<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1999
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SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
METROMEDIA INTERNATIONAL GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
PLD Telekom Inc. has agreed to merge with a subsidiary of Metromedia
International Group, Inc. If the merger is completed, PLD stockholders will
receive a fraction of a share of Metromedia common stock for each share of PLD
common stock they own, that will be determined based upon an exchange ratio.
As a result of the exchange ratio, PLD stockholders will receive Metromedia
common stock with a value of a minimum of $3.50 per share and a maximum of $4.48
per share for each share of PLD common stock, unless the average of Metromedia's
stock price is below $5.25. In that case, PLD can request that Metromedia give
PLD stockholders Metromedia common stock with a value of $3.50 for each PLD
share they own. If Metromedia refuses this request or if Metromedia's average
stock price is below $4.00, PLD can refuse to merge.
To understand more fully the calculation of this exchange ratio and the
determination of the number of shares of Metromedia common stock that each PLD
stockholder will receive in the merger, we refer you to the chart on page 3 of
this document. Metromedia stockholders will continue to own their existing
shares after the merger.
Metromedia's shares are traded on the American and Pacific Stock Exchanges
under the symbol "MMG." As of August 30, 1999, Metromedia's stock price on the
AMEX was $6.375. PLD's shares are traded on the Nasdaq Stock Market's National
Market under the symbol "PLDI." As of August 30, 1999, PLD's stock price as
quoted on the Nasdaq Stock Market's National Market was $3.03.
We cannot complete the merger without the approval of the holders of a
majority of the outstanding Metromedia shares present in person or by proxy at
the Metromedia annual meeting and a majority of the outstanding shares of PLD
common stock. Holders of approximately 38% of PLD's common stock have agreed to
vote for the merger. This means that at least 12.1% more of PLD's stockholders
must vote for the merger to ensure its approval by PLD.
Metromedia has scheduled an annual meeting to vote on the merger and the matters
noted below. PLD has scheduled a special meeting to vote on the merger. Whether
or not you plan to attend, please take the time to vote by completing and
mailing the enclosed voting form to us.
The date, time and place of the stockholder meetings are as follows:
For Metromedia stockholders:
SEPTEMBER 30, 1999
9:30 A.M.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
For PLD stockholders:
SEPTEMBER 30, 1999
9:00 A.M.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
This document also constitutes the proxy statement for Metromedia's annual
meeting of stockholders, at which Metromedia stockholders will be asked to vote
upon the election of directors, to ratify the selection of KPMG LLP as
Metromedia's independent public accountants for the year ending December 31,
1999 and to vote on a stockholder proposal.
This joint proxy statement/prospectus provides our stockholders with
detailed information about the merger. This document is also the prospectus of
Metromedia for the Metromedia common stock that will be issued to PLD
stockholders in the merger. We encourage you to read this entire document
carefully.
<TABLE>
<S> <C>
Stuart Subotnick James R.S. Hatt
President and Chief Executive Officer Chairman, President and Chief Executive Officer
</TABLE>
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This document is dated August 31, 1999 and is being first mailed to stockholders
on or about August 31, 1999.
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 30, 1999
To the stockholders of Metromedia International Group, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of
Metromedia International Group, Inc., a Delaware corporation, will be held at
9:30 a.m., local time, on September 30, 1999, at Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, NY 10019. At this annual
meeting, you will be asked to vote on proposals:
1. to approve the issuance of shares of common stock of Metromedia in
connection with the merger agreement among Metromedia, PLD Telekom Inc., and
Moscow Communications, Inc.;
2. to approve the election of three Class I directors, in each case, to serve
for a three year term ending in the year 2002 or until their successors are
elected and qualified;
3. to ratify the selection of KPMG LLP as Metromedia's independent accountants
for the fiscal year ending December 31, 1999;
4. to consider and vote upon a proposal submitted by a stockholder of
Metromedia to amend Metromedia's certificate of incorporation to reinstate
the right of the stockholders of Metromedia to take action by written
consent and to call special meetings of the stockholders; and
5. to transact such other business as may properly come before the annual
meeting or any adjournment of postponement thereof.
THE METROMEDIA BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND RECOMMENDS THAT
METROMEDIA STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. THE METROMEDIA BOARD
ALSO UNANIMOUSLY RECOMMENDS THAT METROMEDIA STOCKHOLDERS VOTE FOR PROPOSALS TWO
AND THREE AND AGAINST PROPOSAL FOUR, THE STOCKHOLDER PROPOSAL.
The accompanying proxy statement/prospectus contains important information
with respect to the proposed issuance of Metromedia's common stock, and we urge
you to read it carefully.
Stockholders of record at the close of business on August 12, 1999, are
entitled to notice of and to vote at the annual meeting and any adjournment or
postponement thereof.
The affirmative vote of a majority of the shares of Metromedia common stock
present at the annual meeting in person or by proxy is required to approve the
issuance of the shares of Metromedia common stock pursuant to the merger
agreement. The three nominees for election as directors receiving the highest
number of votes will be elected as directors for a term ending in 2002. The
affirmative vote of the holders of a majority of the shares of Metromedia common
stock outstanding on the record date is required to approve proposal three, the
ratification of the selection of independent accountants, and proposal four, a
stockholder proposal.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING IN PERSON. ANY EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED FOR
APPROVAL OF PROPOSALS ONE, TWO AND THREE AND AGAINST PROPOSAL FOUR. YOU MAY
REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE ANNUAL MEETING.
ANY STOCKHOLDER ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THE
STOCKHOLDER HAS RETURNED A PROXY.
PLEASE DO NOT SEND METROMEDIA STOCK CERTIFICATES IN YOUR PROXY ENVELOPE.
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<S> <C> <C>
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Arnold L. Wadler
Arnold L. Wadler
SECRETARY
</TABLE>
East Rutherford, New Jersey
August 31, 1999
<PAGE>
PLD TELEKOM INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 30, 1999
To the stockholders of PLD Telekom Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of PLD
Telekom Inc., a Delaware corporation, will be held at 9:00 a.m., local time, on
September 30, 1999, at Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of
the Americas, New York, NY 10019. At this special meeting, you will be asked to
vote on proposals:
1. to consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of May 18, 1999, by and among PLD, Metromedia International
Group, Inc. and Moscow Communications, Inc.; and
2. to transact such other business as may properly come before the special
meeting or any adjournment of postponement thereof.
THE PLD BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT PLD STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
The accompanying proxy statement/prospectus contains important information
with respect to the Metromedia common stock and the merger agreement and the
transactions contemplated thereby, and we urge you to read it carefully.
Stockholders of record at the close of business on August 12, 1999 are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof.
The affirmative vote of a majority of the shares of PLD common stock
outstanding on the record date is required to approve the merger agreement.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. ANY EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED FOR
APPROVAL OF PROPOSAL ONE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED
AT THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE
IN PERSON EVEN IF THE STOCKHOLDER HAS RETURNED A PROXY.
PLEASE DO NOT SEND PLD STOCK CERTIFICATES IN YOUR PROXY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ James R.S. Hatt
James R.S. Hatt
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
New York, NY
August 31, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We each file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Securities and Exchange Commission's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549 and also
at the regional offices of the Securities and Exchange Commission located at 7
World Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please
call 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. Reports, proxy statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission,
including our filings, are also available to the public from the Securities and
Exchange Commission's Web site at "http://www.sec.gov."
Metromedia has filed with the Securities and Exchange Commission a
registration statement on Form S-4. This joint proxy statement/prospectus is a
part of the registration statement and constitutes a prospectus of Metromedia
for the Metromedia common stock to be issued to PLD stockholders in the merger.
As allowed by the Securities and Exchange Commission rules, this joint proxy
statement/ prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS OUR COMPANIES TO "INCORPORATE
BY REFERENCE" THE INFORMATION WE FILE WITH THEM, WHICH MEANS THAT WE CAN
DISCLOSE IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US TO YOU THAT IS
NOT INCLUDED IN OR DELIVERED WITH THIS JOINT PROXY STATEMENT/ PROSPECTUS BY
REFERRING YOU TO THOSE DOCUMENTS.
The information incorporated by reference is considered to be part of this
joint proxy statement/ prospectus. Information that we file later with the
Securities and Exchange Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
filing we will make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 following the
date of this joint proxy statement/prospectus and prior to the date of the
Metromedia annual meeting or the PLD special meeting:
METROMEDIA
1. Annual Report on Form 10-K/A (Amendment No. 2) of Metromedia (file no.
001-5706) filed on August 31, 1999 for the fiscal year ended December 31,
1998;
2. Quarterly Report on Form 10-Q/A (Amendment No. 1) of Metromedia (file
no. 001-5706) filed on August 31, 1999 for the fiscal quarter ended March
31, 1999;
3. Quarterly Report on Form 10-Q/A (Amendment No. 1) of Metromedia (file
no. 001-5706) filed on August 31, 1999 for the fiscal quarter ended June
30, 1999;
4. Current Report on Form 8-K dated May 18, 1999 (file no. 001-5706) filed
on May 20, 1999;
5. Current Report on Form 8-K dated August 4, 1999 (file no. 001-5706)
filed on August 4, 1999; and
6. The description of common stock contained in Metromedia's registration
statement on Form 8-A (file no. 001-5706) filed on October 10, 1995.
PLD
1. Annual Report on Form 10-K/A (Amendment No. 2) of PLD (file no.
000-20444) filed on August 31, 1999 for the fiscal year ended December
31, 1998;
2. Quarterly Report on Form 10-Q/A (Amendment No. 2) of PLD (file no.
000-20444) filed on August 31, 1999 for the fiscal quarter ended March
31, 1999;
<PAGE>
3. Quarterly Report on Form 10-Q/A (Amendment No. 1) of PLD (file no.
000-20444) filed on August 31, 1999 for the fiscal quarter ended June 30,
1999;
4. Current Report on Form 8-K/A (Amendment No. 1) dated May 18, 1999 (file
no. 000-20444) filed on August 30, 1999; and
5. The description of PLD common stock in PLD's registration statement on
Form 20-F as amended (file no. 000-20444) filed on January 13, 1993.
Copies of Metromedia's annual report on Form 10-K/A and quarterly reports on
Form 10-Q/A for the fiscal quarters ended March 31, 1999 and June 30, 1999,
accompany the joint proxy statement/ prospectus that will be sent to Metromedia
stockholders.
YOU MAY REQUEST A COPY OF THESE FILINGS, AT NO COST, BY WRITING OR
TELEPHONING US AT THE FOLLOWING ADDRESS:
IN THE CASE OF METROMEDIA, TO:
METROMEDIA INTERNATIONAL GROUP, INC.
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
ATTENTION: SECRETARY
TELEPHONE REQUESTS MAY BE DIRECTED TO: (201) 531-8000
IN THE CASE OF PLD, TO:
PLD TELEKOM INC.
505 PARK AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10022
ATTENTION: SECRETARY
TELEPHONE REQUESTS MAY BE DIRECTED TO (212) 527-3800
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, YOU SHOULD MAKE SUCH
REQUEST BY SEPTEMBER 23, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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QUESTIONS AND ANSWERS ABOUT THE METROMEDIA/PLD MERGER..................................................... 1
SUMMARY................................................................................................... 2
The Companies........................................................................................... 2
What You Will Receive in the Merger..................................................................... 2
Our Reasons for the Merger.............................................................................. 3
Voting Agreement........................................................................................ 5
Recommendation to PLD Stockholders...................................................................... 5
Opinion of PLD's Financial Advisor...................................................................... 5
Recommendation to Metromedia Stockholders............................................................... 5
Opinion of Metromedia's Financial Advisor............................................................... 5
Dissenters' Rights...................................................................................... 5
Preferred Stockholders.................................................................................. 5
Conditions to the Merger................................................................................ 5
Accounting Treatment.................................................................................... 6
Comparison of Stockholder Rights........................................................................ 6
Termination of the Merger Agreement..................................................................... 6
Termination Payments.................................................................................... 6
Income Tax Consequences of the Merger................................................................... 7
Regulatory Approvals.................................................................................... 7
Forward-Looking Statements.............................................................................. 7
Selected Historical Financial Information............................................................... 8
Unaudited Selected Pro Forma Combined Financial Data.................................................... 11
Comparative Per Share Information....................................................................... 11
Comparative Per Share Market Price Information.......................................................... 12
RISK FACTORS.............................................................................................. 13
Metromedia expects to continue to incur losses from its continuing operations, which could prevent it
from pursuing its growth strategies and could cause it to default under its debt obligations.......... 13
Chinese governmental authorities are causing the termination of certain of Metromedia's joint ventures,
which could have negative effects on Metromedia's financial position and results of operations........ 13
Metromedia may not be able to realize fully all the benefits that it anticipates from the merger........ 14
Metromedia will be unable to meet its obligations if it does not receive distributions from its
subsidiaries and its subsidiaries have no obligations to make any payments to it...................... 14
PLD has suffered recurring losses and may not be able to continue as a going concern.................... 15
As a result of the merger, Metromedia will have substantial debt, which may limit its ability to borrow,
restrict the use of its cash flows, constrain its business strategy and make it unable to meet its
debt obligations...................................................................................... 15
Metromedia may not be able to raise the substantial additional financing that will be required to
satisfy its long-term business objectives, which would force it to significantly curtail its business
objectives and may materially and adversely affect its results of operations.......................... 15
Metromedia and PLD may be materially and adversely affected by competition from larger global
communications companies or the emergence of competing technologies in their current or future
markets............................................................................................... 16
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Metromedia may not be able to attract consumers to its services, which would negatively impact its
operating results..................................................................................... 16
Metromedia cannot assure you that it will successfully complete the construction of its systems, which
would jeopardize licenses for its systems or provide opportunities to its competitors................. 17
Metromedia may not be able to successfully implement and manage the growth of its ventures, which would
affect its growth strategy............................................................................ 17
The government licenses on which Metromedia depends to operate many of its businesses could be cancelled
or not renewed, which would impair the development of its services.................................... 17
Metromedia and PLD do not fully control certain of their joint ventures' operations, strategies and
financial decisions and cannot assure you that they will be able to maximize their return on their
investments........................................................................................... 18
Metromedia's and PLD's dependence on local operators, interconnect parties or local customers may
materially and adversely affect their operations...................................................... 18
Metromedia cannot assure you that its equipment will be approved by the authorities regulating the
markets in which it operates, which could have a material adverse effect on its operations in these
markets............................................................................................... 19
Metromedia may not be able to keep pace with the emergence of new technologies and changes in market
conditions, which would materially and adversely affect its result of operations...................... 19
Certain failures to address the year 2000 problem may cause disruptions in the operation of Metromedia's
networks and Metromedia's services to customers....................................................... 20
Metromedia Company effectively controls Metromedia International Group and has the power to influence
the direction of its operations and prevent a change of control....................................... 20
Metromedia could incur environmental liabilities as a result of its current operations and past
divestitures the cost of which could materially affect its results of operations...................... 20
Metromedia operates in countries with significant political, social and economic uncertainties, which
could have a material adverse effect on its operations in these areas................................. 21
Metromedia faces enhanced economic, legal and physical risks by operating abroad........................ 21
Laws restricting foreign investments in the telecommunications industry could adversely affect
Metromedia's operations in these countries............................................................ 22
Currency control restrictions in Metromedia's markets may have a negative effect on its business........ 23
Recent economic difficulties in the Russian Federation and other emerging markets could have a material
adverse effect on Metromedia's operations in these countries.......................................... 23
High inflation in Metromedia's markets may have a negative effect on Metromedia's business.............. 23
Fluctuations in currency exchange rates in the countries in which Metromedia operates could negatively
impact Metromedia's results of operations in these countries.......................................... 24
The commercial and corporate legal structures are still developing in Metromedia's target markets which
creates uncertainties as to the protection of its rights and operations in these markets.............. 24
Russian law may hold Metromedia liable for the debts of its subsidiaries, which could have a material
adverse effect on its financial condition............................................................. 24
Metromedia operates in countries where the laws may not adequately protect shareholder rights which
could prevent Metromedia from realizing fully the economic benefits of its investments in these
countries............................................................................................. 25
The exercise by News America of its registration rights could materially affect the market for, and
value of, the common stock of Metromedia.............................................................. 25
Metromedia may default under its Snapper credit facility, which could materially and adversely affect
its business strategy and results of operations....................................................... 25
</TABLE>
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Metromedia is involved in legal proceedings, which could adversely affect its financial condition....... 25
Metromedia's future results of operations may be substantially different from its statements about its
future prospects and you should not unduly rely on these statements................................... 25
THE METROMEDIA ANNUAL MEETING............................................................................. 27
Date, Time and Place of the Metromedia Annual Meeting................................................... 27
Purposes of the Metromedia Annual Meeting............................................................... 27
Record Date............................................................................................. 27
Required Votes.......................................................................................... 28
Proxies; Voting and Revocation.......................................................................... 28
Solicitation of Proxies................................................................................. 29
No Dissenters' Appraisal Rights......................................................................... 29
THE PLD SPECIAL MEETING................................................................................... 30
Date, Time and Place of the PLD Special Meeting......................................................... 30
Purposes of the PLD Special Meeting; The Merger......................................................... 30
Record Date............................................................................................. 30
Required Votes.......................................................................................... 30
Proxies; Voting and Revocation.......................................................................... 31
Solicitation of Proxies................................................................................. 31
No Dissenters' Appraisal Rights......................................................................... 31
Preferred Stockholders.................................................................................. 31
THE MERGER................................................................................................ 32
Background.............................................................................................. 32
Recommendation of the Metromedia Board; Metromedia's Reasons for the Merger............................. 34
Recommendation of the PLD Board; PLD's Reasons for the Merger........................................... 35
Opinion of Metromedia's Financial Advisor............................................................... 36
Opinion of PLD's Financial Advisor...................................................................... 42
Federal Income Tax Consequences to Holders of PLD Common Stock.......................................... 49
Accounting Treatment.................................................................................... 51
Dividend Policy......................................................................................... 51
Interests of PLD Directors and Officers in the Merger................................................... 51
Interest of Metromedia Directors and Officers in the Merger............................................. 52
Regulatory Approvals.................................................................................... 53
Stock Exchange Listing.................................................................................. 53
Federal Securities Laws Consequences.................................................................... 53
THE MERGER AGREEMENT...................................................................................... 54
Terms of the Merger..................................................................................... 54
Exchange of New Stock Certificates...................................................................... 55
Representations and Warranties.......................................................................... 57
Covenants............................................................................................... 58
No Solicitation of Transactions......................................................................... 59
Indemnification and Insurance........................................................................... 60
Conditions to the Merger................................................................................ 60
Termination............................................................................................. 61
Termination Fees and Expenses........................................................................... 62
RELATED AGREEMENTS........................................................................................ 63
Voting Agreement and Registration Rights Agreement...................................................... 63
</TABLE>
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Travelers Note and Warrant Modification Agreement....................................................... 63
News Letter Agreement................................................................................... 63
Agreement to Exchange and Consent; Terms of Metromedia Notes............................................ 64
Technocom Arrangements.................................................................................. 65
Metromedia Bridge Loan Agreement........................................................................ 66
Restructuring of PLD's Obligations...................................................................... 66
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............................................. 67
BUSINESS OF METROMEDIA.................................................................................... 74
BUSINESS OF PLD........................................................................................... 76
DESCRIPTION OF MOSCOW COMMUNICATIONS, INC................................................................. 77
COMPARISON OF RIGHTS OF HOLDERS OF METROMEDIA COMMON STOCK AND PLD COMMON STOCK........................... 77
General................................................................................................. 77
Comparison of Stockholders' Rights...................................................................... 77
ADDITIONAL INFORMATION FOR METROMEDIA MEETING............................................................. 80
Security Ownership of Certain Beneficial Owners......................................................... 80
Securities Beneficially Owned by Directors and Executive Officers....................................... 82
Directors and Officers.................................................................................. 84
Certain Relationships and Related Transactions.......................................................... 89
Chief Executive Officer Compensation.................................................................... 92
Compliance with Internal Revenue Code Section 162(m).................................................... 92
Performance Graph....................................................................................... 93
Other Business.......................................................................................... 97
ADDITIONAL INFORMATION FOR PLD MEETING.................................................................... 97
OTHER INFORMATION......................................................................................... 99
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................ 99
LEGAL MATTERS............................................................................................. 100
EXPERTS................................................................................................... 100
STOCKHOLDER PROPOSALS..................................................................................... 102
APPENDIX A--THE MERGER AGREEMENT.......................................................................... A-1
APPENDIX B--OPINION OF SALOMON SMITH BARNEY INC........................................................... B-1
APPENDIX C--OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION................................ C-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE METROMEDIA/PLD MERGER
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. By September 30, 1999.
Q. HOW DO PLD STOCKHOLDERS FIND OUT THE NUMBER OF METROMEDIA SHARES THEY WOULD
RECEIVE AFTER THE MERGER IS COMPLETED?
A. PLD stockholders may call toll free any time at 1-800-566-9061 for the
current average Metromedia stock price and the number of Metromedia shares
they would receive for their PLD shares based on that price. After September
27, 1999, we will calculate the actual number of Metromedia shares you will
receive, and this information will be available by calling the number above.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
document, please indicate on your voting form how you want to vote and mail
your signed and dated voting form in the enclosed return envelope as soon as
possible.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. Just send in a later-dated, signed voting form to the proxy solicitor listed
below before the meeting or attend your meeting in person and vote.
Q. SHOULD PLD STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A. No. After the merger is completed, the exchange agent will send PLD
stockholders written instructions for exchanging their stock certificates.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME WITHOUT MY INSTRUCTIONS?
A. No. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker to
vote your shares will be the equivalent of voting against the merger.
Q. WHAT IF I PLAN TO ATTEND MY MEETING IN PERSON?
A. We recommend that you send in your voting form in any event. If you hold
Metromedia or PLD shares through a third party, such as a broker, you should
send an account statement or similar documentation of ownership to your
proxy solicitor, requesting a ticket.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the merger, you should contact your proxy
solicitor. The proxy solicitor for Metromedia and PLD stockholders is:
MORROW & CO., INC.
445 PARK AVENUE, FIFTH FLOOR
NEW YORK, NEW YORK 10022
TEL.: (800) 566-9061 (TOLL FREE)
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT, INCLUDING THE APPENDICES
AND THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND
MORE INFORMATION". WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT
YOU TO MORE COMPLETE DESCRIPTIONS OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES (PAGE 74)
METROMEDIA INTERNATIONAL GROUP, INC.
One Meadowlands Plaza
East Rutherford, New Jersey 07073
(201) 531-8000
Metromedia is a global communications company. Through its communications
group, it is engaged in the development and operation of a variety of
communications businesses in Eastern Europe, the republics of the former Soviet
Union, the People's Republic of China and other selected emerging markets. These
businesses include cellular telecommunications, fixed telephony, international
and long distance telephony, cable television, paging and radio broadcasting.
See "Business of Metromedia" on page 74.
Metromedia's objective is to establish itself as a major multiple-market
provider of modern communications services in Eastern Europe, the former Soviet
Union and other selected emerging markets.
Metromedia also manufactures Snapper-Registered Trademark- brand power lawn
and garden equipment for sale to both residential and commercial customers.
Snapper sells its lawnmowers, garden tractors, lawn equipment, garden tillers
and snow throwers through its approximately 5,000 dealer network and through
foreign distributors.
Metromedia's communications group's consolidated revenues represented
approximately 12.6% of Metromedia's total revenues and Snapper's revenues
represented approximately 87.4% of Metromedia's total revenues for the fiscal
year ended December 31, 1998. Metromedia views Snapper as a non-core asset and
manages it in order to maximize shareholder value.
PLD TELEKOM INC.
505 Park Avenue, 21st Floor
New York, New York 10022
(212) 527-3800
PLD, through its operating subsidiaries, is a major provider of local, long
distance and international telecommunications services in the Russian
Federation, Kazakhstan and Belarus. See "Business of PLD" on page 76.
PLD's objective is to be a leading participant in the targeted development
of telecommunications infrastructure, products and services in the emerging
markets of the Russian Federation and other countries of the former Soviet
Union.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 54)
Each share of PLD common stock you own will be exchanged for a number of
shares of Metromedia common stock based upon an exchange ratio (rounded to four
decimals), which will depend on the average stock price of Metromedia's common
stock.
If the average stock price is less than $5.25, PLD may request that the
exchange ratio be increased by issuing more Metromedia shares so that each PLD
stockholder receives Metromedia shares valued at $3.50. Metromedia will have no
obligation to increase the exchange ratio at PLD's request. If Metromedia
decides not to accept this request for an exchange ratio increase or if the
average stock price is less than $4.00, PLD will be entitled to terminate the
merger agreement. As a result, if the
2
<PAGE>
average stock price is between $4.00 and $5.25, PLD will request that Metromedia
increase the exchange ratio, but Metromedia has no obligation to agree to this
request. Metromedia's average stock price will be equal to the average of the
closing prices for the Metromedia common stock for the 20 consecutive trading
days ended 3 days prior to the PLD meeting.
<TABLE>
<CAPTION>
PLD HAS THE RIGHT TO
PER SHARE VALUE FOR TERMINATE THE MERGER
PLD STOCK OR RANGE OF AGREEMENT BASED
VALUE BASED UPON THE SOLELY ON THE PER
CORRESPONDING AVERAGE METROMEDIA SHARE VALUE OF THE
AVERAGE METROMEDIA STOCK PRICE RANGE EXCHANGE RATIO STOCK PRICE RANGE EXCHANGE
- ------------------------------------------ ----------------------- --------------------- ---------------------
<S> <C> <C> <C>
$8.01 and above $4.48/Average $4.48 No
Metromedia stock price
$6.25-$8.00 .56 $3.50-$4.48 No
$5.25-$6.24 $3.50/Average $3.50 No
Metromedia Stock Price
$4.00-$5.24 and:
PLD requests that Metromedia increase $3.50/Average $3.50 No
the exchange ratio and Metromedia agrees Metromedia Stock Price
PLD requests that Metromedia increase .6667 $2.67-$3.50 Yes
the exchange ratio and Metromedia
refuses
$0.00-$3.99 .6667 $0.00-$2.66 Yes
</TABLE>
If PLD's stockholders' meeting had been held on August 2, 1999, the average
price of Metromedia common stock would have been $7.74, the exchange ratio would
have been .56, and the value for each share of PLD common stock would have been
$4.34.
If the exchange ratio is .56, then based on the latest available number of
shares outstanding of Metromedia and PLD, PLD shareholders would own
approximately 23.5% of Metromedia's outstanding common stock after giving effect
to the merger.
You will not receive any fractional shares of Metromedia common stock.
Instead, you will receive cash.
OUR REASONS FOR THE MERGER
The PLD board of directors considered the following material factors and
information in approving the merger agreement and recommending it to PLD
stockholders:
- the fact that approximately $165 million of PLD's outstanding debts
(including accrued interest), some of which were due or coming due
shortly, will be restructured consensually in connection with the
consummation of the merger;
- the fact that Metromedia has made available $7.0 million of interim
financing to PLD to fund its working capital and capital expenditure
requirements during the interim period from signing the merger agreement
until consummation of the merger;
- the fact that the value of the shares of Metromedia common stock to be
received as consideration in the merger represented approximately a 32%
premium over the closing price of PLD
3
<PAGE>
common stock on May 17, 1999, the day before the merger agreement was
signed;
- the fact that the PLD board of directors believed that the Metromedia
common stock would have greater liquidity than the PLD common stock;
- the ability of the combined companies to more easily access capital
markets for additional debt and equity financing;
- potential reductions in corporate level overhead costs of the combined
companies resulting from PLD not being a separate reporting person under
federal securities laws, which would improve the combined companies'
operating results;
- the opinion of Salomon Smith Barney Inc., financial advisor to PLD, as to
the fairness, from a financial point of view and as of the date of the
opinion, of the exchange ratio provided for in the merger, and the related
financial analyses performed by Salomon Smith Barney in connection with
its opinion;
- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals;
- the fact that, based upon the advice from Morgan, Lewis & Bockius LLP,
special tax counsel to PLD, the merger should be treated for federal
income tax purposes as a transaction which would be tax-free to the PLD
stockholders;
- the provisions of the merger agreement that permit PLD to consider
additional bona fide offers for PLD and to provide information to third
parties in response to those offers; and
- the absence of any viable alternatives to the Metromedia proposal and the
difficulty that PLD would have in identifying and completing an
alternative transaction were the merger not to occur.
The Metromedia board of directors considered the following material factors
and information in approving the issuance of the Metromedia common stock
pursuant to the merger agreement and recommending it to Metromedia stockholders:
- the acquisition of PLD will expand Metromedia's strategic focus on
providing telecommunications services and telecommunications
infrastructure to Eastern Europe and the former Soviet Union;
- PLD's main ventures in the former Soviet Union are larger, have attracted
more subscribers than Metromedia's consolidated ventures and will provide
greater cash flow to Metromedia's consolidated operations;
- the fact that Metromedia was able to negotiate favorable, consensual
restructurings of all of PLD's outstanding obligations;
- the May 16, 1999 opinion of Donaldson, Lufkin & Jenrette Securities Corp.
to the effect that as of that date and, subject to certain assumptions and
limitations, the exchange ratio was fair from a financial point of view to
Metromedia, and the related financial analyses performed by Donaldson,
Lufkin & Jenrette Securities Corp. in connection with its opinion;
- the nature of the parties' representations, warranties, covenants and
agreements, which the board believed would provide a reasonable degree of
certainty that the merger would be completed;
- potential reductions in corporate level overhead costs of the combined
companies resulting from PLD no longer being a separate reporting person
under federal securities laws, which would improve the combined companies'
operating results;
- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals; and
- the potential adverse effects on Metromedia's business, operations and
financial condition if the merger was not
4
<PAGE>
completed following public announcement of the merger agreement as a
result of the possible negative reaction in U.S. capital markets to the
failure by Metromedia to consummate a favorable transaction.
As a result, the Metromedia and PLD boards believe that the merger should
increase stockholder value to you.
To review the reasons for the merger in greater detail, see pages 34 through
36.
VOTING AGREEMENT (PAGE 63)
Holders of 38% of PLD's outstanding common stock have agreed to vote for the
merger. This means that at least 12.1% more of PLD's stockholders must vote for
the merger to ensure its approval.
RECOMMENDATION TO PLD STOCKHOLDERS (PAGE 35)
The PLD board has unanimously determined that the merger agreement and the
merger are fair to the PLD stockholders and in their best interests. The PLD
board recommends that they vote for approval of the merger agreement.
OPINION OF PLD'S FINANCIAL ADVISOR (PAGE 42)
In connection with the merger, the PLD board received a written opinion from
Salomon Smith Barney Inc. as to the fairness, from a financial point of view, of
the exchange ratio to the holders of PLD common stock. The full text of the
written opinion of Salomon Smith Barney Inc. dated May 18, 1999 is attached to
the back of this document as Appendix B, and should be read carefully in its
entirety for a description of the assumptions made, matters considered and
limitations on the review undertaken. THE OPINION OF SALOMON SMITH BARNEY INC.
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY
MATTER RELATING TO THE PROPOSED MERGER.
RECOMMENDATION TO METROMEDIA STOCKHOLDERS (PAGE 34)
The Metromedia board has unanimously determined that the merger agreement
and the merger are fair to the Metromedia stockholders and in their best
interests. The Metromedia board recommends that the Metromedia stockholders vote
for approval of the merger agreement.
OPINION OF METROMEDIA'S FINANCIAL ADVISOR (PAGE 36)
Donaldson, Lufkin & Jenrette Securities Corporation, as financial advisor to
the Metromedia board, has delivered its written opinion to the Metromedia board
that, as of May 16, 1999, the exchange ratio was fair from a financial point of
view to Metromedia stockholders. The full text of the opinion of Donaldson,
Lufkin & Jenrette Securities Corporation is attached as Appendix C. The opinion
describes important assumptions and limitations and is not a recommendation as
to how the Metromedia stockholders should vote on the merger.
DISSENTERS' RIGHTS (PAGES 29 AND 31)
Under Delaware law, Metromedia and PLD stockholders do not have dissenters'
rights with respect to the merger.
PREFERRED STOCKHOLDERS (PAGES 28 AND 31)
Holders of PLD's preferred stock will not have a vote with respect to the
merger. Holders of Metromedia preferred stock will not have a vote with respect
to the issuance of the shares of Metromedia common stock in the merger or any
other proposals referred to in this document.
CONDITIONS TO THE MERGER (PAGE 60)
We will not complete the merger unless a number of conditions are satisfied
or waived. These include:
- a majority of the holders of PLD common stock present in person or by
proxy at the PLD special meeting must approve the
5
<PAGE>
merger and the holders of a majority of Metromedia common stock present in
person or by proxy at the Metromedia annual meeting must approve the
issuance of the shares of Metromedia common stock pursuant to the merger
agreement;
- the completion of the following transactions:
- a restructuring of PLD's loans from the Travelers Insurance Company and
The Travelers Indemnity Company;
- a restructuring of PLD's loans from News America Incorporated;
- the exchange of PLD's outstanding senior discount notes and convertible
subordinated notes for new Metromedia notes; and
- the purchase by PLD of all minority interests in its Technocom
subsidiary;
in each case, as described beginning on page 63; and
- the receipt by PLD of legal opinion confirming the tax-free nature of the
merger.
The stockholders' approvals referred to above may not be waived by either
PLD or Metromedia. Any other condition to closing may be waived by the party for
whose benefit the condition is intended. The parties have not made any other
determination as to whether they would waive any condition to closing. If the
waiver of any conditions to closing constitutes a material change in the
disclosure made in this document, including the waiver of the condition that PLD
receive the additional opinion of tax counsel described below in "Income Tax
Consequences of the Merger," the parties will recirculate a revised proxy
statement and resolicit stockholders' approval.
A copy of the merger agreement is attached as Annex A to this document.
ACCOUNTING TREATMENT (PAGE 51)
The merger will be accounted for under the purchase method of accounting.
This means that after the merger, Metromedia will be required to record the
excess of the consideration paid over the estimated fair value of net assets
acquired and will subsequently amortize this cost against earnings.
COMPARISON OF STOCKHOLDER RIGHTS (PAGE 77)
The certificates of incorporation and by-laws of PLD and Metromedia vary. As
a result, the PLD stockholders will have different rights as Metromedia
stockholders than they currently have as PLD stockholders.
TERMINATION OF THE MERGER AGREEMENT (PAGE 61)
We can agree to terminate the merger agreement without completing the
merger. Either one of us can terminate the merger agreement:
- if the merger is not completed before October 31, 1999; or
- if the other company has failed to perform its obligations under the
merger agreement.
In addition, Metromedia and PLD can unilaterally terminate the merger
agreement under those circumstances described on page 62.
TERMINATION PAYMENTS
PLD is required to pay Metromedia a termination payment of $6.25 million
(plus reimburse up to $1.0 million of expenses) if the merger agreement is
terminated under those circumstances described on page 62.
Metromedia is required to reimburse PLD for its expenses up to $500,000 if
the merger agreement is terminated under those circumstances described on page
62.
6
<PAGE>
INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 49)
The merger is intended to be tax-free to you, except with respect to cash
received instead of fractional shares of Metromedia common stock.
PLD has received an opinion of Morgan, Lewis & Bockius LLP, special tax
counsel to PLD. In its opinion, the merger will be treated as a reorganization
within the meaning of the Internal Revenue Code. As a result, no gain or loss
will be recognized for federal income tax purposes by PLD stockholders except
with respect to cash received in lieu of fractional shares. In addition, no gain
or loss will be recognized for federal income tax purposes by Metromedia, PLD
and the Metromedia subsidiary. PLD's obligation to complete the merger is
conditioned upon its receipt from its tax counsel of an additional opinion dated
as of the closing date of the merger that confirms the opinion previously
delivered to PLD.
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR
OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR.
REGULATORY APPROVALS (PAGE 53)
Early termination of the waiting period applicable to the consummation of
the merger under federal antitrust laws was granted on June 24, 1999, effective
immediately. In addition, PLD has received assurances that the Department of
Trade and Industry in the United Kingdom will not object to the change of
control of PLD's U.K. telecommunications licenses which will result from the
merger. The Federal Communications Commission has consented to the change of
control of PLD's U.S. telecommunications licenses in connection with the merger.
Application was filed with the Department of Enterprise and Employment in
Ireland to consent to the change of control of PLD and Technocom Limited, an
Irish subsidiary of PLD. No other federal or other regulatory requirements or
approvals must be complied with or obtained for the consummation of the merger.
FORWARD-LOOKING STATEMENTS
Statements in this document and in the documents incorporated by reference
in this document are or may be forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those expressed in such
statements depending on a variety of factors. You should carefully review all
information, including the financial statements and the notes to the financial
statements, included or incorporated by reference into this document. See "Risk
Factors" on page 13.
7
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following historical financial information to aid you
in your analysis of the financial aspects of the merger. The information is only
a summary and you should read it together with our consolidated financial
statements and other financial information contained in our most recent annual
and quarterly reports, which are incorporated by reference and from which we
derived this information. See "Where You Can Find More Information."
METROMEDIA-HISTORICAL FINANCIAL INFORMATION
The following selected consolidated financial data should be read in
conjunction with Metromedia's consolidated financial statements, including the
notes thereto, and the other financial data incorporated by reference in this
joint proxy statement/prospectus. The consolidated statement of operations data
and consolidated balance sheet data as of and for the years ended December 31,
1998, 1997, 1996, 1995 and the fiscal year ended February 28, 1995 are derived
from the consolidated financial statements of Metromedia and the notes related
thereto, which were audited by KPMG LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1998 and
1997 and for each of the years in the three-year period ended December 31, 1998
and the report of KPMG LLP thereon, are incorporated by reference in this joint
proxy statement/prospectus. The selected consolidated statement of operations
data and balance sheet data as of June 30, 1999 and for the six-month periods
ended June 30, 1999 and 1998 are derived from the unaudited consolidated
financial statements of Metromedia incorporated by reference in this joint proxy
statement/prospectus which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of Metromedia for such periods. The results of operations
for interim periods are not necessarily indicative of a full year's operations.
Net loss per share is computed on the basis described in the notes to
Metromedia's consolidated financial statements.
The consolidated financial statements for the year ended December 31, 1996
include two months (November and December 1996) of the results of operations of
Snapper, Inc. In addition, the consolidated financial statements for the year
ended December 31, 1995 include operations for The Actava Group Inc. and MCEG
Sterling Incorporated from November 1, 1995 and two months for Orion Pictures
Corporation (January and February 1995) that were included in the February 28,
1995 consolidated financial statements. The net loss for the two month duplicate
period is $11.4 million.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31, YEAR ENDED
-------------------- ------------------------------------------ FEBRUARY 28,
1999 1998 1998 1997 1996 1995 1995
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statement of Operations Data:
Revenues.......................... $ 132,647 $ 134,458 $ 240,292 $ 204,328 $ 36,592 $ 5,158 $ 3,545
Equity in losses of unconsolidated
investees (1)................... (5,933) (7,645) (18,151) (53,150) (7,835) (6,367) (1,785)
Loss from continuing operations
(1) (2)......................... (22,877) (45,152) (135,986) (130,901) (72,146) (36,265) (19,141)
Net income (loss)................. $ (22,877) $ (39,885) $(123,670) $ 88,443 $(115,243) $(412,976) $ (69,411)
Income (loss) per common share--Basic:
Continuing operations........... $ (0.44) $ (0.77) $ (2.19) $ (2.02) $ (1.33) $ (1.48) $ (0.95)
Net income (loss)............... $ (0.44) $ (0.69) $ (2.01) $ 1.26 $ (2.12) $ (16.83) $ (3.43)
Ratio of earnings to fixed charges
(4)............................. -- -- -- -- -- -- --
Weighted average common shares
outstanding..................... 69,137 68,810 68,955 66,961 54,293 24,541 20,246
Dividends per common share........ -- -- -- -- -- -- --
Consolidated Balance Sheet Data (at end of period):
Total assets (3).................. $ 559,532 N/A $ 609,641 $ 789,272 $ 513,118 $ 328,600 $ 40,282
Notes and subordinated debt....... 44,659 N/A 51,834 79,416 190,754 171,004 24,948
</TABLE>
- ------------------------------
(1) Included in the year ended December 31, 1997 are equity in losses and
writedown of investment in RDM Sports Group, Inc. of $45.1 million.
8
<PAGE>
(2) For the year ended December 31, 1998, in connection with Metromedia's
communications group's paging operations, Metromedia adjusted the carrying
value of goodwill and other intangibles, fixed assets, investments in and
advances to its joint ventures and wrote down inventory. The total non-cash
nonrecurring charge and write down was $49.9 million.
(3) Total assets include the net assets of the entertainment assets and the
Landmark Theatre Group, Inc. The net assets (liabilities) of the
entertainment assets at December 31, 1996 and 1995 and February 28, 1995
were $11.0 million, $12.1 million and ($8.5) million, respectively. At
December 31, 1997 and 1996, the net assets of the Landmark Theatre Group,
Inc., which was acquired on July 2, 1996, were $46.8 million and $46.5
million, respectively.
(4) For purposes of this computation, earnings are defined as pre-tax earnings
or loss from continuing operations of Metromedia before adjustment for
minority interests in consolidated subsidiaries or income or loss from
equity investees attributable to common stockholders plus fixed charges and
distributed income of equity investees.
Fixed charges are the sum of:
- interest expensed and capitalized,
- amortization of deferred financing costs, premium and debt discounts,
- the portion of operating lease rental expense that is representative of
the interest factor (deemed to be one-third), and
- dividends on preferred stock.
The ratio of earnings to fixed charges of Metromedia was less than 1.00 for
each of the six months ended June 30, 1999 and 1998 and for the years ended
December 31, 1998, 1997, 1996 and 1995 and for the year ended February 28, 1995;
thus earnings available for fixed charges were inadequate to cover fixed charges
for such periods. The deficiency in earnings to fixed charges for the six months
ended June 30, 1999 and 1998 and for the years ended December 31, 1998, 1997,
1996 and 1995 and for the year ended February 28, 1995 were: $28.7 million,
$48.2 million, $141.1 million, $95.3 million, $64.3 million, $30.1 million and
$17.4 million, respectively.
PLD--HISTORICAL FINANCIAL INFORMATION
The following selected consolidated financial data should be read in
conjunction with PLD's consolidated financial statements, including the notes
thereto, and the other financial data incorporated by reference in this joint
proxy statement/prospectus. The statement of operations data and balance sheet
data as of and for the years ended December 31, 1998 and 1997 are derived from
the consolidated financial statements of PLD and the notes related thereto,
which were audited by KPMG LLP, independent certified public accountants, whose
report contains an explanatory paragraph that states that PLD's recurring
losses, working capital deficiency and lack of sufficient funds on hand to meet
its current debt obligations raise substantial doubt about the entity's ability
to continue as a going concern. The consolidated financial statements and the
selected financial data do not include any adjustments that might result from
the outcome of that uncertainty. The consolidated statement of operations data
and consolidated balance sheet data as of and for the years ended December 31,
1996, 1995 and 1994 are derived from the consolidated financial statements of
PLD and the notes related thereto, which were audited by KPMG LLP, Chartered
Accountants. The consolidated financial statements as of December 31, 1998 and
1997 and for the years then ended and the report of KPMG LLP thereon and the
consolidated statements of operations, shareholders' equity and cash flows of
PLD for the year ended December 31, 1996 and the report of KPMG LLP are
incorporated by reference in this joint proxy statement/prospectus. The selected
financial data should be read in conjunction with the consolidated financial
statements, the related notes and the independent auditors' reports. The
selected consolidated statement of operations data and balance sheet data as of
June 30, 1999 and for the six-month periods ended June 30, 1999 and 1998 are
derived from the unaudited consolidated financial statements of PLD incorporated
by reference in this joint proxy statement/ prospectus, which in the opinion of
management, include all adjustments necessary for a fair presentation of the
financial condition and results of operations of PLD for such periods. The
results of operations for interim periods are not necessarily indicative of a
full year's operations. Net loss per share is computed on the basis described in
the notes to PLD's consolidated financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Consolidated Statements of
Operations Data:
Operating revenues............ $ 57,328 $ 74,406 $ 145,360 $ 114,424 $ 61,966 $ 29,120 $ 8,526
Operating expenses............ 60,453 61,285 135,412 102,406 59,099 38,266 17,248
---------- ---------- ---------- ---------- ---------- ---------- ---------
Operating income/(loss)....... (3,125) 13,121 9,948 12,018 2,867 (9,146) (8,722)
---------- ---------- ---------- ---------- ---------- ---------- ---------
Loss before income taxes and
minority interest........... (17,323) 2,838 (23,561) (3,428) (6,271) (13,440) (9,491)
Income taxes.................. 4,723 5,171 9,864 7,739 3,669 1,490 --
---------- ---------- ---------- ---------- ---------- ---------- ---------
Loss before minority
interest.................... (22,046) (2,333) (33,425) (11,167) (9,940) (14,930) (9,491)
Minority interest............. 2,087 7,534 9,386 9,399 2,521 551 --
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net loss...................... $ (24,133) $ (9,867) $ (42,811) $ (20,566) $ (12,461) $ (15,481) $ (9,491)
---------- ---------- ---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------- ---------- ---------
Loss per common share......... $ (0.64) $ (0.30) $ (1.21) $ (0.64) $ (0.39) $ (0.49) $ (0.78)
---------- ---------- ---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------- ---------- ---------
Weighted average number of
shares of common stock
outstanding (basic and
diluted).................... 37,847 33,423 35,274 32,061 31,579 31,315 12,663
Dividends per common share.... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
JUNE 30, ------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(1)............... $ 7,882 $ 4,579 $ 17,256 $ 40,674 $ 15,676 $ 56,710
Non-cash working capital deficiency........ (44,665) (20,578) (18,642) (26,440) (22,001) (17,706)
Escrow funds............................... 15,220 14,908 33,868 40,984 -- --
Property and equipment, net................ 172,171 168,937 134,998 93,039 45,357 21,718
Telecommunications licenses, net........... 71,867 77,359 81,837 72,310 49,583 54,099
Goodwill, net.............................. 35,364 36,368 12,709 1,796 2,011 --
Investments and other assets............... 17,021 15,128 17,092 37,256 27,282 18,925
Investment in Teleport-TP (2).............. -- -- -- -- 23,564 15,699
Total assets............................... 351,160 352,108 335,586 306,357 178,092 171,760
Long-term debt............................... 150,095 151,814 133,516 107,954 -- --
Stockholders' equity......................... 101,657 124,877 127,231 137,954 135,832 147,470
</TABLE>
(1) The December 31, 1996 and 1995 balances include cash of $9.0 million and
$6.1 million, respectively, held on deposit as collateral to secure bank
indebtedness of the same amount.
(2) Teleport-TP became a consolidated subsidiary as of December 31, 1996 as a
result of the acquisition of an additional ownership interest on December
20, 1996.
10
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited selected pro forma combined condensed financial data
are derived from the Unaudited Pro Forma Combined Financial Information included
elsewhere in this joint proxy statement/prospectus and should be read together
with that data and with the notes to that data. These unaudited selected pro
forma combined financial data:
- are based upon the historical financial statements of Metromedia and PLD
as of and for the six months ended June 30, 1999 and for the year ended
December 31, 1998;
- are adjusted to give effect to the merger;
- are adjusted for the restructuring of all of PLD's outstanding senior and
subordinated notes, the loans owed to the Travelers Insurance Company and
News America and PLD's obligation to purchase the minority interests in
the PLD subsidiary Technocom Limited.
With respect to the balance sheet data, the transactions referred to above
are assumed to have been completed as of June 30, 1999. With respect to the
statement of operations data the transactions referred to above are assumed to
have been completed as of the beginning of the periods presented.
These unaudited selected pro forma combined condensed financial data are for
illustrative purposes only and do not necessarily indicate the operating results
or financial position that would have been achieved had the merger and the
restructuring described above been completed as of the dates indicated or of the
results that may be obtained in the future. In addition, the data does not
reflect synergies that might be achieved from combining these operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
------------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
Statement of Operations Data:
Revenues...................................................................... $ 189,975 $ 385,652
Equity in losses of unconsolidated investees.................................. (6,363) (19,109)
Loss from continuing operations............................................... (47,664) (187,941)
Income (loss) per common share--Basic:
Continuing operations....................................................... $ (0.61) $ (2.25)
Weighted average common shares outstanding.................................... 90,387 90,205
Dividends per common share.................................................... -- --
Balance Sheet Data (at end of period):
Total assets.................................................................. $ 968,636 N/A
Debt.......................................................................... 228,246 N/A
</TABLE>
COMPARATIVE PER SHARE INFORMATION
The average common shares outstanding used in calculating pro forma loss per
common share from continuing operations are calculated assuming that the
estimated number of shares of Metromedia common stock to be issued in the merger
were outstanding from the beginning of the periods presented. Options and
warrants to purchase shares of common stock as well as shares of common stock
issuable upon conversion of Metromedia's convertible preferred stock were not
included in computing pro forma diluted earnings per common share because their
inclusion would result in a smaller loss per common share.
The book value per share amounts of Metromedia were calculated by dividing
shareholders' equity by the number of common shares outstanding, at the end of
the period. The common stock outstanding used in calculating pro forma combined
book value per share are 69,162,000 of Metromedia common stock outstanding at
June 30, 1999 plus 21,250,000 shares representing the estimated number of
11
<PAGE>
common shares to be issued in the merger. See Note 1 to the Unaudited Pro Forma
Combined Financial Statements.
PLD pro forma equivalent amounts are calculated by multiplying the
respective pro forma combined per share amounts by the exchange ratio of .56,
using the closing price on May 18, 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------------ ------------------------
HISTORICAL METROMEDIA PLD METROMEDIA PLD
- -------------------------------------------------------------------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Loss per common share from continuing operations.................... $ (0.44) $ (0.64) $ (2.19) $ (1.21)
Cash dividend declared per common share............................. -- -- -- --
Book value per common share at end of period........................ $ 5.72 $ 2.69 $ 6.16 $ 3.30
</TABLE>
<TABLE>
<CAPTION>
METROMEDIA PLD
PRO FORMA PRO FORMA
PRO FORMA AND PRO FORMA EQUIVALENT PER SHARE DATA COMBINED EQUIVALENT
- ------------------------------------------------------------------------------------ --------------- -------------
<S> <C> <C>
Loss per common share from continuing operations for the:
Year ended December 31, 1998...................................................... $ (2.25) $ (1.26)
Six months ended June 30, 1999.................................................... $ (0.61) $ (0.34)
Cash dividends declared per common share:
Year ended December 31, 1998...................................................... -- --
Six months ended June 30, 1999.................................................... -- --
Book value per common share June 30, 1999........................................... $ 6.19 $ 3.47
</TABLE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Metromedia common stock is traded on the American and Pacific Stock
Exchanges under the symbol "MMG." PLD common stock is traded on the Nasdaq
National Market and the Toronto Stock Exchange under the symbols "PLDI" and
"PLD", respectively. We list below the per share closing market prices as
reported on the American Stock Exchange Composite Transactions Tape for shares
of Metromedia common stock and on the Nasdaq National Market for shares of PLD
common stock. We list this information as of May 17, 1999, the last trading day
before public announcement of the signing of the merger agreement, and as of
August 30, 1999 the latest practicable date prior to the printing of this
document.
We also list the implied equivalent per share value for shares of PLD common
stock, which is the Metromedia common stock price multiplied by the exchange
ratio of .56, assuming the average Metromedia stock price is equal to or greater
than $6.25 but less than or equal to $8.00.
We urge you to obtain current market quotations for PLD common stock and
Metromedia common stock before voting on the merger.
<TABLE>
<CAPTION>
PLD SHARE
PLD SHARE METROMEDIA EQUIVALENT
PRICE SHARE PRICE VALUE
----------- ----------- ---------------
<S> <C> <C> <C>
May 17, 1999.......................................................... $ 2.75 $ 6.50 $ 3.64
August 30, 1999....................................................... $ 3.03 $ 6.375 $ 3.57
</TABLE>
12
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION BELOW AS WELL AS ALL OTHER
INFORMATION PROVIDED TO YOU IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN DECIDING
WHETHER TO APPROVE THE MERGER, INCLUDING INFORMATION IN THE SECTION OF THIS
PROSPECTUS ENTITLED "--METROMEDIA'S FUTURE RESULTS OF OPERATIONS MAY BE
SUBSTANTIALLY DIFFERENT FROM ITS STATEMENTS ABOUT ITS FUTURE PROSPECTS AND YOU
SHOULD NOT UNDULY RELY ON THESE STATEMENTS."
METROMEDIA EXPECTS TO CONTINUE TO INCUR LOSSES FROM ITS CONTINUING OPERATIONS,
WHICH COULD PREVENT IT FROM PURSUING ITS GROWTH STRATEGIES AND COULD CAUSE IT TO
DEFAULT UNDER ITS DEBT OBLIGATIONS.
Metromedia cannot assure you that it will succeed in establishing an
adequate revenue base or that its services will be profitable or generate
positive cash flow. Metromedia has reported substantial losses from operations
over the previous three years. For the six months ended June 30, 1999 and for
the years ended December 31, 1998, 1997 and 1996, it reported a loss from
continuing operations of approximately $22.9 million, $136.0 million, $130.9
million and $72.1 million, respectively, and a net loss of $22.9 million, $123.7
million, net income of $88.4 million, and a net loss of $115.2 million,
respectively. Metromedia expects that it will report significant operating
losses, including losses attributable to Snapper, Inc., for the fiscal year
ended December 31, 1999. In addition, many of the joint ventures in its
communication group are still in the early stages of their development and
Metromedia expects this group to continue to generate significant losses as it
continues to build-out and market its services. Accordingly, Metromedia expects
to generate consolidated losses for the foreseeable future.
Continued losses and negative cash flow may prevent Metromedia from pursuing
its strategies for growth and could cause it to be unable to meet its debt
service obligations, its capital expenditures or working capital needs.
CHINESE GOVERNMENTAL AUTHORITIES ARE CAUSING THE TERMINATION OF CERTAIN OF
METROMEDIA'S JOINT VENTURES, WHICH COULD HAVE NEGATIVE EFFECTS ON METROMEDIA'S
FINANCIAL POSITION AND RESULTS OF OPERATIONS.
Because legal restrictions in China prohibit foreign participation in the
operation or ownership in the telecommunications sector, Metromedia's
telecommunications joint ventures in China have been established so as to
provide financing, technical advice, consulting and other services for the
construction and development of telephony networks for China United
Telecommunications Incorporated, known as China Unicom, a Chinese
telecommunications operator.
Metromedia has recently been notified by China Unicom that a department of
the Chinese government has requested termination of two of Metromedia's
telecommunications joint ventures with China Unicom. Negotiations have commenced
with representatives of China Unicom on the amount of compensation and terms of
the resolution of all issues between the parties. The content of the
negotiations includes determining the investment principal of these joint
ventures, appropriate compensation and other matters related to termination of
contracts. Metromedia was further notified that due to technical reasons which
were not specified, the cash distribution plan for the first half of 1999 had
not been decided and that China Unicom also expected to discuss this subject
with the joint ventures. As a result, Metromedia cannot assure you that it will
receive compensation from the Chinese government for the termination of its
joint ventures or that the compensation that it will receive, if any, will be
adequate.
While the notification only involved two of Metromedia's telecommunications
joint ventures, Metromedia expects that the other two telecommunications
projects in which it has invested will receive similar notifications. In
addition, China Unicom has suspended cooperation on further development of
networks with these joint ventures, which Metromedia believes reflects China
Unicom's intention to negotiate the termination of its relationship with these
joint ventures as well.
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<PAGE>
In light of the current uncertainty, Metromedia is unable to estimate the
impact on its financial condition and results of operations of such negotiations
and expected winding up of its other two Chinese telecommunications joint
ventures. Metromedia believes that negotiations, if adversely concluded, could
have a materially negative effect on Metromedia's financial position and
operating results. Depending on the amount of compensation it receives,
Metromedia will record a non cash charge equal to the difference between the sum
of the carrying values of its investment and advances made to joint ventures
plus goodwill less the cash compensation it receives from the joint ventures
which China Unicom has paid. Metromedia's investment in and advances to joint
ventures and goodwill balance at June 30, 1999 were approximately $71 million
and $67 million respectively. See "Business of Metromedia."
METROMEDIA MAY NOT BE ABLE TO REALIZE FULLY ALL THE BENEFITS THAT IT ANTICIPATES
FROM THE MERGER.
Metromedia and PLD previously operated independently. They entered into the
merger agreement with the expectation that the merger would create opportunities
to achieve cost synergies, revenue growth, technological development and other
synergistic benefits. The value of the Metromedia common stock following
consummation of the merger may be affected by the ability to achieve the
benefits expected to result from the consummation of the merger. Achieving the
benefits of the merger will depend in part upon meeting the challenges inherent
in the successful combination of two business enterprises of the size and scope
of Metromedia and PLD, which include:
- the possible resulting diversion of management attention for an extended
period of time;
- the possible loss of management-level and highly qualified employees;
- the possible inability to integrate the management culture, enterprise
systems and operations of these two companies; and
- the involvement of Metromedia in different businesses in which it has
limited experience.
We cannot assure you that we will meet these challenges and that these
challenges will not negatively impact the operations of Metromedia following the
merger. Delays encountered in the transition process could have a material
adverse effect upon the revenues, level of expenses, operating results and
financial condition of the combined company. We cannot assure you that the
combined company will realize any of these anticipated benefits.
