmann
Title: President
VIACOM INTERNATIONAL INC.
By /s/ MICHAEL D. FRICKLAS
----------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and General Counsel
VSEG ACQUISITION INC.
By /s/ MICHAEL D. FRICKLAS
----------------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
and General Counsel
22
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to the applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, pay for
any Shares tendered pursuant to the Offer, and may terminate or amend the Offer
in a manner consistent with the terms of the Merger Agreement and may postpone
the acceptance for payment of or the payment for any Shares tendered in a manner
consistent with the terms of the Merger Agreement, if at any time on or after
the date of this Agreement and prior to the acceptance for payment of any
Shares, any of the following conditions shall exist:
(a) there shall be any statute, rule or regulation, or decree,
order or injunction, promulgated, enacted, entered or enforced by any
United States federal or state government, or other governmental entity
which would (i) make the acquisition by the Purchaser of a material
portion of the Shares illegal, or (ii) otherwise prohibit or restrict
consummation of the Offer or the Merger (each a "GOVERNMENTAL
RESTRICTION"); PROVIDED, HOWEVER, that in order to invoke this
condition, Parent and the Purchaser shall have used their reasonable
best efforts to prevent such Governmental Restriction or ameliorate the
effects thereof; and PROVIDED FURTHER, that if the Governmental
Restriction is not a final and non-appealable decree, order or
injunction of a court of competent jurisdiction, Purchaser may not by
virtue of this condition alone amend or terminate the Offer, but may
only extend the Offer and thereby postpone acceptance for payment or
purchase of Shares;
(b) (i) the Special Committee shall have withdrawn or modified
in a manner that is, in the reasonable judgment of Parent, materially
adverse to Parent or Purchaser (including by way of any amendment to the
Schedule14D-9) its recommendation of the Offer, the Merger or this
Agreement, or (ii)the Special Committee shall have resolved to do any of
the foregoing;
(c) any representation or warranty of the Company in this
Agreement, (i)which is qualified as to Company Material Adverse Effect
shall not be true and correct, subject to such Company Material Adverse
Effect qualifications, in all respects or (ii) any such representation
or warranty that is not so qualified shall not be true and correct
except to the extent that the failure of such representations and
warranties to be true and correct could not reasonably be expected to
have a Company Material Adverse Effect, in each case as if such
representation and warranty was made as of such time on or after the
date of this Agreement and except that those representations and
warranties that address matters only as of a particular date shall not
be true and correct, subject to the qualifications described above, as
of such date;
(d) the Company shall have breached or failed to perform in any
material respect any obligation or to comply in any material respect
with any agreement or covenant of the Company to be performed or
complied with by it under this Agreement;
(e) this Agreement shall have been terminated in accordance with
its terms; or
<PAGE>
(f) Parent, Purchaser and the Company (with the approval of the
Special Committee) shall have agreed that Purchaser shall terminate the
Offer or postpone the acceptance for payment of or the payment for
Shares thereunder;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (excluding for purposes of clauses (c) and (d), any action
or inaction by Parent or any of its affiliates) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for payment or
payment.
The foregoing conditions are for the sole benefit of Parent and
Purchaser and may be asserted by Parent or Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Parent or
Purchaser in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and circumstances shall not
be deemed a waiver with respect to any other facts and circumstances; and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
<PAGE>
Exhibit A to the
Merger Agreement
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SPELLING ENTERTAINMENT GROUP INC.
As of the Effective Time, the Certificate of Incorporation of the
Surviving Corporation shall be amended and restated by deleting Articles I
through XII thereof in their entirety and replacing them with the following:
ARTICLE I
The name of the Corporation is: SPELLING ENTERTAINMENT GROUP INC.
ARTICLE II
The address of its registered office in the State of Delaware is 1013 Centre
Road, in the City of Wilmington, County of New Castle, 19805-1297. The name of
its registered agent at such address is Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is: To engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation shall have authority
to issue is Two Hundred (200). All such shares are to have $.01 par value.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter or repeal the By-Laws
of the Corporation.