METROMEDIA WILL BE UNABLE TO MEET ITS OBLIGATIONS IF IT DOES NOT RECEIVE
DISTRIBUTIONS FROM ITS SUBSIDIARIES AND ITS SUBSIDIARIES HAVE NO OBLIGATIONS TO
MAKE ANY PAYMENTS TO IT.
Metromedia is a holding company with no direct operations and no assets of
significance other than the stock of its subsidiaries. As such, Metromedia is
dependent on the earnings of its subsidiaries and the distribution or other
payment of these earnings to it to meet Metromedia's obligations, including its
ability to make distributions to its stockholders. Metromedia's subsidiaries are
separate legal entities that will have no obligation to pay any amounts
Metromedia owes to third parties, whether by dividends, loans or other payments.
Snapper, Inc.'s credit facility contains substantial restrictions on dividends
and other payments by Snapper to Metromedia. In addition, many of Metromedia's
joint ventures are in their early stages of development and are operating
businesses that are capital intensive. As a result, Metromedia will only be able
to rely on cash on hand, proceeds from the disposition of non-core assets and
net proceeds from additional financings through a public or private sale of debt
or equity securities to meet its cash requirements, including the making of any
distributions to Metromedia stockholders.
14
<PAGE>
PLD HAS SUFFERED RECURRING LOSSES AND MAY NOT BE ABLE TO CONTINUE AS A GOING
CONCERN.
PLD has suffered recurring losses, has a working capital deficiency and does
not presently have access to sufficient funds on hand to meet its current debt
obligations. These factors raise substantial doubt about PLD's ability to
continue as a going concern, if the merger is not consummated, as indicated in
the report for fiscal 1998 of KPMG LLP, PLD's independent auditors. See "Related
Agreements--Restructuring of PLD's Obligations."
AS A RESULT OF THE MERGER, METROMEDIA WILL HAVE SUBSTANTIAL DEBT, WHICH MAY
LIMIT ITS ABILITY TO BORROW, RESTRICT THE USE OF ITS CASH FLOWS, CONSTRAIN ITS
BUSINESS STRATEGY AND MAKE IT UNABLE TO MEET ITS DEBT OBLIGATIONS.
As a result of the merger, Metromedia will issue $212,520,268 in new
Metromedia notes and will incur other indebtedness to certain PLD security
holders described in "Related Agreements."
This indebtedness has important consequences, including:
- Metromedia's ability to borrow additional amounts for working capital,
capital expenditures or other purposes will be limited,
- a substantial portion of its cash flow from operations will be required to
make debt service payments,
- Metromedia's leverage could limit its ability to capitalize on significant
business opportunities and its flexibility to react to changes in general
economic conditions, competitive pressures and adverse changes in
government regulation,
- Metromedia's ability to pay dividends will be restricted, and
- Metromedia will be limited in its ability to merge, consolidate, or
dispose of its assets.
Metromedia cannot assure you that its cash flow and capital resources will
be sufficient to repay any indebtedness incurred in the merger or that it may
incur in the future, or that it will be successful in obtaining alternative
financing. In the event that Metromedia is unable to repay its debts, it may be
forced to reduce or delay the completion or expansion of its networks, sell some
of its assets, obtain additional equity capital or refinance or restructure its
debt. Even if new financing is available, it may not be on terms that are
acceptable to Metromedia. The indebtedness being incurred in connection with the
merger imposes substantial covenants on Metromedia. Complying with these
covenants may cause Metromedia to take actions that it otherwise would not take,
or not take actions that it otherwise would take. Please refer to the section in
this prospectus entitled "Related Agreements--Agreement to Exchange and Consent;
Terms of Metromedia Notes."
METROMEDIA MAY NOT BE ABLE TO RAISE THE SUBSTANTIAL ADDITIONAL FINANCING THAT
WILL BE REQUIRED TO SATISFY ITS LONG-TERM BUSINESS OBJECTIVES, WHICH WOULD FORCE
IT TO SIGNIFICANTLY CURTAIL ITS BUSINESS OBJECTIVES AND MAY MATERIALLY AND
ADVERSELY AFFECT ITS RESULTS OF OPERATIONS.
Many of Metromedia's joint ventures operate businesses that are capital
intensive and require the investment of significant amounts of capital in order
to construct and develop operational systems and market their services. As a
result, Metromedia will require substantial additional financing to satisfy its
long-term business objectives, including its on-going working capital,
acquisition and expansion requirements. Metromedia may seek to raise this
additional capital through the public or private sale of debt or equity
securities. If Metromedia incurs additional debt, it may become subject to
additional or more restrictive financial covenants and ratios. Metromedia cannot
assure you that additional financing will be available to it on acceptable
terms, if at all. If adequate additional funds are not available, Metromedia may
be required to curtail significantly its long-term business objectives and its
results from operations may be materially and adversely affected.
15
<PAGE>
METROMEDIA AND PLD MAY BE MATERIALLY AND ADVERSELY AFFECTED BY COMPETITION FROM
LARGER GLOBAL COMMUNICATIONS COMPANIES OR THE EMERGENCE OF COMPETING
TECHNOLOGIES IN THEIR CURRENT OR FUTURE MARKETS.
Metromedia and PLD operate in businesses which are highly competitive and
they compete with many other well-known communications and media companies, many
of which have established operating infrastructures and substantially greater
financial, management and other resources than them.
Metromedia and PLD also face potential competition from competing
technologies which could emerge over time in Eastern Europe, the republics of
the former Soviet Union and other selected emerging markets and compete directly
with their operations. For example, Metromedia believes that it will not be able
to effectively compete for its traditional paging customers in markets where GSM
technology is combined with calling party pays and prepaid calling card service.
Similarly, Metromedia cannot assure you that PLD's nationwide cellular network
in Kazakhstan will be able to compete with the development of the
newly-introduced GSM technology in this market.
In addition, each of the principal partners in PLD's operating businesses
have interests that may conflict with those of PLD and in certain instances
could compete directly with PLD and its networks. This competition could
seriously undermine the local support for PLD's networks, affect PLD's results
of operations in these countries and jeopardize Metromedia's ability to fully
realize the value of its economic investments in these countries. See
'--Metromedia and PLD do not fully control certain of their joint ventures'
operations, strategies and financial decisions and cannot assure you that they
will be able to maximize their returns on their investments" and "--Metromedia's
dependence on certain local operators, interconnect parties or local customers
may materially and adversely affect its operations." For example, PLD's partner
in PLD's operating business in St. Petersburg has recently completed the
installation of a fiber optic network in St. Petersburg which could provide
serious competition to PLD's network in this area. The cellular network of PLD's
operating business in Kazakhstan directly competes with the public switched
telephone network of Kazakhtelekom, PLD's partner in this operating business,
and a recently established GSM mobile phone service joint venture in which
Kazakhtelekom has an interest. PLD's long distance network in Moscow is in
direct competition with the long distance national network operated by
Rostelecom, PLD's partner in its Moscow operating business.
In addition, Metromedia does not expect to maintain or to be granted
exclusive licenses to operate its communications businesses in any of the
markets where it currently provides or plans to provide its services.
METROMEDIA MAY NOT BE ABLE TO ATTRACT CONSUMERS TO ITS SERVICES, WHICH WOULD
NEGATIVELY IMPACT ITS OPERATING RESULTS.
Metromedia's operating results are dependent upon its ability to attract and
maintain subscribers to its cable, paging and telephony systems and the sale of
commercial advertising time on its radio stations. These in turn depend on the
following factors, several of which are beyond Metromedia's control:
- the general economic conditions in the markets where Metromedia's cable,
telephone systems, paging and radio stations are located,
- the relative popularity of Metromedia's systems, including its radio
stations,
- the demographic characteristics of the potential subscribers to
Metromedia's systems and audience of its radio stations,
16
<PAGE>
- the technical attractiveness to customers of the equipment and service of
Metromedia's systems, and
- the activities of its competitors.
METROMEDIA CANNOT ASSURE YOU THAT IT WILL SUCCESSFULLY COMPLETE THE CONSTRUCTION
OF ITS SYSTEMS, WHICH WOULD JEOPARDIZE LICENSES FOR ITS SYSTEMS OR PROVIDE
OPPORTUNITIES TO ITS COMPETITORS.
Most of Metromedia's joint ventures require substantial construction of new
systems and additions to the physical plants of existing systems. Construction
projects are adversely affected by cost overruns and delays not within
Metromedia's control or the control of its subcontractors, such as those caused
by governmental changes and material or equipment shortages or delays in
delivery of material or equipment. Metromedia cannot assure you that this
construction will be completed on time or on budget. The failure to complete
construction of a communications system on a timely basis could jeopardize the
franchise or license for Metromedia's system or provide opportunities to its
competitors.
METROMEDIA MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT AND MANAGE THE GROWTH OF
ITS VENTURES, WHICH WOULD AFFECT ITS GROWTH STRATEGY.
Many of Metromedia's ventures are either in developmental stages or have
only recently commenced operations and Metromedia has incurred significant
operating losses to date. Metromedia is currently pursuing additional
investments in a variety of communications businesses both in its existing
markets and in additional markets. In implementing and managing its strategy of
growing its businesses, Metromedia must:
- assess the strengths and weaknesses of development opportunities,
- evaluate the costs and uncertain returns of developing and constructing
the facilities for operating systems, and
- integrate and manage the operations of existing and additional systems.
Metromedia cannot assure you that it will successfully implement its growth
strategy.
THE GOVERNMENT LICENSES ON WHICH METROMEDIA DEPENDS TO OPERATE MANY OF ITS
BUSINESSES COULD BE CANCELLED OR NOT RENEWED, WHICH WOULD IMPAIR THE DEVELOPMENT
OF ITS SERVICES.
Metromedia's joint ventures' operations are subject to governmental
regulation and approvals in the markets in which these joint ventures operate.
Metromedia's joint ventures operate under licenses that are issued for limited
periods. Some of these licenses expire over the next several years, and some are
renewable annually. Metromedia's failure to renew these licenses may have a
material adverse effect on Metromedia. Seven licenses held or used by
Metromedia's joint ventures will expire during 1999. For most of the licenses
held or used by Metromedia's joint ventures, no statutory or regulatory
presumption exists for renewal by the current license holder and Metromedia
cannot assure you that these licenses will be renewed upon the expiration of
their current terms.
Additionally, some of the licenses pursuant to which Metromedia's businesses
operate contain network build-out milestones. Metromedia's failure to renew any
of these licenses or meet these milestones could result in the loss of these
licenses, which may have a material adverse effect on Metromedia's operations.
In addition, Metromedia cannot assure you that its joint ventures will obtain
the necessary approvals to operate additional cable television, fixed telephony
or paging systems or radio broadcast stations in any of the markets in which it
is seeking to establish its business. PLD has exceeded the number of lines which
the main license of its operating business in St. Petersburg allows it to
operate in St. Petersburg and the surrounding region and Metromedia cannot
assure you that the
17
<PAGE>
Russian licensing authorities will not terminate or renegotiate this license or
otherwise force PLD to reduce the number of its subscribers or impose other
penalties on PLD.
METROMEDIA AND PLD DO NOT FULLY CONTROL CERTAIN OF THEIR JOINT VENTURES'
OPERATIONS, STRATEGIES AND FINANCIAL DECISIONS AND CANNOT ASSURE YOU THAT THEY
WILL BE ABLE TO MAXIMIZE THEIR RETURN ON THEIR INVESTMENTS.
Metromedia and PLD have invested in virtually all of their joint ventures
with local partners. In certain cases, the degree of Metromedia's and PLD's
voting power and the voting power and veto rights of their joint venture
partners may limit Metromedia or PLD from effectively controlling the
operations, strategies and financial decisions of the joint ventures in which
they have an ownership interest. In addition, in certain cases, Metromedia and
PLD may be dependent on the continuing cooperation of their partners in the
joint ventures and any significant disagreements among the participants could
have a material adverse effect on their ventures. In addition, in some markets
where Metromedia or PLD conducts or may in the future conduct business, certain
decisions of a joint venture also require government approval. As a result,
Metromedia and PLD cannot assure you that they will be able to maximize their
return on all of their investments.
In addition, in many instances, Metromedia's and PLD's partners in a joint
venture include a governmental entity or an affiliate of a governmental entity.
This poses a number of risks, including:
- the possibility of decreased governmental support or enthusiasm for the
venture as a result of a change of government or government officials,
- a change of policy by the government, and
- the ability of the governmental entities to exert undue control or
influence over the project in the event of a dispute or otherwise.
In addition, to the extent Metromedia's or PLD's joint ventures become
profitable and generate sufficient cash flows in the future, Metromedia and PLD
cannot assure you that the joint ventures will pay dividends or return capital
at any time. Moreover, Metromedia's and PLD's equity interests in these
investments generally are not freely transferable. Therefore, Metromedia and PLD
cannot assure you of their ability to realize economic benefits through the sale
of their interests in their joint ventures.
METROMEDIA'S AND PLD'S DEPENDENCE ON LOCAL OPERATORS, INTERCONNECT PARTIES OR
LOCAL CUSTOMERS MAY MATERIALLY AND ADVERSELY AFFECT THEIR OPERATIONS.
Metromedia and PLD are dependent on local operators or interconnect parties
for a significant portion of their operations. For example, Metromedia has
recently been notified by the Chinese telecommunications operator with which it
operates its Chinese joint ventures that a department of the Chinese government
had requested termination of two of its telecommunications joint ventures. In
addition, this Chinese telecommunications operator has suspended cooperation on
further development of networks with Metromedia's other two telecommunications
joint ventures. See "Business of Metromedia." Also, PLD's operating business in
St. Petersburg is dependent on Russian operators for the completion of most of
its calls. Metromedia cannot assure you that this operating business will
continue to have access to these operators' networks or that it will be able to
have access to these networks with favorable tariffs. The loss of access to
these networks or increases in tariffs could have a material adverse effect upon
PLD. PLD's operating business in Kazakhstan is also entitled to interconnection
free of charge to networks operated by Kazakhtelekom, the Kazakhstan public
switched telephone network operator, for the completion of its local, long
distance and international calls. The loss of, or any significant limitation on,
its access to this network could have a material adverse effect on PLD. Further,
Kazakhtelekom may try to use its authority to endeavor to assess interconnection
18
<PAGE>
charges on PLD's operating business in Kazakhstan, which may materially impact
this operating business' profitability.
Metromedia and PLD are also dependent on local operators or interconnect
parties' facilities for certain of their operations. For example, PLD's
operating business in St. Petersburg is dependent on Russian operators'
buildings, ducts and tunnels in order to house its exchanges and to reach its
customers. The loss of access to these facilities or the availability of access
only on unfavorable terms could have a material adverse effect upon PLD.
Similarly, PLD's operating business in Moscow is also dependent upon the
facilities of local operators for the operation of its existing network in
Moscow and to terminate certain traffic to users. The loss of the right to use
these facilities could have a material adverse effect on PLD.
Certain customers account for a significant portion of the total revenues of
certain of PLD's operations and the loss of these customers would materially and
adversely affect PLD's results of operations.
In addition, several of PLD's customers, interconnect parties or local
operators experience liquidity problems from time to time. PLD's dependence on
these parties may make it vulnerable to their liquidity problems, both in terms
of pressure for financial support for the expansion of their operations and
facilities, and in PLD's ability to achieve prompt settlement of accounts.
METROMEDIA CANNOT ASSURE YOU THAT ITS EQUIPMENT WILL BE APPROVED BY THE
AUTHORITIES REGULATING THE MARKETS IN WHICH IT OPERATES, WHICH COULD HAVE A
MATERIAL ADVERSE EFFECT ON ITS OPERATIONS IN THESE MARKETS.
Many of Metromedia's proposed operations will be dependent upon approval of
its proposed equipment by the communications authorities of the markets in which
Metromedia and its joint ventures operate or plan to operate. Metromedia cannot
assure you that the equipment it plans to use in these markets will be approved.
The failure to obtain a type approval for Metromedia's equipment could have a
materially adverse effect on many of its proposed operations.
METROMEDIA MAY NOT BE ABLE TO KEEP PACE WITH THE EMERGENCE OF NEW TECHNOLOGIES
AND CHANGES IN MARKET CONDITIONS, WHICH WOULD MATERIALLY AND ADVERSELY AFFECT
ITS RESULTS OF OPERATIONS.
The communications industry has been characterized in recent years by rapid
and significant technological changes and changes in market conditions.
Competitors could introduce new or enhanced technologies with features which
would render Metromedia's technology obsolete or significantly less marketable.
Metromedia's ability to compete successfully will depend to a large extent on
its ability to respond quickly and adapt to technological changes and advances
in its industry. There can be no assurance that Metromedia will be able to keep
pace, or will have the financial resources to keep pace, with the technological
demands of the marketplace.
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<PAGE>
CERTAIN FAILURES TO ADDRESS THE YEAR 2000 PROBLEM MAY CAUSE DISRUPTIONS IN THE
OPERATION OF METROMEDIA'S NETWORKS AND METROMEDIA'S SERVICES TO CUSTOMERS.
Many computer and communications network systems, terminal devices, software
products and manufacturing devices will not function properly in the year 2000
and beyond due to a once-common programming standard that represents years using
two digits. This problem is often referred to as the year 2000 problem. It is
possible that Metromedia's and its joint venture partners' currently installed
computer and communications network systems, terminal devices, software
products, manufacturing devices or other information technology systems,
including embedded technology, or those of its and its joint venture partners'
suppliers, contractors, interconnect parties or major systems developers working
either alone or in conjunction with other softwares or systems, will not
properly function in the year 2000 because of the year 2000 problem. Metromedia
is not directly responsible for the year 2000 readiness of many of its joint
ventures and in some cases has no access to the joint venture's management
regarding these matters. Russia and the other republics of the former Soviet
Union appear to be substantially behind Western countries in their year 2000
compliance and readiness. Metromedia and PLD have been unable to determine with
any degree of certainty the extent to which their interconnect partners in the
former Soviet Union are non-compliant because those parties have generally been
reluctant to share this information. If Metromedia and its joint venture
partners, or its customers, suppliers, contractors, interconnect parties and
major systems developers are unable to address their year 2000 issues in a
timely manner, a material adverse effect on Metromedia's results of operations
and financial condition could result. Metromedia and its joint venture partners
are currently working to evaluate and resolve the potential impact of the year
2000 on its processing of date-sensitive information and network systems.
Metromedia cannot assure you that the year 2000 problem will only have a minimal
cost impact or that its joint venture partners and other companies will convert
their systems on a timely basis and that their failure will not have an adverse
effect on Metromedia's systems.
METROMEDIA COMPANY EFFECTIVELY CONTROLS METROMEDIA INTERNATIONAL GROUP AND HAS
THE POWER TO INFLUENCE THE DIRECTION OF ITS OPERATIONS AND PREVENT A CHANGE OF
CONTROL.
Metromedia Company and its affiliates collectively own approximately 26% of
the outstanding shares of common stock of Metromedia International Group and are
its largest stockholders. They have nominated or designated a majority of the
members of the board of directors. Metromedia International Group's charter and
Delaware law provide that the majority of the members of the board of directors
will nominate the directors for election to the board of directors. However, for
the foreseeable future it is likely that directors designated or nominated by
Metromedia Company will continue to constitute a majority of the members of the
board of directors. As a result, Metromedia Company will likely control the
direction of future operations of Metromedia International Group, including
decisions regarding acquisitions and other business opportunities, the
declaration of dividends and the issuance of additional shares of capital stock
and other securities. This concentration of ownership may have the effect of
delaying, deferring or preventing a change of control of Metromedia
International Group. Metromedia International Group's certificate of
incorporation and by-laws also contain provisions which may also have the effect
of delaying, deferring or preventing a change of control of it.
METROMEDIA COULD INCUR ENVIRONMENTAL LIABILITIES AS A RESULT OF ITS CURRENT
OPERATIONS AND PAST DIVESTITURES THE COST OF WHICH COULD MATERIALLY AFFECT ITS
RESULTS OF OPERATIONS.
Metromedia has been in operation since 1929 through its predecessors and,
over the years, has operated in diverse industries including equipment, sporting
goods and furniture manufacturing, sheet metal processing, and trucking.
Metromedia has divested almost all of its non-communications and
non-media-related operations. However, in the course of these divestitures, it
has retained certain indemnification obligations for environmental cleanup
matters and, in one case, a contaminated parcel
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at which it has undertaken cleanup activities. In other cases, particularly for
operations that Metromedia divested in the past, it could incur unanticipated
environmental cleanup obligations, to the extent they may exist or arise in the
future, as a result of changes in legal requirements that have occurred since
these divestitures or otherwise. Because some divestitures may have occurred
many years ago, Metromedia cannot assure you that environmental matters will not
arise in the future that could have a material adverse effect on its results of
operations or financial condition.
METROMEDIA OPERATES IN COUNTRIES WITH SIGNIFICANT POLITICAL, SOCIAL AND ECONOMIC
UNCERTAINTIES, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS OPERATIONS IN
THESE AREAS.
Metromedia operates in countries in Eastern Europe, the republics of the
former Soviet Union, China and other selected emerging markets. These countries
face significant political, social and economic uncertainties which could have a
material adverse effect on its operations in these areas. These uncertainties
include:
- possible internal military conflicts,
- civil unrest fueled by economic and social crises in those countries,
- political tensions between national and local governments which often
result in the enactment of conflicting legislation at various levels and
may result in political instability,
- bureaucratic infighting between government agencies with unclear and
overlapping jurisdictions,
- high unemployment, high inflation, high foreign debt, weak currencies and
the possibility of widespread bankruptcies,
- unstable governments,
- pervasive regulatory control of the state over the telecommunications
industry (see "--Laws restricting foreign investments in the
telecommunications industry could adversely affect Metromedia's operations
in these countries" and "--Chinese governmental authorities are causing
the termination of certain of Metromedia's joint ventures, which could
have negative effects on Metromedia's financial position and results of
operations"),
- uncertainty whether many of the countries in which Metromedia operates
will continue to receive the substantial financial assistance they have
received from several foreign governments and international organizations
which helps to support their economic development,
- failure by government entities to meet their outstanding foreign debt
repayment obligations, and
- the risk of increased support for a renewal of centralized authority and
increased nationalism resulting in possible restrictions on foreign
ownership and/or discrimination against foreign owned businesses.
Metromedia cannot assure you that the pursuit of economic reforms by the
governments of any of these countries will continue or prove to be ultimately
effective, especially in the event of a change in leadership, social or
political disruption or other circumstances affecting economic, political or
social conditions. See "Business of Metromedia."
METROMEDIA FACES ENHANCED ECONOMIC, LEGAL AND PHYSICAL RISKS BY OPERATING
ABROAD.
Metromedia has invested substantially all of its resources in operations
outside of the United States and plans to make additional international
investments in the near future. Metromedia runs a number of risks by investing
in foreign countries including:
- loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks
(see "--Laws restricting foreign investments in the telecommunications
industry could adversely affect Metromedia's operations in these
countries" and "--Chinese governmental authorities are causing the
termination of certain of Metromedia's
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joint ventures, which could have negative effects on Metromedia's
financial position and results of operations"),
- increases in taxes and governmental royalties and involuntary changes to
its licenses issued by, or contracts with, foreign governments or their
affiliated commercial enterprises,
- official data published by the governments of many of the countries in
which it operates is substantially less reliable than that published by
Western countries,
- changes in foreign and domestic laws and policies that govern operations
of overseas-based companies,
- amendments to, or different interpretations or implementations of, foreign
tax laws and regulations that could adversely affect the profitability
after tax of Metromedia's joint ventures,
- criminal organizations in certain of the countries in which Metromedia
operates that could threaten and intimidate our businesses. Metromedia
cannot assure you that pressures from criminal organizations will not
increase in the future and have a material adverse effect on its
operations, and
- high levels of corruption and non-compliance with the law exists in many
countries in which Metromedia operates businesses. This problem
significantly hurts economic growth in these countries and the ability of
Metromedia to compete on an even basis with other parties.
See "Business of Metromedia."
LAWS RESTRICTING FOREIGN INVESTMENTS IN THE TELECOMMUNICATIONS INDUSTRY COULD
ADVERSELY AFFECT METROMEDIA'S OPERATIONS IN THESE COUNTRIES.
Metromedia may also be materially and adversely affected by laws restricting
foreign investment in the field of communications. Some countries in which
Metromedia operates, including the Russian Federation and China, have extensive
restrictions on foreign investments in the communications field. There is no way
of predicting whether additional ownership limitations will be enacted in any of
Metromedia's markets, or whether any such law, if enacted, will force Metromedia
to reduce or restructure its ownership interest in any of its ventures. If
additional ownership limitations are enacted in any of Metromedia's markets and
Metromedia is required to reduce or restructure its ownership interests in any
ventures, it is unclear how this reduction or restructuring would be
implemented, or what impact this reduction or restructuring would have on
Metromedia and on its financial condition or results of operations.
Current Chinese law and regulations prohibit foreign companies and joint
ventures in which they participate from providing telephony services to
customers in China and generally limit the role that foreign companies or their
joint ventures may play in the telecommunications industry. Since mid-1998,
there has been uncertainty regarding possible significant changes in the
regulation of and policy concerning foreign participation in and financing of
the telecommunications industry in China, including the continued viability of
the structure that Metromedia currently use for its investments in the Chinese
telecommunications industry. If the Chinese laws or regulations change and
restrict further the participation of foreign companies in the Chinese
telecommunications market or the Chinese authorities challenge the validity of
Metromedia's operations in China:
- Metromedia's licenses to operate in China could be invalidated,
- the legal validity of its contracts could be challenged which would
deprive Metromedia of avenues of legal recourse,
- Metromedia could be exposed to fines or criminal sanctions, or
- Metromedia could not obtain financing within China or abroad.
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See "--Chinese governmental authorities are causing the termination of
certain of Metromedia's joint ventures, which could have negative effects on
Metromedia's financial position and results of operations."
The Russian Federation has periodically proposed legislation that would
limit the ownership percentage that foreign companies can have in radio and
television businesses and/or limit the number of radio and television businesses
that any company could own in a single market. While this proposed legislation
has not been enacted, it is possible that this legislation could be enacted in
Russia and that other countries in Eastern Europe and the republics of the
former Soviet Union may enact similar legislation which could have a material
adverse effect on our business operations, financial condition or prospects.
CURRENCY CONTROL RESTRICTIONS IN METROMEDIA'S MARKETS MAY HAVE A NEGATIVE EFFECT
ON ITS BUSINESS.
The existence of currency control restrictions in certain of Metromedia's
markets may make it difficult for Metromedia to convert or repatriate its
foreign earnings and adversely affect its ability to pay overhead expenses, meet
its debt obligations and continue to expand its communications business.
Metromedia's joint ventures often require specific licenses from the central
banks of many of the countries in which they operate for certain types of
foreign currency loans, leases and investments. The joint ventures' failure to
obtain these currency licenses could result in the imposition of fines and
penalties, significant delays in purchasing equipment and resulting difficulties
in generating cash flows. The documentary requirements for obtaining the
currency licenses are burdensome and Metromedia cannot assure you that the
licensing entity will not impose additional, substantive requirements for the
grant of a license or deny a request for a license on an arbitrary basis.
Furthermore, the time typically taken by the relevant central banks to issue
these licenses can be lengthy, in some cases up to one year or more.
RECENT ECONOMIC DIFFICULTIES IN THE RUSSIAN FEDERATION AND OTHER EMERGING
MARKETS COULD HAVE A MATERIAL ADVERSE EFFECT ON METROMEDIA'S OPERATIONS IN THESE
COUNTRIES.
In 1998, a number of emerging market economies suffered significant economic
and financial difficulties resulting in liquidity crises, devaluation of
currencies, higher interest rates and reduced opportunities for financing. At
this time, the prospects for recovery for the economies of the Russian
Federation and other republics of the former Soviet Union and Eastern Europe
negatively affected by the economic crisis remain unclear. The economic crisis
has resulted in a number of defaults by borrowers in the Russian Federation and
other countries and a reduced level of financing available to investors in these
countries. The devaluation of many of the currencies in the region has also
negatively affected the U.S. dollar value of the revenues generated by certain
of Metromedia's joint ventures and may lead to certain additional restrictions
on the convertibility of certain local currencies. Metromedia expects that these
problems will negatively affect the financial performance of certain of its
cable television, telephony, radio broadcasting and paging ventures.
HIGH INFLATION IN METROMEDIA'S MARKETS MAY HAVE A NEGATIVE EFFECT ON
METROMEDIA'S BUSINESS.
Some of Metromedia's subsidiaries and joint ventures operate in countries
where the inflation rate is extremely high. Since the break-up of the Soviet
Union, the economies of many of the former republics have been characterized by
high rates of inflation. Inflation in Russia increased dramatically following
the August 1998 financial crisis and there are increased risks of inflation in
Kazakhstan. The inflation rates in Belarus have been at hyperinflationary levels
for some years and as a result, the currency has essentially lost all intrinsic
value.
Metromedia's operating results will be hurt if it is unable to increase its
prices enough to offset any increase in the rate of inflation, or if
anti-inflationary legislation holding down prices is enacted.
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FLUCTUATIONS IN CURRENCY EXCHANGE RATES IN THE COUNTRIES IN WHICH METROMEDIA
OPERATES COULD NEGATIVELY IMPACT METROMEDIA'S RESULTS OF OPERATIONS IN THESE
COUNTRIES.
The value of the currencies in the countries in which Metromedia operates
tends to fluctuate, sometimes significantly. For example, during 1998 and in the
early part of 1999, the value of the Russian Rouble has been under considerable
economic and political pressure and has suffered significant declines against
the U.S. dollar and other currencies. Metromedia currently does not hedge
against exchange rate risk and therefore could be negatively impacted by
declines in exchange rates between the time one of its joint ventures receives
its funds in local currency and the time it distributes these funds in U.S.
dollars to Metromedia.
THE COMMERCIAL AND CORPORATE LEGAL STRUCTURES ARE STILL DEVELOPING IN
METROMEDIA'S TARGET MARKETS WHICH CREATES UNCERTAINTIES AS TO THE PROTECTION OF
ITS RIGHTS AND OPERATIONS IN THESE MARKETS.
Commercial and corporate laws in Eastern Europe, the republics of the former
Soviet Union and China are significantly less developed or clear than comparable
laws in the United States and countries of Western Europe and are subject to
frequent changes, preemption and reinterpretation by local or administrative
regulations, by administrative officials and, in the case of Eastern Europe and
republics of the former Soviet Union, by new governments. There are also often
inconsistencies among laws, presidential decrees and governmental and
ministerial orders and resolutions, and conflicts between local, regional and
national laws and regulations. In some cases, laws are imposed with retroactive
force and punitive penalties. In other cases, laws go unenforced. The result has
been considerable legal confusion which creates significant obstacles to
creating and operating Metromedia's joint ventures. Metromedia cannot assure you
that the uncertainties associated with the existing and future laws and
regulations in its markets will not have a material adverse effect on its
ability to conduct its business and to generate profits. See "Business of
Metromedia."
There is also significant uncertainty as to the extent to which local
parties and entities, particularly government authorities, in Metromedia's
markets will respect Metromedia's contractual and other rights and also the
extent to which the "rule of law" has taken hold and will be upheld in each of
these countries. The courts in many of Metromedia's markets often do not have
the experience, resources or authority to resolve significant economic disputes
and enforce their decisions, and may not be insulated from political
considerations and other outside pressures. Metromedia cannot assure you that
the licenses held by its businesses or the contracts providing its businesses
access to the airwaves or other rights or agreements essential for operations
will not be significantly modified, revoked or canceled without justification.
If that happens, Metromedia's ability to seek legal redress may be substantially
delayed or even unavailable in such cases. See "Business of Metromedia."
RUSSIAN LAW MAY HOLD METROMEDIA LIABLE FOR THE DEBTS OF ITS SUBSIDIARIES, WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL CONDITION.
Generally, under the Civil Code of the Russian Federation and the Law of the
Russian Federation on Joint Stock Companies, shareholders in a Russian joint
stock company are not liable for the obligations of the joint stock company, and
only bear the risk of loss of their investment. However, if a parent company has
the capability under its charter or by contract to direct the decision-making of
a subsidiary company, the parent company will bear joint and several
responsibility for transactions concluded by its subsidiary in carrying out its
direction. In addition, a parent company capable of directing the actions of its
subsidiary is secondarily liable for its subsidiary's debts if the subsidiary
becomes insolvent or bankrupt as a result of the action or inaction of its
parent. In this instance, other shareholders of the subsidiary could claim
compensation for the subsidiary's losses from the parent company which caused
the subsidiary to take action or fail to take action, knowing that this action
or failure to take action would result in losses. It is possible that Metromedia
may be deemed to be this type of parent company for some of its subsidiaries,
and could therefore be liable in some cases for the debt of these subsidiaries,
which could have a material adverse effect on it.
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METROMEDIA OPERATES IN COUNTRIES WHERE THE LAWS MAY NOT ADEQUATELY PROTECT
SHAREHOLDER RIGHTS WHICH COULD PREVENT METROMEDIA FROM REALIZING FULLY THE
ECONOMIC BENEFITS OF ITS INVESTMENTS IN THESE COUNTRIES.
Shareholders have limited rights and legal protections under the laws in
many of the countries in which Metromedia operates. The concept of fiduciary
duties on the part of management or directors to their companies is also new and
is not well developed. In some cases, the officers of a company may take actions
without regard to or in contravention of the directions of the shareholders or
the board of directors appointed by the shareholders.
In other cases, a shareholder's ownership interest may be diluted without
its knowledge or approval or even erased from the shareholder's ownership
registry. Metromedia cannot assure you that it could obtain legal redress for
any such action in the court systems of these countries.
THE EXERCISE BY NEWS AMERICA OF ITS REGISTRATION RIGHTS COULD MATERIALLY AFFECT
THE MARKET FOR, AND VALUE OF, THE COMMON STOCK OF METROMEDIA
Metromedia has agreed to file before the consummation of the merger and use
its reasonable best efforts to have declared effective within six months of the
consummation of the merger a registration statement for all the shares of common
stock that News America Incorporated will receive in the merger and which will
then represent approximately 9% of Metromedia's outstanding common stock
assuming a .56 exchange ratio. Metromedia has also granted certain incidental
registration rights to News America Incorporated. The sale by News America
Incorporated of a large number of its shares could have an adverse effect on the
market price for Metromedia's common stock. In addition, the inclusion in a
Metromedia-initiated registration of the shares held by News America
Incorporated may adversely affect Metromedia's ability to raise needed capital.
METROMEDIA MAY DEFAULT UNDER ITS SNAPPER CREDIT FACILITY, WHICH COULD MATERIALLY
AND ADVERSELY AFFECT ITS BUSINESS STRATEGY AND RESULTS OF OPERATIONS.
Snapper has defaulted in compliance with financial covenants under its
credit facilities and, although these defaults have been waived, we cannot
assure you that it will not default again under its credit facility. Any default
could materially and adversely affect Snapper and Metromedia's results of
operations. See "--As a result of the merger, Metromedia will have substantial
debt, which may limit its ability to borrow, restrict the use of its cash flows,
constrain its business strategy and make it unable to meet its debt
obligations."
METROMEDIA IS INVOLVED IN LEGAL PROCEEDINGS, WHICH COULD ADVERSELY AFFECT ITS
FINANCIAL CONDITION.
Metromedia is involved in several legal proceedings in connection with its
investment in RDM Sports Group, Inc.
If Metromedia is unsuccessful in defending against the allegations made in
these proceedings, an award of the magnitude being sought in these legal
proceedings would have a material adverse effect on its financial condition and
results of operations. In addition, Metromedia cannot assure you that it will
not determine that the advantages of entering into a settlement outweigh the
risk and expense of protracted litigation or that ultimately it will be
successful in defending against these allegations.
METROMEDIA'S FUTURE RESULTS OF OPERATIONS MAY BE SUBSTANTIALLY DIFFERENT FROM
ITS STATEMENTS ABOUT ITS FUTURE PROSPECTS AND YOU SHOULD NOT UNDULY RELY ON
THESE STATEMENTS.
Any statements in this document about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are often but not always made through the use
of words or phrases like "believes," "expects," "may," "will," "should" or
"anticipates" or the negative of these
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words or phrases or other variations on these words or phrases or comparable
terminology, or by discussions of strategy that involves risks and
uncertainties.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Metromedia's actual results,
performance or achievements or industry results to be materially different from
any future results, performance or achievements expressed or implied by these
forward-looking statements. These risks, uncertainties and other factors
include, among others:
- general economic and business conditions, which will, among other things,
impact demand for Metromedia's products and services,
- industry capacity, which tends to increase during strong years of the
business cycle,
- changes in public taste, industry trends and demographic changes,
- competition from other communications companies, which may affect
Metromedia's ability to generate revenues,
- political, social and economic conditions and changes in laws, rules and
regulations or their administration or interpretation, particularly in
Eastern Europe, the former Soviet Union, China and other selected emerging
markets, which may affect Metromedia's results of operations,
- timely completion of construction projects for new systems for the joint
ventures in which Metromedia has invested, which may impact the costs of
these projects,
- developing legal structures in Eastern Europe, the former Soviet Union,
China and other selected emerging markets, which may affect Metromedia's
ability to enforce its legal rights,
- cooperation of local partners for Metromedia's communications investments
in Eastern Europe, the former Soviet Union, China and other selected
emerging markets, which may affect its results of operations,
- exchange rate fluctuations,
- license renewals for Metromedia's communications investments in Eastern
Europe, the former Soviet Union, China and other selected emerging
markets,
- the loss of any significant customers,
- changes in business strategy or development plans,
- the quality of management,
- the availability of qualified personnel,
- changes in or the failure to comply with government regulation, and
- other factors referenced in this prospectus.
Accordingly, any forward-looking statement is qualified in its entirety by
reference to these risks, uncertainties and other factors and you should not
place any undue reliance on them. Furthermore, any forward-looking statement
speaks only as of the date on which it is made. New factors emerge from time to
time and it is not possible for Metromedia to predict which will arise. In
addition, Metromedia cannot assess the impact of each factor on its business or
the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statement.
Furthermore, this document constitutes a Year 2000 Readiness Disclosure
Statement, and the statements in this joint proxy statement/prospectus are
subject to the Year 2000 Information and Readiness Disclosure Act, and
Metromedia and PLD hereby claim the protection of this Act for this document and
all information contained herein.
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THE METROMEDIA ANNUAL MEETING
DATE, TIME AND PLACE OF THE METROMEDIA ANNUAL MEETING
Metromedia is sending this joint proxy statement/prospectus to Metromedia's
stockholders as part of the solicitation of proxies by the Metromedia board of
directors for use at the Metromedia annual meeting to be held on September 30,
1999, at 9:30 a.m., local time, at 1285 Avenue of the Americas, New York, New
York 10019. Metromedia is first mailing this joint proxy statement/prospectus,
the attached notice of annual meeting of stockholders and the enclosed voting
form to Metromedia's stockholders on or about August 31, 1999.
PURPOSES OF THE METROMEDIA ANNUAL MEETING
THE MERGER (PROPOSAL NUMBER ONE)
At the Metromedia annual meeting, Metromedia stockholders will consider and
vote upon a proposal to approve the issuance of the shares of Metromedia common
stock pursuant to the Agreement and Plan of Merger, dated as of May 18, 1999, by
and among Metromedia, Moscow Communications, Inc. and PLD. This agreement
provides for the merger of Moscow Communications into PLD, with PLD continuing
as the surviving corporation. Upon completion of the merger, PLD will become a
wholly owned subsidiary of Metromedia. Metromedia is seeking the approval by its
stockholders of the issuance of the shares of Metromedia common stock pursuant
to the merger agreement because the rules of the American Stock Exchange require
stockholder approval of any transaction involving the issuance of 20% or more of
a listed company's stock. The approval of the issuance of the shares of
Metromedia common stock is tantamount to approving the merger.
OTHER MATTERS (PROPOSALS TWO, THREE AND FOUR)
Metromedia stockholders will also consider and vote upon:
- proposal two, to approve the election of three Class I directors, in each
case, to serve for a three year term ending in the year 2002 or until
their successors are elected and qualified,
- proposal three, the ratification of the selection of KPMG LLP as
Metromedia's independent accountants for the fiscal year ending December
31, 1999 and
- proposal four, a proposal of a Metromedia stockholder to amend the
certificate of incorporation of Metromedia to reinstate the right of the
stockholders of Metromedia to take action by written consent and to call
special meetings of the stockholders.
Metromedia knows of no matter to be brought before the Metromedia annual
meeting other than these four proposals. If any other business should properly
come before the annual meeting, the persons named in the voting form will vote
in their discretion.
THE METROMEDIA BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND RECOMMENDS THAT
METROMEDIA STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. THE METROMEDIA BOARD
ALSO UNANIMOUSLY RECOMMENDS THAT METROMEDIA STOCKHOLDERS VOTE FOR PROPOSALS TWO
AND THREE AND AGAINST PROPOSAL FOUR, THE STOCKHOLDER PROPOSAL.
RECORD DATE
The Metromedia board has fixed the close of business on August 12, 1999 as
the record date for the Metromedia annual meeting. Only holders of Metromedia
common stock on the record date will be entitled to vote at the Metromedia
annual meeting and any adjournments or postponements thereof. At the record
date, 69,175,254 shares of Metromedia common stock were outstanding and entitled
to vote.
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The presence, in person or by proxy, of a majority of these shares of Metromedia
common stock is necessary to constitute a quorum at the Metromedia annual
meeting. Abstentions and broker non-votes will be included in the determination
of shares present at the Metromedia annual meeting for purposes of determining a
quorum. Under the rules of the American Stock Exchange, brokers who hold shares
in street name for customers will have the authority to vote on certain matters
only with instructions from the customer on how to vote. Shares that are not
voted because brokers did not receive any such instructions, are referred to as
"broker non-votes." Broker non-votes have the effect of a vote against the
approval of the issuance of the shares of Metromedia common stock pursuant to
the merger agreement.
REQUIRED VOTES
All properly executed proxies delivered and not properly revoked will be
voted at the Metromedia annual meeting as specified in such proxies. If
Metromedia stockholders do not specify a choice, their shares represented by a
signed voting form will be voted for the approval of the issuance of the shares
of Metromedia common stock pursuant to the merger agreement (proposal one), for
the election of the persons nominated in proposal two, for the approval of
proposal three and against proposal four.
- The affirmative vote of a majority of the shares of Metromedia common
stock present at the annual meeting in person or by proxy is required to
approve the issuance of the shares of Metromedia common stock pursuant to
the merger agreement.
- The three nominees for election as directors receiving the highest number
of votes will be elected as directors for a term ending in 2002.
- The affirmative vote of the holders of a majority of the shares of
Metromedia common stock outstanding on the record date is required to
approve proposal three, the ratification of the selection of independent
accountants and proposal four, a stockholder proposal.
The holders of Metromedia preferred stock will not be entitled to vote with
respect to the issuance of the shares of Metromedia common stock in the merger
or any other proposals referred to in this document. Non-voting shares,
including broker non-votes, and abstentions will have the effect of a vote
against the merger agreement and will have no effect on the outcome and vote on
the other proposals. The directors, executive officers and affiliates of
Metromedia hold approximately 25% of the outstanding shares of Metromedia common
stock and have indicated that they intend to vote in favor of each Metromedia
proposal and against the stockholder proposal.
PROXIES; VOTING AND REVOCATION
Each share of Metromedia common stock is entitled to one vote with respect
to the issuance of the shares of Metromedia common stock pursuant to the merger
agreement and the other proposals referred to in this document. The proxies may
propose and vote for one or more adjournments or postponements of the Metromedia
annual meeting to permit further solicitation of proxies in favor of such
proposals. However, no proxy that is voted against the merger agreement and the
other proposals referred to in this document will be voted in favor of any
adjournment or postponement. Votes will be tabulated at the Metromedia annual
meeting by inspectors of election appointed by Metromedia.
Metromedia stockholders may revoke their proxies at any time prior to their
being voted by filing an instrument of revocation with the secretary of
Metromedia (Metromedia International Group, Inc., One Meadowlands Plaza, East
Rutherford, New Jersey 07073). Metromedia stockholders may also revoke their
proxies by filing a duly executed proxy bearing a later date or by appearing at
the Metromedia annual meeting in person, notifying the secretary and voting by
ballot at the Metromedia annual meeting. If Metromedia stockholders attend the
meeting, they may vote in person whether or not they have previously given a
proxy, but the presence of any Metromedia stockholder, without
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notifying the secretary of Metromedia, at the meeting will not revoke a
previously given proxy. In addition, if Metromedia stockholders beneficially
hold shares of Metromedia common stock that are not registered in their own
name, they will need additional documentation from the record holder of such
shares to attend and vote personally at the Metromedia meeting.
SOLICITATION OF PROXIES
Metromedia will share equally with PLD the expense of printing and mailing
this document and the material used in this solicitation of proxies. Proxies
will be solicited through the mail and directly by officers, directors and
regular employees of Metromedia and PLD not specifically employed for such
purpose, without additional compensation. Metromedia will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to the principals.
Metromedia and PLD have jointly engaged Morrow & Co., Inc. to represent it in
connection with the solicitations of proxies at a cost to Metromedia of
approximately $6,000 plus expenses.
NO DISSENTERS' APPRAISAL RIGHTS
Under Delaware law, Metromedia stockholders will not have appraisal or
dissenters' rights in connection with the merger if the merger is approved or
with respect to any other matter to be voted on at the Metromedia annual
meeting.
THE MATTERS TO BE CONSIDERED AT THE METROMEDIA ANNUAL MEETING ARE OF GREAT
IMPORTANCE TO METROMEDIA STOCKHOLDERS. THE METROMEDIA BOARD URGES ALL METROMEDIA
STOCKHOLDERS TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
DOCUMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED VOTING
FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE PLD SPECIAL MEETING
DATE, TIME AND PLACE OF THE PLD SPECIAL MEETING
PLD is sending this joint proxy statement/prospectus to PLD stockholders as
part of the solicitation of proxies by the PLD board of directors for use at a
PLD special meeting to be held on September 30, 1999, at 9:00 a.m., local time,
at 1285 Avenue of the Americas, New York, New York, 10019. PLD is first mailing
this joint proxy statement/prospectus, the attached notice of special meeting of
stockholders and the enclosed voting form to PLD stockholders on or about August
31, 1999.
PURPOSES OF THE PLD SPECIAL MEETING; THE MERGER
At the special meeting, PLD stockholders will consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of May 18, 1999,
by and among Metromedia, Moscow Communications, Inc. and PLD. This agreement
provides for the merger of Moscow Communications into PLD, with PLD continuing
as the surviving corporation. Upon completion of the merger, PLD will become a
wholly owned subsidiary of Metromedia.
PLD knows of no matter to be brought before the PLD special meeting other
than the merger. If any other business should properly come before the special
meeting, the persons named in the voting form will vote in their discretion.
THE PLD BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE
The PLD board has fixed the close of business on August 12, 1999 as the
record date for the PLD special meeting. Only holders of PLD common stock on the
record date will be entitled to vote at the PLD special meeting and any
adjournments or postponements thereof. At the record date, 37,846,789 shares of
PLD common stock were outstanding and entitled to vote. The presence, in person
or by proxy, of a majority of these shares of PLD common stock is necessary to
constitute a quorum at the PLD special meeting. Abstentions and broker non-votes
will be included in the determination of shares present at the PLD special
meeting for purposes of determining a quorum. Shares that are not voted because
brokers did not receive instructions to vote from their holder are referred to
as "broker non-votes." Broker non-votes have the effect of a vote against the
merger.
REQUIRED VOTES
All properly executed proxies delivered and not properly revoked will be
voted at the PLD special meeting as specified in such proxies. If PLD
stockholders do not specify a choice, their shares represented by a signed
voting form will be voted for the approval of the merger agreement.
The affirmative vote of the holders of record of a majority of the shares of
PLD common stock outstanding on the record date is required to approve the
merger agreement. Holders of approximately 38% of PLD's common stock have
already agreed to vote for the merger. This means that only 12.1% more of PLD's
stockholders must vote for the merger to ensure its approval.
The holders of PLD preferred stock will not be entitled to vote with respect
to the merger agreement. Non-voting shares, including broker non-votes, and
abstentions will have the effect of a vote against the merger agreement. The
executive officers and directors of PLD beneficially own an aggregate of 178,100
shares of PLD common stock (excluding currently exercisable stock options) or
approximately 0.5% of the outstanding shares of PLD common stock and have
indicated that they intend to vote their shares to approve the merger agreement.
The other affiliates of PLD beneficially
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own an aggregate of 14,381,780 shares of PLD common stock (excluding currently
exercisable warrants and convertible notes), representing 38% of the outstanding
shares of PLD common stock.
PROXIES; VOTING AND REVOCATION
Each share of PLD common stock is entitled to one vote with respect to the
merger agreement. The proxies may propose and vote for one or more adjournments
or postponements of the PLD special meeting to permit further solicitation of
proxies in favor of such proposals. However, no proxy that is voted against the
merger agreement will be voted in favor of any adjournment or postponement.
Votes will be tabulated at the special meeting by inspectors of election
appointed by Metromedia and PLD.
PLD stockholders may revoke their proxies at any time prior to their being
voted by filing an instrument of revocation with the secretary of PLD (PLD
Telekom Inc., 505 Park Avenue, 21st Floor, New York, New York 10022). PLD
stockholders may also revoke their proxies by filing a duly executed proxy
bearing a later date or by appearing at the PLD special meeting in person,
notifying the secretary and voting by ballot at the special meeting. If PLD
stockholders attend the meeting, they may vote in person whether or not they
have previously given a proxy, but the presence of any PLD stockholder, without
notifying the secretary of PLD, at the meeting will not revoke a previously
given proxy. In addition, if PLD stockholders beneficially hold shares of PLD
common stock that are not registered in their own name, they will need
additional documentation from the record holder of such shares to attend and
vote personally at the PLD meeting.
SOLICITATION OF PROXIES
PLD will share equally with Metromedia the expense of printing and mailing
this document and the material used in this solicitation of proxies. Proxies
will be solicited through the mail and directly by officers, directors and
regular employees of Metromedia and PLD not specifically employed for such
purpose, without additional compensation. PLD will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding these proxy materials to the principals. PLD and
Metromedia have engaged Morrow & Co., Inc., to represent it in connection with
the solicitations of proxies at a cost to PLD of approximately $4,000 plus
expenses.
NO DISSENTERS' APPRAISAL RIGHTS
Under Delaware law, PLD stockholders will not have appraisal or dissenters'
rights in connection with the merger if the merger is approved or with respect
to any other matter to be voted on at the special meeting.
PREFERRED STOCKHOLDERS
Holders of PLD's preferred stock will not have a vote with respect to the
merger.
THE MATTERS TO BE CONSIDERED AT THE PLD SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO PLD STOCKHOLDERS. THE PLD BOARD URGES ALL PLD STOCKHOLDERS TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED VOTING FORM IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERGER
BACKGROUND
As discussed in its annual report on Form 10-K/A for the year ended December
31, 1998, in April 1998 PLD's then principal shareholder, Cable and Wireless
plc, a global telecommunications operator, agreed to sell its entire interest in
PLD to News America Incorporated, a subsidiary of The News Corporation Limited,
one of the world's largest media companies. As a result of certain related
transactions, News America would acquire an approximately 38% interest in PLD.
The transaction required the consent of PLD's stockholders and preliminary
proxy materials for a stockholders meeting were filed with the Securities and
Exchange Commission in April 1998. PLD's management anticipated that, following
an affirmative stockholder vote, PLD would seek to obtain additional equity
financing in order to finance its investments and operations in the former
Soviet Union and, in particular, to repay $15.42 million of short term
indebtedness due to The Travelers Insurance Company and an affiliate. PLD
management also anticipated that the process to obtain this financing would
start in late June 1998.
Proxy materials for the PLD stockholders meeting were not cleared for
mailing until late July 1998. The stockholders approved the transaction on
August 13, 1998, and the transaction closed on Friday, August 14, 1998.
On Monday, August 17, 1998 the Russian government announced that it would no
longer support the rouble and a major devaluation of that currency followed. At
the same time the government announced a moratorium on foreign debt repayments.
These events precipitated a serious crisis within the Russian financial system.
Banks and businesses failed, and economic activity slowed significantly. As a
result of this, the ability of PLD to obtain financing of any kind was
effectively halted. When it became apparent that this condition was likely to
continue for some while, the PLD board of directors started to consider
alternatives to protect shareholder value, including a transaction with a
strategic partner that had more significant financial resources or better access
to the capital markets.
At the same time, PLD management started discussions with The Travelers
Insurance Company relating to the deferral of payments falling due between
September and December 1998. PLD management also arranged with News America, its
largest stockholder, for News America to make short-term working capital loans
to PLD, and to guarantee a portion of the payments due to Travelers Insurance
Company. PLD also continued to look for equity investors, although it quickly
appeared that the continuing effects of the Russian crisis meant that the
parties in a position to make such an investment would be limited to those
already doing business in Russia. PLD made presentations to two such investors
in late 1998, as well as continuing an exploratory dialogue commenced earlier
with a third party regarding the possibility of a transaction.
In October 1998, officers of Metromedia approached PLD to determine whether
PLD would be interested in a business combination. Metromedia's senior
management periodically reviews potential business combination candidates as a
means to grow its revenues and cash flow and enhance stockholder value. Prior to
October 1998, Metromedia was familiar with PLD because it was a U.S. public
company that operated telecommunications businesses in Russia and the republics
of the former Soviet Union, an area which Metromedia believes has significant
growth potential given the limited availability of telephone service.
Metromedia's senior management believed that PLD might be receptive to the
possibility of a business combination because of PLD's shortage of available
capital combined with the fact that the crisis within the Russian financial
system had limited PLD's access to additional capital. There were preliminary
discussions between the parties, but these did not develop because PLD believed
that it had identified a buyer for one of its operating businesses who was not a
party with which it previously had discussions and which would provide a
significant cash infusion into the company. Metromedia made a further approach
to PLD in early February 1999 with a proposal for
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a merger transaction. By this time it was apparent to PLD management that the
proposed sale of its operating business would not proceed quickly, if at all.
Accordingly, senior executives of PLD and Metromedia, together with
representatives of PLD's financial advisor, Salomon Smith Barney, engaged in
preliminary discussions regarding the terms of a potential transaction.
At the same time, PLD management continued to maintain contact with the
three parties referred to in the last sentence of the fifth paragraph above to
endeavor to gauge their level of interest in a possible transaction.
During March 1999, Metromedia, through its legal and finance departments and
its outside legal counsel and financial advisor, conducted due diligence on PLD
and its assets. PLD's legal and financial departments, together with its
financial advisor, simultaneously conducted due diligence of Metromedia and its
assets. While this due diligence effort was underway, the parties began to focus
concurrently on preparing and negotiating definitive agreements. On March 17,
1999, Metromedia delivered an initial draft of the merger agreement to PLD. From
March 18, 1999 to March 23, 1999, Metromedia, PLD, News America and their
respective legal advisors negotiated terms of definitive merger and voting
agreements. During this time, the parties discussed various issues related to
the proposed merger, including potential exchange ratios, the amount of, and
terms and conditions upon which Metromedia would be entitled to receive a
termination fee and the conditions to Metromedia's consummating the merger. At
all times, Metromedia insisted that the proposed transaction between Metromedia
and PLD was subject to the successful negotiation of the principal terms of a
restructuring of all of PLD's outstanding senior and subordinated notes, the
loans owed to The Travelers Insurance Company and News America and PLD's
obligation to purchase the minority interests in the PLD subsidiary, Technocom
Limited. As a result, while Metromedia's and PLD's management had reached
substantial agreement on the principal terms of the merger agreement, commencing
on March 24, 1999 and continuing through May 17, 1999, Metromedia, PLD and the
respective legal and financial advisors negotiated with PLD's creditors and the
Technocom minority shareholders the terms of the restructuring of PLD's
obligations to them.
On March 29, 1999, the board of directors held a meeting at which Metromedia
executives made a preliminary presentation on PLD and its assets and the board
engaged in a general discussion regarding PLD. On May 13, 1999 the board of
directors of Metromedia held another meeting at which Metromedia executives made
a further presentation on PLD and its assets. On May 16, 1999 the board of
directors of Metromedia held a third meeting at which the Metromedia legal
advisors made a presentation of the principal terms of the proposed agreement
with PLD and the restructuring of its obligations, as well as a legal analysis
of the transaction. In anticipation of the meeting, each board member was
provided with the most current draft of the merger agreement and the agreements
governing the restructuring of PLD's obligations. Representatives of Donaldson,
Lufkin & Jenrette also presented their financial analysis and delivered their
oral opinion that, as of such date, subject to assumptions and limitations, the
exchange ratio contained in the merger agreement was fair from a financial point
of view to Metromedia. After discussion, the Metromedia board determined that
the merger agreement and the merger with PLD was advisable and in the best
interests of Metromedia's stockholders and the board approved the merger
agreement. The board also unanimously resolved to recommend that Metromedia's
stockholders vote to adopt and approve the merger agreement. For a discussion of
the reasons underlying the board's decision and the facts considered by the
board, see "--Recommendation of the Metromedia Board; Metromedia's Reasons for
the Merger."
During March, April and early May the board of directors of PLD was kept
generally informed by the management of PLD as to the status of the discussions
with Metromedia and PLD's creditors. The board was also kept informed of
discussions that PLD management had during this period with the three other
parties who had expressed an interest in pursuing a business transaction with
PLD and which are referred to in the fifth and seventh paragraphs above. In one
such case the party made an offer for one of PLD's operating businesses which
PLD management determined to reject as not as
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attractive as consummating a transaction with Metromedia, both because the price
offered for the business appeared to be substantially below its value and
because the sale was not in PLD's strategic interest. In the other two cases
discussions never moved beyond an expression of interest, and in one case the
other party notified PLD that it was not interested in pursuing the discussions
any further.
On May 15, 1999, the board of directors of PLD held a meeting at which the
Metromedia proposal and the related arrangements with PLD's creditors were
discussed. The board was provided with a summary of the background to the
transaction and the material terms of the transaction. In addition, Salomon
Smith Barney reviewed with the PLD board the financial analyses performed by
Salomon Smith Barney in connection with its evaluation of the exchange ratio
from a financial point of view, and rendered its oral opinion that, as of such
date and based upon and subject to review of the final merger agreement and
other customary matters, the exchange ratio provided for in the merger agreement
was fair from a financial point of view to the holders of PLD common stock.
After discussion, the PLD board unanimously determined that the merger agreement
and the merger with Metromedia were advisable and in the best interests of PLD's
stockholders. The board then unanimously approved the merger and determined to
recommend that the PLD stockholders vote to adopt the merger agreement. For a
discussion of the reasons underlying the board's decision and the facts
considered by the board, see "--Recommendation of the PLD Board; PLD's Reasons
for the Merger."
RECOMMENDATION OF THE METROMEDIA BOARD; METROMEDIA'S REASONS FOR THE MERGER.
In deciding to approve the merger and the issuance of the shares of
Metromedia common stock in the merger, the Metromedia board concluded that
merging with PLD was in the best interests of Metromedia and its stockholders.
In evaluating the merger, the board considered the following material relevant
factors and information:
- the acquisition of PLD will expand Metromedia's strategic focus on
providing telecommunications services and telecommunications
infrastructure to Eastern Europe and the former Soviet Union;
- PLD's main ventures in the former Soviet Union are larger, have attracted
more subscribers than Metromedia's consolidated ventures and will provide
greater cash flow to Metromedia's consolidated operations;
- the fact that Metromedia was able to negotiate favorable consensual
restructurings of all of PLD's outstanding obligations;
- the May 16, 1999 opinion of Donaldson, Lufkin & Jenrette to the effect
that as of that date and, subject to specified assumptions and
limitations, the exchange ratio was fair from a financial point of view to
Metromedia;
- the financial analyses presented to the board by Donaldson, Lufkin &
Jenrette in connection with the delivery of its opinion, which is
summarized in this document under the caption "Opinion of Metromedia's
Financial Advisor" and which supported its opinion that as of May 16, 1999
the exchange ratio was fair from a financial point of view to Metromedia;
- the nature of the parties' representations, warranties, covenants and
agreements, which the board believed would provide a reasonable degree of
certainty that the merger would be completed;
- potential reductions in corporate level overhead costs of the combined
companies resulting from PLD no longer being a separate reporting person
under federal securities laws, which would improve the combined companies'
operating results;
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- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals; and
- the potential adverse effects on Metromedia's business, operations and
financial condition if the merger was not completed following public
announcement of the merger agreement as a result of the possible negative
reaction in U.S. capital markets to the failure by Metromedia to
consummate a favorable transaction.
This discussion is not intended to list all factors or information
considered by the board, but Metromedia believes the above includes all material
factors considered by the board. In light of the number and variety of
information and factors the board considered, the board did not find it
practicable to, and did not, assign any specific or relative weights to the
factors listed above. In addition, individual directors may have given differing
weights to different factors.
THE METROMEDIA BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND RECOMMENDS THAT
METROMEDIA STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ISSUANCE OF THE SHARES OF
METROMEDIA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
RECOMMENDATION OF THE PLD BOARD; PLD'S REASONS FOR THE MERGER
In deciding to approve the merger, the board unanimously concluded that
holding a portion of a share of Metromedia common stock equal to the exchange
ratio represented a more favorable investment opportunity than holding one share
of PLD common stock. The board took into account the risks inherent in each
investment. In evaluating the merger, the board considered the following
material factors and information:
- the fact that approximately $165 million of PLD's outstanding debt
(including accrued interest), some of which was due or coming due shortly,
will be consensually restructured in connection with the consummation of
the merger;
- the fact that Metromedia has made available $7.0 million of interim
financing to PLD to fund its working capital and capital expenditure
requirements during the interim period from signing the merger agreement
until consummation of the merger;
- the fact that the value of the shares of Metromedia common stock to be
received as consideration in the merger represented approximately a 32%
premium over the closing price of PLD common stock on May 17, 1999, the
date before the merger agreement was signed;
- the fact that the board believed that the Metromedia common stock would
have greater liquidity than the PLD common stock;
- the ability of the combined companies to more easily access capital
markets for additional debt and equity financing;
- potential reductions in corporate level overhead costs of the combined
companies resulting from PLD not being a separate reporting person under
federal securities laws, which would improve the combined companies'
operating results;
- the opinion of Salomon Smith Barney as to the fairness, from a financial
point of view and as of the date of the opinion, of the exchange ratio
provided for in the merger, and the related financial analyses performed
by Salomon Smith Barney in connection with its opinion and which is
summarized in this document under the caption "Opinion of PLD's Financial
Advisor;"
- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals;
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- the fact that, based upon the advice from Morgan, Lewis & Bockius LLP,
special tax counsel to PLD, the merger should be treated for federal
income tax purposes as a transaction which would be tax-free to the PLD
stockholders;
- the provisions of the merger agreement that permit PLD to consider
additional bona fide offers for PLD and to provide information to third
parties in response to those offers; and
- the absence of any viable alternatives to the Metromedia proposal and the
difficulty that PLD would have in identifying and completing an
alternative transaction were the merger not to occur.
This discussion is not intended to list all factors or information
considered by the board of directors, but PLD believes the above includes all
material factors considered by the board. In light of the number and variety of
information and factors the board considered, the board did not find it
practical to, and did not assign any specific or relative weights to the factors
listed above. In addition, individual directors may have given different weights
to different factors. For a discussion of the interests of members of PLD's
management and board in the merger, see "--Interests of PLD Directors and
Officers in the Merger" on page 51. The board recognized these interests and
determined that they neither supported nor detracted from the advisability of
the merger to PLD's stockholders.
THE PLD BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT PLD STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF METROMEDIA'S FINANCIAL ADVISOR
The board of directors of Metromedia engaged Donaldson, Lufkin & Jenrette to
act as its financial advisor in connection with the merger. On May 16, 1999,
Donaldson, Lufkin & Jenrette rendered an oral opinion to Metromedia's board of
directors, subsequently confirmed in writing as of the same date, to the effect
that, as of such date, and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the exchange ratio was
fair, from a financial point of view, to Metromedia.
THE FULL TEXT OF DONALDSON, LUFKIN & JENRETTE'S OPINION IS INCLUDED AS
APPENDIX C AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY, INCLUDING WITHOUT
LIMITATION, THE DESCRIPTIONS OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER
MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH
OPINION. DONALDSON, LUFKIN & JENRETTE'S OPINION WAS PREPARED FOR AND ADDRESSED
TO METROMEDIA'S BOARD OF DIRECTORS AND ONLY ADDRESSES THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO METROMEDIA AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF METROMEDIA OR TO ANY
STOCKHOLDER OF PLD AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE METROMEDIA
ANNUAL MEETING OR THE PLD SPECIAL MEETING, RESPECTIVELY.
Donaldson, Lufkin & Jenrette's opinion does not constitute an opinion as to
the price at which Metromedia's common stock and PLD's common stock will
actually trade at any time. The exchange ratio was determined in arms-length
negotiations between Metromedia and PLD, in which Donaldson, Lufkin & Jenrette
advised Metromedia. No restrictions or limitations were imposed by Metromedia
upon Donaldson, Lufkin & Jenrette with respect to the investigations made or the
procedures followed by Donaldson, Lufkin & Jenrette in rendering its opinion.
In arriving at its opinion, Donaldson, Lufkin & Jenrette, among other
things:
- reviewed a draft of the merger agreement as well as the agreement to
exchange and consent relating to the PLD notes (described on page 64 under
"Related Agreements--Agreement to Exchange and Consent; Terms of
Metromedia Notes"), including exhibits to such agreements
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and documents referred to in such agreements, and assumed that the final
form of such agreements would not vary in any respect that would be
material to its analysis;
- reviewed financial and other information that was publicly available that
Donaldson, Lufkin & Jenrette deemed relevant relating to Metromedia, PLD
and the industries in which they operate;
- reviewed information furnished to it by Metromedia and PLD, including
information provided during discussions with their respective managements
and financial projections and other information relating to the business,
operations, financial condition and prospects of each of Metromedia and
PLD, prepared by their respective managements;
- compared certain financial and securities data of each of Metromedia and
PLD with various other companies whose securities are traded in public
markets;
- reviewed the historical stock prices and trading volumes of each of
Metromedia's common stock and PLD's common stock;
- assumed that the restructuring transaction with respect to PLD's 14%
senior discount notes due 2004 and 9% convertible subordinated notes due
2006 will be consummated in accordance with the agreement to exchange and
consent;
- assumed that the restructuring with respect to the Travelers Insurance
Company's and The Travelers Indemnity Company's revolving credit note and
warrant agreement (described at page 63 under "Related
Agreements--Travelers Note and Warrant Modification Agreement") will be
consummated in accordance with the note and warrant modification
agreement;
- assumed that the purchase of the shares of Technocom Limited will be
consummated in accordance with each of the Elite option modification
agreement and the Plicom option modification agreement (described at page
65 under "Related Agreements--Technocom Arrangements;"); and
- conducted such other financial studies, analyses and investigations as
Donaldson, Lufkin & Jenrette deemed appropriate for purposes of rendering
its opinion.
In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and
assumed the accuracy and completeness of all of the financial and other
information that was available to it from public sources, that was provided to
it by Metromedia and PLD or their respective representatives, or that was
otherwise reviewed by it. Donaldson, Lufkin & Jenrette also assumed that the
financial projections and other information relating to the prospects of
Metromedia and PLD supplied to it were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
respective managements of Metromedia and PLD as to the likely future financial
performance of Metromedia and PLD respectively. Donaldson, Lufkin & Jenrette
expressed no opinion with respect to such forecasts or the assumptions on which
they were based, nor did Donaldson, Lufkin & Jenrette assume responsibility for
making any independent evaluation or appraisal of the assets or liabilities of
Metromedia. Donaldson, Lufkin & Jenrette also did not assume any responsibility
for making any independent investigation of any legal matters affecting
Metromedia or PLD and assumed the correctness of all legal advice given to each
of them and to Metromedia's board of directors, including advice as to the tax
consequences of the merger.
Donaldson, Lufkin & Jenrette's opinion was necessarily based upon economic,
market, financial and other conditions as they existed on information available
to it as of the date of its opinion. It should be understood that, although
subsequent developments may affect its opinion, Donaldson, Lufkin & Jenrette
does not have any obligation to update, revise or reaffirm its opinion as a
result of changes in such conditions or otherwise.
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The following is a brief summary of the analyses performed by Donaldson,
Lufkin & Jenrette in connection with Donaldson, Lufkin & Jenrette's opinion and
included in its presentation to Metromedia's board of directors. For purposes of
the following analysis, Donaldson, Lufkin & Jenrette used (a) the 0.5600
exchange ratio provided in the merger agreement based upon the closing stock
prices of Metromedia's common stock and PLD's common stock on May 14, 1999 and
(b) the 0.6667 exchange ratio provided in the merger agreement in the event the
average Metromedia's common stock price for the relevant period is less than
$5.25. The Metromedia board did not ask DLJ to consider the exercise by PLD of
the "top-up" right in its analysis in the event the Metromedia average stock
price was less than $5.25. The Metromedia board believed that, since the number
of shares to be issued by Metromedia in order to satisfy a "top-up" request
could not be determined with any certainty on the date the DLJ opinion was
rendered, DLJ could not render an opinion with respect to a transaction in which
the number of shares of Metromedia common stock and the dilution to Metromedia's
stockholders could not be determined. If PLD were to exercise its top-up right
and Metromedia were to elect to increase the exchange ratio, Metromedia would
request a new fairness opinion from Donaldson, Lufkin & Jenrette regarding the
fairness of the topped-up consideration. Metromedia may determine to proceed
with the merger if it does not receive such a fairness opinion and will in such
instance recirculate a revised proxy statement and resolicit stockholder
approval.
Each of the analyses described below was carried out in order to provide a
different perspective on the transaction and add to the total mix of information
available. Donaldson, Lufkin & Jenrette did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support
an opinion as to fairness from a financial point of view. Rather, in reaching
its conclusion, Donaldson, Lufkin & Jenrette considered the results of the
analyses in light of each other and ultimately reached its opinion based on the
results of the analyses taken as a whole. Included in the discussion below are
summaries of some of the statistical information appearing in such discussion
presented in a tabular format. While these tables are presented for the purpose
of clarity and ease of reference, they are not substitutes for, and must be read
along with, all of the information appearing under the captions immediately
preceding them as well as all of the information set forth in this document.
(i) COMMON STOCK PERFORMANCE ANALYSIS. Donaldson, Lufkin & Jenrette reviewed
the closing prices and trading volumes of PLD's common stock on a daily
basis for a period from May 14, 1998 to May 14, 1999. Donaldson, Lufkin
& Jenrette did not draw any conclusion from this analysis but this
analysis did provide information as to how the capital markets valued
the PLD common stock.
SUMMARY OF PLD COMMON STOCK PERFORMANCE
<TABLE>
<CAPTION>
TRADING PERIOD FROM MAY 14, 1998 TO MAY 14, 1999 HIGH LOW AVERAGE
- --------------------------------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Price per share of PLD common stock.................................................... $ 8.75 $ 1.00 $ 3.54
</TABLE>
(ii) EXCHANGE RATIO ANALYSIS. Donaldson, Lufkin & Jenrette reviewed the
daily closing prices of Metromedia's common stock and PLD's common
stock to determine a hypothetical exchange ratio based upon the market
prices of Metromedia's common stock and PLD's common stock. Donaldson,
Lufkin & Jenrette analyzed the implied exchange ratio between
Metromedia's common stock and PLD's common stock for the period from
May 14, 1998 to May 14, 1999 and the average for the last 20, 60 and 90
days. Donaldson, Lufkin & Jenrette performed this analysis to compare
the 0.5600 exchange ratio pursuant to the merger agreement with the
exchange ratios between Metromedia's common stock and PLD's common
stock prevailing in the open market and to determine the magnitude of
the premium being paid by Metromedia in the merger.
38
<PAGE>
IMPLIED EXCHANGE RATIO ANALYSIS
<TABLE>
<CAPTION>
METROMEDIA/PLD EXCHANGE RATIO PREMIUM
----------------- ---------------------------
<S> <C> <C>
May 14, 1999...... 0.4095 36.8%
20-Day Average.... 0.4573 22.5
60-Day Average.... 0.4893 14.4
90-Day Average.... 0.4283 30.7
</TABLE>
(iii) DISCOUNTED CASH FLOW ANALYSIS. Donaldson, Lufkin & Jenrette performed a
discounted cash flow analysis for Metromedia on a stand-alone basis,
for PLD on a stand-alone basis and for Metromedia pro forma for the
merger. These analyses were based upon financial projections prepared
by the management of each company for the five-year period ending
fiscal 2003. Donaldson, Lufkin & Jenrette calculated EBITDA for each of
Metromedia and PLD. EBITDA is after-tax operating earnings plus
depreciation and amortization and other non-cash items. Donaldson,
Lufkin & Jenrette performed this analysis to determine the magnitude of
accretion in the present value of Metromedia's expected cash flows
resulting from the merger.
Donaldson, Lufkin & Jenrette calculated the terminal value of Metromedia
and PLD at the end of the forecast period, by applying a range of
estimated EBITDA multiples selected in Donaldson, Lufkin & Jenrette's
subjective judgment. The terminal value estimates are an hypothetical
approximation of the value of the enterprise's cash flows beyond the end
of the five year period covered by management's projection.
The multiples of management's projected EBITDA and Donaldson, Lufkin &
Jenrette's subjective estimate of the terminal values were then
discounted to the present using a range of discount rates selected in
Donaldson, Lufkin & Jenrette's subjective judgment.
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
PRO FORMA
METROMEDIA PLD METROMEDIA
------------------ ----------------- -----------------
<S> <C> <C> <C>
Range of EBITDA multiples........................... 10.0x to 13.0x 10.5x to 13.5x 10.2x to 13.2x
Discount Rates...................................... 25% to 35% 25% to 35% 25% to 35%
Implied per share equity value...................... $4.30 to $8.27(1 ) $5.87 to $10.83 (1)
Implied per share equity value using a 0.5600
exchange ratio.................................... $5.75 to $10.87 (1)
Implied per share equity value using a 0.6667
exchange ratio.................................... $5.50 to $10.41 (1)
</TABLE>
- ------------------------
(1) Based upon management's projections of EBITDA.
The above analysis shows that the range of implied per share equity
value for Metromedia would grow from $4.30 to $8.27 on a stand-alone
basis to $5.50 to $10.41 after giving effect to the acquisition of PLD
using a 0.6667 exchange ratio.
DLJ further analyzed management's model of EBITDA for Metromedia after
giving effect to the acquisition. Donaldson, Lufkin & Jenrette selected
discount rates and EBITDA multiples used in the analysis in its
subjective judgment. Donaldson, Lufkin & Jenrette used different EBITDA
multiples for each of Metromedia's lines of business. The selected
EBITDA
39
<PAGE>
multiples are a hypothetical approximation of the value at which
management's expected future cash flows could be sold.
<TABLE>
<S> <C>
Range of EBITDA multiples 10.0x to 13.5x
Range of discount rates 25% to 35%
1.3098 to
Range of exchange ratios 1.3652
</TABLE>
The exchange ratios modeled in this analysis were, in each case, higher
than the 0.6667 exchange ratio to be paid by Metromedia pursuant to the
merger agreement.
(iv) COMPARABLE COMPANY ANALYSIS. No other company utilized in Donaldson,
Lufkin & Jenrette's analysis of comparable publicly traded companies is
identical to Metromedia or PLD. Accordingly, this analysis necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of each of Metromedia and PLD
and other factors that could affect the public trading value of
Metromedia, PLD or any other comparable company included in such
analysis. Mathematical analysis (such as determining the mean or
median) is not in itself a meaningful method of using comparable
company data. Donaldson, Lufkin & Jenrette performed this analysis in
order to compare the ratio of PLD's enterprise value to its EBITDA
(using a 0.5600 exchange ratio and May 14, 1999 market valuations) to
those of the comparable companies at May 14, 1999.
Donaldson, Lufkin & Jenrette analyzed the operating performance of PLD
relative to five companies deemed by Donaldson, Lufkin & Jenrette to be
reasonably comparable to PLD. These companies were:
Telesystem International Wireless Inc., Millicom International
Cellular SA, United International Holdings Inc., Bell Canada
International Inc. and Metromedia International Group, Inc.
Historical financial information used with respect to the comparable
companies was as of the most recent financial statements publicly
available for each company as of May 14, 1999. Donaldson, Lufkin &
Jenrette examined certain publicly available financial data of the
comparable companies including enterprise value (defined as market value
of common equity plus book value of total debt and preferred stock less
cash) as multiples of the latest publicly available twelve months'
EBITDA.
Donaldson, Lufkin & Jenrette analyzed the relative value of PLD by
comparing certain market trading statistics for PLD as of the close of
trading on May 14, 1999 as well as the implied trading statistics based
on the market exchange ratio of 0.5600, in each case with those of the
comparable companies.
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
PLD PLD
(USING MARKET (AT MAY 14,
ENTERPRISE VALUE/LATEST TWELVE MONTH EBITDA HIGH MEDIAN LOW EXCHANGE RATIO) 1999)
- ---------------------------------------------------------- --------- ----------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Comparable companies...................................... 55.8x 26.9x 23.3x 5.0x(1) 4.4x(2)
</TABLE>
- ------------------------
(1) 9.2x based upon PLD's management's projection of PLD's 1999 proportionate
share of its equity investees' EBITDA
(2) 8.1x based upon PLD's management's projection of PLD's 1999 proportionate
share of its equity investees' EBITDA
40
<PAGE>
The comparable company analysis showed that Metromedia was paying a
lower multiple over PLD's latest twelve month EBITDA than the EBITDA
multiples implied by the prevailing market prices of the comparable
companies.
(v) ACCRETION/DILUTION ANALYSIS. Donaldson, Lufkin & Jenrette analyzed the
pro forma effect of the merger on Metromedia's projected earnings per
share for fiscal 1999 to fiscal 2003 in order to determine whether the
effect of the merger was projected by management to add to (be accretive
to) Metromedia's stand alone earnings per share or subtract from (be
dilutive to) Metromedia's stand alone earnings per share in each of the
selected years. Metromedia stockholders should note that not all
acquisitions in the marketplace are projected by the acquiror's
management to be accretive in any given year. This analysis was based on
a number of assumptions, including, among other things, the projected
financial performance of Metromedia and PLD and prevailing interest
rates. The analysis indicated that (accounting for the merger as a
purchase) the pro forma earnings per share for Metromedia was
anticipated, using management's projections, to be accretive to
Metromedia's stand-alone earnings per share estimates for each of the
projected fiscal years 1999 through fiscal 2000.
The summary set forth above is not a complete description of the analyses
performed by Donaldson, Lufkin & Jenrette, but describes, in summary form, the
material elements of the analyses made by Donaldson, Lufkin & Jenrette in
arriving at Donaldson, Lufkin & Jenrette's opinion. The preparation of a
fairness opinion involves determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
summarized.
Donaldson, Lufkin & Jenrette's conclusion involved significant elements of
judgment and qualitative analyses as well as financial and quantitative
analyses. Donaldson, Lufkin & Jenrette did not place particular reliance or
weight on any individual factor, but instead concluded that its analyses, taken
as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, Donaldson, Lufkin & Jenrette believes that
its analyses must be considered as a whole and that selecting portions of its
analysis and the factors considered by it, without considering all analyses and
factors, could create an incomplete or misleading view of the evaluation process
underlying its opinion.
In performing its analyses, Donaldson, Lufkin & Jenrette made numerous
assumptions with respect to industry performance, business and regulatory,
financial, economic, monetary, political and market conditions and other
matters, many of which are beyond the control of Metromedia or PLD. In addition,
analyses relating to the value of the businesses or securities do not purport to
be appraisals, or to reflect the prices at which such businesses or securities
can actually be sold. The analyses performed by Donaldson, Lufkin & Jenrette are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Metromedia selected Donaldson, Lufkin & Jenrette to render an opinion in
connection with the merger based upon Donaldson, Lufkin & Jenrette's
qualifications, expertise and reputation, including the fact that Donaldson,
Lufkin & Jenrette, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
41
<PAGE>
Pursuant to the terms of an engagement letter dated May 16, 1999, Metromedia
agreed:
(a) to pay Donaldson, Lufkin & Jenrette:
- a fee of:
(1) $350,000 upon notification that Donaldson, Lufkin & Jenrette was
prepared to deliver its opinion; and
(2) $2,500,000, less any amounts paid pursuant to clause (1), payable
in cash promptly upon consummation of a business combination
between Metromedia and PLD in one or a series of transactions, by
merger, consolidation, or any other business combination, by
purchase involving all or a substantial amount of the business,
securities or assets of PLD or otherwise; and
- reimbursement for all of Donaldson, Lufkin & Jenrette's out-of-pocket
expenses, including the reasonable fees and expenses of counsel,
incurred by Donaldson, Lufkin & Jenrette;
(b) to indemnify Donaldson, Lufkin & Jenrette for liabilities and expenses
arising out of a transaction, including liabilities under federal
securities laws; and
(c) in the event a transaction is not consummated and Metromedia is entitled
to receive a "termination fee," "break-up fee," "topping fee" or other
form of compensation payable in cash or other assets, including, but not
limited to, an option to purchase securities from PLD or reimbursement of
expenses, then Metromedia will pay to Donaldson, Lufkin & Jenrette in
cash, promptly upon Metromedia's receipt of such fee, compensation or
reimbursement of expenses, an amount equal to fifteen percent of such
fee, compensation or reimbursement received. Any fees paid to Donaldson,
Lufkin & Jenrette under clause (a)(1) and (a)(2) will be deducted from
the portion of the fee, compensation or reimbursement payable to
Donaldson, Lufkin & Jenrette.
The terms of the fee arrangement with Donaldson, Lufkin & Jenrette, which
Donaldson, Lufkin & Jenrette and Metromedia believe are customary in
transactions of this nature, were negotiated at arms-length between Metromedia
and Donaldson, Lufkin & Jenrette. Metromedia's board of directors was aware of
such arrangement, including the fact that a significant portion of the aggregate
fee payable to Donaldson, Lufkin & Jenrette is contingent upon consummation of
the merger.
Donaldson, Lufkin & Jenrette provides a full range of financial, advisory
and brokerage services and in the course of its normal trading activities may
from time to time effect transactions and hold positions in the securities or
debt of Metromedia and/or PLD for its own account and for the accounts of
customers. Donaldson, Lufkin & Jenrette has performed investment banking and
other services for Metromedia in the past and has been compensated for such
services, including:
- rendering an opinion in June 1997 as the fairness from a financial point
of view to Metromedia of the sale of certain of Metromedia's entertainment
assets to P&F Acquisition Corp. for which Donaldson, Lufkin & Jenrette
received usual and customary compensation and
- acting as lead manager in Metromedia's September 1997 public offering of
its 7.25% Cumulative Convertible Preferred Stock for which Donaldson,
Lufkin & Jenrette received usual and customary underwriters compensation.
OPINION OF PLD'S FINANCIAL ADVISOR
Salomon Smith Barney was retained by PLD to act as its financial advisor in
connection with the proposed merger. In connection with its engagement, PLD
requested that Salomon Smith Barney evaluate the fairness, from a financial
point of view, to the holders of PLD common stock of the
42
<PAGE>
exchange ratio provided for in the merger. On May 15, 1999, at a meeting of the
PLD board held to evaluate the proposed merger, Salomon Smith Barney delivered
to the PLD board an oral opinion to the effect that, as of that date and based
upon and subject to review of the final merger agreement and other customary
matters, the exchange ratio was fair, from a financial point of view, to the
holders of PLD common stock. Salomon Smith Barney's oral opinion was confirmed
by delivery of a written opinion dated May 18, 1999, the date of the merger
agreement.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement;
- held discussions with senior officers, directors and other representatives
and advisors of PLD and senior officers and other representatives and
advisors of Metromedia concerning the businesses, operations and prospects
of PLD and Metromedia;
- examined publicly available business and financial information relating to
PLD and Metromedia as well as financial forecasts and other information
and data for PLD and Metromedia which were provided to or otherwise
discussed with Salomon Smith Barney by the managements of PLD and
Metromedia, including information relating to strategic implications and
operational benefits anticipated to result from the merger;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of PLD common stock and Metromedia
common stock, the financial condition and historical and projected
earnings and other operating data of PLD and Metromedia, including the
near-term liquidity needs of, and capital resources available to, PLD, and
the capitalization of PLD and Metromedia;
- considered, to the extent publicly available, the financial terms of other
transactions recently effected which Salomon Smith Barney considered
relevant in evaluating the merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon
Smith Barney considered relevant in evaluating those of PLD and
Metromedia;
- evaluated the potential pro forma financial impact of the merger on
Metromedia; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as Salomon Smith Barney deemed appropriate in
arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to these
financial forecasts and other information and data, the managements of PLD and
Metromedia advised Salomon Smith Barney that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of PLD and Metromedia as to the future financial performance of PLD
and Metromedia and the strategic implications and operational benefits
anticipated to result from the merger.
Salomon Smith Barney assumed, with the consent of PLD, that the merger will
be treated as a tax-free reorganization for federal income tax purposes. Salomon
Smith Barney's opinion relates to the relative values of PLD and Metromedia.
Salomon Smith Barney did not express any opinion as to what the value of
Metromedia common stock actually will be when issued to PLD stockholders
pursuant to the merger or the prices at which the Metromedia common stock will
trade subsequent to the merger. Salomon Smith Barney did not make and was not
provided with an independent evaluation or appraisal
43
<PAGE>
of the assets or liabilities, contingent or otherwise, of PLD or Metromedia nor
did Salomon Smith Barney make any physical inspection of the properties or
assets of PLD or Metromedia.
In connection with its opinion, Salomon Smith Barney was not requested to,
and did not, solicit third party indications of interest in the possible
acquisition of all or a part of PLD. Salomon Smith Barney expressed no view as
to, and its opinion does not address, the relative merits of the merger as
compared to any alternative business strategies that might exist for PLD or the
effect of any other transaction in which PLD might engage. Salomon Smith
Barney's opinion was necessarily based upon information available, and
financial, stock market and other conditions and circumstances existing and
disclosed, to Salomon Smith Barney as of the date of its opinion. Although
Salomon Smith Barney evaluated the exchange ratio from a financial point of
view, Salomon Smith Barney was not asked to and did not recommend the specific
consideration payable in the merger, which was determined through negotiation
between PLD and Metromedia. No other instructions or limitations were imposed by
PLD on Salomon Smith Barney with respect to the investigations made or
procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED MAY 18, 1999,
WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX B AND SHOULD BE READ
CAREFULLY IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO THE PLD
BOARD AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH
RESPECT TO ANY MATTER RELATING TO THE PROPOSED MERGER. THE SUMMARY OF SALOMON
SMITH BARNEY'S OPINION INCLUDED IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
PLD and Metromedia. No company, transaction or business used in those analyses
as a comparison is identical to PLD, Metromedia or the proposed merger, nor is
an evaluation of those analyses entirely mathematical; rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the merger, public trading
or other values of the companies, business segments or transactions being
analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Salomon Smith Barney's analyses
and estimates are inherently subject to substantial uncertainty.
44
<PAGE>
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the PLD board in its evaluation of the merger and should not be
viewed as determinative of the views of the PLD board or management with respect
to the exchange ratio or the proposed merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion. THE
FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR
FORMAT. IN ORDER TO FULLY UNDERSTAND SALOMON SMITH BARNEY'S FINANCIAL ANALYSES,
THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE
DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING
THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF
THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING
THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF SALOMON SMITH
BARNEY'S FINANCIAL ANALYSES.
PLD SEGMENTED PUBLIC MARKET VALUATION.
Salomon Smith Barney performed separate public market analyses for each of
PLD's subsidiaries, PeterStar, Teleport, ALTEL and BCL, in order to derive
implied equity reference ranges for those subsidiaries based on the trading
multiples of a group of publicly traded peer companies. Salomon Smith Barney
derived these implied equity reference ranges by applying trading multiples of
various operational measures for selected public companies in the telecom
industry to corresponding operational measures of PeterStar, Teleport, ALTEL and
BCL. In the case of PeterStar, Salomon Smith Barney compared firm value,
calculated as market values, plus debt, less cash, as multiples of, among other
things, calendar year 1998 and estimated calendar year 1999 earnings before
interest, taxes, depreciation and amortization. In the case of Teleport, ALTEL
and BCL, Salomon Smith Barney compared firm value as multiples of calendar year
1998 revenues and calendar year 1998 and estimated calendar year 1999 earnings
before interest, taxes, depreciation and amortization. All multiples were based
on closing stock prices on May 12, 1999. Estimated financial data for the
selected companies were based on publicly available research analysts'
estimates, and estimated financial data for PLD were based on internal estimates
of the management of PLD. The following selected companies were used in these
public market analyses:
PeterStar Selected Companies
- Singapore Telecommunications, Ltd.
- Hongkong Telecom IMS, Ltd.
- Telekom Malaysia Berhad
- Philippine Long Distance Telephone Company
- Telecom Corporation of New Zealand Limited
- PT Telekomunikasi Indonesia
- PT Indonesian Satellite Corporation
Teleport Selected Companies
- PT Indonesian Satellite Corporation
ALTEL Selected Companies
- Vimpel-Communications SP
BCL Selected Companies
- Vimpel-Communications SP
45
<PAGE>
- Rostelecom
Salomon Smith Barney derived an implied equity reference range for PLD's
ownership interest in PeterStar, Teleport, ALTEL, and BCL by multiplying PLD's
percentage ownership in those subsidiaries by the implied equity reference
ranges derived for those subsidiaries from the public market analyses. Salomon
Smith Barney then derived an implied aggregate equity reference range for PLD.
For this purpose, Salomon Smith Barney added:
- the implied equity reference ranges for PLD's ownership interest in
PeterStar, Teleport, ALTEL, and BCL, plus
- PLD's invested capital in PLD's subsidiaries, Cardlink and PLDncompass,
plus
- the implied equity reference range for PLD's subsidiary, BELCEL derived by
multiplying a range of values per population coverage by the number of
BELCEL's population coverage.
Salomon Smith Barney then subtracted from the resulting amount the implied
value of PLD's corporate expenses.
This analysis indicated the following implied per share equity reference
range for PLD, as compared to the per share equity value for PLD implied by the
exchange ratio based on the closing stock price of Metromedia common stock on
May 12, 1999:
<TABLE>
<CAPTION>
Implied Per Per Share Equity Value for PLD Implied by the
Share Exchange Ratio Based on Closing Stock Price
Equity Reference of
Range for PLD Metromedia Common Stock on May 12, 1999
- ---------------- ---------------------------------------------
<S> <C>
$1.93 to $2.69 $ 3.71
</TABLE>
PLD SEGMENTED DISCOUNTED CASH FLOW ANALYSIS.
Salomon Smith Barney performed separate discounted cash flow analyses on the
stand-alone unlevered free cash flows for each of PeterStar, Teleport, ALTEL,
BCL, Cardlink and PLDncompass in order to estimate the projected free cash flows
that these subsidiaries could generate over the fiscal years 1999 through 2003.
Ranges of estimated terminal value for these subsidiaries were calculated by
applying the terminal value multiples reflected in the table below to the
projected 2003 earnings before interest, taxes, depreciation and amortization of
these subsidiaries. The cash flows and terminal values were then discounted to
present value using the discount rates reflected in the table below:
<TABLE>
<CAPTION>
Selected Terminal
Value Multiples Discount Rate
----------------- -------------
<S> <C> <C>
PeterStar............................................................. 9.0 x to 10.0 x 25.0%
Teleport.............................................................. 7.0 x to 8.0 x 30.0%
ALTEL................................................................. 3.25x to 4.25x 25.0%
BCL................................................................... 4.0 x to 5.0 x 30.0%
Cardlink.............................................................. 4.0 x to 5.0 x 30.0%
PLDncompass........................................................... 2.5 x to 3.5 x 25.0%
</TABLE>
Salomon Smith Barney then derived an implied aggregate equity reference range
for PLD. For this purpose, Salomon Smith Barney added:
- the implied equity reference ranges derived from these discounted cash
flow analyses, plus
- the implied equity reference range for BELCEL derived by multiplying a
range of values per population coverage by the number of BELCEL's
population coverage, plus
- intercompany debt.
46
<PAGE>
Salomon Smith Barney then subtracted from the resulting amount the implied value
of PLD's corporate expenses and net debt.
This analysis was based both on internal estimates of the management of PLD
("Case I") and on sensitivity adjustments made to the Case I estimates in
consultation with PLD management ("Case II"). This analysis indicated the
following implied per share equity reference range for PLD for Case I and Case
II, as compared to the per share equity value for PLD implied by the exchange
ratio based on the closing stock price of Metromedia common stock on May 12,
1999:
<TABLE>
<CAPTION>
Implied Per Per Share Equity Value for PLD Implied by the
Share Exchange Ratio Based on Closing Stock Price
Equity Reference of
Range for PLD Metromedia Common Stock on May 12, 1999
---------------- ---------------------------------------------
<S> <C> <C>
Discounted Cash Flow Analysis
(Case I)........................... $3.23 to $3.94 $ 3.71
Discounted Cash Flow Analysis
(Case II).......................... $1.95 to $2.57 $ 3.71
</TABLE>
METROMEDIA SEGMENTED DISCOUNTED CASH FLOW ANALYSIS.
Salomon Smith Barney performed separate discounted cash flow analyses on the
stand-alone unlevered free cash flows for each of Metromedia's businesses,
Snapper, Telephony, Cable, Radio and Paging, in order to estimate the projected
free cash flows that these businesses could generate over the fiscal years 1999
through 2003. Ranges of estimated terminal value for these businesses were
calculated by applying the terminal value multiples reflected in the table below
to the projected 2003 earnings before interest, taxes, depreciation and
amortization of these businesses. The cash flows and terminal values were then
discounted to present value using the ranges of discount rates reflected in the
table below:
<TABLE>
<CAPTION>
Selected
Terminal
Value Multiples Discount Rate
---------------- ------------------
<S> <C> <C>
Snapper........................................................... 7.0x to 8.0x 11.0% to 13.0%
Telephony......................................................... 11.0x to 12.0x 17.0% to 19.0%
Cable............................................................. 8.0x to 9.0x 17.0% to 19.0%
Radio............................................................. 13.0x to 14.0x 17.0% to 19.0%
Paging............................................................ 4.0x to 6.0x 17.0% to 19.0%
</TABLE>
Salomon Smith Barney then derived an implied aggregate equity reference range
for Metromedia. For this purpose, Salomon Smith Barney added:
- the implied equity reference ranges derived from these discounted cash
flow analyses, plus
- the potential value of Metromedia's investment in China.
Salomon Smith Barney then subtracted from the resulting amount the implied value
of Metromedia's corporate expenses and net debt.
This analysis was based on internal estimates of the management of
Metromedia. This analysis indicated the following implied per share equity
reference range for Metromedia, as compared to the closing stock price of
Metromedia common stock on May 12, 1999:
<TABLE>
<CAPTION>
Implied Per Share Closing Stock Price of
Equity Reference Metromedia Common Stock
Range for PLD on May 12, 1999
- ------------------------- ---------------------------
<S> <C>
$7.19 to $9.98 $ 6.63
</TABLE>
47
<PAGE>
RELATIVE CONTRIBUTION EXCHANGE RATIO ANALYSIS.
Salomon Smith Barney performed an exchange ratio analysis comparing the
relative contributions of PLD and Metromedia to the combined company, based on
internal estimates of the managements of PLD and Metromedia. Salomon Smith
Barney compared each of the implied aggregate equity reference ranges derived
for PLD from the PLD segmented public market analysis and the PLD discounted
cash flow analyses to the aggregate implied equity reference range for
Metromedia derived from the Metromedia discounted flow analysis. Salomon Smith
Barney then derived an implied exchange ratio based on the relative
contributions of each of PLD and Metromedia for each of these comparisons. This
analysis indicated the following implied exchange ratio ranges based on these
relative contributions as compared to the merger exchange ratio at the top of
the collar and the bottom of the collar:
<TABLE>
<CAPTION>
Bottom of
Implied Exchange Ratio Top of Collar Collar
Ranges Based on Merger Merger
Relative Contributions Exchange Ratio Exchange Ratio
---------------------- -------------- ---------------
<S> <C> <C> <C>
Discounted Cash Flow Analysis
(Case I).................................... 0.3236x to 0.5480x 0.5600x 0.6667x
Discounted Cash Flow Analysis
(Case II)................................... 0.1953x to 0.3571x 0.5600x 0.6667x
PLD Public Market Analysis to Metromedia
Discounted Cash Flow Analysis............... 0.1937x to 0.3735x 0.5600x 0.6667x
</TABLE>
HISTORICAL EXCHANGE RATIO ANALYSIS.
Salomon Smith Barney reviewed the implied historical exchange ratios for PLD
common stock and Metromedia common stock determined by dividing the price per
share of PLD common stock by the price per share of Metromedia common stock for
the three-year period beginning on May 11, 1996 through May 11, 1999, and for
the period beginning September 1, 1998 through May 11, 1999. This analysis
indicated the following high, low and average of the historical exchange ratios
during these periods and on May 11, 1999, as compared to the merger exchange
ratio at the top of the collar and the bottom of the collar:
<TABLE>
<CAPTION>
High Historical Low Historical Average Historical
Exchange Ratio Exchange Ratio Exchange Ratio
----------------- ----------------- -------------------
<S> <C> <C> <C>
May 11, 1996 to May 11, 1999.............. 0.92x 0.22x 0.56x
September 1, 1998 to May 11, 1999......... 0.92x 0.22x 0.43x
</TABLE>
<TABLE>
<CAPTION>
Exchange Ratio Top of Collar Bottom of Collar
on May 11, 1999 Merger Exchange Ratio Merger Exchange Ratio
- ----------------------- --------------------- ---------------------
<S> <C> <C>
0.42x 0.5600x 0.6667x
</TABLE>
PRO FORMA MERGER ANALYSIS.
Salomon Smith Barney analyzed the potential pro forma financial effects of
the merger on Metromedia's free cash flow and earnings per share for calendar
years 1999 through 2003. This analysis was based on internal estimates of the
managements of PLD and Metromedia without giving effect to potential synergies
that may result from the merger. The results of the pro forma merger analysis
suggested that the merger could be accretive to, or result in an increase in,
Metromedia's free cash flow and earnings per share commencing in the first full
fiscal year after consummation of the merger.
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<PAGE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
OTHER FACTORS.
In rendering its opinion, Salomon Smith Barney also reviewed and considered,
among other things:
- historical and projected financial data for PLD and Metromedia;
- historical market prices and trading volumes for PLD common stock and
Metromedia common stock, the relationship between movements in PLD common
stock and movements in the Russian ASP Industrial Average Index and the
relationship between movements in Metromedia common stock, movements in
the Russian ASP Industrial Average Index, movements in the Hungary Index
and movements in the Czech Republic Index; and
- selected analysts' reports on PLD, including calendar years 1999 and 2000
earnings per share estimates of such analysts.
MISCELLANEOUS.
Pursuant to the terms of its engagement, PLD has agreed to pay Salomon Smith
Barney upon completion of the merger an aggregate financial advisory fee equal
to a percentage of the aggregate consideration, including liabilities assumed,
payable in connection with the merger. The fee payable to Salomon Smith Barney
is currently estimated to be approximately $2.7 million. PLD has also agreed to
reimburse Salomon Smith Barney for its travel and other out-of-pocket expenses,
including the fees and expenses of its legal counsel, and to indemnify Salomon
Smith Barney and related persons against liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of PLD and Metromedia for their own
account or for the account of customers and, accordingly, may at any time hold a
long or short position in those securities. Salomon Smith Barney and its
affiliates have in the past provided financial services, including investment
banking services and financing, to PLD unrelated to the proposed merger, for
which services Salomon Smith Barney and its affiliates have received
compensation. The Revolving Credit Agreement dated November 26, 1997 between
certain affiliates of Salomon Smith Barney and PLD will be restructured in
connection with the merger. A portion of the outstanding amount of this
Revolving Credit Agreement will be repaid and a portion will be exchanged into
shares of PLD common stock, which will subsequently be converted in the merger
into shares of Metromedia common stock and warrants to purchase shares of
Metromedia common stock. In addition, Salomon Smith Barney and its affiliates,
including Citigroup Inc. and its affiliates, may maintain relationships with
PLD, Metromedia and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by PLD based on its experience, expertise and familiarity
with PLD and its business. Salomon Smith Barney regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF PLD COMMON STOCK
GENERAL
The following describes the material federal income tax consequences of the
merger to PLD stockholders. However, this discussion does not address all
aspects of taxation that may be relevant to particular stockholders in light of
their personal investment or tax circumstances. Nor does this
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<PAGE>
discussion address all the tax consequences for stockholders subject to special
treatment under the federal income tax laws, such as insurance companies,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States. In addition, this discussion
does not give a detailed discussion of any state, local or foreign tax
considerations. This discussion may not be applicable to holders who acquired
PLD common stock pursuant to the exercise of options or warrants or otherwise as
compensation. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO YOU OF THE MERGER.
This discussion is based on the Internal Revenue Code of 1986, applicable
Department of Treasury regulations, judicial authority, and administrative
rulings and practice, all as of the date of this joint proxy
statement/prospectus. Future legislative, judicial, or administrative changes or
interpretations may adversely affect the accuracy of the statements and
conclusions described in this document. Any such changes or interpretations
could be applied retroactively and could affect the tax consequences of the
merger to you.
No ruling has been sought from the Internal Revenue Service as to the United
States federal income tax consequences of the merger, and the opinions of
counsel referred to below are not binding on the Internal Revenue Service or any
court.
MATERIAL TAX CONSEQUENCES OF THE MERGER
PLD has received an opinion of Morgan, Lewis & Bockius LLP, its special tax
counsel, dated as of the date of this document, describing the material United
States federal income tax consequences of the merger. The following is a summary
of that opinion:
(a) No gain or loss will be recognized by Metromedia, Metromedia's
subsidiary or PLD as a result of the merger;
(b) No gain or loss will be recognized by you upon your receipt of
Metromedia common stock in exchange for your PLD common stock, except
with respect to cash received instead of fractional shares of
Metromedia common stock;
(c) The aggregate tax basis of the shares of Metromedia common stock
received in exchange for your PLD common stock in the merger,
including fractional shares for which cash is received, will be the
same as the aggregate tax basis of your PLD common stock exchanged;
(d) The holding period for shares of Metromedia common stock received in
the merger will include the holding period of the PLD common stock
exchanged, but only if you held the PLD common stock as a capital
asset at the time we complete the merger; and
(e) If you receive cash instead of a fractional share of Metromedia
common stock, you will recognize gain or loss equal to the
difference, if any, between your tax basis in the fractional share
(as described in (c) above) and the amount of cash received.
A copy of the opinion of Morgan, Lewis & Bockius LLP is filed as an exhibit
to the registration statement of which this joint proxy statement/prospectus is
a part. See "Where you can find more information."
PLD's obligation to complete the merger is conditioned upon its receipt of
an additional opinion from Morgan Lewis & Bockius LLP, its special tax counsel,
dated as of the closing date of the merger, confirming the opinion previously
delivered that the merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code. If PLD decides to waive the
receipt of this additional opinion, the parties will recirculate a revised proxy
statement and resolicit stockholders' approval. See "The Merger
Agreement--Conditions to the Merger."
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<PAGE>
BACKUP WITHHOLDING
Noncorporate holders of PLD common stock may be subject to backup
withholding at a rate of 31% on cash payments received instead of a fractional
share interest in Metromedia common stock. Backup withholding will not apply,
however, to a stockholder who:
- furnishes a correct taxpayer identification number and certifies, under
penalties of perjury, that he or she is not subject to backup withholding
on a Form W-9,
- provides a certificate of foreign status on Form W-8 or
- is otherwise exempt from backup withholding.
A stockholder who fails to provide the correct taxpayer identification
number on Form W-9 may be subject to a $50 penalty imposed by the Internal
Revenue Service. We will provide a Form W-9 to you after the merger.
REPORTING REQUIREMENTS
You will be required to attach a statement to your tax returns for the
taxable year in which the merger is completed that contains the information set
forth in Section 1.368-3(b) of the Department of Treasury regulations. The
statement must include your tax basis in the PLD common stock surrendered and a
description of the Metromedia common stock received in the merger.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting.
This means that, after the merger, Metromedia will be required to record the
excess of the consideration paid over the estimated fair value of net assets
acquired and will subsequently amortize this cost against earnings.
DIVIDEND POLICY
Metromedia currently has no plans to pay cash dividends on its common stock
in the foreseeable future. Metromedia intends to retain earnings to finance the
development and expansion of its businesses. The decision of the Metromedia
board as to whether or not to pay cash dividends in the future will depend upon
a number of factors, including Metromedia's future earnings, capital
requirements, financial condition, and the existence or absence of any
contractual limitations on the payment of dividends.
PLD has agreed not to declare, set aside, make or pay any dividend on its
common stock until the completion of the merger.
INTERESTS OF PLD DIRECTORS AND OFFICERS IN THE MERGER
GENERAL
Members of the PLD board and PLD management may be deemed to have interests
in the merger that are different from and in addition to their interests as PLD
stockholders. The PLD board recognized these interests and determined that these
interests neither supported nor detracted from the fairness of the transaction
to you.
NEWS AMERICA
Mr. I. Martin Pompadur, one of PLD's directors, is also an officer of News
America. News America and an affiliate are parties to a voting agreement dated
as of May 18, 1999 with Metromedia, pursuant to which these parties have agreed
to vote in favor of the merger and against any competing proposal. These parties
are also parties to other agreements with Metromedia pursuant to which
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<PAGE>
Metromedia will register shares of its common stock received by these parties in
the merger, and with Metromedia Company, which with its partners is the largest
stockholder of Metromedia, pursuant to which it will grant tag-along rights to
such parties. For further details, see "Related Agreements-- Voting Agreement
and Registration Rights Agreement." In addition, upon the consummation of the
merger, loans made by News America to PLD will be repaid in full.
INDEMNIFICATION
Metromedia has agreed to cause PLD, from and after the effective time of the
merger, to indemnify the present and former directors and officers of PLD and
has agreed to maintain directors' and officers' liability insurance for such
individuals in place for six years following completion of the merger. For
further details regarding these arrangements, see "The Merger
Agreement--Indemnification and Insurance."
APPOINTMENT TO METROMEDIA BOARD
The merger agreement provides that PLD has the right to appoint two persons
to the Metromedia board of directors and News America has the right to designate
one of these two persons. Metromedia intends to expand its board to accommodate
these appointments. No other current PLD directors will continue as directors of
PLD in Metromedia. No determination has been made as to the management of PLD
after consummation of the merger.
ACCELERATED VESTING OF OPTIONS
Metromedia agreed to assume all outstanding stock options of PLD (vested or
unvested) in the merger agreement. According to the terms of PLD's stock option
plans, options held by all employees and non-employee directors of PLD will
automatically accelerate upon completion of the merger. All currently
outstanding options granted to non-employee directors are fully vested and will
therefore not be affected by the acceleration.
In addition, as a condition to consummation of the merger, eight officers of
PLD must agree to waive:
- the acceleration of any amounts due as a result of the consummation of the
merger under any employment or other compensation arrangement to which
they are a party and
- the acceleration of the vesting of any unvested employee stock options of
PLD that would otherwise accelerate as a result of the consummation of the
merger.
Except as described in this section, all employment agreements in effect
immediately prior to the merger will continue to remain in effect after the
merger unchanged. Metromedia intends to offer all PLD employees substantially
comparable benefit plans following the merger to the plans currently offered PLD
employees.
INTEREST OF METROMEDIA DIRECTORS AND OFFICERS IN THE MERGER
GENERAL
Members of the Metromedia board and Metromedia management may be deemed to
have interests in the merger that are different from and in addition to their
interests as Metromedia stockholders. The Metromedia board recognizes these
interests and determined that these interests neither supported nor detracted
from the fairness of the transactions to you.
NEWS TAG-ALONG RIGHTS
In connection with Metromedia's agreement to merge with PLD, Metromedia
entered into a voting agreement dated May 18, 1999 with News America and its
affiliate which provides that these
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<PAGE>
stockholders will vote in favor of the merger and against any competing proposal
at the special meeting of PLD stockholders. In order to induce News America and
its affiliates to enter into this agreement, Metromedia Company who together
with its general partners, John W. Kluge and Stuart Subotnick and their
affiliates, are the largest stockholders of Metromedia, agreed to grant News
America and its affiliate tag-along rights on sales by Metromedia Company of
Metromedia common stock. The voting agreement provides that so long as News
America and its affiliate own more than 5% of the stock of Metromedia, each time
Metromedia Company and its partners sell any common stock of Metromedia, News
America and its affiliate will have the right to sell a proportionate amount of
their stock of Metromedia to the buyer. Mr. Kluge and Mr. Subotnick serve as
Chairman and Vice Chairman, President and Chief Executive Officer, respectively,
of Metromedia.
REGULATORY APPROVALS
Federal antitrust laws prohibit us from completing the merger until a
required notification and report form is filed and a required waiting period has
expired or been terminated. On May 26, 1999, we filed the required notification
and report forms. The waiting period for the filings terminated on June 24,
1999. Even though the waiting period was terminated, the Antitrust Division of
the Department of Justice or the Federal Trade Commission could take action
under the antitrust laws that could adversely affect the merger. However, we do
not believe that the completion of the merger will result in the violation of
any applicable antitrust laws.
In addition, the completion of the merger requires the consent of the
Federal Communications Commission, assurance that the Department of Trade and
Industry of the United Kingdom will not object to the change of control of PLD's
U.S. and U.K. telecommunications licenses, respectively, which will result from
the consummation of the merger, and also assurance from the Department of
Enterprise and Employment in Ireland that there will be no objection to the
change of control of PLD and Technocom Limited, an Irish subsidiary of PLD. The
Federal Communications Commission has consented to the change of control of
PLD's U.S. telecommunications licenses in connection with the merger. We have
received assurances from the U.K. Department of Trade and Industry that they
will not object to the change of control of PLD's U.S. and U.K.
telecommunications licenses and believe that we will be able to obtain the
necessary assurances from the Irish Department of Enterprise and Employment on a
timely basis. We do not believe that any additional material governmental
filings or consents are required with respect to the merger, other than the
filing of the articles of merger with the Delaware Secretary of State.
STOCK EXCHANGE LISTING
The Metromedia common stock to be issued to you in the merger will be listed
on the American Stock Exchange, subject to official notice of issuance. The
completion of the merger is conditioned upon the authorization for listing on
the American Stock Exchange of such Metromedia common stock.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Metromedia common stock received by PLD stockholders in the
merger will be freely transferable under the Federal securities laws, except for
shares received by persons who are deemed to be "affiliates" of PLD prior to the
completion of the merger. These shares may be resold by them only in
transactions permitted by the resale provisions of Rule 145 of the Securities
Act of 1933 (or Rule 144 in the case of persons who become affiliates of
Metromedia) or as otherwise permitted under the Securities Act of 1933. Persons
who may be deemed to be affiliates of Metromedia or PLD generally include
individuals or entities that control, are controlled by, or are under common
control with, such parties. Metromedia has agreed to file a shelf registration
statement with respect to the shares of Metromedia common stock to be received
by the PLD stockholders who have entered into the voting agreement. Please refer
to "Related Agreements--Voting Agreement and Registration Rights Agreement" on
page 63.
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<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. A copy of the merger agreement is attached as Appendix A to this
document and is incorporated in this document by reference. WE URGE YOU TO READ
THE MERGER AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
TERMS OF THE MERGER
GENERAL
The merger agreement contemplates the merger of a Metromedia subsidiary into
PLD. After the merger, PLD will survive as a wholly owned subsidiary of
Metromedia. The merger will be completed once we file the articles of merger
with the Delaware Secretary of State. We believe that this filing will occur at
the same time as the closing under the merger agreement which, unless we
otherwise agree, will occur on the first business day after the satisfaction or
waiver of the conditions set forth in the merger agreement.
CONVERSION OF SECURITIES
Once we complete the merger, the following will occur:
Unless described differently below or in the sections labeled "--Fractional
Shares" and "Exchange of New Stock Certificates--Dividends and Distributions,"
each of the shares of PLD common stock will be converted into a number of shares
of Metromedia common stock equal to an exchange ratio.
The exchange ratio will be calculated based on the average daily closing
stock prices for the common stock of Metromedia as reported on the American
Stock Exchange Composite Transactions Tape for the 20 consecutive trading days
ending on the third business day immediately before the meeting of PLD's
stockholders to approve the merger. Based on this average, the exchange ratio
will be as follows:
<TABLE>
<CAPTION>
AVERAGE METROMEDIA STOCK PRICE: EXCHANGE RATIO (ER):
- ------------------------------------------------------ ---------------------------
<S> <C> <C>
less than $5.25 ER = 0.6667
less than $6.25 but ER = $3.50
equal or greater than $5.25 average stock price
equal to or greater than $6.25 but ER = 0.56
less than or equal to $8.00
greater than $8.00 ER = $4.48
average stock price
</TABLE>
If the average Metromedia stock price is less than $5.25, PLD may
immediately before the completion of the merger request that the exchange ratio
be increased to equal:
<TABLE>
<S> <C>
$3.50
ER = average stock price
</TABLE>
If Metromedia declines this request, or if the average Metromedia stock
price is below $4.00, PLD can terminate the merger agreement.
If PLD or Metromedia issues additional shares or options prior to the
special meeting, the exchange ratio will be adjusted to reflect the additional
shares or options.
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<PAGE>
FRACTIONAL SHARES
Metromedia will not issue any fractional shares of its stock in the merger.
As promptly as practicable after we complete the merger, Chase/Mellon
Shareholder Services, as our exchange agent in the merger, will determine the
aggregate number of fractional shares which would be issued to all PLD
stockholders. Chase/Mellon Shareholder Services will then sell the excess shares
at then prevailing prices on the American Stock Exchange.
Until the net proceeds of such sales have been distributed to you,
Chase/Mellon Shareholder Services will hold such proceeds in trust for your
benefit. Metromedia will pay the costs of the sale of such excess shares.
Chase/Mellon Shareholder Services will determine the portion of the proceeds to
which each of you will be entitled, if any, by multiplying the amount of the
aggregate net proceeds from the sale by your proportionate interest in the
proceeds, which will depend on your PLD stock ownership. Instead of the
foregoing, however, Metromedia may satisfy payment for such excess shares by
delivering cash (without interest) to Chase/Mellon Shareholder Services in an
amount equal to the aggregate amount of all such excess shares multiplied by the
closing price of Metromedia common stock on the American Stock Exchange on the
trading day immediately prior to the date we complete the merger.
STOCK OPTIONS AND OTHER STOCK RIGHTS
Once we complete the merger, each option or warrant to purchase shares of
PLD common stock issued under PLD's stock option plan or warrant agreements or
otherwise, as the case may be, will be assumed by Metromedia. This means that
each PLD stock option or warrant will be converted into an option or warrant to
acquire shares of Metromedia common stock. The number of shares of Metromedia
common stock to be subject to the option or warrant will be equal to the product
of the number of shares of PLD common stock subject to the original option or
warrant and the exchange ratio. Metromedia will not issue any fractional shares
and all fractional shares will be eliminated. The exercise price per share of
Metromedia common stock under the option or warrant will be equal to the
exercise price per share of PLD common stock under the original option or
warrant divided by the exchange ratio.