ARTICLE VII
Meetings of stockholders may be held within or without the State of Delaware, as
the By-Laws may provide. The books of the Corporation may be kept (subject to
any provisions contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the By-Laws of the Corporation. Elections of Directors need not be by
written ballot unless the By-Laws of the Corporation shall so provide.
ARTICLE VIII
The personal liability of the directors of the corporation is hereby eliminated
to the fullest extent permitted by the provisions of paragraph (7) of subsection
(b) of Section 102 of the General
<PAGE>
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
ARTICLE IX
(1) ACTION NOT BY OR ON BEHALF OF CORPORATION. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent (including
trustee) of another corporation, partnership, joint venture, trust or other
enterprise, against judgments, fines, amounts paid in settlement and expenses
(including attorneys' fees), actually and reasonably incurred by him in
connection with such action, suit or proceedings if he acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) ACTION BY OR ON BEHALF OF CORPORATION. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability and in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for such expenses which the court
shall deem proper.
(3) SUCCESSFUL DEFENSE. To the extent that a present or former Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 or 2 of this Article IX, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(4) DETERMINATION OF RIGHTS TO INDEMNIFICATION IN CERTAIN CIRCUMSTANCES. Any
indemnification under Section 1 or 2 of this Article IX (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the present or former Director,
officer, employee or agent is proper in the circumstances because he has met the
applicable
<PAGE>
standard of conduct set forth in Section 1 or 2 of this Article IV. Such
determination shall be made, with respect to a person who is a Director or
officer at the time of such determination, (1) by a majority vote of the
Directors who are not parties to such action, suit or proceedings, even though
less than a quorum, or (2) by a committee of such Directors designated by a
majority vote of such Directors, even though less than a quorum, or (3) if there
are no such Directors, or if such Directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders of the Corporation
entitled to vote thereon.
(5) ADVANCE PAYMENT OF EXPENSES. (a) Expenses (including attorneys' fees)
incurred by a Director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Director or
officer, to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this Article.
(b) Expenses (including attorneys' fees) incurred by any other employee or
agent in defending any civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon such terms and conditions,
if any, as the Corporation deems appropriate.
(6) NOT EXCLUSIVE. The indemnification and advancement of expenses provided by,
or granted pursuant to, the other sections of this Article IX shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under any statute, by-law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office. Without limiting the foregoing, the Corporation is authorized to enter
into an agreement with any Director, officer, employee or agent of the
Corporation providing indemnification for such person against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement that
result from any threatened pending or completed actions, suit, or proceeding,
whether civil, criminal, administrative or investigative, including any action
by or in the right of the Corporation, that arises by reason of the fact that
such person is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, to the full extent allowed by law, except that no such
agreement shall provide for indemnification for any actions that constitute
fraud, actual dishonesty or willful misconduct.
(7) INSURANCE. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article IX.
(8) CERTAIN DEFINITIONS. For the purposes of this Article IX, (A) any Director,
officer, employee or agent of the Corporation who shall serve as a director,
officer, employee or agent of any other corporation, joint venture, trust or
other enterprise of which the Corporation,
<PAGE>
directly or indirectly, is or was a stockholder or creditor, or in which the
Corporation is or was in any way interested, or (B) any director, officer,
employee or agent of any subsidiary corporation, joint venture, trust or other
enterprise wholly owned by the Corporation, shall be deemed to be serving as
such director, officer, employee or agent at the request of the Corporation,
unless the Board of Directors of the Corporation shall determine otherwise. In
all other instances where any person shall serve as a director, officer,
employee or agent of another corporation, joint venture, trust or other
enterprise of which the Corporation is or was a stockholder or creditor, or in
which it is or was otherwise interested, if it is not otherwise established that
such person is or was serving as such director, officer, employee or agent at
the request of the Corporation, the Board of Directors of the Corporation may
determine whether such service is or was at the request of the Corporation, and
it shall not be necessary to show any actual or prior request for such service.