PREFERRED STOCK
PLD will redeem any shares of its preferred stock outstanding before the
merger is completed for Cdn. $1.00 per share and in accordance with the terms of
PLD's certificate of incorporation. At the time the merger is completed, all
shares of PLD preferred stock will be canceled and will thereafter represent
only the right to receive the per share redemption payment of Cdn. $1.00. As of
the date of this document, 446,884 shares of PLD preferred stock were
outstanding.
EXCHANGE OF NEW STOCK CERTIFICATES
EXCHANGE AGENT
Once we complete the merger, Metromedia will deposit with Chase/Mellon
Shareholder Services, for your benefit, the certificates representing the shares
of Metromedia common stock, and any related dividends or distributions, issuable
pursuant to the merger in exchange for outstanding shares of PLD common stock.
For this purpose, the number of shares of Metromedia common stock issuable means
the product of the exchange ratio and the number of outstanding shares of PLD's
common stock as of the time we complete the merger.
After we complete the merger, Chase/Mellon Shareholder Services will mail to
each of you a letter of transmittal and instructions for use in surrendering
your PLD shares in exchange for certificate(s) representing shares of Metromedia
common stock. Upon surrender of your PLD stock certificate to
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<PAGE>
Chase/Mellon Shareholder Services, you will be entitled to receive a certificate
representing that number of whole shares of Metromedia common stock and cash
instead of any fractional share of Metromedia common stock, plus any dividends,
which you have the right to receive in the merger. Your PLD stock certificate(s)
will then be canceled.
DIVIDENDS AND DISTRIBUTIONS
NO DIVIDENDS OR OTHER DISTRIBUTIONS DECLARED OR MADE AFTER THE MERGER WITH
RESPECT TO METROMEDIA COMMON STOCK WITH A RECORD DATE AFTER THE DATE WE COMPLETE
THE MERGER WILL BE PAID TO YOU UNTIL YOU SURRENDER YOUR PLD STOCK
CERTIFICATE(S). NO CASH PAYMENT INSTEAD OF FRACTIONAL SHARES WILL BE PAID TO YOU
UNTIL YOU SURRENDER SUCH CERTIFICATE(S).
Following your surrender to Chase/Mellon Shareholder Services of any such
certificate(s), as a record holder of certificates representing whole shares of
Metromedia common stock, you will be paid, without interest:
- the amount of any cash payable instead of a fractional share of Metromedia
common stock to which you are entitled;
- the amount of dividends or other distributions with a record date after
the date we complete the merger already paid with respect to your whole
shares of Metromedia common stock; and
- at the appropriate payment date, the amount of dividends or other
distributions with a record date after the date we complete the merger but
prior to surrender and a payment date subsequent to surrender payable with
respect to your whole shares of Metromedia common stock.
TRANSFERS
As soon as we complete the merger, the stock transfer books of PLD will be
closed, and there will be no further registration of transfers of PLD common
stock.
TERMINATION OF EXCHANGE FUND
Metromedia will receive any portion of Metromedia common stock or the
proceeds from the sale of any excess Metromedia shares which remains
undistributed to PLD stockholders six months after the date we complete the
merger. Any PLD stockholder who has not previously complied with the exchange
procedures may then look only to Metromedia for payment.
NO LIABILITY
We will not be liable to any PLD stockholder or Metromedia stockholder for
any undistributed Metromedia common stock or cash from the proceeds of the sale
of any excess Metromedia shares which is delivered to a public official pursuant
to any applicable abandoned property or similar laws.
NO INTEREST
No interest will be paid or accrued on cash paid to PLD stockholders instead
of fractional shares. In addition, no interest will be paid or accrued on unpaid
dividends and distributions, if any, which may be payable upon surrender of PLD
stock certificates.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of PLD
relating to, among other things:
- its organization and qualification and its subsidiaries;
- capitalization;
- its authority relative to the merger agreement;
- no violation of laws or other agreements;
- receipt of consents and approvals required for the merger;
- possession of franchises, licenses, permits and other approvals required
for operation of business;
- filings with the Securities and Exchange Commission and its financial
statements;
- absence of changes or events which would have a material adverse affect on
PLD;
- the opinion of Salomon Smith Barney with respect to the fairness of the
exchange ratio from a financial point of view;
- brokers;
- no impact of take-over statutes;
- employee benefit plans;
- accounting treatment of the merger;
- identification of material contracts;
- absence of litigation;
- environmental matters;
- intellectual property;
- taxes;
- absence of non-competition agreements;
- the lack of any requirement to be registered under the Investment Company
Act of 1940;
- the accuracy of information supplied by PLD in connection with this
document; and
- vote necessary to approve the merger.
The merger agreement also contains various representations and warranties
made by Metromedia and its merger subsidiary as to, among other things:
- their organization and qualification and their subsidiaries;
- capitalization;
- their authority relative to the merger agreement;
- no violation of laws or other agreements;
- consents and approvals required for the merger;
- possession of franchises, licenses, permits and other approvals required
for operation of businesses;
- filings with the Securities and Exchange Commission and their financial
statements;
- absence of changes or events which will have a material adverse effect on
Metromedia or its merger subsidiary.
- employee benefit plans;
- accounting treatment of the merger;
- identification of material contracts
- absence of litigation;
- environmental matters;
- intellectual property;
- taxes;
- absence of non-competition agreements;
- the lack of any requirement to be registered under the Investment Company
Act of 1940;
- the opinion of Donaldson, Lufkin & Jenrette Securities Corp. with respect
to the fairness of the exchange ratio;
- brokers;
- absence of take-over statutes;
- the accuracy of information supplied for inclusion or incorporation by
reference in this document; and
- vote necessary to approve the merger.
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COVENANTS
PLD has agreed it will generally:
- conduct its business in the ordinary course of business and consistent
with past practice;
- not amend its organizational documents;
- not pay any dividends on its common stock, reclassify its common stock in
any way or issue any other securities instead of its common stock or
acquire any shares of its common stock;
- except for pay or benefits increases made in the ordinary course of
business, not change the terms of its existing pay or benefits
arrangements with management or its employees or otherwise enter into new
employment or severance agreements with any of those persons;
- not issue, pledge or otherwise encumber any shares of its common stock;
- except for activities in the ordinary course of business, not sell, lease,
license or otherwise encumber or dispose of any of its material properties
or assets;
- except for borrowings made in the ordinary course of business and from
Metromedia to PLD under the bridge loan agreement, not incur any debt,
guarantee any debt securities of another person or make any loans or
capital contributions to any other person;
- terminate, cancel or make any significant change in any contract or
agreement material to PLD and its subsidiaries;
- not take any action with respect to accounting policies, other than as
required by law or by generally accepted accounting principles; and
- not make any tax election or settle any material income tax liability.
Metromedia has agreed it will generally:
- conduct its business in the ordinary course of business and consistent
with past practice;
- not amend its organizational documents;
- not pay any dividends on its common stock, reclassify its common stock in
any way or issue any other securities instead of its common stock or
acquire any shares of its common stock;
- not sell, lease, transfer or otherwise dispose of all or most of its
properties and assets;
- except for borrowings made in the ordinary course of business, not incur
any debt, guarantee any debt securities of another person or make any
loans or capital contributions to any other person; and
- not take any action with respect to accounting policies, other than as
required by law or by generally accepted accounting principles.
Each of us has also agreed to:
- cooperate with each other in the preparation of information filed with the
Securities and Exchange Commission, including this document.
- update the other with respect to changes to our respective companies up
until we complete the merger, particularly with respect to any change that
could be expected to violate the merger agreement;
- ensure that there are no material misstatements or omissions contained in
the documents we file with the Securities and Exchange Commission in
connection with the merger; and
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- use its reasonable best efforts to obtain the necessary stockholder
approval required to approve the merger.
NO SOLICITATION OF TRANSACTIONS
PLD has agreed that it will not take any action which could cause a third
party to make a proposal to acquire an interest in PLD or propose, enter into or
participate in any discussions or negotiations regarding any such proposal.
However, this does not prohibit PLD from, prior to its special meeting:
- furnishing information based on a confidentiality letter concerning PLD to
a third party which has made an unsolicited proposal that the PLD board
determines such party is capable of financing;
- engaging in discussions or negotiations with the third party which has
made such an unsolicited proposal; or
- following receipt of the unsolicited proposal, taking and disclosing to
its stockholders a position with respect to such proposal.
However, in each case referred to above, the PLD board must conclude in good
faith, following receipt of a written opinion addressed to PLD from outside
counsel, that such action is necessary for the PLD board to satisfy its
fiduciary obligations to its stockholders. The PLD board must also conclude that
the third party which made the unsolicited proposal has the ability and the
financial wherewithal to complete an acquisition of PLD.
If the board receives such a proposal, PLD must immediately inform
Metromedia of the material terms and conditions of such proposal and the
identity of the person making it and will keep Metromedia fully informed
regarding any significant details or developments with respect to any such
proposal and of all significant steps it is taking in response to such proposal.
PLD has agreed that neither its board nor any committee thereof will:
- propose to withdraw or modify its recommendation to approve the merger
agreement or
- propose to approve or recommend any third-party proposal to acquire an
interest in PLD which it determines is reasonably capable of being
financed.
However, the PLD board, to the extent it concludes in good faith, following
receipt of a written opinion addressed to PLD from outside counsel, that such
action is necessary for the PLD board to comply with its fiduciary obligations
to its stockholders, may approve or recommend a written proposal made by a third
party to acquire PLD on terms which a majority of the members of the board
determines in their good faith judgment (after consultation with independent
financial advisors) to be more favorable to PLD's stockholders than the merger
and for which financing, to the extent required, is then fully committed or
which, in the good faith judgment of a majority of such members (after
consultation with independent financial advisors), is reasonably capable of
being financed by such third party.
However, even if the PLD board approves or recommends a competing proposal
of the type referred to in the paragraph above, the board will not have the
option to terminate the merger agreement but must, if Metromedia requests it,
submit it to a vote of PLD's stockholders. The practical effect of this
provision is that even if the PLD board determines that the merger is no longer
advisable or recommends that the stockholders reject it, it would still have to
submit it to the approval of the PLD stockholders. As a result, the merger could
still be approved by the PLD stockholders despite the PLD board's opposition to
the merger because, having already given their approval, the PLD board is
without authority to terminate the merger agreement on this basis.
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News America and an affiliate, who together own approximately 38% of PLD's
common stock, have agreed that they will vote for the merger and against any
other proposal in all events.
INDEMNIFICATION AND INSURANCE
After the merger is completed, Metromedia will preserve all rights to
indemnification existing as of May 18, 1999, the date of the merger agreement,
in favor of any director, officer or employee of PLD for a period of at least
six years following the merger. Metromedia will also indemnify directors,
officers and employees of PLD against liabilities or claims arising before the
merger is completed and as a result of their positions at PLD. Finally,
Metromedia will pay such persons legal expenses in connection with any
proceeding arising out of any matter and occurring up until the merger is
completed.
CONDITIONS TO THE MERGER
Our respective obligations to complete the merger depend on the satisfaction
or waiver by the other party of each of the following conditions:
- the approval of the merger by holders of a majority of PLD's outstanding
common stock and the approval of the issuance of the shares of Metromedia
common stock pursuant to the merger agreement by a majority of the holders
of Metromedia common stock present in person or by proxy at the Metromedia
annual meeting;
- the American Stock Exchange listing of the shares of Metromedia common
stock to be issued in the merger, subject to official notice of issuance;
- we obtain all approvals from governmental authorities and consents from
third parties that are necessary and that there be no litigation which
would impair our ability to complete the merger;
- the effectiveness of the registration statement on Form S-4 to register
the Metromedia common stock to be issued to PLD stockholders in the
merger;
- we each receive letters from the other's independent accountants stating
that they have performed certain procedures requested by Metromedia and
PLD relating to tables, statistics, and other financial information
included (or incorporated by reference) in the registration statement;
- our representations and warranties are true and accurate in all material
respects;
- we comply in all material respects with our respective covenants and
obligations under the merger agreement; and
- there has been no change in or effect on the business, assets, results of
operations, prospects or condition of our respective companies that is or
could reasonably be expected to be materially adverse to us or that could
reasonably be expected to materially impair our ability to perform our
obligations under the merger agreement or to complete the merger.
Metromedia's obligation to complete the merger agreement depends on the
satisfaction or waiver of each of the following conditions:
- PLD will have delivered to Metromedia the required letters from all
persons who may be deemed to be "affiliates" within the meaning of the
federal securities laws;
- PLD, The Travelers Insurance Company and The Travelers Indemnity Company
complete the transactions described below under "Related
Agreements--Travelers Note and Warrant Modification Agreement;"
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- PLD, Elite International Limited and Plicom Limited restructure the put
and call agreements currently in effect between them related to their
interests in Technocom Limited as described below under "Related
Agreements--Technocom Arrangements;"
- Metromedia and News America Incorporated complete the transactions
contemplated by the News letter agreement described below under "Related
Agreements--News Letter Agreement;"
- at least 95% in aggregate principal amount of the PLD 14% senior discount
notes due 2004 and 9% convertible subordinated notes due 2006 tender their
notes in an exchange offer for Metromedia 10.5% senior discount notes due
2007, and also consent to the amendments to the existing indentures for
the PLD notes as contemplated by the agreement to exchange and consent
described below under "Related Agreements--Agreement to Exchange and
Consent; Terms of Metromedia Notes;" and
- eight officers of PLD waive the acceleration of amounts due as a result of
the consummation of the merger under employment or other compensation
agreements, and the vesting of a total of 1,300,003 unvested options to
acquire PLD common stock that are being assumed by Metromedia in the
merger.
Neither Metromedia nor PLD has made a determination as to whether it would
waive one or more foregoing conditions. Neither party may waive the requirement
of stockholders' approval or the expiration of the waiting period required under
the Hart-Scott-Rodino Act, which occurred on June 24, 1999. If the waiver of any
of the foregoing conditions constitutes a material change in the disclosure made
in this document, the parties will recirculate a revised proxy statement and
resolicit stockholders' approval.
The obligation of PLD to complete the merger also depends on PLD having
received an additional opinion from Morgan, Lewis & Bockius LLP, special tax
counsel to PLD, dated as of the date we complete the merger, confirming the
opinion previously delivered by them that the merger will constitute a
reorganization for U.S. federal income tax purposes within the meaning of
Section 368(a) of the Internal Revenue Code. See "The Merger--Federal Income Tax
Consequences to Holders of PLD Common Stock." If PLD decides to waive the
receipt of this additional opinion, the parties will recirculate a revised proxy
statement and resolicit stockholders' approval.
Morgan, Lewis will confirm its opinion as of the closing date of the merger
provided that:
- no change in law shall have occurred between the date of this document and
the closing date,
- the statements concerning the merger set forth in this joint proxy
statement/prospectus remain accurate and complete,
- Morgan, Lewis shall have received confirmation of the factual
representations made in letters of PLD and Metromedia to Morgan, Lewis,
and
- the merger shall be completed as contemplated by the merger agreement.
No ruling has been sought from the Internal Revenue Service as to the United
States federal income tax consequences of the merger, and the opinions of
counsel are not binding upon the Internal Revenue Service or any court.
TERMINATION
The merger may be abandoned, at any time before we complete the merger and
before or after you approve the merger, in the following circumstances:
- by our mutual written consent;
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- by either one of us, if the merger is not completed before October 31,
1999 through no fault of the party wishing to terminate the merger
agreement;
- by either one of us, if a final decree or injunction prevents the
completion of the merger;
- by Metromedia, if
- the PLD board of directors has ceased to support the merger or
recommended to PLD's stockholders a competing proposal or transaction
or
- a competing offer for the common stock of PLD is pending and the PLD
board of directors fails to recommend against the acceptance of these
competing offers;
- by either one of us, if the merger is not approved by the requisite vote
of stockholders of Metromedia or PLD;
- by Metromedia, if PLD's representations and warranties become untrue or
because PLD breaches these representations and warranties or its covenants
in a material way;
- by PLD, if Metromedia's representations and warranties become untrue or
because Metromedia breaches these representations and warranties or its
covenants in a material way; or
- by PLD, if Metromedia refuses to increase the exchange ratio at PLD's
request in the manner described under "--Terms of the Merger--Conversion
of Securities" or if the average Metromedia closing price is less than
$4.00 per share.
TERMINATION FEES AND EXPENSES
Except as otherwise stated in the merger agreement, all expenses incurred in
the merger will be paid by the party incurring such expenses.
PLD has agreed to pay Metromedia its out-of-pocket expenses (not to exceed
$1 million) plus $6.25 million if the merger agreement is terminated by
Metromedia:
(a) - because the PLD board of directors withdraws, modifies or changes its
approval recommendation of the merger agreement, recommends to the PLD
stockholders another transaction proposal or a tender offer or
exchange offer for the outstanding shares of PLD's common stock
commences and the PLD board of directors fails to recommend against
acceptance of such tender or exchange offer;
- because PLD did not obtain the requisite stockholder vote to approve
the merger at a time when a third party has communicated to PLD and its
stockholders its proposal to acquire a substantial interest in PLD or
other material corporate transaction; or
- because of a material breach by PLD of any material representation,
warranty or agreement it made in the merger agreement, and
(b) if at such time the merger agreement is solely terminable for any or all
of the reasons set forth in clause (a).
Metromedia has agreed to pay PLD its out-of-pocket expenses (not to exceed
$500,000) if the merger agreement is terminated by virtue of:
(a) Metromedia not obtaining the requisite stockholder vote to approve the
merger or a material breach by Metromedia of any of its agreements in the
merger agreement, and
(b) if at such time, the merger agreement is solely terminable for either or
both of the reasons referred to in clause (a).
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RELATED AGREEMENTS
VOTING AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
In connection with Metromedia's agreement to merge with PLD, Metromedia
entered into an agreement with News America and its affiliate, which together
hold 14,381,780 shares of PLD common stock representing approximately 38% of the
outstanding voting power of PLD common stock. These stockholders have agreed to
vote in favor of the merger and against any competing proposal at the special
meeting of stockholders of PLD that will vote on the merger. In return,
Metromedia has entered into a registration rights agreement with News America
and its affiliate which provides that Metromedia will put in place a shelf
registration statement no later than six months after the merger is consummated
to register the shares of common stock of Metromedia that News America and its
affiliate will receive in the merger.
In addition, Metromedia Company, which with its partners is the largest
stockholder of Metromedia, has agreed to grant News America and its affiliate
tag-along rights on sales by Metromedia Company of Metromedia common stock. So
long as News America and its affiliate own more than 5% of the stock of
Metromedia, each time Metromedia Company and its partners sell any of their
stock of Metromedia, News America and its affiliate will have the right to sell
a proportionate amount of their stock of Metromedia to the buyer.
The voting agreement will terminate if the merger agreement is terminated.
TRAVELERS NOTE AND WARRANT MODIFICATION AGREEMENT
Metromedia and PLD have also entered into a Note and Warrant Modification
Agreement, dated as of May 18, 1999, with The Travelers Insurance Company and
The Travelers Indemnity Company. This agreement provides that all principal
payable by PLD to Travelers under their Revolving Credit Note and Warrant
Agreement, dated as of November 26, 1997, with PLD will be deferred until the
earlier of the date of the consummation of the merger or termination of the
merger agreement. Furthermore, upon the consummation of the merger, Travelers
will relinquish all warrants held or to which it may be entitled to purchase
shares of common stock of PLD.
In consideration for Traveler's agreement to defer the payment of principal
and to relinquish its PLD warrants at closing, PLD will repay $8.5 million of
the Travelers loan upon consummation of the merger and the remaining amount
outstanding under the Travelers credit agreement ($4.92 million) on August 30,
2000. The interest rate on the amount outstanding will be an annual rate of
10.5% payable monthly. Travelers will also be entitled to receive at the closing
of the merger, 100,000 shares of PLD common stock (which will be converted in
the merger into shares of Metromedia common stock at the applicable exchange
ratio) and 10-year warrants to purchase 700,000 shares of Metromedia common
stock exercisable beginning on the third anniversary of the closing date at a
price to be determined in December 2000 that will be between $10 and $15 per
share. However, if the amount outstanding has not fully been repaid by August
30, 2000, then the exercise price of the warrants will be reset to $.01.
Travelers will also maintain its existing security interests in certain PLD
assets and its debt will be guaranteed by Metromedia and three of PLD's
subsidiaries.
NEWS LETTER AGREEMENT
Metromedia has also entered into a Letter Agreement, dated as of May 18,
1999, with News America Incorporated. Pursuant to this agreement, News America
has agreed that it will not exercise its rights upon the occurence of any
defaults of PLD under the Revolving Credit Agreement, dated as of September 30,
1998, with PLD until the earlier of the completion of the merger or the
termination or expiration of the merger agreement. News America has also agreed
not to exercise any rights that it may have to convert its loans under the
credit agreement into shares of common stock of PLD between
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the signing and the closing of the merger. At closing all principal ($6.45
million outstanding as of the date of this joint proxy statement/prospectus) and
accrued interest, payable at a reduced 10% interest rate, will be payable in
full and News America will also be released from its obligations under $3.1
million of guarantees made of amounts outstanding under the Travelers Credit
Agreement.
AGREEMENT TO EXCHANGE AND CONSENT; TERMS OF METROMEDIA NOTES
It is a condition to the completion of the merger that the holders of at
least 95% in aggregate principal amount of each of PLD's 14% senior discount
notes due 2004 and 9% convertible subordinated notes due 2006 agree to exchange
their PLD notes for new Metromedia notes with the terms described below and
consent to certain amendments to the existing indentures for their PLD notes.
In order to endeavor to ensure satisfaction of this condition, Metromedia
has entered into an Agreement to Exchange and Consent with holders of
$122,230,000 of PLD's 14% senior discount notes due 2004 (or approximately 99.4%
of the outstanding senior discount notes) and of $25,000,000 in aggregate
principal amount of PLD's 9% convertible subordinated notes due 2006 (or
approximately 94.3% of the outstanding convertible subordinated notes), in which
such noteholders have agreed to:
- exchange $1,000 principal amount of their PLD notes for $1,000 (in the
case of PLD's 14% senior discount notes) or $900 (in the case of PLD's 9%
convertible subordinated notes) accreted amount of new Metromedia notes
subject only to consummation of the merger and the registration with the
Securities and Exchange Commission of exchange notes that will be
identical to the new Metromedia notes and will be exchanged for the new
Metromedia notes 20 business days after consummation of the merger;
- consent to certain amendments to the PLD note indentures that will
eliminate substantially all restrictive covenants from these indentures
and release the properties and assets of PLD from the security and
collateral arrangements that currently secure the payment of all amounts
due on the PLD notes; and
- waive certain events of default under the PLD notes that would result from
the consummation of the merger as well as the payment of interest that
would become due under the PLD notes until the earlier of the termination
of the merger agreement or October 31, 1999.
In order to satisfy the noteholders' condition with respect to the
registration of Metromedia exchange notes, Metromedia has filed a registration
statement on Form S-4 to register the exchange notes that will be offered to
holders of PLD notes that accept new Metromedia notes upon consummation of the
merger.
The new Metromedia notes and the exchange notes will have identical terms.
The Metromedia notes will mature on the anniversary of the closing of the merger
in 2007 and will accrete in value until the date that is 2 1/2 years from the
closing of the merger, at a rate of 10 1/2% per year, compounded semi-annually,
to a principal amount of $1,291.55 for each $1,000 accreted value at original
issuance on the date that is 2 1/2 years from the closing of the merger. The
notes will not pay cash interest before the date that is 2 1/2 years from the
closing of the merger. Thereafter, the notes will pay interest in cash
semi-annually at a rate of 10 1/2% per year. Metromedia will not be able to
redeem any of the notes before the date that is 2 1/2 years from the closing of
the merger. Metromedia will be able to redeem the notes at any time thereafter,
at Metromedia's sole option, in whole or in part, at a redemption price equal to
the principal amount of the notes, plus accrued and unpaid interest, if any,
through but excluding the date of redemption.
If a change of control of Metromedia occurs, holders of the Metromedia notes
will have the right to require Metromedia to make an offer to repurchase all of
the notes at a repurchase price in cash
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equal to 101% of their accreted value, plus accrued and unpaid interest, if any,
through but excluding the date of repurchase.
The Metromedia notes will be senior unsecured notes. They will rank equal in
right of payment to all existing and future senior indebtedness of Metromedia
and will rank senior in right of payment to all subordinated indebtedness of
Metromedia. The notes will be effectively junior in right to payment to:
- all existing and future secured indebtedness of Metromedia to the extent
of the assets that secure this indebtedness, and
- all existing and future indebtedness of Metromedia's subsidiaries.
The indenture under which the Metromedia notes will be issued will limit
Metromedia's ability and its subsidiaries' ability to:
- incur additional indebtedness or issue capital stock or preferred stock,
- pay dividends on, and repurchase or redeem its and its subsidiaries'
capital stock and repurchase or redeem subordinated obligations,
- invest and sell assets and subsidiary stock,
- engage in transactions with related entities, and
- incur additional liens.
In addition, the indenture for the notes will limit Metromedia's ability to
engage in consolidations, mergers and transfers of substantially all of its
assets and also contains limitations on restrictions on distributions from its
subsidiaries. All of these limitations and prohibitions have a number of
important qualifications and exceptions.
Under the terms of the indentures for each of the PLD 14% senior discount
notes due 2004 and 9% convertible subordinated notes due 2006, upon a change of
control of PLD, the holders of these notes will be entitled to require PLD to
repurchase their notes in whole or in part at a purchase price in cash equal to
101% of the accreted value plus accrued and unpaid interest, if any, and
additional amounts, if any, and special interest, if any, to the date of
repurchase. The merger of PLD with Metromedia constitutes a PLD change of
control event under these indentures and the holders of $1,500,000 in aggregate
principal amount of PLD's 9% convertible subordinated notes due 2006 have
informed Metromedia and PLD that they would require PLD to repurchase their
notes following the consummation of the Merger of PLD with Metromedia.
TECHNOCOM ARRANGEMENTS
Metromedia and PLD have also entered into option modification agreements
with the two minority shareholders of Technocom Limited, a subsidiary of PLD,
pursuant to which PLD will purchase all of these two shareholders' shares of
Technocom Limited for an aggregate purchase price of $12.6 million, equal to 50%
of the price PLD would have been otherwise obligated to pay for these shares
beginning on June 30, 1999. In addition, PLD also agreed to continue to pay
consulting fees to these shareholders through closing. In the case of one such
shareholder, consulting fees accrued but unpaid through June 30, 1999 amounted
to $83,333 and such fees will continue to accrue at the rate of $75,000 per
calendar quarter. In the case of the other shareholder, consulting fees accrued
but unpaid through June 30, 1999 amounted to $43,055 and such fees will continue
to accrue at the rate of $39,583 per calendar quarter. As a result of these
purchases, PLD will own 100% of the stock of Technocom Limited upon consummation
of the merger.
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METROMEDIA BRIDGE LOAN AGREEMENT
Metromedia entered into a bridge loan agreement with PLD pursuant to which
it has agreed to extend revolving bridge loans to PLD of up to $7.0 million at
an annual interest rate of 10% to fund PLD's ongoing operations during the
period from the execution of the merger agreement to the earlier of the
consummation of the merger or the termination or expiration of the merger
agreement. All amounts payable under the bridge loan agreement are due and
payable on the earlier of termination or expiration of the merger agreement or
October 31, 1999. The loans under this agreement are secured by a pledge by PLD
of approximately 58% of the capital stock of PLD's Technocom Limited subsidiary.
The bridge loan agreement contains negative covenants that restrict PLD's
activities during this period. As of the date of this document, PLD had borrowed
$5.0 million under the bridge loan agreement.
RESTRUCTURING OF PLD'S OBLIGATIONS
In connection with the consummation of the merger and as discussed above,
the following is a summary of the status of PLD's outstanding debt obligations:
- The installment of interest due June 1, 1999 on the PLD senior discount
notes was deferred by all of the holders until the closing of the merger.
If the closing occurs, it will be converted into principal and the senior
discount notes will be exchanged for Metromedia notes. See "--Agreement to
Exchange and Consent; Terms of Metromedia Notes."
- The installment of interest due June 1, 1999 on the PLD convertible
subordinated notes was deferred by holders of 94.3% of these notes until
the closing of the merger. The interest due to the holders who did not
defer was paid in full. If the closing occurs, the deferred interest will
be converted into principal and the convertible subordinated notes will be
exchanged for Metromedia notes. See "--Agreement to Exchange and Consent;
Terms of Metromedia Notes."
- Principal payments under the Travelers notes were deferred to the closing
of the merger. PLD continues to pay interest monthly on these notes. See
"--Travelers Note and Warrant Modification Agreement."
- Principal and interest payments on the News America notes have been
deferred to the closing of the merger. See "--News Letter Agreement."
- The right on the part of Plicom and Elite to put their shares of Technocom
to PLD has been deferred to the closing of the merger. See "--Technocom
Arrangements."
- While the business plans of its operating subsidiaries call for additional
capital investments in 1999, some of which are anticipated to come from
PLD, PLD is not contractually committed to fund those investments and can,
if necessary, defer or decline to proceed with any or all of such
investments.
- PLD currently has approximately $16,000,000 in escrow which is available
to fund purchases of equipment for use by its operating subsidiaries.
- PLD has secured a line of credit from Metromedia in the amount of
$7,000,000 to provide working capital and to cover other costs (such as
outstanding balances due on equipment purchases) over the anticipated
wsperiod to closing, $5,000,000 of which has been drawn to date. PLD
believes that the amount of this line of credit, together with its other
cash, is sufficient to fund its operations to closing. See "--Metromedia
Bridge Loan Agreement."
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combining Balance Sheet of Metromedia as
of June 30, 1999 and Unaudited Pro Forma Combining Statements of Operations for
the six months ended June 30, 1999 and the year ended December 31, 1998
illustrate the effect of the merger and the restructuring of PLD's obligations
and purchase of the Technocom Limited minority interests. The Unaudited Pro
Forma Combining Balance Sheet assumes that the transactions referred to above
are completed as of June 30, 1999 and the Unaudited Pro Forma Combining
Statements of Operations assumes that the transactions referred to above have
been completed as of the beginning of the periods presented.
Under the terms of the transaction, the holders of PLD common stock will
receive shares of Metromedia common stock on the basis of an exchange ratio that
values each share of PLD common stock at $3.50 per share if the average
Metromedia price per share is between $5.25 and $6.25 at closing. If the average
price of Metromedia common stock exceeds $6.25 per share, each share of PLD
common stock will be exchanged for .56 shares of Metromedia common stock, not to
exceed $4.48 per share of Metromedia common stock. If the average price of
Metromedia common stock is less than $5.25 per share, each share of PLD common
stock will be exchangeable for .6667 shares of Metromedia common stock, subject
to termination and "top-up" rights.
We have prepared these Unaudited Pro Forma Combining Financial Statements
assuming an exchange ratio of .56 (which assumes an average price of Metromedia
common stock in excess of $6.25 but less than $8.00) and a stock price of $6.93.
The actual exchange ratio will be determined on the date of determination in
accordance with the formulas set forth in the merger agreement. See "The Merger
Agreement."
ACCOUNTING TREATMENT
We will record the merger as a purchase transaction. For accounting
purposes, Metromedia will be deemed to be the surviving corporation in the
merger.
The pro forma adjustments are based upon currently available information and
upon assumptions that management of each of Metromedia and PLD believes are
reasonable. We will account for the merger based upon the estimated fair market
value of the net tangible and intangible assets acquired at the date of
acquisition. The adjustments included in the Unaudited Pro Forma Combining
Financial Statements represent the preliminary determination of these
adjustments based upon available information. We cannot assure you that the
actual adjustments will not differ significantly from the pro forma adjustments
reflected in the pro forma financial information.
The Unaudited Pro Forma Combining Financial Statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The Unaudited Pro Forma Combining Financial Statements should
be read in conjunction with the historical financial statements of Metromedia
and PLD, together with the related notes thereto. We have incorporated those
historical financial statements in this document by reference.
67
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------------------------
PRO FORMA
MERGER AND
DEBT METROMEDIA
METROMEDIA PLD RESTRUCTURING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 101,948 $ 7,882 $ (6,741)(1) $ 96,914
(8,500)(1)
(12,595)(1)
(300)(1)
15,220(2)
Accounts receivable................... 39,256 14,094 -- 53,350
Inventories........................... 56,356 3,557 -- 59,913
Other current assets.................. 9,592 13,984 (3,014)(3) 20,562
----------- ----------- ----------------- -----------------
Current assets.................... 207,152 39,517 (15,930) 230,739
Escrow funds.......................... -- 15,220 (15,220)(2) --
Investments in and advances to Joint
Ventures............................ 156,199 8,607 -- 164,806
Property, plant and equipment, net.... 34,209 172,171 -- 206,380
Intangibles........................... 157,743 107,231 (35,364)(1) 359,952
130,342(1)
Other assets.......................... 4,229 8,414 (5,884)(1) 6,759
----------- ----------- ----------------- -----------------
Total assets...................... $ 559,532 $ 351,160 $ 57,944 $ 968,636
----------- ----------- ----------------- -----------------
----------- ----------- ----------------- -----------------
Accounts payable and accrued
expenses............................ $ 83,838 $ 35,109 $ 6,000(1) $ 111,791
(12,560)(1)
(582)(1)
(14)(3)
Short-term debt....................... 886 30,283 (6,450)(1) 8,299
(13,420)(1)
(3,000)(3)
Other current liabilities............. -- 10,908 -- 10,908
----------- ----------- ----------------- -----------------
Current liabilities............... 84,724 76,300 (30,026) 130,998
Long-term debt........................ 43,773 150,095 (138,251)(1) 219,947
4,920(1)
159,410(1)
Other liabilities..................... 4,807 -- -- 4,807
----------- ----------- ----------------- -----------------
Total liabilities................. 133,304 226,395 (3,947) 355,752
----------- ----------- ----------------- -----------------
Minority interest..................... 30,318 23,108 -- 53,426
Stockholders' equity:
7 1/4% cumulative convertible
preferred stock................... 207,000 -- -- 207,000
Preferred stock..................... -- 4 (4)(1) --
Common stock........................ 69,162 378 (378)(1) 90,412
21,250(1)
Paid-in surplus....................... 1,012,987 245,332 (245,332)(1) 1,155,285
126,013(1)
4,228(1)
8,697(1)
3,360(1)
Accumulated deficit................... (887,674) (144,057) 144,057(1) (887,674)
Accumulated other comprehensive
loss................................ (5,565) -- -- (5,565)
----------- ----------- ----------------- -----------------
Total stockholders' equity............ 395,910 101,657 61,891 559,458
----------- ----------- ----------------- -----------------
Total liabilities and
stockholders' equity............ $ 559,532 $ 351,160 $ 57,944 $ 968,636
----------- ----------- ----------------- -----------------
----------- ----------- ----------------- -----------------
</TABLE>
See accompanying notes to unaudited pro forma combining financial statements.
68
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------------------
PRO FORMA
MERGER AND
DEBT METROMEDIA
METROMEDIA PLD RESTRUCTURING PRO FORMA
HISTORICAL (13) HISTORICAL ADJUSTMENTS COMBINED
--------------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues........................................ $ 132,647 $ 57,328 $ -- $ 189,975
Cost and expenses:
Cost of sales and operating expenses.......... 79,572 17,483 -- 97,055
Selling, general and administrative........... 60,602 26,450 -- 87,052
Depreciation and amortization................. 8,587 16,520 (1,004)(7) 30,620
6,517(8)
--------------- ---------- -------- ----------------
Operating loss.................................. (16,114) (3,125) (5,513) (24,752)
Other income (expense):
Interest expense.............................. (6,929) (14,367) 11,880(4) (15,754)
(8,369)(4)
1,289(5)
1,014(6)
(258)(6)
(14)(11)
Interest income............................... 4,246 489 (669)(10) 4,052
(14)(11)
Equity in losses of unconsolidated
investees................................... (5,933) (430) -- (6,363)
Other......................................... (2,794) 110 -- (2,684)
--------------- ---------- -------- ----------------
Loss before income tax expense and minority
interest...................................... (27,524) (17,323) (654) (45,501)
Income tax expense.............................. (205) (4,723) -- (4,928)
Minority interest............................... 4,852 (2,087) -- 2,765
--------------- ---------- -------- ----------------
Net loss........................................ (22,877) (24,133) (654) (47,664)
Cumulative convertible preferred stock dividend
requirement................................... (7,504) -- -- (7,504)
--------------- ---------- -------- ----------------
Net loss attributable to common stockholders.... $ (30,381) $ (24,133) $ (654) $ (55,168)
--------------- ---------- -------- ----------------
--------------- ---------- -------- ----------------
Weighted average number of common shares--Basic
(12).......................................... 69,137 37,847 90,387
--------------- ---------- ----------------
--------------- ---------- ----------------
Loss per common share--Basic:
Net loss attributable to common stockholders.... $ (0.44) $ (0.64) $ (0.61)
--------------- ---------- ----------------
--------------- ---------- ----------------
</TABLE>
See accompanying notes to unaudited pro forma combining financial statements.
69
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------
PRO FORMA
MERGER AND
METROMEDIA DEBT METROMEDIA
HISTORICAL PLD RESTRUCTURING PRO FORMA
(13) HISTORICAL ADJUSTMENTS COMBINED
------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 240,292 $ 145,360 $ -- $ 385,652
Cost and expenses:
Cost of sales and operating expenses................. 155,916 45,348 -- 201,264
Selling, general and administrative.................. 153,327 63,993 -- 217,320
Depreciation and amortization........................ 20,588 26,071 (1,080)(7) 58,613
13,034(8)
Nonrecurring charge.................................. 40,317 -- -- 40,317
------------- ----------- -------- ----------------
Operating income (loss)................................ (129,856) 9,948 (11,954) (131,862)
Other income (expense):
Interest expense..................................... (16,331) (23,732) 20,760(4) (33,906)
(16,738)(4)
35(5)
2,617(6)
(517)(6)
Interest income...................................... 12,746 2,384 (1,309)(10) 13,821
Equity in losses of unconsolidated investees......... (18,151) (958) -- (19,109)
Other.................................................. 5,390 (11,203) -- (5,813)
------------- ----------- -------- ----------------
Loss before income tax benefit (expense) and minority
interest............................................. (146,202) (23,561) (7,106) (176,869)
Income tax benefit (expense)........................... 358 (9,864) -- (9,506)
Minority interest...................................... 9,858 (9,386) (2,038)(9) (1,566)
------------- ----------- -------- ----------------
Loss from continuing operations........................ (135,986) (42,811) (9,144) (187,941)
Cumulative convertible preferred stock dividend
requirement.......................................... (15,008) -- -- (15,008)
------------- ----------- -------- ----------------
Loss from continuing operations attributable to common
stockholders......................................... $ (150,994) $ (42,811) $ (9,144) $ (202,949)
------------- ----------- -------- ----------------
------------- ----------- -------- ----------------
Weighted average number of common shares-- Basic
(12)................................................. 68,955 35,274 90,205
------------- ----------- ----------------
------------- ----------- ----------------
Loss per common share--Basic:
Loss from continuing operations attributable to common
stockholders......................................... $ (2.19) $ (1.21) $ (2.25)
------------- ----------- ----------------
------------- ----------- ----------------
</TABLE>
See accompanying notes to unaudited pro forma combining financial statements.
70
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
- ------------------------
(1) Reflects the acquisition by Metromedia of PLD at June 30, 1999 as follows:
(i) the issuance of 21.25 million common shares of Metromedia using an
exchange ratio of .56 shares of Metromedia for each share of PLD since
the price of Metromedia stock is greater than $6.25 and less than or
equal to $8.00;
(ii) the exchange by holders of PLD's 14.0% senior discount notes due 2004
with a carrying value of $111,751,000 and 9.0% subordinated convertible
notes with a carrying value of $26,500,000 together with accrued
interest payable of $12,560,000 (together, the PLD notes) for
Metromedia's 10.5% senior discount notes due 2007 with a value of
$159,410,000. Under the terms of the transactions, holders of PLD's
14.0% senior discount notes will receive Metromedia 10.5% senior
discount notes with an accreted value of $123.0 million and holders of
PLD's 9.0% subordinated convertible notes will receive Metromedia 10.5%
senior discount notes with an accreted value of $23.85 million.
Additionally, the holders of the PLD 14.0% senior discount notes and
9.0% subordinated convertible notes will receive Metromedia 10.5%
senior discount notes with an accreted value of $12.56 million as
payment for accrued interest payable on such notes;
(iii) the repayment of $6.45 million of News America notes payable and
$582,000 of interest payable for $6.741 million. Under the terms of the
transaction, News America has agreed to retroactively reduce the
interest rate it has charged to PLD from 20% per year to 10% per year,
thereby resulting in a reduction of the accrued interest payable;
(iv) the purchase of the equity interests of the two minority shareholders
of Technocom Limited. Under the terms of the transaction, the minority
shareholders of Technocom Limited have agreed to sell their interests
in Technocom Limited to PLD for a purchase price of $12,595,000;
(v) the payment of $8.5 million of $13.42 million of the loans owed to
Travelers. Under the terms of the transaction, Travelers has agreed to
accept $8.5 million of the principal amount owed by PLD at closing and
to defer repayment of the remaining $4.92 million of principal amount
owed by PLD until the earlier of August 30, 2000 or one year from the
closing date of the transaction;
(vi) the redemption of PLD's Series II and Series III preferred stock for
cash;
(vii) the value of warrants to purchase 700,000 shares of Metromedia common
stock issued to Travelers in exchange for outstanding warrants. Such
value has been determined using the Black-Scholes method assuming 72.5%
volatility, a risk free interest rate of 5.2% and an average exercise
period of 10 years;
(viii) the value of options exchanged for outstanding PLD options. Such value
has been determined using the Black-Scholes method assuming 72.5%
volatility, a risk free interest rate of 5.07% and an average exercise
period of 3 years;
(ix) the value of warrants exchanged for outstanding PLD warrants. Such
value has been determined using the Black-Scholes method assuming 72.5%
volatility, a risk free interest rate of 5.02% and an average exercise
period of 2 years;
(x) estimated transaction costs; and
71
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
(xi) the elimination of historical net assets acquired comprised of PLD's
historical stockholders' equity, historical debt and related interest
either repaid or refinanced in the merger reduced by goodwill and
deferred financing fee (in thousands, except per share information).
<TABLE>
<S> <C> <C>
Issuance of Common Stock
PLD shares outstanding at June 30, 1999 adjusted for
100,000 shares to be issued to Travelers................ 37,947
Number of shares issued to acquire PLD.................... 21,250
Per share price........................................... $ 6.93
---------
Value of shares issued...................................... $ 147,263
Value of debt exchanged..................................... 159,410
Repayment of News America notes payable and interest........ 6,741
Payment for minority interests of Technocom Limited......... 12,595
Partial repayment of loans owed to Travelers................ 8,500
Payment for PLD preferred stock............................. 300
Value of warrants issued to Travelers....................... 4,228
Value of options exchanged.................................. 8,697
Value of warrants exchanged................................. 3,360
Estimated transaction costs................................. 6,000
---------
Purchase price.............................................. 357,094
Less Net Assets Acquired
PLD Historical Stockholders' Equity....................... 101,657
PLD Historical Debt and Related Interest Repaid or
Refinanced.............................................. 166,343
PLD Historical Goodwill................................... (35,364)
PLD Historical Deferred Financing Fees.................... (5,884)
---------
226,752
---------
Excess of cost over historical net assets acquired.......... $ 130,342
---------
---------
</TABLE>
For illustrative purposes, Metromedia has made a preliminary allocation of
excess cost over estimated net assets acquired to goodwill as PLD's assets
and liabilities are estimated to approximate fair value. The final
allocation of purchase price to assets and liabilities acquired will depend
upon the final purchase price as determined by the final exchange ratio and
the amount of debt and related interest to be repaid or refinanced and the
final estimates of fair values of assets and liabilities of PLD at the
closing date. Metromedia will undertake a study to determine the fair values
of assets and liabilities acquired and will allocate the purchase price
accordingly. Metromedia believes that the carrying value of current assets
and current liabilities approximates fair value and that the excess of cost
over historical net assets acquired will be allocated to property and
equipment, telecommunication licenses and goodwill. However, there can be no
assurance that the actual allocation will not differ significantly from the
pro forma allocation.
(2) Reflects removal of restrictions on escrowed funds in connection with the
exchange of the PLD notes.
(3) Reflects elimination of bridge loan provided to PLD by Metromedia together
with accrued interest.
(4) Reflects the elimination of historical interest expense attributable to the
PLD notes and the recording of interest expense for the Metromedia 10.5%
senior discount notes.
72
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (CONTINUED)
(5) Reflects the elimination of historical interest expense attributable to the
News America notes payable.
(6) Reflects the elimination of interest expense attributable to the $13.42
million of Travelers' 12.0% revolving credit notes and accrual of interest
on $4.92 million of Travelers' notes at 10.5%.
(7) Reflects the elimination of amortization of historical PLD goodwill.
(8) Reflects amortization expense of the excess of cost over historical net
assets acquired in the merger by use of the straight-line method over 10
years. Should the allocation of such excess of cost over historical net
assets acquired differ significantly as described in note 1 above,
amortization expense could increase since the lives of assets other than
goodwill may be shorter.
(9) Reflects reversal of minority interest income recorded by PLD as a result of
the allocation of a portion of the 1998 net loss of Technocom Limited to the
minority. In connection with the acquisition of the minority interest, the
pro-forma assumes that the minority interest was acquired at the beginning
of the period (January 1, 1998). As such, the entry reflects the reversal of
the 1998 credit for allocation of losses to the minority interest. As of
December 31, 1998, the minority interest was fully depleted and no such
allocation of the Technocom Limited loss has been made subsequent to
December 31, 1998.
(10) Reflects elimination of interest income on cash used in connection with
payments of certain PLD debt and purchase of minority interests of Technocom
Limited.
(11) Reflects elimination of interest income and expense on bridge financing
facility provided to PLD by Metromedia.
(12) The average common shares outstanding used in calculating pro forma loss
per common share from continuing operations are calculated assuming that the
estimated number of shares of Metromedia common stock to be issued in the
merger were outstanding from the beginning of the periods presented. Options
and warrants to purchase shares of common stock as well as shares of common
stock issuable upon conversion of Metromedia's convertible preferred stock
were not included in computing pro forma diluted earnings per common share
because their inclusion would result in a smaller loss per common share.
(13) Ningbo Ya Mei Telecommunications, Ltd., one of Metromedia's two joint
ventures in Ningbo Municipality, China, has received a letter from China
Unicom stating that the supervisory department of the Chinese government had
requested that China Unicom terminate the project with Ningbo Ya Mei. China
Unicom subsequently informed Metromedia that the notification also applies
to Metromedia's other joint venture in Ningbo Municipality. The notification
from China Unicom requested that negotiations begin immediately regarding
the amounts to be paid to Ningbo Ya Mei, including return of investment made
and appropriate compensation and other matters related to the winding up of
the joint venture's activities as a result of this notice. Negotiations
regarding the terms of the termination have begun and are continuing. The
content of the negotiations includes determining the investment principal of
Metromedia's Ningbo joint ventures, appropriate compensation and other
matters related to termination of contracts. The letter further stated that
due to technical reasons which were not specified, the cash distribution
plan for the first half of 1999 had not been decided, and that China Unicom
also expected to discuss this subject with Ningbo Ya Mei. As a result,
Metromedia cannot currently determine the amount of compensation that its
Ningbo joint ventures will receive.
73
<PAGE>
While there can be no assurance that China Unicom will provide similar
letters to Metromedia's other two sino-sino-foreign telephony-related joint
ventures, Metromedia expects that these joint ventures will also be the
subject of project termination negotiations. Metromedia cannot yet predict
the effect on it of the Ningbo joint ventures' negotiations and the expected
winding up of Metromedia's other two telephony-related joint ventures, but
Metromedia believes such negotiations, if adversely concluded, or the
failure to make scheduled cash distributions, could have a material adverse
effect on its financial position and results of operations. Depending on the
amount of compensation it receives, Metromedia will record a non cash charge
equal to the difference between the sum of the carrying values of its
investment and advances made to joint ventures plus goodwill less the cash
compensation it receives from the joint ventures which China Unicom has
paid. Metromedia's investment in and advances to joint ventures and goodwill
balance at June 30, 1999 were approximately $71 million and $67 million
respectively. No adjustment has been made to the unaudited pro forma
combined financial statements to writedown goodwill relating to Metromedia's
telecommunications joint ventures in China.
BUSINESS OF METROMEDIA
Metromedia is a global communications company. Through its communications
group, Metromedia is engaged in the development and operation of a variety of
communications businesses in Eastern Europe, the republics of the former Soviet
Union, the People's Republic of China and other selected emerging markets. These
businesses include telephony, cable television, paging and radio broadcasting.
Metromedia also owns Snapper, Inc., which manufactures premium-priced power
lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and
accessories under the Snapper-Registered Trademark- brand.
Metromedia's objective is to establish itself as a major multiple-market
provider of modern communications services in Eastern Europe, the former Soviet
Union and other selected emerging markets.
At June 30, 1999, Metromedia owned interests in and participated with
partners in the management of joint ventures that had 48 operational systems.
These operational systems consisted of 12 cable television systems, two GSM
cellular telephone systems, one joint venture that is building out an
operational GSM system and providing financing, technical assistance and
consulting services to the local system operator, one international and long
distance telephony provider, two wireless local loop operator, 13 paging systems
and 17 radio broadcasting stations. In addition, Metromedia has interests in and
participates with partners in the management of several joint ventures that, as
of June 30, 1999, had four pre-operational systems. In Eastern Europe and the
former Soviet Union, Metromedia generally owns 50% or more of the operating
joint ventures in which it invests.
Metromedia's joint ventures experienced significant growth in 1998. At the
end of 1998, Metromedia had approximately 520,182 subscribers compared to
305,198 at the end of 1997, which represents an increase of approximately 70%.
The total combined revenues of Metromedia's communications group's consolidated
and unconsolidated joint ventures for the years ended December 31, 1998, 1997
and 1996 were $130.1 million, $91.2 million and $57.2 million, respectively. As
many of Metromedia's joint ventures are not consolidated in Metromedia's results
of operations, Metromedia's communications group reported consolidated revenues
of $30.2 million for the year ended December 31, 1998, or approximately 12.6% of
Metromedia's total reported revenues for the year ended December 31, 1998.
Metromedia expects that this percentage will increase as its communications
group's joint ventures grow their businesses.
Recent adverse economic conditions in the Russian Federation and Eastern
Europe and the uncertainties associated with the governmental policies to
address these conditions could affect Metromedia's cable television, paging and
radio broadcasting businesses in Russia, Belarus and other emerging countries.
The recent slowdown in growth in China and possible significant changes in the
74
<PAGE>
regulation of foreign participation in and financing of the telecommunications
industry in China could affect the ability of Metromedia's Chinese joint
ventures to generate revenue, cash flows or net income. Please refer to the
section in this document entitled "Risk Factors."
Because legal restrictions in China prohibit foreign participation in the
operation or ownership in the telecommunications sector, Metromedia's
telecommunications joint ventures in China are limited to providing financing,
technical advice, consulting and other services for the construction and
development of telephony networks for China United Telecommunications
Incorporated, known as China Unicom, a Chinese telecommunications operator. The
completed networks are operated by China Unicom. In return Metromedia receives
payments from China Unicom based on the distributable cash flow generated by the
networks.
Ningbo Ya Mei Telecommunications, Ltd., one of Metromedia's two
telecommunications joint ventures in Ningbo Municipality, China, has received a
letter from China Unicom stating that the supervisory department of the Chinese
government had requested that China Unicom terminate the project with Ningbo Ya
Mei. China Unicom subsequently informed Metromedia that the notification also
applies to Metromedia's other telecommunications joint venture in Ningbo
Municipality. The notification from China Unicom requested that negotiations
begin immediately regarding the amounts to be paid to Ningbo Ya Mei, including
return of investment made and appropriate compensation and other matters related
to the winding up of the joint venture's activities as a result of this notice.
Negotiations regarding the terms of the termination have begun and are
continuing. The content of the negotiations includes determining the investment
principal of Metromedia's Ningbo joint ventures, appropriate compensation and
other matters related to termination of contracts. The letter further stated
that due to technical reasons which were not specified, the cash distribution
plan for the first half of 1999 had not been decided, and that China Unicom also
expected to discuss this subject with Ningbo Ya Mei. As a result, Metromedia
cannot currently determine the amount of compensation that its Ningbo joint
ventures will receive.
While there can be no assurance that China Unicom will provide similar
letters to Metromedia's other two sino-sino-foreign telephony-related joint
ventures, Metromedia expects that these joint ventures will also be the subject
of project termination negotiations. China Unicom has suspended cooperation on
further development of networks with these joint ventures and Metromedia
believes that this action reflects China Unicom's intention to negotiate the
termination of its relationship with these joint ventures as well. Metromedia
cannot yet predict the effect on it of the Ningbo joint ventures' negotiations
and the expected winding up of Metromedia's other two telephony-related joint
ventures, but Metromedia believes such negotiations, if adversely concluded, or
the failure to make scheduled cash distributions, could have a material adverse
effect on its financial position and results of operations. Depending on the
amount of compensation it receives, Metromedia will record a non cash charge
equal to the difference between the sum of the carrying values of its investment
and advances made to joint ventures plus goodwill less the cash compensation it
receives from the joint ventures which China Unicom has paid. Metromedia's
investment in and advances to joint ventures and goodwill balance at June 30,
1999 were approximately $71 million and $67 million respectively. Metromedia is
currently evaluating other investment opportunities in China and recently
announced the establishment of a new joint venture in China to develop and
operate an e-commerce system.
Metromedia owned Snapper before the shift in its business focus to a global
communications company. Accordingly, it views Snapper as a non-core asset and
manages Snapper in order to maximize stockholder value. Snapper manufactures
Snapper brand power lawn and garden equipment for sale to both residential and
commercial customers. The residential equipment includes self-propelled and
push-type walk-behind lawnmowers, rear-engine riding lawnmowers, garden
tractors, zero-turn radius lawn equipment, garden tillers, snow throwers, and
related parts and accessories. The commercial mowing equipment includes
commercial quality self-propelled walk-behind lawnmowers, and wide-area and
front-mount zero-turn radius lawn equipment.
75
<PAGE>
Snapper products are premium-priced, generally selling at retail from $300
to $10,500. Snapper sells to and supports directly an approximately 5,000-dealer
network for the distribution of its products. Snapper also sells its products
through foreign distributors.
A large percentage of the residential and commercial sales of lawn and
garden equipment are made during a 17-week period from early spring to
mid-summer. Although some sales are made to the dealers and distributors prior
and subsequent to this period, the largest volume of sales is made during this
time. The majority of revenues during the late fall and winter periods are
related to snow thrower shipments. Snapper has an agreement with a financial
institution which makes floor-plan financing for Snapper products available to
dealers. If there is a default by a dealer, Snapper is obligated to repurchase
any new and unused equipment recovered from the dealership. At December 31,
1998, there was approximately $96.4 million outstanding under this floor-plan
financing arrangement. Metromedia has guaranteed Snapper's payment obligations
under this arrangement.
Snapper also makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan. This credit plan allows consumers to pay
for Snapper products over time. Consumers also receive Snapper credit cards
which can be used to purchase additional Snapper products.
Snapper manufactures its products in McDonough, Georgia at facilities
totaling approximately 1.0 million square feet. Excluding engines, transmission
and tires, Snapper manufactures a substantial portion of the component parts for
its products. Most of the parts and material for Snapper's products are
commercially available from a number of sources.
For the year ended December 31, 1998, Snapper reported revenues of $210.1
million, or approximately 87.4% of Metromedia's total consolidated revenues for
the year ended December 31, 1998. Metromedia expects that this percentage will
decrease as the communications group's consolidated joint ventures grow their
businesses.
BUSINESS OF PLD
PLD, through its operating subsidiaries, is a major provider of local, long
distance and international telecommunications services in the Russian
Federation, Kazakhstan and Belarus.
PLD's objective is to be a leading participant in the targeted development
of telecommunications infrastructure, products and services in the emerging
markets of the Russian Federation and other countries of the former Soviet
Union.
Its five principal operating businesses are:
- PeterStar Company Limited: a provider of integrated local, long distance
and international telecommunications services in St. Petersburg through a
fully digital fiber optic network;
- Technocom Limited: a provider, through Teleport-TP, of dedicated
international telecommunications services to Russian and foreign
businesses in Moscow and an operator of a satellite-based pan-Russian long
distance network;
- Baltic Communications Limited: a provider of dedicated international
telecommunications services in St. Petersburg;
- ALTEL (formerly BECET International): a provider of a national cellular
service in Kazakhstan; and
- Belarus-Netherlands Belcel Joint Venture: a provider of the only national
cellular service in Belarus.
In addition, PLD is developing a portfolio of international long distance
products and services under the name "PLDncompass" targeted at carriers and
corporate customers in the United States, the
76
<PAGE>
United Kingdom and Europe which require telecommunications services to and from
the countries of the former Soviet Union.
The fostering of existing, and the creation of new, partnerships with local
and regional partners is crucial to the long-term success of PLD in this
environment. In its operating businesses, PLD's partners include:
- Petersburg Telephone Network: the local telephone system operator in St.
Petersburg;
- St. Petersburg Intercity & International Telephone: the gateway for
national and international long distance calls to and from St. Petersburg
which, together with Petersburg Telephone Network, holds an indirect 14%
interest in PeterStar Company Limited;
- Kazakhtelekom: the state-owned national telecommunications operator in
Kazakhstan and the holder of a 50% interest in ALTEL; and
- AO Rostelecom: the primary long distance and international carrier in the
Russian Federation and a 44% stockholder in Teleport-TP.
In August 1998, News America and its affiliate acquired a 38% stake in PLD's
common stock.
Recent adverse economic conditions in the Russian Federation and Eastern
Europe and the uncertainties associated with the governmental policies to
address these conditions could affect PLD's businesses in Russia, Belarus and
other countries of the former Soviet Union. Please refer to the section in this
document entitled "Risk Factors."
DESCRIPTION OF MOSCOW COMMUNICATIONS, INC.
Moscow Communications, Inc. is a wholly-owned subsidiary of Metromedia
organized under the laws of the State of Delaware. It was incorporated in May
1999 solely for use in the merger, and is engaged in no other business. Its
executive offices are located at One Meadowlands Plaza, East Rutherford, New
Jersey 07073.
COMPARISON OF RIGHTS OF HOLDERS OF
METROMEDIA COMMON STOCK AND PLD COMMON STOCK
GENERAL
Metromedia is incorporated under the laws of Delaware and, accordingly, the
rights of the Metromedia stockholders are governed by the certificate of
incorporation of Metromedia, the by-laws of Metromedia and the laws of the state
of Delaware. PLD is also incorporated under the laws of Delaware and,
accordingly, the rights of the PLD stockholders are governed by the certificate
of incorporation of PLD, the by-laws of PLD and the laws of the state of
Delaware. After the merger, PLD stockholders will hold shares of Metromedia
common stock, and their rights will therefore be governed by the certificate of
incorporation and by-laws of Metromedia.
COMPARISON OF STOCKHOLDERS' RIGHTS
Set forth on the following pages is a summary comparison of material
differences among the rights of a Metromedia stockholder under the current
Metromedia charter and by-laws (left column), and the rights of a PLD
stockholder under the current PLD charter and by-laws (right column).
The summary set forth below highlights the material distinctions among the
governing documents of Metromedia and PLD and is not intended to provide a
comprehensive summary of each of such company's governing documents. Copies of
the PLD charter and by-laws and the Metromedia charter and by-laws will be sent
to PLD and Metromedia stockholders upon request. See "Where You Can Find More
Information."
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<TABLE>
<S> <C>
CURRENT METROMEDIA CURRENT PLD
AUTHORIZED CAPITAL STOCK
400,000,000 shares of common stock, par value 100,000,000 shares of common stock, par value
$1.00 per share. Metromedia had 69,175,254 $.01 per share. PLD had 37,846,789 shares of
shares of common stock outstanding as of common stock oustanding as of August 30,
August 30, 1999. 1999.
70,000,000 shares of preferred stock, par 100,000,000 shares of preferred stock, par
value $1.00 per share. value $.01 per share.
Shares of preferred stock may be issued from Shares of preferred stock may be issued from
time to time in one or more series by the time to time in one or more series by the PLD
Metromedia board of directors. The Metromedia board of directors. The PLD board of
board of directors has authority to fix the directors has authority to determine the
voting powers and the designations, designation, rights, privileges, restrictions
preferences and other rights; and the and conditions of the shares of preferred
qualifications, limitations and restrictions stock of each series. PLD had 446,884 shares
of these series. Metromedia had 4,140,000 of preferred stock outstanding as of August
shares of preferred stock outstanding as of 2, 1999.
August 2, 1999.
PREEMPTIVE RIGHTS
None. None.
MARKETS TRADED
American Stock Exchange NASDAQ
Pacific Stock Exchange Toronto Stock Exchange
Berlin Stock Exchange
Frankfurt Stock Exchange
Munich Stock Exchange
STOCKHOLDER ACTION
ANNUAL MEETINGS
Held in the month of March, April or May on As set by the board of directors.
such date as may be designated by the board
of directors, and in the absence of any such
designation it shall be held on the second
Tuesday of April each year.
SPECIAL MEETINGS
May be called at any time by the Chairman or May be called only by the Chairman of the
Vice Chairman of the board of directors. Board, the President or by the board of
directors pursuant to a resolution adopted by
a majority of the total number of directors
then in office.
CURRENT METROMEDIA CURRENT PLD
ACTION BY WRITTEN CONSENT
Prohibited. Allowed if a written consent or consents in
writing, setting forth the action to be
At the Metromedia annual meeting, the taken, is signed by the holders of
Metromedia stockholders will be asked to vote outstanding stock having not less than the
upon a proposal of a stockholder of minimum number of votes that would be
Metromedia to amend Metromedia's certificate necessary to authorize or take such action at
of incorporation to reinstate the rights of a meeting at which all shares entitled to
stockholders to take action by written vote thereon were present and voted.
consent and to call special meetings.
</TABLE>
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<TABLE>
<S> <C>
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND OTHER PROPOSALS
Not less than 60 days nor more than 90 days Not less than 60 days nor more than 90 days
prior to the first anniversary of prior to the first anniversary of PLD's last
Metromedia's last annual meeting, except if annual meeting, except if the meeting is
the meeting is advanced more than 30 days or advanced more than 30 days or delayed more
delayed more than 60 days from this than 60 days from this anniversary date, then
anniversary date, then 10 days following 10 days following public disclosure by PLD of
public disclosure by Metromedia of the date the date of the meeting.
of the meeting.
BOARD OF DIRECTORS
CLASSIFICATION
Directors are classified into three classes. Not classified.
Each class serves a three-year term and one
class is elected at each annual meeting of
stockholders.
CUMULATIVE VOTING FOR DIRECTORS
No. No.
NUMBER OF DIRECTORS
7-15, as fixed by the board of directors. 1-15 as fixed by the board of directors.
</TABLE>
<TABLE>
<S> <C>
CURRENT METROMEDIA CURRENT PLD
REMOVAL
Directors may be removed only for cause by a May be removed, with or without cause, by the
majority stockholder vote. holders of a majority of the votes entitled
to vote at an election of directors.
BOARD VACANCIES
Filled by a majority vote of the remaining May be filled by a majority of the directors
directors then in office, directors so chosen then in office, though less than a quorum.
hold office for a term expiring at annual Whenever the holders of any class or classes
meeting of stockholders at which the term of of stock or series thereof are entitled to
the class to which they have been elected elect one or more directors by the provisions
expires. of the certificate of incorporation,
vacancies and newly created directorships of
such class or classes or series may be filled
by a majority of the directors elected by
such class or classes or series thereof then
in office, or by a sole remaining director so
elected.
DIRECTOR QUALIFICATIONS
No special requirements. No special requirements.
INDEMNIFICATION
Any authorized representative in any Authorized representatives in third party and
proceedings, whether civil, criminal, corporate proceedings may be indemnified if
administrative or investigative, may be such person acted in good faith, in a manner
indemnified to the full extent permitted by reasonably believed to be in the best
law. interest of the corporation and without
reasonable cause to believe the conduct was
unlawful if it was unlawful.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
To the extent permitted under Delaware law. To the extent permitted under Delaware law.
SPECIAL MEETINGS OF THE BOARD
May be called by the Chairman of the board of May be called at the request of the Chairman
directors, the Vice Chairman of the board of of the Board, the President or a majority of
directors, by the President or by a majority the board of directors then in office.
of the directors.
</TABLE>
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<TABLE>
<S> <C>
TRANSACTIONS WITH INTERESTED STOCKHOLDERS, EXTRAORDINARY TRANSACTIONS AND SECURITIES
ISSUANCES
No specific requirements. No specific requirements.
REPURCHASE OF SECURITIES
No specific requirements. No specific requirements.
CURRENT METROMEDIA CURRENT PLD
CHARTER AMENDMENTS
No specific requirements. No specific requirements.
BY-LAWS AMENDMENTS
May be amended by a vote of a majority of the May be amended by a vote of the board of
entire board of directors that would be in directors or of the stockholders, provided
office if no vacancy existed, whether or not notice of the proposed change was given in
present at a meeting. Any by-laws made, the notice of the meeting and, in the case of
amended or repealed by the board of directors a meeting of the board of directors, in a
may be amended or repealed, and any by-laws notice given not less than two (2) days prior
may be made, by the stockholders of the to the meeting. In the case of amendments by
corporation by vote of a majority of the the board of directors, the affirmative vote
holders of shares of stock of the of a majority of the directors then in office
corporation. will be required to alter, amend or repeal
any provision of the by-laws. In the case of
amendments by the affirmative vote of the
holders of at least 66 2/3 percent of the
voting power of all the then outstanding
shares having the right to vote thereon,
voting together as a single class, will be
required to alter, amend or repeal any
provision of the by-laws.
</TABLE>
The shares of Metromedia common stock to be issued to the PLD stockholders
in the merger are additional shares of the currently outstanding Metromedia
common stock. The exact number of shares of Metromedia common stock that will be
issued will vary according to the average price of the Metromedia common stock
three business days before the PLD's stockholders' meeting. If the meeting were
held on August 2, 1999, approximately 21,000,000 additional shares of Metromedia
common stock would be issued based upon the latest available figure for the
number of PLD shares outstanding and the average Metromedia stock price as of
July 27, 1999 (three business days before August 2, 1999). There are no
preemptive rights with respect to these shares. The securities will be issued by
Metromedia in consideration for all of the outstanding shares of PLD common
stock.
ADDITIONAL INFORMATION FOR METROMEDIA MEETING
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of March 31, 1999 certain information
regarding each person, including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, known to own beneficially (as
such term is defined in Rule 13d-3 under the Exchange Act) more than 5% of
Metromedia's outstanding common stock. In accordance with the rules promulgated
by the Securities and Exchange Commission, such ownership includes shares
currently owned as well as shares which the named person has the right to
acquire beneficial ownership of within 60 days, including shares which the named
person has the right to acquire through the exercise of any option, warrant or
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right, or through the conversion of a security. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
NUMBER OF SHARES OF PERCENTAGE OF PERCENTAGE OF
COMMON STOCK BENEFICIALLY OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) COMMON STOCK COMMON STOCK(2)
- ---------------------------------------------------------- ------------------------- --------------- ---------------
<S> <C> <C> <C>
Metromedia Company........................................ 7,989,206 12% 9%
One Meadowlands Plaza
East Rutherford, NJ 07073
John W. Kluge............................................. 18,326,043(3) 26% 20%
215 East 67th Street
New York, NY 10021
Stuart Subotnick.......................................... 18,557,268(3) 27% 20%
215 East 67th Street
New York, NY 10021
Snyder Capital Management, L.P............................ 5,896,092(4) 9% 7%
350 California Street, Suite 1460
San Francisco, CA 94104-1436
News America Incorporated................................. 0 0% 9%(5)
1211 Avenue of the Americas
New York, NY 10036
</TABLE>
- ------------------------
(1) Unless otherwise indicated by footnote, the named persons have sole voting
and investment power with respect to the shares of Metromedia common stock
beneficially owned.
(2) Based upon an exchange ratio of .56.
(3) Metromedia Company is a Delaware general partnership owned and controlled by
John W. Kluge and Stuart Subotnick, each of whom is a director of
Metromedia. The amount set forth in the table above includes 12,415,455
shares beneficially owned by Mr. Kluge and Mr. Subotnick beneficially
through Metromedia Company (7,989,206) and Met Telcell, Inc. (4,426,249), a
corporation owned and controlled by Messrs. Kluge and Subotnick, and
5,270,548 shares of Metromedia common stock owned directly by a trust
affiliated with Mr. Kluge of which Mr. Subotnick is a trustee (the 5,270,588
shares include 200,000 shares of 7.25% cumulative convertible preferred
stock which shares are currently convertible into 666,000 shares of common
stock), and, with respect to Mr. Subotnick, 231,225 shares of common stock
owned directly by Mr. Subotnick. Mr. Subotnick disclaims beneficial
ownership of the shares owned by the trust. The amounts shown for Messrs.
Kluge and Subotnick also include options to acquire 640,000 shares
exercisable within 60 days of the date hereof owned by each of Messrs. Kluge
and Subotnick.
(4) Pursuant to a report on Schedule 13G filed with the Securities and Exchange
Commission on February 5, 1999 by Snyder Capital Management, L.P. Synder
Capital Management, L.P. is wholly owned by Nvest Companies, L.P., a limited
partnership affiliated with Nvest, L.P. a publicly traded limited
partnership. The general partner of Nvest, L.P. and the managing general
partner of Nvest Companies, L.P. is an indirect wholly owned subsidiary of
Metropolitan Life Insurance Company. As of June 30, 1998, Metropolitan Life
Insurance Company beneficially owned all the of the general partner
interests in Nvest Companies and Nvest, L.P. and, in the aggregate, general
partner and limited partner interests of Nvest Companies and Nvest, L.P.
representing approximately 47% of the economic interest in the business of
Nvest Companies.
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(5) Based upon Amendment No. 2 to Schedule 13D, filed on May 28, 1999, with the
Securities and Exchange Commission by The News Corporation Limited, News
America Incorporated, News PLD LLC and K. Rupert Murdoch. The amount shown
represents 8,053,796 shares of Metromedia common stock that will be issued
to News America and News PLD LLC, respectively, in the merger, assuming an
exchange ratio of .56. These shares will be issued in exchange for
14,381,780 shares of PLD common stock currently held by News America and
News PLD LLC, respectively. The News Corporation Limited, News America
Incorporated and Mr. Murdoch, as persons who may be deemed to control News
PLD LLC, may be deemed to beneficially own the shares beneficially owned by
News PLD LLC. The amount shown does not include 3,804,369 shares of PLD
common stock issuable upon conversion of currently outstanding revolving
credit notes issued to News America by PLD because News America has agreed
not to convert these notes prior to the consummation of the merger, at which
time they will be repaid in full.
The foregoing information is based on a review as of June 30, 1999 by
Metromedia of statements filed with the Securities and Exchange Commission under
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. To the best
knowledge of Metromedia, except as set forth above, no person beneficially owns
more than 5% of Metromedia's outstanding common stock.
SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of Metromedia common
stock as of March 31, 1999 with respect to:
- each director and director nominee of Metromedia,
- each executive officer named in the Summary Compensation Table under
"Executive Compensation" and
- all directors and executive officers of Metromedia as a group.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
NUMBER OF SHARES OF PERCENTAGE OF PERCENTAGE OF
COMMON STOCK BENEFICIALLY OUTSTANDING OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED (1) COMMON STOCK COMMON STOCK
- --------------------------------------------- ------------------------- ----------------- -----------------
<S> <C> <C> <C>
John P. Imlay, Jr............................ 56,000( (4) * *
Clark A. Johnson............................. 136,500( (4) * *
Silvia Kessel................................ 203,085(5) * *
John W. Kluge................................ 18,326,043( (7) 26% 20%
Robert A. Maresca............................ 60,000(8) * *
Carl E. Sanders.............................. 87,497( (9) * *
Vincent D. Sasso, Jr......................... 45,000(10) * *
Richard J. Sherwin........................... 866,546(11) 1.2% *
Stuart Subotnick............................. 18,557,268( 12) 27% 20%
Arnold L. Wadler............................. 215,415(5) * *
Leonard White................................ 1,000( 13) * *
All Directors and Executive Officers as a
group (11 persons)......................... 20,924,271 29.2% 22.5%
</TABLE>
- ------------------------
* Holdings do not exceed one percent of the total outstanding shares of
Metromedia common stock.
(1) Unless otherwise indicated by footnote, the named individuals have sole
voting and investment power with respect to the shares of Metromedia common
stock beneficially owned.
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(2) Includes options to acquire 40,000 shares of Metromedia common stock issued
under the Metromedia International Group, Inc. 1996 Incentive Stock Plan.
The 1996 Stock Plan was approved by Metromedia's stockholders at the 1996
Annual Meeting of Metromedia Stockholders.
(3) Includes options to acquire 15,000 shares of Metromedia common stock under
the 1996 Stock Plan.
(4) Includes options to acquire 1,000 shares of Metromedia common stock under
the 1996 Stock Plan.
(5) Includes options to acquire 200,000 shares under the 1996 Stock Plan.
(6) Includes 12,415,455 shares of Metromedia common stock beneficially owned
through Metromedia Company of which Mr. Kluge is a general partner
(7,989,206 shares) and Met Telcell (4,426,249 shares), a corporation owned
and controlled by Messrs. Kluge and Subotnick, and 5,270,588 shares of
Metromedia common stock owned directly by a trust affiliated with Mr. Kluge
of which Mr. Subotnick is a trustee, which includes 200,000 shares of 7.25%
cumulative convertible preferred stock, which shares are currently
convertible into 666,000 shares of common stock. Mr. Subotnick disclaims
beneficial ownership of the shares owned by the trust.
(7) Includes options to acquire 600,000 shares of common stock, exercisable
within 60 days of the date hereof.
(8) Includes options to acquire 60,000 shares of common stock under 1996 Stock
Plan.
(9) Includes options to acquire 10,000 shares of common stock under Metromedia's
1991 Non-Employee Director Stock Option Plan.
(10) Includes options to acquire 45,000 shares of common stock under the 1996
Stock Plan.
(11) Includes options to acquire 657,908 shares of common stock exercisable
within 60 days of the date hereof.
(12) Includes 231,225 shares owned directly by Mr. Subotnick.
(13) Includes options to acquire 20,000 shares of common stock under the 1996
Stock Plan.
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DIRECTORS AND OFFICERS
DIRECTORS OF METROMEDIA
The Metromedia board of directors, which presently consists of nine members,
is divided into three classes. The Class I Directors were elected for a term
expiring at the annual meeting of stockholders to be held in 1999, the Class II
Directors were elected for a term expiring at the annual meeting of stockholders
to be held in 2000, and the Class III Directors were elected for a term expiring
at the annual meeting of stockholders to be held in 2001. Members of each class
hold office until their successors are elected and qualified. At each succeeding
annual meeting of the stockholders of Metromedia, the successors of the class of
directors whose terms expire at that meeting shall be elected by a plurality
vote of all votes cast at such meeting and will hold office for a three-year
term. The Class I Directors, whose terms expire at the Metromedia annual meeting
of stockholders to be held in 1999, are John W. Kluge, Stuart Subotnick and John
P. Imlay, Jr. The Class II Directors, whose terms expire at the Metromedia
annual meeting of stockholders to be held in 2000, are Richard J. Sherwin and
Leonard White. The Class III Directors, whose terms expire at the Metromedia
annual meeting of stockholders to be held in 2001, are Silvia Kessel, Carl E.
Sanders, Arnold L. Wadler and Clark A. Johnson.
For more information regarding each of Metromedia's directors, including
biographical information, see "Election of Directors."
MEETINGS AND CERTAIN COMMITTEES OF THE BOARD
The Metromedia board of directors held four regular meetings in 1998. In
addition, the Metromedia board of directors (including the executive committee)
took action by unanimous written consent four times in 1998. All directors
attended at least 75% of the aggregate total number of meetings of the
Metromedia board of directors and all committees of the Metromedia board of
directors on which they served except John W. Kluge who attended 50% of such
meetings.
The Metromedia board of directors has delegated certain functions to the
following standing committees:
THE EXECUTIVE COMMITTEE. The Metromedia executive committee is authorized
to exercise, to the extent permitted by law, all of the powers of the Metromedia
board of directors in the management and affairs of Metromedia. The executive
committee took action by unanimous written consent nine times in 1998. The
current members of the executive committee are Messrs. Kluge and Subotnick.
THE AUDIT COMMITTEE. The Metromedia audit committee is responsible for:
- reviewing the professional services and independence of Metromedia's
independent auditors and the scope of the annual external audit
recommended by the independent auditors,
- ensuring that the scope of the annual external audit is sufficiently
comprehensive,
- reviewing, in consultation with Metromedia's independent auditors and
Metromedia's finance and accounting departments, the plan and results of
the annual external audit, the adequacy of Metromedia's internal control
systems and the results of Metromedia's internal audit and
- reviewing with management and Metromedia's independent auditors
Metromedia's annual and quarterly financial statements, financial
reporting practices and the results of such external audit. The audit
committee met four times during 1998. The current members of the audit
committee are Messrs. Imlay, Johnson and White.
THE COMPENSATION COMMITTEE. The Metromedia compensation committee's
functions are to review, approve, recommend and report to the board of directors
on matters specifically relating to the
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compensation of Metromedia's executive officers and other key executives and to
administer Metromedia's stock option plans. The compensation committee held two
meetings during 1998. In addition, the compensation committee took action by
unanimous written consent two time during 1998. The current members of the
compensation committee are Gov. Sanders and Messrs. Imlay, Johnson and White.
THE NOMINATING COMMITTEE. The Metromedia nominating committee's principal
function is to identify candidates and recommend to Metromedia's board of
directors nominees for membership on the board of directors. The nominating
committee expects normally to be able to identify from its own resources the
names of qualified nominees, but it will accept from stockholders
recommendations of individuals to be considered as nominees, provided
Metromedia's stockholders follow procedures specified in Metromedia's by-laws.
These procedures provide that, in order to nominate an individual to the
board of directors, a Metromedia stockholder must provide timely notice of such
nomination in writing to the secretary of Metromedia and a written statement by
the candidate of his or her willingness to serve. Such notice must include the
information required to be disclosed in solicitations for proxies for election
of directors pursuant to Regulation 14A under the Securities Exchange Act of
1934, along with the name, record address, class and number of shares of common
stock beneficially owned by the stockholder giving such notice. To be timely,
notice must be received by Metromedia not less than 60 days nor more than 90
days prior to the first anniversary of the date of Metromedia's annual meeting
for the preceding year. However, in the event the date of the annual meeting of
stockholders is advanced by more than 30 days or delayed by more than 60 days
from this anniversary date, this notice must be received within 10 days
following public disclosure by Metromedia of the date of the annual or special
meeting at which directors are to be elected. For purposes of this notice
requirement, disclosure shall be deemed to be first made when disclosure of such
date of the annual or special meeting of stockholders is first made in a press
release reported by the Dow Jones News Service, Associated Press or other
comparable national news service, or in a document which has been publicly filed
by Metromedia with the Securities and Commission pursuant to Sections 13, 14 or
15(d) of the Securities Exchange Act of 1934. Any such nominations should be
submitted in writing to Metromedia, One Meadowlands Plaza, East Rutherford, New
Jersey 07073-2137, Attention: Arnold L. Wadler, Secretary. The Metromedia
nominating committee took action by unanimous written consent once in 1998. The
current members of the nominating committee are Messrs. Kluge and Wadler and Ms.
Kessel.
COMPENSATION OF DIRECTORS
During 1998, each director of Metromedia who was not employed by Metromedia
or affiliated with Metromedia Company received a $2,000 monthly retainer plus a
separate attendance fee for each meeting of the board of directors or committee
of the board of directors in which such director participated. During 1998, the
attendance fees were $1,200 for each meeting of the board of directors attended
by a non-employee director in person and $500 for each meeting of the board of
directors in which a non-employee director participated by conference telephone
call. Members of committees of the board of directors are paid $500 for each
meeting attended.
Prior to December 13, 1995, non-employee directors were entitled to receive
options to purchase shares of Metromedia common stock under Metromedia's 1991
Non-Employee Director Stock Option Plan. Under this plan, each non-employee
director who was a director of Metromedia on August 3, 1992 was granted an
option to purchase 10,000 shares of common stock at an exercise price of
$11.875, the closing price of the common stock on the trading day immediately
preceding the date of grant. Options granted to these non-employee directors
became fully vested as to all 10,000 shares upon approval of certain amendments
to this plan at Metromedia's 1993 annual meeting of stockholders.
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This plan further provided that each person who became a non-employee
director of Metromedia after August 3, 1992 would receive an option to purchase
10,000 shares of Metromedia common stock on the day such director is elected as
a director, at an exercise price equal to the closing price of the Metromedia
common stock on the trading day preceding such director's election. Options
granted to these non-employee directors became fully vested and exercisable as
to all 10,000 shares on March 31 in the year after the date the Non-Employee
Director was elected, provided Metromedia had net income for the year in which
the non-employee director was elected or earnings equal to or better than
budgeted results for such year.
All options granted under the plan have a term of ten years. The plan had
originally been scheduled to terminate on June 27, 2001. However, at a meeting
of the Metromedia board of directors held on December 13, 1995, the board
terminated the plan. Options outstanding as of December 13, 1995 are unaffected
by the termination of the plan.
On August 29, 1996, the Metromedia stockholders adopted the 1996 Metromedia
International Group, Inc. Incentive Stock Plan. Pursuant to this plan, at a
compensation committee meeting held on January 31, 1996, Metromedia granted
options to purchase 50,000 shares of Metromedia's common stock at an exercise
price of $12.75, the closing price of the common stock on the trading day
immediately preceding the date of grant to each director other than Messrs.
Wadler, Sherwin and White and Ms. Kessel. On March 26, 1997, Metromedia
cancelled all such options and reissued them at an exercise price of $9.31 (See
"Ten-Year Option/SAR Repricings" table below), 20,000 of these options were
vested as of that date. An additional 10,000 options vested on March 26, 1998.
In addition, on March 26, 1997, Metromedia granted options to Messrs. Imlay,
Johnson and Sanders to purchase an additional 25,000 shares of Metromedia common
stock at an exercise price of $9.31 per share, of which 5,000 options vested as
of the grant date and the remainder vest ratably over a four year period.
In November 1997, Metromedia amended and restated this plan to, among other
things:
- increase the maximum number of options which may be granted to any
optionee to one million,
- permit the compensation committee to grant non-tandem stock options and
stock appreciation rights,
- more narrowly circumscribe the "change of control" provisions of the plan
and
- make a number of technical amendments to the plan.
EXECUTIVE OFFICERS OF METROMEDIA
The executive officers of Metromedia and their respective ages and positions
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
John W. Kluge.......................... 84 Chairman
Stuart Subotnick....................... 57 Vice Chairman, President and Chief Executive Officer
Silvia Kessel.......................... 49 Executive Vice President, Chief Financial Officer and Treasurer
Arnold L. Wadler....................... 56 Executive Vice President, General Counsel and Secretary
Robert A. Maresca...................... 64 Senior Vice President
Vincent D. Sasso, Jr................... 41 Vice President
</TABLE>
The following is a biographical summary of the experience of the executive
officers of Metromedia other than those who are also directors. For the
backgrounds of each of Metromedia's directors, including biographical
information, see "Election of Directors" below.
Mr. Maresca has served as a Senior Vice President of Metromedia since
November 1, 1995 and has served as a Senior Vice President-Finance of Metromedia
for over five years.
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Mr. Sasso has served as Metromedia's Vice President of financial reporting
since July 1996. Prior to that time, Mr. Sasso served in a number of positions
at KPMG LLP from November 1984 to June 1996, including partner from July 1994 to
June 1996.
EXECUTIVE COMPENSATION
Metromedia's Chief Executive Officer and Metromedia's other most highly
compensated executive officers are employed and paid by Metromedia Company, and
Metromedia Company provides the services of such executive officers to
Metromedia pursuant to a management agreement. See "Certain Relationships and
Related Transactions--Metromedia's Relationship with Metromedia Company."
Metromedia has allocated a portion of such management fee to the payment of the
salaries of Metromedia's Chief Executive Officer and Metromedia's executive
officers based upon the services provided to Metromedia by such officers on
behalf of Metromedia Company.
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information on
compensation awarded to, earned by or paid to the Chief Executive Officer and
Metromedia's other most highly compensated executive officers for services
rendered to Metromedia and its subsidiaries during the fiscal year ended
December 31, 1998, 1997, and 1996. Messrs. Subotnick, Wadler, Maresca, Sasso and
Ms. Kessel were employed and paid by Metromedia Company and amounts shown below
with respect to each of them reflect the portion of their compensation paid by
Metromedia to Metromedia Company in respect of such executive's services to
Metromedia, pursuant to the management agreement. Metromedia estimates that
Messrs. Subotnick, Wadler, Maresca, Sasso and Ms. Kessel spent approximately 20,
20, 20, 30 and 20 hours per week, respectively, working on matters for
Metromedia. The compensation expensed by Metromedia and paid to Metromedia
Company pursuant to the management agreement includes payment for salary only
and does not include any payment relating to bonus or other compensation. No
other amounts were paid by Metromedia to these executive officers during 1998.
<TABLE>
<CAPTION>
AWARDS NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS COMPENS.($)
- ------------------------------------- --------- ---------- ------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stuart Subotnick..................... 1998 $ 765,000 -- -- -- 1,050,000 --
President and Chief Executive 1997 $ 750,000 -- -- -- --
Officer 1996 $ 55,328(1) -- -- --
Silvia Kessel........................ 1998 $ 382,500 -- -- -- --
Executive Vice President, Chief 1997 $ 375,000 -- -- 250,000 --
Financial Officer and Treasurer 1996 $ 350,000 -- -- -- --
Arnold L. Wadler..................... 1998 $ 382,500 -- -- -- --
Executive Vice President, General 1997 $ 375,000 -- -- 250,000 --
Counsel and Secretary 1996 $ 350,000 -- -- -- --
Robert A. Maresca.................... 1998 $ 220,000 -- -- -- --
Senior Vice President and Chief 1997 $ 220,000 -- -- 75,000 --
Accounting Officer 1996 $ 200,000 -- -- -- --
Vincent D. Sasso, Jr................. 1998 $ 180,000 -- -- -- --
Vice President of Financial 1997 $ 175,000 -- -- 75,000 --
Reporting 1996 $ 75,000(2) -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Subotnick was appointed President and Chief Executive Officer of
Metromedia on December 4, 1996. The amounts shown for Mr. Subotnick reflect
the portion of the payment made by Metromedia to Metromedia Company for the
period December 4, 1996 through December 31, 1996.
(2) Mr. Sasso was appointed Vice President of Financial Reporting in July of
1996. The amount shown for Mr. Sasso reflects the portion of the payment
made by Metromedia to Metromedia Company from such period through December
31, 1996.
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AGGREGATED OPTION AND SAR EXERCISES IN 1998
AND FISCAL YEAR-END OPTION AND SAR VALUES
The following table sets forth information concerning the exercise of
options or SARs by the named executive officers during the 1998 fiscal year and
the number of unexercised options and SARs held by such officers at the end of
the 1998 fiscal year.
FISCAL YEAR END VALUE $5.438
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED IN
VALUE REALIZED SECURITIES UNDERLYING THE
(MARKET PRICE UNEXERCISED OPTIONS/SARS MONEY OPTIONS/SARS
SHARES AT AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
ACQUIRED ON EXERCISE LESS -------------------------- --------------------------
NAME EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart Subotnick........... -0- -0- 430,000 620,000 -0- -0-
Arnold L. Wadler........... -0- -0- 150,000 100,000 -0- -0-
Silvia Kessel.............. -0- -0- 150,000 100,000 -0- -0-
Robert A. Maresca.......... -0- -0- 45,000 30,000 -0- -0-
Vincent D. Sasso, Jr....... -0- -0- 30,000 45,000 -0- -0-
</TABLE>
TEN-YEAR OPTION/SAR REPRICINGS
The following table sets forth information concerning the repricing of stock
options held by any named executive officer during the last ten years.
<TABLE>
<CAPTION>
NUMBER OF MARKET PRICE OF EXERCISE PRICE AT NEW LENGTH OF ORIGINAL
SECURITIES UNDERLYING STOCK AT TIME OF TIME OF EXERCISE OPTION TERMINATION
OPTIONS/SAR'S REPRICING OR REPRICING OR PRICE(1) AT
NAME DATE REPRICED OR AMENDED($) AMENDMENT($) AMENDMENT($) ($) DATE OF REPRICING
- --------------------- --------- ----------------------- ----------------- ----------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Stuart Subotnick..... 3/26/97 50,000 $ 9.3125 $ 12.75 $ 9.31 8 years/10 months
President and Chief
Executive Officer
Arnold L. Wadler..... 3/26/97 250,000 $ 9.3125 $ 12.75 $ 9.31 8 years/10 months
Executive Vice
President, General
Counsel and
Secretary
Silvia Kessel........ 3/26/97 250,000 $ 9.3125 $ 12.75 $ 9.31 8 years/10 months
Executive Vice
President, Chief
Financial Officer
and Treasurer
Robert A. Maresca.... 3/26/97 75,000 $ 9.3125 $ 12.75 $ 9.31 8 years/10 months
Senior Vice
President and Chief
Accounting Officer
</TABLE>
- ------------------------
(1) At the time of repricing 40% of the options were vested, the remaining 60%
vest ratably over a three year period.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
METROMEDIA'S RELATIONSHIP WITH METROMEDIA COMPANY
Metromedia Company and its affiliates are collectively the largest single
stockholder of Metromedia, beneficially owning, as of March 31, 1999,
approximately 27% of the issued and outstanding shares of Metromedia common
stock.
Metromedia is a party to a number of agreements and arrangements with
Metromedia Company and its affiliates, the material terms of which are
summarized below.
MANAGEMENT AGREEMENT. Metromedia is a party to a management agreement with
Metromedia Company dated November 1, 1995, as amended, pursuant to which
Metromedia Company provides Metromedia with management services, including
legal, insurance, payroll and financial accounting systems and cash management,
tax and benefit plans. This management agreement terminates on October 31, 1999,
and is automatically renewed for successive one year terms unless either party
terminates upon 60 days prior written notice. Pursuant to an amendment dated
January 1, 1999, the management fee under this management agreement was
increased to $3.75 million per year, payable monthly at a rate of $312,500 per
month. Metromedia is also obligated to reimburse Metromedia Company for all its
out-of-pocket costs and expenses incurred and advances paid by Metromedia
Company in connection with the management agreement. Pursuant to the management
agreement, Metromedia has agreed to indemnify and hold Metromedia Company
harmless from and against any and all damages, liabilities, losses, claims,
actions, suits, proceedings, fees, costs or expenses (including reasonable
attorneys' fees and other costs and expenses incident to any suit, proceeding or
investigation of any kind) imposed on, incurred by or asserted against
Metromedia Company in connection with the management agreement. In fiscal 1998,
Metromedia Company received no money for its out-of-pocket costs and expenses or
for interest on advances extended by it to Metromedia pursuant to the management
agreement.
TRADEMARK LICENSE AGREEMENT. Metromedia is party to a license agreement
with Metromedia Company, dated November 1, 1995 as amended on June 13, 1996,
pursuant to which Metromedia Company has granted Metromedia a non-exclusive,
non-transferable, non-assignable right and license, without the right to grant
sublicenses, to use the trade name, trademark and corporate name "Metromedia" in
the United States and, with respect to Metromedia International
Telecommunications, Inc. ("MITI"), worldwide, royalty-free for a term of 10
years. This license agreement can be terminated by Metromedia Company upon one
month's prior written notice in the event of:
- the expiration or termination of the management agreement;
- a "change in control" of Metromedia (as defined below); or
- any of the stock or all or substantially all of the assets of any of the
subsidiaries of Metromedia is sold or transferred, in which case, the
Metromedia license agreement shall terminate with respect to such
subsidiary.
A change in control of Metromedia is defined as:
- a transaction in which a person or "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) not in existence at the
time of the execution of the Metromedia license agreement becomes the
beneficial owner of stock entitling such person or group to exercise 50%
or more of the combined voting power of all classes of stock of
Metromedia;
- a change in the composition of Metromedia's board of directors whereby a
majority of the members thereof are not directors serving on the board at
the time of the Metromedia license agreement or any person succeeding such
director who was recommended or elected by such directors;
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- a reorganization, merger or consolidation whereby, following the
consummation thereof, Metromedia Company would hold less than 10% of the
combined voting power of all classes of Metromedia's stock;
- a sale or other disposition of all or substantially all of the assets of
Metromedia; or
- any transaction the result of which would be that the common stock would
not be required to be registered under the Securities Exchange Act of 1934
and the holders of common stock would not receive common stock of the
survivor of the transaction which is required to be registered under the
Securities Exchange Act of 1934.
In addition, Metromedia Company has reserved the right to terminate the
Metromedia license agreement in its entirety immediately upon written notice to
Metromedia, if, in Metromedia Company's sole judgment, Metromedia's continued
use of "Metromedia" as a trade name would jeopardize or be detrimental to the
goodwill and reputation of Metromedia Company.
Pursuant to the Metromedia license agreement, Metromedia has agreed to
indemnify and hold Metromedia Company harmless against any and all losses,
claims, suits, actions, proceedings, investigations, judgments, deficiencies,
damages, settlements, liabilities and reasonable legal (and other expenses
related thereto) arising in connection with the Metromedia license agreement.
Metromedia believes that the terms of each of the transactions described
above were no less favorable to Metromedia than could have been obtained from
non-affiliated parties.
INDEMNIFICATION AGREEMENTS
Metromedia has entered into indemnification agreements with certain officers
and directors of Metromedia. These indemnification agreements provide for
indemnification of such directors and officers to the fullest extent authorized
or permitted by law. They also provide for:
- advancement by Metromedia of expenses incurred by the director or officer
in defending certain litigation
- the appointment in certain circumstances of an independent legal counsel
to determine whether the director or officer is entitled to
indemnification and
- the continued maintenance by Metromedia of directors' and officers'
liability insurance (which currently consists of $15 million of primary
coverage). These indemnification agreements were approved by the
stockholders of Metromedia at its 1993 annual meeting of stockholders.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Metromedia's
directors and executive officers, and persons who beneficially own more than 10%
of the outstanding Metromedia common stock, to file with the Securities and
Exchange Commission and the American Stock Exchange initial reports of ownership
and reports of changes in ownership of the Metromedia common stock. Such
officers, directors and greater than 10% stockholders are required by the
regulations of the Securities and Exchange Commission to furnish Metromedia with
copies of all reports that they file under Section 16(a). To Metromedia's
knowledge, based solely on a review of the copies of such reports furnished to
Metromedia and written representations that no other reports were required, all
Section 16(a) filing requirements applicable to Metromedia's officers, directors
and greater than 10% beneficial owners were complied with by such persons during
fiscal year ended December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors of Metromedia consists
of Gov. Sanders and Messrs. Imlay, Johnson and White. The compensation committee
is comprised entirely of independent directors and is responsible for developing
and making recommendations to the board with respect to Metromedia's executive
compensation policies.
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COMPENSATION COMMITTEE REPORT ON COMPENSATION
The following report of the compensation committee discusses Metromedia's
executive compensation policies generally and, specifically, the relationship of
Metromedia's performance in 1998 to the compensation by Metromedia of its
executive officers:
Metromedia's executive officers are employed and paid by Metromedia Company,
and Metromedia Company provides the services of such executive officers to
Metromedia pursuant to a management agreement. For the year ended December 31,
1998, Metromedia paid Metromedia Company a management fee of $3.5 million
pursuant to the management agreement. Metromedia has allocated a portion of such
management fee to the payment of the salaries of Metromedia's executive officers
based upon the services provided to Metromedia by such officers on behalf of
Metromedia Company.
BACKGROUND. In general, Metromedia's compensation committee seeks to link
the compensation allocable to the services provided by each executive officer to
the performance of Metromedia and to the management fee payable pursuant to the
management agreement. In addition, the members of Metromedia's compensation
committee constitute all of the members of Metromedia's board of directors who
are not affiliated with Metromedia Company, and such members are therefore the
directors whose approval is required to authorize the management fee under the
management agreement. Within these parameters, the executive compensation
program attempts to provide an overall level of executive compensation, as a
component of the management fee, that is competitive with companies of
comparable size, similar market and operating characteristics and similar
prospects.
During 1996, Metromedia's compensation committee reviewed total officer
compensation against a market comparison group of approximately 12 companies in
the communications industry to assess the competitiveness of the compensation of
Metromedia's executive officers. During 1997, the compensation committee
reviewed chief executive officer and chairman compensation against a market
comparison group of 11 companies in the communications industry to assess
further the competitiveness of the compensation of Metromedia's chief executive
officer. The compensation committee has since obtained updated information
regarding compensation of the 1997 comparison group.
In such reviews, the compensation committee considered Metromedia's
executive compensation in view of Metromedia's size, the number of operating
units, and the role and responsibilities of Metromedia's executive officers. In
comparing the compensation of its executives with that of executives of
companies in the two comparison groups, the compensation committee considered
the competitiveness of the amounts of the management fee allocated to salaries
of Metromedia's executive officers, assuming that such amounts were paid
directly to such officers, and taking cognizance of the fact that such officers
performed duties for Metromedia Company in addition to their duties for
Metromedia, and received additional compensation therefor. The compensation
committee also considered the differences between the business of Metromedia and
the businesses of the members of the comparison groups.
The companies included in the NASDAQ Telecommunications Index for purposes
of analyzing the performance of Metromedia's common stock during 1998 (see
"Performance Graph" below) are not identical to the 12 companies in the 1996
comparison group or the 11 companies in the 1997 comparison group. Nevertheless,
Metromedia believes that the cross-section of companies included in the NASDAQ
Telecommunications Index and the two comparison groups are sufficiently similar
and provide a reasonable basis for the compensation committee to develop
justified compensation policies and for an investor to evaluate the performance
of Metromedia's common stock.
STOCK OPTIONS. Metromedia's compensation committee believes that the grant
of stock options will motivate executives to create long-term growth in
shareholder value. Pursuant to Metromedia's 1996 Stock Option Plan, Metromedia
grants options at the discretion of the compensation committee, usually
annually. The number of option shares covered by such grants is determined based
upon assessment of the individual's performance. The compensation committee
considers the recommendation of and relies on information provided by
Metromedia's Chief Executive Officer in
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determining the number of option shares to be granted to the non-CEO executive
officers. The compensation committee believes that the periodic grant of
time-vested stock options provides an incentive that focuses the executives'
attention on managing the business as owners of an equity stake in Metromedia.
It further motivates executives to maximize long-term growth and profitability
because the value of the options increases only as Metromedia's stock price
increases after the option grant.
In March 1997, the compensation committee reviewed certain options
previously granted to employees of Metromedia and the market price of
Metromedia's common stock during the past year. The committee recognized that
options issued by Metromedia are utilized as compensation and to provide
incentives to improve Metromedia's performance and thereby positively influence
the market price for Metromedia's common stock for the benefit of all
shareholders. The committee determined that the market price had declined
despite Metromedia's significant accomplishments, that certain options
previously granted under the stock option plan were at exercise prices
significantly in excess of the current market prices of Metromedia's common
stock, and that these outstanding stock options, if left in place, would not
achieve the underlying objectives discussed above.
Accordingly, on March 26, 1997, Metromedia granted replacement stock options
to replace certain previously issued stock options under such plan. The
replacement options did not involve the grant of any additional shares.
Metromedia granted the replacement options at an exercise price of $9.31 per
share, the fair market value per share of shares of Metromedia's common stock on
such date. No other option repricing or exchange has occurred in the past ten
years.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Summary Compensation Table sets forth amounts of the management fee paid
during 1998 to Metromedia Company and allocable to compensation of Stuart
Subotnick, Metromedia's President and Chief Executive Officer, by Metromedia.
The compensation committee established the amount of the management fee
allocable to Mr. Subotnick's base salary in December 1996 upon the resignation
of the former chief executive officer of Metromedia, Mr. John D. Phillips, and
the compensation committee subsequently increased this amount. The compensation
committee determined the amount of the management fee allocable to Mr.
Subotnick's base salary by analyzing the compensation of chief executive
officers in the comparison groups, along with the amounts previously paid to Mr.
Phillips. The compensation committee believes such analysis is reasonable.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
One of the factors the compensation committee considers in connection with
compensation matters is the anticipated tax treatment to Metromedia and to the
executives of the compensation arrangements. The deductibility of certain types
of compensation depends upon the timing of an executive's vesting in, or
exercise of, previously granted rights. Moreover, interpretation of, and changes
in, the tax laws and other factors beyond the compensation committee's control
also affect the deductibility of compensation. Accordingly, the compensation
committee will not necessarily limit executive compensation to that deductible
under Section 162(m) of the Code. The compensation committee will consider
various alternatives to preserving the deductibility of compensation payments
and benefits to the extent consistent with its other compensation objectives.
The foregoing report of the compensation committee shall not be deemed to be
incorporated by reference into any filing of Metromedia under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except
to the extent that Metromedia specifically incorporates such information by
reference, and shall not otherwise be deemed filed under such acts.
Submitted by the compensation
committee
of Metromedia's board of directors as
of
March 29, 1999
John P. Imlay, Jr.
Clark A. Johnson
Carl E. Sanders
Leonard White
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PERFORMANCE GRAPH
As Metromedia views Snapper as a non-core asset which it manages solely in
order to maximize shareholder value, it does not believe that it would be
appropriate for it to compare its performance with that of companies operating
in a line of business similar to Snapper's line of business. Rather, Metromedia
believes that its performance should be compared to that of telecommunications
companies because the telecommunications business constitutes the strategic
focus of its business operations. As a result, the following graph sets forth
Metromedia's total stockholder return as compared to the Standard & Poor's 500
Index and the NASDAQ Telecommunications Stock Index for the five year period
from January 1, 1993 through December 31, 1998. The total stockholder return
assumes $100 invested at the beginning of the period in Metromedia's common
stock, the Standard & Poor's 500 Index and the NASDAQ Telecommunications Index.
METROMEDIA INTERNATIONAL GROUP, INC. CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE DECEMBER 1993 AMONG
<S> <C> <C> <C>
Metromedia International Group, Inc. & Select Indices
Metromedia Int. Group, Inc. S&P 500 Index NASDAQ Telecomm Index
1993 100 100 100
1994 122 101 84
1995 187 139 113
1996 132 170 117
1997 127 227 166
1998 72 291 271
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Metromedia Int. Group, Inc................................................. $ 100 $ 122 $ 187 $ 132 $ 127
S&P 500 Index.............................................................. $ 100 $ 101 $ 139 $ 170 $ 227
NASDAQ Telecomm Index...................................................... $ 100 $ 84 $ 113 $ 117 $ 166
<CAPTION>
1998
---------
<S> <C>
Metromedia Int. Group, Inc................................................. $ 72
S&P 500 Index.............................................................. $ 291
NASDAQ Telecomm Index...................................................... $ 271
</TABLE>
PROPOSAL NO. 2--ELECTION OF DIRECTORS
The following table sets forth certain information with respect to the
members of Metromedia's board of directors, including the three incumbent Class
I Directors (Messrs. Imlay, Kluge, and Subotnick) who have been nominated by the
board of directors for re-election as Class I Directors at the 1999 annual
meeting.
The board of directors knows of no reason why any of its nominees will be
unable or will refuse to accept election. If any nominee becomes unable or
refuses to accept election, the board of directors
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will either reduce the number of directors to be elected or select a substitute
nominee. If a substitute nominee is selected, proxies will be voted in favor of
such nominee.
The affirmative vote of the holders of a plurality of shares of common stock
present in person or represented by proxy at the annual meeting will be required
to elect each of the three Class I Directors to Metromedia's board.
<TABLE>
<CAPTION>
CLASS OF DIRECTOR
NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND CERTAIN DIRECTORSHIPS AGE DIRECTORS SINCE
- -------------------------------------------------------------------------------------- --- ---------- -----------
<S> <C> <C> <C>
John P. Imlay, Jr..................................................................... 62 Class I 1993
Served from 1990 until December 1996 as Chairman of Dun & Bradstreet Software
Services, Inc., an application software company located in Atlanta, Georgia. Mr.
Imlay is the former Chairman of Management Science America, a mainframe applications
software company. Management Science America was acquired by Dun & Bradstreet
Software Services, Inc. in 1990. Mr. Imlay is also a director of the Atlanta
Falcons, a National Football League team, IMS Health, Inc., World Access, Inc. and
The Gartner Group. Mr. Imlay is a member of the audit committee and the compensation
committee.
John W. Kluge......................................................................... 84 Class I 1995
Chairman of the board of directors of Metromedia since November 1, 1995. Chairman of
the Board and a director of Orion Pictures Corporation from 1992 until July 1997.
Chairman and President of Metromedia Company and its predecessor-in-interest,
Metromedia, Inc. for over five years. Director of Metromedia Fiber Network, Inc.,
Conair Corporation and Occidental Petroleum Corporation. Mr. Kluge is Chairman of
the executive committee and the nominating committee.
Stuart Subotnick...................................................................... 57 Class I 1995
President and Chief Executive Officer since December 4, 1996 and Vice Chairman of
the board of directors of Metromedia since November 1, 1995. Vice Chairman of the
board and a director of Orion Pictures Corporation from 1992 until July 1997
Executive Vice President of Metromedia Company and its predecessor-in-interest,
Metromedia, Inc. for over five years. Director of Metromedia Fiber Network, Inc.
Carnival Cruise Lines, Inc., and Chairman of Big City Radio, Inc. Mr. Subotnick is a
member of the executive committee.
Richard J. Sherwin.................................................................... 55 Class II 1995
Co-President of Metromedia International Telecommunications, Inc. Mr. Sherwin has
served as Co-President and director of Metromedia International Telecommunications
and its predecessor companies for over five years. Prior to that, Mr. Sherwin served
as the Chief Operating Officer of Graphic Scanning Corp., a paging and wireless
telecommunications company.
Leonard White......................................................................... 59 Class II 1995
President and Chief Executive Officer of Rigel Enterprises, a management and private
investment firm, since July 1997. Served as President and Chief Executive Officer of
Orion Pictures Corporation from March 1992 until July 1997 and Metromedia
Entertainment Group from 1995 until July 1997. Chairman of the Board and Chief
Executive Officer of Orion Home Entertainment Corporation, a subsidiary of Orion
Home Entertainment,
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CLASS OF DIRECTOR
NAME, PRINCIPAL OCCUPATION FOR PAST FIVE YEARS AND CERTAIN DIRECTORSHIPS AGE DIRECTORS SINCE
- -------------------------------------------------------------------------------------- --- ---------- -----------
from March 1991 until March 1992. President and Chief Operating Officer of Orion
Home Video division of Orion Home Entertainment from March 1987 until March 1991.
Mr. White is a director of Metromedia Fiber Network, Inc., Big City Radio, Inc. and
American Film Technologies. Mr. White is Chairman of the audit committee and a
member of the compensation committee.
<S> <C> <C> <C>
Clark A. Johnson...................................................................... 67 Class III 1990
Mr. Johnson served as chairman and Chief Executive Officer of Pier 1 Imports, Inc.,
a specialty retailer of decorative home furnishings, from August 1988 until his
retirement in February 1999. Mr. Johnson is a director of Albertson's, Inc.,
Anacomp, Inc., Heritage Media Corporation, InterTAN, Inc. and Pier 1 Imports, Inc.
Mr. Johnson is a member of the compensation and audit committees.
Silvia Kessel......................................................................... 49 Class III 1995
Executive Vice President, Chief Financial Officer and Treasurer of Metromedia since
August 29, 1996 and Senior Vice President, Chief Financial Officer and Treasurer of
Metromedia since November 1, 1995. Executive Vice President and a director of Orion
Pictures Corporation from January 1993 until June 1997. Senior Vice President of
Orion from June 1991 to November 1992. Senior Vice President of Metromedia Company
since January 1994. President of Kluge & Company for over five years. Managing
Director of Kluge & Company for over five years. Director and Executive Vice
President of Metromedia Fiber Network, Inc. and Big City Radio, Inc. Director of
Liquid Audio, Inc., an internet music company. Ms. Kessel is a member of the
nominating committee.
Carl E. Sanders....................................................................... 73 Class III 1967
Engaged in the private practice of law as Chairman of Troutman Sanders, a law firm
located in Atlanta, Georgia. Director of Metromedia since 1967, except for a
one-year period from April 1970 to April 1971. Former Governor of the State of
Georgia and a director of Carmike Cinemas, Inc., Norrell Corporation, Healthdyne,
Inc., World Access, Inc. and formerly a director of RDM Sports Group, Inc. from
December 1994 to May 1997. Mr. Sanders is Chairman of the compensation committee.
Arnold L. Wadler...................................................................... 56 Class III 1995
Executive Vice President, General Counsel and Secretary of Metromedia since August
29, 1996 and Senior Vice President, General Counsel and Secretary of Metromedia
since November 1, 1995. Senior Vice President, Secretary and General Counsel of
Metromedia Company and its predecessor-in-interest, Metromedia, Inc., for over five
years. Director, Executive Vice President, General Counsel and Secretary of
Metromedia Fiber Network, Inc. and Big City Radio, Inc. Director of Orion Pictures
Corporation from 1992 until July 1997. Mr. Wadler is Chairman of the nominating
committee.
</TABLE>
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PROPOSAL NO. 3--RATIFICATION OF
THE APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors of Metromedia has appointed the firm of KPMG LLP,
independent auditors, to audit the consolidated financial statements of
Metromedia and its subsidiaries for the fiscal year ending December 31, 1999,
subject to ratification by Metromedia's stockholders.
A partner of KPMG LLP is expected to be present at the 1999 annual meeting
and to be provided with an opportunity to make a statement if such partner
desires to do so and to be available to respond to appropriate questions from
stockholders.
If the Metromedia stockholders do not ratify the appointment of KPMG LLP as
Metromedia's independent auditors for the forthcoming fiscal year, such
appointment will be reconsidered by the audit committee and the board of
directors.
The affirmative vote of the holders of a majority of shares of Metromedia
common stock present in person or represented by proxy at the 1999 annual
meeting will be required to approve and adopt Proposal Number 3.
THE METROMEDIA BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF METROMEDIA'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
PROPOSAL NO. 4--THE CHARTER AMENDMENT
Alan G. Hevesi, investment adviser and a trustee of the New York City
Teachers' Retirement System ("NYCTRS"), c/o The City of New York, Office of the
Comptroller, 1 Centre Street, New York, New York 10007-2341, owner of 15,900
shares of Common Stock, has submitted the following proposal on behalf of
NYCTRS.
"BE IT RESOLVED, that the shareholders of Metromedia International Group
request that the Board of Directors amend the certificate of incorporation
to reinstate the rights of the shareholders to take action by written
consent and to call special meetings."
STATEMENT IN SUPPORT: "The rights of the shareholders to take action by
written consent and to call special meetings should not be abridged. The
Company's elimination of these rights, in our opinion, effectively removes
important processes by which shareholders can act expeditiously to protect
their investment interests.
For example, the right of shareholders to act to remove incumbent directors
for egregious conduct should not be limited to the annual meeting. Also,
shareholders should not be prevented from giving timely consideration to a
bidder's proposal to acquire control of the Company, or a dissident
shareholder's slate of nominees for election to the Board of Directors,
because such proposals are required to be presented only at the annual
meeting."
Statement Of The Metromedia Board: Presently, the restated certificate of
incorporation and by-laws of Metromedia:
- require, among other things, that special meetings of stockholders for any
purpose be called by either the Chairman or Vice Chairman of Metromedia's
board and
- do not provide for stockholder action by written consent. If Metromedia
amended its organizational documents as proposed, it would allow its
stockholders to call special meetings and act without a meeting whenever,
however frequently and for whatever reason such stockholders may desire.
For the reasons stated below, Metromedia's board of directors believes
that the requested amendments to the organization documents are not in the
best interests of Metromedia and its stockholders.
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Applicable Delaware law does not grant stockholders of a corporation the
absolute right to call a special meeting or act by written consent, and instead
permits each individual corporation to determine in its organizational documents
whether stockholders will have such rights. Metromedia's board believes that the
Delaware legislature adopted this approach due to the significant financial and
administrative burdens that a special meeting or stockholder action by consent
can impose on a public corporation.
Approximately 7,037 persons and entities are the record holders of
Metromedia's common stock, each of whom, if Proposal No. 4 is approved, would be
entitled under the proposal to demand a special meeting or institute action by
written consent. Each such stockholder would also be entitled to notice of, and
to receive proxy materials relating to, any special meeting, thereby
necessitating actual expenditures (legal, printing and postage) in addition to
those associated with the Metromedia's annual meeting. In addition, the calling
of a special meeting would necessitate the diversion of corporate officers and
employees from their other duties in order to prepare for such a meeting.
Metromedia's board believes that the interest of Metromedia's stockholders would
be better served utilizing these resources to improve its businesses. Similarly,
Metromedia's board believes that permitting action to be taken by written
consent would create confusion as multiple stockholders would be able to solicit
written consents on various matters and would divert valuable corporate
resources to this process.
In light of the foregoing, Metromedia's board believes that the adoption of
Proposal No. 4 could leave Metromedia exposed to numerous calls for special
meetings and stockholder action by consent that may be of little or no benefit
to stockholders and which are a significant burden to Metromedia. Stockholders,
such as the proponent of Proposal No. 4, remain free to make proposals at
Metromedia's annual meeting. Metromedia's board believes that the Chairman and
Vice Chairman of Metromedia's board are in the best position to determine if a
special meeting is warranted.
FOR THE REASONS STATED ABOVE, THE METROMEDIA BOARD OF DIRECTORS BELIEVES
THAT PROPOSAL NO. 4 IS NOT IN THE BEST INTERESTS OF METROMEDIA AND ITS
STOCKHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
AGAINST PROPOSAL NO. 4
APPROVAL BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES OF COMMON STOCK IS REQUIRED FOR APPROVAL OF PROPOSAL NO. 4.
OTHER BUSINESS
Metromedia's board does not intend to bring any other business before the
meeting and it is not aware that anyone else intends to do so. If any other
business comes before the meeting, it is the intention of the persons named in
the enclosed voting form to vote as proxies in accordance with their best
judgment.