For purposes of this Article IX, references to a corporation include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
IX with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity. For purposes
of this Article IX, references to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to any employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to this Article IX.
(9) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
<PAGE>
Exhibit (c)(2)
FORM OF OPTIONHOLDER AGREEMENT
This AGREEMENT is made and entered into this 16th day of May,
1999, by and between Viacom International Inc. ("Viacom"), a Delaware
corporation, and _____________ (the "Optionholder").
WHEREAS, Spelling Entertainment Group Inc., a Delaware
corporation (the "Company"), has entered into an Agreement and Plan of Merger
(the "Merger Agreement") dated as of May 17, 1999 with Viacom and VSEG
Acquisition Inc., a Delaware corporation ("Purchaser");
WHEREAS, Viacom currently holds approximately 80% of the
issued and outstanding common stock, par value $.001 per share of the Company
(the "Shares") and desires to ensure that it does not hold less than 80% of the
Shares;
WHEREAS, pursuant to the Merger Agreement, Viacom and
Purchaser intend to commence a tender offer (the "Tender Offer") to purchase all
of the Shares which Viacom does not currently own;
WHEREAS, the Optionholder is the holder of stock options to
purchase Shares from the Company ("Options") issued pursuant to The Charter
Company Stock Option Plan, The Spelling Entertainment Group Inc. 1987 Stock
Option Plan or The Spelling Entertainment Group Inc. 1994 Stock Option Plan, or
pursuant to any employment agreement or other arrangement with the Company;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Viacom and the Optionholder hereby agree as follows:
SECTION 1. AGREEMENT OF OPTIONHOLDER. The Optionholder hereby
agrees that, from and after the date hereof, until the earlier of (a) the date
immediately following the date upon which the Tender Offer shall have expired
and Purchaser shall have purchased the Shares tendered pursuant to the Tender
Offer and (b) the date upon which the Tender Offer expires without any Shares
being accepted for payment by the Purchaser, the Optionholder will not exercise
any of his or her Options and will not purchase any Shares from the Company
under any Options held by the Optionholder.
SECTION 2. AGREEMENT OF VIACOM. Viacom agrees that,
immediately after the purchase by Purchaser of the Shares accepted for payment
under the Tender Offer, Viacom shall cause Spelling to cancel all Options held
by the Optionholder, and shall cause Purchaser to pay to the Optionholder, in
consideration for the cancellation of such Option, an amount in cash equal to
the product of (a) the number of Shares previously subject to such Option and
(b) the excess, if
<PAGE>
2
any, of $9.75 over the exercise price per Share previously subject to such
Option. All applicable withholding taxes attributable to the payments made
hereunder shall be deducted from the amounts payable hereunder and such amount
shall be forwarded to the Company.
SECTION 3 RELEASE OF OPTIONHOLDER. In the event that, on any
date prior to the expiration of the Tender Offer, any Option held by the
Optionholder has an expiration date within three days of such date, the
Optionholder shall, with respect to such Option only, be released from his or
her obligations such Section 1 of this Agreement
SECTION 4. GOVERNING LAW. This Optionholder Agreement shall
be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this
Optionholder Agreement as of the date first written above.
VIACOM INTERNATIONAL INC.
By:
----------------------------------
Name:
Title:
OPTIONHOLDER
--------------------------------------
Name:
<PAGE>
Exhibit 99.1
Pursuant to Rule 13d-1(k)(1)(iii) of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, each of the
undersigned agrees that the statement to which this Exhibit is attached is
filed on its behalf.
May 21, 1999 VIACOM INTERNATIONAL
By: /s/ Michael D. Fricklas
--------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
VIACOM INC.
By: /s/ Michael D. Fricklas
--------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President,
General Counsel and Secretary
By: /s/ *
--------------------------------
Name: Sumner M. Redstone
Title: Individually
By: /s/ Philippe P. Dauman
--------------------------------
Philippe P. Dauman
Attorney-in-Fact under the
Limited Power of Attorney
filed as Exhibit 99.2 to the
Statement, Amendment No. 11