ADDITIONAL INFORMATION FOR PLD MEETING
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 31, 1999,
except as otherwise noted, with respect to shares of common stock beneficially
owned by owners of more than five percent of the outstanding common stock of PLD
by all current directors and nominees, by the most highly
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compensated executive officers of PLD and by all current directors and executive
officers of PLD as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT OF
BENEFICIAL OWNER (1) CLASS (2)
- -------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
News America Incorporated (3)................................................... 18,223,081 43.7%
K. Rupert Murdoch (3)........................................................... 18,223,081 43.7%
Merrill Lynch & Co., Inc. (4)................................................... 7,254,328 16.7%
Citicorp Inc. (5)............................................................... 2,259,230 6.0%
James R.S. Hatt (6)............................................................. 440,999 1.2%
Dr. Boris Antoniuk (7).......................................................... 10,000 *
Edward Charles Dilley (7)....................................................... 10,000 *
Simon Edwards (8)............................................................... 338,666 *
Gordon Humphrey (7)............................................................. 15,000 *
Gennady Kudriavtsev (7)......................................................... 15,000 *
Dr. Vladimir Kvint (7).......................................................... 15,000 *
I. Martin Pompadur.............................................................. -- *
David M. Stovel (7)............................................................. 27,500 *
E. Clive Anderson (9)........................................................... 353,433 *
Ian Armour (10)................................................................. 181,666 *
John G. Davies (7).............................................................. 333,333 *
All current directors and executive officers of PLD as a group (12) persons..... 1,740,597 4.4%
</TABLE>
- ------------------------
(1) In accordance with Securities and Exchange Commission regulations, the table
lists all shares as to which such persons have or share the power to vote or
to direct disposition. The number of shares indicated includes shares
issuable upon the exercise of outstanding stock options, warrants or
convertible securities held by each individual or group to the extent
exercisable or convertible at March 31, 1999 or within 60 days thereunder.
Unless otherwise indicated, each person has the sole power to vote and to
direct disposition of the shares listed as beneficially owned by such
person.
(2) Percentage for each individual or group calculated with reference to an
aggregate of 37,846,789 shares of PLD common stock outstanding at March 31,
1999 and all shares issuable upon the exercise of outstanding stock options,
warrants or convertible securities that are exercisable by such individual
or group within 60 days of March 31, 1999. Percentages of less than 1% have
not been indicated.
(3) This information is based upon Amendment No. 1 to Schedule 13D, filed April
12, 1999, with the Securities and Exchange Commission by The News
Corporation Limited, News America Incorporated, NewsPLD LLC and K. Rupert
Murdoch. The amount shown includes 14,381,780 shares of common stock and
currently exercisable warrants to purchase 250,000 shares of PLD common
stock held by NewsPLD LLC, a wholly owned subsidiary of News America
Incorporated (which expired on June 22, 1999). The News Corporation Limited,
News America Incorporated and Mr. Murdoch, as person who may be deemed to
control NewsPLD LLC, may be deemed to beneficially own the shares
beneficially owned by NewsPLD LLC. The amount shown also includes 3,591,301
shares of common stock issuable upon conversion of currently outstanding
revolving credit notes issued to News America Incorporated, which may be
deemed to be beneficially owned by each of The News Corporation Limited,
News America Incorporated and Mr. Murdoch. NewsPLD LLC, News America
Incorporated and Mr. Murdoch are each located at 1211 Avenue of the
Americas, New York, NY 10036.
(4) This information is based upon Amendment No. 3 to Schedule 13G, filed
February 5, 1999, with the Securities and Exchange Commission by Merrill
Lynch & Co., Inc., which is located at World
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<PAGE>
Financial Center, North Tower, 200 Vesey Street, New York, NY 10381, and
Merrill Lynch Global Allocation Fund, Inc., which is located at 800 Scudders
Mill Road, Princeton, New Jersey 08536. The amount shown includes shares of
common stock issuable upon the conversion of 9% convertible subordinated
notes of PLD (CUSIP 71623PAC) and upon exercise of certain warrants to
purchase shares of common stock. In the aggregate, Merrill Lynch & Co., Inc.
may be deemed to beneficially own 1,698,200 shares of common stock,
$19,200,000 aggregate principal amount of convertible notes and 172,000
warrants. The convertible notes are convertible, at the rate of 144.93
shares per $1,000 principal amount, at a conversion price of $6.90 per
share. Merrill Lynch & Co., Inc. disclaims beneficial ownership of the
securities of PLD.
(5) This information is as of December 31, 1998 and is based upon Schedule 13G,
filed January 22, 1999, with the Securities and Exchange Commission by
Citigroup Inc., which is located at 153 East 53rd Street New York, NY 10043.
PLD believes that Citigroup Inc.'s holdings of PLD's securities consist of
shares of common stock and warrants to purchase common stock, but the
Schedule 13G does not distinguish between such securities. Citicorp Inc.
disclaims beneficial ownership of the securities of PLD.
(6) The amount shown includes currently exercisable options to purchase 329,999
shares of common stock.
(7) The amount shown consists entirely of currently exercisable options to
purchase PLD common stock.
(8) The amount shown includes currently exercisable options to purchase 306,666
shares of common stock.
(9) The amount shown includes currently exercisable options to purchase 333,333
shares of common stock.
(10) The amount shown includes currently exercisable options to purchase 166,666
shares of common stock.
OTHER INFORMATION
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR ABOUT US THAT DIFFERS FROM OR ADDS TO THE
INFORMATION IN THIS JOINT PROXY STATEMENT/ PROSPECTUS OR IN THE DOCUMENTS THAT
WE PUBLICLY FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF
ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON
IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
JOINT PROXY STATEMENT/PROSPECTUS OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON
TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SPEAKS
ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP serves as Metromedia's and PLD's independent certified public
accountants. A representative of KPMG LLP will be present at each of the
Metromedia annual meeting of stockholders and PLD special meeting of
stockholders to answer questions by stockholders and will have the opportunity
to make a statement if so desired.
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LEGAL MATTERS
The validity of the shares of Metromedia common stock to be issued pursuant
to the terms of the merger agreement will be passed upon by Paul, Weiss,
Rifkind, Wharton & Garrison.
EXPERTS
The consolidated financial statements of Metromedia International Group,
Inc. and subsidiaries as of December 31, 1998 and 1997 and for each of the years
in the three-year period ended December 31, 1998, have been audited by KPMG LLP,
independent certified public accountants, as set forth in their report with
respect to these consolidated financial statements. These consolidated financial
statements are included in Metromedia International Group, Inc.'s annual report
on Form 10-K for the year ended December 31, 1998, and are incorporated by
reference in this joint proxy statement/prospectus in reliance upon the report
given and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of PLD Telekom Inc. and subsidiaries
as of December 31, 1998 and 1997 and for the years then ended, have been audited
by KPMG LLP, independent certified public accountants, as set forth in their
report with respect to these consolidated financial statements. The report of
KPMG LLP covering the December 31, 1998 consolidated financial statements
contains an explanatory paragraph that states that PLD Telekom Inc.'s recurring
losses, working capital deficiency, and lack of sufficient funds to meet its
current debt obligations raise substantial doubt about the entity's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
These consolidated financial statements are included in PLD Telekom Inc.'s
annual report on Form 10-K and Form 10-K/A for the year ended December 31, 1998,
and are incorporated by reference in this joint proxy statement/ prospectus in
reliance upon the report given and upon the authority of said firm as experts in
accounting and auditing.
The consolidated statements of operations, shareholders' equity and cash
flows of PLD Telekom Inc. and subsidiaries for the year ended December 31, 1996,
have been audited by KPMG LLP, chartered accountants, as set forth in their
report with respect to these consolidated financial statements. These
consolidated financial statements are included in PLD Telekom Inc.'s annual
report on Form 10-K and Form 10-K/A for the year ended December 31, 1998, and
are incorporated by reference in this joint proxy statement/prospectus in
reliance upon the report given and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Baltic Communications Limited as of December 31,
1998 and 1997 and for years ended December 31, 1998 and 1997 and the nine months
ended December 31, 1996, have been audited by KPMG, independent auditors, as set
forth in their report with respect to these financial statements. The report of
KPMG covering the December 31, 1998 financial statements contains an explanatory
paragraph that states that Baltic Communications Limited's parent, PLD Telekom
Inc., does not presently have sufficient funds on hand to meet its current debt
obligations. Baltic Communications Limited is a guarantor of such obligations.
PLD Telekom Inc.'s failure to make payments in full when required could result
in a claim being made against Baltic Communications Limited under its guaranty
and a cross-default under and acceleration of other debt obligations for which
Baltic Communications Limited is also a guarantor. These factors raise
substantial doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty. These financial statements are included in PLD
Telekom Inc.'s annual report on Form 10-K and Form 10-K/A for the year ended
December 31, 1998, and are incorporated by reference in this joint proxy
statement/prospectus in reliance upon the report given and upon the authority of
said firm as experts in accounting and auditing.
100
<PAGE>
The consolidated financial statements of NWE Capital (Cyprus) Ltd. and
subsidiaries as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, have been audited by KPMG,
independent auditors, as set forth in their report with respect to these
consolidated financial statements. The report of KPMG covering the December 31,
1998 consolidated financial statements contains an explanatory paragraph that
states that NWE Capital (Cyprus) Ltd.'s parent, PLD Telekom Inc. does not
presently have sufficient funds on hand to meet its current debt obligations.
PLD Telekom Inc.'s failure to make payment in full when required could result in
a cross-default under and acceleration of other debt obligations for which NWE
Capital (Cyprus) Ltd. is a guarantor. These factors raise substantial doubt
about the entity's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty. These consolidated financial statements are
included in PLD Telekom Inc.'s annual report on Form 10-K and Form 10-K/A for
the year ended December 31, 1998, and are incorporated by reference in this
joint proxy statement/prospectus in reliance upon the report given and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of PLD Capital Asset (U.S.) Inc. as of December 31,
1998 and for the year then ended, have been audited by KPMG LLP, independent
certified public accountants, as set forth in their report with respect to these
financial statements. The report of KPMG LLP covering the December 31, 1998
financial statements contains an explanatory paragraph that states that PLD
Capital Asset (U.S.) Inc.'s parent, PLD Telekom Inc., does not presently have
sufficient funds on hand to meet its current debt obligations. PLD Telekom
Inc.'s failure to make payment in full when required could result in a
cross-default under and acceleration of other debt obligations for which PLD
Capital Asset (U.S.) Inc. is a guarantor. These factors raise substantial doubt
about the entity's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
that uncertainty. These financial statements are included in PLD Telekom Inc.'s
annual report on Form 10-K and Form 10-K/A for the year ended December 31, 1998,
and are incorporated by reference in this joint proxy statement/prospectus in
reliance upon the report given and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Technocom Limited and subsidiaries
as of December 31, 1998 and 1997 and for each of the years in the three-year
period ended December 31, 1998, have been audited by KPMG, Chartered
Accountants, as set forth in their report with respect to these consolidated
financial statements. The report of KPMG covering the December 31, 1998
consolidated financial statements contains an explanatory paragraph that states
that Technocom Limited's recurring losses, working capital deficiency and lack
of sufficient funds on hand to meet its current obligations raise substantial
doubt about the entity's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. These consolidated financial
statements are included in PLD Telekom Inc.'s annual report on Form 10-K and
Form 10-K/A for the year ended December 31, 1998, and are incorporated by
reference in this joint proxy statement/prospectus in reliance upon the report
given and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Wireless Technology Corporations
Limited and subsidiary as of December 31, 1998 and 1997 and for each of the
years in the three-year period ended December 31, 1998, have been audited by
KPMG, independent auditors, as set forth in their report with respect to these
consolidated financial statements. The report of KPMG covering the December 31,
1998 consolidated financial statements contains an explanatory paragraph that
states that Wireless Technology Corporation Limited's parent, PLD Telekom Inc.,
does not presently have sufficient funds on hand to meet its current debt
obligations. Wireless Technology Corporations Limited is a guarantor of such
obligations. PLD Telekom Inc.'s failure to make payment in full when required
could result in a claim being made against Wireless Technology Corporations
Limited under its guaranty and a cross-default under and acceleration of other
debt obligations for which Wireless
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Technology Corporations Limited is also a guarantor. These factors raise
substantial doubt about the entity's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. These consolidated financial
statements are included in PLD Telekom Inc.'s annual report on Form 10-K and
Form 10-K/A for the year ended December 31, 1998, and are incorporated by
reference in this joint proxy statement/ prospectus in reliance upon the report
given and upon the authority of said firm as experts in accounting and auditing.
The financial statements of PLD Asset Leasing Limited as of December 31,
1997 and 1996 and for each of the years in the two-year period ended December
31, 1997 have been audited by Moore Stephens, Chartered Accountants, as set
forth in their report with respect to these financial statements. These
financial statements are included in PLD Telekom Inc.'s annual report on Form
10-K and Form 10-K/A for the year ended December 31, 1998, and are incorporated
by reference in this joint proxy statement/prospectus in reliance upon the
report given and upon the authority of said firm as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal at the 2000 annual meeting
of stockholders of Metromedia, and who wishes to have such proposal included in
Metromedia's proxy statement for that meeting, must deliver a copy of such
proposal to Metromedia Fiber Network, One Meadowlands Plaza, East Rutherford,
New Jersey 07073, Attention: Secretary, no later than December 11, 1999;
provided, however, that if the 2000 annual meeting of stockholders is held on a
date more than 30 days before or after the corresponding date of the 1999 annual
meeting of stockholders, any stockholder who wishes to have a proposal included
in Metromedia's proxy statement for that meeting must deliver a copy of the
proposal to Metromedia's Secretary at a reasonable time before the proxy
solicitation is made. Metromedia reserves the right to decline to include in its
proxy statement any stockholder's proposal, which does not comply with the rules
of the Securities and Exchange Commission for inclusion therein.
Any stockholder who wishes to present a proposal at the 1999 annual meeting
of stockholders of PLD which will only be held if the merger with Metromedia is
not consummated, and who wishes to have such proposal included in PLD's proxy
statement for that meeting, must deliver a copy of such proposal to PLD Telekom
Inc., 505 Park Avenue, 21(st) Floor, New York, NY 10022, Attention: Secretary,
no later than September 30, 1999; provided, however, that if the 1999 annual
meeting of stockholders is held on a date more than 30 days before or after the
corresponding date of the 1998 annual meeting of stockholders, any stockholder
who wishes to have a proposal included in PLD's proxy statement for that meeting
must deliver a copy of the proposal to PLD's Secretary at a reasonable time
before the proxy solicitation is made. PLD reserves the right to decline to
include in its proxy statement any stockholder's proposal, which does not comply
with the rules of the Securities and Exchange Commission for inclusion therein.
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Appendix A
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
among
PLD TELEKOM INC.,
METROMEDIA INTERNATIONAL GROUP, INC.
and
MOSCOW COMMUNICATIONS, INC.
Dated as of May 18, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS....................................................................................1
ARTICLE 1 THE MERGER...........................................................2
Section 1.1 The Merger...........................................................2
Section 1.2 Closing..............................................................2
Section 1.3 Effective Time.......................................................2
Section 1.4 The Certificate of Incorporation.....................................2
Section 1.5 The By-Laws..........................................................2
Section 1.6 Directors of Surviving Corporation...................................2
Section 1.7 Officers of Surviving Corporation....................................3
ARTICLE 2 EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES.............................................3
Section 2.1 Effect on Capital Stock..............................................3
Section 2.2 Exchange of Certificates for Shares..................................6
Section 2.3 No Appraisal Rights.................................................10
Section 2.4 Adjustments to Prevent Dilution.....................................10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................10
Section 3.1 Organization and Qualification; Subsidiaries........................10
Section 3.2 Certificate of Incorporation and By-Laws............................11
Section 3.3 Capitalization......................................................11
Section 3.4 Authority...........................................................13
Section 3.5 No Conflict.........................................................13
Section 3.6 Governmental Required Filings and Consents..........................14
Section 3.7 Permits; Compliance with Law........................................14
Section 3.8 Securities and Exchange Commission ("SEC") Filings;
Financial Statements................................................15
Section 3.9 Absence of Certain Changes or Events................................16
Section 3.10 Employee Benefit Plans..............................................17
Section 3.11 Accounting and Tax Matters..........................................17
Section 3.12 Contracts; Debt Instruments.........................................18
Section 3.13 Litigation..........................................................18
Section 3.14 Environmental Matters...............................................18
Section 3.15 Intellectual Property...............................................20
Section 3.16 Taxes...............................................................23
Section 3.17 Non-Competition Agreements..........................................24
Section 3.18 Certain Agreements..................................................24
Section 3.19 Investment Company Act..............................................24
Section 3.20 Opinion of Financial Advisor........................................24
i
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Page
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Section 3.21 Brokers.............................................................24
Section 3.22 Certain Statutes....................................................25
Section 3.23 Information.........................................................25
Section 3.24 Vote Required.......................................................25
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGER SUB.........26
Section 4.1 Organization and Qualification; Subsidiaries........................26
Section 4.2 Certificate of Incorporation and By-Laws............................26
Section 4.3 Capitalization......................................................27
Section 4.4 Authority...........................................................28
Section 4.5 No Conflict.........................................................28
Section 4.6 Governmental Required Filings and Consents..........................29
Section 4.7 Permits; Compliance with Law........................................29
Section 4.8 SEC Filings; Financial Statements...................................30
Section 4.9 Absence of Certain Changes or Events................................31
Section 4.10 Employee Benefit Plans..............................................32
Section 4.11 Accounting and Tax Matters..........................................32
Section 4.12 Contracts; Debt Instruments.........................................32
Section 4.13 Litigation..........................................................33
Section 4.14 Environmental Matters...............................................33
Section 4.15 Intellectual Property...............................................34
Section 4.16 Taxes...............................................................35
Section 4.17 Non-Competition Agreements..........................................36
Section 4.18 Investment Company Act..............................................37
Section 4.19 Opinion of Financial Advisor........................................37
Section 4.20 Brokers.............................................................37
Section 4.21 Certain Statutes....................................................37
Section 4.22 Information.........................................................37
Section 4.23 Vote Required.......................................................38
Section 4.24 Interim Operations of Merger Sub....................................38
ARTICLE 5 COVENANTS...........................................................38
Section 5.1 Conduct of Business of the Company..................................38
Section 5.2 Conduct of Business of the Parent...................................40
Section 5.3 Other Actions.......................................................42
Section 5.4 Updated Letters; Notification of Certain Matters....................42
Section 5.6 Stockholders Meetings...............................................45
Section 5.7 Access to Information; Confidentiality..............................45
Section 5.8 No Solicitation.....................................................46
Section 5.9 Affiliates..........................................................48
Section 5.10 Directors' and Officers' Indemnification and Insurance..............48
Section 5.11 Letters of Accountants..............................................49
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Page
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Section 5.12 Reasonable Best Efforts.............................................49
Section 5.13 Consents; Filings; Further Action...................................50
Section 5.14 Plan of Reorganization..............................................51
Section 5.15 Public Announcements................................................51
Section 5.16 Obligations of Merger Sub...........................................51
Section 5.17 Stock Exchange Listings and De-Listings.............................52
Section 5.18 Expenses............................................................52
Section 5.19 Takeover Statutes...................................................52
Section 5.20 Board of Directors..................................................52
ARTICLE 6 CONDITIONS..........................................................52
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger..........52
(a) Stockholder Approval................................................52
(b) Listing.............................................................53
(c) Governmental Consents...............................................53
(d) Litigation..........................................................53
(e) Registration Statement..............................................53
(f) Accountants' Letters................................................53
Section 6.2 Conditions to Obligations of the Parent and Merger Sub..............53
(a) Representations and Warranties......................................54
(b) Performance of Obligations of the Company...........................54
(c) Material Adverse Effect.............................................54
(d) Consents Under Agreements...........................................54
(e) Affiliate Letters...................................................54
(f) The Travelers Revolving Credit Note and
Warrant Agreement...................................................54
(g) Exchange Offer......................................................54
(h) Technocom Limited Put/Call Agreements...............................55
(i) News Arrangements...................................................55
(j) Certain Payments....................................................55
Section 6.3 Conditions to Obligation of the Company.............................55
(a) Representations and Warranties......................................55
(b) Performance of Obligations of the Parent and
Merger Sub..........................................................56
(c) Tax Opinion.........................................................56
(d) Material Adverse Effect.............................................56
ARTICLE 7 TERMINATION.........................................................56
Section 7.1 Termination.........................................................56
Section 7.2 Effect of Termination...............................................57
Section 7.3 Amendment...........................................................58
Section 7.4 Waiver..............................................................58
Section 7.5 Expenses following Termination......................................58
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Page
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ARTICLE 8 MISCELLANEOUS.......................................................59
Section 8.1 Certain Definitions.................................................59
Section 8.2 Non-Survival of Representations, Warranties and Agreements..........60
Section 8.3 Counterparts........................................................61
Section 8.4 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.......................61
Section 8.5 Notices.............................................................62
Section 8.6 Entire Agreement....................................................62
Section 8.7 No Third Party Beneficiaries........................................63
Section 8.8 Obligations of the Parent and of the Company........................63
Section 8.9 Severability........................................................63
Section 8.10 Interpretation......................................................63
Section 8.11 Assignment..........................................................63
Section 8.12 Specific Performance................................................64
</TABLE>
EXHIBITS
Exhibit A Company Voting Agreements
Exhibit B Travelers Note and Warrant Modification Agreement
Exhibit C Agreement to Exchange and Consent
Exhibit D Technocom Put/Call Arrangement
Exhibit E News Letter Agreement
COMPANY DISCLOSURE LETTER
Section 3.1(b) Company Subsidiaries
Section 3.3(b) Other Stock Option Agreements
Section 3.3(c) Liens on Capital Stock; Material Obligations
Section 3.5(b) Conflicts
Section 3.6 Governmental Consents
Section 3.8(a) Filing Subsidiaries
Section 3.9(e) Certain Changes
Section 3.10(a) Benefit Plans
Section 3.12 Material Contracts
Section 3.14 Environmental Matters
Section 3.15(a)(i) Intellectual Property
Section 3.15(a)(ii) Licenses
Section 3.15(a)(iii) Proposed Intellectual Property Agreements
Section 3.16(a) Taxes
iv
<PAGE>
Page
----
Section 3.16(b) Tax Extensions
Section 3.16(c) Tax Claims
Section 3.17 Non-Competition Agreements
Section 3.18 Certain Agreements
Section 5.1 Conduct of Business
Section 5.1(f) Asset Transactions
Section 6.2(j) Waivers
PARENT DISCLOSURE LETTER
Section 4.1(a) Organization
Section 4.1(b) Parent Subsidiaries
Section 4.3(b) Other Stock Option Agreements
Section 4.3(c) Liens on Capital Stock; Material Obligations
Section 4.5(a)(i) Violations
Section 4.5(b) Conflicts
Section 4.6 Governmental Consents
Section 4.7 Permits
Section 4.10(a) Benefit Plans
Section 4.12 Material Contracts; Changes in Indebtedness
Section 4.14 Environmental Matters
Section 4.15(a)(i) Intellectual Property
Section 4.15(a)(ii) Licenses
Section 4.15(a)(iii) Proposed Intellectual Property Agreements
Section 4.16(a) Taxes
Section 4.16(c) Tax Extensions
Section 4.16(d) Tax Claims
Section 4.17 Non-Competition Agreements
Section 5.2 Conduct of Business
Section 5.2(d) Asset Transactions
Section 5.5 Terms of New Notes; Terms of Exchange Offer
v
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
affiliate................................................................ 8.1(a)
Affiliate Letters........................................................ 5.9
Agreement................................................................ Title
Average Parent Stock Price............................................... 2.1(a)(i)
Benefit Plans............................................................ 3.10(a)
Blue Sky Laws............................................................ 3.6
Bridge Loan Agreement.................................................... 5.1(g)
business day............................................................. 8.1(b)
Certificate.............................................................. 2.1(a)(i)
Certificate of Merger.................................................... 1.3
Claims................................................................... 3.13
Closing.................................................................. 1.2
Closing Date............................................................. 1.2
Code..................................................................... Recitals
Company.................................................................. Title
Company Benefit Plans.................................................... 3.10(a)
Company Charter Documents................................................ 3.2
Company Common Stock..................................................... 2.1(a)(i)
Company Disclosure Letter................................................ 3.1(b)
Company Financial Advisor................................................ 3.20
Company Governmental Consents............................................ 3.6
Company Permits.......................................................... 3.7
Company Preferred Shares................................................. 2.1(a)(ii)
Company Preferred Stock.................................................. 3.3(a)
Company Required Consents................................................ 3.5(b)
Company SEC Reports...................................................... 3.8(a)
Company Senior Notes..................................................... 5.5(a)
Company Series II Preferred Stock........................................ 2.1(a)(ii)
Company Series III Preferred Stock....................................... 2.1(a)(ii)
Company Share............................................................ 2.1(a)
Company Shares........................................................... 2.1(a)
Company Stock Option..................................................... 2.1(b)
Company Stockholders Meeting............................................. 5.5(a)
Company Subsidiaries..................................................... 3.1(a)
Company Voting Agreement................................................. Recitals
Company Warrant.......................................................... 2.1(b)
Company's Option Plan.................................................... 3.3(b)
Confidentiality Agreement................................................ 5.7(b)
Contracts................................................................ 3.5(a)(iii)
control.................................................................. 8.1(a)
controlled by............................................................ 8.1(a)
vi
<PAGE>
Term Section
- ---- -------
controlling.............................................................. 8.1(a)
Convertible Notes........................................................ 2.1(b)
Effective Time........................................................... 1.3
Environment.............................................................. 3.14
Environmental Claims..................................................... 3.14
ERISA.................................................................... 3.10(a)
Excess Parent Shares..................................................... 2.2(d)(i)
Exchange Act............................................................. 3.6
Exchange Agent........................................................... 2.2(a)(i)
Exchange Offer........................................................... 5.5(a)
Exchange Offer Registration Statement.................................... 5.5(a)
Exchange Ratio .......................................................... 2.1(a)(i)
Exchange Trust........................................................... 2.2(d)(i)
Excluded Company Shares.................................................. 2.1(a)(i)
Expenses................................................................. 7.5(a)
FCPA..................................................................... 3.7
GAAP..................................................................... 3.8(b)
GCL...................................................................... Recitals
Governmental Entity...................................................... 3.6
group.................................................................... 8.1(d)
Hazardous Substance...................................................... 3.14
HSR Act.................................................................. 3.6
including................................................................ 8.1(c)
Indemnified Parties...................................................... 5.10(a)
Intellectual Property.................................................... 3.15(a)(ii)
Investment Company Act................................................... 3.19
IP Licenses.............................................................. 3.15(a)(ii)
Law...................................................................... 3.5(a)(ii)
Liens.................................................................... 3.3(c)
Material Adverse Effect on the Company................................... 3.1(a)
Material Adverse Effect on the Parent.................................... 4.1(a)
Merger................................................................... Recitals
Merger Consideration..................................................... 2.1(a)(i)
Merger Sub............................................................... Title
Merging Parties.......................................................... 3.14
MIG Form 10K............................................................. 4.2
New Parent Notes......................................................... 5.5(a)
News..................................................................... 6.2(i)
News Notes............................................................... 3.3(b)
PLD Form 10K............................................................. 3.2
Parent................................................................... Title
Parent Benefit Plans..................................................... 4.10(a)
Parent Charter Documents................................................. 4.2
vii
<PAGE>
Term Section
- ---- -------
Parent Common Stock...................................................... 2.1(a)(i)
Parent Disclosure Letter................................................. 4.1(b)
Parent Financial Advisor................................................. 4.18
Parent Governmental Consents............................................. 4.6
Parent Material Contract................................................. 4.12
Parent Permits........................................................... 4.7
Parent Preferred Stock................................................... 4.3(a)
Parent SEC Reports....................................................... 4.8(a)
Parent Stock Options..................................................... 4.3(b)
Parent Stockholders Meeting.............................................. 5.5(a)
Parent Subsidiaries...................................................... 4.1(a)
Parent's Option Plan..................................................... 4.3(b)
Permits.................................................................. 3.14
person................................................................... 8.1(d)
Proposed Intellectual Property Agreements................................ 3.15(a)(iii)
Proxy Materials.......................................................... 5.5(a)
Proxy Statement.......................................................... 5.5(a)
Qualified Transaction Proposal........................................... 5.8(a)
Redemption Payment....................................................... 2.1(a)(ii)
Registration Statement................................................... 5.5(a)
Registration Statement Effective Date.................................... 5.5(a)
Release.................................................................. 3.14
Representatives.......................................................... 5.7(a)
Requisite Company Vote................................................... 3.4(a)
Requisite Parent Vote.................................................... 4.4
Safety and Environmental Laws............................................ 3.14
SEC...................................................................... 3.8
Securities Act........................................................... 3.6
7 1/4% Preferred Stock...................................................... 4.3(a)
Shareholders............................................................. Recitals
Software................................................................. 3.15(a)(ii)
Sub Common Stock......................................................... 4.3(d)
subsidiary............................................................... 8.1(e)
subsidiaries............................................................. 8.1(e)
Superior Acquisition Proposal............................................ 5.8(b)
Surviving By-Laws........................................................ 1.5
Surviving Charter........................................................ 1.4
Surviving Corporation.................................................... 1.1
Systems.................................................................. 3.15(g)
Takeover Statute......................................................... 3.22
Taxes.................................................................... 3.16
Technology............................................................... 3.15(a)(ii)
Terminating Company Breach............................................... 7.1(f)
viii
<PAGE>
Term Section
- ---- -------
Terminating Parent Breach................................................ 7.1(g)
Termination Amount....................................................... 7.5(b)
Termination Notice....................................................... 2.1(a)(i)(D)
Topped-Up Exchange Ratio................................................. 2.1(a)(i)(D)
Top-Up Request Notice.................................................... 2.1(a)(i)(D)
Transaction Proposals.................................................... 5.8(a)
under common control with................................................ 8.1(a)
Year 2000 Compliant...................................................... 3.15(g)
</TABLE>
ix
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 18,
1999, among PLD Telekom Inc., a Delaware corporation (the "COMPANY"), Metromedia
International Group, Inc., a Delaware corporation (the "PARENT"), and Moscow
Communications, Inc., a Delaware corporation and a wholly owned subsidiary of
the Parent ("MERGER SUB").
RECITALS
WHEREAS, the respective boards of directors of each of the Parent,
Merger Sub and the Company have determined that it is in the best interests of
their respective stockholders to combine the respective businesses of the Parent
and the Company, and consequently have approved the merger of Merger Sub with
and into the Company (the "MERGER") and approved and adopted the Merger, in
accordance with the General Corporation Law of the State of Delaware (the "GCL")
and upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, it is intended that, for federal income tax purposes, the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "CODE"), and the rules and
regulations promulgated under the Code;
WHEREAS, concurrently with the execution of this Agreement, as a
condition to the willingness of the Parent to enter into this Agreement, (i)
certain holders (the "SHAREHOLDERS") of Company Shares (as defined below) are
entering into the Voting Agreement with the Parent, a copy of which is attached
to this Agreement as Exhibit A (the "COMPANY VOTING AGREEMENT"), providing for,
among other things, the agreement of the Shareholders to vote their respective
Company Shares in favor of approval and adoption of this Agreement and the
Merger at the Company Shareholders Meeting (as defined below);
WHEREAS, certain terms used in this Agreement which are not capitalized
have the meanings specified in Section 8.1; and
WHEREAS, the Company, the Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time, Merger Sub shall be merged
with and into the Company and the separate corporate existence of Merger Sub
shall cease. The Company shall be the surviving corporation in the Merger
(sometimes referred to as the "SURVIVING CORPORATION") and shall continue to be
governed by the laws of the State of Delaware, and the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger shall have the
effects set forth in Section 259 of the GCL.
SECTION 1.2 CLOSING. The closing of the Merger (the "CLOSING") shall
take place (a) at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York at 10:00 A.M. on the business day on which the last to be
fulfilled or waived of the conditions set forth in Article 6 (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) shall be satisfied or waived
in accordance with this Agreement or (b) at such other place and time and/or on
such other date as the Company and the Parent may agree in writing (the "CLOSING
DATE").
SECTION 1.3 EFFECTIVE TIME. As soon as practicable following the
Closing, the Company and the Parent will cause a Certificate of Merger (the
"CERTIFICATE OF MERGER") to be signed, acknowledged and delivered for filing
with the Secretary of the State of Delaware as provided in Section 251 of the
GCL. The Merger shall become effective at the time when a Certificate of Merger
has been duly filed with the Secretary of State of the State of Delaware or such
other time as shall be agreed upon by the parties and set forth in the
Certificate of Merger and in accordance with the GCL (the "EFFECTIVE TIME").
SECTION 1.4 THE CERTIFICATE OF INCORPORATION. The certificate of
incorporation of Merger Sub in effect immediately prior to the Effective Time
shall, from and after the Effective Time, be the certificate of incorporation of
the Surviving Corporation (the "SURVIVING CHARTER"), until duly amended as
provided in the Surviving Charter or by applicable law.
<PAGE>
3
SECTION 1.5 THE BY-LAWS. The by-laws of Merger Sub in effect at the
Effective Time shall, from and after the Effective time, be the by-laws of the
Surviving Corporation (the "SURVIVING BY-LAWS"), until duly amended as provided
in the Surviving By-Laws or by applicable law.
SECTION 1.6 DIRECTORS OF SURVIVING CORPORATION. The directors of Merger
Sub at the Effective Time shall, from and after the Effective Time, be the
directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Charter and the Surviving By-Laws.
SECTION 1.7 OFFICERS OF SURVIVING CORPORATION. The officers of the
Company at the Effective Time shall, from and after the Effective Time, be the
officers of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Charter and the Surviving By-Laws.
ARTICLE 2
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, as a result
of the Merger and without any action on the part of the holder of any capital
stock of the Company:
(a) MERGER CONSIDERATION.
(i) Each share (each a "COMPANY SHARE" and together
the "COMPANY SHARES") of the common stock, par value $.01 per share, of the
Company (the "COMPANY COMMON STOCK") issued and outstanding immediately prior to
the Effective Time (other than Company Shares that are owned by the Parent,
Merger Sub or any other Parent Subsidiary or Company Shares that are owned by
the Company or any Company Subsidiary and in each case not held on behalf of
third parties (collectively, "EXCLUDED COMPANY SHARES")) shall be converted by
virtue of the Merger and without any action on the part of the holder thereof
into the right to receive and become exchangeable for a number of shares of
common stock, par value $1.00 per share, of the Parent ("PARENT COMMON STOCK"),
equal to the "EXCHANGE RATIO" determined in the manner set forth below:
(A) If the Average Parent Stock Price (as
defined below) is less than $6.25 and equal to or greater than $5.25,
then the
<PAGE>
4
"Exchange Ratio" shall be equal to the quotient (rounded to four
decimal points) obtained by dividing (I) $3.50 by (II) the Average
Parent Stock Price;
(B) If the Average Parent Stock Price is
equal to or greater than $6.25 and less than or equal to $8.00, then
the "Exchange Ratio" shall be .56;
(C) If the Average Parent Stock Price is
greater than $8.00, then the "Exchange Ratio" shall be equal to the
quotient (rounded to four decimal points) obtained by dividing (x)
$4.48 by (y) the Average Parent Stock Price; or
(D) If the Average Parent Stock Price is
less than $5.25, then the "Exchange Ratio" shall be .6667; PROVIDED,
THAT the Company shall have the right to give written notice to Parent
(the "TOP-UP REQUEST NOTICE") requesting that the Exchange Ratio be
increased to equal the quotient (rounded to four decimal points)
obtained by dividing (x) $3.50 by (y) the Average Parent Stock Price
(the "TOPPED-UP EXCHANGE RATIO"); PROVIDED FURTHER THAT, if the Average
Parent Stock Price is less than $4.00, then the Company also has the
right to give a Termination Notice (as defined below) to Parent in the
manner provided below that states that the Company elects to terminate
this Agreement in accordance with Section 7.1(h). The Top-Up Request
Notice shall be delivered to and received by Parent no later than 2:00
p.m. on the second Business Day prior to the Company Stockholders
Meeting. Parent, may, in its sole discretion, agree or not agree to
increase the Exchange Ratio to the Topped-Up Exchange Ratio. Within 24
hours of receiving the Top-Up Request Notice, Parent shall provide the
Company written notice of its determination with respect thereto. If
Parent agrees to increase the Exchange Ratio to the Topped-Up Exchange
Ratio, the Exchange Ratio shall be equal to the Topped-Up Exchange
Ratio for purposes of this Agreement. If Parent does not agree in its
sole discretion that the Exchange Ratio shall be increased to be the
Topped-Up Exchange Ratio (which disagreement shall be deemed to have
occurred if Parent does not respond to the Top-Up Request Notice within
the 24 hour period specified above), the Company shall either (x) agree
that the Exchange Ratio shall be .6667 or (y) give written notice (the
"TERMINATION NOTICE") to the Parent that the Company elects to
terminate this Agreement. Any Termination Notice shall be delivered to
Parent no later than 5:00 p.m. on the Business Day prior to the Company
Stockholders Meeting; PROVIDED, THAT if the Termination Notice has not
been received by Parent by such time, the Company shall be deemed to
have accepted .6667 as the Exchange Ratio and the Company shall have no
further right to terminate this Agreement pursuant to this Section
2.1(a)(i)(D) or Section 7.1(h).
<PAGE>
5
For purposes of this Agreement, the "AVERAGE PARENT STOCK PRICE" means
the average of the daily closing prices of the Parent Common Stock as reported
on the American Stock Exchange Composite Transactions Tape (as reported by THE
WALL STREET JOURNAL (national edition)) for the twenty (20) consecutive trading
days ending on the third business day (including such third business day in the
determination) immediately prior to the Company Stockholders Meeting.
The number of shares of Parent Common Stock issuable pursuant to this
Section 2.1(a)(i) shall be subject to adjustment as provided in Section 2.4 and
such shares, together with cash in lieu of fractional shares of Parent Common
Stock, if any, payable pursuant to Section 2.2(d) shall collectively be referred
to as the "MERGER CONSIDERATION." At the Effective Time, all Company Shares
shall no longer be outstanding, shall be canceled and retired and shall cease to
exist, and each certificate (a "CERTIFICATE") formerly representing any Company
Shares (other than Excluded Company Shares) shall thereafter represent only the
right to receive the Merger Consideration and any distribution or dividend under
Section 2.2(b).
(ii) Each share of the Series II preferred stock, par value
$.01 per share, of the Company (the "COMPANY SERIES II PREFERRED STOCK") and
each share of the Series III Preferred Stock, par value $.01 per share, of the
Company ("the COMPANY SERIES III PREFERRED STOCK" and collectively, with the
Company Series II Preferred Stock, the "COMPANY PREFERRED SHARES") issued and
outstanding immediately prior to the Effective Time shall at the Effective Time
be redeemed as provided in the Company Charter Documents (as defined below) at a
redemption price of Cdn $1.00 per share (the "REDEMPTION PAYMENT"). At the
Effective Time, all Company Preferred Shares shall no longer be outstanding,
shall be canceled and retired and shall cease to exist, and each certificate
formerly representing any Company Preferred Shares shall thereafter represent
only the right to receive the Redemption Payment.
(b) STOCK OPTIONS, WARRANTS, CONVERTIBLE NOTES, ETC. At the Effective
Time, each outstanding option to purchase shares of Company Common Stock (a
"COMPANY STOCK OPTION") issued pursuant to the Company's Option Plan (as defined
below) and each outstanding warrant to acquire shares of Company Common Stock (a
"COMPANY WARRANT") issued pursuant to a warrant agreement or otherwise appearing
on the Company's Schedule of Warrants, Options and Conversions dated as of April
30, 1999, whether vested or unvested, shall be assumed by Parent and any
remaining outstanding 9% Convertible Subordinated Notes due 2006 (the
"CONVERTIBLE NOTES") that have not been tendered in the Exchange Offer (as
defined below) shall be assumed by the Parent. Each Company Stock Option and
Company Warrant shall be deemed, without further action on the part of Parent or
the holders of such Company Stock Options and Company Warrants, to constitute an
option or a warrant, as the case may be, to acquire, on the same terms and
conditions as were applicable under such
<PAGE>
6
Company Stock Option or Company Warrant (except to the extent that such terms
and conditions may be altered in accordance with their terms as a result of the
transactions contemplated hereby), and the Convertible Notes after the Effective
Time shall be convertible for, shares of Parent Common Stock in such amount and
at the exercise price provided below:
(i) the number of shares of Parent Common Stock to be
subject to the option, warrant or Convertible Note (as adjusted) shall be equal
to the product of (x) the number of shares of Company Common Stock subject to
the original option, warrant or Convertible Note and (y) the Exchange Ratio
(rounded to four decimal points);
(ii) the exercise price per share of Parent Common
Stock under the option, warrant or Convertible Note (as adjusted) shall be equal
to (x) the exercise price per share of Company Common Stock under the original
option, warrant or Convertible Note divided by (y) the Exchange Ratio (rounded
to the nearest $0.01); and
(iii) fractional shares of any assumed Company Stock
Options or Company Warrants resulting from the adjustments set forth in this
Section 2.1(b) shall be eliminated.
In the case of any option to which section 421 of the Code applies by
reason of its qualification under any of sections 422-424 of the Code, the
exercise price, the number of shares purchasable pursuant to such option and the
terms and conditions of exercise of such option shall be effected in a manner
consistent with the requirements of section 424(a) of the Code.
(c) CANCELLATION OF SHARES. Each Excluded Company Share issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder of such Excluded Company
Share, no longer be outstanding, shall be canceled and retired without payment
of any consideration therefor and shall cease to exist.
(d) MERGER SUB. At the Effective Time, each share of common
stock, par value $.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock, par value $.01 per
share, of the Surviving Corporation, and the Surviving Corporation shall be a
wholly owned subsidiary of the Parent.
<PAGE>
7
SECTION 2.2 EXCHANGE OF CERTIFICATES FOR SHARES.
(a) EXCHANGE PROCEDURES.
(i) LETTER OF TRANSMITTAL. Promptly after the
Effective Time, the Surviving Corporation shall cause an exchange agent selected
by the Parent and reasonably acceptable to the Company (the "EXCHANGE AGENT") to
mail to each holder of record of a Certificate (other than Certificates in
respect of Excluded Company Shares) (A) a letter of transmittal specifying that
delivery shall be effected, and that risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates (or affidavits of loss in
lieu of Certificates) to the Exchange Agent, in a form and with other provisions
reasonably acceptable to both the Parent and the Company, and (B) instructions
for exchanging the Certificates for (1) certificates representing shares of
Parent Common Stock, and (2) cash in lieu of fractional shares.
(ii) SURRENDER OF CERTIFICATES. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, the holder of that Certificate shall be entitled to
receive in exchange (A) a certificate representing that number of whole shares
of Parent Common Stock that the holder is entitled to receive under this Article
2, (B) a check in the amount (after giving effect to any required tax
withholding) of any cash in lieu of fractional shares that such holder has the
right to receive under the provisions of this Article 2, and the Certificate so
surrendered shall immediately be canceled. No interest will be paid or accrued
on any amount payable upon due surrender of the Certificates.
(iii) UNREGISTERED TRANSFEREES. In the event of a
transfer of ownership of Company Shares that is not registered in the transfer
records of the Company, a certificate representing the proper number of shares
of Parent Common Stock, together with a check for any cash to be paid upon the
surrender of the Certificate and any other dividends or distributions in respect
of those shares, may be issued or paid to such a transferee if the Certificate
formerly representing such Company Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect the transfer and to
evidence that any applicable stock transfer taxes have been paid. If any
certificate for shares of Parent Common Stock is to be issued in a name other
than that in which the surrendered Certificate is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of certificates
for shares of Parent Common Stock in a name other than that of the registered
holder of the surrendered Certificate, or shall establish to the satisfaction of
the Parent or the Exchange Agent that such tax has been paid or is not
applicable.
<PAGE>
8
(iv) NO OTHER RIGHTS. Until surrendered as
contemplated by this Section 2.2(a), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive the
certificate representing shares of Parent Common Stock and cash in lieu of any
fractional shares of Parent Common Stock, as contemplated by this Section
2.2(a). All shares of Parent Common Stock, together with any cash paid under
Section 2.2(b) or Section 2.2(d) issued upon the surrender for or exchange of
Certificates in accordance with the terms of this Agreement, shall be deemed to
have been issued in full satisfaction of all rights pertaining to the Company
Shares formerly represented by such Certificates.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Whenever
a dividend or other distribution is declared by the Parent in respect of Parent
Common Stock and the record date for that dividend or other distribution is at
or after the Effective Time, that declaration shall include dividends or other
distributions in respect of all shares issuable under this Agreement. No
dividends or other distributions in respect of the Parent Common Stock shall be
paid to any holder of any unsurrendered Certificate until that Certificate is
surrendered for exchange in accordance with this Article 2. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be issued or paid to the holder of the certificates representing whole
shares of Parent Common Stock issued in exchange therefor, without interest, (i)
at the time of such surrender, the dividends or other distributions with a
record date after the Effective Time and a payment date on or prior to the date
of issuance of such whole shares of Parent Common Stock and not previously paid,
and (ii) at the appropriate payment date, the dividends or other distributions
payable with respect to such whole shares of Parent Common Stock with a record
date after the Effective Time but with a payment date subsequent to surrender.
For purposes of dividends or other distributions in respect of shares of Parent
Common Stock, all shares of Parent Common Stock to be issued pursuant to the
Merger shall be deemed issued and outstanding as of the Effective Time.
(c) NO FURTHER TRANSFERS. After the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers on the records of the Company of the Company Shares or
Company Preferred Shares that were outstanding immediately prior to the
Effective Time.
(d) FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle its owner to
vote, to receive dividends or to any other rights of a stockholder of the
Parent. Notwithstanding any other provision of this Agreement, each holder of
Company
<PAGE>
9
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock (after taking into
account all Certificates delivered by such holder) shall receive from the
Exchange Agent, in accordance with the provisions of this Article 2, a cash
payment in lieu of such fractional shares of Parent Common Stock, as applicable,
representing such holder's proportionate interest, if any, in the net proceeds
from the sale by the Exchange Agent in one or more transactions (which sale
transactions shall be made at such times, in such manner and on such terms as
the Exchange Agent shall determine in its reasonable discretion) on behalf of
all such holders of the aggregate of the fractional shares of Parent Common
Stock, as applicable, which would otherwise have been issued (the "EXCESS PARENT
SHARES"). The sale of the Excess Parent Shares by the Exchange Agent shall be
executed on the American Stock Exchange and shall be executed in round lots to
the extent practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Certificates, the Exchange Agent will hold such
proceeds in trust (the "EXCHANGE TRUST") for the holders of Certificates. All
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
this sale of the Excess Parent Shares shall be paid out of the Exchange Trust
prior to the distribution of proceeds therefrom to holders of Certificates. As
soon as practicable after the determination of the amount of cash, if any, to be
paid to holders of Certificates in lieu of any fractional shares of Parent
Common Stock, the Exchange Agent shall make available such amounts to such
holders of Certificates without interest. The Exchange Agent shall determine the
portion of such net proceeds to which each holder of Company Shares shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds by a
fraction the numerator of which is the amount of the fractional share interest
to which such holder of Company Shares is entitled (after taking into account
all Company Shares then held by such holder) and the denominator of which is the
aggregate amount of fractional share interests to which all holders of
Certificates representing Company Shares are entitled.
(ii) Notwithstanding the provisions of subsection (i)
of this Section 2.2(d), the Parent may elect, at its option exercised prior to
the Effective Time and in lieu of the issuance and sale of Excess Shares and the
making of the payments contemplated in such subsection, to pay to the Exchange
Agent an amount in cash sufficient for the Exchange Agent to pay each holder of
Company Shares an amount in cash equal to the product obtained by multiplying
(A) the fractional share interest to which such holder would otherwise be
entitled (after taking into account all Company Shares held at the Effective
Time by such holder) by (B) the closing price for a share of Parent Common Stock
on the American Stock Exchange on the first business day immediately following
the Effective Time and, in such case, the Exchange Fund, all references in this
Agreement to the cash proceeds of the sale of the Excess Shares and similar
references shall be deemed to mean and refer to the payments calculated as set
forth in this Section 2.2(d)(ii).
<PAGE>
10
(e) TERMINATION OF EXCHANGE PERIOD; UNCLAIMED STOCK. Any
shares of Parent Common Stock and any portion of the Exchange Fund or of
dividends or other distributions with respect to the Parent Common Stock
deposited by the Parent with the Exchange Agent (including the proceeds of any
investments of those funds) that remains unclaimed by the stockholders of the
Company 180 days after the Effective Time shall be paid to the Parent. Any
former stockholders of the Company who have not theretofore complied with this
Article 2 shall thereafter look only to the Parent for payment of their Merger
Consideration and any dividends and other distributions issuable or payable
pursuant to Section 2.1 and Section 2.2(b) upon due surrender of their
Certificates (or affidavits of loss in lieu of Certificates), in each case,
without any interest. Notwithstanding the foregoing, none of the Parent, the
Surviving Corporation, the Exchange Agent or any other person shall be liable to
any former holder of Company Shares for any amount properly delivered to a
public official under applicable abandoned property, escheat or similar laws. If
any Certificates shall not have been surrendered prior to five years after the
Effective Time (or immediately prior to such earlier date on which any Merger
Consideration in respect of such Certificate would otherwise escheat to or
become the property of any Governmental Entity), any amounts payable in respect
of such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interests
of any person previously entitled to those amounts.
(f) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and the posting by such person of a bond in the form
customarily required by the Parent as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock, any unpaid dividends or other distributions and any cash payment
in lieu of a fractional share in respect of that Certificate issuable or payable
under this Article 2 upon due surrender of and deliverable in respect of the
Company Shares represented by such Certificate under this Agreement, in each
case, without interest.
SECTION 2.3 NO APPRAISAL RIGHTS. In accordance with Section 262(b)(1)
of the GCL, no appraisal rights shall be available to holders of Company Shares
in connection with the Merger.
SECTION 2.4 ADJUSTMENTS TO PREVENT DILUTION. In the event that prior to
the Effective Time there is a change in the number of Company Shares or shares
of Parent Common Stock or securities convertible or exchangeable into or
exercisable for Company Shares or shares of Parent Common Stock issued and
outstanding as a result of a distribution, reclassification, stock split
(including a reverse stock split), stock
<PAGE>
11
dividend or distribution or other similar transaction, the Exchange Ratio shall
be equitably adjusted to eliminate the effects of that event.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and Merger Sub that:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Company and each subsidiary of the Company
other than dormant subsidiaries that are immaterial to the business and
operations of the Company (collectively, the "COMPANY SUBSIDIARIES") has been
duly organized and is validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, as the case may be, and
has the requisite power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as it is
now being conducted. Each of the Company and each Company Subsidiary is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Company.
For purposes of this Agreement, "MATERIAL ADVERSE EFFECT ON THE COMPANY" means
any change in or effect on the business, assets, properties, results of
operations or financial condition of the Company or any Company Subsidiaries
that is or could reasonably be expected to be materially adverse to the Company
and the Company Subsidiaries, taken as a whole, or that could reasonably be
expected to materially impair the ability of the Company to perform its
obligations under this Agreement or consummate the Merger and the other
transactions contemplated hereby.
(b) Section 3.1(b) of the Disclosure Letter delivered to the
Parent and Merger Sub by the Company prior to the execution of this Agreement
(the "COMPANY DISCLOSURE LETTER") sets forth a complete and correct list of all
of the Company Subsidiaries. Except as set forth in Section 3.1(b) of the
Company Disclosure Letter, neither the Company nor any Company Subsidiary holds
any interest in any person other than the Company Subsidiaries so listed.
SECTION 3.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The copies of the
Company's certificate of incorporation and by-laws, each as amended through
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12
the date of this Agreement (collectively, the "COMPANY CHARTER DOCUMENTS") that
are incorporated by reference in, as exhibits to, the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, as amended by its filing on Form
10K/A (the "PLD FORM 10K"), and all comparable corporate organizational
documents of the Company Subsidiaries made available to the Parent by the
Company are complete and correct copies of those documents. Except as set forth
in Section 3.2 of the Company Disclosure Letter, the Company Charter Documents
and all comparable corporate organizational documents of the Company
Subsidiaries are in full force and effect. The Company is not in violation of
any of the provisions of the Company Charter Documents.
SECTION 3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
(i) 100,000,000 shares of Company Common Stock and (ii) 100,000,000 shares of
Preferred Stock, par value $.01 per share (the "COMPANY PREFERRED STOCK"). As of
April 30, 1999, (i) 37,846,789 shares of Company Common Stock were issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and not subject to preemptive rights, (ii) 405,217 shares of Series II Preferred
Stock and 41,667 shares of Series III Preferred Stock were issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and not subject to preemptive rights, (iii) 4,550,333, 5,453,800 and 9,910,462
shares of Company Common Stock were reserved for issuance upon exercise of
outstanding Company Stock Options, Company Warrants or convertible debentures or
notes, respectively.
(b) Between April 30, 1999 and the date of this Agreement, no
Company Stock Options have been granted by the Company under the PLD Equity
Compensation Plan (the "COMPANY'S OPTION PLAN"). Except for (i) Company Stock
Options to purchase an aggregate of 4,550,333 shares of Company Common Stock
outstanding or available for grant under the Company's Option Plan, or under
agreements or arrangements set forth in Section 3.3(b) of the Company Disclosure
Letter, (ii) Company Warrants to purchase an aggregate of 5,453,800 shares of
Company Common Stock and (iii) $26,500,000 principal amount of the Convertible
Notes and $9,550,000 principal amount of outstanding obligations in respect of
guarantees or loans advanced by News America Incorporated ("NEWS NOTES")
convertible for 3,840,580 and 6,069,882 shares of Company Common Stock,
respectively, there are no options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights or other rights,
agreements, arrangements or commitments of any character to which the Company is
a party or by which the Company is bound relating to the issued or unissued
capital stock of the Company or any Company Subsidiary or obligating the Company
or any Company Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any Company Subsidiary. Section 3.3(b)
of the Company Disclosure Letter sets forth,
<PAGE>
13
as of the date of this Agreement, (w) the persons to whom Company Stock Options
have been granted or Company Warrants, Convertible Notes or News Notes have been
issued, (x) the aggregate principal amount of Convertible Notes and News Notes
outstanding and the applicable conversion prices thereof, (y) the exercise
prices for the Company Stock Options and Company Warrants held by each such
person and (z) whether such Company Stock Options are subject to vesting and, if
subject to vesting, the dates on which each of those Company Stock Options vest.
(c) All shares of Company Common Stock subject to issuance,
upon issuance prior to the Effective Time on the terms and conditions specified
in the instruments under which they are issuable, will be duly authorized,
validly issued, fully paid, nonassessable and will not be subject to preemptive
rights. Except as set forth in Section 3.3(c) of the Company Disclosure Letter,
there are no outstanding contractual obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or any capital stock of any Company Subsidiary. Except as set forth
in Section 3.3(c) of the Company Disclosure Letter, each outstanding share of
capital stock of each Company Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights and each such
share owned by the Company or a Company Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Company Subsidiary's
voting rights, charges and other encumbrances of any nature whatsoever
(collectively, "LIENS"). Except as set forth in Section 3.3 of the Company
Disclosure Letter there are no outstanding material contractual obligations of
the Company or any Company Subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Company Subsidiary that is not wholly owned by the Company or in any other
person.
SECTION 3.4 AUTHORITY.
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
under this Agreement and to consummate the Merger and the other transactions
contemplated by this Agreement to be consummated by the Company. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of such 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 such
transactions, other than, with respect to the Merger, the adoption of this
Agreement by stockholders of the Company representing a majority of the Company
Common Stock entitled to vote hereon (the "REQUISITE COMPANY VOTE"). This
Agreement has been duly authorized and validly executed and delivered by the
Company and constitutes a legal, valid and binding
<PAGE>
14
obligation of the Company, enforceable against the Company in accordance with
its terms.
(b) The Board of Directors of the Company (i) has unanimously
adopted the plan of merger set forth in this Agreement and approved this
Agreement and the other transactions contemplated by this Agreement and (ii) has
declared that the Merger and this Agreement and the other transactions
contemplated by this Agreement are advisable.
SECTION 3.5 NO CONFLICT.
(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 any provision of any
Company Charter Document or any equivalent organizational documents of
any Company Subsidiary;
(ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.5(b) of the
Company Disclosure Letter have been obtained and all filings and
obligations described in Section 3.5(b) of the Company Disclosure
Letter have been made, conflict with or violate any foreign or domestic
law, statute, ordinance, rule, regulation, order, judgment or decree
("LAW") applicable to the Company or any Company Subsidiary or by which
any property or asset of the Company or any Company Subsidiary is or
may be bound or affected; or
(iii) except as set forth in Section 3.5(b) of the
Company Disclosure Letter, result in any breach of or constitute a
default (or an event which with or without notice or lapse of time or
both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any property or asset of the Company or any
Company Subsidiary under any note, bond, mortgage, indenture, contract,
agreement, commitment, lease, license, permit, franchise or other
instrument or obligation (collectively, "CONTRACTS") to which the
Company or any Company Subsidiary is a party or by which any of them or
their assets or properties is or may be bound or affected, except for
such breaches, defaults or other occurrences which, individually or in
the aggregate, have not resulted and could not reasonably be expected
to result in a Material Adverse Effect on the Company.
(b) Section 3.5(b) of the Company Disclosure Letter sets forth
a correct and complete list of all Contracts to which the Company or any
<PAGE>
15
Company Subsidiaries are a party or by which they or their assets or properties
is or may be bound or affected under which consents or waivers are or may be
required prior to consummation of the transactions contemplated by this
Agreement (collectively, the "COMPANY REQUIRED CONSENTS").
SECTION 3.6 GOVERNMENTAL REQUIRED FILINGS AND CONSENTS. 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 domestic or
foreign national, federal, state, provincial or local governmental, regulatory
or administrative authority, agency, commission, court, tribunal or arbitral
body or self-regulated entity (each, a "GOVERNMENTAL ENTITY"), except (i) for
those consents or approvals set forth in Section 3.6 of the Company Disclosure
Letter (the "COMPANY GOVERNMENTAL CONSENTS"), (ii) for applicable requirements
of the Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "EXCHANGE ACT"), and the Securities Act
of 1933, as amended (together with the rules and regulations promulgated
thereunder, the "SECURITIES ACT"), (iii) applicable requirements of state
securities or "blue sky" laws ("BLUE SKY LAWS"), (iv) the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the "HSR
ACT"), and (v) for the filing of the Certificate of Merger as required by the
GCL.
SECTION 3.7 PERMITS; COMPLIANCE WITH LAW. Each of the Company and the
Company Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for the Company or any
Company Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "COMPANY PERMITS"),
except where the failure to have, or the suspension or cancellation of, any of
the Company Permits, individually or in the aggregate, has not resulted and
could not reasonably be expected to result in a Material Adverse Effect on the
Company, and, as of the date of this Agreement, no suspension or cancellation of
any of the Company Permits is pending or, to the knowledge of the Company,
threatened, except where the failure to have, or the suspension or cancellation
of, any of the Company Permits, individually or in the aggregate, has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Company or except as otherwise set forth in Section 3.7 of the
Company Disclosure Letter. Neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to the
Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is or may be bound or affected or (ii) any
Company Permits, in either case, except where such conflict, default or
violation could not reasonably be expected to result in a Material Adverse
Effect on the Company. To the Company's knowledge, the business of the Company
is not being conducted in violation of any
<PAGE>
16
portion of the Foreign Corrupt Practices Act, Pub. L. No. 95-213, 91 Stat.1494
(December 19, 1977), as amended (the "FCPA"), or any regulation promulgated
thereunder, and there are not pending any investigations, reviews or inquiries
made by any Governmental Entity of the Company, any Company Subsidiaries or any
of their respective affiliates with respect to the FCPA, nor to the knowledge of
the Company has any Governmental Entity threatened to conduct the same.
SECTION 3.8 SECURITIES AND EXCHANGE COMMISSION ("SEC") FILINGS;
FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since January 1, 1996 (collectively, including any such documents
filed subsequent to the date of this Agreement, the "COMPANY SEC REPORTS") and
the Company has made available to the Parent each Company SEC Report filed with
the SEC. The Company SEC Reports, including any financial statements or
schedules included or incorporated by reference, (i) comply and will comply with
the requirements of the Exchange Act or the Securities Act or both, as the case
may be, applicable to those Company SEC Reports and (ii) did not and will not at
the time filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated or necessary in order to make the
statements made in those Company SEC Reports, in the light of the circumstances
under which they were made, not misleading. Except as set forth in Section
3.8(a) of the Company Disclosure Letter, no Company Subsidiary is subject to the
periodic reporting requirements of the Exchange Act or is otherwise required to
file any documents with the SEC or any national securities exchange or quotation
service or comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Company SEC Reports (including the related
notes and schedules) fairly presented or will fairly present, in all material
respects, the consolidated financial position of the Company as of the dates set
forth in those consolidated balance sheets. Each of the consolidated statements
of income and of cash flows included in or incorporated by reference into the
Company SEC Reports (including any related notes and schedules), fairly
presented or will fairly present, in all material respects, the consolidated
results of operations and cash flows, as the case may be, of the Company and the
consolidated Company Subsidiaries for the periods set forth in those
consolidated statements of income and of cash flows (subject, in the case of
unaudited quarterly statements, to notes and normal year-end audit adjustments
that will not be material in amount or effect), in each case in conformity with
United States generally accepted accounting principles ("GAAP") (except, in the
case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC)
consistently applied throughout the periods indicated.
<PAGE>
17
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Company Subsidiaries as of
December 31, 1998 including the related notes, neither the Company nor any
Company Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in the related notes prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business since December 31, 1998 that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1998, and except as otherwise disclosed in the PLD Form 10-K, the Company and
the Company Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been:
(a) any Material Adverse Effect on the Company;
(b) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Company Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on the Company;
(c) any material change by the Company in its or any Company
Subsidiary's accounting methods, principles or practices;
(d) any declaration, setting aside or payment of any dividend
or distribution in respect of Company Shares or any redemption, purchase or
other acquisition of any of the Company's securities;
(e) Except as described in Section 3.9(e) of the Company
Disclosure Letter any increase in the compensation or benefits or establishment
of any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of the
Company or any Company Subsidiary except in the ordinary course of business
consistent with past practice or except as required by applicable Law.
<PAGE>
18
SECTION 3.10 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 3.10 of the Company
Disclosure Letter and except as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company: (A)
each pension, retirement, savings, disability, medical, dental, health, life,
death benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus, incentive, severance pay, or other employee benefit plan, trust,
arrangement, contract, commitment, agreement or policy (each a "BENEFIT PLAN")
of the Company or any Company Subsidiary (the "COMPANY BENEFIT PLANS") has been
administered and is in compliance with the terms of such plan and all applicable
laws, rules and regulations, (B) no "reportable event" (as such term is used in
section 4043 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (other than those events for which the 30 day notice has been waived
pursuant to the regulations), "prohibited transaction" (as such term is used in
section 406 of ERISA or sec tion 4975 of the Code) or "accumulated funding
deficiency" (as such term is used in section 412 or 4971 of the Code) has
heretofore occurred with respect to any Company Benefit Plan and (C) each
Company Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination from the IRS regarding its qualified status
and no notice has been received from the IRS with respect to the revocation of
such qualification.
(b) There is no litigation or administrative or other
proceeding involving any Company Benefit Plan nor has the Company or any Company
Subsidiary received notice that any such proceeding is threatened, in each case
where an adverse determination could reasonably be expected to have a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has incurred, nor, to the Company's knowledge, is reasonably likely to incur any
withdrawal liability with respect to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) which remains unsatisfied in an amount which
could reasonably be expected to have a Material Adverse Effect on the Company.
The termination of, or withdrawal from, any Company Benefit Plan or
multiemployer plan to which the Company or any Company Subsidiaries contributes,
on or prior to the Closing Date, will not subject the Company or any Company
Subsidiary to any liability under Title IV of ERISA that could reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 3.11 ACCOUNTING AND TAX MATTERS. Neither the Company nor, to
the knowledge of the Company, any of its affiliates has taken or agreed to take
any action, nor is the Company aware of any agreement, plan or other
circumstance that would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 3.12 CONTRACTS; DEBT INSTRUMENTS. Except as set forth in
Section 3.12 of the Company Disclosure Letter there is no Contract that is
material to
<PAGE>
19
the business, financial condition or results of operations of the Company and
the Company Subsidiaries taken as a whole. Neither the Company nor any Company
Subsidiary is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract to which it is a party or by
which it or any of its properties or assets is or may be bound or affected,
except for violations or defaults that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company. Set forth in Section 3.12 of the Company
Disclosure Letter is a description of any material changes to the amount and
terms of the indebtedness of the Company and the consolidated Company
Subsidiaries as described in the notes to the financial statements set forth as
incorporated by reference in the PLD Form 10K.
SECTION 3.13 LITIGATION. There is no suit, claim, action, proceeding or
investigation (collectively, "CLAIMS") pending or, to the knowledge of the
Company, threatened against the Company or any Company Subsidiary before any
Governmental Entity that, if adversely determined, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary is
subject to any outstanding order, writ, injunction or decree which, individually
or in the aggregate, has resulted or could reasonably be expected to result in a
Material Adverse Effect on the Company.
SECTION 3.14 ENVIRONMENTAL MATTERS. Except as disclosed on Section 3.14
of the Company Disclosure Letter and except as could not reasonably be expected
to have a Material Adverse Effect on the Company:
(a) Neither the Company nor any Company Subsidiary is or has
been in violation in any material respect of any applicable Safety and
Environmental Law (as hereafter defined).
(b) The Company and each Company Subsidiary have all Permits
(as hereafter defined) required pursuant to Safety and Environmental Laws that
are material to the conduct of the business of the Company or any Company
Subsidiary, all such Permits are in full force and effect, no action or
proceeding to revoke, limit or modify any of such Permits is pending, and the
Company and each Company Subsidiary is in compliance in all material respects
with all terms and conditions thereof.
(c) Neither the Company nor any Company Subsidiary has
received, or expects to receive due to the consummation of the Agreement, any
material Environmental Claim (as hereafter defined).
(d) To the Company's knowledge, there is not now and has not
been at any time in the past a Release or threatened Release (as hereafter
defined)
<PAGE>
20
of Hazardous Substances into the Environment for which the Company or any
Company Subsidiary may be directly or indirectly responsible.
(e) To the Company's knowledge, there is not now and has not
been at any time in the past at, on or in any of the real properties owned,
leased or operated by the Company or any Company Subsidiary, and, to the
Company's knowledge, was not at, on or in any real property previously owned,
leased or operated by the Company or any Company Subsidiary or any predecessor:
(i) any generation, use, handling, Release, treatment, recycling, storage or
disposal of any Hazardous Substances, (ii) any underground storage tank, surface
impoundment, lagoon or other containment facility (past or present) for the
temporary or permanent storage, treatment or disposal of Hazardous Substances,
(iii) any asbestos-containing material in a condition requiring abatement, (iv)
any Release or threatened Release, or any visible signs of Releases or
threatened Releases, of a Hazardous Substance to the Environment in form or
quantity requiring remedial action under Safety and Environmental Laws, or (v)
any Hazardous Substances present at such property, excepting such quantities as
are handled in accordance with all applicable manufacturer's instructions and
Safety and Environmental Laws and in proper storage containers, and as are
necessary for the operations of the Company and the Company Subsidiaries.
For purposes of this Agreement, the following terms have the following
meanings:
(a) "ENVIRONMENT" means navigable waters, waters of the
contiguous zone, ocean waters, natural resources, surface waters, ground water,
drinking water supply, land surface, subsurface strata, ambient air, both inside
and outside of buildings and structures, man-made buildings and structures, and
plant and animal life on earth.
(b) "ENVIRONMENTAL CLAIMS" means any notification, whether
direct or indirect, formal or informal, written or oral, pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety, that any of the current or past
operations of any of the Parent, any Parent Subsidiary, or the Company, or any
Company Subsidiary (collectively, the "MERGING PARTIES"), as the case may be, or
any by-product thereof, or any of the property currently or formerly owned,
leased or operated by any of the Merging Parties, or the operations or property
of any predecessor of any of the Merging Parties is or may be implicated in or
subject to any proceeding, action, investigation, claim, lawsuit, order,
agreement or evaluation by any Governmental Entity or any other person.
(c) "HAZARDOUS SUBSTANCE" means any toxic waste, pollutant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
<PAGE>
21
radioactive substance or waste, or any constituent of any such substance or
waste, or any other substance regulated under or defined by any Safety and
Environmental Law.
(d) "PERMITS" means all licenses, permits, orders or approvals
of, and all required registrations with, any Governmental Entity.
(e) "RELEASE" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into or through the indoor or outdoor Environment or into, through or
out of any property, including the movement of Hazardous Substances through or
in the air, soil, surface water, ground water or property.
(f) "SAFETY AND ENVIRONMENTAL LAWS" means all federal, state
and local laws and orders relating to pollution, protection of the Environment,
public or worker health and safety, or the emission, discharge, release or
threatened release of pollutants, contaminants or industrial, toxic or hazardous
substances or wastes into the Environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or industrial, toxic or
hazardous substances or wastes, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 eT
SEq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 eT SEq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ., the Federal Water
Pollution Control Act, 33 U.S.C. ss. 1251 eT SEq., the Clean Air Act, 42 U.S.C.
ss. 7401 eT SEq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 121 eT SEq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 eT SEq., the Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 eT
SEq., the Safe Drinking Water Act, 42 U.S.C. ss. 300f ET seq., the Oil Pollution
Act of 1990 and analogous state acts.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 3.15(a)(i) of the Company Disclosure
Letter sets forth all material United States and foreign patents and patent
applications, trademark and service mark registrations and applications,
Internet domain name registrations and applications, and copyright registrations
and applications owned or licensed by the Company, specifying as to each item,
as applicable: (A) the nature of the item, including the title; (B) the owner of
the item; (C) the jurisdictions in which the item is issued or registered or in
which an application for issuance or registration has been filed; and (D) the
issuance, registration or application numbers and dates.
(ii) Section 3.15(a)(ii) of the Company Disclosure
Letter sets forth all material licenses, sublicenses, and other agreements or
permissions ("IP
<PAGE>
22
LICENSES") under which the Company is a licensor or licensee or otherwise is
authorized to use or practice any Intellectual Property. For purposes of this
Agreement, "INTELLECTUAL PROPERTY" means all of the following as they exist in
all jurisdictions throughout the world, in each case, to the extent owned by,
licensed to, or otherwise used by the Company or the Parent: (A) patents, patent
applications, and other patent rights (including any divisions, continuations,
continuations-in-part, substitutions, or reissues thereof, whether or not
patents are issued on any such applications and whether or not any such
applications are modified, withdrawn, or resubmitted); (B) trademarks, service
marks, trade dress, trade names, brand names, Internet domain names, designs,
logos, or corporate names, whether registered or unregistered, and all
registrations and applications for registration thereof; (C) copyrights,
including all renewals and extensions, copyright registrations and applications
for registration, and non-registered copyrights; (D) trade secrets, concepts,
ideas, designs, research, processes, procedures, techniques, methods, know-how,
data, mask works, discoveries, inventions, modifications, extensions,
improvements, and other proprietary rights (whether or not patentable or subject
to copyright, mask work, or trade secret protection) (collectively,
"TECHNOLOGY"); and (E) computer software programs, including all source code,
object code, and documentation related thereto (the "SOFTWARE").
(iii) Section 3.15(a)(iii) of the Company Disclosure
Letter sets forth and describes the status of any material agreements involving
Intellectual Property currently in negotiation or proposed by the Company
("PROPOSED INTELLECTUAL PROPERTY AGREEMENTS").
(b) OWNERSHIP. The Company owns, free and clear of all Liens,
and has the unrestricted right to use, sell, or license, all Intellectual
Property set forth in Section 3.15(a)(i) and, as applicable, Section 3.15(a)(ii)
of the Company Disclosure Letter, except for failures that, individually or in
the aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on the Company.
(c) CLAIMS. The Company has not been, during the three years
preceding the date of this Agreement, a party to any Claim, nor, to the
knowledge of the Company, is any Claim threatened, that challenges the validity,
enforceability, ownership, or right to use, sell, or license any Intellectual
Property owned or licensed by the Company, except for Claims that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. To the knowledge of the
Company, no third party is infringing upon any Intellectual Property, except for
infringements that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on the
Company.
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23
(d) ADMINISTRATION AND ENFORCEMENT. The Company has taken all
necessary and desirable actions to maintain and protect each item of Intellec
tual Property owned by the Company, except for failures to take such actions
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Company.
(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. The Company
has taken all reasonable precautions to protect the secrecy, confidentiality,
and value of its trade secrets and the proprietary nature and value of the
Technology, except for failures to take such precautions that, individually or
in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company.
(f) SOFTWARE. All material Software is described in Section
3.15(a)(ii) of the Company Disclosure Letter. The Software performs in
conformance with its documentation and is fully and freely transferable to the
Parent without any third party consents, except for failures to perform or to be
fully and freely transferable that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Company.
(g) YEAR 2000 COMPLIANCE. All Software, hardware, databases,
and embedded control systems (collectively, the "SYSTEMS") used by the Company
are Year 2000 Compliant and to the Company's knowledge the Systems used by the
Company's material suppliers are Year 2000 Compliant, except in each case for
failures to be Year 2000 Compliant that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Company and except as set forth in Section 3.15(g) of the
Company Disclosure Letter. For purposes of this Agreement, "YEAR 2000 COMPLIANT"
means that the Systems (i) accurately process date and time data (including
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, the years 1999 and 2000, and leap year calculations
and (ii) operate accurately with other software and hardware that use standard
date format (4 digits) for representation of the year.
(h) EFFECT OF TRANSACTION. The Company is not, nor, as a
result of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, will be, in violation of any agreement
relating to any Intellectual Property, except for violations that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Company. After the completion of the
transactions contemplated by this Agreement, the Parent will own directly or
indirectly all right, title, and interest in and to or have a license to use all
Intellectual Property on identical terms and conditions as the Company or a
Company Subsidiary enjoyed immediately prior to such transactions, except for
failures to own or have available for use that, individually or in the
<PAGE>
24
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on the Company.
SECTION 3.16 TAXES. (a) Except as set forth on Section 3.16(a) of the
Company Disclosure Letter, (i) the Company and each Company Subsidiary has
timely filed (after giving effect to any extensions of the time to file which
were obtained) prior to the date of this Agreement, and will file prior to the
Effective Time, all returns required to be filed prior to the date of this
Agreement and/or required to be filed prior to the Effective Time by any of them
with respect to, and has paid (or the Company has paid on its behalf), or has or
will set up an adequate reserve for the payment of, all federal, state, local,
foreign and other taxes, together with interest and penalties thereon ("TAXES"),
required to be paid prior to the date of the Agreement or the Effective Time, as
the case may be, and the most recent financial statements contained in the
Company SEC Reports reflect an adequate reserve for all Taxes payable by the
Company and the Company Subsidiaries accrued through the date of such financial
statements and (ii) no deficiencies for any Taxes have been proposed, asserted
or assessed against the Company or any Company Subsidiary other than those which
are being contested in good faith and by proper proceedings by the Company,
except in the case of clauses (i) and (ii) above, any of the foregoing which do
not and will not have a Material Adverse Effect on the Company.
(b) Except as set forth on Section 3.16(b) of the Company
Disclosure Letter, none of the Company, any Company Subsidiary, or to the
Company's knowledge, any group of which the Company or any Company Subsidiary is
now or ever was a member, has filed or entered into any election, consent or
extension agreement that extends any applicable statute of limitations or the
time within which a return must be filed which statute of limitations has not
expired or return has not been timely filed, except, in the case of Company
Subsidiaries organized under the laws of jurisdictions outside the United States
and Canada, as has not and could not reasonably be expected to have a Material
Adverse Effect on the Company.
(c) Except as set forth on Section 3.16(c) of the Company
Disclosure Letter, (i) none of the Company, any Company Subsidiary or, to the
Company's knowledge, any group of which the Company or any Company Subsidiary is
now or ever was a member, is a party to any action or proceeding pending or, to
the Company's knowledge, threatened by any governmental authority for assessment
or collection of Taxes, (ii) no unresolved claim for assessment or collection of
Taxes has, to the Company's knowledge, been asserted, (iii) no audit or
investigation of the Company or any Company Subsidiary by any governmental
authority is pending or, to the Company's knowledge, threatened and (iv) no such
matters are under discussion with any governmental authority which, in the case
of clauses (i-iv), could have a Material Adverse Effect on the Company.
<PAGE>
25
SECTION 3.17 NON-COMPETITION AGREEMENTS. Except as set forth
in Section 3.17 of the Company Disclosure Letter, neither the Company nor any
Company Subsidiary is a party to any agreement which purports to restrict or
prohibit in any material respect the Company and the Company Subsidiaries
collectively from, directly or indirectly, engaging in any business involving
telecommunications currently engaged in by the Company, any Company Subsidiary
or any other persons affiliated with the Company. None of the Company's
officers, directors or key employees is a party to any agreement which, by
virtue of such person's relationship with the Company, restricts in any material
respect the Company or any Company Subsidiary or affiliate of either of them
from, directly or indirectly, engaging in any of the businesses described above.
SECTION 3.18 CERTAIN AGREEMENTS. Except as set forth in
Section 3.18 of the Company Disclosure Letter, and except for this Agreement, as
of the date of this Agreement, neither the Company nor any of the Company
Subsidiaries is a party to any oral or written (i) agreement with any executive
officer or other key employee of the Company or Company Subsidiary the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature contemplated by
this Agreement, or agreement with respect to any executive officer of the
Company providing any term of employment or compensation guarantee (x) extending
for a period longer than one year after the Effective Time or (y) for the
payment of in excess of $100,000 per annum or (ii) plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
SECTION 3.19 INVESTMENT COMPANY ACT. Each of the Company and
the Company Subsidiaries either (i) is not an "investment company," or a company
"controlled" by, or an "affiliated company" with respect to, an "investment
company," within the meaning of the Investment Company Act of 1940, as amended
(the "INVESTMENT COMPANY ACT") or (ii) satisfies all conditions for an exemption
from the Investment Company Act, and, accordingly, neither the Company nor any
of the Company is required to be registered under the Investment Company Act.
SECTION 3.20 OPINION OF FINANCIAL ADVISOR. Salomon Smith
Barney Inc. (the "COMPANY FINANCIAL ADVISOR") has delivered to the Board of
Directors of the Company its oral opinion to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair to holders of Company Common Stock
from a financial point of view, a copy of the written opinion of which will be
delivered to the Parent after receipt thereof by the Company.
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26
SECTION 3.21 BROKERS. No broker, finder or investment banker
other than the Company Financial Advisor is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Prior to the date of this Agreement, the Company has
made available to the Parent a complete and correct copy of all agreements
between the Company and the Company Financial Advisor under which the Company
Financial Advisor would be entitled to any payment relating to the Merger or any
other transactions.
SECTION 3.22 CERTAIN STATUTES. The Board of Directors of the
Company has taken or will take all appropriate and necessary actions to ensure
that the restrictions on business combinations in Section 203 of the GCL will
not have any effect on the Merger or the other transactions contemplated by this
Agreement. No "fair price," "moratorium," "control share acquisition" or other
similar state or federal anti-takeover statute or regulation (each a "TAKEOVER
STATUTE") is, as of the date of this Agreement, applicable to the Merger or any
other transactions contemplated by this Agreement.
SECTION 3.23 INFORMATION. None of the information to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement, the Registration Statement or the Exchange Offer Registration
Statement will, in the case of the Registration Statement and the Exchange Offer
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
to make the statements in that Registration Statement or the Exchange Offer
Registration Statement, as the case may be, not misleading, or, in the case of
the Proxy Statement or any amendments or supplements of the Proxy Statement, at
the time of the mailing of the Proxy Statement and any amendments or supplements
of the Proxy Statement and at the time of the Company Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Proxy Statement or necessary in order to make
the statements in the Proxy Statement, in light of the circumstances under which
they are made, not misleading. The Proxy Statement (except for those portions of
the Proxy Statement that relate only to Parent or subsidiaries or affiliates of
the Parent) will comply as to form in all material respects with the provisions
of the Exchange Act.
SECTION 3.24 VOTE REQUIRED. The Requisite Company Vote is the
only vote of the holders of any class or series of the Company's capital stock
necessary (under the Company Charter Documents, the GCL, other applicable Law or
otherwise) to approve this Agreement, the Merger or the other transactions
contemplated by this Agreement.
<PAGE>
27
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND MERGER SUB
Each of the Parent and Merger Sub represents and warrants to the
Company that:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Except as set forth in Section 4.1(a) of the Parent
Disclosure Letter, each of the Parent, Merger Sub, and each other subsidiary of
the Parent other than dormant subsidiaries that are immaterial to the business
and operations of the Parent (collectively, the "PARENT SUBSIDIARIES") has been
duly organized and is validly existing and in good standing under the laws of
its jurisdiction of its incorporation or organization, as the case may be, and
has the requisite power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as it is
now being conducted. Each of the Parent, Merger Sub and each other Parent
Subsidiary is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that, individually or in the aggregate, have not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
the Parent. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT ON THE
PARENT" means any change in or effect on the business, assets, properties,
results of operations or financial condition of the Parent or any Parent
Subsidiaries that is or could reasonably be expected to be materially adverse to
the Parent and the Parent Subsidiaries, taken as a whole, or that could
reasonably be expected to materially impair the ability of the Parent or Merger
Sub to perform its obligations under this Agreement or to consummate
transactions contemplated hereby.
(b) Section 4.1(b) of the Disclosure Letter delivered to the
Company by the Parent and Merger Sub prior to the execution of this agreement
(the "PARENT DISCLOSURE LETTER") sets forth a complete and correct list of all
of the Parent Subsidiaries. Except as set forth in Section 4.1(b) of the Parent
Disclosure Letter, neither the Parent nor any Parent Subsidiary holds any
interest in any other person other than the Parent Subsidiaries so listed.
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The copies of the
Parent's certificate of incorporation and by-laws, each as amended through the
date of this Agreement (collectively, the "PARENT CHARTER DOCUMENTS") that are
incorporated by reference in, as exhibits to, the Parent's Annual Report on Form
10-K for the year ended December 31, 1998, as amended by its filing on Form
10K/A (the
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28
"MIG FORM 10K"), and all comparable corporate organizational documents of the
Parent Subsidiaries made available to the Company by the Parent are complete and
correct copies of those documents. Except as set forth in Section 4.2 of the
Parent Disclosure Letter, the Parent Charter Documents and all comparable
corporate organizational documents of the Parent Subsidiaries are in full force
and effect. The Parent is not in violation of any of the provisions of the
Parent Charter Documents.
SECTION 4.3 CAPITALIZATION.
(a) The authorized capital stock of the Parent consists of (i)
400,000,000 shares of Parent Common Stock and (ii) 70,000,000 shares of
Preferred Stock, par value $1.00 per share ("PARENT PREFERRED STOCK"). As of
April 30, 1999, (A) 69,161,937 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and not subject to preemptive rights, (B) 4,140,000 shares of 7 1/4% Cumulative
Convertible Preferred Stock (the "7 1/4% PREFERRED STOCk") were issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and not subject to preemptive rights, (C) no shares of Parent Common Stock were
held in the treasury of the Parent or by the Parent Subsidiaries, and (D)
22,785,658 shares of Parent Common Stock were reserved for issuance upon
exercise of outstanding Parent Stock Options or conversion of shares of 7 1/4%
Preferred Stock. The shares of Parent Common Stock included in the Merger
Consideration, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
(b) Between April 30, 1999 and the date of this Agreement, no
options to purchase shares of Parent Common Stock ("PARENT STOCK OPTIONS") have
been granted by the Parent under the Metromedia International Group, Inc. 1996
Incentive Stock Option Plan (the "PARENT'S OPTION PLAN"). Except for (i) Parent
Stock Options to purchase an aggregate of 2,442,188 shares of Parent Common
Stock outstanding or available for grant under the Parent's Option Plan, (ii)
under agreements or arrangements set forth in Section 4.3(b) of the Parent
Disclosure Letter or (iii) 13,800,000 shares of Parent Common Stock issuable
upon conversion of shares of 7 1/4% Preferred Stock, there are no options,
warrants, conversion rights, stock appreciation rights, redemption rights,
repurchase rights or other rights, agreements, arrangements or commitments of
any character to which the Parent is a party or by which the Parent is bound
relating to the issued or unissued capital stock of the Parent or any Parent
Subsidiary or obligating the Parent or any Parent Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, the Parent or any
Parent Subsidiary.
(c) Except as set forth in Section 4.3(c) of the Parent
Disclosure Letter, there are no outstanding contractual obligations of the
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any
shares of Parent Common Stock or any capital stock of any Parent Subsidiary.
Except as set forth in
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29
Section 4.3(c) of the Parent Disclosure Letter, each outstanding share of
capital stock of each Parent Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights and each such
share owned by the Parent or a Parent Subsidiary is free and clear of all Liens.
Except as set forth in Section 4.3(c) of the Parent Disclosure Letter, there are
no material outstanding contractual obligations of the Parent or any Parent
Subsidiary to provide funds in excess of $1 million to, or make any investment
in excess of $1 million (in the form of a loan, capital contribution or
otherwise) in, any Parent Subsidiary that is not wholly owned by the Parent or
in any other person.
(d) The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $.01 per share ("SUB COMMON STOCK"). All
of the issued and outstanding shares of Sub Common Stock are (A) owned by the
Parent or another Parent Subsidiary wholly owned by the Parent and (B) duly
authorized, validly issued, fully paid and nonassessable.
SECTION 4.4 AUTHORITY.
(a) Each of the Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated hereby
to be consummated by it. The execution and delivery of this Agreement by each of
the Parent and Merger Sub and the consummation by each of the Parent and Merger
Sub of such transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Parent or
Merger Sub are necessary to authorize this Agreement or to consummate such
transactions, other than, with respect to the approval of the issuance by the
Parent of the Parent Common Stock to be issued in the Merger, by a majority of
the outstanding shares of Parent Common Stock (the "REQUISITE PARENT VOTE").
This Agreement has been duly authorized and validly executed and delivered by
each of the Parent and Merger Sub and constitutes a legal, valid and binding
obligation of each of the Parent and Merger Sub, enforceable against each of the
Parent and Merger Sub in accordance with its terms.
(b) The Board of Directors of each of the Parent and Merger
Sub (i) has unanimously adopted the plan of merger set forth in this Agreement
and approved this Agreement and the other transactions contemplated by this
Agreement and (ii) has declared that the Merger and this Agreement and the other
transactions contemplated by this Agreement are advisable.
SECTION 4.5 NO CONFLICT. (a) The execution and delivery of this
Agreement by the Parent and Merger Sub do not, and the performance of this
Agreement by each of the Parent and Merger Sub will not:
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30
(i) conflict with or violate any provision of any
Parent Charter Document or any equivalent organizational documents of any Parent
Subsidiary except as set forth in Section 4.5(a) of the Parent Disclosure
Letter;
(ii) assuming that all consents, approvals,
authorizations and other actions described in Section 4.5(b) of the Parent
Disclosure Letter have been obtained and all filings and obligations described
in Section 4.5(b) of the Parent Disclosure Letter have been made, conflict with
or violate any foreign or domestic Law applicable to the Parent, Merger Sub or
any other Parent Subsidiary or by which any property or asset of the Parent or
any Parent Subsidiary is or may be bound or affected; or
(iii) except as set forth in Section 4.5(b) of the
Parent Disclosure Letter, result in any breach of or constitute a default (or an
event which with or without notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Parent, Merger Sub, or any other
Parent Subsidiary under, any Contract to which the Parent, Merger Sub or any
other Parent Subsidiary is a party or by which any of them or their assets or
Properties is or may be bound or affected, except for any such breaches,
defaults or other occurrences which, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Parent;
(b) Section 4.5(b) of the Parent Disclosure Letter sets forth
a correct and complete list of all Contracts to which Parent or any Parent
Subsidiaries are a party or by which they or their assets or properties is or
may be bound or affected under which consents or waivers are or may be required
prior to consummation of the transactions contemplated by this Agreement.
SECTION 4.6 GOVERNMENTAL REQUIRED FILINGS AND CONSENTS. The
execution and delivery of this Agreement by the Parent and Merger Sub do not,
and the performance of this Agreement by the Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Government Entity except for (i) those consents or
approvals set forth in Section 4.6 of the Parent Disclosure Letter (the "PARENT
GOVERNMENTAL CONSENTS"), (ii) applicable requirements of the Exchange Act and
the Securities Act, (iii) applicable requirements of Blue Sky Laws, (iv) the
rules and regulations of the American Stock Exchange, Inc., (v) the pre-merger
notification requirements of the HSR Act, and (vi) the filing of the Certificate
of Merger as required by the GCL.
SECTION 4.7 PERMITS; COMPLIANCE WITH LAW. Except as set forth
in Section 4.7 of the Parent Disclosure Letter, each of the Parent and the
Parent Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits,
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31
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for the Parent or any Parent Subsidiary to
own, lease and operate its properties or to carry on its business as it is now
being conducted (collectively, the "PARENT PERMITS"), except where the failure
to have, or the suspension or cancellation of, any of the Parent Permits,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Parent, and, as of the
date of this Agreement, no suspension or cancellation of any of the Parent
Permits is pending or, to the knowledge of the Parent, threatened, except where
the failure to have, or the suspension or cancellation of, any of the Parent
Permits, individually or in the aggregate, has not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Parent.
Neither the Parent nor any Parent Subsidiary is in conflict with, or in default
or violation of, (i) any Law applicable to the Parent or any Parent Subsidiary
or by which any property or asset of the Parent or any Parent Subsidiary is or
may be bound or affected or (ii) any Parent Permits, in either case, except
where such conflict, default or violation could not reasonably be expected to
result in a Material Adverse Effect on the Parent. To the Parent's knowledge,
the business of the Parent is not being conducted in violation of any portion of
the FCPA, or any regulation promulgated thereunder, and there are not pending
any investigations, reviews or inquiries made by any Governmental Entity of the
Parent, any Parent Subsidiaries or any of their respective affiliates with
respect to the FCPA, nor to the knowledge of the Parent has any Governmental
Entity threatened to conduct the same.
SECTION 4.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Parent has filed all forms, reports, statements and
other documents (including all exhibits, annexes, supplements and amendments to
such documents) required to be filed by it under the Exchange Act and the
Securities Act since January 1, 1996 through the date of this Agreement
(collectively, including any such documents filed subsequent to the date of this
Agreement, the "PARENT SEC REPORTS") and the Parent has made available to the
Company each Parent SEC Report. The Parent SEC Reports, including any financial
statements or schedules included or incorporated by reference, (i) comply and
will comply with the requirements of the Exchange Act or the Securities Act or
both, as the case may be, applicable to those Parent SEC Reports and (ii) did
not and will not at the time filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated or necessary in
order to make the statements made in those Parent SEC reports, in the light of
the circumstances under which they were made, not misleading. No Parent
Subsidiary is subject to the periodic reporting requirements of the Exchange Act
or is otherwise required to file any documents with the SEC or any national
securities exchange or quotation service or comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Parent SEC Reports (including the related
notes and
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32
schedules) fairly presented or will fairly present, in all material respects,
the consolidated financial position of the Parent as of the dates set forth in
those consolidated balance sheets. Each of the consolidated statements of income
and of cash flows included in or incorporated by reference into the Parent SEC
Reports (including any related notes and schedules) fairly presented or will
fairly present, in all material respects, the consolidated results of operations
and cash flows, as the case may be, of the Parent and the consolidated Parent
Subsidiaries for the periods set forth in those consolidated statements of
income and of cash flows (subject, in the case of unaudited quarterly
statements, to notes and normal year-end audit adjustments that will not be
material in amount or effect), in each case in conformity with GAAP (except, in
the case of unaudited quarterly statements, as permitted by Form 10-Q of the
SEC) consistently applied throughout the periods indicated.
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Parent and the consolidated Parent Subsidiaries as of
December 31, 1998, including the related notes, neither the Parent nor any
Parent Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in the related notes prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business since December 31, 1998, that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Parent.
SECTION 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30,
1998 (or, with respect to Snapper, Inc., December 31, 1998), and except as
otherwise disclosed in the MIG Form 10K, the Parent and the Parent Subsidiaries
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been:
(a) any Material Adverse Effect on the Parent;
(b) any damage, destruction or other casualty loss with
respect to any asset or property owned, leased or otherwise used by it or any
Parent Subsidiaries, whether or not covered by insurance, which damage,
destruction or loss, individually or in the aggregate, has resulted or could
reasonably be expected to result in a Material Adverse Effect on the Parent;
(c) any material change by the Parent in its or any Parent
Subsidiary's accounting methods, principles or practices;
(d) any declaration, setting aside or payment of any dividend
or distribution in respect of Parent Shares or any redemption, purchase or other
acquisition of any of the Parent's securities; or
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(e) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any executive officers of the
Parent or any Parent Subsidiary except in the ordinary course of business
consistent with past practice or except as required by applicable Law.
SECTION 4.10 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Section 4.10 of the Parent
Disclosure Letter and except as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Parent: (A) each
Benefit Plan of the Parent or any Parent Subsidiary (the "PARENT BENEFIT PLANS")
has been administered and is in compliance with the terms of such plan and all
applicable laws, rules and regulations, (B) no "reportable event" (as such term
is used in section 4043 of ERISA) (other than those events for which the 30 day
notice has been waived pursuant to the regulations), "prohibited transaction"
(as such term is used in sec tion 406 of ERISA or section 4975 of the Code) or
"accumulated funding deficiency" (as such term is used in section 412 or 4971 of
the Code) has heretofore occurred with respect to any Parent Benefit Plan and
(C) each Parent Benefit Plan intended to qualify under Section 401(a) of the
Code has received a favorable determination from the IRS regarding its qualified
status and no notice has been received from the IRS with respect to the
revocation of such qualification.
(b) There is no litigation or administrative or other
proceeding involving any Parent Benefit Plan nor has the Parent or any Parent
Subsidiary received notice that any such proceeding is threatened, in each case
where an adverse determination could reasonably be expected to have a Material
Adverse Effect on the Parent. Neither the Parent nor any Parent Subsidiary has
incurred, nor, to the Parent's knowledge, is reasonably likely to incur any
withdrawal liability with respect to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) which remains unsatisfied in an amount which
could reasonably be expected to have a Material Adverse Effect on the Parent.
The termination of, or withdrawal from, any Parent Benefit Plan or multiemployer
plan to which the Parent or any Parent Subsidiaries contributes, on or prior to
the Closing Date, will not subject the Parent or any Parent Subsidiary to any
liability under Title IV of ERISA that could reasonably be expected to have a
Material Adverse Effect on the Parent.
SECTION 4.11 ACCOUNTING AND TAX MATTERS. Neither the Parent nor Merger
Sub, nor to the knowledge of the Parent, any of Parent's affiliates has taken or
agreed to take any action, nor is the Parent aware of any agreement, plan or
other
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34
circumstance, that would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.12 CONTRACTS; DEBT INSTRUMENTS. Except as set forth in
Section 4.12 of the Parent Disclosure Letter, there is no Contract that is
material to the business, financial condition or results of operations of the
Parent and the Parent Subsidiaries taken as a whole (each, a "PARENT MATERIAL
CONTRACT"). Neither the Parent nor any Parent Subsidiary is in violation of or
in default under (nor does there exist any condition which with the passage of
time or the giving of notice would cause such a violation of or default under)
any Contract to which it is a party or by which it or any of its properties or
assets is or may be bound or affected, except for violations or defaults that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Parent. Set forth in
Section 4.12 of the Parent Disclosure Letter is a description of any material
changes to the amount and terms of the indebtedness of the Parent and the
consolidated Parent Subsidiaries as described in the notes to the financial
statements set forth as incorporated by reference in the MIG Form 10K.
SECTION 4.13 LITIGATION. There is no Claim pending or, to the knowledge
of the Parent, threatened against the Parent or any Parent Subsidiary before any
Governmental Entity that, individually or in the aggregate, has resulted or
could reasonably be expected to result in a Material Adverse Effect on the
Parent. Neither the Parent nor any Parent Subsidiary is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on the Parent.
SECTION 4.14 ENVIRONMENTAL MATTERS. Except as disclosed on
Section 4.14 of the Parent Disclosure Letter or in the Parent SEC Reports and
except as could not reasonably be expected to have a Material Adverse Effect on
the Parent:
(a) Neither the Parent nor any Parent Subsidiary is or has
been in violation in any material respect of any applicable Safety and
Environmental Law.
(b) The Parent and each Parent Subsidiary have all Permits
required pursuant to Safety and Environmental Laws that are material to the
conduct of the business of the Parent or any Parent Subsidiary, all such Permits
are in full force and effect, no action or proceeding to revoke, limit or modify
any of such Permits is pending, and the Parent and each Parent Subsidiary is in
compliance in all material respects with all terms and conditions thereof.
(c) Neither the Parent nor any Parent Subsidiary has received,
or expects to receive due to the consummation of the Agreement, any material
Environmental Claim.
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(d) To the Parent's knowledge, there is not now and has not
been at any time in the past a Release or threatened Release of Hazardous
Substances into the Environment for which the Parent or any Parent Subsidiary
may be directly or indirectly responsible.
(e) To the Parent's knowledge, there is not now and has not
been at any time in the past at, on or in any of the real properties owned,
leased or operated by the Parent or any Parent Subsidiary, and, to the Parent's
knowledge, was not at, on or in any real property previously owned, leased or
operated by the Parent or any Parent Subsidiary or any predecessor: (i) any
generation, use, handling, Release, treatment, recycling, storage or disposal of
any Hazardous Substances, (ii) any underground storage tank, surface
impoundment, lagoon or other containment facility (past or present) for the
temporary or permanent storage, treatment or disposal of Hazardous Substances,
(iii) any asbestos-containing material in a condition requiring abatement, (iv)
any Release or threatened Release, or any visible signs of Releases or
threatened Releases, of a Hazardous Substance to the Environment in form or
quantity requiring remedial action under Safety and Environmental Laws, or (v)
any Hazardous Substances present at such property, excepting such quantities as
are handled in accordance with all applicable manufacturer's instructions and
Safety and Environmental Laws and in proper storage containers, and as are
necessary for the operations of the Parent and the Parent Subsidiaries.
SECTION 4.15 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 4.15(a)(i) of the Parent Disclosure
Letter sets forth all material United States and foreign patents and patent
applications, trademark and service mark registrations and applications,
Internet domain name registrations and applications, and copyright registrations
and applications owned or licensed by the Parent, specifying as to each item, as
applicable: (A) the nature of the item, including the title; (B) the owner of
the item; (C) the jurisdictions in which the item is issued or registered or in
which an application for issuance or registration has been filed; and (D) the
issuance, registration, or application numbers and dates.
(ii) Section 4.15(a)(ii) of the Parent Disclosure
Letter sets forth all material IP Licenses under which the Parent is a licensor
or licensee or otherwise is authorized to use or practice any Intellectual
Property.
(iii) Section 4.15(a)(iii) of the Parent Disclosure
Letter sets forth and describes the status of any material Proposed Intellectual
Property Agreements.
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(b) OWNERSHIP. The Parent owns, free and clear of all Liens,
and has the unrestricted right to use, sell, or license, all Intellectual
Property set forth in Section 4.15(a)(i) and, as applicable, Section 4.15(a)(ii)
of the Parent Disclosure Letter, except for failures that, individually or in
the aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on the Parent.
(c) CLAIMS. The Parent has not been, during the three years
preceding the date of this Agreement, a party to any Claim, nor, to the
knowledge of the Company, is any Claim threatened, that challenges the validity,
enforceability, ownership, or right to use, sell, or license any Intellectual
Property owned or licensed by the Parent, except for Claims that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Parent. To the knowledge of the
Parent, no third party is infringing upon any Intellectual Property, except for
infringements that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on the
Parent.
(d) ADMINISTRATION AND ENFORCEMENT. The Parent has taken all
necessary and desirable actions to maintain and protect each item of Intellec
tual Property owned by the Parent, except for failures to take such actions
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on the Parent.
(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. The Parent has
taken all reasonable precautions to protect the secrecy, confidentiality, and
value of its trade secrets and the proprietary nature and value of the
Technology, except for failures to take such precautions that, individually or
in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Parent.
(f) SOFTWARE. All material Software is described in Section
4.15(a)(ii) of the Parent Disclosure Letter. The Software performs in
conformance with its documentation, except for failures to perform that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on the Parent.
(g) YEAR 2000 COMPLIANCE. All Systems used by the Parent are
Year 2000 Compliant and to the Parent's knowledge the systems used by the
Parent's material suppliers are Year 2000 Compliant, except in each case for
failures to be Year 2000 Compliant that, individually or in the aggregate, have
not resulted and could not reasonably be expected to result in a Material
Adverse Effect on the Parent and except as set forth in Section 4.15(g) of the
Parent Disclosure Letter.
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(h) EFFECT OF TRANSACTION. The Parent is not, nor, as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this agreement, will be, in violation of any agreement
relating to any Intellectual Property, except for violations that, individually
or in the aggregate, have not resulted and could not reasonably be expected to
result in a Material Adverse Effect on the Parent.
SECTION 4.16 TAXES. (a) Except as set forth on Section 4.16(a) of the
Parent Disclosure Letter, (i) the Parent and each Parent Subsidiary has timely
filed (after giving effect to any extensions of the time to file which were
obtained) prior to the date of this Agreement, and will file prior to the
Effective Time, all returns required to be filed prior to the date of this
Agreement and/or required to be filed prior to the Effective Time by any of them
with respect to, and has paid (or the Parent has paid on its behalf), or has or
will set up an adequate reserve for the payment of, all Taxes required to be
paid prior to the date of the Agreement or the Effective Time, as the case may
be, and the most recent financial statements contained in the Parent SEC Reports
reflect an adequate reserve for all Taxes payable by the Parent and the Parent
Subsidiaries accrued through the date of such financial statements and (ii) no
deficiencies for any Taxes have been proposed, asserted or assessed against the
Parent or any Parent Subsidiary other than those which are being contested in
good faith and by proper proceedings by the Parent, except in the case of
clauses (i) and (ii) above, any of the foregoing which do not and will not have
a Material Adverse Effect on the Parent.
(b) The Federal income tax returns of the Parent and each
Parent Subsidiary consolidated in such returns have been examined by and settled
with the IRS, or the statute of limitations with respect to such years has
expired, for all years through 1994.
(c) Except as set forth on Section 4.16(c) of the Parent
Disclosure Letter, none of the Parent, any Parent Subsidiary, or to the Parent's
knowledge, any group of which the Parent or any Parent Subsidiary is now or ever
was a member, has filed or entered into any election, consent or extension
agreement that extends any applicable statute of limitations or the time within
which a return must be filed which statute of limitations has not expired or
return has not been timely filed except, in the case of Parent Subsidiaries
organized under the laws of jurisdictions outside the United States, as has not
and could not reasonably be expected to result in a Material Adverse Effect on
the Parent.
(d) Except as set forth on Section 4.16(d) of the Parent
Disclosure Letter, (i) none of the Parent, any Parent Subsidiary or, to the
Parent's knowledge, any group of which the Parent or any Parent Subsidiary is
now or ever was a member, is a party to any action or proceeding pending or, to
the Parent's knowledge, threatened by any governmental authority for assessment
or collection of
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Taxes, (ii) no unresolved claim for assessment or collection of Taxes has, to
the Parent's knowledge, been asserted, (iii) no audit or investigation of the
Parent or any Parent Subsidiary by any governmental authority is pending or, to
the Parent's knowledge, threatened and (iv) no such matters are under discussion
with any governmental authority which, in the case of clauses (i-iv), could have
a Material Adverse Effect on the Parent.
SECTION 4.17 NON-COMPETITION AGREEMENTS. Except as set forth
in Section 4.17 of the Parent Disclosure Letter, neither the Parent nor any
Parent Subsidiary is a party to any agreement which purports to restrict or
prohibit in any material respect the Parent and the Parent Subsidiaries
collectively from, directly or indirectly, engaging in any business involving
telecommunications currently engaged in by the Parent, any Parent Subsidiary,
any other persons affiliated with the Parent, or the Company or any Company
Subsidiaries. None of the Parent's officers, directors or key employees is a
party to any agreement which, by virtue of such person's relationship with the
Parent, restricts in any material respect the Parent or any Parent Subsidiary or
affiliate of either of them from, directly or indirectly, engaging in any of the
businesses described above.
SECTION 4.18 INVESTMENT COMPANY ACT. Each of Parent and each
Parent Subsidiary either (i) is not an "investment company," or a company
"controlled" by, or an "affiliated company" with respect to, an "investment
company," within the meaning of the Investment Company Act or (ii) satisfies all
conditions for an exemption from the Investment Company Act, and, accordingly,
neither the Parent nor any Parent Subsidiary is required to be registered under
the Investment Company Act.
SECTION 4.19 OPINION OF FINANCIAL ADVISOR. Donaldson, Lufkin &
Jenrette Securities Corporation (the "PARENT FINANCIAL ADVISOR") has delivered
to the Board of Directors of the Parent its oral opinion to the effect that, as
of the date of this Agreement, the Exchange Ratio is fair to the Parent from a
financial point of view, a copy of the written opinion of which will be
delivered to the Company after receipt thereof by the Parent.
SECTION 4.20 BROKERS. No broker, finder or investment banker
other than the Parent Financial Advisor is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the other
transactions contemplated hereby based upon arrangements made by or on behalf of
the Parent or Merger Sub. The Parent has heretofore made available to the
Company a complete and correct copy of all agreements between the Parent and the
Parent Financial Advisor pursuant to which the Parent Financial Advisor would be
entitled to any payment relating to the Merger or such other transactions.
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SECTION 4.21 CERTAIN STATUTES. The Board of Directors of the
Parent has taken or will take all appropriate and necessary actions such that
the restrictions on business combinations in Section 203 of the GCL will not
have any effect on the Merger or the other transactions contemplated hereby. No
Takeover Statute is, as of the date hereof, applicable to the Merger or such
other transactions.
SECTION 4.22 INFORMATION. None of the information to be
supplied by the Parent or Merger Sub for inclusion or incorporation by reference
in the Registration Statement, the Exchange Offer Registration Statement or the
Proxy Statement will, in the case of the Registration Statement and the Exchange
Offer Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated in that Registration Statement or the
Exchange Offer Registration Statement, as the case may be, or necessary to make
the statements in the Registration Statement or the Exchange Offer Registration
Statement, as the case may be, not misleading, or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto and at
the time of the Parent Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated in that
Proxy Statement or necessary in order to make the statements in that Proxy
Statement, in light of the circumstances under which they are made, not
misleading. The Proxy Statement (except for such portions thereof that relate
only to the Company or the Company Subsidiaries or affiliates of the Company)
and the Registration Statement and the Exchange Offer Registration Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the Securities Act, respectively.
SECTION 4.23 VOTE REQUIRED. The Requisite Parent Vote is the
only vote of the holders of any class or series of the Parent's capital stock
necessary (under the rules and regulations of the American Stock Exchange, Inc.,
the Parent Charter Documents, the GCL, other applicable Law or otherwise to
approve this Agreement, the issuance of Parent Common Stock in the Merger and
the other transactions contemplated by this Agreement.
SECTION 4.24 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by this
Agreement.
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ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated
by this Agreement or with the prior written consent of the Parent, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will use its best efforts to cause each of the Company Subsidiaries to,
conduct its operations only in the ordinary course of business consistent with
past practice and will use its reasonable best efforts to, and to use its best
efforts to cause each Company Subsidiary to, preserve intact the business
organization of the Company and each of the Company Subsidiaries, to keep
available the services of the present officers and key employees of the Company
and the Company Subsidiaries, and to preserve the good will of customers,
suppliers and all other persons having business relationships with the Company
and the Company Subsidiaries. Without limiting the generality of the foregoing,
and except as otherwise contemplated by this Agreement or disclosed in Section
5.1 of the Company Disclosure Letter, prior to the Effective Time, the Company
will not, and will not permit any Company Subsidiary (or with respect to clauses
(e) and (h) below, use its best efforts not to permit any Company Subsidiary
that is not a wholly-owned Company Subsidiary) to, without the prior written
consent of the Parent:
(a) adopt any amendment to the Company Charter Documents or
the comparable organizational documents of any Company Subsidiary;
(b) except for issuances of capital stock of Company
Subsidiaries to the Company or a wholly owned Company Subsidiary, issue, reissue
or sell, or authorize the issuance, reissuance or sale of (i) additional shares
of capital stock of any class, or securities convertible into capital stock of
any class, or any rights, warrants or options to acquire any convertible
securities or capital stock, other than the issue of Company Shares, in
accordance with the terms of the instruments governing such issuance on the date
hereof, pursuant to the exercise of Company Stock Options or Company Warrants or
the conversion of Convertible Notes outstanding on the date hereof, or (ii) any
other securities in respect of, in lieu of, or in substitution for, Company
Shares outstanding on the date hereof;
(c) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock other than
between the Company and any Company Subsidiary;
(d) split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
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shares of its capital stock, or any of its other securities, except for a
redemption of the Company Preferred Shares in accordance with the terms of this
Agreement;
(e) except for (i) increases in salary, wages and benefits of
officers or employees of the Company or the Company Subsidiaries in the ordinary
course of business and in accordance with past practice, (ii) increases in
salary, wages and benefits granted to officers and employees of the Company or
the Company Subsidiaries in conjunction with new hires, promotions or other
changes in job status in the ordinary course of business and consistent with
past practices, increase the compensation or fringe benefits payable or to
become payable to its directors, officers or employees (whether from the Company
or any Company Subsidiaries), or pay any benefit not required by any existing
plan or arrangement (including the granting of stock options, stock appreciation
rights, shares of restricted stock or performance units) or grant any severance
or termination pay to (except pursuant to existing agreements, plans or
policies), or enter into any employment or severance agreement with, any
director, officer or other employee of the Company or any Company Subsidiaries
or establish, adopt, enter into, or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, savings, welfare, deferred compensation, employment, termination,
severance or other employee benefit plan, agreement, trust, fund, policy or
arrangement for the benefit or welfare of any directors, officers or current or
former employees, except in each case to the extent required by applicable Law;
PROVIDED, HOWEVER, that nothing in this Agreement will be deemed to prohibit the
payment of benefits existing on the date hereof as they become payable;
(f) except as set forth in Section 5.1(f) of the Company
Disclosure Letter, acquire, sell, lease, license, transfer, pledge, encumber,
grant or dispose of (whether by merger, consolidation, purchase, sale or
otherwise) any assets, including capital stock of Company Subsidiaries (other
than the acquisition and sale of inventory or the disposition of used or excess
equipment and the purchase of raw materials, supplies and equipment, in either
case in the ordinary course of business consistent with past practice), with a
value in excess of $100,000 or enter into any material commitment or transaction
outside the ordinary course of business, other than transactions between a
wholly owned Company Subsidiary and the Company or another wholly owned Company
Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or
incur or assume any short-term indebtedness (including, in either case, by
issuance of debt securities), except that the Company and the Company
Subsidiaries may incur, assume or prepay indebtedness in the ordinary course of
business consistent with past practice and except for loans made by the Parent
to the Company pursuant to the Bridge Loan Agreement dated as of the date hereof
between the Company and the Parent (the "BRIDGE LOAN AGREEMENT"), (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the
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obligations of any other person except in the ordinary course of business, or
(iii) make any loans, advances or capital contributions to, or investments in,
any other person except in the ordinary course of business and except for loans,
advances, capital contributions or investments between any wholly owned Company
Subsidiary and the Company or another wholly owned Company Subsidiary;
(h) terminate, cancel or request any material change in, or
agree to any material change in any Contract which is material to the Company
and the Company Subsidiaries taken as a whole, or enter into any Contract which
would be material to the Company and the Company Subsidiaries taken as a whole,
in either case other than in the ordinary course of business consistent with
past practice; or make or authorize any capital expenditure, other than capital
expenditures that are not, in the aggregate, for any fiscal year, in excess of
the capital expenditures provided for in the Company's budget for the Company
and the Company Subsidiaries taken as a whole for such fiscal year (a copy of
which budget has been provided to the Parent);
(i) take any action with respect to accounting policies or
procedures, other than actions in the ordinary course of business and consistent
with past practice or as required pursuant to applicable Law or GAAP;
(j) make any Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability; or
(k) authorize or enter into any formal or informal written or
other agreement or otherwise make any commitment to do any of the foregoing.
SECTION 5.2 CONDUCT OF BUSINESS OF THE PARENT. Except as contemplated
by this Agreement or with the prior written consent of the Company, during the
period from the date of this Agreement to the Effective Time, the Parent will,
and will use its best efforts to cause each of the Parent Subsidiaries to,
conduct its operations only in the ordinary course of business consistent with
past practice and will use its reasonable best efforts to, and to use its best
efforts to cause each Parent Subsidiary to, preserve intact the business
organization of the Parent and each of the Parent Subsidiaries, to keep
available the services of the present officers and key employees of the Parent
and the Parent Subsidiaries, and to preserve the good will of customers,
suppliers and all other persons having business relationships with the Parent
and the Parent Subsidiaries. Without limiting the generality of the foregoing,
and except as otherwise contemplated by this Agreement or disclosed in Section
5.2 of the Parent Disclosure Letter, prior to the Effective Time, the Parent
will not, and will not permit any Parent Subsidiary to, without the prior
written consent of the Company:
(a) adopt any amendment to the Parent Charter Documents;
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(b) except for dividends on the 7 1/4% Preferred Stock and pro
rata dividends set aside or paid by any Parent Subsidiary to the holders of its
equity interests, declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock other than between the Parent and
any Parent Subsidiary;
(c) split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities, except for a
redemption of shares of Parent Preferred Stock;
(d) except as set forth in Section 5.2 (d) of the Parent
Disclosure Letter, sell, lease, transfer or dispose of (whether by merger,
consolidation, purchase, sale or otherwise) all or substantially all the
Parent's and the Parent Subsidiaries' assets and properties;
(e) (i) incur, assume or prepay any long-term indebtedness or
incur or assume any short-term indebtedness (including, in either case, by
issuance of debt securities), except that the Parent and the Parent Subsidiaries
may incur, assume or prepay indebtedness in the ordinary course of business
consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business,
or (iii) make any loans, advances or capital contributions to, or investments
in, any other person except in the ordinary course of business and except for
loans, advances, capital contributions or investments between any Parent
Subsidiary and the Parent or another Parent Subsidiary; PROVIDED, HOWEVER, that
this subsection shall not prohibit the Parent from providing interim financing
to the Company or any Company Subsidiary from the date hereof until the closing
date;
(f) take any action with respect to accounting policies or
procedures, other than actions in the ordinary course of business and consistent
with past practice or as required pursuant to applicable Law or GAAP; or
(g) authorize or enter into any formal or informal written or
other agreement or otherwise make any commitment to do any of the foregoing.
SECTION 5.3 OTHER ACTIONS. During the period from the date
hereof to the Effective Time, the Company and the Parent shall not, and shall
not permit any of their respective subsidiaries to, take any action that would,
or that could reasonably be expected to, result in any of the conditions to the
Merger set forth in Article 6 hereof not being satisfied.
SECTION 5.4 UPDATED LETTERS; NOTIFICATION OF CERTAIN MATTERS. The
Parent and the Company shall each deliver, on the Closing Date, updated copies
of the
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Parent Disclosure Letter and Company Disclosure Letter, respectively, setting
forth any changes to such letters from the date hereof through the Business Day
prior to the Closing Date (it being understood and agreed that such updated
letters are being provided for information purposes only and any matters
discussed on such updated letters shall not cure any breach or default of any
representation, warranty, covenant or condition in this Agreement). The Parent
and the Company shall promptly notify each other of (a) the occurrence or
non-occurrence of any fact or event which could reasonably be expected (i) to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, (ii) to cause any material covenant, condition or agreement
hereunder not to be complied with or satisfied in all material respects or (iii)
to result in, in the case of Parent, a Material Adverse Effect on the Parent;
and, in the case of the Company, a Material Adverse Effect on the Company, (b)
any failure of the Company or the Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder in any material respect; PROVIDED, HOWEVER, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder, (c) any notice or other
material communications from any Governmental Entity in connection with the
transactions contemplated by this Agreement and (d) the commencement of any
suit, action or proceeding that seeks to prevent or seek damages in respect of,
or otherwise relates to, the consummation of the transactions contemplated by
this Agreement.
SECTION 5.5 PROXY STATEMENT, REGISTRATION STATEMENTS.
(a) As promptly as practicable after the execution of this
Agreement, (i) the Parent and the Company shall jointly prepare and file with
the SEC a single document that will constitute (A) the proxy statement of the
Company relating to the special meeting of the Company's stockholders (the
"COMPANY STOCKHOLDERS MEETING") to be held to consider approval and adoption of
this Agreement and the Merger, (B) the proxy statement of the Parent relating to
the special meeting of the Parent's stockholders (the "PARENT STOCKHOLDERS
MEETING") to be held to consider approval of the issuance of the Parent Common
Stock to be issued in the Merger, (C) the registration statement on Form S-4 of
the Parent (together with all amendments thereto, the "REGISTRATION STATEMENT"),
in connection with the registration under the Securities Act of the Parent
Common Stock to be issued to the stockholders of the Company in connection with
the Merger and the prospectus included in the Registration Statement (such
single document, together with any amendments thereof or supplements thereto,
the "PROXY STATEMENT") and (ii) the Parent shall prepare and file with the SEC
the registration statement on Form S-4 of the Parent or a shelf registration
statement on Form S-3, as the case may be (together with all amendments thereto,
the "EXCHANGE OFFER REGISTRATION STATEMENT"), providing for the offer to
exchange and consent solicitation by Parent and registration under the
Securities Act of certain of its new 10 1/2% Senior Notes due 2007 (the "NEW
PARENT NOTES") to holders
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45
of each of the Company's 14 1/2% Senior Discount Notes due 2004 (the "COMPANY
SENIOR NOTES") and Convertible Notes, which New Parent Notes will have the terms
substantially as specified in Section 5.5 of the Parent Disclosure Letter and
which exchange offer and consent solicitation will be commenced on the basis and
with the terms substantially as specified in Section 5.5 of the Parent
Disclosure Letter (the "EXCHANGE OFFER"). Substantially contemporaneously with
the filing of the Proxy Statement with the SEC, copies of the Proxy Statement
shall be provided to NASDAQ and the American Stock Exchange. The Parent and the
Company each shall use its reasonable best efforts to cause the Registration
Statement and the Exchange Offer Registration Statement to become effective as
promptly as practicable, and, prior to the effective date of the Registration
Statement (the "REGISTRATION STATEMENT EFFECTIVE DATE"), the Parent shall take
all or any action required under any applicable Law in connection with the
issuance of Parent Common Stock pursuant to the Merger. The Parent or the
Company, as the case may be, shall furnish all information concerning the Parent
or the Company as the other party may reasonably request in connection with such
actions and the preparation of the Proxy Statement, the Registration Statement
and the Exchange Offer Registration Statement. As promptly as practicable after
the Registration Statement Effective Date, the proxy statements and prospectus
included in the Proxy Statement (collectively, the "PROXY MATERIALS") will be
mailed to the stockholders of the Parent and the Company and the Exchange Offer
will be commenced. The Parent and the Company shall cause the Proxy Statement to
comply as to form and substance in all material respects with the applicable
requirements of (i) the Exchange Act, including Sections 14(a) and 14(d) thereof
and the respective regulations promulgated thereunder, (ii) the Securities Act,
(iii) the rules and regulations of the American Stock Exchange and NASDAQ and
(iv) the GCL.
(b) The Proxy Statement shall include the unanimous and
unconditional recommendation of the Board of Directors of the Company to the
stockholders of the Company that they vote in favor of the adoption of this
Agreement and the Merger; PROVIDED, HOWEVER, that the Board of Directors of the
Company may, at any time prior to the Effective Time, withdraw, modify or change
any such recommendation solely in accordance with the provisions of Section
5.8(b) hereof. In addition, the Proxy Statement and the Proxy Materials will
include a copy of the written opinions of the Company Financial Advisor and the
Parent Financial Adviser referred to in Sections 3.20 and 4.19 respectively.
(c) No amendment or supplement to the Proxy Statement will be
made without the approval of each of the Parent and the Company, which approval
shall not be unreasonably withheld or delayed.
(d) The information supplied by the Company for inclusion in
the Proxy Statement, the Registration Statement or the Exchange Offer
Registration Statement, as the case may be, shall not, at (i) the time the
Registration Statement or Exchange Offer Registration Statement is declared
effective, (ii) the time the Proxy
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46
Materials (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of each of the Parent and the Company, (iii) the time of the
Company Stockholders Meeting, (iv) the time of the Parent Stockholders Meeting
and (v) the Effective Time, contain any untrue statement of a material fact or
fail to state any material fact required to be stated in the Proxy Statement,
the Registration Statement or the Exchange Offer Registration Statement, as the
case may be, or necessary in order to make the statements in the Proxy
Statement, the Registration Statement or the Exchange Offer Registration
Statement, as the case may be, not misleading. If at any time prior to the
Effective Time any event or circumstance relating to the Company or any Company
Subsidiary, or their respective officers or directors, should be discovered by
the Company that should be set forth in an amendment or a supplement to the
Proxy Statement, the Registration Statement or the Exchange Offer Registration
Statement, the Company shall promptly inform the Parent. All documents that the
Company is responsible for filing with the SEC in connection with the
transactions contemplated hereby will comply as to form and substance in all
material respects with the applicable requirements of the GCL, the Securities
Act and the Exchange Act.
(e) The information supplied by the Parent for inclusion in
the Proxy Statement, the Registration Statement or the Exchange Offer
Registration Statement, as the case may be, shall not, at (i) the time the
Registration Statement or the Exchange Offer Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment of or supplement
to the Proxy Materials) are first mailed to the stockholders of each of the
Parent and the Company, (iii) the time of the Company Stockholders Meeting, (iv)
the time of the Parent Stockholders Meeting and (v) the Effective Time, contain
any untrue statement of a material fact or fail to state any material fact
required to be stated in the Proxy Statement, the Registration Statement or the
Exchange Offer Registration Statement, as the case may be, or necessary in order
to make the statements in the Proxy Statement, the Registration Statement or the
Exchange Offer Registration Statement, as the case may be, not misleading. If,
at any time prior to the Effective Time, any event or circumstance relating to
the Parent or any Parent Subsidiary, or their respective officers or directors,
should be discovered by the Parent that should be set forth in an amendment or a
supplement to the Proxy Statement, the Registration Statement or the Exchange
Offer Registration Statement, the Parent shall promptly inform the Company. All
documents that the Parent is responsible for filing in connection with the
transactions contemplated by this Agreement will comply as to form and substance
in all material aspects with the applicable requirements of the GCL, the
Securities Act and the Exchange Act.
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47
SECTION 5.6 STOCKHOLDERS MEETINGS.
(a) The Company shall call and hold the Company Stockholders
Meeting as promptly as practicable after the Registration Statement Effective
Date for the purpose of voting upon the adoption of this Agreement and the
Parent and the Company will cooperate with each other to cause the Company
Stockholders Meeting to be held as soon as practicable following the mailing of
the Proxy Materials to the stockholders of the Company. The Company shall use
its reasonable best efforts (through its agents or otherwise) to solicit from
its stockholders proxies in favor of the adoption of this Agreement, and shall
take all other action necessary or advisable to secure Requisite Company Vote,
except to the extent that the Board of Directors of the Company determines in
good faith that doing so would cause the Board of Directors of the Company to
breach its fiduciary duties to the Company's stockholders under applicable Law
after receipt of advice to such effect from independent legal counsel (who may
be the Company's regularly engaged independent legal counsel). In addition, the
Company shall use its reasonable best efforts to solicit, as directed by the
Parent and at the Parent's expense, acceptance of the Exchange Offer by holders
of Company Senior Notes and Convertible Notes.
(b) The Parent shall call and hold the Parent Stockholders
Meeting as promptly as practicable after the Registration Statement Effective
Date for the purpose of voting upon the approval of the issuance of the Parent
Common Stock to be issued in the Merger and the Parent and the Company will
cooperate with each other to cause the Parent Stockholders Meeting to be held as
soon as practicable following the mailing of the Proxy Materials to the
stockholders of the Parent. The Parent shall use its reasonable best efforts
(through its agents or otherwise) to solicit from its stockholders proxies in
favor of the adoption of such issuance, and shall take all other action
necessary or advisable to secure the Requisite Parent Vote. In addition, the
Parent shall use its reasonable best efforts to solicit acceptance of the
Exchange Offer by holders of Company Senior Notes and Convertible Notes.
SECTION 5.7 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required under any confidentiality agreement or
similar agreement or arrangement to which the Parent or the Company or any of
their respective subsidiaries is a party or under applicable Law or the
regulations or requirements of any securities exchange or quotation service or
other self regulatory organization with whose rules the parties are required to
comply, from the date of this Agreement to the Effective Time, the Parent and
the Company shall (and shall cause their respective subsidiaries to): (i)
provide to the other (and its officers, directors, employees, accountants,
consultants, legal counsel, financial advisors, investment bankers, agents and
other representatives (collectively, "REPRESENTATIVES")) access at reasonable
times upon prior notice to the officers, employees, agents, properties,
offices and other facilities of the other and its subsidiaries and to the books
and records
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48
thereof; and (ii) furnish promptly such information concerning the business,
properties, Contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request. No investigation conducted under this Section 5.7 shall
affect or be deemed to modify any representation or warranty made in this
Agreement.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Confidentiality Agreement, dated October, 1998 (the "CONFIDENTIALITY
AGREEMENT"), between the Parent and the Company with respect to the information
disclosed under this Section 5.7.
SECTION 5.8 NO SOLICITATION.
(a) Neither the Company nor any of the Company Subsidiar ies
shall, nor shall it or any of Company Subsidiaries authorize or permit any of
their respective directors, officers, employees, investment bankers, attorneys
or other agents or representatives, directly or indirectly to, (i) solicit,
initiate, encourage (including by way of furnishing information or assistance)
or take any other action to facilitate, any inquiry or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
acquisition or purchase of a substantial amount of assets of, or any equity
interest in, the Company or any of its Subsidiaries or any tender offer
(including a self tender offer) or exchange offer, merger, consolidation,
business combination, sale of substantially all assets, sale of securities,
recap italization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries (other than the transactions contemplated by
this Agreement) or any other material corporate transaction the consummation of
which would or could reasonably be expected to impede, interfere with, prevent
or materially delay the Merger (collectively, "TRANSACTION PROPOSALS") or agree
to or endorse any Transac tion Proposal or (ii) propose, enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other Person any information with respect to its business,
properties or assets or any of the foregoing, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other Person to do or seek any of the forego ing; PROVIDED,
HOWEVER, that the foregoing clauses (i) and (ii) shall not prohibit the Company
from, prior to the Company Stockholders Meeting (A) furnishing information
pursuant to an appropriate confidentiality letter concerning the Company and its
businesses, properties or assets to a third party which has made an unsolicited
Qualified Transaction Proposal (as defined below), (B) engaging in discussions
or negotiations with such a third party which has made an unsolicited Qualified
Transac tion Proposal or (C) following receipt of an unsolicited Qualified
Transaction Proposal, taking and disclosing to its shareholders a position with
respect to such Qualified Transaction Proposal, but in each case referred to in
the foregoing clauses (A) through (C) only after the Board of Directors of the
Company concludes in good faith, following receipt of a written opinion
addressed to
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49
the Company from outside counsel, that such action is necessary for the Board of
Directors of the Company to comply with its fiduciary obligations to
stockholders under applicable law. If the Board of Directors of the Company
receives a Transaction Proposal, then the Company shall immediately (and in any
event within 24 hours) inform Parent of the material terms and conditions of
such proposal and the identity of the person making it and shall keep the Parent
fully informed regarding any significant details or developments with respect to
any such Transaction Proposal and of all significant steps it is taking in
response to such Transaction Proposal. For purposes of this Agreement, the term
"QUALIFIED TRANSACTION PROPOSAL" shall mean a Transaction Proposal for which
financing is then fully committed or which the Board of Directors of the Company
determines in good faith after consultation with its outside financial advisors,
is reasonably capable of being financed and is not subject to any material
contingencies relating to financing. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in this Section
5.8(a) by (or at the direction of) an officer, director of or any investment
banker, attorney, accountant, agent or other advisor or representative of the
Company or any Company Subsidiary, whether or not such person is purporting to
act on behalf of the Company, and the Company Subsidiary or otherwise, shall be
deemed to be a breach of this section by the Company. The Company immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any persons conducted heretofore with respect to, or that could reasonably
be expected to lead to, any Qualified Transaction Proposal.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to Parent, the recommendation or any approval or
recommendation by the Board of Directors of the Company or any committee thereof
of this Agreement or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Qualified Transaction Proposal. Notwithstanding the
foregoing, the Board of Directors of the Company, to the extent it concludes in
good faith, following receipt of a written opinion addressed to the Company from
outside counsel, that such action is necessary for the Board of Directors of the
Company to comply with its fiduciary obligations to stockholders under
applicable law, may recommend (and, in connection therewith, withdraw or modify
its recommendation or its approval of this Agreement or the Merger) a Superior
Acquisition Proposal (as defined below); PROVIDED, THAT, neither the Company nor
the Board of Directors of the Company may in such instance terminate this
Agreement but instead the Company, at the option of the Parent, shall,
notwithstanding such withdrawal or modification of the recommendation or
approval of this Agreement or the Merger by the Company's Board of Directors
and/or the recommendation by the Company's Board of Directors that the Company's
stockholders reject this Agreement or the Merger, submit approval of this
Agreement and the Merger to a vote of the holders of Company Common Stock at the
Company Stockholders Meeting, as contemplated by this Agreement, it being
understood and agreed that, Parent, Company and Merger Sub elect this Agreement
to be governed by the provisions of Section 251(c) of the GCL. For purposes of
this Agreement,
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50
"SUPERIOR ACQUISITION PROPOSAL" means a bona fide written proposal made by a
third party to acquire the Company pursuant to a tender or exchange offer, a
merger, a share exchange, a sale of all or substantially all of its assets or
otherwise, in any such case, on terms which a majority of the members of the
Board of Directors of the Company determines in their good faith judgment (after
consultation with independent financial advisors) to be more favorable to the
Company and its stockholders than the Merger and for which financing, to the
extent required, is then fully committed or which, in the good faith judgment of
a majority of such members (after consultation with independent financial
advisors), is reasonably capable of being financed by such third party.
SECTION 5.9 AFFILIATES. Concurrently with the execution of this
Agreement, the Company is delivering to Parent (i) a letter identifying all
persons who, to the knowledge of the Company, may be deemed to be "affiliates"
of the Company under Rule 145 under the Securities Act, including, without
limitation, all directors and executive officers of the Company, and (ii) not
later than 30 days prior to the Company Stockholders Meeting copies of letter
agreements, each in the form prepared by Parent and reasonably acceptable to the
Company, executed by each such Person so identified as an "affiliate" of the
Company (the letters described in clauses (i) and (ii) being collectively
referred to as "AFFILIATE LETTERS").
SECTION 5.10 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) The Parent agrees that all rights to indemnification now
existing in favor of any employee, agent, director or officer of the Company and
the Company Subsidiaries (the "INDEMNIFIED PARTIES") as provided in their
respective charters or by-laws, in an agreement between an Indemnified Party and
the Company or one of the Company Subsidiaries, or otherwise in effect on the
date hereof shall survive the Merger and shall continue in full force and effect
for a period of not less than six years from the Effective Time; PROVIDED that
in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until final disposition of any and all such claims. The Parent
also agrees to indemnify all Indemnified Parties to the fullest extent permitted
by applicable law with respect to all acts and omissions arising out of such
individuals' services as officers, directors, employees or agents of the Company
or any of the Company Subsidiaries or as trustees or fiduciaries of any plan for
the benefit of employees, or otherwise on behalf of, the Company or any of the
Company Subsidiaries, occurring prior to the Effective Time including the
transactions contemplated by this Agreement. Without limiting of the foregoing,
in the event any such Indemnified Party is or becomes involved in any capacity
in any action, proceeding or investigation in connection with any matter,
including the transactions contemplated by this Agreement, occurring prior to,
and including, the Effective Time, the Parent will pay as incurred such
Indemnified Party's legal and other expenses
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51
(including the cost of any investigation and preparation) incurred in connection
therewith.
(b) The Parent agrees that the Company and, from and after the
Effective Time, the Surviving Corporation shall cause to be maintained in effect
for not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance 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 no less advantageous and
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
PROVIDED, FURTHER, that the Surviving Corporation shall not be required to pay
an annual premium in excess of 100% of the last annual premium paid by the
Company prior to the date hereof and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.10(b) it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
SECTION 5.11 LETTERS OF ACCOUNTANTS.
(a) The Company shall use its reasonable best efforts to cause
to be delivered to the Parent "comfort" letters of KPMG LLP ("KPMG"), the
Company's independent public accountants, dated and delivered on each applicable
Registration Statement Effective Date and as of the Effective Time, and
addressed to the Parent in form and substance reasonably satisfactory to the
Parent and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions contemplated
hereby.
(b) The Parent shall use its reasonable best efforts to cause
to be delivered to the Company "comfort" letters of KPMG, the Parent's
independent public accountants, dated and delivered on each applicable
Registration Statement Effective Date and as of the Effective Time, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions contemplated
hereby.
SECTION 5.12 REASONABLE BEST EFFORTS. Subject to the terms and
conditions provided in this Agreement and to applicable legal requirements, each
of the parties hereto agrees to use its reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, in the case of
the Company, consistent with the fiduciary duties of the Company's Board of
Directors, and to assist and cooperate with the other parties hereto in doing,
as promptly as practicable, all things necessary, proper or advisable under
applicable laws and regulations to ensure that the conditions set forth in
Article 6 are satisfied and to consummate and make effective the transactions
contemplated by this Agreement. If at any time after the Effective Time
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52
any further action is necessary or desirable to carry out the purposes of this
Agreement, including the execution of additional instruments, the proper
officers and directors of each party to this Agreement shall take all such
necessary action.
SECTION 5.13 CONSENTS; FILINGS; FURTHER ACTION.
(a) Upon the terms and subject to the conditions hereof, each
of the parties hereto shall use its reasonable best efforts to (i) take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the Merger and the other transactions contemplated
hereby, (ii) obtain from Governmental Entities any Company Governmental Consents
and Parent Governmental Consents and any other consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
the Parent or the Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and the other transactions contemplated hereby, and (iii) make all
necessary filings, and thereafter make any other submissions either required or
deemed appropriate by each of the parties, with respect to this Agreement and
the Merger and the other transactions contemplated hereby required under (A) the
Securities Act, the Exchange Act and any other applicable federal or Blue Sky
Laws, (B) the HSR Act and any applicable other foreign antitrust, anti-monopoly
or similar Laws, (C) the GCL, (D) any other applicable Law and (E) the rules and
regulations of NASDAQ, the American Stock Exchange and the Toronto Stock
Exchange. The parties hereto shall cooperate and consult with each other in
connection with the making of all such filings, including by providing copies of
all such documents to the nonfiling party and its advisors prior to filing, and
none of the parties will file any such document if any of the other parties
shall have reasonably objected to the filing of such document. No party to this
Agreement shall consent to any voluntary extension of any statutory deadline or
waiting period or to any voluntary delay of the consummation of the Merger and
the other transactions contemplated hereby at the behest of any Governmental
Entity without the consent and agreement of the other parties to this Agreement,
which consent shall not be unreasonably withheld or delayed.
(b) Without limiting the generality of Section 5.13(a), each
party hereto shall promptly inform the others of any material communication from
the Federal Trade Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority regarding any of
the transactions contemplated by this Agreement. If any party or any affiliate
thereof receives a request for additional information or documentary material
from any such government or authority with respect to the transactions
contemplated by this Agreement, then such party will endeavor in good faith to
make, or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request. The Parent will advise the
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53
Company promptly in respect of any understandings, undertakings or agreements
(oral or written) which the Parent proposes to make or enter into with the
Federal Trade Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority in connection with
the transactions contemplated by this Agreement. In furtherance and not in
limitation of the foregoing, the Parent shall use its reasonable best efforts to
resolve such objections, if any, as may be asserted with respect to the
transactions contemplated by this Agreement under any antitrust, competition or
trade regulatory laws, rules or regulations of any domestic or foreign
government or governmental authority or any multinational authority.
Notwithstanding the foregoing, nothing in this Section 5.13 shall require, or be
construed to require, the Parent or the Company, in connection with the receipt
of any regulatory approval, to proffer to, or agree to (A) sell or hold separate
and agree to sell, divest or to discontinue to or limit, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of the Parent, the Company or any of their respective affiliates (or to the
consent to any sale, or agreement to sell, or discontinuance or limitation by
the Parent or the Company, as the case may be, of any of its assets or
businesses) or (B) agree to any conditions relating to, or changes or
restriction in, the operations of any such asset or businesses which, in either
case, could reasonably be expected to result in a Material Adverse Effect on the
Parent or a Material Adverse Effect on the Company or to materially and
adversely impact the economic or business benefits to such party of the
transactions contemplated by this Agreement.
SECTION 5.14 PLAN OF REORGANIZATION. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party hereto shall use
its reasonable best efforts to cause the Merger to qualify, and will not,
without the prior written consent of the parties hereto, knowingly take any
actions or cause any actions to be taken which could prevent the Merger from
qualifying, as a reorganization under the provisions of Section 368(a) of the
Code. Following the Effective Time, and consistent with any such consent, none
of the Surviving Corporation, the Parent or any of their affiliates shall
knowingly take any action or knowingly cause any action to be taken which would
cause the Merger to fail to so qualify as a reorganization under Section 368(a)
of the Code.
SECTION 5.15 PUBLIC ANNOUNCEMENTS. The initial press release
concerning the Merger shall be a joint press release and, thereafter, the Parent
and Merger Sub and the Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or any of the transactions contemplated hereby and shall not issue any
such press release or make any such public statement prior to such consultation,
except to the extent required by applicable Law or the requirements of NASDAQ,
the American, Toronto, Berlin or Frankfurt Stock Exchanges, in which case the
issuing party shall use its
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54
reasonable best efforts to consult with the other parties before issuing any
such release or making any such public statement.
SECTION 5.16 OBLIGATIONS OF MERGER SUB. The Parent shall take
all actions necessary to cause Merger Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
SECTION 5.17 STOCK EXCHANGE LISTINGS AND DE-LISTINGS. The
Parent shall use its reasonable best efforts to cause the shares of Parent
Common Stock to be issued in the Merger to be approved for listing on the
American Stock Exchange, subject to official notice of issuance, prior to the
Effective Time. The parties shall use their reasonable best efforts to cause the
Surviving Corporation to cause the Company Common Stock to be de-listed from
NASDAQ and the Toronto, Berlin and Frankfurt Stock Exchanges and de-registered
under the Exchange Act as soon as practicable following the Effective Time.
SECTION 5.18 EXPENSES. Except as otherwise provided in Section
7.5(b), whether or not the Merger is consummated, all Expenses incurred in
connection with this Agreement and the Merger and the other transactions
contemplated hereby shall be paid by the party incurring such Expense, except
that Expenses incurred in connection with the filing fee for the Proxy Statement
and printing and mailing the Proxy Materials and the filing fee under the HSR
Act shall be shared equally by the Parent and the Company.
SECTION 5.19 TAKEOVER STATUTES. If any Takeover Statute is or
may become applicable to the Merger or the other transactions contemplated
hereby, each of the Parent and the Company and its board of directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
SECTION 5.20 BOARD OF DIRECTORS. Parent shall take such action
as is required to expand the size of its Board of Directors to eleven (11)
members and to cause the designation of two persons specified by the Company
(one of which shall be designated by News America Incorporated) in writing prior
to the Effective Time to fill such vacancies.
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55
ARTICLE 6
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
Closing Date is subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and consummation of
the Merger shall have been duly approved by holders of outstanding Company
Shares by the Requisite Company Vote and shall have been duly approved by the
Parent as sole stockholder of Merger Sub, and the issuance of Parent Common
Stock in the Merger shall have been duly approved by the holders of outstanding
shares of Parent Common Stock by the Requisite Parent Vote.
(b) LISTING. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement shall have been authorized for
listing on the American Stock Exchange upon official notice of issuance.
(c) GOVERNMENTAL CONSENTS. The waiting period applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated and other than the filing provided for in Section 1.3, all notices,
reports and other filings required to be made prior to the Effective Time by the
Company or the Parent or any of their respective subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by, the Company or the Parent or any of
their respective subsidiaries from, any Governmental Entity in connection with
the execution and delivery of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby (including, without limitation,
all Company Governmental Consents and Parent Governmental Consents) shall have
been made or obtained (as the case may be) upon terms and conditions that could
not reasonably be expected to result in Material Adverse Effect on the Parent or
a Material Adverse Effect on the Company.
(d) LITIGATION. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law, order injunction or decree (whether temporary, preliminary or permanent)
that is in effect and restrains, enjoins or otherwise prohibits consummation of
the Merger or the other transactions contemplated hereby or that, individually
or in the aggregate with all other such Laws, orders injunctions or decrees,
could reasonably be expected to result in a Material Adverse Effect on the
Parent or a Material Adverse Effect on the Company, and no Governmental Entity
shall have instituted any proceeding or
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56
threatened to institute any proceeding seeking any such Law, order injunction or
decree.
(e) REGISTRATION STATEMENTS. The Registration Statement and
the Exchange Offer Registration Statement shall have become effective under the
Securities Act. No stop order suspending the effectiveness of such registration
statements shall have been issued, and no proceedings for that purpose shall
have been initiated or be threatened by the SEC.
(f) ACCOUNTANTS' LETTERS. The Parent and the Company shall
have received the "comfort" letters described in Section 5.11.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE PARENT AND MERGER SUB.
The obligations of each of the Parent and Merger Sub to effect the Merger and
consummate the other transactions contemplated hereby to be consummated on the
Closing Date are also subject to the satisfaction or waiver by the Parent at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
the Company set forth in this Agreement that are not so qualified shall be true
and correct in all material respects, in each case as of the date of this
Agreement and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and the Parent shall have received a certificate
(which certificate may be qualified by knowledge to the same extent as the
representations and warranties of the Company contained in this Agreement are so
qualified) signed on behalf of the Company by an executive officer of the
Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and the
Parent shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on the Company, and the Parent
shall have received a certificate of an executive officer of the Company to such
effect.
(d) CONSENTS UNDER AGREEMENTS. The Company shall have obtained
the Company Required Consents and the consent, approval or waiver of each person
whose consent, approval or waiver shall be required in order to consummate the
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57
transactions contemplated by this Agreement, except those for which the failure
to obtain such consent, approval or waiver, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect on the
Company.
(e) AFFILIATE LETTERS. The Parent shall have received the
Affiliate Letters referred to in Section 5.9 hereof.
(f) THE TRAVELERS REVOLVING CREDIT NOTE AND WARRANT AGREEMENT.
The Parent and the Company shall have consummated the transactions contemplated
by the Note and Warrant Modification Agreement dated as of the date hereof, with
each of The Travelers Insurance Company and The Travelers Indemnity Company, a
copy of which is attached as Exhibit B hereto, in accordance with the terms of
such Agreement.
(g) EXCHANGE OFFER. At least 95% in aggregate principal amount
of each of the Senior Company Notes and the Convertible Notes shall have
properly and validly tendered and not withdrawn their Company Senior Notes and
Convertible Notes, respectively, and consented to the consent solicitation, in
each case in accordance with the terms of the Agreement to Exchange and Consent,
a copy of which is attached as Exhibit C hereto.
(h) TECHNOCOM LIMITED PUT/CALL AGREEMENTS. The Parent and the
Company shall have consummated the purchase of the shares of Technocom Limited
in accordance with each of the Elite Option Modification Agreement and the
Plicom Option Modification Agreement, each dated the date hereof, with each of
Elite International Limited and Plicom Limited, copies of which are attached
hereto as Exhibits D-1 and D-2.
(i) NEWS ARRANGEMENTS. The Parent and News America
Incorporated ("NEWS") shall have consummated the transactions contemplated by
the News Letter Agreement dated as of the date hereof with News, a copy of which
is attached as Exhibit E hereto, in accordance with the terms of such Letter
Agreement, and News shall have received (i) the full proceeds of the repayment
of the Loans (as defined in the News Letter Agreement) and interest thereon to
and including the date of repayment, as specified in the News Letter Agreement,
and (ii) written releases in form and substance satisfactory to News in respect
of the Guarantees (as defined in the News Letter Agreement) and all obligations
thereunder.
(j) CERTAIN PAYMENTS. Each of the officers and other employees
listed in Section 6.2 of the Company Disclosure Letter shall have agreed to (i)
waive the acceleration of any amounts due as a result of the Merger under the
relevant employment or other compensation agreement that such person is a party
to with the Company or a Company Subsidiary as specified in Section 6.2 of the
Company Disclosure Letter and (ii) waive the acceleration of any unvested
Company
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58
Stock Options at the Effective Time which would otherwise accelerate as a result
of the consummation of the Merger, in each case in a manner reasonably
satisfactory to the Parent.
SECTION 6.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger and consummate the other transactions
contemplated hereby to be consummated on the Closing Date is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the Parent and Merger Sub set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of the Parent and Merger Sub set forth in this
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date, as though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another date,
and the Company shall have received a certificate (which certificate may be
qualified by knowledge to the same extent as the representations and warranties
of each of the Parent and Merger Sub contained in this Agreement are so
qualified) signed on behalf of each of the Parent and Merger Sub by an executive
officer of the Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE PARENT AND MERGER SUB.
Each of the Parent and Merger Sub shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate signed on
behalf of the Parent and Merger Sub by an executive officer of the Parent to
such effect.
(c) TAX OPINION. The Company shall have received the opinion
of Morgan, Lewis & Bockius, LLP, counsel to the Company, dated the Closing Date,
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code.
(d) MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on the Parent, and the Company
shall have received a certificate of an executive officer of the Parent to such
effect.
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59
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, notwithstanding
any requisite approval and adoption of this Agreement, as follows:
(a) by mutual written consent of the Parent and the Company
duly authorized by their respective boards of directors;
(b) by either the Parent or the Company, if the Effective Time
shall not have occurred on or before October 31, 1999; PROVIDED, HOWEVER, that
(i) the right to terminate this Agreement under this Section 7.1(b) shall not be
available to the party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; and (ii) if the applicable
federal or foreign antitrust authority shall seek an order, injunction or decree
with respect to the legality of the Merger under applicable antitrust Laws, this
Agreement may be extended prior to the termination hereof by written notice of
either the Parent or the Company to the other to the date that is 30 days
following the date on which a ruling with respect to such an order injunction or
decree is entered by a trial court or administrative body;
(c) by either the Parent or the Company, if any order
injunction or decree preventing the consummation of the Merger shall have been
entered by any court of competent jurisdiction or Governmental Entity and shall
have become final and nonappealable;
(d) by the Parent, if (i) the Board of Directors of the
Company withdraws, modifies or changes its approval or recommendation of this
Agreement in a manner adverse to the Parent or shall have resolved to do so,
(ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company a Transaction Proposal or shall have resolved to do
so or the Company shall have entered into an agreement with respect to a
Qualified Transaction Proposal, or (iii) a tender offer or exchange offer for
any outstanding shares of capital stock of the Company is commenced and the
Board of Directors of the Company fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange offer
by its stockholders);
(e) by the Parent or the Company, if this Agreement shall fail
to receive the requisite vote for adoption at either the Company Stockholders
Meeting or the Parent Stockholders Meeting or any adjournment or postponement
thereof;
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60
(f) by the Parent, upon a breach of any material
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of the Company
shall have become untrue, in either case such that the conditions set forth in
either of Section 6.2(a) or 6.2(b) would not be satisfied (a "TERMINATING
COMPANY BREACH"); PROVIDED, HOWEVER, that, if such Terminating Company Breach is
curable by the Company through the exercise of its reasonable best efforts and
for so long as the Company continues to exercise such reasonable best efforts,
the Parent may not terminate this Agreement under this Section 7.1(f);
(g) by the Company, upon breach of any material
representation, warranty, covenant or agreement on the part of the Parent set
forth in this Agreement, or if any representation or warranty of the Parent
shall have become untrue, in either case such that the conditions set forth in
either of Section 6.3(a) or 6.3(b) would not be satisfied (a "TERMINATING PARENT
BREACH"); PROVIDED, HOWEVER, that, if such Terminating Parent Breach is curable
by the Parent through its reasonable best efforts and for so long as the Parent
continues to exercise such reasonable best efforts, the Company may not
terminate this Agreement under this Section 7.1(g); or
(h) by the Company in the manner specified in Section
2.1(a)(i)(D).
SECTION 7.2 EFFECT OF TERMINATION. Except as provided in Section 8.2,
in the event of termination of this Agreement pursuant to Section 7.1, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of the Parent, Merger Sub or the Company or any of their
respective Representatives, and all rights and obligations of each party hereto
shall cease, subject to the remedies of the parties set forth in Sections 7.5(b)
and (c); PROVIDED, HOWEVER, that nothing in this Agreement shall relieve any
party from liability for the wilful breach of any of its representations and
warranties or the breach of any of its covenants or agreements set forth in this
Agreement which shall survive any such termination.
SECTION 7.3 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 that, after the approval of
this Agreement by the stockholders of the Company, no amendment may be made that
would reduce the amount or change the type of consideration into which each
Company Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
SECTION 7.4 WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and
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61
warranties contained in this Agreement or in any document delivered pursuant
hereto, and (c) waive compliance with any agreement or condition contained in
this Agreement. Any waiver of a condition set forth in Section 6.1, or any
determination that such a condition has been satisfied, will be effective only
if made in writing by each of the Company and the Parent and, unless otherwise
specified in such writing, shall thereafter operate as a waiver (or
satisfaction) of such conditions for any and all purposes of this Agreement. 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.
SECTION 7.5 EXPENSES FOLLOWING TERMINATION.
(a) Except as set forth in this Section 7.5, all Expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid in accordance with the provisions of Section 5.18. For
purposes of this Agreement, "EXPENSES" consist of all out-of-pocket expenses
(including, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Proxy Statement and/or the
Proxy Materials (as the case may be), the solicitation of stockholder approvals
and all other matters related to the closing of the transactions contemplated
hereby.
(b) The Company agrees that, if (i) the Parent shall terminate
this Agreement pursuant to Section 7.1(d), (ii) (A) Parent shall terminate this
Agreement pursuant to Section 7.1(e) due to the failure to obtain the approval
of the Company's stockholders at the Company Stockholders Meeting and (B) at the
time of such failure, any person shall have made a public announcement or
otherwise communicated to the Company and its stockholders with respect to a
Transaction Proposal with respect to the Company, or (iii) the Parent shall
terminate this Agreement pursuant to Section 7.1(f) and such termination is the
result of a material breach of any representation, warranty, covenant or
agreement contained herein and if at such time the agreement is solely
terminable for any or all such reasons, then in accordance with Section 7.5(c),
after such termination, or in the case of clause (ii) after the consummation of
such Transaction Proposal, the Company shall pay to Parent an amount equal to
Parent's documented Expenses in connection with this Agreement and the
transactions contemplated hereby (not to exceed $1 million) and a termination
fee in the amount of $6,250,000 (collectively, such Expenses and such fee, the
"TERMINATION AMOUNT"), which Termination Amount shall be exclusive of any
Expenses paid pursuant to Section 5.18. The Parent agrees that if the Company
shall terminate this Agreement (i) pursuant to Section 7.1(e) due to the failure
to obtain the approval of the Parent's Stockholders at the Parent Stockholders
Meeting or (ii) pursuant to Section 7.1(g) and such termination is the result of
a material breach of any representation, warranty, covenant or agreement
contained herein, and if at such time the Agreement is terminable solely for
either or both such reasons, then the Parent shall pay to the
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62
Company an amount equal to the Company's documented, out-of-pocket expenses (not
to exceed $500,000) incurred in connection with this Agreement and the
transactions contemplated hereby.
(c) Any payment required to be made pursuant to Section 7.5(b)
shall be made to the Parent by the Company, or by the Company to the Parent, as
applicable, not later than two Business Days after delivery to the Company by
the Parent of notice of demand for payment and shall be made by wire transfer of
immediately available funds to an account designated by the Parent.
(d) The Company acknowledges that the agreements contained in
this Section 7.5 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the Parent would not enter into
this Agreement; accordingly, if the Company fails to pay promptly the
Termination Amount, and, in order to obtain such payment, the Parent commences a
suit which results in a judgment against the Company for the Termination Amount,
the Company shall pay the Parent's Expenses in connection with such suit,
together with interest on the amount of the Termination Amount at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required to
be made.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) The term "AFFILIATE," as applied to any person, means any
other person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
(b) The term "BUSINESS DAY" means any day, other than
Saturday, Sunday or a federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight Eastern time. In computing any time period
under this Agreement, the date of the event which begins the running of such
time period shall be included EXCEPT that if such event occurs on other than a
business day such period shall begin to run on and shall include the first
business day thereafter.
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63
(c) The term "INCLUDING" means, unless the context clearly
requires otherwise, including but not limited to the things or matters named or
listed after that term.
(d) The term "PERSON" shall include individuals, corporations,
limited and general partnerships, trusts, limited liability companies,
associations, joint ventures, Governmental Entities and other entities and
groups (which term shall include a "GROUP" as such term is defined in Section
13(d)(3) of the Exchange Act).
(e) The term "SUBSIDIARY" or "SUBSIDIARIES" means, with
respect to the Parent, the Company or any other person, any entity of which the
Parent, the Company or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
stock or other equity interests the holders of which are generally entitled to
more than 50% of the vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 8.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties and agreements in this Agreement and in any
certificate delivered under this Agreement shall terminate at the Effective Time
or upon the termination of this Agreement under Section 7.1, as the case may be,
except that the agreements set forth in Articles 1 and 2 and Sections 5.10, 5.18
and 5.20 and this Article 8 shall survive the Effective Time, those set forth in
Sec tions 5.7(b), 5.18, 7.2 and 7.5 and this Article 8 shall survive termination
of this Agreement. Each party agrees that, except for the representations and
warranties contained in this Agreement, the Company Disclosure Letter and the
Parent Disclosure Letter, no party to this Agreement has made any other
representations and warranties, and each party disclaims any other
representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
Representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated by this Agreement, notwithstanding the
delivery of disclosure to any other party or any party's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
SECTION 8.3 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
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64
SECTION 8.4 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES, EXCEPT THAT DELAWARE LAW SHALL APPLY TO THE EXTENT REQUIRED IN
CONNECTION WITH THE EFFECTUATION OF THE MERGER. The parties irrevocably submit
to the jurisdiction of the federal courts of the United States of America
located in the State of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated by this
Agreement and by those documents, and hereby waive, and agree not to assert, as
a defense in any action, suit or proceeding for the interpretation or
enforcement of this Agreement or of any such document, that it is not subject to
this Agreement or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a federal court.
The parties hereby consent to and grant any such court jurisdiction over the
person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.5 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDI
TIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARIS ING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSAC TIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 8.4.
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65
SECTION 8.5 NOTICES. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile:
IF TO THE PARENT OR MERGER SUB:
Metromedia International Group, Inc.
One Meadowlands Plaza
East Rutherford, NJ 07073-2137
Attention: Arnold L. Wadler, Esq.
Fax: (201) 531-2803
WITH COPIES TO:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Douglas A. Cifu, Esq.
Fax: (212) 757-3990
IF TO THE COMPANY:
PLD Telekom, Inc.
505 Park Avenue, 21st Floor
New York, NY 10022
Attention: General Counsel
Fax: (212) 527-3995
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
SECTION 8.6 ENTIRE AGREEMENT. This Agreement (including any
exhibits and annexes to this Agreement), the Company Disclosure Letter and the
Parent Disclosure Letter constitute the entire agreement and supersede all other
prior agreements, understandings, representations and warranties, both written
and oral, among the parties, with respect to the subject matter of this
Agreement.
SECTION 8.7 NO THIRD PARTY BENEFICIARIES. This Agreement is
not intended to confer upon any person other than the parties to this Agreement
any rights or remedies under this Agreement.
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66
SECTION 8.8 OBLIGATIONS OF THE PARENT AND OF THE COMPANY.
Whenever this Agreement requires a Parent Subsidiary to take any action, that
requirement shall be deemed to include an undertaking on the part of the Parent
to cause that Parent Subsidiary to take that action if it is a wholly-owned
Subsidiary or use its best efforts to cause the Subsidiary to take that action
if it is not a wholly-owned Subsidiary. Whenever this Agreement requires a
Company Subsidiary to take any action, that requirement shall be deemed to
include an undertaking on the part of the Company to cause that Company
Subsidiary to take that action and, after the Effective Time, on the part of the
Surviving Corporation to cause that Company Subsidiary to take that action if it
is a wholly-owned Subsidiary or use its best efforts to cause the Subsidiary to
take that action if it is not a wholly-owned Subsidiary.
SECTION 8.9 SEVERABILITY. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability or the other
provisions of this Agreement. If any provision of this Agreement, or the
application of that provision to any person or any circumstance, is invalid or
unenforceable, (a) a suitable and equitable provision shall be substituted for
that provision in order to carry out, so far as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable provision and (b) the
remainder of this Agreement and the application of the provision to other
persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of the provision, or the application of that
provision, in any other jurisdiction.
SECTION 8.10 INTERPRETATION. The table of contents and
headings in this Agreement are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or otherwise
affect any of the provisions of this Agreement. Where a reference in this
Agreement is made to a section, exhibit or annex, that reference shall be to a
section of or exhibit or annex to this Agreement unless otherwise indicated.
Wherever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 8.11 ASSIGNMENT. This Agreement shall not be
assignable by operation of law or otherwise, except that the Parent may
designate, by written notice to the Company, another Parent Subsidiary that is
wholly owned directly or indirectly by the Parent to be merged with and into the
Company in lieu of Merger Sub, in which event all references in this Agreement
to Merger Sub shall be deemed references to such other Parent Subsidiary, and in
that case, all representations and warranties made in this Agreement with
respect to Merger Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other Parent Subsidiary
as of the date of such designation.
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67
SECTION 8.12 SPECIFIC PERFORMANCE. The parties to this
Agreement agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise reached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are entitled at law or
in equity.
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68
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties to this Agreement as of
the date first written above.
PLD TELEKOM, INC.
By: /s/ James R.S. Hatt
------------------------------------
Name: James R.S. Hatt
Title: Chairman, President and Chief
Executive Officer
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ Silvia Kessel
------------------------------------
Name: Silvia Kessel
Title: Chief Financial Officer, Executive
Vice President, Treasurer and
Director
MOSCOW COMMUNICATIONS, INC.
By: /s/ Silvia Kessel
------------------------------------
Name: Silvia Kessel
Title: Vice President and Treasurer
<PAGE>
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
APPENDIX B
May 18, 1999
The Board of Directors
PLD Telekom Inc.
505 Park Avenue
New York, New York 10022
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of PLD Telekom Inc. ("PLD") of the
Exchange Ratio (defined below) provided for in the Agreement and Plan of Merger,
dated as of May 18, 1999 (the "Merger Agreement"), among PLD, Metromedia
International Group, Inc. ("Metromedia") and Moscow Communications, Inc., a
wholly owned subsidiary of Metromedia ("Merger Sub"). As more fully described in
the Agreement, Merger Sub will be merged with and into PLD (the "Merger") and
each outstanding share of the common stock, par value $0.01 per share, of PLD
(the "PLD Common Stock") will be converted into the right to receive that number
of shares of the common stock, par value $1.00 per share, of Metromedia (the
"Metromedia Common Stock") determined as follows (the number of shares of
Metromedia Common Stock into which shares of PLD Common Stock will be so
converted, the "Exchange Ratio"): (i) if the average of the daily closing prices
of Metromedia Common Stock as reported on the American Stock Exchange Composite
Transactions Tape for the 20 consecutive trading days ending on and including
the third business day immediately prior to PLD's stockholders' meeting in
respect of the Merger (the "Average Metromedia Stock Price") is less than $6.25
and equal to or greater than $5.25, then the Exchange Ratio will be equal to the
quotient obtained by dividing (x) $3.50 by (y) the Average Metromedia Stock
Price; (ii) if the Average Metromedia Stock Price is equal to or greater than
$6.25 and less than or equal to $8.00, then the Exchange Ratio will be 0.56;
(iii) if the Average Metromedia Stock Price is greater than $8.00, then the
Exchange Ratio will be equal to the quotient obtained by dividing (x) $4.48 by
(y) the Average Metromedia Stock Price; or (iv) if the Average Metromedia Stock
Price is less than $5.25, then the Exchange Ratio will be 0.6667, subject to
certain top-up and termination rights specified in the Merger Agreement.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of PLD and certain senior officers and other representatives and
advisors of Metromedia concerning the businesses, operations and prospects of
PLD and Metromedia. We examined certain publicly available business and
financial information relating to PLD and Metromedia as well as certain
financial forecasts and other information and data for PLD and Metromedia which
were provided to or otherwise discussed with us by the respective managements of
PLD and Metromedia, including information relating to certain strategic
implications and operational benefits anticipated to result from the Merger. We
reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of the PLD Common Stock and Metromedia Common Stock; the
financial condition and historical and projected earnings and other operating
data of PLD and Metromedia, including the near-term liquidity needs of, and
capital resources available to, PLD; and the capitalization of PLD and
Metromedia. We considered, to the extent publicly available, the financial terms
of other transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of PLD and
Metromedia. We also evaluated the potential pro forma financial impact of the
Merger on Metromedia. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
B-1
<PAGE>
The Board of Directors
PLD Telekom Inc.
May 18, 1999
Page 2
advised by the managements of PLD and Metromedia that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of PLD and
Metromedia as to the future financial performance of PLD and Metromedia and the
strategic implications and operational benefits anticipated to result from the
Merger. We have assumed, with your consent, that the Merger will be treated as a
tax-free reorganization for federal income tax purposes. Our opinion, as set
forth herein, relates to the relative values of PLD and Metromedia. We are not
expressing any opinion as to what the value of the Metromedia Common Stock
actually will be when issued to PLD stockholders pursuant to the Merger or the
price at which the Metromedia Common Stock will trade subsequent to the Merger.
We have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of PLD or Metromedia nor
have we made any physical inspection of the properties or assets of PLD or
Metromedia. In connection with our opinion, we were not requested to, and we did
not, solicit third party indications of interest in the possible acquisition of
all or a part of PLD. We express no view as to, and our opinion does not
address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for PLD or the effect of any other
transaction in which PLD might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to PLD in
connection with the proposed Merger and will receive a fee for such services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. We and our
affiliates have in the past provided financial services, including investment
banking services and financing, to PLD unrelated to the proposed Merger, for
which services we and our affiliates have received compensation. As you are
aware, the Revolving Credit Agreement dated November 26, 1997 between certain of
our affiliates and PLD will be restructured in connection with the Merger, a
portion of the outstanding amount of which will be repaid and a portion of which
will be exchanged into shares of PLD Common Stock (which will subsequently be
converted in the Merger into shares of Metromedia Common Stock) and warrants to
purchase shares of Metromedia Common Stock. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of PLD
and Metromedia for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with PLD, Metromedia and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of PLD in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of PLD Common Stock.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
B-2
<PAGE>
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE]
APPENDIX C
May 16, 1999
Board of Directors
Metromedia International Group, Inc.
One Meadowlands Plaza
East Rutherford, New Jersey 07073
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Metromedia International Group, Inc. (the "Company") of the Exchange
Ratio (as defined below) pursuant to the terms of the Agreement and Plan of
Merger, to be dated as of May 18, 1999 (the "Agreement"), by and among the
Company, PLD Telekom, Inc. ("PLD") and Moscow Communications, Inc., a wholly
owned subsidiary of the Company ("Merger Sub"), pursuant to which Merger Sub
will be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each share (a "PLD Share") of the common stock,
par value $.01 per share, of PLD (the "PLD Common Stock"), issued and
outstanding immediately prior to the effective time of the Merger (other than
PLD Common Stock owned by the Company, Merger Sub, or any other subsidiary of
the Company, PLD or any subsidiary of PLD and, in each case, not held on behalf
of third parties) shall be converted into the right to receive and become
exchangeable for a number of shares of common stock, par value $1.00 per share,
of the Company (the "Company Common Stock"), equal to the exchange ratio
determined in the manner set forth below (such exchange ratio, excluding any
Topped-Up Exchange Ratio (as defined below, and as to which we express no
opinion), the "Exchange Ratio"):
(A) If the Average Company Stock Price (as defined below) is less than $6.25
and equal to or greater than $5.25, then the Exchange Ratio shall be
equal to the quotient (rounded to four decimal points) obtained by
dividing (i) 3.50 by (ii) the Average Company Stock Price;
(B) If the Average Company Stock Price is equal to or greater than $6.25 and
less than or equal to $8.00, then the Exchange Ratio shall be 0.56;
(C) If the Average Company Stock Price is greater than $8.00, then the
Exchange Ratio shall be equal to the quotient (rounded to four decimal
points) obtained by dividing (x) $4.48 by (y) the Average Company Stock
Price; or
(D) If the Average Company Stock Price is less than $5.25, then the Exchange
Ratio shall be 0.6667.
Under the Agreement, if the Average Company Stock Price is less than $5.25,
PLD will have the right to request that the Exchange Ratio be increased to equal
the quotient (rounded to four decimal points) obtained by dividing (x) 3.50 by
(y) the Average Company Stock Price (the "Topped-Up Exchange Ratio"); provided
that if the Average Company Stock Price is less than $4.00, then PLD will have
the right to terminate the Agreement. If the Company does not agree to increase
the Exchange Ratio to the Topped-Up Exchange Ratio, PLD shall either (i) agree
that the Exchange Ratio shall be 0.6667 or (ii) terminate the Agreement.
The "Average Company Stock Price" means the average of the daily closing
prices of Company Common Stock as reported on the American Stock Exchange
Composite Transactions Tape (as reported in THE WALL STREET JOURNAL (national
edition)) for the twenty (20) consecutive trading days ending on the third
business day (including such third business day in the determination)
immediately prior to the special meeting of PLD's stockholders to be held to
consider approval and adoption of the Agreement and the Merger.
<PAGE>
Metromedia International Group, Inc.
May 16, 1999 Page 2
In arriving at our opinion, we have reviewed, among other things, the draft
dated May 13, 1999 of the Agreement and the exhibits thereto. We have also
reviewed financial and other information that was publicly available or
furnished to us by the Company and PLD including information provided during
discussions with their respective management. Included in the information
provided during discussions with the respective managements were certain
financial projections of PLD for the period beginning January 1, 1999 and ending
December 31, 2003 prepared by the management of PLD and certain financial
projections of the Company for the period beginning January 1, 1999 and ending
December 31, 2003 prepared by the management of the Company. In addition, we
have compared certain financial and securities data of the Company and PLD with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices of Company Common Stock and PLD Common Stock and
conducted such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion. In addition to the above, in arriving
at our opinion, we have assumed that (i) the restructuring transaction with
respect to PLD's 14.0% Senior Discount Notes due 2004 and 9% Convertible
Subordinated Notes due 2006 will be consummated in accordance with that certain
Agreement to Exchange and Consent, to be dated the date of the Agreement and
included as an exhibit to the Agreement; (ii) the restructuring with respect to
The Travelers Insurance Company's and The Travelers Indemnity Company's
Revolving Credit Note and Warrant Agreement will be consummated in accordance
with that certain Note and Warrant Modification Agreement, to be dated the date
of the Agreement and included as an exhibit to the Agreement; (iii) the purchase
of the shares of Technocom Limited will be consummated in accordance with each
of the Elite Option Modification Agreement and the Plicom Option Modification
Agreement, each to be dated the date of the Agreement and included as an exhibit
to the Agreement; and (iv) the repayment of the revolving credit facility with
News America Incorporated in accordance with the News Letter Agreement, to be
dated the date of the Agreement and included as an exhibit to the Agreement.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company, PLD or their
respective representatives, or that was otherwise reviewed by us. With respect
to the financial projections supplied to us, we have relied on representations
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company and
PLD as to the future operating and financial performance of the Company and PLD,
respectively. We have not assumed any responsibility for making any independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have relied as to
certain legal matters on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion as a result of changes in these conditions or
otherwise. We are expressing no opinion as to the prices at which the Company
Common Stock will actually trade at any time. Our opinion does not address the
relative merits of the Merger and the other business strategies being considered
by the Company's Board of Directors (the "Board"), nor does it address the
Board's decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services, including (i) rendering an opinion in June 1997 as the
fairness from a financial point of view to the Company of the Company's sale of
certain of the Company's entertainment assets to P&F Acquisition Corp. for
<PAGE>
Metromedia International Group, Inc.
May 16, 1999 Page 3
which we received usual and customary compensation and (ii) acting as lead
manager in the Company's September 1997 public offering of its 7.25% Cumulative
Convertible Preferred Stock for which we received usual and customary
underwriters compensation.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ WARREN C. WOO
--------------------------------------------------------------------
Warren C. Woo
Managing Director
<PAGE>
VOTING FORM
METROMEDIA INTERNATIONAL GROUP, INC.
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON SEPTEMBER 30, 1999.
The undersigned hereby appoints Arnold L. Wadler and Silvia Kessel, or any
of them, each with full power of substitution, as proxies or proxy of the
undersigned and hereby authorizes them to represent and vote as designated below
all shares of Common Stock, par value $1.00 per share, of Metromedia
International Group, Inc. (the "Corporation") held of record by the undersigned
at the close of business on August 12, 1999 at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on September 30, 1999 at 1285
Avenue of the Americas, New York, New York 10019, or any adjournment or
postponement thereof, and, in their discretion, upon all matters incident to the
conduct of the Annual Meeting and such other matters as may properly be brought
before the Annual Meeting.
This signed Voting Form revokes all proxies previously given by the
undersigned to vote at the Annual Meeting of Stockholders or any adjournment or
postponement thereof. The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting of Stockholders and the Joint Proxy Statement/ Prospectus
relating to the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSALS SET
FORTH BELOW UNDER ITEMS 1-3.
1. PROPOSAL ONE. Approval of the merger of Moscow Communications, Inc., a
Delaware corporation ("Merger Sub"), with and into PLD Telekom Inc., a Delaware
corporation, and adoption of an Agreement and Plan of Merger, dated as of May
18, 1999, among the Corporation, Merger Sub and PLD Telekom, Inc. (check one
box)
/ / FOR / / AGAINST / / ABSTAIN
2. PROPOSAL TWO.
Election of Directors For the nominees listed below) WITHHOLD AUTHORITY
/ / to vote for
nominees listed
below / /
Nominees: John P. Imlay, Jr., John W. Kluge, Stuart Subotnick (For, except vote
withheld from the following nominees:
- --------------------------------------------------------------------------------
(CONTINUED ON REVERSE SIDE)
<PAGE>
3. PROPOSAL THREE. Ratification of the selection of KPMG LLP as the
Corporation's independent auditors for the fiscal year ending December 31, 1999.
(check one box)
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE FOLLOWING PROPOSAL.
4. PROPOSAL FOUR. Approval and adoption of an amendment to the Corporation's
certificate of incorporation to permit stockholders to take action by written
consent and to call special meetings. (check one box)
/ / FOR / / AGAINST / / ABSTAIN
WHEN PROPERLY EXECUTED, THIS VOTING FORM WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS VOTING FORM WILL BE VOTED FOR PROPOSALS ONE, TWO AND
THREE AND AGAINST PROPOSAL FOUR. PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
Dated ______________________________, 1999
__________________________________________
__________________________________________
Signature
__________________________________________
Signature, if held jointly
Please sign exactly as your name appears
on this Voting Form. If shares are
registered in more than one name, the
signatures of all such persons are
required. A corporation should sign in its
full corporate name by a duly authorized
officer, stating such officer's title.
Trustees, guardians, executors and
administrators should sign in their
official capacity giving their full title
as such. A partnership should sign in the
partnership name by an authorized person,
stating such person's title and
relationship to the partnership.
PLEASE COMPLETE, DATE, SIGN AND RETURN
THIS VOTING FORM PROMPTLY, USING THE
ENCLOSED ENVELOPE.
